SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM
10–K/A
Amendment No. 1 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year end
  Commission File NumberDecember 31, 2000
  0–671MOTOR CLUB OF AMERICA(Exact name of registrant as specified in
  its charter)New Jersey
  22-0747730(State of incorporation)
  (I.R.S. Employer Identification No.)95 Route 17 South, Paramus, New Jersey
  07653(Address of principal executive offices)
  (Zip Code)
 Registrants
telephone number, including area code (201)291–2000 Securities
registered pursuant to Section 12(b) of the Act:
None Securities
registered pursuant to Section 12(g) of the Act: Common Stock (par value) $.50 per share(Title of Class)
 Indicate by
check mark whether the registrant (l) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  YesxNoo. Indicate by
check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S–K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10–K or any amendment
to this Form 10–K.x The aggregate
market value of the voting Common Stock (par value $.50 per share) held by non–affiliates
on March 23, 2000 was $7,653,221 based on the closing selling price of $7.188
per share. 2,124,387 shares
of Common Stock were outstanding as of March 23, 2001. Documents
Incorporated by Reference:  Portions of
the Registrants definitive proxy statement issued in conjunction with the June
6, 2001 Annual Meeting of Shareholders (Part III).   EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A to the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 amends
the Form 10-K by correcting certain typographical errors in Item 14, in the
Balance Sheet, Other Assets and in the Consolidated Statement of Cash Flows, in
Footnote (3).

Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly
caused this amendment to its Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized on June
11, 2001.

MOTOR CLUB OF AMERICA(Registrant)

Dated: June 11, 2001
  By  /s/Patrick J. HaveronPatrick J. HaveronExecutive Vice
  President,
  Chief Executive Officer,
  Chief Financial Officer and
  ChiefAccounting OfficerPART IV

Item 14. 
Exhibits, Financial Statements Schedules and Reports on Form 8–K

(a)         (1)         The following financial statements are
included in Part II, Item 8:

Report of Independent
Accountants

Consolidated Balance Sheets
at December 31, 2000 and 1999

Consolidated
Statements of Operations for the years ended December 31, 2000, 1999 and 1998

Consolidated
Statements of Shareholders Equity for the years ended December 31, 2000, 1999
and 1998

Consolidated
Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998

Notes to
Consolidated Financial Statements

(2)         The following financial statement
schedules for the years 2000, 1999 and 1998 (pursuant Rule 5–04 of
Regulation S–X) are presented herewith:

Schedule I –  Summary of Investments– Other than
Investments in Related Parties*

Schedule II –
Condensed Financial Information of Registrant

Schedule IV –
Reinsurance*

Schedule V –  Valuation and Qualifying Accounts and
Reserves

Schedule
VI – Supplemental Information Concerning Property/Casualty Insurance
Operations*

*Presented pursuant to Rule 7–05 of Regulation S–X.

Schedules other than those mentioned above are omitted
because the conditions requiring their filing do not exist, or because the
information is given in the financial statements filed herewith, including the
notes thereto.

(b)        Exhibits:

Exhibit No.
  Description
  
  Reference2-a
  Agreement and Plan of
  Merger between Motor Club of America and North East Insurance Company, dated
  as of March 16, 1999
  
  Exhibit 2 to Motor Club
  of Americas Form 8-K dated March 17, 19993-a
  Restated and Amended
  Certificate of Incorporation of Motor Club of America, dated June 12,
  1972
  
  Exhibit 1(i) to Motor
  Club of Americas Annual Report on Form 10-K for fiscal year ended
  December 31, 19723-b
  By-Laws of Motor Club of
  America, effective March 15, 1989
  
  Exhibit 3-l to Motor
  Club of Americas Annual Report on Form 10-K for fiscal year ended
  December 31, 19883-c
  By-law Amendment of
  Motor Club of America, effective August 3, 1994
  
  Exhibit 3-m to Motor
  Club of Americas Form 8-K dated July 21, 19944-a
  Specimen Certificate
  representing Common Stock, $.50 par value
  
  Exhibit 4 to File No.
  2-39996 on Form S-110-a
  Motor Club of America
  1987 Stock Option Plan
  
  Exhibit 10-o to Motor
  Club of Americas Annual Report on Form 10-K for fiscal year ended
  December 31, 198710-b
  Specimen copy of Motor
  Club of America 1987 Stock Option Agreement
  
  Exhibit 10-p to Motor
  Club of Americas Annual Report on Form 10–K for fiscal year ended
  December 31, 198710-c
  Motor Club of America
  1992 Stock Option Plan
  
  Exhibit A to Motor Club
  of Americas Proxy Statement for fiscal year ended December 31, 199110-d
  Motor Club of America
  1999 Stock Option Plan
  
  Exhibit A to Motor Club
  of Americas Proxy Statement for the fiscal year ended December 31, 199810-e
  Specimen copy Motor Club
  of America 1992 Stock Option Plan Agreement
  
  Exhibit 10-r to Motor
  Club of Americas Annual Report on Form 10-K for fiscal year ended
  December 31, 199210-f
  Settlement Agreement
  between Motor Club of America et als. and Receiver of MCA Insurance Company
  in Liquidation et als.  and related
  documents
  
  Exhibit 99 to Motor Club
  of Americas Form 8-K dated December 20, 199410-g
  Order dated December 30,
  1994 Approving Settlement between Motor Club of America et als and Receiver
  of MCA Insurance Company in Liquidation et als and related conformed documents
  
  Exhibit 99-C to Motor
  Club of Americas Form 8-K dated December 30, 199410-h
  Stock Purchase Agreement
  between Motor Club of America and JVL Holding Properties, Inc
  
  Exhibit 99-F to Motor
  Club of Americas Form 8-K dated December 2, 199610-i
  Agreement dated December
  2, 1996 between Motor Club of America and Motor Club of America Enterprises,
  Inc
  
  Exhibit 99-G to Motor
  Club of Americas Form 8-K dated December 2, 199610-j
  $3 Million Senior
  Unsecured Revolving Credit Facility between Motor Club of America and
  Dresdner Bank, AG and related documents
  
  Exhibit 10-i to Motor
  Club of Americas Annual Report on Form 10-K for fiscal year ended
  December 31, 199810-k
  Purchase Agreement dated
  as of December 16, 1999 between Valley Insurance Company and Motor Club of
  America
  
  Exhibit 10.1 to Motor
  Club of Americas Form 8-K dated December 16, 199910-l
  Specimen copy of Form of
  Convertible Subordinated Debentures
  
  Exhibit 1 to Form 13D of
  Archer McWhorter dated September 23, 199910-m
  Specimen copy of
  Promissory Note
  
  Exhibit 10-m to Motor
  Club of Americas Annual Report on Form 10-K for fiscal year ended
  December 31, 199922
  Subsidiaries of Motor
  Club of AmericaPursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

MOTOR CLUB OF AMERICA
            (Registrant)Dated:  April 16, 2001
  By  /s/ Stephen A. GilbertStephen A. Gilbert
  President, Chief Executive Officer,
  General Counsel and DirectorDated:  April 16, 2001
  By  /s/ Patrick J. HaveronPatrick J. Haveron
  Executive Vice President,
  Chief Executive Officer,
  Chief Financial Officer and
  Chief Accounting OfficerPursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.

Dated:  April 16, 2001
  By  /s/ Archer McWhorterArcher McWhorter
  Chairman of the Board and DirectorDated:  April 16, 2001
  By  /s/ Alvin E. SwannerAlvin E. SwannerDirectorDated:  April 16, 2001
  By  /s/ William E. Lobeck,Jr.William E. Lobeck, Jr.DirectorDated:  April 16, 2001
  By  /s/ Robert S. FriedRobert S. FriedDirectorDated:  April 16, 2001
  By  /s/ Malcolm GalatinMalcolm GalatinDirectorReport
of Independent Accountants

To the Board of Directors and
Shareholders
of Motor Club of America:In our
opinion, the consolidated financial statements listed
in the index appearing under Item 14(a)(1)present fairly, in all material
respects, the financial position of Motor Club of America and its subsidiaries
at December 31, 2000and 1999, and the results of theiroperations and their cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.  In addition, in our opinion, the financial statement schedules
listed in the index appearing under Item 14 (a) (2) present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.  These financial statements and financial statement schedules are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.  We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation.  We believe that our
audits provide a reasonable basis for our opinion.As discussed
in Note V, the Company has restated its December 31, 1999 and 1998 financial
statements for certain tax matters.

PricewaterhouseCoopers
LLP
New York, New YorkApril 16, 2001MOTOR
CLUB OF AMERICA AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

December
  31,2000
  1999(Restated)ASSETSInvestments:Fixed maturity securities,
  available-for-sale, at fair value (amortized cost $97,571,094 -2000 and
  $80,854,764 -1999)
  $98,074,324
  $78,242,322Equity securities, at fair value (cost
  $34,659-2000 and $43,3461999)
  47,604
  57,053Mortgage loans on real estate – at
  the unpaid principal amount
  110,160
  153,616Short–term investments, at fair
  value which approximates cost
  6,760,341
  8,528,858Total investments
  104,992,429
  86,981,849Cash and cash
  equivalents
  3,607,076
  443,733Premiums receivable
  39,749,090
  27,132,246Reinsurance
  recoverable on paid and unpaid losses and loss expenses
  32,883,564
  21,163,574Notes and accounts
  receivable
  124,111
  212,598Deferred policy
  acquisition costs
  14,505,569
  10,560,763Fixed assets –
  at cost, less accumulated depreciation
  2,993,229
  1,858,621Federal income tax
  recoverable
  12,413
  47,100Prepaid reinsurance
  premiums
  4,324,915
  1,485,450Deferred tax asset
  1,828,706
  3,637,551Goodwill, less
  accumulated amortization
  1,509,152
  1,593,801Other assets
  2,358,988
  1,470,744Total Assets
  $208,889,242
  $156,588,030LIABILITIES
  AND SHAREHOLDERS' EQUITYLiabilities:Losses and loss expenses
  $90,392,486
  $70,983,383Unearned premiums
  53,409,659
  38,698,028Commissions payable
  4,573,912
  2,802,516Accounts payable
  2,246,702
  1,397,263Accrued expenses
  4,032,807
  3,112,157Drafts outstanding
  2,741,249
  2,685,423Note payable
  11,500,000
  -Convertible subordinated debentures
  10,000,000
  10,000,000Total liabilities
  178,896,815
  129,678,770Shareholders' Equity:Common Stock, par value $.50 per share:Authorized -
  10,000,000 shares; issued and outstanding shares 2,124,387
  1,062,194
  1,062,194Paid in additional capital
  2,066,089
  2,066,089Accumulated other comprehensive loss
  (2,774,148)
  (3,897,396)Retained earnings
  29,638,292
  27,678,373Total Shareholders' Equity
  29,992,427
  26,909,260Total Liabilities and Shareholders' Equity
  $208,889,242
  $156,588,030The
accompanying notes are an integral part of
these consolidated financial statements.

MOTOR CLUB OF AMERICA AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF OPERATIONS

For
  the years ended December 31,2000
  1999
  1998(Restated)
  (Restated)REVENUESInsurance premiums (net of premiums ceded totaling
  $13,161,053, $8,358,946 and $6,776,174)
  $83,467,481
  $55,807,330
  $53,175,663Net investment income
  6,412,884
  5,080,939
  4,304,507Realized gains on sales of investments (net)
  82,949
  36,040
  28,545Other revenues
  163,833
  143,410
  171,171Total
  revenues
  90,127,147
  61,067,719
  57,679,886LOSSES AND
  EXPENSESLosses and loss expenses incurred (net of reinsurance
  recoveries totaling $11,428,275, $1,544,026 and $4,736,671)
  55,708,052
  40,631,053
  36,479,591Amortization of deferred policy acquisition costs
  25,135,714
  14,305,501
  13,375,221Other operating expenses
  3,977,827
  4,759,728
  2,051,522Merger-related expenses
  354,097
  800,000
  -Amortization of goodwill
  84,695
  21,174
  -Interest expense
  1,867,085
  448,117
  54,146Total
  losses and expenses
  87,127,470
  60,965,573
  51,960,480Income before Federal income taxes
  2,999,677
  102,146
  5,719,406Benefit (provision) for Federal income taxes:current
  (44,797)
  28,331
  (179,661)deferred
  (994,961)
  (39,141)
  (1,761,361)Total Federal income tax
  (1,039,758)
  (10,810)
  (1,941,022)Net income
  $1,959,919
  $91,336
  $3,778,384Net Income per common share:Basic
  $.92
  $.04
  $1.79Diluted
  $.91
  $.04
  $1.78Weighted average common and potential common shares
  outstanding:Basic
  2,124,387
  2,117,912
  2,108,722Diluted
  2,770,075
  2,121,697
  2,121,366The
accompanying notes are an integral part of
these consolidated financial statements.

MOTOR CLUB OF AMERICA AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY

Common
  Stock (a)Shares
  Issued
  Amount
  Paid-In
  Additional
  Capital
  Accumulated
  Other Comprehensive Income (Loss)(b)
  Retained
  Earnings
  Total(Restated)
  (Restated)
  (Restated)Balance at
  December 31, 1997
  2,094,429
  $1,047,215
  $1,950,204
  ($3,931,342)
  $23,934,956
  $23,001,033Prior period adjustment
  
  
  
  1,539,894
  (126,303)
  1,413,591Net income
  
  
  
  
  3,778,384
  3,778,384Other comprehensive income, net of tax:Unrealized investment gains, net of reclassification
  adjustment
  
  
  
  668,309
  
  668,309Minimum pension liability adjustment
  
  
  
  (105,204)
  
  (105,204)Comprehensive income
  
  
  
  
  
  4,341,489Common stock issued
  22,000
  11,000
  46,750
  
  
  57,750Balance at
  December 31, 1998
  2,116,429
  1,058,215
  1,996,954
  (1,828,343)
  27,587,037
  28,813,863Net income
  
  
  
  
  91,336
  91,336Other comprehensive income, net of tax:Unrealized investment losses, net of reclassification
  adjustment
  
  
  
  (3,006,583)
  
  (3,006,583)Minimum pension liability adjustment
  
  
  
  937,530
  
  937,530Comprehensive loss
  
  
  
  
  
  (1,977,717)Common stock issued
  7,958
  3,979
  69,135
  
  
  73,114Balance at
  December 31, 1999
  2,124,387
  1,062,194
  2,066,089
  (3,897,396)
  27,678,373
  26,909,260Net income
  
  
  
  
  1,959,919
  1,959,919Other comprehensive income, net of tax:Unrealized investment gains, net of reclassification
  adjustment
  
  
  
  1,992,930
  
  1,992,930Minimum pension liability adjustment
  
  
  
  (869,682)
  
  (869,682)Comprehensive income
  
  
  
  
  
  3,083,167Balance at
  December 31, 2000
  2,124,387
  $1,062,194
  $2,066,089
  ($2,774,148)
  $29,638,292
  $29,992,427(a)Par value
$.50 per share; authorized – 10,000,000 shares.
(b)         Net of
deferred taxes.

The accompanying notes are an integral part of these
consolidated financial statements.

MOTOR
CLUB OF AMERICA AND SUBSIDIARIESCONSOLIDATED
STATEMENTS OF CASH FLOWS

For
  the years ended December 31,2000
  1999
  1998(Restated)
  (Restated)Net income
  $1,959,919
  $91,336
  $3,778,384Adjustments to reconcile net income to cash provided by
  operating activities:Depreciation
  expense
  924,900
  639,119
  527,644Amortization
  of bond premium and discount
  122,655
  50,336
  35,375Amortization
  of goodwill
  84,695
  21,174
  -Gain on sale
  of investments
  (82,949)
  (36,040)
  (28,545)Deferred tax
  provision
  994,961
  39,141
  1,761,361Changes in assets and liabilities excluding effects of
  acquisitions:Premiums
  receivable
  (6,583,131)
  575,790
  (12,591,502)Notes and
  accounts receivable
  88,487
  (87,154)
  (775)Deferred
  policy acquisition costs
  (2,521,953)
  434,040
  (2,849,679)Federal
  income tax - current
  (259,787)
  (24,526)
  (53,035)Reinsurance
  recoverable on paid and unpaid losses and loss expenses
  980,120
  1,071,741
  (568,211)Prepaid
  reinsurance premiums
  1,535,665
  353,015
  (320,336)Other assets
  (358,537)
  57,273
  116,941Losses and
  loss expenses
  6,663,991
  1,435,399
  8,088,365Unearned
  premiums
  4,201,301
  (1,652,130)
  11,447,387Commissions
  payable
  1,708,996
  (32,892)
  1,512,739Accounts
  payable
  680,438
  521,936
  312,874Accrued
  expenses
  (2,615,424)
  (3,544,396)
  (914,385)Drafts
  outstanding
  55,826
  996,588
  292,620Total cash provided by operating activities
  7,580,173
  909,750
  10,547,222The
accompanying notes are an integral part of
these consolidated financial statements.

For
  the years ended December 31,2000
  1999
  1998(Restated)
  (Restated)Investing activities:Proceeds from:Maturities
  of fixed maturities
  14,551,267
  8,074,333
  17,444,834Sales of
  fixed maturities
  7,689,638
  1,205,824
  2,000,000Sale of
  equity securities
  8,687
  630,612
  -Payments
  received on mortgage loan principal
  43,455
  207,422
  161,517Sale or
  maturities of short-term investments
  126,600,687
  89,390,755
  245,390,264Purchase of:Fixed
  maturities
  (34,191,912)
  (9,343,352)
  (31,304,235)Short–term
  investments
  (124,698,557)
  (89,656,130)
  (244,133,789)Mountain
  Valley (2000) and North East (1999), net of cash acquired
  (3,962,753)
  (10,127,839)
  -Fixed assets
  (1,957,342)
  (621,069)
  (612,897)Total cash utilized in investing activities
  (15,916,830)
  (10,239,444)
  (11,054,306)Financing activities:Convertible
  subordinated debentures
  -
  10,000,000
  -Note payable
  11,500,000
  (3,000,000)
  3,000,000Common stock
  issued
  -
  -
  57,750Total cash provided by financing activities
  11,500,000
  7,000,000
  3,057,750Net increase (decrease) in cash
  3,163,343
  (2,329,694)
  2,550,666Cash and cash equivalents at beginning of year
  443,733
  2,773,427
  222,761Cash and cash equivalents at end of year
  $3,607,076
  $443,733
  $2,773,427

Supplemental Disclosures of Cash Flow Information

(1)
  Total
  interest paid was $1,774,808 (2000), $448,782 (1999) and $60,389 (1998).(2)
  Total Federal income taxes paid was $0 (2000 and 1999)
  and $212,738 (1998).(3)
  The Company purchased all
  of the common stock of Mountain Valley (2000) and North East (1999).  Cash acquired in connection with the
  purchase of Mountain Valley (2000) and North East (1999) was $3,537,247 and
  $281,843, respectively.  In
  conjunction with the acquisition, liabilitieswere assumed as follows:2000
  1999Fair value of assets acquired
  $14,944,762
  $32,858,750Cash paid for the capital stock
  7,500,000
  10,409,682Equity paid for the capital stock
  -
  73,114Liabilities assumed
  $7,444,762
  $22,375,954The
accompanying notes are an integral part ofthese consolidated financial statements.

MOTOR CLUB OF AMERICA AND SUBSIDIARIESNOTES TO CONSOLIDATED
FINANCIAL STATEMENTSNote A – Summary of Significant Accounting
Policies:

(a)         Basis
of Presentation and Principles ofConsolidation:The consolidated financial statements of Motor Club of
America (the Company) include its accounts and those of its directly or
indirectly wholly–owned subsidiary companies.  The financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP).  The preparation of financial statements in conformity with these
practices 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 period.  Actual results could differ from those estimates.The Companys insurance subsidiaries, Motor Club of
America Insurance Company (Motor Club), Preserver Insurance Company
(Preserver), Mountain Valley Indemnity Company (Mountain Valley), North
East Insurance Company (North East) and its subsidiary American Colonial
Insurance Company (American Colonial) are collectively referred to as the
Insurance Companies.All material intercompany items and transactions have
been eliminated in consolidation. 
Certain amounts in prior years have been reclassified to conform to the
current presentation.(b)        Nature
of Operations:The
Company is a New Jersey corporation which owns the Insurance Companies. The
Company acquired North East and its subsidiaries on September 24, 1999 and
Mountain Valley on March 1, 2000; see Note B and C for more information on
these transactions, respectively. The Insurance Companies engage in property and casualty insurance, principally
small commercial, private passenger automobile and homeowners insurance,
produced by independent agents. The Company generates substantially all of its
revenues from its insurance operations.Motor Club and Preservers operations are in the State
of New Jersey.  Mountain Valleys
operations are in New England (except for Connecticut) and New York.  North Easts operations are in the State of
Maine.  American Colonial, which has not
written any business since March 1990, plans to recommence operations in the
State of New York in 2001.(c)         Insurance
Premiums:Insurance premiums are credited to income by the monthly
pro rata method over the terms of the contracts.  Beginning July 1, 1998, Motor Club began converting its contracts
for private passenger automobile insurance from six month to twelve month
policies (Policy Term Conversion). 
While the Policy Term Conversion temporarily increased, for a one year
period commencing July 1, 1998, the amount of premiums written by Motor Club,
it did not affect the amount of premiums earned. Insurance contracts for
policies are for terms of one to three years.(d)        Investments:All of the Companys fixed maturity and equity securities
are classified as available-for-sale securities, and are therefore reported at
fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of shareholders equity, net of applicable
deferred taxes.The Company does not invest in, hold or issue any
derivative financial instruments.Premium and discount amounts are amortized into income
based on the stated contractual life of the securities. The Company recognizes
income for the mortgage-backed and asset-backed bond portion of its fixed
maturity securities portfolio using the constant effective yield method.When actual prepayments differ from this assumption, the
effective yield is recalculated to reflect actual payments to date.  The net investment in the security is
adjusted to the amount that would have existed had the new effective yield been
applied since the acquisition of the security. 
That adjustment is included in net investment income.Gains and losses on investments are recognized when
investments are sold or redeemed on a specific identification basis.(e)         Other
Revenues:Other revenues consist principally of interest on
mortgage loans and servicing fees from motor club membership fees, which are
earned when services are fulfilled.(f)         Losses
and Loss Expenses:The estimated liability for losses is based on (1) the
accumulation of cost estimates for unpaid losses reported prior to the close of
the accounting period; and (2) estimates of incurred but not reported losses
based upon past experience; less (3) estimates of anticipated salvage and
subrogation recoveries. In the normal course of business, the Company seeks to
reduce the loss thatmay arise from catastrophes or other events that cause unfavorable
underwriting results by reinsuring certain levels of risk in various areas of
exposure with other insurance enterprises or reinsurers.Changes to the estimated liabilities are reflected in
the results of operations currently.The liability for loss expenses is based on estimates of
expenses to be  incurred in the
settlement of claims.(g)        Deferred
Policy Acquisition Costs:Deferred policy acquisition costs are costs that vary
with and are primarily related to the production of new and renewal
business.  Such costs include
commissions, premium taxes and certain underwriting and policy issuance costs
which are deferred when incurred and 
amortized to income as the related written premiums are earned.
Investment income is anticipated in determining the recoverability of deferred
policy acquisition costs.(h)        Fixed
Assets:Depreciation on leasehold improvements is computed by
the straight–line method over the remaining lease term.   Depreciation on furniture and fixtures,
technology investments and other equipment, is computed by the straight–line
method over the estimated useful lives, ranging from three to twenty years.Expenditures for major renewals and betterments are
capitalized, and expenditures for maintenance and repairs are charged to income
as incurred.  When fixed assets are
retired, or otherwise disposed of, the cost thereof and related accumulated
depreciation are eliminated from the accounts. 
Any gain or loss on disposal is credited or charged to operations.(i)          Federal
Income Taxes:Deferred Federal income taxes are provided for temporary
differences between the financial statement and tax basis of assets and
liabilities using enacted tax rates expected to apply in the years in which the
differences are expected to reverse.(j)          Goodwill:Under the purchase method of accounting for business combinations,
the total purchase price is allocated to the acquired assets and liabilities
based on their fair values.  Any
differences between the excess of the cost of the transaction and the fair
value of net assets acquired is recorded as goodwill, which will be amortized
on a straight-line basis over twenty years.(k)         Statement
of Cash Flows:For purposes of the statement of cash flows, the Company
considers demand deposits held with financial institutions and money market
mutual fund holdings to be cash equivalents.(l)          Per
Share Data:Basic
earnings per share are computed based upon the weighted average number of
common shares outstanding during each year. 
Diluted earnings per share are computed based upon the weighted average
number of common shares outstanding including outstanding stock options.  See Note Q for more information on
outstanding stock options and Note S for more information on the computation of
Earnings per Share.(m)        Comprehensive
Income (Loss):Comprehensive income (loss) consists of net income, the
unfunded accumulated benefit obligation in excess of plan assets (minimum
pension liability)and net unrealized investment gains or losses on
available-for-sale securities and is presented separately in Note P.  These amounts are reported net of deferred
Federal income taxes.(n)        Fair
Value of Financial Instruments:The carrying amounts reported in the Consolidated
Balance Sheets for cash and cash equivalents, premium receivables, accounts
payable and notes payable approximate those assets and liabilities fair values
due to the short term nature of the instruments.  The fair value of investments and convertible subordinated
debentures are addressed in the related footnotes.Note B  Acquisition of North East:

On September 24, 1999, the Company acquired North East,
headquartered in Scarborough, Maine, through a merger of a wholly-owned
subsidiary of the Company with and into North East.Under the terms of the merger, certain North East
shareholders elected and received 7,958 shares of the Companys common stock
representing 41,781 shares of North East common stock; the remaining
shareholders and holders of North East stock options were paid $10,409,682 in
cash.  The aggregate purchase price for
the transaction was $10,482,796.The acquisition has been accounted for using the
purchase method of accounting and, the excess purchase price over the fair
value of the net assets acquired of $1,614,957 was allocated to goodwill. The
goodwill is being amortized on a straight-line basis over twenty years.  The 1999 consolidated results of operations
include the results of operations of North East for the three months ended
December 31, 1999.  The amount of
goodwill amortization expense recorded in 2000 and 1999 was $84,695 and
$21,174, respectively.The following unaudited pro forma consolidated results
of operation for the years ended December 31, 1999 and 1998 assume the North
East acquisition occurred as of January 1, 1998:1999
  1998(Restated)
  (Restated)Insurance premiums
  $66,002,646
  $65,756,095Net investment income
  5,695,332
  5,175,055Realized gains on sales of investments (net)
  3,102
  82,817Other revenue
  143,410
  171,171Total revenues
  71,844,490
  71,185,138Losses and loss expenses incurred
  47,398,423
  44,837,264Other operating expenses
  25,860,049
  21,339,295Total losses and expenses
  73,258,472
  66,176,559Income (loss) before federal income taxes
  (1,413,982)
  5,008,579Benefit (provision) for federal income taxes
  488,475
  (1,687,859)Net income (loss)
  $(925,507)
  $3,320,720Per share:Basic
  $(.44)
  $1.57Diluted
  $(.44)
  $1.40Note C  Acquisition of Mountain Valley:

On
March 1, 2000 the Company completed its acquisition of Mountain Valley,
formerly known as White Mountains Insurance Company, from Unitrin, Inc. for
$7.5 million in cash. Mountain Valley is based in Bedford, New Hampshire.The
fair value of Mountain Valleys net assets at March 1, 2000 was
$7,775,687.  The acquisition has been
accounted for using the purchase method of accounting and thus based on the
fair value of the net assets acquired at March 1, 2000, the Company recorded
$275,687 of the difference between the excess which represented the fair value
of net assets acquired and the cost of the transaction as a reduction of
deferred policy acquisition costs, which is being amortized on a straight-line
basis over the terms of the underlying insurance contracts associated with
those costs.Under the terms of the purchase, Mountain Valley
terminated its former 100% intercompany quota share reinsurance agreement; at
closing there were no net loss and loss expense reserves for claims occurring
prior to closing, including those which develop subsequently. Mountain Valley
assumed $6,135,200 of unearned premium and other liabilities of $1,309,562 at
closing (subject to certain adjustments).Because of the 100% quota share, Mountain Valley had no
net underwriting operations prior to March 1, 2000 and thus no pro forma
effects of the acquisition are presented.Note D – Investments:

(a)         The
amortized cost and estimated fair value of investments in fixed maturity
securities at December 31, 2000 were as follows:Amortized
  Cost
  Gross
  Unrealized
  Gains
  Gross
  Unrealized
  Losses
  Fair
  ValueU.S. Government securities
  $25,283,857
  $969,621
  ($29,541)
  $26,223,937Mortgage-backed securities
  22,842,939
  115,961
  (38,022)
  22,920,878Asset-backed securities
  12,303,741
  32,086
  (20,351)
  12,315,476Corporate securities
  37,140,557
  202,337
  (728,861)
  36,614,033Total
  $97,571,094
  $1,320,005
  ($816,775)
  $98,074,324The amortized cost and estimated fair value of
investments in fixed maturity securities at December 31, 1999 were as follows:Amortized
  Cost
  Gross
  Unrealized
  Gains
  Gross
  Unrealized
  Losses
  Fair
  ValueU.S. Government securities
  $20,031,827
  $128,984
  ($239,128)
  $19,921,683Mortgage-backed securities
  10,678,363
  29,476
  (301,482)
  10,406,357Asset-backed securities
  10,454,886
  -
  (216,034)
  10,238,852Corporate securities
  39,689,688
  9,436
  (2,023,694)
  37,675,430Total
  $80,854,764
  $167,896
  ($2,780,338)
  $78,242,322The
amortized cost and fair value of investments in fixed maturity securities at
December 31, 2000, by contractual maturity, were as follows:Amortized
  Cost
  Fair
  ValueDue in one year or less
  $6,095,794
  $6,124,940Due after one year through five years
  26,531,826
  26,873,336Due after five years through ten years
  30,311,345
  30,272,020Due after ten years
  34,632,129
  34,804,028$97,571,094
  $98,074,324The
above maturity tables include $35,236,354 (at fair value) of mortgage-backed
and asset-backed securities, which were classified based on the contractual
life of the securities.Expected
maturities may differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without call or prepayment penalties.  Gross gains of $157,992, $6,213 and $50,099
were realized on proceeds of $9,304,811, $546,789 and $10,434,411 in 2000, 1999
and 1998, respectively, on those sales and calls.  Gross losses of $75,243, $595 and $21,554 were realized on
proceeds of $4,738,160, $250,000 and $5,391,130 in 2000, 1999 and 1998,
respectively, on those sales and calls.(b)        Net investment income by category of
investments consisted of the following:Category
  2000
  1999
  1998Fixed maturities
  $5,664,918
  $4,665,066
  $3,950,500Other, principally short–term investments
  1,021,032
  593,366
  498,253Total
  investment income
  6,685,950
  5,258,432
  4,448,753Investment expenses
  273,066
  177,493
  144,246Net
  investment income
  $6,412,884
  $5,080,939
  $4,304,507(c)         At December 31, 2000 and 1999, fixed
maturity investments (at fair value) deposited with the various states where
the Insurance Companies conduct business amounted to $7,407,918 and $2,986,560,
respectively.(d)        There
were no investments in any persons and its affiliates in excess of ten percent
of shareholders' equity.(e)         The
change in net unrealized gains (losses) on investments are as follows:Years
  Ended December 31,2000
  1999
  1998Fixed maturities
  $3,115,672
  ($4,517,228)
  $1,012,666(f)         In the
opinion of management there has been no other than temporary impairments in the
carrying amount of investments.Note E  Unpaid Losses and Loss Expenses:

(a)         The following table provides a
reconciliation of the beginning and ending balances for unpaid losses and loss
expenses for 2000, 1999 and 1998:2000
  1999
  1998Balance at January 1
  $70,983,383
  $58,335,143
  $50,246,778Less: Reinsurance recoverables
  18,453,650
  18,520,866
  17,363,319Net balance at January 1
  52,529,733
  39,814,277
  32,883,459Acquired in 1999
  -
  8,820,265
  -Incurred losses and loss expenses:Provision
  for current year claims
  55,542,028
  37,271,781
  32,598,287Increase
  in provision for prior years claims
  166,024
  3,359,272
  3,881,304Total incurred losses and loss expenses
  55,708,052
  40,631,053
  36,479,591Payment for losses and loss expenses:Payment
  on current year claims
  24,501,115
  16,447,458
  12,038,000Payment
  on prior years claims
  23,540,843
  20,288,404
  17,510,7732000
  1999
  1998Total payments for
  losses and loss expenses
  48,041,958
  36,735,862
  29,548,773Net balance at December
  31
  60,195,827
  52,529,733
  39,814,277Plus: Reinsurance
  recoverables
  30,196,659
  18,453,650
  18,520,866Balance at December 31
  $90,392,486
  $70,983,383
  $58,335,143The
Company recognized unfavorable development in the provision for insured events
of prior years of $166,024, $3,359,272 and $3,881,304 in 2000, 1999 and 1998,
respectively. The small 2000 development reflects generally neutral net development
in each of the Insurance Companies. Motor Club did experience favorable
development of private passenger automobile (PPA) losses occurring in 1999
offset by unfavorable development of losses occurring from 1996 to 1998. The
1999 and 1998 development reflects the initial adverse development of Motor
Clubs reserves for PPA losses occurring in those years.In
establishing the liability for unpaid losses and loss settlement expenses,
management considers facts currently known and the current state of the law and
coverage litigation. Liabilities are recognized for known losses (including the
cost of related litigation) when sufficient information has been developed to
indicate the involvement of a specific insurance policy, and management can
reasonably estimate its liability. In addition, liabilities have been
established to cover additional exposures on both known and unasserted losses.
Estimates of the liabilities are reviewed and updated continually.(b)        Losses
incurred are reduced by salvage and subrogation approximating $4,249,190,
$3,144,175 and $2,661,000 for the years ended December 31, 2000, 1999 and 1998,
respectively.Note F – Fixed Assets:

Fixed assets consist of the following:2000
  1999Leasehold improvements
  $266,041
  $202,275Office furniture, fixtures and data processing
  equipment
  6,300,978
  3,984,2316,567,019
  4,186,506Less
  accumulated depreciation
  3,573,790
  2,327,885Balance at December 31
  $2,993,229
  $1,858,621Note G – Reinsurance:

(a)         Unearned
premiums and unpaid loss and loss expenses are stated gross of the effects of
reinsurance.(b)        Ceded
premiums are recognized in a manner consistent with the coverage provided.  Amounts recoverable from reinsurers are
estimated in a manner consistent with the claims liabilities associated with
the reinsurance.(c)         Reinsurance
contracts do not relieve the Insurance Companies from their obligations to
policyholders.  Failure of reinsurers to
honor their obligations could result in losses to the Insurance Companies.  Generally, for Motor Club and Preserver all
risks in excess of $200,000 for 2000 and $150,000 for 1999 and prior for
liability lines and $100,000 for property lines are reinsured.North Easts principal reinsurance protection is
provided through a combined per risk excess of loss treaty.  Prior to 2000, this reinsurance afforded
recovery to $1 million in excess of a retention of $50,000.  On January 1, 2000, this retention was
increased to $150,000.Prior
to March 1, 2000, the date the Company acquired Mountain Valley, Mountain
Valley ceded 100% of its premiums, losses and expenses under a quota share
treaty to Trinity Universal Insurance Company (Trinity), a subsidiary of
Unitrin, Inc., (Trinity Quota Share). All cessions under the Trinity Quota
Share are after the application of all third party reinsurance that Mountain
Valley maintains.Effective
March 1, 2000, the Trinity Quota Share was terminated on a cut-off basis. Under
the terms of the cut-off, Mountain Valley will continue to cede 100% of losses
and expenses incurred before March 1, 2000, including subsequent development of
those losses and expenses. In addition, Trinity retained the premiums, losses
and expenses on certain policies in the State of New York until Mountain Valley
renewed, canceled or non-renewed those policies at (or prior to) their
expiration dates.Accordingly,
as of March 1, 2000, Mountain Valley had and will continue to have no net
unpaid loss and loss expense reserves for losses incurred before March 1, 2000.
Reinsurance recoverables on unpaid loss and loss expenses due under the Trinity
Quota Share were $10,723,263 at December 31, 2000.  Mountain Valley is subject to credit risk should Trinity not be
able to pay its obligations under the Trinity Quota Share. However, Trinity is
presently rated A+ (Superior) by A.M. Best and has $846 million in statutory
surplus as regards policyholders as of December 31, 2000. Thus, management
believes that such credit risk is not material at this time.Third
party reinsurance for property and casualty losses of Mountain Valley are
principally maintained under a combined per risk excess of loss treaty
affording recovery to $5 million in excess of a retention of $250,000.The
Insurance Companies also maintain additional reinsurance contracts for boiler
and machinery coverages, commercial umbrella and workers compensation
policies, catastrophe events and for certain risks that it underwrites which it
does not believe are appropriate for coverage by its third party treaty
reinsurance.The Insurance Companies evaluate the financial condition
of their reinsurers and monitor concentrations of credit risk arising from
activities or economic characteristics of the reinsurers to minimize their
exposure to significant losses from reinsurer insolvencies.As referred to in Note A, Motor Club and Preservers
operations are presently located in the State of New Jersey, the laws of which
require participation in certain reinsurance funds.Reinsurance recoverable on paid and unpaid loss and loss
expenses include amounts recoverable from the Unsatisfied Claim and Judgment
Fund (UCJF) of the State of New Jersey, which pertains to New Jersey Personal
Injury Protection claims in excess of Motor Clubs statutory retention limit of
$75,000.  Reinsurance recoverable from
the UCJF was $7,858,373 and $8,672,127 as of December 31, 2000 and 1999,
respectively.Motor Club is required to participate in the New Jersey
Automobile Insurance Risk Exchange ("NJ AIRE").  NJ AIRE is designed to balance differences
between Motor Club's bodily injury exposures and loss payments as compared to
industry exposures and loss payments under New Jersey's dual tort threshold
system.Assessments paid to NJ AIRE based on subject bodily
injury exposures are accounted for as ceded premiums written and totaled
$723,851, $1,805,185 and  $1,113,756 in
2000, 1999 and 1998, respectively. 
Reimbursements from NJ AIRE based on subject claim payment experience
are accounted for as ceded losses incurred and totaled $1,027,146, $1,347,565
and  $548,415 in 2000, 1999 and 1998,
respectively.Prepaid
reinsurance premiums of $4,324,915 and $1,485,450 as of December 31, 2000 and
1999, respectively, are mainly attributable to Preservers and Mountain
Valleys workers compensation program and excess of loss reinsurance treaties.The effect of reinsurance on premiums written and earned
is as follows:2000
  1999
  1998Written
  Earned
  Written
  Earned
  Written
  EarnedDirect
  $100,846,838
  $96,615,156
  $62,467,203
  $64,151,936
  $71,399,224
  $59,951,837Assumed
  (17,003)
  13,380
  46,946
  14,340
  -
  -Ceded
  (11,625,394)
  (13,161,055)
  (8,005,934)
  (8,358,946)
  (7,096,511)
  (6,776,174)Net
  $89,204,441
  $83,467,481
  $54,508,215
  $55,807,330
  $64,302,713
  $53,175,663Note H  Note Payable:

On September 14, 1998, the Company entered into a $3
million revolving credit facility with Dresdner Bank (the Loan) and drew on
the entire amount of the Loan on September 30, 1998. The Loan was repaid in
full on December 27, 1999. The weighted-average effective rate of interest on
the loan was 7.28% and 7.0625% in 1999 and 1998, respectively. Interest paid on
the Loan in 1999 and 1998 was $216,017 and $54,146, respectively.In connection with the acquisition of Mountain Valley,
three of the Companys directors (the Ownership Group), extended unsecured
debt financing (Notes) in the amount of $11.5 million to finance the
transaction and to provide additional working capital to the Company.  The Notes mature on February 28, 2002 and
pays interest quarterly at a rate of 10.605%. 
The Company is pursuing longer-term financing options to replace the
Notes. At the Companys election, if acceptable financing is not identified by
Motor Club during the two-year period, the Notes can be extended for up to five
years utilizing successive one-year renewals, in exchange for an increased
interest rate on the Notes. Interest paid on the Notes was $914,681 in 2000.Note I – Convertible Subordinated Debentures:

In connection with its acquisition of North East, on
September  23,  1999, the Company issued $10 
million of Convertible Subordinated Debentures (Debentures),  in one series, under a plan previously
approved by its shareholders.The Debentures are due on September 23, 2009 and bear an
interest  rate of 8.44%, which was 2.5%
over  the London Interbank Offered Rate,
fixed as of September 23, 1999, the date the series was issued.At each holders option, the Debentures are convertible
at any time, in whole or in part, into 645,578 of the Companys common shares
($10 million divided by  130%  of the average trading price of the
Companys common stock over the twenty day period immediately prior to  September 23, 1999 (Conversion
Price)).  The applicable Conversion
Price is $15.49.The Ownership Group purchased  $9,253,785  of  the 
$10  million in Debentures issued.   If the members of the Ownership Group
convert those Debentures, their percentage 
ownership in the Companys common stock will substantially   increase. 
Based on the Companys common shares outstanding as of December 31,
2000, the Ownership Group could increase its collective percentage stock
ownership from the current 47.1% to 57.7%.Interest paid on the Debentures was $844,000 and
$232,100 in 2000 and 1999, respectively. 
The fair value of the Debentures was estimated to be $11,950,282 and
$12,648,876 at December 31, 2000 and 1999, respectively.  Fair value for the Debentures are estimated
using a model that considers both the debt and equity components of the
security.  As to the debt component,
fair value was estimated by considering the Debentures estimated credit
quality, similar instruments and its remaining average life.  As to the equity component, fair value was
estimated using the Black-Scholes option pricing model based on the following
assumptions for 2000 and 1999; risk-free interest rate of 5.19% and 6.44%;
volatility of 47.6% and 50.5%; and expected life of 9.75 years and 8.75
years.  The Company does not pay a
dividend on its common stock.Note J – Taxes:

(a)         The
Company and its subsidiaries (including MCA Insurance Company in Liquidation
and its subsidiaries (MCAIC), former affiliates) file a consolidated Federal
income tax return, and participate in a Tax Sharing Agreement.Despite
being declared insolvent in 1992, MCAIC is 
required to continue to be included in the Companys consolidated tax
return filed with the Internal Revenue Service. Since that time, MCAIC has
generally continued to generate taxable losses included in the consolidated tax
return.Under
the applicable rules, the Company is entitled to, and has taken current tax
benefits for net operating losses that MCAIC and its subsidiaries have
generated since 1992. However, to the extent that the Company does not have
positive basis (as defined by the Internal Revenue Code), it may also be
required to pay future tax liabilities (which may offset the current tax
benefit) subject to certain events which may trigger such payments.  Accordingly, when such current tax benefits
are recognized, a corresponding deferred tax liability is recorded.In
March, 2001, the Companys management determined that certain tax benefits
should not have been recognized and that certain deferred tax liabilities had
not been recorded.  In addition,
deferred tax assets were not recorded that should have been for the tax effects
of the minimum pension liability that is presented as a component of other
comprehensive income. As a result, the 1998 and 1999 Consolidated Financial
Statements have been restated from amounts previously reported and are
discussed in Note V.At
the time of its insolvency, MCAIC realized approximately $150 million in
losses, which generated a net operating loss (NOL) that could not be utilized
at that time by either the Company or MCAIC under applicable IRS regulations
and which expire in 2006. Additional net operating losses have been experienced
by MCAIC since 1992, some of which were utilized by the Company at a time when
it had no tax basis in MCAIC, thus creating a deferred tax liability
represented by the $1,917,405  Excess
Loss Account item (for the year ended December 31, 2000) as shown in the
deferred tax reconciliation of this Note. 
The $150 million of NOLs generated in 1992 will likely increase the
Companys excess loss account at the time they expire in 2006.An
excess loss account in a subsidiary generally creates taxable income at the
time of the sale, liquidation or other disposition of the subsidiary.Management
expects that the liquidation or other disposition of MCAIC will take place
prior to the expiration of these NOLs in 2006 and  prior to the corresponding increase in the Companys excess loss
account.  As the control of the
liquidation process rests with the Insurance Department of the State of
Oklahoma (the Receiver) and not with management, there is a potential risk
that such tax liability could be incurred by the Company after 2006 when the
1992 generated NOLs will have been converted into the Companys excess loss
account. Management believes it is unlikely that such risk will occur, as the
liquidation of MCAIC is probable before the expiration of the NOL.  However, the tax effects of these
transactions are subject to the circumstances of the liquidation process itself
and tax-planning strategies exist which could mitigate the impact of such a tax
exposure.With
respect to the Companys excess loss account created by the Companys
utilization of MCAICs post 1992 NOLs, these excess losses will likely result
in the Company recognizing taxable income in the year MCAIC is liquidated or
otherwise disposed of.  The effect of
the deferred taxes attributable to such income has been reflected in the
Consolidated Financial Statements.(b)        The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities were as follows:December
  31,2000
  1999(Restated)Deferred tax assets:Net
  operating loss ("NOL") carryforward
  $2,997,500
  $2,969,144Unpaid
  losses and loss expenses
  2,448,971
  2,046,251Unearned
  premium
  3,337,694
  2,530,457Unrealized
  loss on securities
  -
  888,230Minimum
  pension liability
  1,559,138
  1,111,120Alternative
  minimum tax and general business credit carry-forwards
  345,408
  300,611Other
  deferred tax assets
  227,349
  313,353Total deferred tax assets
  10,916,060
  10,159,166Deferred tax liabilities:Deferred
  acquisition costs
  (4,931,893)
  (3,590,659)Excess loss
  account
  (1,917,405)
  (910,664)Unrealized
  gain on securities
  (171,098)
  -Prepaid
  pension cost
  (1,313,026)
  (1,181,989)Other
  deferred tax liabilities
  (169,490)
  (223,447)Total deferred tax liabilities
  (8,502,912)
  (5,906,759)Less: valuation allowance for deferred tax assets
  (584,442)
  (614,856)Net deferred tax asset
  $1,828,706
  $3,637,551The NOL carryforward of $8,816,176 expires beginning in
2009.  The NOL carryforward includes
$6,327,667 of NOLs attributable to North East, which expire in 2014.  Under the prevailing tax laws, these losses
must be used to offset taxable income of North East only, are not available to
offset taxable income of other operations and are subject to an annual
limitation of $587,000.The Company believes it is more likely than not that it
will generate future taxable income to realize the benefits of the net deferred
tax asset, including those net deferred tax assets attributable to North East
only. The ultimate amounts realized, however, could be reduced if actual
amounts of future taxable income differ from projected future taxable
income.  A valuation allowance has been
provided for NOLs relating to MCAIC that have not been utilized as well as for
capital loss carryforward generated from North East that management believes
may not be utilized within the carryforward period.(c)         The
provision for Federal income taxes resulted in effective tax rates that differ
from the statutory Federal income tax rates, as follows:2000
  1999
  1998(Restated)
  (Restated)Tax provision computed at statutory federal income tax
  rates
  ($1,019,890)
  ($34,730)
  ($1,944,598)Goodwill
  (28,798)
  (7,199)
  -Other
  8,930
  31,119
  3,576Provision
  ($1,039,758)
  ($10,810)
  ($1,941,022)(d)        The Consolidated Statements of
operations for the years ended December 31, 2000, 1999 and 1998 include state
taxes based on insurance premiums of $884,052, $230,606, and $189,346,
respectively.Note K  Shareholders Equity:

(a)         The
Insurance Companies prepare their statutory financial statements in accordance
with accounting practices prescribed or permitted by the respective Departments
of Insurance in which they are domiciled (SAP).Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations and general administrative
rules.  Permitted statutory accounting
practices encompass all accounting practices not so prescribed.The Insurance Companies are required by  law to maintain certain minimum surplus on a
statutory basis, and are subject to risk-based capital requirements and to
regulations under which payment of a dividend from statutory surplus is
restricted and may require prior approval of regulatory authorities.  Applying the current regulatory restrictions
as of December 31, 2000, and to the extent that statutorily defined surplus is
available, $3,329,000 would be available for distribution during 2001 without
prior approval.As a result of PPA reforms in New Jersey, which include
a reduction of premium due to a rate rollback, Motor Clubs liabilities for
unpaid losses and loss expenses in relation to its statutory surplus are at a
level whereby adverse development of claims, particularly as a result of the
impact of these reforms, could further reduce its surplus, thus decreasing its
risk-based capital ratios, possibly to a level which would require action as
prescribed by law.  To date, the New
Jersey Department of Banking and Insurance has generally not been responsive to
request for rate increases or other regulatory relief based upon the impact of
these reforms to companies, nor as noted has it implemented certain key aspects
of these reforms which would provide relief to insurers such as Motor Club.The NAIC has adopted the Codification of Statutory
Accounting Principles with an effective date of January 1, 2001.  The codified principles are intended to
provide a basis of accounting recognized and adhered to in the absence of
conflict with, or silence of, state statutes and regulations.  The impact of the codified principles on the
statutory capital and surplus of the Insurance Companies  is still being determined and is currently
not expected to decrease statutory capital and surplus as of January 1, 2001.(b)        The
consolidated financial statements of the Companys insurance subsidiaries have
been prepared in accordance with GAAP, which differ in certain respects from
SAP.The principal differences relate to (1) acquisition
costs incurred in connection with acquiring new business which are charged
to expense under SAP but under GAAP are deferred and amortized as the related
premiums are earned; (2) anticipated salvage and subrogation recoveries which have
not been credited to losses incurred for SAP; (3) net deferred tax assets
created by the tax effects of temporary differences; (4) unpaid losses, unpaid
loss adjustment expenses and unearned premium reserves are presented gross of
reinsurance with a corresponding asset recorded; and (5) fixed maturity
portfolios that qualify as available for sale are carried at fair value and
changes in fair value are reflected directly in unassigned surplus, net of
related deferred taxes.The consolidated capital and surplus, shareholders
equity and income of the Insurance Companies on a statutory and GAAP basis were
as follows:December
  31,2000
  1999Capital and surplus –Statutory
  basis
  $39,423,591
  $30,211,579Shareholders equity –GAAP basis
  $65,415,583
  $47,647,953Years
  ended December 31,2000
  1999
  1998Net income (loss):Statutory basis
  $(125,807)
  $204,073
  $(762,471)GAAP basis
  $4,896,742
  $1,265,286
  $5,157,732Distribution
by the Insurance Companies of the excess of GAAP shareholders equity over
statutory capital and surplus to the Company is prohibited by law.Note L – Contingencies:

The Company and its subsidiaries are parties to various
legal actions and administrative proceedings and subject to various claims
arising in the ordinary course of business. 
The Company believes that the disposition of these matters will not have
a material adverse effect on the financial position, the results of operations
or cash flows of the Company.Note M – Pensions:

(a)         The
Company has a non–contributory defined benefit plan (the Plan).  Eligible salaried and hourly employees of
the Company participate in the Plan after twelve months of continuous
employment with the Company when age 21 has been attained.  Retirement benefits are based on each participants
average compensation and years of service. 
Vesting of benefits  begins after
five years of service commencing from the minimum age of 21 or date of hire, if
later.The Companys contributions are designed to fund the
Plans normal costs on a current basis and to 
fund the unfunded prior service costs, including accrued benefits
arising from qualifying employee service occurring prior to the establishment
of the Plan, over 40 years.On January 15, 1992, the Company suspended the accrual
of benefits arising from participant service. 
The Company continues to fund the Plan for benefits earned through
January 31, 1992.The
Plan maintained a significant amount of assets in group annuity contracts with
Mutual Benefit Life Insurance Company (Mutual), which was placed in
rehabilitation by the NJ DOBI on July 16, 1991.In October 1994, MBL Life Assurance Corporate (MBLLAC)
approved and subsequently paid a hardship withdrawal of $2,666,204 (net of an
administrative charge of $470,507) to the Plan.The Plan also received $91,938 and $183,876 in
distributions from MBLLAC and Mutual in 1999 and 1998, respectively, under
provisions of the Plan of Rehabilitation.On June 1, 1999, $3,424,869 was received from MBLLAC and
an additional $14,670 was received on August 27, 1999.  The restructured contract has how been paid
in full and the Plan no longer has any assets with MBLLAC.(b)        Net
periodic pension cost for 2000, 1999 and 1998 included the following
components:2000
  1999
  1998Interest cost
  $815,300
  $784,400
  $813,900Expected return on plan assets
  (1,076,700)
  (1,032,700)
  (946,800)Recognized loss
  268,700
  342,100
  312,500Net periodic
  cost
  $7,300
  $93,800
  $179,600Measurement
of the Companys benefit obligation and pension expense as of December 31 of
each year used the following assumptions:2000
  1999
  1998Discount rate
  7.50%
  7.75%
  6.75%Expected return on plan assets
  10.00%
  10.00%
  10.00%Rate of compensation increase
  N/A
  N/A
  N/A(c)         A reconciliation of the changes in the
Plans benefit obligations and fair value of assets during 2000 and 1999 and a
statement of the funded status of the Plan as of December 31 of each year is as
follows:2000
  1999Change in benefit obligation:Benefit
  obligation at January
  1
  $10,844,900
  $11,968,900Service cost
  -
  -Interest
  Cost
  815,300
  784,400Actuarial
  (gain)/loss
  378,300
  (886,400)Benefits
  paid
  (1,033,200)
  (1,022,000)Benefit
  obligation at December 31
  $11,005,300
  $10,844,900Change in plan assets:Fair value
  of plan assets at January 1
  $11,061,300
  $10,618,700Actual
  return on plan assets
  (19,100)
  1,325,700Employer
  contribution
  384,800
  239,900Benefits
  paid
  (1,033,200)
  (1,022,000)Other
  (112,300)
  (101,000)Fair value
  of plan assets at December 31
  $10,281,500
  $11,061,300Funded
  Status at December 31
  $(723,800)
  $216,400Unrecognized
  loss
  4,585,700
  3,268,000Net amount
  recognized at December 31
  $3,861,900
  $3,484,400Following
are the amounts recognized in the statement of financial position as of
December 31 of each year:Prepaid benefit cost
  $3,861,900
  $3,484,400Accrued benefit liability
  (4,585,700)
  (3,268,000)Accumulated other comprehensive income
  3,026,600
  2,156,900Deferred tax benefit, as restated
  1,559,100
  1,111,100Net amount recognized
  $3,861,900
  $3,484,400The adjustment required to recognize the minimum
liability is reflected as a component of accumulated comprehensive income  (loss) as of December 31, 2000 and 1999,
respectively.(d)        The
Company maintains a defined contribution plan for substantially all
employees.  Employer contributions of a
discretionary amount are made by the Company and its subsidiaries.  Employer contributions in the amount of
$169,554, $124,458 and $116,329 were made by the Company in 2000, 1999 and
1998, respectively, for its employees and charged to expense.(e)         In
1997, the Company established a non-qualified deferred compensation plan for
certain executive employees.  Employer
contributions of a discretionary amount are made by the Company.  Contributions during 2000 and 1999 were
immaterial.Note N – Post–retirement Benefits:

(a)         The Company currently provides certain
life and health benefits to retired employees who had twenty-five or more years
of service, subject to certain eligibility restrictions.  These benefits consist of the payment of
medical, life and dental premiums for the retired employees.  The Companys funding policy is to pay for
the premiums currently; any future increases in the cost of these benefits will
be borne by the retirees and not the Company.(b)        Net periodic post-retirement benefit
cost for 2000, 1999 and 1998 included the following components:2000
  1999
  1998Service cost
  $900
  $2,700
  $2,500Interest cost
  77,600
  30,100
  36,000Amortization of transition obligation
  28,000
  28,000
  28,000Amortization of net loss
  97,100
  22,600
  21,800Net post-retirement expense
  $203,600
  $83,400
  $88,300Measurement of the Companys benefit obligation and
post-retirement benefit expense as of December 31 of each year used the
following assumptions:2000
  1999
  1998Discount Rate
  7.50%
  7.75%
  6.75%Expected return on assets
  N/A
  N/A
  N/AAverage rate of increase in compensation
  N/A
  N/A
  N/A(c)         A
reconciliation of the changes in the benefit obligations and fair value of
assets during 2000 and 1999 and a statement of the funded status as of December
31 of each year is as follows:2000
  1999Change in Accumulated Postretirement Benefit
  ObligationBenefit
  Obligation at January 1
  $375,300
  $502,600Service Cost
  900
  2,700Interest
  Cost
  77,600
  30,100Employee
  Contributions
  52,400
  45,700Benefit
  Paid
  (162,400)
  (157,900)Actuarial
  (gain) loss
  696,900
  (47,900)Benefit
  Obligation at December 31
  $1,040,700
  $375,300Change in Plan AssetsFair
  Value of Plan Assets at January 1
  $-
  $-Company
  Contributions
  110,000
  112,200Employee
  Contributions
  52,400
  45,700Benefits
  Paid
  (162,400)
  (157,900)Fair
  Value of Plan Assets at December 31
  $-
  $-Funded Status of the PlanBenefit
  obligation less than plan assets
  ($1,040,700)
  ($375,300)Unamortized transition obligation
  333,000
  361,000Unamortized net loss
  786,900
  187,100Net
  prepaid asset
  $79,200
  $172,800The following are the amounts recognized in the
statement of financial position as of December 31 of each year:2000
  1999Prepaid benefit cost
  $79,200
  $172,800Accumulated other comprehensive income
  -
  -Net amount recognized
  $79,200
  $172,800(d)        It is
the policy of the Company that any future increase in life and health care
benefits will be borne by the retirees and not the Company; as a result, there
will be no increase in either the accumulated post-retirement benefit
obligation or the service and interest cost components of net periodic
post-retirement benefit cost related to a 1% increase in the health care trend
rate.Note O – Selected Quarterly Financial Data
(Unaudited):

(a)         The
Company is restating its tax provision (benefit) and net income for the three
month periods in 2000 and 1999. Please refer to Note V for further information.(b)        Year
ended December 31, 2000:1st
  Quarter*
  2nd
  Quarter
  3rd
  Quarter
  4th
  QuarterRevenues
  $19,698,432
  $22,453,506
  $24,645,495
  $23,329,714Losses and expenses
  $19,420,712
  $21,460,858
  $23,562,625
  $22,683,275Net income
  $181,456
  $648,573
  $707,522
  $422,368* Includes Mountain Valley for one monthNet income per common share:Basic
  $.09
  $.31
  $.33
  $.20Diluted
  $.09
  $.28
  $.31
  $.20Reconciliation
of previously reported to restated net income and per share information:Net
income:1st
  Quarter*
  2nd
  Quarter
  3rd
  QuarterPreviously reported
  $249,512
  $639,511
  $1,544,397Effect of tax Adjustment
  (68,056)
  9,062
  (836,875)As restated
  $181,456
  $648,573
  $707,522Per share information:Basic:Previously reported
  $0.12
  $0.30
  $0.73Effect of tax adjustment
  (0.03)
  0.01
  (0.40)As restated
  $0.09
  $0.31
  $0.33Diluted:Previously reported
  $0.12
  $0.28
  $0.71Effect of tax adjustment
  (0.03)
  -
  (0.40)As restated
  $0.09
  $0.28
  $0.31*Includes Mountain Valley for one month(c)         Year
ended December 31, 1999:1st
  Quarter
  2nd
  Quarter
  3rd
  Quarter
  4th
  Quarter*Revenues
  $14,314,773
  $14,417,053
  $14,627,084
  $17,708,809Losses and expenses
  $13,106,674
  $13,173,443
  $15,465,552
  $19,219,904Net income (loss)
  $1,080,247
  $1,112,000
  $(749,734)
  $(1,351,177)* Includes North East and subsidiariesNet income (loss) per common share:Basic
  $.51
  $.53
  $(.35)
  $(.64)Diluted
  $.51
  $.52
  $(.35)
  $(.64)Reconciliation
of previously reported to restated net income and per share information:Net
income (loss):1st
  Quarter*
  2nd
  Quarter
  3rd
  Quarter
  4th
  QuarterPreviously reported
  $985,621
  $1,011,433
  $129,745
  ($849,866)Effect of tax Adjustment
  94,626
  100,567
  (879,479)
  (501,311)As restated
  $1,080,247
  $1,112,000
  ($749,734)
  ($1,351,177)Per share information:Basic:Previously reported
  $0.47
  $0.48
  $0.06
  ($0.40)Effect of tax adjustment
  0.04
  0.05
  (0.41)
  (0.24)As restated
  $0.51
  $0.53
  ($0.35)
  ($0.64)Diluted:Previously reported
  $0.46
  $0.48
  $0.06
  ($0.40)Effect of tax adjustment
  0.05
  0.04
  (0.41)
  (0.24)As restated
  $0.51
  $0.52
  ($0.35)
  ($0.64)*Includes North East and subsidiariesNote P – Comprehensive Income:

Comprehensive income consisted of the following:2000
  1999
  1998(Restated)
  (Restated)Net income
  $1,959,919
  $91,336
  $3,778,384Other comprehensive income (loss):Unrealized
  gains (losses) on securities:Unrealized
  gains (losses) during period (net of taxes of ($1,122,742), $1,536,862 and
  ($354,012))
  2,047,676
  (2,982,797)
  687,149Less:
  Reclassification adjustment for gains included in net income(net of taxes of
  $28,203, $12,254 and $9,705)
  (54,746)
  (23,786)
  (18,840)Net
  unrealized gains (losses)
  1,992,930
  (3,006,583)
  668,309Minimum
  pension liability adjustment (net of ($448,018), $482,970 and ($54,196))
  (869,682)
  937,530
  (105,204)Other comprehensive income (loss)
  1,123,248
  (2,069,053)
  563,105Comprehensive income (loss)
  $3,083,167
  ($1,977,717)
  $4,341,489Note Q – Stock Option Plans:

The Motor Club of America 1987, 1992 and 1999 Stock
Option Plans ("1987 Option Plan", "1992 Option Plan" and
"1999 Option Plan", respectively) provide for the issuance of options
to purchase 100,000 common shares, respectively, by key executives at the  market price at date of grant.Options under all Option Plans are exercisable for a
five year period in twenty-five percent increments each year, commencing one
year from the date of grant. As of December 31, 2000: (1) 5,125 shares under
the 1987 Option Plan are available for grant; 57,000 shares were exercisable
and 37,875 shares had been exercised; (2) 1,950 shares under the 1992 Option
Plan are available for grant; 62,500 shares were exercisable and 35,550 shares
had been exercised; and (3) 64,000 shares underthe 1999 Option Plan are available for
grant, and 36,000 shares were exercisable as of that date.Transactions during 1998, 1999 and 2000 relating to the
1987 Option Plan are as follows:Number
  of
  Shares
  Exercise
  Price per
  Share
  Weighted
  Average
  Aggregate
  AmountOptions outstanding at December 31, 1997
  84,000
  $10.098
  848,250Options exercised in 1998
  (22,000)
  $2.625
  (57,750)Options lapsed in 1998
  (5,000)
  $12.75
  (63,750)Options outstanding at December 31, 1998, 1999 and
  2000
  57,000
  $12.75
  $726,750Transactions during 1998, 1999 and 2000 relating to the
1992 Option Plan are as follows:Number
  of
  Shares
  Exercise
  Price per
  Share
  Weighted
  Average
  Aggregate
  AmountOptions outstanding at December 31, 1997
  3,000
  $12.75
  $38,250Options granted in 1998
  28,500
  $11.75
  334,875Options outstanding at December 31, 1998
  31,500
  $11.845
  373,125Options granted in 1999
  31,000
  $12.875
  399,125Options outstanding at December 31, 1999 and 2000
  62,500
  $12.36
  $772,250There were no transactions during 1999 relating to the
1999 Option Plan. Transactions during 2000 related to the 1999 Option Plan are
as follows:Number
  of
  Shares
  Exercise
  Price per
  Share
  Weighted
  Average
  Aggregate
  AmountOptions outstanding at December 31, 1999
  -
  $-
  $-Options granted in 2000
  36,000
  $8.125
  292,500Options outstanding at December 31, 2000
  36,000
  $8.125
  $292,500The Company has adopted the provision of SFAS No. 123
(Accounting for Stock-Based Compensation), which calls for companies to
measure employee stock compensation expense based on the fair value method of
accounting.  However, as allowed by SFAS
No. 123, the Company has elected the continued use of APB Opinion No. 25
(Accounting for Stock Issued to Employees), with pro forma disclosures of net
income and earnings per share determined as if the fair value method had been
applied in measuring compensation cost.These calculations only take into consideration options
issued since January 1, 1995.  In 2000,
1999 and 1998, had the fair value method been applied, net income would have
been reduced by $126,300, $70,900 and $21,100, $.06, $.03 and $.01 basic net
earnings per share, respectively.The average fair value of options granted during 2000,
1999 and 1998 was $3.69, $6.34 and $5.79, respectively. The fair value was
estimated using the Black-Scholes option pricing model based on the following
assumptions for 2000, 1999 and 1998: risk-free interest rate of 4.99%, 6.55%
and 4.66%; volatility of 47.6%, 50.5% and 52.3%; and expected life of 4.5 years
(in 2000 and 1999) and 4.75 years (in 1998). The Company does not pay a
dividend on its common stock.  The
following table summarizes options outstanding and exercisable at December 31,
2000:Options
  Outstanding
  Options
  ExercisableExercise
  Price
  Options
  Average
  Life(a)
  Exercise
  Price
  Options
  Average
  Exercise 
  Price$8.125
  36,000
  4.50
  $8.125
  0
  -$11.750
  28,500
  2.75
  $11.750
  14,250
  $11.750$12.750
  60,000
  1.25
  $12.750
  45,000
  12.750$12.875
  31,000
  3.50
  $12.875
  7,750
  12.875Total
  155,500
  2.73
  $11.520
  67,000
  $12.550(a)         Average
contractual life remaining years.Note R – Lease Obligations:

The Company and its subsidiaries lease office space
suitable to conduct its operations, including its home office in Paramus, New
Jersey. In addition, office facilities in Albany, New York, Bedford, New
Hampshire and Scarborough, Maine are leased under varying terms and expiration
dates.  These leases are considered
operating leases for financial reporting purposes.  Some of these leases have options to extend the length of the
leases and contain clauses for cost of living, operating expense and real estate
tax adjustments.  Rental expense was $599,927
in 2000 and $410,000 in 1999 and 1998, respectively.  Future minimum lease payments (without provisions for sublease
income) are $714,112 in 2001; $716,147 in 2002; $716,147 in 2003; $716,147 in
2004; and $1,431,227 thereafter.Note S – Earnings per Share ("EPS"):

Basic earnings per share are based on weighted average
basic shares outstanding.  Diluted
earnings per share are based on weighted average diluted shares outstanding,
which is calculated by adding shares contingently issuable under stock options
and shares contingently issuable under the Debentures (if dilutive) to the
average basic shares outstanding.  In
2000 and 1999, the Debentures were not dilutive.  The calculations of average basic and diluted common shares
outstanding and net income per common share are as follows:2000
  1999
  1998(Restated)
  (Restated)Numerator for basic earnings per share  net income
  $1,959,919
  $91,336
  $3,778,384Plus: Interest expense on Debentures, net of tax
  557,040
  -
  -Numerator for diluted Earnings per share
  $2,516,959
  $91,336
  $3,778,384Weighted average basic common shares outstanding
  (denominator)
  2,124,387
  2,117,912
  2,108,722Shares contingently issuable under Stock Option plans
  110
  3,785
  12,644Shares contingently issuable under Debentures
  645,578
  -
  -Average diluted common shares outstanding
  (denominator)
  2,770,075
  2,121,697
  2,121,366Net income per common share:Basic
  $.92
  $.04
  $1.79Diluted
  $.91
  $.04
  $1.78

Note T – Reportable Segments:

The
Companys operations are presently conducted through four basic segments using
independent agents: Motor Club; Preserver; Mountain Valley; and North East. The
Motor Club segment consists of New Jersey private passenger automobile. The
Preserver segment consists of small commercial insurance featuring package,
automobile and workers compensation coverage, along with personal property and
liability coverage in the State of New Jersey. Mountain Valley provides small
and medium sized commercial insurance in New England and New York. The North
East segment consists of private passenger automobile and small commercial
insurance in the State of Maine and the results of its inactive subsidiary,
American Colonial.The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Summary financial information about
the Companys operating segments is presented in the following table. Income
before income taxes by segment consists of revenues less expense related to the
respective segments operations. These amounts include realized gains (losses)
where applicable. Assets are not allocated to the individual segments, and are
reviewed in total by management for purposes of decision making. The Company
operates only in the United States, and no single customer or agent provides
ten percent or more of revenues. Financial data by segment is as follows:Year Ended  December
  31, 2000
  Preserver
  MotorClub
  North
  East
  Mountain
  Valley
  TotalInsurance premiums
  $15,601,866
  $36,574,189
  $18,310,615
  $12,980,811
  $83,467,481Net investment income
  1,808,893
  2,934,494
  1,016,148
  542,760
  6,302,295Realized investment gains
  10,781
  13,764
  14,849
  43,354
  82,748Other income
  -
  32,454
  -
  -
  32,454Total revenues
  17,421,540
  39,554,901
  19,341,612
  13,566,925
  89,884,978Loss and loss expenses incurred
  8,025,885
  27,085,861
  11,761,626
  8,834,681
  55,708,053Acquisitions costs and other operating expenses
  4,694,870
  12,200,930
  6,684,225
  5,503,983
  29,084,008Total expenses
  12,720,755
  39,286,791
  18,445,851
  14,338,664
  84,792,061Income (loss) before Federal income taxes
  $4,700,785
  $268,110
  $895,761
  $(771,739)
  $5,092,917Other corporate, net
  
  
  
  
  212,637Interest expense
  
  
  
  
  (1,867,085)Merger-related expenses
  
  
  
  
  (354,097)Amortization of goodwill
  
  
  
  
  (84,695)Income tax expense
  
  
  
  
  (1,039,758)Net income
  
  
  
  
  $1,959,919Year Ended  December
  31, 1999
  Preserver
  MotorClub
  North
  East
  Mountain
  Valley
  TotalInsurance premiums
  $13,819,638
  $37,802,937
  $4,184,755
  $-
  $55,807,330Net investment income
  1,554,266
  3,119,752
  246,204
  -
  4,920,222Realized investment gains
  4,917
  (260)
  31,382
  -
  36,039Total revenues
  15,378,821
  40,922,429
  4,462,341
  -
  60,763,591Loss and loss expenses incurred
  9,214,764
  29,043,044
  2,373,245
  -
  40,631,053Acquisitions costs and other operating expenses
  4,066,894
  12,882,192
  1,838,804
  -
  18,787,890Total expenses
  13,281,658
  41,925,236
  4,212,049
  -
  59,418,943Income (loss) before Federal income taxes
  $2,097,163
  $(1,002,807)
  $250,292
  $-
  $1,344,648Other corporate, net
  
  
  
  
  26,789Interest expense
  
  
  
  
  (448,117)Merger-related expenses
  
  
  
  
  (800,000)Amortization of goodwill
  
  
  
  
  (21,174)Income tax expense
  
  
  
  
  (10,810)Net income
  
  
  
  
  $91,336Year Ended  December
  31, 1998
  Preserver
  MotorClub
  North
  East
  Mountain
  Valley
  TotalInsurance premiums
  $13,303,402
  $39,872,261
  $-
  $-
  $53,175,663Net investment income
  1,249,505
  2,852,673
  -
  -
  4,102,178Realized investment gains
  12,635
  15,988
  -
  -
  28,623Total revenues
  14,565,542
  42,740,922
  -
  -
  57,306,464Loss and loss expenses incurred
  7,923,218
  28,556,373
  -
  -
  36,479,591Acquisitions costs and other operating expenses
  4,468,622
  11,200,514
  -
  -
  15,669,136Total expenses
  12,391,840
  39,756,887
  -
  -
  52,148,727Income before Federal income taxes
  $2,173,702
  $2,984,035
  $-
  $-
  $5,157,737Other corporate, net
  
  
  
  
  615,815Interest expense
  
  
  
  
  (54,146)Income tax expense
  
  
  
  
  (1,941,022)Net income
  
  
  
  
  $3,778,384Note U – Related Party Transactions:

The Ownership Group owns 47.1% of the outstanding common
stock of the Company at December 31, 2000. 
The Company paid directors fees of $192,500 in 2000 and $180,000 during
1999 and  1998 to the Ownership Group.As noted, the Ownership Groups participation in the
Debentures could potentially increase their share ownership of the Company from
its present 47.1% to 57.7%.  During 2000
and 1999, the Ownership Group received $776,680 and $214,780 in interest
payments on the Debentures, respectively, and $914,681 in interest payments on
the Notes in 2000.  See Notes H and I
for further information on the Notes and Debentures, respectively.Note V  Restatement:

In March 2001, the Companys management determined that
certain tax benefits should not have been recognized and that certain deferred
tax liabilities had not been recorded. 
These tax matters, which are discussed in Note J, relate to the tax
effects of temporary differences arising from a subsidiary that was
de-consolidated for financial reporting purposes due to its insolvency in 1992.As a result, the 1998 and 1999 Consolidated Financial
Statements have been restated from amounts previously reported. In addition,
retained earnings and thus shareholders equity at December 31, 1997 was
reduced by $126,303, representing the cumulative effect from revising the tax
accrual on prior periods results of operations after Federal income
taxes.  In connection with this
adjustment, goodwill arising from the acquisitions of North East in 1999 was
increased by $152,047.Finally, deferred tax assets were not recorded for the
tax effects of the minimum pension liability that is presented as a component
of other comprehensive income. Shareholders equity at December 31, 1997
increased by$1,539,894, representing the cumulative effect on prior periods
results of revising the tax accrual.The net effect of these prior period adjustments
increased shareholders equity by $1,413,591 at December 31, 1997.These tax matters have no impact on the operations, cash
flow or capital and surplus of the Companys active insurance subsidiaries or
on consolidated income before Federal income taxes for the periods
presented.  The effects of these tax
items on the accompanying financial statements are set forth below, nor is the
Company subject to penalties and interest on the recording of the deferred tax
liabilities.Consolidated
  Balance Sheet
  As of December 31, 1999As
  previouslyReported
  As
  RestatedASSETSInvestments:Fixed maturity securities
  $78,242,322
  $78,242,322Equity securities
  57,053
  57,053Mortgage loans on real estate
  153,616
  153,616Short-term investments
  8,528,858
  8,528,858Total
  investments
  86,981,849
  86,981,849Cash and cash equivalents
  443,733
  443,733Premiums receivable
  27,132,246
  27,132,246Reinsurance recoverable
  21,163,574
  21,163,574Notes and accounts receivable
  212,598
  212,598Deferred policy acquisition costs
  10,560,763
  10,560,763Fixed assets
  1,858,621
  1,858,621Federal income tax recoverable
  54,026
  47,100Prepaid reinsurance premiums
  1,485,450
  1,485,450Deferred tax asset
  4,128,766
  3,637,551Goodwill
  1,745,848
  1,593,801Other assets
  1,470,744
  1,470,744Total
  Assets
  $157,238,218
  $156,588,030Consolidated
  Balance Sheet
  As of December 31, 1999As
  previously
  Reported
  As
  RestatedLIABILITIES
  AND SHAREHOLDERS' EQUITYLiabilities and Shareholders Equity:Losses and loss expenses
  $70,983,383
  $70,983,383Unearned premiums
  38,698,028
  38,698,028Commissions payable
  2,802,516
  2,802,516Accounts payable
  1,397,263
  1,397,263Accrued expenses
  3,112,157
  3,112,157Drafts outstanding
  2,685,423
  2,685,423Convertible subordinated debentures
  10,000,000
  10,000,000Total
  liabilities
  129,678,770
  129,678,770Shareholders' Equity:Common Stock
  1,062,194
  1,062,194Paid in capital
  2,066,089
  2,066,089Accumulated other comprehensive income
  (5,036,515)
  (3,897,396)Retained earnings
  29,467,680
  27,678,373Total
  Shareholders' Equity
  27,559,448
  26,909,260Total
  Liabilities and Shareholders' Equity
  $157,238,218
  $156,588,030

Consolidated Income Statements for
  the Years Ended December 31,1999
  1998As
  Previously Reported
  As Restated
  As
  Previously Reported
  As RestatedIncome before Federal income taxes
  $102,146
  $102,146
  $5,719,406
  $5,719,406Benefit (provision) for Federal income taxes:
       current
  21,865
  28,331
  (193,121)
  (179,661)deferred
  1,152,922
  (39,141)
  (1,270,494)
  (1,761,361)Total Federal Income tax
  1,174,787
  (10,810)
  (1,463,615)
  (1,941,022)Net income
  $1,276,933
  $91,336
  $4,255,791
  $3,778,384Net income per common share:Basic
  $.60
  $.04
  $2.02
  $1.79Diluted
  $.60
  $.04
  $2.01
  $1.78MOTOR
CLUB OF AMERICAAND
SUBSIDIARIESSCHEDULE I.  SUMMARY OF INVESTMENTS–OTHER THAN INVESTMENTS IN RELATED PARTIESat December 31, 2000

Column
  A
  Column
  B
  Column
  C
  Column
  DType of investment
  Cost(a)
  Market
  Amount
  at
  which shown in
  the balance sheetFixed maturity securities available-for-sale:United States Government and government agencies and
  authorities
  $48,126,796
  $49,144,815
  $49,144,815Industrial and miscellaneous
  45,201,651
  44,812,674
  44,812,674Public utilities
  4,242,647
  4,116,835
  4,116,835Total fixed maturities
  97,571,094
  
  98,074,324Equity securities:Common stock
  34,659
  47,604
  47,604Mortgage loans on real estate
  110,160
  
  110,160Short-term investments, available-for-sale
  6,760,341
  6,760,341
  6,760,341Total investments
  $104,476,254
  
  $104,992,429Note: (a)   Represents original cost of investments reduced by repayment and
as to fixed maturities, adjusted for amortization of premiums or accrual of
discounts.

MOTOR CLUB OF AMERICA AND SUBSIDIARIESSCHEDULE II.
CONDENSED FINANCIAL INFORMATIONOF REGISTRANT (PARENT COMPANY)

BALANCE SHEETS

December
  31,2000
  1999(Restated)Assets:Investments
  in subsidiaries
  $62,642,578
  46,399,026Insurance
  premiums receivable
  24,608,881
  18,896,067Deferred tax
  asset
  354,887
  1,274,804Other assets
  4,865,594
  3,506,906Total
  assets
  $92,471,940
  $70,076,803Liabilities and shareholders equity:Payable to
  subsidiaries
  $32,651,439
  $28,276,495Convertible
  subordinated debentures
  10,000,000
  10,000,000Note payable
  11,500,000
  -Other
  liabilities
  8,264,570
  4,891,048Total
  liabilities
  62,416,009
  43,167,543Shareholders equity
  30,055,931
  26,909,260Total
  liabilities and shareholders equity
  $92,471,940
  $70,076,803Notes to Schedule

The Notes to Consolidated Financial Statements of Motor
Club of America and Subsidiaries are incorporated by reference to this
schedule.The Statements of Shareholders Equity are the same as
those presented for Motor Club of America and Subsidiaries.STATEMENTS OF OPERATIONS

For
  the years ended December 31,2000
  1999
  1998(Restated)
  (Restated)Revenues:Membership
  servicing fees
  $112,905
  $118,924
  $133,531Interest on
  mortgage loans
  12,255
  16,974
  35,251Other income
  117,009
  168,222
  204,640Total
  revenues
  242,169
  304,120
  373,422Expenses:Merger
  expenses
  354,097
  800,000
  -Interest
  expense
  1,867,085
  448,117
  60,389Amortization
  of goodwill
  84,695
  21,174
  -General and
  administrative, expenses(1)
  17,383
  277,340
  (248,636)Total
  expenses
  2,323,260
  1,546,631
  (188,247)Income (loss) before Federal income taxes
  (2,081,091)
  (1,242,511)
  561,669Benefit (provision) for Federal income taxes:current
  (44,797)
  28,331
  1,384,611deferred
  (994,961)
  40,230
  (1,761,361)Total Federal income tax
  (1,039,758)
  68,561
  (376,750)Income (loss) before item shown below
  (3,120,849)
  (1,173,950)
  184,919Equity in net income of subsidiaries
  5,080,768
  1,265,286
  3,593,465Net
  income
  $1,959,919
  $91,336
  $3,778,384(1)         Amount
is net of $316,814 (2000), $285,762 (1999) and $296,810 (1998) of management
fees charged to subsidiaries.

STATEMENTS OF CASH FLOWS

For
  the years ended December 31,2000
  1999
  1998(Restated)
  (Restated)Net income
  $1,959,919
  $91,336
  $3,778,384Adjustments to reconcile net income to net cash
  provided by operating activities:Depreciation
  expense
  645,963
  499,503
  426,703Deferred tax
  provision (benefit)
  994,961
  (40,230)
  1,761,361Changes in assets and liabilities excluding effects of
  acquisitions:Premiums receivable
  (5,712,814)
  691,841
  (12,221,216)Investments
  in subsidiaries
  (6,602,421)
  340,204
  (10,818,776)Other assets
  (148,204)
  (7,716)
  125,831Other
  liabilities
  2,044,745
  1,065,629
  451,011Payable to
  subsidiaries
  4,374,944
  1,778,038
  11,857,053Net cash provided by (utilized in) operating activities
  (2,442,907)
  4,418,605
  (4,639,649)Investing activities:Proceeds
  from:Disposal
  of short-term investments
  14,935,000
  -
  28,900,000Payments
  received on mortgage loan principal
  43,456
  207,422
  161,517Purchase of:Short-term
  investments
  (14,935,000)
  -
  (25,750,000)Fixed
  assets
  (1,600,549)
  (454,875)
  (491,088)Mountain
  Valley (2000) and North East (1999)
  (7,500,000)
  (10,409,682)
  -Net cash provided by (utilized in) investing activities
  (9,057,093)
  (10,657,135)
  2,820,429Financing
  activities:Convertible subordinated debentures
  -
  10,000,000
  -Note
  payable
  11,500,000
  (3,000,000)
  3,000,000Capital
  contribution to Subsidiary
  -
  (2,000,000)
  -Common
  stock issued
  -
  -
  57,750Net cash provided by financing activities
  11,500,000
  5,000,000
  3,057,750Increase (decrease) in cash and cash equivalents
  -
  (1,238,530)
  1,238,530Cash and cash equivalents at beginning of year
  -
  1,238,530
  -Cash and cash equivalent at end of year
  $-
  $-
  $1,238,530Supplemental Disclosures of Cash Flow Information

(1)         Total
interest paid was $1,753,604 (2000), $448,782 (1999) and $60,389 (1998)

(2)         Total
federal income taxes paid was $0 (2000 and 1999) and $212,738 (1998).

MOTOR CLUB OF AMERICA AND SUBSIDIARIESSCHEDULE
IV.  REINSURANCEFOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998

Column
  A
  Column
  B
  Column
  C
  Column
  D
  Column
  E
  Column
  FGross
  Amount
  Ceded
  to
  other
  Companies
  Assumed
  from
  other
  Companies
  Net
  Amount
  %
  of Amount
  Assumed
  to NetDecember 31, 2000:Total
  property and casualty insurance premiums earned
  $96,615,156
  $13,161,055
  $13,380
  $83,467,481
  0.02%December 31, 1999:Total property
  and casualty insurance premiums earned
  $64,151,936
  $8,358,946
  $14,340
  $55,807,330
  0.03%December 31, 1998:Total
  property and casualty insurance premiums earned
  $59,951,837
  $6,776,174
  $-
  $53,175,663
  0.00%MOTOR CLUB OF AMERICA AND SUBSIDIARIESSCHEDULE V.
VALUATION AND QUALIFYINGACCOUNTS AND RESERVESFOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998



Column
  A
  Column
  B
  Column
  C
  Column
  D
  Column
  EAdditionsDescription
  Balance
  at
  Beginning of Period
  Charged
  to Cost
  and Expenses
  Charged
  to
  Other Accounts
  Deductions
  Balance
  at
  end of PeriodAllowance fordoubtful receivables:December 31, 2000
  $68,091
  $-
  $-
  $-
  $68,091December 31, 1999
  $68,091
  $-
  $-
  $-
  $68,091December 31, 1998
  $68,091
  $-
  $-
  $-
  $68,091Valuation allowance for deferred taxes:December 31, 2000
  $267,032
  $-
  $-
  $117,116
  $149,916December 31, 1999
  $95,230
  $171,802
  $-
  $-
  $267,032December 31, 1998
  $1,916,202
  $-
  $-
  $1,820,972
  $95,230MOTOR CLUB OF AMERICA AND SUBSIDIARIESSCHEDULE VI. SUPPLEMENTAL INFORMATION
CONCERNINGPROPERTY/CASUALTY
INSURANCE OPERATIONSFor the
years ended December 31, 2000, 1999 and 1998

Column A
  Column B
  Column C
  Column D
  Column E
  Column F
  Column G
  Column H
  Column I
  Column J
  Column KDeferred
  Policy
  Acquisition Costs
  Reserves
  for Unpaid Claims
  and Claim
  Adjustment Expenses
  Discount,
  if any,
  Deducted in
  Column C
  Unearned
  Premiums
  Earned
  Premiums
  Net
  Investment Income(a)
  Claims
  and Claim Adjustment Expenses Incurred Related to
  Amortization
  of deferred
  policy
  acquisition Costs
  Paid
  Claims
  and Claim
  Adjustment Expenses
  Premium
  Written(1)
  Current
  Year
  (2)
  Prior YearsYear ended
  December 31, 2000
  $14,505,569
  $90,392,486
  –
  $53,409,659
  $83,467,481
  $6,302,094
  $55,542,028
  $166,024
  $25,135,714
  $48,041,958
  $89,204,441Year ended
  December 31, 1999
  $10,560,763
  $70,983,383
  –
  $38,698,028
  $55,807,330
  $4,920,229
  $37,271,781
  $3,359,272
  $14,305,501
  $36,735,862
  $54,508,215Year endedDecember 31,
  1998
  $8,708,329
  $58,335,143
  –
  $30,733,144
  $53,175,663
  $4,102,255
  $32,598,287
  $3,881,304
  $13,375,221
  $29,548,773
  $64,302,713Note:  (a)  Excludes non–insurance subsidiaries'
investment income and realized investment gains.