<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                       ----------------------------------

                                  FORM 10-QSB


/X/             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the Quarterly Period Ended June 30, 2001

                                       OR

/ /            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from _____________________ to _____________________


                         Commission file number 0-22271

                               CFI MORTGAGE INC.
             (Exact name of registrant as specified in its charter)

               Delaware                                          65-0127741
    (State of other jurisdiction of                           (I.R.S. Employer
    incorporation or organization)                           Identification No.)

    601 Cleveland Street, Suite 500
          Clearwater Florida                                        33755
(Address of principal executive office)                          (zip code)


        Registrant's telephone number, including area code: 727-674-1010

                                 Not Applicable
     (Former name, former address and former fiscal year, if changed since
                                  last report)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No


             31,831,780 shares, $.01 par value, as of June 30, 2001

(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)


                                      F-1
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                       CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 30, 2001
                                  (Unaudited)


                                   I N D E X
                                   ---------

<TABLE>
<CAPTION>

                                                                                                        Page No.
                                                                                                        --------
<S>                                                                                                   <C>
Part I  - Financial Information:

          Item 1.  Consolidated Financial Statements:

                   Consolidated Balance Sheets
                   As at June 30, 2001 and December 31, 2000 ..................................         F-3 - F-4


                   Consolidated Statements of Operations
                   For the Six and Three Months Ended
                   June 30, 2001 and 2000 .....................................................            F-5


                   Consolidated Statement of Stockholders' Equity
                   For the Six Months Ended June 30, 2001 .....................................            F-6


                   Consolidated Statements of Cash Flows
                   For the Six Months Ended June 30, 2001 and 2000 ............................         F-7 - F-8


                   Notes to Consolidated Financial Statements .................................        F-9 - F-25


          Item 2.  Management's Discussion and Analysis of
                   Financial Condition and Results of Operations ..............................        F-?? - F-??



Part II - Other Information:

                   Item 3 Through Item 9 - Not Applicable .....................................           F-??

                   Signatures .................................................................           F-??

</TABLE>


                                      F-2
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                  A S S E T S
                                  -----------

                                                         June 30,    December 31,
                                                           2001         2000
                                                       -----------   ------------
<S>                                                   <C>           <C>
Current assets:
  Cash                                                 $   151,417   $    33,547
  Mortgage loans held for sale                                --      13,149,612
  Accounts receivable                                      115,162        20,428
  Note receivable                                          100,000          --
  Rent receivable                                          230,148       115,075
  Due from related parties                                  85,726        85,726
  Deferred finance costs                                    67,213          --
  Prepaid expenses and other current assets                 24,095        17,811
                                                       -----------   -----------
        Total current assets                               773,761    13,422,199
                                                       -----------   -----------

Property and equipment, at cost, less accumulated
  depreciation of $160,230 and $97,524, respectively     2,806,255     2,854,833
                                                       -----------   -----------

Other assets:
  Investments - at equity                                  120,000       120,000
  Capitalized software development costs,
    less accumulated amortization of $281,850
    and $230,368, respectively                             232,967       284,450
  Goodwill, less accumulated amortization
    of $194,380 and $123,666, respectively               1,270,700     1,341,414
  Notes receivable                                            --         100,000
  Security deposits                                         12,205        18,955
                                                       -----------   -----------
        Total other assets                               1,635,872     1,864,819
                                                       -----------   -----------

                                                       $ 5,215,888   $18,141,851
                                                       ===========   ===========

</TABLE>


                See accompanying notes to financial statements.


                                      F-3
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)

<TABLE>
<CAPTION>

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

                                                     June 30,      December 31,
                                                       2001            2000
                                                   ------------    ------------
<S>                                               <C>             <C>
Current liabilities:
  Warehouse bank line of credit                    $       --      $ 12,727,195
  Accounts payable                                      215,680         153,744
  Current portion of mortgage payable                   102,301          66,754
  Note payable - bank                                   116,622            --
  Due to affiliated company                             156,282         150,135
  Due to related party                                  182,285            --
  Due to officer                                         30,806         206,068
  Notes payable - other                                 375,000         138,500
  Convertible debentures payable                        350,000            --
  Accrued expenses and other current liabilities      1,609,730       1,046,127
                                                   ------------    ------------
        Total current liabilities                     3,138,706      14,488,523
                                                   ------------    ------------

Mortgage payable - long-term portion                  1,390,150       1,425,697
                                                   ------------    ------------

Deferred income                                            --           221,058
                                                   ------------    ------------

Commitments and contingencies                              --              --

Stockholders' equity:
  Common stock, $.01 par value
    Authorized 35,000,000 shares
    Issued and outstanding - 31,831,780                 318,317         263,311
      and 26,331,151, respectively
  Preferred stock, no par value
    Authorized 10,000,000 shares
    Issued and outstanding - 2 shares                 1,721,596       1,721,596
  Additional paid-in capital                          7,648,633       7,066,321
  Accumulated deficit                                (8,905,697)     (6,998,838)
                                                   ------------    ------------
                                                        782,849       2,052,390
  Less:  Stock subscriptions receivable                 (95,817)        (45,817)
                                                   ------------    ------------
         Total stockholders' equity                     687,032       2,006,573
                                                   ------------    ------------

                                                   $  5,215,888    $ 18,141,851
                                                   ============    ============

</TABLE>


                See accompanying notes to financial statements.


                                      F-4
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                 For the Six Months Ended       For the Three Months Ended
                                                         June 30,                        June 30,
                                               ----------------------------    ----------------------------
                                                   2001            2000            2001            2000
                                               ------------    ------------    ------------    ------------
<S>                                           <C>             <C>             <C>             <C>
Revenues:
  Commissions, fees and interest - mortgages   $    683,073    $    172,681    $     22,028    $    172,681
  Software                                          245,854         255,854         168,883         131,705
  Rental income                                     115,071           7,470          57,535           7,470
                                               ------------    ------------    ------------    ------------
Total revenues                                    1,043,998         436,005         248,446         311,856
                                               ------------    ------------    ------------    ------------

Expenses:
  Selling                                           549,779         179,776         199,665         151,593
  General and administrative                      1,666,677       1,303,528       1,031,664       1,007,385
  Interest                                          269,721          16,389          42,086           8,328
  Loss on sale of mortgages and other fees          388,168            --           388,168            --
                                               ------------    ------------    ------------    ------------
Total expenses                                    2,874,345       1,499,693       1,661,583       1,167,306
                                               ------------    ------------    ------------    ------------

Loss from operations                             (1,830,347)     (1,063,688)     (1,413,137)       (855,450)
                                               ------------    ------------    ------------    ------------

Other income (expense):
  Financial costs                                   (76,512)       (405,460)        (51,512)       (405,460)
  Settlement fee from cancelled acquisition            --           100,000            --              --
  Write-down of investments                            --          (105,000)           --          (105,000)
                                               ------------    ------------    ------------    ------------
Total other income (expense)                        (76,512)       (410,460)        (51,512)       (510,460)
                                               ------------    ------------    ------------    ------------

Loss before extraordinary gain                   (1,906,859)     (1,474,148)     (1,464,649)     (1,365,910)

Extraordinary gain - forgiveness of debt               --         4,371,979            --         4,301,439
                                               ------------    ------------    ------------    ------------

Net income (loss)                              $ (1,906,859)   $  2,897,831    $ (1,464,649)   $  2,935,529
                                               ============    ============    ============    ============


Basis earnings (loss) per common share:
  Loss before extraordinary gain               $ (1,906,859)   $ (1,474,148)   $ (1,464,649)   $ (1,365,910)
  Extraordinary gain                                   --         4,371,979            --         4,301,439
                                               ------------    ------------    ------------    ------------

Net income (loss) available
  for common shareholders                      $ (1,906,859)   $  2,897,831    $ (1,464,649)   $  2,935,529
                                               ============    ============    ============    ============

Weighted average shares - basic                  27,967,462      14,482,512      29,590,220      14,058,497
                                               ============    ============    ============    ============


Earnings (loss) per share - basic:
  Loss per share from continuing
    operations before extraordinary gain       $       (.07)   $       (.10)   $       (.05)   $       (.10)
  Extraordinary gain                                   --               .30            --               .31
                                               ------------    ------------    ------------    ------------

Net income (loss)                              $       (.07)   $        .20    $       (.05)   $        .21
                                               ============    ============    ============    ============


Weighted average shares - diluted                27,967,462      16,098,919      29,590,220      15,788,472
                                               ============    ============    ============    ============

Earnings (loss) per share - diluted:
  Loss per share from continuing
    operations before extraordinary gain       $       (.07)   $       (.09)   $       (.05)   $       (.08)
  Extraordinary gain                                   --               .27            --               .27
                                               ------------    ------------    ------------    ------------

Net income (loss)                              $       (.07)   $        .18    $       (.05)   $        .19
                                               ============    ============    ============    ============

</TABLE>


                See accompanying notes to financial statements.


                                      F-5
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                     FOR THE SIX MONTHS ENDED JUNE 30, 2001
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                    Common Stock              Preferred Stock         Additional
                                             -------------------------   -------------------------     Paid-In     Accumulated
                                                Shares        Amount        Shares        Amount       Capital       Deficit
                                             -----------   -----------   -----------   -----------   -----------   -----------
<S>                                          <C>          <C>             <C>         <C>           <C>           <C>
Balance - January 1, 2001                     26,331,151   $   263,311             2   $ 1,721,596   $ 7,066,321   $(6,998,838)

Shares to be issued as repayment
  of advance                                     375,000         3,750          --            --          81,250          --

Shares to be issued pursuant to employment
  contract and purchase of stock                 250,000         2,500          --            --          47,500          --

Shares issued  pursuant to employment
  contract and purchase of stock                 125,000         1,250          --            --          23,750          --

Shares issued for sale of
  convertible debentures                         140,000         1,400          --            --          33,300          --

Shares issued for employee compensation        4,455,711        44,557          --            --         373,389          --

Shares issued for services rendered
  and a prior year liability                     100,000         1,000          --            --          15,000          --

Shares issued against prior
  period liabilities                              14,918           149          --            --           2,123          --

Shares to be issued in consideration
  for note payable                                40,000           400          --            --           6,000          --

Net loss for the six months
  ended June 30, 2001                               --            --            --            --            --      (1,906,859)
                                             -----------   -----------   -----------   -----------   -----------   -----------

Balance - June 30, 2001                       31,831,780   $   318,317             2   $ 1,721,596   $ 7,648,633   $(8,905,697)
                                             ===========   ===========   ===========   ===========   ===========   ===========

<CAPTION>

                                                 Stock
                                             Subscriptions
                                               Receivable       Total
                                             -------------   -----------
<S>                                          <C>            <C>
Balance - January 1, 2001                     $   (45,817)   $ 2,006,573

Shares to be issued as repayment
  of advance                                         --           85,000

Shares to be issued pursuant to employment
  contract and purchase of stock                  (50,000)          --

Shares issued  pursuant to employment
  contract and purchase of stock                     --           25,000

Shares issued for sale of
  convertible debentures                             --           34,700

Shares issued for employee compensation              --          417,946

Shares issued for services rendered
  and a prior year liability                         --           16,000

Shares issued against prior
  period liabilities                                 --            2,272

Shares to be issued in consideration
  for note payable                                   --            6,400

Net loss for the six months
  ended June 30, 2001                                --       (1,906,859)
                                              -----------    -----------

Balance - June 30, 2001                       $   (95,817)   $   687,032
                                              ===========    ===========

</TABLE>


                See accompanying notes to financial statements.


                                      F-6
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                                   For the Six
                                                                   Months Ended
                                                                     June 30,
                                                           ----------------------------
                                                               2001            2000
                                                           ------------    ------------
<S>                                                       <C>             <C>
Cash flows from operating activities:
  Net income (loss) from operations                        $ (1,906,859)   $  2,897,831
                                                           ------------    ------------
  Adjustments to reconcile net income (loss) to net
      cash provided by (used in) operating activities:
    Writedown of investment                                        --           105,000
    Loss on sale of mortgages and other fees                    243,168            --
    Forgiveness of debt                                            --        (4,371,979)
    Deferred income                                            (221,058)           --
    Rent receivable                                            (115,073)           --
    Depreciation and amortization                               184,903          98,851
    Financial costs                                              76,512         405,460
    Common stock issued for salaries and other expenses         458,946          43,280
    Interest accrued on related party loans                       6,147           6,152
    Increase (decrease) in cash flows as a result of
        changes in asset and liability account balances:
      Mortgage loans held for sale                           12,906,444            --
      Accounts receivable                                       (94,734)         52,306
      Prepaid expenses and other current assets                  (6,284)         (3,124)
      Security deposits                                           6,750         (10,315)
      Accounts payable                                           61,936          39,889
      Accrued expenses and other current liabilities            463,250         597,694
                                                           ------------    ------------
  Total adjustments                                          13,970,907      (3,036,786)
                                                           ------------    ------------

Net cash provided by (used in) operating activities          12,064,048        (138,955)
                                                           ------------    ------------

Cash flows from investing activities:
  Software development costs                                       --          (115,969)
  Expenditures for property and equipment                       (14,128)        (40,918)
                                                           ------------    ------------
Net cash used in investing activities                           (14,128)       (156,887)
                                                           ------------    ------------

Cash flows from financing activities:
  Due to related party                                            7,023            --
  Warehouse bank line of credit                             (12,727,195)           --
  Note payable - bank                                           116,622            --
  Proceeds from private placement                                  --           495,083
  Proceeds from convertible debentures                          350,000            --
  Mortgage payable                                                 --            (4,930)
  Common stock issued                                            85,000          20,000
  Notes payable - other                                         236,500            --
  Due to affiliate                                                 --            (2,000)
                                                           ------------    ------------
Net cash provided by (used in) financing activities         (11,932,050)        508,153
                                                           ------------    ------------

Net increase in cash                                            117,870         212,311

Cash at beginning of period                                      33,547           7,574

Cash of subsidiary                                                 --             2,466
                                                           ------------    ------------

Cash at end of period                                      $    151,417    $    222,351
                                                           ============    ============

</TABLE>


                See accompanying notes to financial statements.


                                      F-7
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
                                  (Unaudited)

<TABLE>
<CAPTION>

                                                              For the Six
                                                              Months Ended
                                                                June 30,
                                                        ------------------------
                                                           2001          2000
                                                        -----------   ----------
<S>                                                    <C>           <C>

                                                               2001         2000
                                                        -----------   ----------

Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:

    Income taxes                                        $      --     $     --
                                                        ===========   ==========

    Interest                                            $   269,721   $   10,238
                                                        ===========   ==========


Supplemental Schedules of Noncash Investing
    and Financing Activities:

  Common stock issued in satisfaction of liabilities    $      --     $2,352,837
                                                        ===========   ==========

  Common stock issued for convertible
    debenture finance costs                             $    34,700   $     --
                                                        ===========   ==========

  Common stock issued for salaries and other expenses   $      --     $   43,480
                                                        ===========   ==========

  Common stock issued for investment
    in First Mortgage Securities, Inc.                  $      --     $  225,000
                                                        ===========   ==========

  Preferred stock issued for acquisition
    of two wholly owned subsidiaries                    $      --     $2,292,939
                                                        ===========   ==========

  Transfer of interest in notes payable
    from officer to related party                       $   175,262   $     --
                                                        ===========   ==========

  Deferred financing costs                              $    77,625   $     --
                                                        ===========   ==========

</TABLE>


                See accompanying notes to financial statements.


                                      F-8
<PAGE>

                       CFI MORTGAGE INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 JUNE 3O, 2001
                                  (UNAUDITED)


NOTE  1 -  GOING CONCERN.

                      The accompanying interim unaudited consolidated financial
           statements have been prepared assuming the Company will continue as a
           going concern. The Company recently completed a voluntary plan of
           reorganization. The Company may continue to need to raise additional
           capital to fund operations until such time as operating cash flows
           are sufficient to sustain the operations of the Company. There are no
           assurances that the Company can raise capital to sustain operations
           until cash flows from operations are sustainable. Should the Company
           be unable to obtain such capitalization, management might be forced
           to cease operations and liquidate the Company. Such conditions raise
           substantial doubt about the Company's ability to continue as a going
           concern. The consolidated financial statements contained herein do
           not include any adjustments that might result from the outcome of
           this uncertainty.



NOTE  2 -  SIGNIFICANT ACCOUNTING POLICIES.

           (a)        Basis of Presentation:

                      The accompanying interim unaudited consolidated financial
           statements have been prepared in accordance with accounting
           principles generally accepted in the United States of America. The
           financial statements include the accounts of CFI mortgage Inc.
           ("CFI"), First United MortgageBanc, Inc. ("FUMB"), Inventek, Inc.,
           doing business as Surfside Software Systems ("Surfside") and
           Monetech, Inc., all wholly owned subsidiaries of CFI. The financial
           statements also include the Company's 40% minority interest in First
           Mortgage Securities, Inc., of Clearwater Florida ("FMS") accounted
           for under the equity method. CFI and its subsidiaries are hereafter
           collectively referred to as the "Company".

                      The accompanying unaudited consolidated financial
           statements have been prepared in accordance with accounting
           principles generally accepted in the United States of America for
           interim financial information and with instructions for Form 10-QSB
           and Article 10 and Regulation S-B. Accordingly, they do not include
           all of the information and footnote required by generally accepted
           accounting principles for complete financial statements. In the
           opinion of management, the statements contain all adjustments
           (consisting only of normal recurring accruals) necessary to present
           fairly the financial position as of June 30, 2001 and the results of
           operations and cash flows for the six months and three months ended
           June 30, 2001 and 2000. The results of operations for the six and
           three months ended June 30, 2001 and 2000 are not necessarily
           indicative of the results to be expected for the full year.


                                      F-9
<PAGE>

NOTE 2 -         SIGNIFICANT ACCOUNTING POLICIES. (Continued)

           (a)        Basis of Presentation: (Continued)

                      The December 31, 2000 balance sheet has been derived from
           the audited financial statements at that date included in the
           Company's annual report on Form 10-KSB. These unaudited financial
           statements should be read in conjunction with the financial
           statements and notes thereto included in the Company's annual report
           on Form-10-KSB.


           (b)        Use of Estimates:

                      The preparation of financial statements in conformity with
           accounting principles generally accepted in the United States of
           America requires management to make estimates and assumptions in
           determining the reported amounts of assets and liabilities and
           disclosures of contingent assets and liabilities as of the date of
           the consolidated financial statements, and the reported amounts of
           revenues and expenses during the year. Actual results could differ
           from those estimates.


           (c)        Applicable Accounting Pronouncements:

                      The Company has previously adopted Statement of Financial
           Accounting Standards No. 125, "Accounting for Transfers and Servicing
           of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
           125"), which provides accounting and reporting standards for
           transfers and servicing of financial assets and extinguishments of
           liabilities. The statement also provides standards for distinguishing
           transfers of financial assets that are sales from transfers that are
           secured borrowings.

                      Fee income in connection with mortgage loans, is accounted
           for in conformity with Statement of Financial Accounting Standards
           No. 91. This statement requires that fees are offset by their direct
           loan costs and the net deferred income is recognized over the life of
           the loan. The Company has previously adopted the guidance under SFAS
           No. 91.

                      Upon sale of the related collateral mortgages, the net fee
           income previously being amortized is then recognized into income.

                      Concurrent with the acquisition of its new subsidiary,
           Surfside, the Company has adopted the guidance provided under SFAS
           No. 86, "Accounting for the Costs of Computer Software to Be Sold,
           Leased, or Otherwise Marketed". SFAS No. 86 provides guidance for the
           specific costs in the development of proprietary software products
           which may be capitalized, and the stages of development during which
           they may be capitalized.


                                      F-10
<PAGE>

NOTE  2 -  SIGNIFICANT ACCOUNTING POLICIES. (Continued)

           (d)        Property and Equipment:

                      Property and equipment are stated at cost less accumulated
           depreciation. The Company's policy is to provide for depreciation
           over the estimated useful lives of the assets ranging from 3 to 39
           years. Expenditures for leasehold improvements are capitalized and
           amortized over their estimated useful lives or the life of the lease,
           whichever is shorter in duration. Expenditures for betterments are
           capitalized and depreciated as described above.

                      Expenditures for repairs, maintenance and minor renewals
           are charged to operations as incurred. Upon retirement or abandonment
           of the property and equipment, the carrying value and related
           accumulated depreciation and amortization are removed from the
           accounts.


           (e)        Capitalized Software Development Costs:

                      Capitalized software costs, which represent the costs
           incurred by the Company to develop its proprietary software products
           subsequent to determining the programs' technical feasibility and
           prior to availability for sale to the general public, are capitalized
           and amortized over a period of five years. Any remaining unamortized
           costs relating to program development which is considered obsolete is
           written off in the period of obsolescence.

                      Amortization of capitalized software development costs
           amounted to $51,482 and $29,109 for the six months ended June 30,
           2001 and 2000, respectively, and $25,741 and $18,464 for the three
           months ended June 30, 2001 and 2000, respectively.


           (f)        Mortgage Loans Held for Sale:

                      Mortgage loans are carried at the lower of cost or market
           determined on an aggregate basis.


           (g)        Sale of Loans:

                      Premiums received from investors are recognized as revenue
           upon the sale of mortgage loans when all of the incidence of
           ownership passes to the permanent investor.


                                      F-11
<PAGE>

NOTE  2 -  SIGNIFICANT ACCOUNTING POLICIES. (Continued)

           (h)        Goodwill:

                      In conjunction with the Company's acquisition of a 100%
           interest in Surfside, the value of assets exchanged, which was in
           excess of the value of assets received, net of liabilities, resulted
           in the creation of goodwill in the amount of $1,347,880. The Company
           is amortizing the goodwill over a period of ten years. Additionally,
           the acquisition by one of the Company's subsidiaries of two buildings
           net of liabilities resulted in the creation of goodwill in the amount
           of $117,200. The subsidiary is amortizing the goodwill created in the
           acquisition of the buildings over a period of 15 years. Amortization
           expense charged to operations amounted to $70,714 and $53,621 for the
           six months ended June 30, 2001 and 2000, respectively, and $35,553
           and $29,563 for the three months ended June 30, 2001 and 2000,
           respectively.

                      Management periodically reviews the value of all
           long-lived assets, including goodwill, to determine if there has been
           any impairment in the carrying value of the asset. Should management
           determine that such an impairment has occurred, an appropriate
           allowance will be set up to reflect the impairment of said asset.


           (i)        Income Taxes:

                      The Company complies with SFAS No.109, "Accounting for
           Income Taxes", which requires an asset and liability approach to
           financial accounting and reporting for income taxes. Deferred income
           tax assets and liabilities are computed for differences between the
           financial statement and tax bases of assets and liabilities that will
           result in future taxable or deductible amounts, based on the enacted
           tax laws and rates in the periods in which differences are expected
           to effect taxable income. Valuation allowances are established, when
           appropriate, to reduce deferred tax assets to the amount to be
           realized.


           (j)        Earnings (loss) Per Common Share:

                      Earnings (loss) per common share is based on the weighted
           average number of common shares outstanding. SFAS No. 128, "Earnings
           Per Share", requires dual presentation of basic and diluted earnings
           per share on the face of the statements of operations. Basic earnings
           (loss) per share excludes any dilutive common stock equivalents and
           is computed by dividing net income or loss by the weighted average
           number of shares outstanding for the period. Diluted earnings per
           share reflect the potential dilution to common shareholders as if all
           common stock equivalents were converted into equivalent shares of
           common stock, thereby diluting net income available to holders of the
           common stock.

                      Diluted loss per share has not been presented in the
           financial statements for the six and three months ended June 30,
           2001, as the effect of including the common stock equivalents would
           be antidilutive for these periods.


                                      F-12
<PAGE>

NOTE  2 -  SIGNIFICANT ACCOUNTING POLICIES. (Continued)

           (j)        Earnings (loss) Per Common Share: (Continued)

                      Below is the calculation of basic and diluted earnings per
           share of the periods presented in the financial statements.

<TABLE>
<CAPTION>

                                     For the Six Months Ended      For the Three Months Ended
                                              June 30,                      June 30,
                                    ---------------------------   ---------------------------
                                        2001           2000           2001           2000
                                    ------------    -----------   ------------    -----------
<S>                                <C>             <C>           <C>             <C>
Net income (loss) available
  to common stockholders            $ (1,906,859)   $ 2,897,831   $ (1,464,649)   $ 2,935,529
                                    ============    ===========   ============    ===========

Weighted average shares               27,967,462     14,482,512     29,590,220     14,058,497
  outstanding - basic
Warrants                                    --        1,616,407           --        1,729,975
                                    ------------    -----------   ------------    -----------

Weighted average shares
  outstanding - diluted               27,967,462     16,098,919     29,590,220     15,788,472
                                    ============    ===========   ============    ===========

Earnings (loss) per common share:

  Basic                             $       (.07)   $       .20   $       (.05)   $       .21
                                    ============    ===========   ============    ===========

  Diluted                           $       (.07)   $       .18   $       (.05)   $       .19
                                    ============    ===========   ============    ===========

</TABLE>

           (k)        Recently Issued Accounting Pronouncements.

                      The Financial Accounting Standards Board issued Statement
           of Financial Accounting Standards No. 130 - "Reporting Comprehensive
           Income", No. 131 - "Disclosures about Segments of an Enterprise and
           Related Information", No. 132 - "Employer's Disclosures about Pension
           and Other Postretirement Benefits" and No. 133 - "Accounting for
           Derivative Instruments and Hedging Activities". Management does not
           believe that the effect of implementing these new standards will be
           material to the Company's financial position, results of operations
           and cash flows.

                      In June 2001, the Financial Accounting Standards Board
           issued Statement No. 141, Accounting for Business Combinations, and
           Statement No. 142, Goodwill and Other Intangible Assets. These
           Statements modify accounting for business combinations after June 30,
           2001 and will affect the Company's treatment of goodwill at the start
           of fiscal year 2002. SFAS No. 141 prohibits pooling-of-interests
           accounting for acquisitions. SFAS 142 requires that goodwill existing
           at the date of adoption to be reviewed for possible impairment and
           the impairment tests to be periodically repeated, with impaired
           assets written-down to fair value. Additionally, existing goodwill
           must be assessed and classified consistent with the Statements'
           criteria. Amortization of goodwill will cease on January 1, 2002. At
           this time, the Company has not determined the complete impact of
           these Statements. However, for the six months ended June 30, 2001,
           the Company has recognized $70,714 of goodwill amortization.


                                      F-13
<PAGE>

NOTE  3 -  FORGIVENESS OF DEBT.

                      On July 6, 1999, pursuant to the filing of Chapter 11 by
           the Company, the Court confirmed a plan of reorganization effective
           August 2, 1999 (the "Plan"), whereby creditors' claims that were
           approved by the Court were satisfied by the issuance of one share of
           the Company's common stock in exchange for each dollar of debt of the
           approved claim. As a result of the satisfaction of the pre-petition
           liabilities, the Company has recognized forgiveness of debt in the
           amount of $-0- and $4,371,979 for the six months ended June 30, 2001
           and 2000, respectively, and $-0- and $4,301,439 for the three months
           ended June 30, 2001 and 2000, respectively.



NOTE 4 - ACQUISITIONS.

           (a)        On January 14, 2000, the Company acquired a 65% interest
                      in Inventek, Inc. (Doing business as Surfside Software
                      Systems of Clearwater, Fl.) ("Surfside"), in exchange for
                      the Company's convertible preferred stock and certain
                      common stock purchase warrants valued at approximately
                      $1,080,000. Surfside creates and markets proprietary
                      software products. The Company issued preferred stock with
                      a par value of $700,000 and 1,000,000 common stock
                      purchase warrants, to which the Company attributed a value
                      of $380,000. The preferred stock is convertible into
                      shares of the Company's common stock based on the average
                      ask price for the five trading days at the end of the
                      month prior to conversion. The preferred shares have no
                      cumulative dividend features, but do entitle the holders
                      thereof to participate in any dividends payable to holders
                      of common stock on a pro rata basis as if the shares had
                      previously been converted.

                      The warrants entitle the holders thereof to purchase one
                      share of the Company's common stock at an exercise price
                      of $.15 per share for a period of five years from the
                      issue date.

                      On August 4, 2000, the Company acquired the remaining 35%
                      minority interest in Inventek, Inc. in exchange for
                      300,000 shares of the Company's common stock and 30,000
                      common stock purchase warrants at an exercise price of
                      120% of the average closing price or average closing asked
                      price for the Company's common stock on the date of the
                      grant. These warrants are exercisable for a period of two
                      years.

                      The Company also agreed to contribute $250,000 as
                      additional paid-in capital, at various dates through June
                      1, 2000. As of June 30, 2001, the Company has contributed
                      $229,000 of the total due to be contributed.

                      The agreement calls for a potential adjustment to the
                      purchase price, based on earnings of Surfside over the
                      twenty-four month period following the closing of the
                      transaction. Such adjustment would be in the form of
                      additional convertible preferred stock up to an additional
                      $4,000,000 at par value.


                                      F-14
<PAGE>

NOTE  4 -  ACQUISITIONS.  (Continued)

           (b)        On June 13, 2000, the Company acquired two commercial
                      office buildings from Flamingo Financial Services, Inc.
                      The buildings have been appraised at a value of $2,550,000
                      and the Company assumed the related collateral mortgages,
                      which amounted to $1,528,404. In exchange, the Company
                      gave the sellers one share of its convertible preferred
                      stock with a par value of $1,021,596 and warrants to
                      purchase 750,000 shares of its common stock. CFI then
                      contributed the two buildings along with the underlying
                      mortgage to a newly formed company, First United
                      MortgageBanc, Inc. ("FUMB"), a wholly owned subsidiary.
                      The agreement also provides for a potential adjustment to
                      the purchase price, based on the net profit of FUMB over
                      the eighteen month period following the closing of the
                      transaction. This adjustment will be satisfied by the
                      issuance of a 2nd share of CFI's preferred stock.

                      The preferred stock is convertible into shares of the
                      Company's common stock based on the average asking price
                      for the five trading days at the end of the month prior to
                      conversion. The preferred shares have no cumulative
                      dividends rights, but permit the holders thereof to
                      participate in any dividends payable to holders of common
                      stock on a pro rata basis, as if the shares had been
                      converted. The three warrants, each for 250,000 shares of
                      the Company's common stock, are exercisable at prices of
                      $.15, $.35 and $.50 per share, respectively. The warrants
                      are exercisable for a period of five years from the date
                      of issuance.

           (c)        On May 4, 2000, the Company acquired a 40% interest in
                      First Mortgage Securities, Inc., of Clearwater Florida, in
                      exchange for 400,000 shares of its common stock and common
                      stock purchase warrants to acquire 400,000 shares of the
                      Company's common stock at an exercise price of $.67 per
                      share. The acquisition was accounted for under the equity
                      method.

                      The Company attributed a value of $225,000 to the common
                      stock and common stock purchase warrants exchanged for the
                      interest in FMS. The Company wrote down the investment by
                      $105,000 during fiscal 2000, based on then most current
                      financial information available for FMS. The Company has
                      become aware through public documents, that FMS and its
                      parent company were acquired by Tidalwave Holdings, Inc.
                      in a stock exchange. As a result of the Tidalwave
                      acquisition, the Company's investment in FMS may be worth
                      at least $225,000. However, the Company could not quantify
                      the value as of the date of this report.

           (d)        On April 28, 2000, the Company formed a wholly-owned
                      subsidiary Monetech, Inc. for the purpose of acquiring the
                      net assets of RJ Systems, Inc., a software development
                      company. In March 2001 the Company determined that this
                      acquisition would not be beneficial to its future plans
                      and has decided not to pursue the acquisition. Monetech,
                      Inc. will continue as an inactive company, to be used for
                      future acquisitions the Company may be involved with.


                                      F-15
<PAGE>

NOTE  5 -  PROPERTY AND EQUIPMENT.

                      Property and equipment, at cost, consists of the
           following:

                                               June 30,   December 31,
                                                 2001         2000
                                              ----------  ------------

           Buildings                          $2,550,000   $2,550,000
           Leasehold improvements                 15,031       15,031
           Furniture                             217,661      217,661
           Computer equipment                    129,508      115,381
           Office equipment                       54,285       54,284
                                              ----------   ----------
                                               2,966,485    2,952,357
           Less: Accumulated depreciation
                   and amortization              160,230       97,524
                                              ----------   ----------

                                              $2,806,255   $2,854,833
                                              ==========   ==========

                      Depreciation and amortization expense amounted to $62,976
           and $16,121 for the six months ended June 30, 2001 and 2000,
           respectively, and $31,357 and $10,595 for the three months ended June
           30, 2001 and 2000, respectively.



NOTE  6 -  RELATED PARTY TRANSACTIONS.

           (a)        For the six months ended June 30, 2001, all of the rental
                      income was derived from a company owned by a preferred
                      stockholder of the Company. The Company was due $230,148
                      and $115,075 at June 30, 2001 and December 31, 2000,
                      respectively from this company for rent and is reflected
                      in the financial statements as a current asset. In
                      addition there is a note receivable from this company in
                      the amount of $100,000. The note receivable with accrued
                      interest at 6% is due on March 31, 2002. This company has
                      filed under Chapter 7 of the United States Bankruptcy
                      Code. Neither the lease or the note have been included in
                      the petitioner's schedule of debts submitted to the court.
                      Management of the Company expects full recovery of both
                      amounts. Should the Company be unsuccessful in asserting
                      these claims, it believes it can offset them against
                      certain stock rights the individual has been granted by
                      the Company in the aforementioned acquisition of the
                      Indiana property. The ultimate resolution of these events
                      are undeterminable as of the date of this report.

                      As of June 30, 2001, the Company owes this preferred
                      stockholder $175,262. The notes payable were originally
                      issued to an officer of the Company who has assigned his
                      rights to the aforementioned individual.

           (b)        The Company has made advances to two individuals, one of
                      whom is a former director of the Company. The balance
                      amounted to $85,726 at each of June 30, 2001 and December
                      31, 2000. The advances are due on demand and there has
                      been no interest charged on the outstanding balances.

           (c)        The Company had a revolving line of credit with an
                      affiliate, whereby it can borrow up to $150,000, with
                      interest charged at 9% per annum. The loan is due on
                      demand. The Company was liable under this credit facility
                      for $156,282 and $150,135 at June 30, 2001 and December
                      31, 2000, respectively. The balances include accrued
                      interest of $18,547 and $12,400, respectively.


                                      F-16
<PAGE>

NOTE  6 -  RELATED PARTY TRANSACTIONS.  (Continued)

                      As an inducement to make the loan, the affiliate was
                      previously granted warrants to purchase 150,000 shares of
                      the Company's common stock at an exercise price of $.25
                      per share, which represented 105% of the closing bid price
                      on the date of the grant. During the year 2000 the sole
                      stockholder of this affiliate passed away and all
                      interests have passed through to his estate.



NOTE  7 -  NOTE PAYABLE - BANK.

                      The note is payable in twelve monthly installments of
           approximately $11,800 including interest at a rate of prime plus 2%
           beginning June 2001.



NOTE  8 -  DUE TO OFFICER.

                      During the period ended December 31, 2000, the Company
           received advances from an officer totaling $200,000 of which $170,000
           plus interest was assigned to a preferred stockholder of the Company.
           The remaining loan balance is payable on demand and bears interest at
           9% per annum.



NOTE  9 -  WAREHOUSE LINE OF CREDIT.

                      FUMB had an agreement with an institution that provided a
           $15,000,000 warehouse credit facility, whereby advances were
           available up to the extent of the loan limit based upon submitted
           mortgage documents which collateralize the loan. As the mortgages
           were sold to investors, the proceeds were used to reduce the loan
           advances specifically identified with those mortgages sold.

                      As of February 13, 2001 the financial institution
           terminated the warehouse line of credit due in part to the
           unauthorized misrepresentation of a former officer of the Company. As
           a result of this default the outstanding principal balance, accrued
           interest and fees became due. As of the report date, the Company has
           sold all of the collateral mortgages and repaid the institution in
           full.


                                      F-17
<PAGE>

NOTE  9 -  WAREHOUSE LINE OF CREDIT.  (Continued)

                      The terms of the credit facility called for an interest
           rate at the bank's prime rate. Interest expense on the warehouse line
           amounted to $200,000 and $-0- for the six months ended June 30, 2001
           and 2000, respectively, and $4,000 and $-0- for the three months
           ended June 30, 2001 and 2000, respectively.

                      In addition, for the six months and three months ended
           June 30, 2001 the Company charged operations for approximately
           $227,000 and $145,000 to recognize the loss on the mortgages sold
           with recourse.

                      In May 2001, the Company obtained a $3,000,000 warehouse
           credit facility with a new institution, whereby advances will be
           available up to the extent of the loan limit based upon submitted
           mortgage documents which collateralize the loan. The terms of the
           credit facility call for interest to be charged on the unpaid amount
           of advances made to the Company at variable rates consisting of the
           published "One Month LIBOR rate" plus some applicable margin as
           determined by the bank based on the type of mortgage. At June 30,
           2001, the interest rates ranged from 8.09% to 9.09%. In addition, the
           Company must pay a transaction fee with respect to the mortgage loans
           funded. At June 30, 2001 there have been no mortgages closed by the
           Company and submitted for funding under this new credit facility.



NOTE 10 -  MORTGAGE PAYABLE.

                      The mortgage is payable in monthly installments of $15,168
           including interest at 7.75% with a final payment due on December 31,
           2014. The buildings collateralize the mortgage, and in addition, the
           sellers remain primarily liable. The mortgage balance consists of the
           following:

                                            June 30,      December 31,
                                              2001            2000
                                           ----------     ------------
           Current portion                 $  102,301      $   66,754
           Long-term portion                1,390,150       1,425,697
                                           ----------      ----------

                                           $1,492,451      $1,492,451
                                           ==========      ==========


                                      F-18
<PAGE>

NOTE 10 -  MORTGAGE PAYABLE.  (Continued)

                      Annual maturities for the next five years are as follows:

          Years Ending
            June 30,
          ------------
              2002                               $  102,301
              2003                                   75,095
              2004                                   80,954
              2005                                   87,850
              2006                                   95,031
           Thereafter                             1,051,220
                                                 ----------
                                                 $1,492,451
                                                 ==========

                      Interest expense amounted to $57,832 and $-0- for the six
           months ended June 30, 2001 and 2000, respectively, and $28,922 and
           $-0- for the three months ended June 30, 2001 and 2000, respectively.
           In addition, at June 30, 2001 the Company is in arrears on its
           mortgage principal payments for the first and second quarters of 2001
           amounting to $35,547 plus unpaid interest of $55,456 and the bank has
           begun foreclosure proceedings.



NOTE 11 -  DUE TO BANKS AND SUNDRY CREDITORS.

                      The Plan of Reorganization as discussed in note 3 included
           claims from two financial institutions in the amount of $4,000,000,
           as well as certain non-priority claims from present and former
           employees for unpaid compensation up to the petition date amounting
           to $83,328. During the year ended December 31, 2000, the Company
           issued 2,400,000 shares of its common stock in satisfaction of the
           claims from the two financial institutions, which resulted in the
           recognition of forgiveness of debt amounting to $3,100,000.
           Additionally, the Company issued 467,531 shares of its common stock
           in satisfaction of liabilities resulting in forgiveness of debt of
           $168,216.



NOTE 12 - 12% CONVERTIBLE DEBENTURES.

                      During the six months ended June 30, 2001, the Company
           received $350,000 from the sale of 12% convertible debentures through
           a private securities subscription agreement. The agreement calls for
           a maximum of $700,000 in debentures to be sold in $25,000 minimum
           increments. The debentures are collateralized by a second trust deed
           up to the value of $700,000 in the Company's real property. The
           debentures have a maturity date of 190 days from the date of issue
           and allow the holders the option of converting 15% of their
           investment into the Company's common stock at $0.10 per share upon
           maturity. In addition each holder of a $25,000 unit shall be issued
           10,000 shares of the Company's common stock upon subscription.


                                      F-19
<PAGE>

NOTE 13 -  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES.

                      Accrued expenses and other current liabilities are
           comprised of the following:

                                                       June 30,     December 31,
                                                         2001           2000
                                                      ----------    ------------
Professional fees                                     $  146,899     $   96,900
Accrued writedown on mortgages held for sale             145,000           --
Accrued compensation of employees                           --           52,206
Accrued compensation of officers                         527,651        512,651
Accrued finance costs -
  convertible debentures                                  77,625           --
General and administrative expenses                      237,883         23,899
Payroll taxes, penalties and interest                    474,672        210,069
Interest accrued on warehouse line                          --          150,402
                                                      ----------     ----------

                                                      $1,609,730     $1,046,127
                                                      ==========     ==========

                      Included in accrued compensation of officers is $405,150,
           which represents the aggregate compensatory element of stock bonuses
           to be issued pursuant to employment agreements entered into,
           subsequent to the effective date of the Plan.



NOTE 14 -  COMMITMENTS AND CONTINGENCIES.

           (a)        Leases:

                      In January 2000, the Company's wholly owned subsidiary,
           Surfside, entered into a lease for office space which runs through
           December 31, 2004. Minimum annual rents under the lease are as
           follows:

          Years Ending
            June 30,
          ------------
              2002                                  $153,482
              2003                                   161,114
              2004                                   169,148
              2005                                    86,627
                                                    --------
                                                    $570,371
                                                    ========

                      Rent expense amounted to $96,185 and $50,288 for the six
           months ended June 30, 2001 and 2000, respectively, and $58,875 and
           $34,155 for the three months ended June 30, 2001 and 2000,
           respectively.


                                      F-20
<PAGE>

NOTE 14 -  COMMITMENTS AND CONTINGENCIES.  (Continued)

           (b)        Employment Contracts:

                      In August 1999, the Company entered into employment
           contracts with the (then) four officers. The contracts provided for
           annual base salaries and escalation clauses. They also provided for
           mandatory cash bonuses accruable ratably throughout the year and
           payable at the end of each fiscal year. The contracts also included a
           provision, which granted each of the four individuals a stock bonus
           equal to 5% of the Company's common stock issued during each fiscal
           year of the contract. The mandatory cash bonuses were accrued
           throughout fiscal year and payable at the end of the year. Each of
           the individuals were given the option to take the bonus in shares of
           the Company's common stock, valued at a 50% discount to the average
           closing bid price for the five trading days immediately after the
           close of the fiscal year.

                      In November 2000, the Company's corporate counsel advised
           management that the stock bonus provision of the employment contracts
           was illegal under Delaware corporate law. Accordingly, in December
           2000, the Company's Board of Directors voted to terminate this
           provision retroactively to January 1, 2000. As a result of the
           board's action, the Company' reversed approximately $539,000 of
           compensation in the fourth quarter that had been accrued through
           September 30, 2000.

                      In September 2000, one of the above individuals and in
           December 2000 two of the other individuals covered by these
           employment contracts were terminated for cause. All other
           compensation due these individuals under the agreements has been
           accrued to the date of termination.

                      Included in the results of operations is $120,668 and
           $679,017 for the six months ended June 30, 2001 and 2000,
           respectively, and $62,001 and $606,693 for the three months ended
           June 30, 2001 and 2000, respectively, for compensation due to the
           officers under the terms of the contracts. At June 30, 2001, $527,651
           remains unpaid of which $15,000 applies to 2001 and $512,651 applies
           to 2000 and prior.

                      In July 2000, the Company entered into an employment
           contract with an individual to become the Company's Chief Financial
           Officer ("CFO"). The contract is for a period of three years and
           provides for a base salary of $120,000 per annum for the first year.
           Salary increases and cash bonuses, if any, shall be determined by The
           Board of Directors.


                                      F-21
<PAGE>

NOTE 14 -  COMMITMENTS AND CONTINGENCIES.  (Continued)

           (b)        Employment Contracts: (Continued)

                      In March 2001, the Company entered into an employment
           contract with an individual to become the president of ("FUMB"). The
           contract is for a period of three years and provides for a base
           salary of $130,000 per annum for the first year. Salary increases
           shall be determined by the Board of Directors on an annual basis. The
           individual has agreed to purchase 375,000 shares of the Company's
           common stock at a price of $0.20 per share for a total of $75,000.
           The June 30, 2001 financial statements give recognition to the shares
           as being issued. In addition the contract allows for a stock bonus to
           be issued to the individual each year during the employment contract.
           The terms call for the Company to issue shares of its common stock,
           the number of shares determined by taking the earnings before income
           tax and depreciation of FUMB and multiplying that number by 8.5%. The
           quotient shall be divided by the mean bid/ask price of the Company's
           common stock for the month following the anniversary date of the
           executives employment contract. The individual shall have at his
           option the right to take up to 15% of the stock bonus in cash.


           (c)        Mortgage Loans Held for Sale:

                      The Company sells mortgage loans on a non-recourse basis
           with certain representations and warranties. The Company may be
           obligated by industry practice under certain circumstances to
           repurchase a loan if it goes into default within the first year. At
           June 30, 2001, the Company has a provision of $145,000 for the
           settlement of future loan losses.



NOTE 15 - 401(k) PLAN.

                      The Company has in place a contributory 401(k) plan for
           its eligible employees. Employer contributions are at the discretion
           of the Board of Directors. The employer contribution was $13,073 and
           $-0- for the six months ended June 30, 2001 and 2000, respectively,
           and $6,000 and $-0- for three months ended June 30, 2001 and 2000,
           respectively.



NOTE 16 - LIIGATION.

                      A former Director of the Company has filed suit against
           the Company and the Company's "CEO" for breaches of contracts and
           return of personal property. The parties intend to have a settlement
           conference during September 2001. Should the parties be unable to
           settle at that time the Company is prepared to vigorously defend the
           action. Management is of the opinion this suit will not have a
           material impact on the financial statements.

                      Additionally, the Company is involved in a disputed
           mechanic's lien on its properties owned in Evansville Indiana. From
           January 1, 2001, the Company has not made any payments on the
           mortgages on these properties and the bank has begun foreclosure
           proceedings. Presently, the Company is marketing the properties in an
           attempt to pay off the underlying mortgages and then litigate the
           disputed mechanic's lien. In the opinion of management the value of
           the properties will be sufficient to pay the underlying mortgages and
           satisfy the mechanic's lien.


                                      F-22
<PAGE>

NOTE 17 -  INCOME TAXES.

                      The Company and its wholly owned subsidiaries file a
           consolidated federal income tax return. As of December 31, 2000, the
           Company and its subsidiaries have a net operating loss carryforward
           of approximately $21,000,000 available to reduce future taxable
           income through the year 2020. The Company's ability to utilize its
           net operating loss carryforward could be limited following a change
           in ownership in excess of 50%, which resulted from the Company's
           reorganization and recapitalization under the Plan. The Company has
           fully reserved its deferred tax asset due to the uncertainty about
           its ability to utilize it in future periods.



NOTE 18 -  STOCKHOLDERS' EQUITY.

           (a)        Common Stock:

                      In February 2001 the Board of Directors approved the
           issuance of 375,000 shares of the Company's common stock to a board
           member in consideration of an advance made by him to the Company. The
           issuance of this stock resulted in a charge to operations of $25,000
           for financial costs.

                      In conjunction with an employment contract between the
           Company and an individual 375,000 shares of common stock were issued
           for $25,000 cash and a subscription receivable for $50,000 pursuant
           to the terms of the agreement.

                      In conjunction with the issuance of 12% convertible
           debentures, the Company has issued 140,000 shares of its common stock
           for $350,000.

                      In April 2001, the Board of Directors approved the
           issuance of 4,455,711 shares of the Company's common stock to three
           individuals. 3,800,000 shares were issued to a board member pursuant
           to a board resolution. The issuance of this stock resulted in a
           charge to operations of $356,440 for compensation. The remaining
           655,711 shares were issued to two individuals, both officers of the
           Company in accordance with employment agreements in effect. The
           issuance of these shares resulted in a charge to operations of
           $61,506 for compensation.

                      In April 2001, the Company issued 14,918 shares of its
           common stock to an individual in satisfaction of a liability that had
           been included in the Company's previous bankruptcy filing.

                      In June 2001, the Company issued 100,000 shares of its
           common stock to an individual for services rendered. The issuance of
           these shares resulted in a charge to operations of $11,250 for
           professional fees.

                      The Company issued 40,000 shares of its common stock to an
           individual in consideration of an advance made by him to the Company.
           The issuance of this stock resulted in a charge to operations of
           $6,400 for financial costs.


                                      F-23
<PAGE>

NOTE 18 -  STOCKHOLDERS' EQUITY. (Continued)

           (b)        Warrants:

                      During the six months ended June 30, 2001 in connection
           with loans made to the Company by an individual, the Company issued
           10,000 and 5,000 common stock purchase warrants both exercisable at
           $.18 per share, as an inducement to make the loans. The warrants are
           exercisable for a period of one year expiring on February 9, 2002 and
           February 22, 2002, respectively.

                      At June 30, 2001 the Company had outstanding warrants
           entitling the holders to purchase common stock as follows:

                                    Exersise                   Expiration
           Number of                  Price                       Date
            Shares                   (Range)                (Fiscal Year End)
           ---------              -------------             -----------------
             476,000              $0.08 - $0.41             December 31, 2001
           3,382,143              $0.18 - $1.44             December 31, 2002
             110,000                  $0.39                 December 31, 2003
           1,750,000              $0.15 - $0.50             December 31, 2005

                      The warrants are not valued in the financial statements as
           the amounts are immaterial.


                                      F-24
<PAGE>

NOTE 19 -  SEGMENT INFORMATION.

                      The Company is engaged in two segments; residential
           mortgage lending and licensing of proprietary computer software
           solutions.

<TABLE>
<CAPTION>

                                     Six Months Ended             Three Months Ended
                                         June 30,                      June 30,
                                --------------------------    --------------------------
                                   2001           2000           2001           2000
                                -----------    -----------    -----------    -----------
<S>                            <C>            <C>            <C>            <C>
Revenues:
  Mortgage lending              $   683,000    $   173,000    $    22,000    $   173,000
  Licensing computer software       246,000        356,000        169,000        132,000
  Other                             115,000          7,000         57,000          7,000
                                -----------    -----------    -----------    -----------

                                $ 1,044,000    $   536,000    $   248,000    $   312,000
                                ===========    ===========    ===========    ===========

Operating loss:
  Mortgage lending              $  (996,000)   $  (146,000)   $  (923,000)   $  (117,000)
  Licensing computer software      (305,000)      (365,000)      (159,000)      (293,000)
  Other                            (575,000)      (553,000)      (376,800)      (445,000)
                                -----------    -----------    -----------    -----------

                                $(1,876,000)   $(1,064,000)   $(1,458,800)   $  (855,000)
                                ===========    ===========    ===========    ===========

</TABLE>

                                  June 30,      December 31,
                                    2001            2000
                                ------------    ------------

Identifiable assets:
  Mortgage lending              $  3,493,000    $ 16,937,000
  Licensing computer software      1,572,000       1,607,000
  Other                            3,616,000       3,542,000
  Eliminations                    (3,465,000)     (3,944,000)
                                ------------    ------------

                                $  5,216,000    $ 18,142,000
                                ============    ============



NOTE 20 -  SUBSEQUENT EVENT.

                      On July 19, 2001, the Company signed an agreement with
           another company, whereby ("FUMB") would provide mortgage banking
           services and in return receive a non-exclusive license to utilize the
           Company's software to process wholesale and retail mortgages. This
           software will allow ("FUMB") to process mortgage loan applications
           and generate a loan package for review by a mortgage underwriter. In
           addition ("FUMB") will receive assistance in the marketing of its
           other mortgage banking services.


                                      F-25
<PAGE>

                                     PART I

ITEM 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations

Forward Looking Statements

The following discussion contains certain "forward-looking statements" (rather
than historical facts) which are subject to the safe harbor provision created by
the "Private Securities Litigation Reform Act of 1995" (the "Act") and
regulations and interpretations there under, including Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements and other information contained herein
including such words as "may," "will," "expect," "believe," "plan," "estimate,"
"goal," "anticipate," "intend," and other similar terminology and use of future
tense, constitute forward-looking statements. These forward-looking statements
represent management's current expectations and are subject to business and
economic uncertainties and risks. Actual results could differ materially from
those set forth in and suggested by the forward-looking statements. This
discussion should be read in conjunction with the consolidated financial
statements of the Company and the related notes thereto.

Company Overview

CFI Mortgage, Inc. (the "Company") is engaged in two lines of business: First,
residential mortgage lending; and, second, development and licensing of
proprietary computer software solutions, primarily for the ground transportation
industry. The Company is incorporated in Delaware, and may be described as a
holding company. Its executive offices and operations are located in Clearwater,
Florida. The Company conducts its operations through two wholly owned
subsidiaries. First United MortgageBanc, Inc., a Florida corporation founded by
the Company, conducts the Company's mortgage lending business. Inventek, Inc., a
Florida corporation doing business as Surfside Software Systems, conducts the
Company's computer software business. The Company acquired Inventek, Inc. on
January 14, 2000.

Mortgage Operations

General. The Company underwrites residential mortgage loans originated directly
through its own marketing efforts and by independent, licensed mortgage brokers.
The Company may also purchase home mortgage loans. Typically the Company sells
or resells residential mortgage loans, which it holds in its portfolio, on an
individual or bulk basis to individual investors and to institutional investors.
The Company underwrites and purchases conforming mortgage loans and
non-conforming (sub prime) mortgage loans. Conforming mortgage loans meet the
underwriting guidelines, and are insured by FNMA and FHLMC. FHA and VA loans are
purchased by GNMA, and are federally insured. Non-conforming mortgage loans do
not meet these agencies' underwriting guidelines due to credit impairment
(limited or unfavorable credit history, including bankruptcy) of the borrower,
higher loan-to-value ratio, debt-to-income ratio, unstable employment history,
and self-employment. Non-conforming mortgage loans are priced to compensate for
the additional credit risk. All second mortgage loans are non-conforming loans.
The Company currently has mortgage banking licenses in thirty-five states, with
approval pending in one additional state.

Funding. The Company maintains one or more lines of credit from which it funds
the origination and purchase of mortgage loans. Commercial lenders and others
extend the lines of credit. In the first quarter of 2001, the Company
experienced a termination of a $15,000,000 revolving warehouse line of credit,
at the time, its exclusive line with First Collateral Services, Inc. The
termination was in part, due to unauthorized misrepresentation on the credit
application of the office held by the Company's former executive officer who
signed the application. Generally, the Company's lines of credit are secured by
the mortgages purchased with proceeds from the lines, as well as a personal
guarantee of the Company's Chief Executive Officer. In the second quarter of
2001, the Company was successful in obtaining a new $3,000,000 revolving
warehouse line of credit agreement with PCFS Financial Services. The lender has
indicated that future increases in the commitment amount will be considered
based upon satisfactory performance of the line of credit. The company is
currently pursuing additional warehouse lines of credit to augment its current
line, and expects to have them in place in the third quarter of 2001.


                                       1
<PAGE>

In April 2001, the Company entered into a joint venture agreement with Tidalwave
Holdings, Inc., which was to have provided the Company with $10,000,000
non-conforming (sub prime), and conforming revolving warehouse lines of credit.
As a result of the inability of Tidalwave Holdings, Inc. to provide the Company
with the revolving warehouse line of credit in the applicable states, this joint
venture agreement was subsequently cancelled.

On July 19, 2001, the Company entered into an operating agreement with another
publicly traded company, whereby First United MortgageBanc, Inc. would provide
mortgage banking services and in return, the Company would receive a
non-exclusive license to utilize software to process wholesale and retail
mortgages, as well as assistance in the marketing of First United MortgageBanc,
Inc.'s mortgage banking services.

Marketing. The Company makes first and second home mortgage loans, primarily to
owners of single-family residences who use the loan proceeds for such purposes
as home purchases, debt consolidation, home improvements and educational
expenditures. The Company plans on marketing its mortgage loan products to
homeowners by means of direct mail marketing and internet marketing techniques,
supported by 50 state telemarketing capabilities, beginning in the third quarter
of 2001. The Company believes that its methods of retail and wholesale loan
origination are effective, diversified strategies that enable it to penetrate
the conforming and non-conforming mortgage loan markets through multiple
channels.

Brokerage. The Company provides mortgage-banking facilities to licensed mortgage
brokers, funding at closing the residential mortgage loans, which they originate
(wholesale mortgage lending). The Company seeks to develop and maintain
continuing relationships with licensed mortgage brokers. For loans originated
through licensed mortgage brokers, the application and necessary underwriting
information is generally gathered by the broker and forwarded to the Company's
underwriting department for approval before the loan is closed and funded. The
Company believes that its wholesale lending operations will continue to
constitute an important part of its business strategy and that its wholesale
funding operations, when coupled with direct origination channels, should
maximize the Company's potential growth and penetration of today's aggressive
interest rate market.

Underwriting. The Company has implemented a comprehensive credit analysis system
for its loan originations and purchases, which is designed to ensure that credit
standards are maintained and consistent underwriting standards and procedures
are followed. Creditworthiness is assessed through a variety of means, including
calculating debt to income ratios, examining the applicant's employment status
and income, and checking the applicant's employment and payment history with
respect to any first mortgage on the property. The Company uses several
procedures to verify information obtained from an applicant. In order to verify
an applicant's employment status and income, the Company obtains verification
from the applicant's employer. The Company requires self-employed borrowers to
provide a copy of their tax returns and business licenses. The Company requires
an independent appraisal. Loans in excess of $350,000 require two independent
appraisals. The Company requires title insurance, and real property insurance
for fire and flood, where applicable.

Mortgage loan sales. In general, the Company acquires and resells its mortgage
loans. Sale of mortgage loan pools is generally referred to as the "secondary
mortgage market". The Company sells these loans on a non-recourse basis with
certain representations and warranties. The Company may be obligated by industry
practice under certain circumstances to repurchase a loan if it goes into
default within the first year

Servicing. The Company has not been a loan servicing company. It has not
retained the servicing rights for loans, which it sells in the secondary
mortgage market. The Company does service the loans it owns until sold in the
secondary mortgage market. Servicing includes receiving mortgage payments from
borrowers, depositing cash received and posting payments to accounts for
principal and interest, collection activities on past due accounts, ensuring
that insurance is in place and taxes and insurance are paid, providing customer
service and processing foreclosures. The Company does not escrow funds for
purposes of insurance and taxes. However, it has the right to purchase insurance
and pay taxes upon the borrower's default, which, if paid by the Company, are
charged back to the borrower.

Seasonality. The mortgage banking industry is subject to seasonal trends. These
trends reflect the general pattern of re-sales of homes, which sales typically
peak during the spring and summer seasons and reach a low point from January
through March. The volume of refinancings often varies with changes in interest
rates, increasing when rates drop and decreasing when they rise.


                                       2
<PAGE>

Competition. The mortgage banking industry is highly competitive. Competition is
based on the type of loan, interest rates, and service. The Company competes
with financial institutions, mainly mortgage companies, commercial banks and
savings and loan associations, credit unions and insurance companies, credit
card issuers and consumer and commercial finance companies, depending upon the
type of mortgage loan product offered. While the Company faces significant
competition in connection with its mortgage loan products, it believes that it
competes effectively in its markets by emphasizing the quality of its service
and pricing the loans at competitive rates. The Company faces significant
competition in connection with its mortgage loan products, principally from
national companies that focus their efforts on making mortgage loans to
non-prime borrowers. Many of these companies have considerably greater financial
and marketing resources than the Company. Although these large national
companies compete in the mortgage loan industry, this industry, as a whole, is
highly fragmented and no one company has a significant share of the total
mortgage loan market. The Company attempts to maintain its competitiveness on
the wholesale, non-conforming side of its business by maintaining and developing
relationships with licensed mortgage brokers, and on the retail conforming side,
by providing good customer service. Increased competition for mortgage loans
from larger lenders may result in a decrease in the volume of loans originated
and purchased by the Company, thereby possibly reducing the Company's revenues.

Regulation. The Company's operations are subject to local, state and federal
regulation, including, but not limited to, the following federal statutes and
regulations promulgated thereunder: Title 1 of the Consumer Credit Protection
Act of 1968, as amended (including certain provisions thereof commonly known as
the "Truth-in-Lending Act" or "TILA"), the Equal Credit Opportunity Act of 1974,
as amended ("ECOA"), the Home Mortgage Disclosure Act, the Fair Credit Reporting
Act of 1970 ("FCRA"), the Fair Debt Collection Practices Act, the Real Estate
Settlement Procedures Act ("RESPA") and the National Housing Act. In addition,
the Company is subject to state laws and regulations, including licensing laws
and regulations and usury laws, which limit the amount of interest and other
charges lenders, can collect on loans. The Company is subject to the rules and
regulations of the Federal Housing Administration ("FHA"), and state regulatory
authorities with respect to originating, processing, underwriting, selling and
servicing mortgage loans, which it originates under programs governed by the
respective agencies. The Company is subject to other laws and regulations, which
establish eligibility criteria for mortgage loans prohibit discrimination and
establish underwriting guidelines, which include provisions for inspections and
appraisals, require credit reports on prospective borrowers and fix maximum loan
amounts. Moreover, lenders such as the Company are required to submit annually
to FHA, audited financial statements, and each state regulatory entity has its
own financial requirements. The Company's affairs also are subject to
examination by FHA to assure compliance with all applicable regulations,
policies and procedures. Many of the aforementioned regulatory requirements are
designed to protect the interests of consumers, while others protect the owners
or insurers of mortgage loans. Failure to comply with these requirements can
lead to loss of approved status, demands for indemnification or loan
repurchases, class action lawsuits and administrative enforcement actions.

Environmental considerations. To date, the Company has not been required to
perform any investigation or fund remediation activities with respect to, nor
has it been subject to any environmental claims. There is no assurance, however,
that the Company will not be subject to such claims or be required to perform
investigation or fund remediation activities in the future. Although the Company
primarily lends to owners of residential properties, there is a risk the Company
could be required to investigate and clean up hazardous or toxic substances or
chemical releases at such properties after foreclosure by the Company, and may
be held liable to a governmental entity or to third parties for property damage,
personal injury and investigation and clean up costs incurred by such parties in
connection with environmental 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.


                                       3
<PAGE>

Software

General. The Company develops, supplies and services comprehensive enterprise
management systems for fleet ground transportation. The Company's principal
software products are PC-based, DOS and Windows solutions marketed under the
name TranWare to the taxi, courier, para-transit (non-emergency medical),
shuttle and limousine industries. TranWare consists of the following product
modules: dispatch management, scheduling and reservations, account
billing/accounts receivable, driver cashiering/shifting, insurance claims
management and vehicle maintenance. TranWare interfaces with a number of
different wireless technologies (for communication between home base and
vehicles on the road), as well as several general accounting software programs.
The Company also customizes its software products to meet individual customer
requirements, and provides training and support.
Software features. TranWare is a complete system, which allows transportation
fleet operators to manage their entire operation with a seamless set of
applications sharing a common interface and data structure. The Company's system
is enhanced by AutoDisp, a program developed by the Company for mobile data
communications that silently dispatches trip information and messages to mobile
data terminals located in the fleet vehicles, alphanumeric pagers, text-capable
cellular and PCS phones and RIM two-way pagers. TranWare includes TranTrac, a
program that displays the location of the fleet vehicles on a screen located in
the dispatch room using the global positioning system (GPS). This program not
only serves as a management tool; but it can also save lives in the event of an
emergency by pinpointing the exact location of an accident scene.

Software development. The Company conducts substantially all of its own software
development, including design, layout, coding, testing and media production.
TranWare is complex and sophisticated and could, from time to time, contain bugs
and errors that could be difficult to detect and correct. The implementation of
the Company's products may involve a significant amount of customer-specific
customization and may involve integration with systems developed by third
parties. Bugs and errors could give rise to warranty claims or liability of the
Company and cause delays in product introduction and require design
modifications, which could result in loss of or the delay in marketing of the
Company's products or loss of existing and potential customers and injury to its
reputation and good will, notwithstanding its efforts to limit this exposure in
its license agreements.

Delivery of a Windows based system. The Company has completed first phase
development of a Windows(R) based version of TranWare and is currently
installing this product in the limousine marketplace. Throughout the remainder
of 2001 other modules including taxi, paratransit and courier systems will be
released on the Windows(R) platform. The AutoDisp and TranTrac systems
previously mentioned have always been Windows(R) based. The offering of a
Windows(R) based system is a marked transition for the Company. The DOS version
of TranWare has been in use throughout the US and Canada for over six years.
Since introduction, the Company has gained substantial industry knowledge as a
result of thousands of man-hours designing, installing and modifying the
software while working with its clients. TranWare has been designed in the field
with real world input. Even though Windows(R) based operating systems and end
user applications have been visible in the marketplace for a few years, vertical
business market software systems such as TranWare are generally still operating
on MS-DOS and Unix(R) based computers. Demonstration discs are generally
mass-produced by outsourced media producers and individual CD-ROM's are created
in house for clients. Demonstration copies and operating copies of TranWare are
also made available on the Company's Web site on a client-by-client basis.

Training. The licensing of the Company's software often requires the Company to
educate prospective customers on the use and benefits of the Company's products.
Company personnel often travel to customers to install and to configure the
software and provide training to the customer's employees. On-site training is
recommended, but is not always required, depending on the technical capabilities
of the client's staff. On-site assistance, if required is billed on a per day
basis, plus expenses in addition to the software licensing fees.

Service and support. Substantially all of the TranWare customers subscribe to
Company's service and support programs, which provide ongoing technical services
and, where applicable, product fixes and updates. The Company requires a support
contract with a one-year minimum with new sales. All customers are also required
to have remote connection available for support and upgrade functions. These
connections can be Internet or modem based. The Company provides documentation
and help assistance by toll-free telephone, Internet, fax and email. Customer
service representatives are available during normal business hours, Eastern
Time, and on an emergency basis at other times via an automated paging system.

Internet portal. The Company is currently designing an Internet portal to handle
corporate transportation reservations and distribute these reservations
electronically to users of TranWare. The Company intends to include an automated
invoicing feature that will automatically bill the corporate user on behalf of
the transportation provider.


                                       4
<PAGE>

Marketing. The Company markets TranWare in the United States and Canada. The
Company plans to use newly developed marketing materials to aggressively market
the entire TranWare suite of products. The Company attends five trade shows
throughout the year covering the various markets for its products and is an
associate member of the major trade associations, including the Taxi, Limousine
& Paratransit Association and the National Limousine Association.

Market changes. The market for the Company's software products and services is
characterized by technological advances and evolving standards. In addition,
changes in the transportation requirements and new product introductions by
others could render the Company's existing products obsolete. The Company's
future success depends upon its ability to enhance current products in a timely
fashion and to develop and introduce new products that keep pace with
technological developments and changes in the transportation industry. Further,
the Company's future success depends on the willingness of ground fleet
transportation companies to adopt new technologies.

Sales and implementation cycles. A new customer's purchase of TranWare involves
a significant commitment from management and personnel. In some cases, the
customer may experience an interruption in workflow during the installation
process. Such delays are not uncommon, however, when a business changes its
operating systems. The decision to implement TranWare is generally made at the
executive level. The period between initial indications of interest by a
customer and the ultimate sale and implementation of TranWare can be lengthy
(often ranging from three months to six months) and is subject to a number of
significant delays over which the Company has little or no control.

Competition. TranWare is not the only computer software solution of its type now
available to the ground transportation industry. The market for the Company's
products is intensely competitive and ever changing. A number of companies offer
competitive products addressing some of the Company's target markets, including
Trapeze Software in the paratransit market, Digital Dispatch Systems in the
mobile data dispatch market and Aleph Computer Systems in the limousine and
"black car" market. In contrast to the products of these competitors, which
address only one industry segment, or are even limited to a single need within
such segment, the Company's TranWare product modules address the needs of all
industry segments and all operational aspects of these segments. The Company's
competitors, while larger than the Company at the present time, do not have
significantly greater financial, technical and sales resources than the Company.

Proprietary Rights and Licenses. The Company's success and ability to compete
are substantially dependent upon protection of its proprietary technology. The
Company relies primarily on a combination of copyright and trademark laws,
confidentiality procedures and contractual provisions to protect its proprietary
technology. Despite the Company's efforts to protect its rights, other parties
may attempt to reverse engineer, copy or engage in unauthorized use of the
Company's proprietary information. The Company limits its use of third-party
technology to readily available public components, such as fax and credit card
drivers. The Company distributes TranWare under signed license agreements.
Policing unauthorized use of products is difficult, but the potential users of
TranWare are generally identifiable and it may be possible to detect
unauthorized use within the industry. At present, the Company does not believe
unauthorized use is a significant problem, if it exists at all.

Acquisitions

Beginning in January through August 2000, the Company acquired Inventek, Inc. in
exchange for one share of each of the Company's Series 2 and 3 Convertible
Preferred Stock, without dividend rights, and common stock purchase warrants.
The Series 2 Convertible Preferred Stock has a par value of $700,000 and
1,000,000 common stock purchase warrants valued at $380,000, for an aggregate
value of $1,080,000, for sixty-five percent of Inventek, Inc. The Company
acquired the remaining 35% of Inventek, Inc. in exchange for 300,000 shares of
the Company's common stock and 30,000 common stock purchase warrants at
exercisable at $.5250 per share (120% of the Company's closing price on the day
of closing). In connection with the acquisition, the Company agreed to
contribute up to $250,000 to Inventek, Inc. as additional paid-in capital.
Though June 30, 2001, the Company had contributed $229,000, and does not expect
that any additional contributions will be made. The Series 3 Convertible
Preferred Stock has not been issued. The par value of the Series 3 Convertible
Preferred Stock will be equal to two times net profits from software operations
for the twenty-four month period beginning February 2000, less $1 million in
initial consideration, not to exceed a cap of $5 million in the aggregate. The
Class 2 preferred stock is convertible into such number of shares as is
determined by dividing the par value by the average closing asked quotation of
the Company's common stock over the last five days prior to election of
conversion. The Class 3 preferred stock will be convertible into the Company's
common stock on the same basis as the Class 2 preferred stock, except the
applicable closing asked quotation will be from the last five days in the
twenty-four month period during which the par value is determined.


                                       5
<PAGE>

On June 13, 2000, the Company acquired two commercial office buildings in
Evansville, Indiana in exchange for shares of the Company's Series 4 and 5
Convertible Preferred Stock, without dividend rights, and stock purchase
warrants exercisable for the purchase of 750,000 shares of its common stock at a
price of $.15, $.35 and $.50 per share for each incremental 250,000 shares. The
buildings have been appraised at a value of $2,550,000 with the mortgages and
liens aggregating of approximately $1,200,000 at March 31, 2001. The Company has
treated the difference between the appraised value of the assets acquired and
the liabilities assumed as the value of the Series 4 preferred stock. The
transaction resulted in goodwill in the amount of $117,200. These properties are
held for investment for the purpose of securing credit facilities and meeting
capital requirements for licensing standards. The Series 5 preferred stock was
issued in connection with the property acquisition, with the par value of the
Series 5 preferred stock equal to two and one half times net profit from
mortgage operations, less not more than 50% of the parent company's expenses
before depreciation and amortization, during the eighteen month period
commencing July 2000. In February of 2001, that person's employment by the
Company was terminated for cause, with the consequence that he will not assist
in the continual development of the Company's mortgage lending business. The
Company intends to reduce the par value of the Series 4 preferred stock and to
cancel the Series 5 preferred stock, which could result in litigation.

Bankruptcy Proceeding

On March 10, 1999, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code in the Southern District of Florida, case
number 99-31134-BKC-PGH. On July 6, 1999, the bankruptcy court confirmed a Plan
of Reorganization effective August 2, 1999, whereby creditors' claims that were
approved by the court were satisfied by the issuance of one share of the
Company's common stock in exchange for each dollar of debt of the approved
claim. As a result, the Company was discharged from any debt that arose before
the date of confirmation. As a result of the confirmation of the Reorganization
Plan, the Company is no longer threatened by any litigation, claims, and
assessments, which may have existed as of December 31, 1998. The Company's
Reorganization Plan provided for an infusion of up to $800,000 in loans secured
by the Company's assets. The Company received $311,920, net of expenses of
$106,900, of funding under the Plan. The lender had the option of converting the
loan to common stock of CFI at a rate of 2% of the Company's shares outstanding
per $80,000 funded to the Company after the effective date of the Plan.
Conversion of this debt resulted in the issuance of 2,004,986 shares. The Plan
included claims by two financial institutions in the aggregate amount of $4
million. The Company issued 2,400,000 shares of its common stock in satisfaction
of these claims, resulting in the recognition of forgiveness of debt amounting
to $3,100,000. The Company also had certain non-priority claims of $83,328 by
employees and former employees for unpaid compensation. During the Chapter 11
proceeding in 1999, certain non-management employees were issued 750,000
warrants for the purchase of one share of common stock of CFI at $.39 per share
in satisfaction of claims totaling $83,328. The price represented 125% of the
bid price on the effective date of the bankruptcy plan, August 2, 1999. None of
these warrants have been exercised at the present time. Additionally, the
Company issued 68,415 shares of its common stock in satisfaction of $68,415 of
liabilities to general creditors. The Company's Series "A", "B" and "C"
convertible preferred stock received an aggregate of 4.5 million shares of
common stock in the reorganization. The Company's reorganization under Chapter
11 was triggered primarily by the loss of the Company's credit facilities in
November 1998 and did not resume its mortgage business until the third quarter
of fiscal 2000. On August 10, 2001, the Company received its Entry of Final
Decree from the United States Bankruptcy Court, Southern District of Florida,
regarding its chapter 11 bankruptcy with the case being officially closed.

Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000

Results of Operations

The results of operations for the three months ended June 30, 2000 reflect only
one month of mortgage related revenue, as the Company did not begin any mortgage
operations until June 2000.


                                       6
<PAGE>

The Company recognized a loss from operations of $1,413,137 for the three months
ended June 30, 2001 compared to a loss of $855,450 for the comparable period in
2000 an increase of $557,687. This large increase is primarily the result of the
termination of the warehouse line of credit that was due in part to the
unauthorized misrepresentations by a former officer of the Company in the
initial credit application. As a result, the Company had to shut down and
restart the entire mortgage operation with new employees, brokers and a new
warehouse line of credit. The Company is confident that it is now positioned
with these changes in place to move forward with an improved 3rd quarter, and a
strong 4th quarter. This resulted in a loss per share of $.05 from continuing
operations for the three months ended June 30, 2001 compared to a loss per share
of $0.10 from continuing operations for the same period in 2000. The net loss
available to stockholders for the three months ended June 30, 2001 is $1,464,649
compared to $1,365,910 for the same period in 2000, an increase of $98,739.

Total revenues decreased $63,410 to $248,446 for the three months ended June 30,
2001 compared to $311,856 for the same period in 2000. The decrease is the
result of shutting down and restarting the entire mortgage operation resulting
from the unauthorized misrepresentation on the credit application with the
Company's warehouse lender perpetrated by a former officer, which resulted in
the termination of the Company's warehouse line. In February 2001, the Company
discovered that this same officer who was responsible for overseeing the
Company's mortgage lending operations had diverted approximately $54,000 in
mortgage payment checks due to the Company to his own company. The Company
believes that all the funds are in an account that has been frozen and is
confident that it will be able to recover the funds in civil litigation.

Total operating expenses increased $494,277 or 29% to $1,661,583 for the three
months ended June 30, 2001 compared to $1,167,306 for the same period in 2000.
Selling expenses increased $48,072 or 24% to $199,665 for the three months ended
June 30, 2001 compared to $151,593 for the same period in 2000. The primary
reason for this was an increase of $122,581 or 74% to $165,425 for salaries and
commissions related to the mortgage operation compared to $42,844 for the same
period in 2000. General and administrative expenses increased $24,279 or 2% to
$1,031,664 for the three months ended June 30, 2001 compared to $1,007,385 for
the same period in 2000. Salaries expense decreased $92,080 or 13% to $676,694
for the three months ended June 30, 2001 compared to $768,774 for the same
period in 2000. Primarily due to a reduction in executive officers for the three
months ended June 30, 2001. Rent expense increased $22,780 or 40% to $56,875 for
the three months ended June 30, 2001 compared to $34,095 for the same period in
2000, due to the renting of additional office space resulting from increased
operations. Legal fees increased $33,783 or 84% to $39,993 for the three months
ended June 30, 2001 compared to $6,210 for the same period in 2000. The primary
reason is for fees incurred in the finalization of the bankruptcy, and ongoing
litigation. Depreciation and Amortization expense increased $79,751 or 57% to
$138,373 for the three months ended June 30, 2001 compared to $58,622 for the
same period in 2000. Interest expense increased $33,758 or 80% to $42,086 for
the three months ended June 30, 2001 compared to $8,328 for the same period in
2000. The increase is the result of interest expense charged for loans on the
warehouse line until sold for the three months ended June 30, 2001. The Company
experienced a loss on sale of mortgages of $388,168 for the three months ended
June 30, 2001 compared to none for the same period in 2000.

Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000

Results of Operations

The results of operations for the six months ended June 30, 2000 reflect only
one month of mortgage related revenue, as the Company did not begin any mortgage
operations until June 2000. The Company recognized a loss from operations of
$1,830,347 for the six months ended June 30, 2001 compared to a loss of
$1,063,688 for the comparable period in 2000 an increase of $766,659. This large
increase is primarily the result of the termination of the warehouse line of
credit that was due in part to the unauthorized misrepresentations by a former
officer of the Company in the initial credit application. As a result, the
Company had to shut down and restart the entire mortgage operation with new
employees, brokers and a new warehouse line of credit. The Company is confident
that it is now positioned with these changes in place to move forward with an
improved 3rd quarter, and a strong 4th quarter.


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<PAGE>

This resulted in a loss per share of $.07 from continuing operations for the six
months ended June 30, 2001 compared to a loss per share of $0.10 from continuing
operations for the same period in 2000. The net loss available to stockholders
for the six months ended June 30, 2001 is $1,906,859, compared to a loss of
$1,474,148 for the same period in 2000, and increase of $432,711.

Total revenues increased $607,993 or 58% to $1,043,998 for the six months ended
June 30, 2001 compared to $436,005 for the same period in 2000. The increase is
the direct result of six months of mortgage related operations for the six
months ended June 30, 2001, as compared to only one month for the comparable
period in 2000. The vast majority of the increase occurred in the 1st. quarter
of 2001. With the termination of the warehouse line of credit that was due in
part to the unauthorized misrepresentations by a former officer of the Company
in the initial credit application; the Company had to shut down and restart the
entire mortgage operation in the 2nd. quarter of 2001. This action, while
dramatically reducing revenue in the 2nd. quarter of 2001, will enable the
Company to move forward with increased revenue in the 3rd. quarter, along with a
very strong 4th. quarter. In February 2001, the Company discovered that this
same officer who was responsible for overseeing the Company's mortgage lending
operations had diverted approximately $54,000 in mortgage payment checks due to
the Company to his own company. The Company believes that all the funds are in
an account that has been frozen and is confident that it will be able to recover
the funds in civil litigation.

Total operating expenses increased $1,374,652 or 47% to $2,874,345 for the six
months ended June 30, 2001 compared to $1,499,693 for the same period in 2000.
Selling expenses increased $370,003 or 67% to $549,779 for the six months ended
June 30, 2001 compared to $179,776 for the same period in 2000. The primary
reason for this was an increase of $458,552 or 94% for salaries and commissions
related to the mortgage operation compared to $28,645 for the same period in
2000. General and administrative expenses increased $363,149 or 21% to
$1,666,677 for the six months ended June 30, 2001 compared to $1,303,528 for the
same period in 2000. Salaries expense decreased $85,152 or 9% to $857,954 for
the six months ended June 30, 2001 compared to $943,106 for the same period in
2000. Primarily due to a reduction in executive officers for the three months
ended June 30, 2001. Employee benefits and related payroll taxes increased
$84,926 or 66% to $127,921 for the six months ended June 30, 2001 compared to
$42,995 for the same period in 2000. The increase is the result of the addition
of employees related to the mortgage operations. Accounting and legal fees
increased $115,423 or 80% to $144,158 for the six months ended June 30, 2001
compared to $28,735 for the same period in 2000. The increase is due to fees
incurred for the year-end 10-KSB, and the first two-quarter's 10-QSB, as well as
the finalization of the bankruptcy, and ongoing litigation. Rent expense
increased $45,957 or 47% to $96,185 for the six months ended June 30, 2001
compared to $50,228 for the same period in 2000, due to the renting of
additional office space resulting from increased operations. Depreciation and
Amortization expense increased $132,043 or 57% to $230,894 for the six months
ended June 30, 2001 compared to $98,851 for the same period in 2000. Interest
expense increased $253,332 or 93% to $269,721 for the six months ended June 30,
2001 compared to $16,389 for the same period in 2000. The increase is the result
of interest expense charged for loans on the warehouse line until sold. The
Company experienced a loss on sale of mortgages of $388,168 for the six months
ended June 30, 2001 compared to none for the same period in 2000

Liquidity and Capital Resources

The Company has been dependent on stock sales and third party borrowings to
sustain its operations. In April 2000, the Company sold 1,787,143 shares of
common stock plus 1,787,143 warrants to purchase one share of CFI common stock
at $1.67 per share in a private placement for $500,400. Going forward, the
Company believes that cash flow from operations will be sufficient to fund
operations. However, if additional funds are needed to support working capital
or to complete acquisitions, the Company would seek to raise such funds through
one or more public or private financing of equity, or from other sources. There
is no assurance any such additional financing, if needed, will be available or,
if available, that it would be on terms acceptable to the Company.

Net cash provided by operating activities was $12,064,048 for the six months
ended June 30, 2001 compared to net cash used in operations of $138,955 for the
comparable period in 2000. The increase is primarily due to the selling of the
mortgage loans held for resale on the Company's warehouse line. Accrued expenses
and other current liabilities decreased $305,378 from $1,915,108 for the six
months ended June 30, 2000 to $1,609,730 for the comparable period in 2001,
primarily due to a reduction in accrued compensation to officers.


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<PAGE>

Net cash of $14,128 was used in investing activities for the six months ended
June 30, 2001 compared to net cash used in investing activities of $156,887 for
the comparable period in 2000. The change is primarily due to no expenses
generated for software development costs for the six months ended June 30, 2001
compared to $115,969 for the comparable period in 2000.

Net cash of $11,932,050 was used in financing activities for the six months
ended June 30, 2001 compared to net cash provided by financing activities of
$508,153 for the comparable period in 2000. This was primarily the result of
payment of warehouse credit facility.

Working capital at June 30, 2001 was a deficit of $2,364,945 compared with a
deficit of $1,675,551 for the comparable period in 2000. The increase of
$689,394 or 29% in the deficit is primarily the result of additional liabilities
incurred in relation to additional fundraising by the Company.


                          Part II - Other Information

ITEM 1: Legal Proceedings.

In the ordinary course of its business, the Company forecloses on real estate
securing mortgage loans in default and may be involved in other legal
proceedings as a plaintiff or a defendant, none of which the Company believes
will be material.

As a result of the closing of the Chapter 11 bankruptcy by the court, the
Company is no longer threatened with any litigation, claims or assessments,
which may have existed prior to the granting of this Decree by the court.

A former executive officer and director was terminated for cause on February 2,
2001. This person holds one share of the Company's Class 4 convertible preferred
stock and one share of the Company's Class 5 convertible preferred stock. The
original par value of the Class 4 convertible preferred stock was equal to the
value of the commercial real estate in Evansville, Indiana acquired by the
Company, less mortgages, liens and encumbrances, which are now in dispute. The
par value of the Class 5 preferred stock is to be equal to two and one half
times the "net profits" from the Company's mortgage lending operation for the
eighteen-month period beginning July 2000. The Company intends to reduce the par
value of its Class 4 preferred stock held by this person by an amount equal to
undisclosed liens on the commercial real estate, which the Company acquired from
this person; furthermore, the Company intends to modify the par value of the
Class 5 preferred stock. This person may seek to enforce the Company's full
obligations under the Class 4 and 5 preferred stock. The Company is presently
involved in a civil suit to recover the embezzled funds, which are in a bank
account that has been frozen, and bonded by the court.

This same individual has filed suit against the Company and the Company's CEO
for alleged breaches of contracts and return of personal property. The parties
have a settlement conference scheduled for sometime in September of 2001.
Management is prepared to vigorously defend this suit, and is of the opinion
that it will not have a material impact on the financial statements.

Item 2. Changes in Securities

None

Item 3. Defaults Upon Senior Securities

None

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

None

Item 5. Other Information

None


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

None

SIGNATURES

In accordance with the requirements of Section 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.


                                        CFI MORTGAGE INC.
                                       (Registrant)


Date: August 20, 2001                   /s/ Stephen E. Williams
                                        ----------------------------------------
                                        Stephen E. Williams
                                        President and Chief Executive Officer


Date: August 20, 2001                   /s/ Daniel M. Brown
                                        ----------------------------------------
                                        Daniel M. Brown
                                        Chief Financial Officer and Principal
                                        Accounting Officer


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