<PAGE>   1
                                                                  Exhibit 99.3






                             NEW VALLEY CORPORATION

                              FINANCIAL STATEMENTS


                                 MARCH 31, 1999

<PAGE>   2
                     NEW VALLEY CORPORATION AND SUBSIDIARIES
                          QUARTERLY REPORT ON FORM 10-Q
                    FOR THE THREE MONTHS ENDED MARCH 31, 1999


                                TABLE OF CONTENTS
                                -----------------
<TABLE>
<CAPTION>


PART I. FINANCIAL INFORMATION

                                                                                             Page
                                                                                             ----
<S>                                                                                            <C>

     Item 1.        Consolidated Financial Statements (Unaudited):

                    Condensed Consolidated Balance Sheets as of March 31,
                        1999 and December 31, 1998....................................         3

                    Condensed Consolidated Statements of Operations for
                        the three months ended March 31, 1999 and 1998................         4

                    Condensed Consolidated Statement of Changes in
                        Stockholders' Deficiency for the three months
                        ended March 31, 1999..........................................         5

                    Condensed Consolidated Statements of Cash Flows for
                        the three months ended March 31, 1999 and 1998................         6

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


</TABLE>

<PAGE>   3

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

<TABLE>
<CAPTION>
                                                                                  --------------- -----------------
                                                                                    March 31,       December 31,
                                                                                  --------------- -----------------
                                                                                       1999             1998
                                                                                  --------------- -----------------
<S>                                                                                   <C>            <C>       
                                     ASSETS

Current assets:
     Cash and cash equivalents.............................................           $  10,312      $   16,444
     Investment securities available for sale..............................              36,563          37,567
     Trading securities owned..............................................               6,562           8,984
     Restricted assets.....................................................               1,192           1,220
     Receivable from clearing brokers......................................              12,575          22,561
     Other current assets..................................................               3,647           4,675
                                                                                      ---------      ----------
         Total current assets..............................................              70,851          91,451
                                                                                      ---------      ----------

Investment in real estate, net.............................................              83,049          82,875
Furniture and equipment, net...............................................              10,393          10,444
Restricted assets..........................................................               8,909           6,082
Long-term investments, net.................................................              11,726           9,226
Investment in joint venture................................................              63,690          65,193
Other assets...............................................................               6,020           7,451
                                                                                      ---------      ----------
         Total assets......................................................           $ 254,638      $  272,722
                                                                                      =========      ==========

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
     Margin loan payable...................................................           $   4,044      $   13,088
     Current portion of notes payable and long-term obligations............               2,708           2,745
     Accounts payable and accrued liabilities..............................              26,863          32,047
     Prepetition claims and restructuring accruals.........................              12,340          12,364
     Income taxes..........................................................              18,361          18,702
     Securities sold, not yet purchased....................................               2,659           4,635
                                                                                      ---------      ----------
         Total current liabilities.........................................              66,975          83,581
                                                                                      ---------      ----------

Notes payable..............................................................              54,801          54,801
Other long-term liabilities................................................              28,200          23,450
Commitments and contingencies..............................................                  --              --
Redeemable preferred shares................................................             332,198         316,202

Stockholders' deficiency:
     Cumulative preferred shares; liquidation preference of $69,769,
       dividends in arrears: $172,905 and $165,856.........................                 279             279
     Common Shares, $.01 par value; 850,000,000 shares
       authorized; 9,577,624 shares outstanding............................                  96              96
     Additional paid-in capital............................................             534,568         550,119
     Accumulated deficit...................................................            (759,598)       (758,016)
     Unearned compensation on stock options................................                (148)           (475)
     Accumulated other comprehensive income................................              (2,733)          2,685
                                                                                      ---------      ----------
         Total stockholders' deficiency....................................            (227,536)       (205,312)
                                                                                      ---------      ----------
         Total liabilities and stockholders'deficiency.....................           $ 254,638      $  272,722
                                                                                      =========      ==========
</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Stctements.


                                      -3-



<PAGE>   4


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

<TABLE>
<CAPTION>
                                                                       -----------------------------------------
                                                                             Three Months Ended March 31,
                                                                       -----------------------------------------
                                                                              1999                 1998
                                                                       -------------------- --------------------
<S>                                                                       <C>                   <C>      
Revenues:
     Principal transactions, net................................          $    4,776           $    5,893
     Commissions................................................              11,126                6,676
     Corporate finance fees.....................................               1,438                3,238
     Gain on sale of investments, net...........................                 499                5,596
     Loss from joint venture....................................              (1,503)                (329)
     Real estate leasing........................................               2,230                7,776
     Computer sales and service.................................                 251                  413
     Interest and dividends.....................................               1,261                2,849
     Other income...............................................               2,692                1,728
                                                                          ----------           ----------
         Total revenues.........................................              22,770               33,840
                                                                          ----------           ----------

Cost and expenses:
     Selling, general and administrative........................              26,592               30,100
     Interest...................................................               2,325                4,160
                                                                          ----------           ----------
         Total costs and expenses...............................              28,917               34,260
                                                                          ----------           ----------

Loss from continuing operations before income taxes
     and minority interests.....................................              (6,147)                (420)
Income tax provision............................................                  15                    6
Minority interest in loss of consolidated subsidiaries..........                 480                  583
                                                                          ----------           ----------
(Loss) income from continuing operations........................              (5,682)                 157
Discontinued operations:
     Gain on disposal of discontinued operations................               4,100                   --
                                                                          ----------           ----------
     Income from discontinued operations........................               4,100                   --
                                                                          ----------           ----------
         Net (loss) income......................................              (1,582)                 157
Dividend requirements on preferred shares.......................             (22,219)             (18,832)
                                                                          ----------           ----------
Net loss applicable to Common Shares............................          $  (23,801)          $  (18,675)
                                                                          ==========           ==========
Loss per Common Share (basic and diluted):
     Continuing operations......................................          $    (2.92)          $    (1.95)
     Discontinued operations....................................                 .43                  -- 
                                                                          ----------           ----------
     Net loss per Common Share..................................          $    (2.49)          $    (1.95)
                                                                          ==========           ==========
Number of shares used in computation............................           9,577,624            9,577,624
                                                                          ==========           ==========
</TABLE>


     See accompanying Notes to Condensed Consolidated Financial Statements.


                                      -4-




<PAGE>   5
                    NEW VALLEY CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
                            STOCKHOLDERS' DEFICIENCY
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                 Unearned      Accumulated
                                            Class B                                            Compensation       Other
                                           Preferred    Common      Paid-In     Accumulated      on Stock     Comprehensive
                                            Shares      Shares      Capital       Deficit        Options          Income
                                           ---------    ------      -------     -----------    ------------   -------------
<S>                                            <C>         <C>     <C>           <C>           <C>             <C>     
Balance, December 31, 1998............         $279        $96     $550,119      $(758,016)    $   (475)       $  2,685

   Net income.........................                                              (1,582)
   Undeclared dividends and accretion
     on redeemable preferred shares...                              (15,171)
   Unrealized loss on investment
     securities.......................                                                                           (5,418)
   Adjustment to unearned compensation
     on stock options.................                                 (327)                        327
   Compensation expense on stock
     option grants....................                                                                          

                                                                        (53)
                                                ---         --      -------       --------       ------         -------
Balance, March 31, 1999...............         $279        $96     $534,568      $(759,598)     $  (148)       $ (2,733)
                                                ===         ==      =======       ========       ======         =======
</TABLE>






























     See accompanying Notes to Condensed Consolidated Financial Stctements.


                                      -5-




<PAGE>   6

                    NEW VALLEY CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                  ----------------------------------
                                                                                         Three Months Ended
                                                                                              March 31,
                                                                                  ----------------------------------
                                                                                       1999              1998
                                                                                  ---------------- -----------------
<S>                                                                                  <C>               <C>      
Cash flows from operating activities:
   Net (loss) income.......................................................          $   (1,582)       $     157
   Adjustments to reconcile net (loss) income to net cash provided from
    (used for) operating activities:
     Income from discontinued operations...................................              (4,100)              --
     Loss from joint venture...............................................               1,503              329
     Depreciation and amortization.........................................                 898            2,344
     Stock based compensation expense......................................                 774              828
     Changes in assets and liabilities, net of effects from acquisitions:
        Decrease (increase) in receivables and other assets................              14,375           (9,586)
        (Decrease) increase in income taxes................................                (340)             440
        (Decrease) increase in accounts payable and accrued liabilities....              (6,884)           2,766
                                                                                      ---------         --------
     Net cash provided from (used for) continuing operations...............               4,644           (2,722)
     Net cash provided from discontinued operations........................               4,100               --
                                                                                      ---------         --------
Net cash provided from (used for) operating activities.....................               8,744           (2,722)
                                                                                      ---------         --------
Cash flows from investing activities:
     Sale or maturity of investment securities.............................               2,947            8,129
     Purchase of investment securities.....................................              (6,858)            (913)
     Sale or liquidation of long-term investments..........................                  --            1,901
     Purchase of long-term investments.....................................              (2,500)          (1,951)
     Sale of real estate...................................................                 920               --
     Purchase of real estate...............................................              (1,615)          (1,419)
     Purchase of furniture and fixtures....................................                (312)            (197)
     Payment of prepetition claims.........................................                 (24)            (847)
     Increase in restricted assets.........................................              (2,827)             (68)
     Net cash transferred to joint venture.................................                  --             (487)
                                                                                      ---------         --------
Net cash (used for) provided from investing activities.....................             (10,269)           4,148
                                                                                      ---------         --------
Cash flows from financing activities:
     Decrease in margin loan payable.......................................              (9,044)          (2,842)
     Proceeds from participating loan......................................               4,473               --
     Prepayment of notes payable...........................................                 (36)            (291)
                                                                                       ---------         --------
Net cash used for financing activities.....................................              (4,607)          (3,133)
                                                                                      ---------         --------
Net decrease in cash and cash equivalents..................................              (6,132)          (1,707)
Cash and cash equivalents, beginning of period.............................              16,444           11,606
                                                                                      ---------         --------
Cash and cash equivalents, end of period...................................           $  10,312         $  9,899
                                                                                      =========         ========

</TABLE>





     See accompanying Notes to Condensed Consolidated Financial Stctements.


                                      -6-





<PAGE>   7
                     NEW VALLEY CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED 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 its majority-owned subsidiaries (the "Company"). The
      consolidated financial statements as of March 31, 1999 presented herein
      have been prepared by the Company and are unaudited. In the opinion of
      management, all adjustments, consisting only of normal recurring
      adjustments, necessary to present fairly the financial position as of
      March 31, 1999 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 an entire year.

      These financial statements should be read in conjunction with the
      consolidated financial statements in the Company's Annual Report on Form
      10-K for the year ended December 31, 1998 as filed with the Securities and
      Exchange Commission (Commission File Number 1-2493).

      USE OF ESTIMATES

      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.

      RECLASSIFICATIONS

      Certain reclassifications have been made to prior interim period financial
      information to conform with current year presentation.

      PROPOSED RECAPITALIZATION PLAN

      The Company has submitted for approval of its stockholders at its 1999
      annual meeting, which will be held on May 21, 1999, a proposed
      recapitalization of its capital stock (the "Recapitalization Plan"). Under
      the Recapitalization Plan, each of the Company's outstanding Class A
      Senior Preferred Shares would be reclassified and changed into 20 Common
      Shares and one Warrant to purchase Common Shares (the "Warrants"). Each of
      the Class B Preferred Shares would be reclassified and changed into
      one-third of a Common Share and five Warrants. The existing Common Shares
      would be reclassified and changed into one-tenth of a Common Share and
      three-tenths of a Warrant. The authorized number of Common Shares would be
      reduced from 850,000,000 to 100,000,000. The Warrants to be issued as part
      of the Recapitalization Plan would have an exercise price of $12.50 per
      share subject to adjustment in certain circumstances and be exercisable
      for five years following the effective date of the Company's Registration
      Statement covering the underlying Common Shares. The Warrants would not be
      callable by the Company for a three-year period. Upon completion of the
      Recapitalization Plan, the Company will apply for listing of the Common
      Shares and Warrants on NASDAQ.

      Completion of the Recapitalization Plan would be subject to, among other
      things, approval by the required holders of the various classes of the
      Company's shares. Brooke Group Ltd. ("Brooke"), the Company's principal
      stockholder, has agreed to vote all of its shares in the Company in favor
      of the Recapitalization Plan. As a result of the Recapitalization Plan and
      assuming no warrant holder 




                                      -7-

<PAGE>   8
                     NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)



      exercises its Warrants, Brooke will increase its ownership of the
      outstanding Common Shares of the Company from 42.3% to 55.1% and its total
      voting power from 42% to 55.1%.

       The Company believes the proposed Recapitalization Plan will simplify the
       current capital structure of the Company by replacing it with a single
       class of equity securities. The exchange of the Preferred Shares for
       Common Shares will eliminate dividend arrearages, thus increasing the net
       worth of the Company by approximately $332,198 on a pro forma basis as of
       March 31, 1999. It will also remove the need to redeem the Class A Senior
       Preferred Shares in 2003. The resulting improvement in the net worth of
       the Company, along with a hoped for increase in the price of the Common
       Shares, should increase the likelihood of having the Common Shares quoted
       on NASDAQ. This, along with a more transparent capital structure, should
       increase the liquidity of the Company's securities, improve the valuation
       of the Common Shares and provide a currency for acquisitions and
       financings. Finally, the recapitalization will allow the voting rights of
       stockholders to properly reflect the economic interest of such
       stockholders.

      NEW ACCOUNTING PRONOUNCEMENTS.

      In June, 1998, FASB issued Statement of Accounting Standards ("SFAS") No.
      133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
      No. 133 is effective for all fiscal quarters of all fiscal years beginning
      after June 15, 1999. SFAS 133 requires that all derivative instruments be
      recorded on the balance sheet at fair value. Changes in the fair value of
      derivatives are recorded each period in current earnings or other
      comprehensive income, depending on whether a derivative is designated as
      part of a hedge transaction and, if it is, the type of hedge transaction.
      The Company has not yet determined the impact that the adoption of SFAS
      133 will have on its earnings or statement of financial position.

2.    INVESTMENT IN WESTERN REALTY

      WESTERN REALTY DEVELOPMENT LLC

      In February 1998, the Company and Apollo Real Estate Investment Fund III,
      L.P. ("Apollo") organized Western Realty Development LLC ("Western Realty
      Ducat") to make real estate and other investments in Russia. In connection
      with the formation of Western Realty Ducat, the Company agreed, among
      other things, to contribute the real estate assets of BML, including Ducat
      Place II and the site for Ducat Place III, to Western Realty Ducat and
      Apollo agreed to contribute up to $58,750, including the investment in
      Western Realty Repin discussed below. Through March 31, 1999, Apollo had
      funded $36,529 of its investment in Western Realty Ducat.

      The ownership and voting interests in Western Realty Ducat are held
      equally by Apollo and the Company. Apollo will be entitled to a preference
      on distributions of cash from Western Realty Ducat to the extent of its
      investment ($40,000), together with a 15% annual rate of return, and the
      Company will then be entitled to a return of $20,000 of BML-related
      expenses incurred and cash invested by the Company since March 1, 1997,
      together with a 15% annual rate of return; subsequent distributions will
      be made 70% to the Company and 30% to Apollo. Western Realty Ducat will be
      managed by a Board of Managers consisting of an equal number of
      representatives chosen by Apollo and the Company. All material corporate
      transactions by Western Realty Ducat will generally require the unanimous
      consent of the Board of Managers. Accordingly, the Company has accounted
      for its non-controlling interest in Western Realty Ducat using the equity
      method of accounting.



                                      -8-
<PAGE>   9

                     NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)


      The Company recorded its basis in the investment in the joint venture in
      the amount of $60,169 based on the carrying value of assets less
      liabilities transferred. There was no difference between the carrying
      value of the investment and the Company's proportionate interest in the
      underlying value of net assets of the joint venture. The Company
      recognizes losses incurred by Western Realty Ducat to the extent that
      cumulative earnings of Western Realty Ducat are not sufficient to satisfy
      Apollo's preferred return.

      Western Realty Ducat will seek to make additional real estate and other
      investments in Russia. Western Realty Ducat has made a $30,000
      participating loan to, and payable out of a 30% profits interest in
      Western Tobacco Investments LLC ("WTI"), a company organized by Brooke
      (Overseas) Ltd., a subsidiary of Brooke, which, among other things, holds
      the interests of Brooke (Overseas) Ltd. in Liggett-Ducat Ltd. and the new
      factory being constructed by Liggett-Ducat Ltd. on the outskirts of
      Moscow. Western Realty Ducat has recognized as other income $1,002, which
      represents 30% of WTI's net income for the three months ended March 31,
      1999.

      Summarized financial information as of March 31, 1999 and December 31,
      1998 and for the three month period ended March 31, 1999 and for the
      period from February 20, 1998 (date of inception) to March 31, 1998 for
      Western Realty Ducat follows:

<TABLE>
<CAPTION>
                                                                MARCH 31, 1999          DECEMBER 31, 1998
                                                                --------------          -----------------
<S>                                                               <C>                      <C>        
           Current assets................................         $    2,939               $       857
           Participating loan receivable.................             32,993                    31,991
           Real estate, net..............................             86,307                    85,761
           Furniture and fixtures, net...................                230                       179
           Noncurrent assets.............................                538                       631
           Goodwill, net.................................              7,016                     7,636
           Notes payable - current.......................              5,703                     4,999
           Current liabilities...........................              5,445                     5,802
           Notes payable.................................             13,143                    14,656
           Long-term liabilities.........................                756                       756
           Members' equity...............................            104,976                   100,842
</TABLE>


<TABLE>
<CAPTION>
                                                                                        February 20, 1998
                                                              Three months ended       (date of inception)
                                                                March 31, 1999          to March 31, 1998
                                                                --------------          -----------------

<S>                                                               <C>                      <C>        
           Revenues......................................         $    3,448               $       927
           Costs and expenses............................              4,425                     1,256
           Other income..................................              1,002                        --
           Income tax provision..........................                 16                        --
           Net loss......................................                  9                      (329)
</TABLE>

      WESTERN REALTY REPIN LLC

      In June 1998, the Company and Apollo organized Western Realty Repin LLC
      ("Western Realty Repin") to make a $25,000 participating loan (the "Repin
      Loan") to BML. The proceeds of the loan will be used by BML for the
      acquisition and preliminary development of two adjoining sites 






                                      -9-
<PAGE>   10

                     NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)


      totaling 10.25 acres (the "Kremlin Sites") located in Moscow across the
      Moscow River from the Kremlin. BML, which is planning the development of a
      1.1 million sq. ft. hotel, office, retail and residential complex on the
      Kremlin Sites, owned 95.2% of one site and 52% of the other site at March
      31, 1999. Apollo will be entitled to a preference on distributions of cash
      from Western Realty Repin to the extent of its investment ($18,750),
      together with a 20% annual rate of return, and the Company will then be
      entitled to a return of its investment ($6,250), together with a 20%
      annual rate of return; subsequent distributions will be made 50% to the
      Company and 50% to Apollo. Western Realty Repin will be managed by a Board
      of Managers consisting of an equal number of representatives chosen by
      Apollo and the Company. All material corporate transactions by Western
      Realty Repin will generally require the unanimous consent of the Board of
      Managers.

      Through March 31, 1999, Western Realty Repin has advanced $25,000 under
      the Repin Loan to BML, of which $18,773 was funded by Apollo and is
      classified in other long-term obligations on the consolidated balance
      sheet at March 31, 1999. The Repin Loan, which bears no fixed interest, is
      payable only out of 100% of the distributions, if made, by the entities
      owning the Kremlin Sites to BML. Such distributions shall be applied first
      to pay the principal of the Repin Loan and then as contingent
      participating interest on the Repin Loan. Any rights of payment on the
      Repin Loan are subordinate to the rights of all other creditors of BML.
      BML used a portion of the proceeds of the Repin Loan to repay the Company
      for certain expenditures on the Kremlin Sites previously incurred. The
      Repin Loan is due and payable upon the dissolution of BML and is
      collateralized by a pledge of the Company's shares of BML.

      As of March 31, 1999, BML had invested $19,621 in the Kremlin Sites and
      held $3,525, in cash, which was restricted for future investment. In
      connection with the acquisition of its interest in one of the Kremlin
      Sites, BML has agreed with the City of Moscow to invest an additional
      $6,000 (which has been funded) in 1999 and $22,000 in 2000 in the
      development of the property.

      The Company has accounted for the formation of Western Realty Repin as a
      financing by Apollo and a contribution of assets into a consolidated
      subsidiary by New Valley which is eliminated in consolidation. Based on
      the distribution terms contained in the Western Realty Repin LLC
      agreement, the 20% annual rate of return preference to be received by
      Apollo on funds advanced to Western Realty Repin is treated as interest
      cost in the consolidated statement of operations.

      The development of Ducat Place III and the Kremlin Sites will require
      significant amounts of debt and other financing. The Company is actively
      pursuing various financing alternatives on behalf of Western Realty Ducat
      and BML. However, in light of the recent economic turmoil in Russia, no
      assurance can be given that such financing will be available on acceptable
      terms. Failure to obtain sufficient capital for the projects would force
      Western Realty Ducat and BML to curtail or delay the planned development
      of Ducat Place III and the Kremlin Sites.



                                      -10-
<PAGE>   11
                     NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)




3.    INVESTMENT SECURITIES AVAILABLE FOR SALE

      Investment securities classified as available for sale are carried at fair
      value, with net unrealized gains included as a component of accumulated
      other comprehensive income. The Company had realized gains on sales of
      investment securities available for sale of $499 for the three months
      ended March 31, 1999.

      The components of investment securities available for sale at March 31,
      1999 are as follows:

<TABLE>
<CAPTION>
                                                                       GROSS          GROSS
                                                                     UNREALIZED    UNREALIZED         FAIR
                                                          COST          GAIN          LOSS            VALUE
                                                          ----          ----          ----            -----
<S>                                                      <C>          <C>            <C>             <C>    
          Marketable equity securities.................  $39,297        $   254      $  6,444        $33,107
          Marketable warrants..........................       --          3,456            --          3,456
                                                         -------        -------      --------        -------
          Investment securities........................  $39,297        $ 3,710      $  6,444        $36,563
                                                         =======        =======      ========        =======
</TABLE>

4.    LONG-TERM INVESTMENTS

      At March 31, 1999, long-term investments consisted primarily of
      investments in limited partnerships of $11,726. The Company believes the
      fair value of the limited partnerships exceeds their carrying amount by
      approximately $2,600 based on the indicated market values of the
      underlying investment portfolio provided by the partnerships. The
      Company's investments in limited partnerships are illiquid and the
      ultimate realization of these investments are subject to the performance
      of the underlying partnership and its management by the general partners.

5.    REDEEMABLE PREFERRED SHARES

      At March 31, 1999, the Company had authorized and outstanding 2,000,000
      and 1,071,462, respectively, of its Class A Senior Preferred Shares. At
      March 31, 1999 and December 31, 1998, respectively, the carrying value of
      such shares amounted to $332,198 and $316,202, including undeclared
      dividends of $234,581 and $219,068 or $218.94 and $204.46 per share. As of
      March 31, 1999, the unamortized discount on the Class A Senior Preferred
      Shares was $6,586.

      For the three months ended March 31, 1999 and 1998, the Company recorded
      $774 and $828 in compensation expense related to certain Class A Senior
      Preferred Shares awarded to an officer of the Company in 1996. At March
      31, 1999 and December 31, 1998, the balance of the deferred compensation
      and the unamortized discount related to these award shares was $5,416 and
      $5,721, respectively.

6.    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 $172,905 and $165,856
      at March 31, 1999 and December 31, 1998, respectively. These undeclared
      dividends represent $61.96 and $59.43 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>   12

                     NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)


7.    CONTINGENCIES

      LAWSUITS

      On or about March 13, 1997, a shareholder derivative suit was filed
      against the Company, as a nominal defendant, its directors and Brooke in
      the Delaware Chancery Court, by a stockholder of the Company. The suit
      alleges that the Company's purchase in January 1997 of the shares of BML
      from Brooke (Overseas) Ltd. constituted a self-dealing transaction which
      involved the payment of excessive consideration by the Company. The
      plaintiff seeks (i) a declaration that the Company's directors breached
      their fiduciary duties, Brooke aided and abetted such breaches and such
      parties are therefore liable to the Company, and (ii) unspecified damages
      to be awarded to the Company. The Company's time to respond to the
      complaint has not yet expired. The Company believes that the allegations
      were without merit. Although there can be no assurances, management is of
      the opinion, after consultation with counsel, that the ultimate resolution
      of this matter will not have a material adverse effect on the Company's
      consolidated financial position, results of operations or cash flows.

      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 flows.

      RUSSIAN OPERATIONS

      During 1998, the economy of the Russian Federation entered a period of
      economic instability. The impact includes, but is not limited to, a steep
      decline in prices of domestic debt and equity securities, a severe
      devaluation of the currency, a moratorium on foreign debt repayments, an
      increasing rate of inflation and increasing rates on government and
      corporate borrowings. The return to economic stability is dependent to a
      large extent on the effectiveness of the fiscal measures taken by
      government and other actions beyond the control of companies operating in
      the Russian Federation. The operations of BML and Western Realty Ducat may
      be significantly affected by these factors for the foreseeable future.

      Russian Taxation: Russian taxation is subject to varying interpretations
      and constant changes. Furthermore, the interpretation of tax legislation
      by tax authorities as applied to the transactions and activity of BML and
      Western Realty Ducat may not coincide with that of management. As a
      result, transactions may be challenged by tax authorities and BML and
      Western Realty Ducat may be assessed additional taxes, penalties and
      interest, which can be significant.

      Management regularly reviews the Company's taxation compliance with
      applicable legislation, laws and decrees and current interpretations and
      from time to time potential exposures are identified. At any point in time
      a number of open matters may exist, however, management believes that
      adequate provision has been made for all material liabilities. Tax years
      remain open to review by the authorities for six years.



                                      -12-
<PAGE>   13

                     NEW VALLEY CORPORATION AND SUBSIDIARIES
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)



      Year 2000: It is unclear whether the Russian government and other
      organizations who provide significant infrastructure services have
      addressed the Year 2000 Problem sufficiently to mitigate potential
      substantial disruption to these infrastructure services. The substantial
      disruption of these services would have an adverse affect on the
      operations of BML and Western Realty Ducat. Furthermore, the current
      financial crisis could affect the ability of the government and other
      organizations to fund Year 2000 compliance programs.

8.    BUSINESS SEGMENT INFORMATION

      The following table presents certain financial information of the
      Company's continuing operations before taxes and minority interests as of
      and for the three months ended March 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                        BROKER-                       COMPUTER      CORPORATE
                                         DEALER      REAL ESTATE      SOFTWARE      AND OTHER        TOTAL
                                         ------      -----------      --------      ---------        -----
<S>                                      <C>          <C>           <C>            <C>             <C>      
        1999
        ----
        Revenues....................     $19,030      $  2,323      $     251      $    1,166      $  22,770
        Operating (loss) income.....          25        (1,225)        (1,601)         (3,346)        (6,147)
        Identifiable assets.........      38,957        91,091            985         123,605        254,638
        Depreciation and
           amortization.............         198           532            120              48            898
        Capital expenditures........          --         1,615             26             286          1,927

        1998
        ----
        Revenues....................     $19,425      $  7,776      $     413      $    6,226      $  33,840
        Operating (loss) income.....      (1,224)          (20)        (1,249)          2,073           (420)
        Depreciation and
           amortization.............         304         1,746            236              58          2,344
        Capital expenditures........         112         1,419             27              58          1,616
</TABLE>

9.    INCOME FROM DISCONTINUED OPERATIONS

      The Company recorded a gain on disposal of discontinued operations of
      $4,100 for the three months ended March 31, 1999 related to the settlement
      of a lawsuit originally initiated by the Company's former Western Union
      telegraph business.

10.   COMPREHENSIVE INCOME

      Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
      Comprehensive Income". SFAS No. 130 establishes standards for the
      reporting and disclosure of comprehensive income and its components.
      Comprehensive income is a measure that reflects all changes in
      stockholders' equity, except those resulting from transactions with
      stockholders. For the Company, comprehensive income includes net income
      and changes in the value of equity securities that have not been included
      in net income. For the three months ended March 31, 1999 and 1998,
      comprehensive loss applicable to Common Shares was $29,219 and $21,493,
      respectively.




                                      -13-