<PAGE>   1
                                                                EXHIBIT 99.2


                               TABLE OF CONTENTS


FINANCIAL STATEMENTS - NEW VALLEY CORPORATION


<TABLE>
<CAPTION>
                                                                     Page
                                                                     ----
         <S>                                                         <C>

         Consolidated Balance Sheets as of September 30, 1996 and
            December 31, 1995.........................................   3

         Consolidated Statements of Operations for the three months
            and nine months ended September 30, 1996 and 1995.........   4

         Consolidated Statement of Changes in Non-Redeemable
            Preferred Shares, Common Shares and Other Capital
            (Deficit) for the nine months ended September 30, 1996....   5

         Consolidated Statements of Cash Flows for the nine months
            ended September 30, 1996 and 1995.........................   6

         Notes to the Quarterly Consolidated Financial Statements.....   7

</TABLE>






<PAGE>   2


                    NEW VALLEY CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)



<TABLE>
<S>                                                       <C>            <C>
                                                          September 30,  December 31,
                                                              1996           1995
                                                          -------------  ------------
ASSETS
Current assets:
 Cash and cash equivalents                                   $  38,559     $  51,742
 Investment securities                                         164,592       241,526
 Restricted assets                                               1,469        22,919
 Receivable from clearing brokers                               22,671        13,752
 Other current assets                                            6,874         3,546
                                                             ---------     ---------
  Total current assets                                         234,165       333,485
                                                             ---------     ---------
Investment in real estate                                      182,125
Investment securities                                              517           517
Restricted assets                                                7,525        15,086
Long-term investments                                           12,876        29,512
Other assets                                                    16,181         7,222
                                                             ---------     ---------
  Total assets                                               $ 453,389     $ 385,822
                                                             =========     =========
LIABILITIES AND CAPITAL (DEFICIT)

Current liabilities:
 Margin loan payable                                         $  75,863     $  75,119
 Accounts payable and accrued liabilities                       37,278        27,712
 Prepetition claims and restructuring accruals                  26,669        33,392
 Income taxes                                                   17,254        20,283
 Securities sold, not yet purchased                             22,804        13,047
 Current portion of long-term liabilities                        3,424         8,367
                                                            ----------     ---------
  Total current liabilities                                    183,292       177,920
                                                            ----------     ---------
Notes payable                                                  159,494
Other long-term liabilities                                     12,966        11,967

Redeemable preferred shares                                    201,318       226,396

Non-redeemable preferred shares, Common Shares and
 capital (deficit):
  Cumulative preferred shares; liquidation preference of
   $69,769; dividends in arrears: $110,476 and $95,118             279           279
  Common Shares, $.01 par value; 850,000,000 shares
   authorized; 9,577,624 and 191,551,586 shares
   outstanding                                                      96         1,916
  Additional paid-in capital                                   654,007       679,058
  Accumulated deficit                                         (736,454)     (714,364)
  Unrealized gain (loss) on investment
   securities, net of taxes                                    (21,609)        2,650
                                                             ---------     ---------
 Total non-redeemable preferred shares, Common
 Shares and other capital (deficit)                           (103,681)      (30,461)
                                                             ---------     ---------

Total liabilities and capital (deficit)                      $ 453,389     $ 385,822
                                                             =========     =========
</TABLE>

     See accompanying Notes to Quarterly Consolidated Financial Statements


                                      -3-




<PAGE>   3

                    NEW VALLEY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)



<TABLE>
<CAPTION>
                                                             Three Months Ended      Nine Months Ended
                                                            ---------------------  ----------------------
                                                                September 30,          September 30,
                                                            ---------------------  ----------------------
                                                               1996       1995        1996        1995
                                                            ----------  ---------  ----------  ----------
<S>                                                           <C>         <C>        <C>         <C>
Revenues:
 Principal transactions, net                                  $  3,926   $  7,864   $ 18,836   $ 10,465
 Commissions                                                     4,700      4,161     13,383      5,899
 Real estate leasing                                             5,941                17,605
 Computer sales and service                                      2,987                 9,084
 Interest and dividends                                          4,230      3,947     14,056     14,516
 Other income                                                    2,479      5,542     19,830      8,335
                                                              --------   --------   --------   --------

    Total revenues                                              24,263     21,514     92,794     39,215
                                                              --------   --------   --------   --------

Cost and expenses:
 Operating, general and administrative                          28,373     18,194     96,757     27,864
 Interest                                                        4,627        242     13,890        369
 Reversal of restructuring accruals                                                              (2,044)
                                                              --------   --------   --------   --------

   Total costs and expenses                                     33,000     18,436    110,647     26,189
                                                              --------   --------   --------   --------

Income (loss) from continuing operations before income taxes
and minority interest                                           (8,737)     3,078    (17,853)    13,026

Income tax benefit (expense)                                       233       (294)       (67)    (1,327)
                                                              --------   --------   --------   --------

Income (loss) from continuing operations
before minority interest                                        (8,504)     2,784    (17,920)    11,699

Minority interest benefit                                          776                 1,226
                                                              --------   --------   --------   --------
Income (loss) from continuing operations                        (7,728)     2,784    (16,694)    11,699

Discontinued operations:
 Income (loss) from discontinued operations,
  net of income taxes and minority interest                     (4,716)       235     (5,396)     4,315
                                                              --------   --------   --------   --------
Net income (loss)                                              (12,444)     3,019    (22,090)    16,014

Dividends on preferred shares - undeclared                     (15,400)   (17,597)   (46,508)   (56,656)
Excess of carrying value of redeemable preferred
 shares over cost of shares purchased                                       6,718      4,279     40,342
                                                              --------   --------   --------   --------

Net loss applicable to Common Shares                          $(27,844)  $ (7,860)  $(64,319)  $   (300)
                                                              ========   ========   ========   ========
Income (loss) per common and equivalent share:
 Continuing operations                                        $  (2.42)  $   (.84)  $  (6.16)  $   (.48)
 Discontinued operations                                          (.49)       .02       (.56)       .45
                                                              --------   --------   --------   --------

 Net loss per Common Share                                    $  (2.91)  $   (.82)  $  (6.72)  $   (.03)
                                                              ========   ========   ========   ========

Number of shares used in computation                             9,578      9,578      9,578      9,543
                                                              ========   ========   ========   ========

Supplemental information:
 Additional interest absent Chapter 11 filing                                                  $  2,314
                                                                                               ========
</TABLE>

     See accompanying Notes to Quarterly Consolidated Financial Statements

                                     - 4 -



<PAGE>   4


                    NEW VALLEY CORPORATION AND SUBSIDIARIES
         CONSOLIDATED STATEMENT OF CHANGES IN NON-REDEEMABLE PREFERRED
               SHARES, COMMON SHARES AND OTHER CAPITAL (DEFICIT)
                                 (IN THOUSANDS)
                                  (UNAUDITED)






<TABLE>
<CAPTION>
                                         $3.00 Class B
                                        Preferred Shares      Common Shares    Additional
                                       -----------------      -------------    Paid-In      Acumulated    Unrealized
                                         Shares  Amount     Shares     Amount  Capital        Deficit    Gain (Loss)
                                         ------  ------   ---------    ------  ----------     -------    -----------
<C>                                       <C>     <C>       <C>        <C>      <C>           <C>         <C>
Balance, December 31, 1995                2,791    $279     191,551    $1,916   $679,058    $(714,364)    $  2,650

 Net loss                                                                                     (22,090)
 Undeclared dividends and accretion
  on redeemable preferred shares                                                 (31,150)
 Purchase of redeemable preferred
  shares                                                                           4,279
 Unrealized loss in marketable
  securities                                                                                               (24,259)
 Effect of 1-for-20 reverse stock split                   (181,974)    (1,820)     1,820
 Conversion of preferred shares                                   1

                                          -----    ----   ---------   -------   --------    ----------    --------
Balance, September 30, 1996               2,791    $279       9,578       $96   $654,007    $(736,454)    $(21,609)
                                          =====    ====   =========   =======   ========    ==========    ========
</TABLE>


     See accompanying Notes to Quarterly Consolidated Financial Statements


                                     - 5 -



<PAGE>   5


                    NEW VALLEY CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (DOLLARS IN THOUSANDS)
                                  (UNAUDITED)


<TABLE>
<CAPTION>

                                                                 Nine Months Ended
                                                                   September 30,
                                                                 1996         1995
                                                             ----------   -----------
<S>                                                           <C>          <C>
Cash flows from operating activities:
 Net income (loss)                                            $(22,090)    $ 16,014
 Adjustments to reconcile net income to net
  cash used for operating activities:
  (Income) loss from discontinued operations                     5,396       (4,315)
  Depreciation and amortization                                  3,507
  Reversal of restructuring accruals                                         (2,044)
  Changes in assets and liabilities, net of effects from
   acquisition:
    Decrease (increase) in receivables and other assets         (5,963)       1,925
    Decrease in income taxes                                    (3,029)     (30,996)
    Increase in accounts payable and accrued liabilities         8,786        8,197
                                                              --------     --------

Net cash used for operating activities                         (13,393)     (11,219)
                                                              --------     --------
Cash flows from investing activities:
  Purchase of real estate and related improvements             (24,882)
  Payment of prepetition claims                                 (6,723)    (571,841)
  Collection of contract receivable                                         300,000
  Decrease in restricted assets                                 29,011      325,718
  Sale or maturity of investment securities                     70,319       95,796
  Purchase of investment securities                            (17,644)    (293,518)
  Sale or liquidation of long-term investments                  14,500
  Purchase of long-term investments                             (2,639)     (65,550)
  Payment for acquisition, net of cash acquired                  1,915      (25,853)
                                                              --------     --------

Net cash provided from (used for) investing activities          63,857     (235,248)
                                                              --------     --------
Cash flows from financing activities:
  Payment of preferred dividends                                (41,419)   (132,162)
  Purchase of redeemable preferred shares                       (10,530)    (47,761)
  Increase in margin loans payable                                  744      54,945
  Repayment of long-term liabilities                             (8,888)     (7,561)
  Exercise of stock options                                                     565
                                                              ---------    --------

Net cash used for financing activities                         (60,093)    (131,974)
                                                              --------     --------

Net cash (used for) provided from discontinued operations       (3,554)       7,002
                                                              --------     --------

Net decrease in cash and cash equivalents                      (13,183)    (371,439)
Cash and cash equivalents, beginning of period                  51,742      376,170
                                                              --------     --------

Cash and cash equivalents, end of period                      $ 38,559     $  4,731
                                                              ========     ========
Supplemental Cash Flow Information:

 Cash payments for income taxes                               $  4,171     $ 33,025
                                                              ========     ========
</TABLE>



     See accompanying Notes to Quarterly Consolidated Financial Statements



                                      - 6-



<PAGE>   6


                    NEW VALLEY CORPORATION AND SUBSIDIARIES
              NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)



1. PRINCIPLES OF REPORTING

   The consolidated financial statements include the accounts of New Valley
   Corporation and Subsidiaries (the "Company").  The consolidated financial
   statements as of September 30, 1996 presented herein have been prepared by
   the Company without an audit.  In the opinion of management, all adjustments,
   consisting only of normal recurring adjustments, necessary to present fairly
   the financial position as of September 30, 1996 and the results of operations
   and cash flows for all periods presented have been made.  Results for the
   interim periods are not necessarily indicative of the results for the entire
   year.

   The preparation of financial statements in conformity with generally accepted
   accounting principles requires management to make estimates and assumptions
   that affect the reported amounts of assets and liabilities and disclosure of
   contingent assets and liabilities at the date of the financial statements and
   the reported amounts of revenues and expenses during the reporting period.
   Actual results could differ from those estimates.

   These financial statements should be read in conjunction with the
   consolidated financial statements and the notes thereto included in the
   Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
   filed with the Securities and Exchange Commission.

   Reincorporation and Reverse Stock Split.  On July 29, 1996, the Company
   completed its reincorporation from the State of New York to the State of
   Delaware and effected a one-for-twenty reverse stock split of the Company's
   Common Shares.  These changes were approved by the Company's shareholders at
   the annual shareholders' meeting held on June 25, 1996.  In connection with
   the reverse stock split, all per share data have been restated to reflect
   retroactively the reverse stock split and a total of $1,820 was reclassified
   from the Company's Common Shares account to the Company's additional paid-in
   capital account.

   Real Estate Leasing Revenues.  The real estate properties are being leased
   to tenants under operating leases.  Base rental revenue is generally
   recognized on a straight-line basis over the term of the lease.  The lease
   agreements for certain properties generally contain provisions which provide
   for reimbursement of real estate taxes and operating expenses over base year
   amounts, and in certain cases as fixed increases in rent.  In addition, the
   lease agreements for certain tenants provide additional rentals based upon
   revenues in excess of base amounts.

   Revenue Recognition of Computer Sales and Services.  Product revenues are
   recognized when the equipment is shipped or, in certain circumstances, upon
   product acceptance by the customer if it occurs prior to shipment.  Contract
   revenues are recognized as the related costs are incurred.  Service revenues
   are recognized over the period in which the services are provided.


2. ACQUISITIONS

   On January 10 and January 11, 1996, the Company acquired four commercial
   office buildings (the "Office Buildings") and eight shopping centers (the
   "Shopping Centers") for an aggregate purchase price of $183,900, consisting
   of $23,900 in cash and $160,000 in

                                      -7-




<PAGE>   7

                    NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)



   non-recourse mortgage financing.  In addition, the Company has capitalized
   approximately $800 in costs related to the acquisitions.  The Company paid
   $11,400 in cash and executed four promissory notes aggregating $100,000 for
   the Office Buildings.  The Office Building notes bear interest at 7.5% and
   have terms of ten to fifteen years.  The Shopping Centers were acquired for
   an aggregate purchase price of $72,500, consisting of $12,500 in cash and
   $60,000 in eight promissory notes.  Each Shopping Center note has a term of
   five years, and bears interest at the rate of 8% for the first two and
   one-half years and at the rate of 9% for the remainder of the term.

   The components of the Company's investment in real estate at September 30,
   1996 are as follows:


       <TABLE>
       <S>                              <C>
       Land                               $ 38,921
       Buildings                           145,789
       Construction-in-progress                114
                                          --------
       Total                               184,824
       Less:  accumulated depreciation      (2,699)
                                          --------
       Net investment in real estate      $182,125
                                          ========
</TABLE>

   On January 11, 1996, the Company provided a $10,600 convertible bridge loan
   to finance Thinking Machines Corporation ("TMC"), a developer and marketer
   of software for high-end and networked computer systems.  In February 1996,
   the bridge loan was converted into a controlling interest in a partnership
   which holds 3.3 million common shares of TMC which represent 61.4% of the
   outstanding shares. The acquisition of TMC through the conversion of the
   bridge loan was accounted for as a purchase for financial reporting
   purposes, and accordingly, the operations of TMC subsequent to January 31,
   1996 are included in the operations of the Company. The fair value of assets
   acquired, including goodwill of $1,726, was $27,301 and liabilities assumed
   totaled $7,613. In addition, minority interests in the amount of $9,088 was
   recognized at the time of acquisition.

   The following table presents unaudited pro forma and actual results of
   continuing operations as if the acquisitions of Ladenburg, Thalmann & Co.,
   Inc., TMC, and the Office Buildings and Shopping Centers, had occurred on
   January 1, 1995.  These pro forma results have been prepared for comparative
   purposes only and do not purport to be indicative of what would have occurred
   had each of these acquisitions been consummated as of such date.


<TABLE>
<CAPTION>
                                       Three Months Ended          Nine Months Ended
                                         September 30,               September 30,
                                    ------------------------  ------------------------
                                       1996         1995         1996        1995
                                    -----------  -----------  ----------- ------------
                                      Actual                    Pro Forma
                                    -----------  -------------------------------------
<S>                                   <C>           <C>         <C>          <C>
Revenues                              $ 24,263      $31,674     $ 93,922      $95,202
                                      ========      =======     ========      =======
Net (loss) income                     $ (7,728)     $ 2,822     $(16,942)     $12,214
                                      ========      =======     ========      =======
Net (loss) income applicable to
common shares                         $(23,128)     $(8,057)    $(59,171)     $(4,100)
                                      ========      =======     ========      =======
Net (loss) income per common share    $  (2.42)     $  (.84)    $  (6.18)     $  (.43)
                                      ========      =======     ========      =======
</TABLE>



                                      -8-



<PAGE>   8

                    NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

3. DISCONTINUED OPERATIONS


   In October 1996, TMC adopted a plan to terminate its parallel processing
   computer segment. Consequently, the operating results of this segment have
   been classified as discontinued operations. In September 1996, TMC
   wrote-down certain assets, principally inventory, related to these
   operations to their net realizable value by $6,100, which is included in the
   loss on discontinued operations.  No material gain or loss in the disposal
   of the segment is anticipated as any gain from the sale of the segment would
   offset the operating losses expected during the phase-out period.

   Effective October 1, 1995, the Company sold its messaging services business.
   Accordingly, the financial statements reflect the financial position and
   the results of operations of the messaging services business as discontinued
   operations for the periods prior to the sale.

   Operating results of the discontinued operations are as follows:



<TABLE>
<CAPTION>
                                          Three Months Ended        Nine Months Ended
                                        ----------------------  -------------------------
                                            September 30,             September 30,
                                        ----------------------  -------------------------
                                           1996        1995       1996          1995
                                        ----------  ----------  ---------  --------------
<C>                                     <C>         <C>         <C>        <C>
Parallel Processing Computer Business:
Revenues                                  $   331                $ 3,031
                                          =======                =======
Operating loss                            $(7,687)               $(8,795)
Minority interest benefit                   2,971                  3,399
                                          -------                -------
Loss from discontinued operations         $(4,716)               $(5,396)
                                          =======                =======
Messaging Service Business:
Revenues                                              $11,109                    $37,771
                                                      =======                    =======
Operating income                                      $   260                    $ 4,795
Income tax expense                                        (25)                      (480)
                                                      -------                    -------
Income from discontinued operations                   $   235                    $ 4,315
                                                      =======                    =======
</TABLE>

4. INCOME TAXES

   At September 30, 1996, the Company had net operating loss carryforwards of
   approximately $190,000 which expire at various dates through 2007.  A
   valuation allowance has been provided against the amount as it is deemed
   more likely than not that the benefit of the tax asset will not be utilized.
   The Company continues to evaluate the realizability of the deferred tax
   assets.  The income tax expense or benefit, which represented the effects of
   state income taxes, for the three and nine months ended September 30, 1996
   and 1995, does not bear a customary relationship with pre-tax accounting
   income principally as a consequence of the change in the valuation allowance
   relating to deferred tax assets.


5. INVESTMENT SECURITIES

   Investment securities classified as available for sale are carried at fair
   value, with a net unrealized loss of $21,609 ($22,839 of unrealized losses
   and $1,230 of unrealized gains) as of September 30, 1996, included as a
   separate component of stockholders' equity (deficit).

                                      -9-


<PAGE>   9

                    NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)


   The Company had net realized losses on sales of investment securities
   available for sale of $1,078 for the three months ended September 30, 1996
   and net realized gains on sales of investment securities available for sale
   of $2,114 for the nine months ended September 30, 1996.

   As of September 30, 1996, the Company, through a wholly-owned subsidiary,
   held approximately 4.95 million shares of RJR Nabisco Holdings Corp. ("RJR
   Nabisco") common stock, par value $.01 per share (the "RJR Nabisco Common
   Stock"), with a market value of $129,247 (cost of $151,650).  The Company's
   investment in RJR Nabisco collateralizes margin loan financing of $75,863 at
   September 30, 1996.  This margin loan bears interest at .25% below the
   broker's call rate (6.0% at September 30, 1996).  From the period October 1,
   1996 to November 8, 1996, the Company sold approximately 1.78 million shares
   of RJR Nabisco Common Stocks and recognized a loss of $3,648.  As of
   November 8, 1996, the Company held approximately 3.17 million shares of RJR
   Nabisco Common Stock with a market value of $96,815 (cost of $97,302),
   collateralizing margin loan financing of $23,158. The Company's unrealized
   loss in its investment in RJR Nabisco Common Stock decreased from $22,403 at
   September 30, 1996 to $487 at November 8, 1996.

   For the three months and nine months ended September 30, 1996, the Company
   expensed $791 and $11,158, respectively, for costs relating to the RJR
   Nabisco investment.  The Company has paid $2,361 to Brooke Group Ltd.
   ("Brooke"), an affiliate of the Company, pursuant to the December 27, 1995
   agreement with Brooke in which the Company agreed, among other things, to pay
   directly or reimburse Brooke and its subsidiaries for out-of-pocket expenses
   in connection with Brooke's solicitation of consents and proxies from the
   shareholders of RJR Nabisco, of which $942 was expensed during the nine
   months ended September 30, 1996.

   The details of the investment categories by type of security at September 30,
   1996 are as follows:


<TABLE>
<CAPTION>

                                                                Fair
                                                     Cost       Value
                                                   ---------  ---------
<C>                                                 <C>        <C>
Available for sale:
    Marketable equity securities:
      RJR Nabisco Common Stock                       $151,650   $129,247
      Other marketable securities                       2,463      3,257
                                                     --------   --------
      Total marketable securities                     154,113    132,504
    Marketable debt securities (long-term)                517        517
                                                     --------   --------
    Total securities available for sale               154,630    133,021
                                                     --------   --------
Trading securities (Ladenburg):
    Marketable equity securities                       19,611     20,492
    Equity and index options                            7,803      8,548
    Other securities                                    3,647      3,048
                                                     --------   --------
    Total trading securities                           31,061     32,088
                                                     --------   --------
Total investment securities                           185,691    165,109
Less long-term portion of investment securities          (517)      (517)
                                                     --------   --------
Investment securities - current portion              $185,174   $164,592
                                                     ========   ========
</TABLE>

   The long-term portion of investment securities at cost consists of
   marketable debt securities which mature in three years.

                                      -10-

<PAGE>   10



                    NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

   Long-Term Investments.  At September 30, 1996, long-term investments
   included investments in limited partnerships of $6,688, equity in a joint
   venture of $3,796, an equity investment in a foreign corporation of $2,000,
   and other investments of $392.  During the first quarter of 1996, the
   Company liquidated its position in two limited partnerships with an
   aggregate carrying amount of $14,500 and recognized a gain on such
   liquidations of $4,086.  In July 1996, the Company sold its investment in a
   Brazilian airplane manufacturer (the "Brazilian Investment") for $8,285 in
   cash, which included $1,300 as reimbursement of the Company's expenses
   related to this investment.  The Company, after writing down this investment
   by $8,698 in 1995, recognized a gain on the sale of the Brazilian Investment
   of $4,285 in July 1996 representing a partial recovery of the impaired
   carrying value.  In June 1996, the Company determined that an other than
   temporary impairment in the value of its minority equity interest in a
   computer software company had occurred and, accordingly, $1,001 was provided
   as an impairment charge.

   The fair value of the Company's long-term investments approximates its
   carrying amount.  The Company's estimate of the fair value of its long-term
   investments are subject to judgment and are not necessarily indicative of
   the amounts that could be realized in the current market.

   RJR Nabisco Equity Swap.  On February 29, 1996, the Company entered into a
   total return equity swap transaction (the "Swap") with an unaffiliated
   company relating to 1,000,000 shares of RJR Nabisco Common Stock.  During 
   the third quarter of 1996, the Company terminated the Swap and recognized a
   loss on the Swap of $4,074 and $7,305 for the three months and nine months 
   ended September 30, 1996, respectively.

6. REDEEMABLE PREFERRED SHARES

   At September 30, 1996, the Company had authorized and outstanding 2,000,000
   and 1,035,462, respectively, of its Class A Senior Preferred Shares.  At
   September 30, 1996 and December 31, 1995, respectively, the carrying value
   of such shares amounted to $201,318 and $226,396, including undeclared
   dividends of $103,234 and $121,893, or $99.70 and $110.06 per share.

   In January and February, 1996, the Company repurchased 72,104 of such shares
   for $10,530.  The repurchase of the Class A Senior Preferred Shares
   increased the Company's additional paid-in capital by $4,279.

   As of September 30, 1996, the unamortized discount on the Class A Senior
   Preferred Shares was $5,462.

   In March 1996 and July 1996, the Company declared and paid dividends on the
   Class A Senior Preferred Shares of $10.00 and $30.00 per share,
   respectively.


7. PREFERRED SHARES NOT SUBJECT TO REDEMPTION REQUIREMENTS

   The undeclared dividends, as adjusted for conversions of Class B Preferred
   Shares into Common Shares, cumulatively amounted to $110,476 and $95,118 at
   September 30, 1996 and December 31, 1995, respectively.  These undeclared
   dividends represent $39.58 and $34.08 per share as of the end of each
   period.  No accrual was recorded for such undeclared dividends as the Class
   B Preferred Shares are not mandatorily redeemable.

                                      -11-

<PAGE>   11


                    NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)


8.  RESTRICTED ASSETS

    Restricted assets at September 30, 1996 consisted primarily of $5,223
    pledged as security for a long-term lease of commercial office space and
    $3,300 pledged as collateral for a letter of credit.

    In May 1996, the Company reached an agreement with First Financial
    Management Corporation ("FFMC") whereby FFMC released all of the remaining
    $28,742 held in escrow pursuant to the Asset Purchase Agreement, dated as of
    October 20, 1994, between the Company and FFMC, relating to the sale of the
    Company's money transfer business.  In addition, the agreement required the
    Company to pay FFMC $7,000 in connection with the termination of the various
    service agreements the Company had with FFMC.  The Company recognized a gain
    on the termination of these service agreements of $1,317.


9.  PREPETITION CLAIMS UNDER CHAPTER 11 AND RESTRUCTURING ACCRUALS

    Those liabilities that are expected to be resolved as part of the Company's
    First Amended Joint Chapter 11 Plan of Reorganization, as amended (the
    "Joint Plan") are classified in the Consolidated Balance Sheets as
    prepetition claims and restructuring accruals.  On January 18, 1995,
    approximately $550 million of prepetition claims were paid pursuant to the
    Joint Plan.  As of September 30, 1996 and December 31, 1995, the Company had
    $26,669 and $33,392, respectively, of prepetition claims and restructuring
    accruals.  The prepetition claims remaining as of September 30, 1996 may be
    subject to future adjustments depending on pending discussions with the
    various parties and the decisions of the Bankruptcy Court.

10. CONTINGENCIES

    Litigation

    The Company is a defendant in various lawsuits and may be subject to
    unasserted claims primarily in connection with its activities as a
    securities broker-dealer and participation in public underwritings.  These
    lawsuits involve claims for substantial or indeterminate amounts and are in
    varying stages of legal proceedings.  In the opinion of management, after
    consultation with counsel, the ultimate resolution of these matters will not
    have a material adverse effect on the Company's consolidated financial
    position, results of operations, or cash flow.

    Investment Company Act

    The Investment Company Act of 1940, as amended (the "Investment Company
    Act"), and the rules and regulations thereunder require the registration of,
    and impose various substantive restrictions on, companies that engage
    primarily in the business of investing, reinvesting or trading in securities
    or engage in the business of investing, reinvesting, owning, holding or
    trading in securities and own or propose to acquire "investment securities"
    having a "value" in excess of 40% of a company's "total assets" (exclusive
    of Government securities and cash items) on an unconsolidated basis.
    Following dispositions of its then operating businesses pursuant to the
    Joint Plan, the Company was above this threshold and relied on the one-year
    exemption from registration under the Investment Company Act provided by
    Rule 3a-2 thereunder, which exemption expired on January 18, 1996.  Prior to
    such date, through the Company's acquisition of the investment banking and
    brokerage



                                      -12-

<PAGE>   12



                    NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

    business of Ladenburg and its acquisition of the Office Buildings and
    Shopping Centers (see Note 2), the Company was engaged primarily in a
    business or businesses other than that of investing, reinvesting, owning,
    holding or trading in securities, and the value of its investment securities
    was below the 40% threshold.  Under the Investment Company Act, the Company
    is required to determine the value of its total assets for purposes of the
    40% threshold based on "market" or "fair" values, depending on the nature of
    the asset, at the end of the last preceding fiscal quarter and based on cost
    for assets acquired since that date.  If the Company were required to
    register under the Investment Company Act, it would be subject to a number
    of material restrictions on its operations, capital structure and
    management, including without limitation its ability to enter into
    transactions with affiliates.










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