##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


For the Fiscal Year Ended December 31, 2004


Commission File Number 1-2493





NEW VALLEY CORPORATION


(Exact Name Of Registrant As Specified In Its Charter)


|                                                                               |  |                                                  
|------------------------------------------------------------------------------ |  | -------------------------------------------------
|Delaware(State or other jurisdiction of incorporation or
    organization)     |  | 13-5482050(I.R.S. Employer Identification Number)
|                                                                              
|100 S.E. Second Street, Miami, Florida(Address of principal executive offices) |  | 33131(Zip Code)                                  

(305) 579-8000


(Registrants telephone number, including area code)





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


Securities registered pursuant to Section 12(g) of the
Act:


Common Shares, $.01 par value


x o


x


o x






Documents Incorporated by Reference:












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TABLE OF CONTENTS


|                                                  |  |                                                                                                                      |    |      |    | 
|------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                                                  |  |                                                                                                                      |    | Page |   
|                                                  |  |                                                                                                                      |    |      |   
|PART I                                           
|Item 1.                                           |  | Business                                                                                                             |    |      | 1  | 
|Item 2.                                           |  | Properties                                                                                                           |    |      | 12 | 
|Item 3.                                           |  | Legal Proceedings                                                                                                    |    |      | 12 | 
|Item 4.                                           |  | Submission of Matters to a Vote of
    Security-Holders; Executive Officers of the Registrant                        |    |      | 12 | 
|                                                 
|PART II                                          
|Item 5.                                           |  | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 14 | 
|Item 6.                                           |  | Selected Financial Data                                                                                              |    |      | 15 | 
|Item 7.                                           |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 16 | 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 29 | 
|Item 8.                                           |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 29 | 
|Item 9.                                           |  | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure                             |    |      | 29 | 
|Item 9A.                                          |  | Controls and Procedures                                                                                              |    |      | 29 | 
|Item 9B.                                          |  | Other Information                                                                                                    |    |      | 30 | 
|                                                 
|PART III                                         
|Item 10.                                          |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 30 | 
|Item 11.                                          |  | Executive Compensation                                                                                               |    |      | 30 | 
|Item 12.                                          |  | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                   |    |      | 30 | 
|Item 13.                                          |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 30 | 
|Item 14.                                          |  | Principal Accounting Fees and Services                                                                               |    |      | 30 | 
|                                                 
|PART IV                                          
|Item 15.                                          |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 31 | 
|SIGNATURES                                        |  |                                                                                                                      | 65 |     
|Subsidiaries of New Valley                       
|Consent of PricewaterhouseCoopers LLP            
|Section 302 Chief Executive Officer Certification
|Section 302 Chief Financial Officer Certification
|Section 906 Chief Executive Officer Certification
|Section 906 Chief Financial Officer Certification





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##### Table of Contents






PART I





Item 1.  Business


General








Business Strategy








Douglas Elliman Realty, LLC




1



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Real Estate Brokerage
Business


Real Trends








2



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Marketing




Competition






3



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Government Regulation










Franchises and Trade
Names






4



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Residential Property
Management Business


The Cooperator


New Valley Realty Division


Office Buildings












5



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Hawaiian Hotel








Sales of Shopping
Centers




Russian Real Estate


BrookeMil Ltd






6



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Western Realty
Development








Western Realty Repin






Former Broker-Dealer Operations






7



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8



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Other Investments








Employees




Available Information




9



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RISK FACTORS


New Valley is subject to risks relating to the industries in
which it operates


Risks of real estate ventures.


New Valley may pursue a variety of real estate development
projects


Risks relating to the residential brokerage business.




| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | coordinate with the franchiser on significant matters relating
    to their operations, including the opening and closing of
    offices;                                   
|
| |  | make substantial royalty payments to the franchiser and
    contribute significant amounts to national advertising funds
    maintained by the franchiser;                  
|
| |  | indemnify the franchiser against losses arising out of the
    operations of their business under the franchise agreements; and                                             
|
| |  | maintain standards and comply with guidelines relating to their
    operations which are applicable to all franchisees of the
    franchisers real estate franchise system.





Interest rates in the United States are currently at
historically low levels


10



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| |   |                                                                                              
| | - | ---------------------------------------------------------------------------------------------
| |  | periods of economic slowdown or recession;                                                   
|
| |  | a change in the current low interest rate environment resulting
    in rising interest rates;
|
| |  | decreasing home ownership rates; or                                                          
|
| |  | declining demand for real estate.                                                            

All of Douglas Elliman Realtys current operations are
located in the New York metropolitan area.


New Valleys potential investments are unidentified and
may not succeed




New Valley may become subject to burdensome regulation under
the Investment Company Act




New Valleys management does not devote its full time to
New Valleys affairs




11



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Vector Group controls a majority of New Valleys
shares




New Valley engages in substantial related party
transactions




The market for New Valleys common shares is relatively
illiquid







Item 2.  Properties







Item 3.  Legal Proceedings







Item 4.  Submission of Matters to a Vote of
Security-Holders; Executive Officers of the Registrant




Executive Officers of the Registrant




|                       |  |     |    |  |          |                                                         |                   |  |      | 
|---------------------- |  | --- | -- |  | -------- | ------------------------------------------------------- | ----------------- |  | ---- | 
|                       |  |     |    |  |          | Year Individual                                         |                  
|                       |  |     |    |  |          | Became an                                               |                  
|Name                   |  | Age |    |  | Position |                                                         | Executive Officer | 
|                       |  |     |    |  |          |                                                         |                   | 
|Bennett S. LeBow       |  |     | 67 |  |          | Chairman of the Board and Chief Executive Officer       |                   |  | 1988 | 
|                      
|Howard M. Lorber       |  |     | 56 |  |          | President and Chief Operating Officer                   |                   |  | 1994 | 
|Richard J. Lampen      |  |     | 51 |  |          | Executive Vice President and General Counsel            |                   |  | 1995 | 
|                      
|J. Bryant Kirkland III |  |     | 39 |  |          | Vice President, Treasurer and Chief Financial Officer   |                   |  | 1998 | 
|                      
|Marc N. Bell           |  |     | 44 |  |          | Vice President, Associate General Counsel and Secretary |                   |  | 1998 | 

12



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Bennett S. LeBow


Howard M. Lorber


Richard J. Lampen


J. Bryant Kirkland III


Marc N. Bell


13



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PART II







|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity
    Securities



|               |  |      |      |  |     |   |      | 
|-------------- |  | ---- | ---- |  | --- | - | ---- | 
|Year           |  | High |      |  | Low |  
|               |  |      |      |  |     |  
|2004:          |  |      |      |  |     |   |      | 
|Fourth Quarter |  | $    | 6.78 |  |     | $ | 4.68 | 
|Third Quarter  |  |      | 5.25 |  |     |   | 3.70 | 
|Second Quarter |  |      | 4.69 |  |     |   | 3.66 | 
|First Quarter  |  |      | 4.34 |  |     |   | 4.00 | 
|              
|2003:          |  |      |      |  |     |   |      | 
|Fourth Quarter |  | $    | 4.44 |  |     | $ | 3.60 | 
|Third Quarter  |  |      | 4.53 |  |     |   | 3.71 | 
|Second Quarter |  |      | 5.00 |  |     |   | 3.11 | 
|First Quarter  |  |      | 4.74 |  |     |   | 3.18 | 

Holders




Dividends




Recent Sales of Unregistered Securities




Issuer Purchases of Equity Securities




14



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##### Table of Contents






Item 6.  Selected Financial Data


|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |        | 
|----------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------- | ------- | ----- | ---- | - | ------- | ----- | - | - | ------- | ----- | - | ---- | ------- | ------ | - | - | ------- | ------ | 
|                                                                                                |                                            | Year Ended December 31,                  |        
|                                                                                                |                                            |                                          |        
|                                                                                                |                                            | 2004                                     |         |       | 2003 |   |         | 2002  |   |   | 2001    |       |   | 2000 |        
|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |        
|                                                                                                |                                            | (in thousands, except per share amounts) |        
|Operating Results:                                                                              |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |       
|Total revenues                                                                                  |                                            | $                                        |        |       |      | $ |        |       |   | $ | 661     |       |   | $    | 9,966   |        |   | $ | 3,199   |       
|Total costs and expenses                                                                        |                                            |                                          | 13,773  |       |      |   | 11,901  |       |   |   | 14,391  |       |   |      | 22,930  |        |   |   | 18,612  |       
|Other results from continuing operations                                                        |                                            |                                          | 19,227  |       |      |   | 3,873   |       |   |   | (8,446  | )     |   |      | (3,071  | )      |   |   | 51,138  |       
|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |        
|Income (loss) from continuing operations before income
    taxes and minority interests         |                                            |                                          | 5,454   |       |      |   | (8,028  | )     |   |   | (22,176 | )     |   |      | (16,035 | )      |   |   | 35,725  |       
|Income tax (benefit) provision                                                                  |                                            |                                          | (13,861 | )     |      |   | (952    | )     |   |   | (46     | )     |   |      | 260     |        |   |   |        |       
|Minority interests in income (loss) from continuing
    operations of consolidated subsidiaries |                                            |                                          | 5       |       |      |   | (20     | )     |   |   | (151    | )     |   |      | (594    | )      |   |   | (323    | )     
|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |        
|Income (loss) from continuing operations                                                        |                                            |                                          | 19,310  |       |      |   | (7,056  | )     |   |   | (21,979 | )     |   |      | (15,701 | )      |   |   | 36,048  |       
|Discontinued operations:                                                                        |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |       
|Income (loss) from discontinued operations                                                      |                                            |                                          | 1,220   |       |      |   | 1,394   |       |   |   | 67      |       |   |      | (5,829  | )      |   |   | 5,002   |       
|Gain on disposal of discontinued operations                                                     |                                            |                                          | 5,927   |       |      |   |        |       |   |   |        |       |   |      | 4,346   |        |   |   | 17,879  |       
|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |        
|                                                                                                | Income (loss) from discontinued operations |                                          |         | 7,147 |      |   |         | 1,394 |   |   |         | 67    |   |      |         | (1,483 | ) |   |         | 22,881 | 
|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |        
|Net income (loss) applicable to common shares                                                   |                                            | $                                        | 26,457  |       |      | $ | (5,662  | )     |   | $ | (21,912 | )     |   | $    | (17,184 | )      |   | $ | 58,929  |       
|                                                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |        
|Per common and equivalent share:                                                                |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |       
|Basic:                                                                                          |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |       
|                                                                                                | Income (loss) from continuing operations   |                                          | $       | 0.87  |      |   | $       | (0.32 | ) |   | $       | (0.96 | ) |      | $       | (0.69  | ) |   | $       | 1.57   | 
|                                                                                                | Income (loss) from discontinued operations |                                          |         | 0.33  |      |   |         | 0.06  |   |   |         |      |   |      |         | (0.06  | ) |   |         | 0.99   | 
|                                                                                                | Net income (loss) per common share         |                                          |         | 1.20  |      |   |         | (0.26 | ) |   |         | (0.96 | ) |      |         | (0.75  | ) |   |         | 2.56   | 
|Diluted:                                                                                        |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |       
|                                                                                                | Income (loss) from continuing operations   |                                          | $       | 0.87  |      |   | $       | (0.32 | ) |   | $       | (0.96 | ) |      | $       | (0.69  | ) |   | $       | 1.56   | 
|                                                                                                | Income (loss) from discontinued operations |                                          |         | 0.33  |      |   |         | 0.06  |   |   |         |      |   |      |         | (0.06  | ) |   |         | 0.99   | 
|                                                                                                | Net income (loss) per common share         |                                          |         | 1.20  |      |   |         | (0.26 | ) |   |         | (0.96 | ) |      |         | (0.75  | ) |   |         | 2.55   | 
|Cash dividends declared                                                                         |                                            |                                          |        |       |      |   |        |       |   |   |        |       |   |      |        |        |   |   |        |       
|Book value                                                                                      |                                            | $                                        | 5.69    |       |      | $ | 4.69    |       |   | $ | 4.59    |       |   | $    | 5.63    |        |   | $ | 6.54    |       
|Balance Sheet Data:                                                                             |                                            |                                          |         |       |      |   |         |       |   |   |         |       |   |      |         |        |   |   |         |       
|Total assets                                                                                    |                                            | $                                        | 175,178 |       |      | $ | 161,896 |       |   | $ | 163,548 |       |   | $    | 162,698 |        |   | $ | 263,130 |       
|Long-term notes payable                                                                         |                                            |                                          | 38,569  |       |      |   | 39,266  |       |   |   | 39,856  |       |   |      | 11,142  |        |   |   | 11,900  |       
|Prepetition claims(a)                                                                           |                                            |                                          | 300     |       |      |   | 600     |       |   |   | 674     |       |   |      | 2,700   |        |   |   | 10,229  |       
|Stockholders equity                                                                            |                                            |                                          | 125,636 |       |      |   | 103,748 |       |   |   | 103,057 |       |   |      | 128,480 |        |   |   | 149,685 |       
|Working capital(b)                                                                              |                                            |                                          | 82,877  |       |      |   | 70,986  |       |   |   | 80,159  |       |   |      | 113,628 |        |   |   | 72,720  |       






|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(a) | Represents prepetition claims against New Valley in its
    bankruptcy case. See Note 15 to the consolidated financial
    statements.
|   
|(b) | Working capital represents current assets less current
    liabilities on the New Valley consolidated balance sheets.                 

15



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|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

(Dollars in thousands, except per share amounts)


Introduction










| |   |                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the sale of the money transfer business in January 1995 and the
    messaging service business in October 1995. These operations
    generated virtually all of New Valleys revenues before
    1995;                                                                                                         
|
| |  | the acquisition of the Ladenburg Thalmann & Co.
    broker-dealer business in May 1995;                                                                                                                                                                                                                        
|
| |  | the purchase of New Valleys U.S. office buildings and
    shopping centers in January 1996 and the sale of the office
    buildings in September 1998 and five of the shopping centers in
    August 1999;                                                                                                    
|
| |  | the acquisition of BrookeMil in January 1997;                                                                                                                                                                                                                                                                  
|
| |  | the formation in February 1998 of the Western Realty Development
    joint venture, to which New Valley contributed a significant
    portion of BrookeMils operations;                                                                                                                                       
|
| |  | the formation in June 1998 of the Western Realty Repin joint
    venture to provide financing to BrookeMil;                                                                                                                                                                                                    
|
| |  | the sale of Western Tobacco Investments in August 2000 and New
    Valleys receipt of $57,208 in sale proceeds;                                                                                                                                                                                               
|
| |  | the sale of Ladenburg Thalmann & Co. to Ladenburg Thalmann
    Financial Services in May 2001 for shares of Ladenburg Thalmann
    Financial Services, convertible notes and cash;                                                                                                                             
|
| |  | the distribution to New Valleys stockholders of its 53.6%
    interest in Ladenburg Thalmann Financial Services and the sale
    of Western Realty Investments in December 2001. New Valley
    received approximately $22,000 of sale proceeds from the Western
    Realty Investments transaction;          
|
| |  | the sale of BrookeMil for approximately $22,000, before closing
    expenses, in April 2002;                                                                                                                                                                                                                   
|
| |  | the disposal of New Valleys remaining U.S. shopping center
    in May 2002;                                                                                                                                                                                                                                   
|
| |  | the purchase of two commercial office buildings in Princeton,
    N.J. and the increase in New Valleys ownership in Douglas
    Elliman Realty to 50% in December 2002;                                                                                                                                       
|
| |  | the purchase by Douglas Elliman Realty in March 2003 of Insignia
    Douglas Elliman, and an affiliated property management company,
    for $71,250, with the investment by New Valley of an additional
    $9,500 in subordinated debt and equity of Douglas Elliman Realty
    to help fund the acquisition;
|
| |  | the major renovation of the Sheraton Keauhou Bay Resort &
    Spa in Kailua-Kona, Hawaii, owned 50% by New Valley, which
    reopened in the fourth quarter of 2004 as a four star resort
    with approximately 525 rooms; and                                                                                

16



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| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | the sale of the Princeton, N.J. office buildings in February
    2005 for $71,500.

Recent Developments


Sale of Office Buildings.


Restricted Share Award.


Lawsuit Settlement.


Expiration of Warrants.


Ladenburg Convertible Notes.








17



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Hawaiian Hotel.


Douglas Elliman Realty, LLC.






Gain on Disposal of Discontinued Operations.


Critical Accounting Policies




General.


18



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Investment Securities Available for Sale.


Investments in Non-Consolidated Real Estate Businesses


Long-Term Investments.


Income Taxes.


19



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Results of Operations




|                                                                                        |                                                      |                         |       |        |      |   |        |        |   |   |         |         |  
|--------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | ----- | ------ | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|                                                                                        |                                                      | Year Ended December 31, |      
|                                                                                        |                                                      |                         |      
|                                                                                        |                                                      | 2004                    |       |        | 2003 |   |        | 2002   |  
|                                                                                        |                                                      |                         |       |        |      |   |        |        |  
|Real estate:                                                                            |                                                      |                         |       |        |      |   |        |        |   |   |         |        
|                                                                                        | Revenues                                             |                         | $     |       |      |   | $      |       |   |   | $       | 661     |  
|                                                                                        | Expenses                                             |                         |       |       |      |   |        |       |   |   |         | 1,424   |  
|                                                                                        | Other results from continuing operations             |                         |       | 9,782  |      |   |        | 1,379  |   |   |         | 7,888   |  
|                                                                                        |                                                      |                         |       |        |      |   |        |        |  
|                                                                                        | Operating income before taxes and minority interests |                         | $     | 9,782  |      |   | $      | 1,379  |   |   | $       | 7,125   |  
|                                                                                        |                                                      |                         |       |        |      |   |        |        |  
|Corporate and other:                                                                    |                                                      |                         |       |        |      |   |        |        |   |   |         |        
|                                                                                        | Revenues                                             |                         | $     |       |      |   | $      |       |   |   | $       |        |  
|                                                                                        | Expenses                                             |                         |       | 13,773 |      |   |        | 11,901 |   |   |         | 12,967  |  
|                                                                                        | Other results from continuing operations             |                         |       | 9,445  |      |   |        | 2,494  |   |   |         | (16,334 | )
|                                                                                        |                                                      |                         |       |        |      |   |        |        |  
|                                                                                        | Operating loss before taxes and minority interests   |                         | $     | (4,328 | )    |   | $      | (9,407 | ) |   | $       | (29,301 | )
|                                                                                        |                                                      |                         |       |        |      |   |        |        |  
|Income (loss) from continuing operations before income
    taxes and minority interests |                                                      | $                       | 5,454 |        |      | $ | (8,028 | )      |   | $ | (22,176 | )      
|                                                                                        |                                                      |                         |       |        |      |   |        |        |  

The year 2004 compared to 2003


Real Estate




20



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Corporate and other








21



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Significant Fourth Quarter 2004 Adjustments.


The year 2003 compared to 2002


Real Estate










Corporate and Other




23



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Discontinued Operations


Real Estate Leasing.


23



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|                                           |  |      |       |  |      |   |       |      |  |   |     | 
|------------------------------------------ |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | --- | 
|                                           |  | 2004 |       |  | 2003 |   |       | 2002 | 
|                                           |  |      |       |  |      |   |       |      | 
|Revenues                                   |  | $    | 7,333 |  |      | $ | 7,298 |      |  | $ | 340 | 
|Expenses                                   |  |      | 5,240 |  |      |   | 4,952 |      |  |   | 227 | 
|                                           |  |      |       |  |      |   |       |      | 
|Income from operations before income taxes |  | $    | 2,093 |  |      | $ | 2,346 |      |  | $ | 113 | 
|Income taxes                               |  |      | 873   |  |      |   | 952   |      |  |   | 46  | 
|                                           |  |      |       |  |      |   |       |      | 
|Income from discontinued operations        |  | $    | 1,220 |  |      | $ | 1,394 |      |  | $ | 67  | 
|                                           |  |      |       |  |      |   |       |      | 

Gain on Disposal of Discontinued Operations.


Liquidity and Capital Resources


















24



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26



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Contractual Obligations




|                                                 |       |       |        |                        |        |       |       |           |  |   |           |        |         |   |   |   |  |   |   |   | 
|------------------------------------------------ | ----- | ----- | ------ | ---------------------- | ------ | ----- | ----- | --------- |  | - | --------- | ------ | ------- | - | - | - |  | - | - | - | 
|                                                 |       |       |        | Payments Due by Period
|                                                 |       |       |        |                       
|                                                 |       |       |        |                        |        | After
|Contractual Obligations                          |       | Total |        |                        | 1 Year |       |       | 2-3 Years |  |   | 4-5 Years |        | 5 Years
|                                                 |       |       |        |                        |        |       |       |           |  |   |           |        |        
|Non-recourse mortgage note payable *             |       | $     | 39,213 |                        |        | $     | 644   |           |  | $ | 38,569    |        |         | $ |  |   |  | $ |  |  
|Obligations under limited partnership agreements |       |       | 1,334  |                        |        |       | 1,334 |           |  |   |          |        |         |   |  |   |  |   |  |  
|                                                 |       |       |        |                        |        |       |       |           |  |   |           |        |         |   |  
|                                                 | Total |       | $      | 40,547                 |        |       | $     | 1,978     |  |   | $         | 38,569 |         |   | $ |  |  |   | $ |  | 
|                                                 |       |       |        |                        |        |       |       |           |  |   |           |        |         |   |  






|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|* | The mortgage note was retired in February 2005 upon the sale of
    the Princeton, N.J. office buildings.

Off-Balance Sheet Arrangements






27



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##### Table of Contents







Market Risk




Equity Price Risk






Interest Rate Risk




New Accounting Pronouncements








28



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##### Table of Contents





Special Note Regarding Forward-Looking Statements











Item 7A.  Quantitative and Qualitative
Disclosures About Market Risk







Item 8.  Financial Statements and
Supplementary Data







Item 9.  Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure







Item 9A.  Controls and Procedures




29



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Item 9B.  Other Information







PART III





Item 10.  Directors and Executive Officers
of the Registrant







Item 11.  Executive Compensation









|         |                                                                                                    
|-------- | ---------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholders Matters






Item 13.  Certain Relationships and Related
Transactions







Item 14.  Principal Accountant Fees and
Services




30



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##### Table of Contents






PART IV





Item 15.  Exhibits, and Financial Statement
Schedules


(a) (1) Index to 2004 Consolidated Financial
Statements:




(a) (2) Financial Statement Schedules:


|                                                            |  |  |         | 
|----------------------------------------------------------- |  |  | ------- | 
|Schedule III  Real Estate and Accumulated
    Depreciation |  |  | Page 63 | 

(a) (3) Exhibits


|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*(2)(a)     |  | Purchase and Sale Agreement, dated March 14, 2003, by and among
    Insignia Financial Group, LLC, Insignia ESG, Inc., Insignia
    Residential Group, LLC, Insignia IP, Inc. and Douglas Elliman
    Realty, LLC (formerly known as Montauk Battery Realty LLC)
    (incorporated by reference to Exhibit 2.1 in New Valleys
    Quarterly Report on Form 10-Q for the quarterly period ended
    March 31, 2003).
|*(3)(a)     |  | Amended and Restated Certificate of Incorporation dated June 4,
    1999 of New Valley (incorporated by reference to Exhibit 3(a) in
    New Valleys Form S-1, dated June 14, 1999, Registration
    No. 333-79837).                                                                                                                                                                                               
|*(b)        |  | By-Laws of New Valley adopted July 29, 1996 (incorporated by
    reference to Exhibit (3)(ii) in New Valleys Quarterly
    Report on Form 10-Q for the quarterly period ended June 30,
    1996).                                                                                                                                                                                                                  
|*(4)(a)     |  | Loan Agreement dated December 13, 2002 between New Valley and
    HSBC Realty Credit Corporation (USA), as Administrative Agent,
    including the form of Note (incorporated by reference to Exhibit
    4.1 in New Valleys Current Report on Form 8-K dated
    December 13, 2002).                                                                                                                              
|*(b)        |  | First Amendment to Loan Agreement dated as of October 24, 2003
    between New Valley Corporation, each of the lenders signatory
    thereto and HSBC Realty Credit Corporation (USA), as
    Administrative Agent (incorporated by reference to Exhibit 4.1
    in New Valleys Quarterly Report on Form 10-Q for the
    quarterly period ended September 30, 2003).                                              
|*(c)        |  | Mortgage and Security Agreement dated December 13, 2002 from New
    Valley, as Mortgagor, to HSBC Realty Credit Corporation (USA),
    as Administrative Agent and Mortgagee (incorporated by reference
    to Exhibit 4.2 in New Valleys Current Report on Form 8-K
    dated December 13, 2002).                                                                                                                
|*(d)        |  | Assignment of Leases and Rents dated December 13, 2002 by New
    Valley in favor of HSBC Realty Credit Corporation (USA), as
    Administrative Agent (incorporated by reference to Exhibit 4.3
    in New Valleys Current Report on Form 8-K dated December
    13, 2002).                                                                                                                                       
|*(10)(a)(i) |  | Option Agreement, dated November 18, 1996, between New Valley
    and Howard M. Lorber (incorporated by reference to Exhibit
    10(a)(iii) in New Valleys Form 10-K for the fiscal year
    ended December 31, 1996).                                                                                                                                                                                             
|*(ii)       |  | New Valley Corporation 2000 Long-Term Incentive Plan
    (incorporated by reference to Appendix A of New Valleys
    Proxy Statement dated April 18, 2000).                                                                                                                                                                                                                                                        
|*(iii)      |  | New Valley Corporation Non-Employee Directors Stock Option
    Program (incorporated by reference to Appendix B of New
    Valleys Proxy Statement dated April 18, 2000).                                                                                                                                                                                                                                          
|*(iv)       |  | Restricted Share Award Agreement, dated January 10, 2005, by and
    between New Valley and Howard M. Lorber (incorporated by
    reference to Exhibit 10.1 in New Valleys Form 8-K dated
    January 10, 2005).                                                                                                                                                                                                   

31



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*(b)(i) |  | Employment Agreement, dated as of June 1, 1995, as amended,
    effective as of January 1, 1996, between New Valley and Bennett
    S. LeBow (incorporated by reference to Exhibit 10(b)(i) in New
    Valleys Form 10-K for the fiscal year ended December 31,
    1995).                                                                                                                                                                                 
|*(ii)   |  | Employment Agreement (Lorber Employment Agreement),
    dated as of June 1, 1995, as amended, effective as of January 1,
    1996, between New Valley and Howard M. Lorber (incorporated by
    reference to Exhibit 10(b)(ii) in New Valleys Form 10-K
    for the fiscal year ended December 31, 1995).                                                                                                                                                
|*(iii)  |  | Amendment dated January 1, 1998 to Lorber Employment Agreement
    (incorporated by reference to Exhibit 10(b)(iii) in New
    Valleys Form 10-K for the fiscal year ended December 31,
    1997).                                                                                                                                                                                                                                                         
|*(iv)   |  | Employment Agreement, dated September 22, 1995, between New
    Valley and Richard J. Lampen (incorporated by reference to
    Exhibit 10(c) in New Valleys Quarterly Report on Form 10-Q
    for the quarterly period ended September 30, 1995).                                                                                                                                                                                                          
|*(v)    |  | Employment Agreement, dated August 1, 1999, between New Valley
    and J. Bryant Kirkland III (incorporated by reference to Exhibit
    10.2 in New Valleys Quarterly Report on Form 10-Q for the
    quarterly period ended June 30, 1999).                                                                                                                                                                                                               
|*(c)    |  | Expense Sharing Agreement, dated as of January 18, 1995, by and
    between Vector Group and New Valley (incorporated by reference
    to Exhibit 10(a) in New Valleys Quarterly Report on Form
    10-Q for the quarterly period ended September 30, 1995).                                                                                                                                                                                               
|*(d)    |  | Form of Margin Agreement, dated September 12, 1995, between ALKI
    and Bear Stearns & Co. (incorporated by reference to Exhibit
    2 in the Schedule 13D filed by, among others, New Valley with
    the SEC on March 11, 1996, as amended, with respect to the
    common stock of RJR Nabisco Holdings Corp.).                                                                                                                                         
|*(e)(i) |  | Form of 7.50% Convertible Promissory Note due December 31, 2005
    in the principal amount of $8,010,000 of Ladenburg Thalmann
    Financial Services payable to NVCC (incorporated by reference to
    Exhibit 4.2 to Ladenburg Thalmann Financial Services
    Current Report on Form 8-K/A dated August 31, 2001).                                                                                                                                     
|*(ii)   |  | Form of Pledge and Security Agreement between Ladenburg Thalmann
    Financial Services, NVCC, Berliner Effektengesellschaft AG
    (Berliner), Frost-Nevada, Limited Partnership and
    U.S. Bank Trust National Association, as collateral agent
    (incorporated by reference to Exhibit 10.3 in New Valleys
    Current Report on Form 8-K dated February 16, 2001).                                                                               
|*(iii)  |  | Amended and Restated Debt Conversion Agreement, dates as of
    November 15, 2004, among Ladenburg Thalmann Financial Services
    Inc., New Valley Corporation, Frost-Nevada Investments Trust,
    Bennett S. LeBow, Howard M. Lorber, Richard J. Lampen, Henry C.
    Beinstein and Robert J. Eide (incorporated by reference to
    Exhibit 10.1 in Ladenburg Thalmann Financial Service Inc.s
    Current Report on Form 8-K dated November 15, 2004).
|*(iv)   |  | Temporary Forbearance Agreement, dated November 15, 2004, among
    Ladenburg Thalmann Financial Services Inc., New Valley
    Corporation and Frost-Nevada Investments Trust. (incorporated by
    reference to Exhibit 10.1 in Ladenburg Thalmann Financial
    Service Inc.s Current Report on Form 8-K dated November
    15, 2004).                                                                                                                   
|*(f)(i) |  | Interest Purchase Agreement, dated December 21, 2001, between
    Western Realty Development, as the Seller, and Andante Limited,
    as the Purchaser (incorporated by reference to Exhibit 10.1 in
    New Valleys Current Report on Form 8-K dated December 20,
    2001).                                                                                                                                                                              
|*(ii)   |  | Guaranty dated as of December 21, 2001 by New Valley in favor of
    Andante Limited (incorporated by reference to Exhibit 10.2 in
    New Valleys Current Report on Form 8-K dated December 20,
    2001).                                                                                                                                                                                                                                                

32



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|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*(g)      |  | Sale-Purchase Agreement, dated as of December 23, 2004, between
    New Valley Corporation, as Seller, and Princeton Owners Corp.,
    as Purchaser (incorporated by reference to Exhibit 10.1 in New
    Valleys Current Report on Form 8-K dated December 23,
    2004).                                                                                                                                                                                                                                                                     
|*(h)(i)   |  | Operating Agreement of Douglas Elliman Realty, LLC (formerly
    known as Montauk Battery Realty LLC) dated December 17, 2002
    (incorporated by reference to Exhibit 10.1 in New Valleys
    Current Report on Form 8-K dated December 13, 2002).                                                                                                                                                                                                                                                                                           
|*(h)(ii)  |  | First Amendment to Operating Agreement of Douglas Elliman
    Realty, LLC (formerly known as Montauk Battery Realty LLC),
    dated as of March 14, 2003 (incorporated by reference to Exhibit
    10.1 in New Valleys Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2003).                                                                                                                                                                                                                                       
|*(h)(iii) |  | Second Amendment to Operating Agreement of Douglas Elliman
    Realty, LLC, dated as of May 19, 2003 (incorporated by reference
    to Exhibit 10.1 in New Valleys Quarterly Report on Form
    10-Q for the quarterly period ended June 30, 2003).                                                                                                                                                                                                                                                                                            
|*(h)(iv)  |  | Note and Equity Purchase Agreement, dated as of March 14, 2003
    (the Note and Equity Purchase Agreement), by and
    between Douglas Elliman Realty, LLC (formerly known as Montauk
    Battery Realty LLC), New Valley Real Estate Corporation and The
    Prudential Real Estate Financial Services of America, Inc.,
    including form of 12% Subordinated Note due March 14, 2013
    (incorporated by reference to Exhibit 10.2 in New Valleys
    Quarterly Report on Form 10-Q for the quarterly period ended
    March 31, 2003).
|*(h)(v)   |  | Amendment to the Note and Equity Purchase Agreement, dated as of
    April 14, 2003. (incorporated by reference to Exhibit 10.3 in
    New Valleys Quarterly Report on Form 10-Q for the
    quarterly period ended March 31, 2003).                                                                                                                                                                                                                                                                                                           
|(21)      |  | Subsidiaries of New Valley.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|(23)      |  | Consent of PricewaterhouseCoopers LLP relating to New
    Valleys Registration Statement on Form S-8 (No. 333-46370).                                                                                                                                                                                                                                                                                                                                                                                                                          
|(31)(a)   |  | Certification of Chief Executive Officer, Pursuant to Exchange
    Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                
|(31)(b)   |  | Certification of Chief Financial Officer, Pursuant to Exchange
    Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                
|(32)(a)   |  | Certification of Chief Executive Officer, Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                     
|(32)(b)   |  | Certification of Chief Financial Officer, Pursuant to 18 U.S.C.
    Section 1350, as Adopted Pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                     






|  |                           
|- | --------------------------
|* | Incorporated by reference.





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NEW VALLEY CORPORATION


Form 10-K for the Year Ended December 31, 2004


Items 8, 15(a)(1) and (2)


Index to Financial Statements and Financial Statement
Schedule








|                               |                                                                                                                     |                                                                                                                                                                                                                       |  |    |  | 
|------------------------------ | ------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -- |  | 
|                               |                                                                                                                     | Page                                                                                                                                                                                                                  | 
|                               |                                                                                                                     |                                                                                                                                                                                                                       | 
|FINANCIAL STATEMENTS:          |                                                                                                                     |                                                                                                                                                                                                                       |  |   
|                               | Report of Independent Registered Certified Public Accounting Firm                                                   |                                                                                                                                                                                                                       |  | 35 | 
|                               | Consolidated Balance Sheets as of December 31, 2004 and 2003                                                        |                                                                                                                                                                                                                       |  | 36 | 
|                               | Consolidated Statements of Operations for the years ended
    December 31, 2004, 2003 and 2002                      |                                                                                                                                                                                                                       |  | 37 | 
|                               | Consolidated Statements of Changes in Stockholders Equity
    for the years ended December 31, 2004, 2003 and 2002 |                                                                                                                                                                                                                       |  | 39 | 
|                               | Consolidated Statements of Cash Flows for the years ended
    December 31, 2004, 2003 and 2002                      |                                                                                                                                                                                                                       |  | 40 | 
|                               | Notes to Consolidated Financial Statements                                                                          |                                                                                                                                                                                                                       |  | 42 | 
|                              
|FINANCIAL STATEMENT SCHEDULES: |                                                                                                                     |                                                                                                                                                                                                                       |  |   
|                               | Schedule III  Real Estate and Accumulated
    Depreciation                                                         |                                                                                                                                                                                                                       |  | 63 | 
|                              
|                               |                                                                                                                     | Financial Statement Schedules not listed above have been omitted
    because they are not applicable or the required information is
    contained in the Consolidated Financial Statements or
    accompanying Notes. |  |    |  | 





| |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated financial statements of Douglas Elliman Realty
    LLC as of December 31, 2004 and 2003 and for the three
    years ended December 31, 2004 will be filed as an amendment
    hereto on Form 10-K/A. Such financial statements will be
    filed with the SEC not later than 90 days after the end of
    the registrants fiscal year covered by this report in
    accordance with Rule 3-09 of Regulation S-X.





| |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The consolidated financial statements of Koa Investors, LLC as
    of December 31, 2004 and 2003 and for the three years ended
    December 31, 2004 will be filed as an amendment hereto on
    Form 10-K/A. Such financial statements will be filed with
    the SEC not later than 90 days after the end of the
    registrants fiscal year covered by this report in
    accordance with Rule 3-09 of Regulation S-X.

34



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REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM














35



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


(Dollars in thousands, except per share amounts)


|                                                       |                                                                                                                                    |                                            |                           |          |         |         |        |          |         |         | 
|------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------- | -------- | ------- | ------- | ------ | -------- | ------- | ------- | 
|                                                       |                                                                                                                                    | December 31,                               |                          
|                                                       |                                                                                                                                    |                                            |                          
|                                                       |                                                                                                                                    | 2004                                       |                           |          | 2003    |        
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|ASSETS                                                
|Current assets:                                        |                                                                                                                                    |                                            |                           |          |         |         |        |         
|                                                       | Cash and cash equivalents                                                                                                          |                                            | $                         | 70,688   |         |         | $      | 66,593   |        
|                                                       | Investment securities available for sale                                                                                           |                                            |                           | 7,837    |         |         |        | 17,944   |        
|                                                       | Due from broker                                                                                                                    |                                            |                           | 830      |         |         |        |         |        
|                                                       | Restricted assets                                                                                                                  |                                            |                           | 606      |         |         |        | 771      |        
|                                                       | Deferred income taxes                                                                                                              |                                            |                           | 9,000    |         |         |        |         |        
|                                                       | Other current assets                                                                                                               |                                            |                           | 2,314    |         |         |        | 1,870    |        
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|                                                       |                                                                                                                                    |                                            | Total current assets      |          |         | 91,275  |        |          |         | 87,178  | 
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|Investment in real estate (held for sale in 2004)      |                                                                                                                                    |                                            | 51,817                    |          |         |         | 53,012 |         
|Investments in non-consolidated real estate businesses |                                                                                                                                    |                                            | 27,160                    |          |         |         | 18,718 |         
|Restricted assets                                      |                                                                                                                                    |                                            | 134                       |          |         |         | 174    |         
|Long-term investments, net                             |                                                                                                                                    |                                            | 2,408                     |          |         |         | 2,429  |         
|Notes receivable from LTS                              |                                                                                                                                    |                                            | 1,750                     |          |         |         |       |         
|Other assets                                           |                                                                                                                                    |                                            | 634                       |          |         |         | 385    |         
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|                                                       |                                                                                                                                    |                                            | Total assets              |          | $       | 175,178 |        |          | $       | 161,896 | 
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY                  
|Current liabilities:                                   |                                                                                                                                    |                                            |                           |          |         |         |        |         
|                                                       | Current portion of mortgage note payable                                                                                           |                                            | $                         | 644      |         |         | $      | 644      |        
|                                                       | Accounts payable and accrued liabilities                                                                                           |                                            |                           | 5,805    |         |         |        | 3,684    |        
|                                                       | Prepetition claims                                                                                                                 |                                            |                           | 300      |         |         |        | 600      |        
|                                                       | Income taxes                                                                                                                       |                                            |                           | 1,649    |         |         |        | 11,264   |        
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|                                                       |                                                                                                                                    |                                            | Total current liabilities |          |         | 8,398   |        |          |         | 16,192  | 
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|Mortgage note payable                                  |                                                                                                                                    |                                            | 38,569                    |          |         |         | 39,266 |         
|Other long-term liabilities                            |                                                                                                                                    |                                            | 2,575                     |          |         |         | 2,690  |         
|Commitments and contingencies                          |                                                                                                                                    |                                            |                          |          |         |         |       |         
|Stockholders equity:                                  |                                                                                                                                    |                                            |                           |          |         |         |        |         
|                                                       | Common Shares, $.01 par value; 100,000,000 and 100,000,000
    shares
    authorized; 22,082,036 and 22,117,852 shares outstanding |                                            |                           | 221      |         |         |        | 221      |        
|                                                       | Additional paid-in capital                                                                                                         |                                            |                           | 862,473  |         |         |        | 862,584  |        
|                                                       | Accumulated deficit                                                                                                                |                                            |                           | (739,011 | )       |         |        | (765,468 | )      
|                                                       | Accumulated other comprehensive income                                                                                             |                                            |                           | 1,953    |         |         |        | 6,411    |        
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|                                                       |                                                                                                                                    | Total stockholders equity                 |                           |          | 125,636 |         |        |          | 103,748 |        
|                                                       |                                                                                                                                    |                                            |                           |          |         |        
|                                                       |                                                                                                                                    | Total liabilities and stockholders equity |                           | $        | 175,178 |         |        | $        | 161,896 |        
|                                                       |                                                                                                                                    |                                            |                           |          |         |        



36



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NEW VALLEY CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(Dollars in thousands, except per share amounts)


|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |       |        |         |         |    |        |  
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------- | ------- | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------- | ------- | -- | ------ | -
|                                                                                                |                                                                                          | Year Ended December 31,             |        
|                                                                                                |                                                                                          |                                     |        
|                                                                                                |                                                                                          | 2004                                |         |        | 2003  |        |        | 2002   |      
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|Revenues:                                                                                       |                                                                                          |                                     |         |        |       |        |        |        |       |        |         |        
|                                                                                                | Real estate leasing                                                                      |                                     | $       |       |       |        | $      |       |       |        | $       | 661     |   
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|                                                                                                |                                                                                          |                                     | Total   |        |       |       |        |        |       |       |         |         |    | 661    |  
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|Costs and expenses:                                                                             |                                                                                          |                                     |         |        |       |        |        |        |       |        |         |        
|                                                                                                | General and administrative                                                               |                                     |         | 13,773 |       |        |        | 11,901 |       |        |         | 12,967  |   
|                                                                                                | Rental real estate activities                                                            |                                     |         |       |       |        |        |       |       |        |         | 1,424   |   
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|                                                                                                |                                                                                          |                                     | Total   |        |       | 13,773 |        |        |       | 11,901 |         |         |    | 14,391 |  
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|Other results from continuing operations:                                                       |                                                                                          |                                     |         |        |       |        |        |        |       |        |         |        
|                                                                                                | Equity income (loss) from non-consolidated real estate
    businesses                    |                                     |         | 9,782  |       |        |        | 901    |       |        |         | (749    | ) 
|                                                                                                | Gain on sale of real estate                                                              |                                     |         |       |       |        |        | 478    |       |        |         | 9,048   |   
|                                                                                                | Gain on sale of investments, net                                                         |                                     |         | 8,391  |       |        |        | 1,654  |       |        |         | 1,850   |   
|                                                                                                | Interest and dividend income                                                             |                                     |         | 1,001  |       |        |        | 823    |       |        |         | 2,163   |   
|                                                                                                | Interest expense                                                                         |                                     |         |       |       |        |        |       |       |        |         | (411    | ) 
|                                                                                                | Provision for loss on net investment in subsidiary                                       |                                     |         |       |       |        |        |       |       |        |         | (338    | ) 
|                                                                                                | Provision for uncollectibility of notes receivable                                       |                                     |         |       |       |        |        |       |       |        |         | (13,198 | ) 
|                                                                                                | Provision for loss on investments                                                        |                                     |         |       |       |        |        |       |       |        |         | (6,776  | ) 
|                                                                                                | Other income (loss)                                                                      |                                     |         | 53     |       |        |        | 17     |       |        |         | (35     | ) 
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|                                                                                                |                                                                                          |                                     | Total   |        |       | 19,227 |        |        |       | 3,873  |         |         |    | (8,446 | )
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|Income (loss) from continuing operations before income
    taxes and minority interests         |                                                                                          |                                     | 5,454   |        |       |        | (8,028 | )      |       |        | (22,176 | )      
|Income tax benefit                                                                              |                                                                                          |                                     | (13,861 | )      |       |        | (952   | )      |       |        | (46     | )      
|Minority interests in income (loss) from continuing
    operations of consolidated subsidiaries |                                                                                          |                                     | 5       |        |       |        | (20    | )      |       |        | (151    | )      
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|Income (loss) from continuing operations                                                        |                                                                                          |                                     | 19,310  |        |       |        | (7,056 | )      |       |        | (21,979 | )      
|Discontinued operations:                                                                        |                                                                                          |                                     |         |        |       |        |        |        |       |        |         |        
|                                                                                                | Income from discontinued operations, net of income tax expense
    of $873, $952 and $46 |                                     |         | 1,220  |       |        |        | 1,394  |       |        |         | 67      |   
|                                                                                                | Gain on disposal of discontinued operations, net of income tax
    expense of $4,048     |                                     |         | 5,927  |       |        |        |       |       |        |         |        |   
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|                                                                                                |                                                                                          | Income from discontinued operations |         |        | 7,147 |        |        |        | 1,394 |        |         |         | 67 |       
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      
|Net income (loss)                                                                               |                                                                                          | $                                   | 26,457  |        |       | $      | (5,662 | )      |       | $      | (21,912 | )      
|                                                                                                |                                                                                          |                                     |         |        |       |        |        |        |      



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NEW VALLEY CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS 
(Continued)


(Dollars in thousands, except per share amounts)


|                                          |                         |                                    |            |      |      |  |            |       |       |   |            |       |       |  
|----------------------------------------- | ----------------------- | ---------------------------------- | ---------- | ---- | ---- |  | ---------- | ----- | ----- | - | ---------- | ----- | ----- | -
|                                          |                         | Year Ended December 31,            |           
|                                          |                         |                                    |           
|                                          |                         | 2004                               |            |      | 2003 |  |            | 2002  |      
|                                          |                         |                                    |            |      |      |  |            |       |      
|Income (loss) per common share (Basic):   |                         |                                    |            |      |      |  |            |       |       |   |            |      
|                                          | Continuing operations   |                                    | $          | 0.87 |      |  | $          | (0.32 | )     |   | $          | (0.96 | )    
|                                          | Discontinued operations |                                    |            | 0.33 |      |  |            | 0.06  |       |   |            |      |      
|                                          |                         |                                    |            |      |      |  |            |       |      
|                                          |                         | Net income (loss) per common share |            | $    | 1.20 |  |            | $     | (0.26 | ) |            | $     | (0.96 | )
|                                          |                         |                                    |            |      |      |  |            |       |      
|Number of shares used in computation      |                         |                                    | 22,106,125 |      |      |  | 22,146,031 |       |       |   | 22,757,296 |      
|                                          |                         |                                    |            |      |      |  |            |       |      
|Income (loss) per common share (Diluted): |                         |                                    |            |      |      |  |            |       |       |   |            |      
|                                          | Continuing operations   |                                    | $          | 0.87 |      |  | $          | (0.32 | )     |   | $          | (0.96 | )    
|                                          | Discontinued operations |                                    |            | 0.33 |      |  |            | 0.06  |       |   |            |      |      
|                                          |                         |                                    |            |      |      |  |            |       |      
|                                          |                         | Net income (loss) per common share |            | $    | 1.20 |  |            | $     | (0.26 | ) |            | $     | (0.96 | )
|                                          |                         |                                    |            |      |      |  |            |       |      
|Number of shares used in computation      |                         |                                    | 22,115,850 |      |      |  | 22,146,031 |       |       |   | 22,757,296 |      
|                                          |                         |                                    |            |      |      |  |            |       |      



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NEW VALLEY CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS
EQUITY


(Dollars in thousands, except per share amounts)


|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |         |        |  
|-------------------------- | ------------------------------------------- | --------------------------- | ------------------------------------------------------ | -------- | ---------- | - | --- | ----------- | - | ------------- | ------- | ------ | - | ------ | -------- | - | ------- | - | ------ | - |  | ------ | ------- | ------ | ------- | ------ | -
|                           |                                             |                             |                                                        |          |            |   |     |             |   | Accumulated   |         |        |  
|                           |                                             |                             |                                                        |          |            |   |     | Other       |   |               |        
|                           |                                             | Common Shares               |                                                        |          | Additional |   |     |             |   | Comprehensive |         |        |  
|                           |                                             |                             |                                                        |          | Paid-In    |   |     | Accumulated |   |               | Income  |        |   |       
|                           |                                             | Shares                      |                                                        |          | Amount     |   |     | Capital     |   |               | Deficit |        |   | (Loss) |          |   | Total   |  
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|Balance, December 31, 2001 |                                             |                             | 22,813,063                                             |          |            | $ | 228 |             |   | $             | 864,171 |        |   | $      | (737,894 | ) |         | $ | 1,975  |   |  | $      | 128,480 |       
|                           | Comprehensive loss:                         |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |        
|                           |                                             | Net loss                    |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   | (21,912 | ) |        |   |  |        |         |        | (21,912 | )     
|                           |                                             | Other comprehensive income: |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |         |       
|                           |                                             |                             | Net change in unrealized loss on investment securities |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  | (3,012 | )       |        |         | (3,012 | )
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|                           |                                             | Total comprehensive loss    |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        | (24,924 | )     
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|                           | Compensation expense on stock option grants |                             |                                                        |          |            |   |     |             |   |               |         | 416    |   |        |          |   |         |   |        |   |  |        |         | 416    |        
|                           | Exercise of stock options and warrants      |                             |                                                        | 68,404   |            |   |     | 1           |   |               |         | 264    |   |        |          |   |         |   |        |   |  |        |         | 265    |        
|                           | Capitalization of dividends payable         |                             |                                                        |          |            |   |     |             |   |               |         | 711    |   |        |          |   |         |   |        |   |  |        |         | 711    |        
|                           | Repurchase of common shares                 |                             |                                                        | (445,043 | )          |   |     | (5          | ) |               |         | (1,886 | ) |        |          |   |         |   |        |   |  |        |         | (1,891 | )      
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|Balance, December 31, 2002 |                                             |                             | 22,436,424                                             |          |            |   | 224 |             |   |               | 863,676 |        |   |        | (759,806 | ) |         |   | (1,037 | ) |  |        | 103,057 |       
|                           | Comprehensive income:                       |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |        
|                           |                                             | Net loss                    |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   | (5,662  | ) |        |   |  |        |         |        | (5,662  | )     
|                           |                                             | Other comprehensive income: |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |         |       
|                           |                                             |                             | Net change in unrealized gain on investment securities |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  | 7,448  |         |        |         | 7,448  |  
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|                           |                                             | Total comprehensive income  |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        | 1,786   |       
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|                           | Other, net                                  |                             |                                                        |          |            |   |     |             |   |               |         | 251    |   |        |          |   |         |   |        |   |  |        |         | 251    |        
|                           | Repurchase of common shares                 |                             |                                                        | (318,572 | )          |   |     | (3          | ) |               |         | (1,343 | ) |        |          |  |         |   |        |  |  |        |         | (1,346 | )      
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|Balance, December 31, 2003 |                                             |                             | 22,117,852                                             |          |            |   | 221 |             |   |               | 862,584 |        |   |        | (765,468 | ) |         |   | 6,411  |   |  |        | 103,748 |       
|                           | Comprehensive income:                       |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |        
|                           |                                             | Net income                  |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   | 26,457  |   |        |   |  |        |         |        | 26,457  |       
|                           |                                             | Other comprehensive income: |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        |         |       
|                           |                                             |                             | Net change in unrealized gain on investment securities |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  | (4,458 | )       |        |         | (4,458 | )
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|                           |                                             | Total comprehensive income  |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |   |        |   |  |        |         |        | 21,999  |       
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|                           | Exercise of warrants                        |                             |                                                        | 8,084    |            |   |     |             |   |               |         | 91     |   |        |          |   |         |   |        |   |  |        |         | 91     |        
|                           | Repurchase of common shares                 |                             |                                                        | (43,900  | )          |   |     |             |   |               |         | (202   | ) |        |          |   |         |   |        |   |  |        |         | (202   | )      
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  
|Balance, December 31, 2004 |                                             |                             | 22,082,036                                             |          |            | $ | 221 |             |   | $             | 862,473 |        |   | $      | (739,011 | ) |         | $ | 1,953  |   |  | $      | 125,636 |       
|                           |                                             |                             |                                                        |          |            |   |     |             |   |               |         |        |   |        |          |   |         |  



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NEW VALLEY CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands, except per share amounts)


|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |         |        |         |         |         |         |        |  
|--------------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------------------------------------------------- | --------------------------------------------------------------- | ------ | ------- | ------- | ------ | ------- | ------ | ------- | ------- | ------- | ------- | ------ | -
|                                                          |                                                                                                           | Year Ended December 31,                                  |                                                                                          
|                                                          |                                                                                                           |                                                          |                                                                                          
|                                                          |                                                                                                           | 2004                                                     |                                                                                           |                                                                 | 2003   |         |         | 2002   |        
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Cash flows from operating activities:                     |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |         |        |         |        
|                                                          | Net income (loss)                                                                                         |                                                          | $                                                                                         | 26,457                                                          |        |         | $       | (5,662 | )       |        | $       | (21,912 | )      
|                                                          | Income from discontinued operations                                                                       |                                                          |                                                                                           | (7,147                                                          | )      |         |         | (1,394 | )       |        |         | (67     | )      
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|                                                          |                                                                                                           | Subtotal                                                 |                                                                                           |                                                                 | 19,310 |         |         |        | (7,056  | )      |         |         | (21,979 | )      
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|                                                          | Adjustments to reconcile net income (loss) to net cash
    (used for) provided from operating activities: |                                                          |                                                                                           |                                                                 |        |         |         |        |         |        |         |         |        
|                                                          |                                                                                                           |                                                          | Depreciation and amortization                                                             |                                                                 |        |        |         |        |         |       |         |         |         | 191     |       
|                                                          |                                                                                                           |                                                          | Distributions from non-consolidated real estate businesses                                |                                                                 |        | 5,840   |         |        |         | 991    |         |         |         |        |       
|                                                          |                                                                                                           |                                                          | Gain on sale of real estate, assets and sale or liquidation of
    investments            |                                                                 |        | (8,391  | )       |        |         | (1,654 | )       |         |         | (10,560 | )     
|                                                          |                                                                                                           |                                                          | Equity (income) loss in non-consolidated real estate
    businesses                       |                                                                 |        | (9,782  | )       |        |         | (901   | )       |         |         | 749     |       
|                                                          |                                                                                                           |                                                          | Provision for uncollectibility of notes receivable                                        |                                                                 |        |        |         |        |         |       |         |         |         | 13,198  |       
|                                                          |                                                                                                           |                                                          | Provision for loss on investments                                                         |                                                                 |        |        |         |        |         |       |         |         |         | 6,776   |       
|                                                          |                                                                                                           |                                                          | Stock-based compensation expense                                                          |                                                                 |        |        |         |        |         |       |         |         |         | 416     |       
|                                                          |                                                                                                           |                                                          | Minority interests in income (loss) of consolidated
    subsidiaries                      |                                                                 |        | 5       |         |        |         | (20    | )       |         |         | (151    | )     
|                                                          |                                                                                                           |                                                          | Deferred tax benefit                                                                      |                                                                 |        | (13,881 | )       |        |         | (952   | )       |         |         | (46     | )     
|                                                          |                                                                                                           |                                                          | Changes in assets and liabilities, net of effects from
    acquisitions and dispositions: |                                                                 |        |         |         |        |         |        |         |         |         |         |       
|                                                          |                                                                                                           |                                                          |                                                                                           | (Increase) decrease in receivables and other assets             |        |         | 500     |        |         |        | (271    | )       |         |         | 19,783 |  
|                                                          |                                                                                                           |                                                          |                                                                                           | (Increase) decrease in accounts payable and accrued liabilities |        |         | 2,538   |        |         |        | (1,087  | )       |         |         | (1,642 | )
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Net cash (used for) provided from operating activities    |                                                                                                           |                                                          | (3,861                                                                                    | )                                                               |        |         | (10,950 | )      |         |        | 6,735   |        
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Cash flows from investing activities:                     |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |         |        |         |        
|                                                          |                                                                                                           | Sale or maturity of investment securities                |                                                                                           |                                                                 | 13,066 |         |         |        | 4,979   |        |         |         | 6,398   |        
|                                                          |                                                                                                           | Purchase of investment securities                        |                                                                                           |                                                                 | (2     | )       |         |        | (518    | )      |         |         | (6,825  | )      
|                                                          |                                                                                                           | Sale or liquidation of long-term investments             |                                                                                           |                                                                 | 576    |         |         |        | 1,004   |        |         |         |        |        
|                                                          |                                                                                                           | Purchase of long-term investments                        |                                                                                           |                                                                 | (409   | )       |         |        | (195    | )      |         |         |        |        
|                                                          |                                                                                                           | Investment in non-consolidated real estate businesses    |                                                                                           |                                                                 | (4,500 | )       |         |        | (11,000 | )      |         |         | (1,663  | )      
|                                                          |                                                                                                           | Sale of real estate, net of closing costs                |                                                                                           |                                                                 |        |         |         |        |        |        |         |         | 20,461  |        
|                                                          |                                                                                                           | Purchase of and additions to real estate                 |                                                                                           |                                                                 |       |         |         |        |        |        |         |         | (687    | )      
|                                                          |                                                                                                           | Payment of prepetition claims and restructuring accruals |                                                                                           |                                                                 |       |         |         |        | (74     | )      |         |         | (2,026  | )      
|                                                          |                                                                                                           | Repayment of notes receivable                            |                                                                                           |                                                                 | 2,000  |         |         |        |        |        |         |         | 3,000   |        
|                                                          |                                                                                                           | Issuance of notes receivable                             |                                                                                           |                                                                 | (3,750 | )       |         |        |        |        |         |         | (7,000  | )      
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Net cash provided from (used in) investing activities     |                                                                                                           |                                                          | 6,981                                                                                     |                                                                 |        |         | (5,804  | )      |         |        | 11,658  |        
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Cash flows from financing activities:                     |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |         |        |         |        
|                                                          |                                                                                                           | Repayment of participating loan                          |                                                                                           |                                                                 |       |         |         |        |        |        |         |         | (12,437 | )      
|                                                          |                                                                                                           | Payment of long-term notes                               |                                                                                           |                                                                 |       |         |         |        |        |        |         |         | (36     | )      
|                                                          |                                                                                                           | Distributions by Western Realty Development              |                                                                                           |                                                                 |       |         |         |        |        |        |         |         | (8      | )      
|                                                          |                                                                                                           | Repurchase of common shares                              |                                                                                           |                                                                 | (202   | )       |         |        | (1,346  | )      |         |         | (1,891  | )      
|                                                          |                                                                                                           | Exercise of warrants and stock options                   |                                                                                           |                                                                 | 91     |         |         |        |        |        |         |         | 265     |        
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Net cash used for financing activities                    |                                                                                                           |                                                          | (111                                                                                      | )                                                               |        |         | (1,346  | )      |         |        | (14,107 | )      
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Net cash provided from (used for) discontinued operations |                                                                                                           |                                                          | 1,086                                                                                     |                                                                 |        |         | 2,580   |        |         |        | (14,242 | )      
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Net increase (decrease) in cash and cash equivalents      |                                                                                                           |                                                          | 4,095                                                                                     |                                                                 |        |         | (15,520 | )      |         |        | (9,956  | )      
|Cash and cash equivalents, beginning of year              |                                                                                                           |                                                          | 66,593                                                                                    |                                                                 |        |         | 82,113  |        |         |        | 92,069  |        
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        
|Cash and cash equivalents, end of year                    |                                                                                                           | $                                                        | 70,688                                                                                    |                                                                 |        | $       | 66,593  |        |         | $      | 82,113  |        
|                                                          |                                                                                                           |                                                          |                                                                                           |                                                                 |        |         |         |        |        



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NEW VALLEY CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS 
(Continued)


(Dollars in thousands, except per share amounts)


|                                    |                                |                         |  |   |       |  |  |      |       |  |  |   |     | 
|----------------------------------- | ------------------------------ | ----------------------- |  | - | ----- |  |  | ---- | ----- |  |  | - | --- | 
|                                    |                                | Year Ended December 31, | 
|                                    |                                |                         | 
|                                    |                                | 2004                    |  |   | 2003  |  |  | 2002 |      
|                                    |                                |                         |  |   |       |  |  |      |      
|Supplemental cash flow information: |                                |                         |  |   |       |  |  |      |       |  |  |  
|                                    | Cash paid during the year for: |                         |  |   |       |  |  |      |       |  |  |   |    
|                                    |                                | Interest                |  | $ | 1,523 |  |  | $    | 1,389 |  |  | $ | 487 | 
|                                    |                                | Income taxes            |  |   |      |  |  |      | 53    |  |  |   | 196 | 



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NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Dollars in thousands, except per share amounts)


1.  Basis of Presentation


Principles of
Consolidation






Nature of Operations




Reorganization






2.  Summary of Significant Accounting Policies


Estimates.


Cash and Cash Equivalents.


Fair Value of Financial Instruments.


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NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Investment Securities.




Restricted Assets.


Property and Equipment.


Income Taxes.


Real Estate Leasing Revenues.


Basic Income (Loss) Per Common Share


Diluted Income (Loss) Per Common Share.


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NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                 |  |                         |            |  |      |  |            |      |  |  |            | 
|---------------------------------------------------------------- |  | ----------------------- | ---------- |  | ---- |  | ---------- | ---- |  |  | ---------- | 
|                                                                 |  | Year Ended December 31, |           
|                                                                 |  |                         |           
|                                                                 |  | 2004                    |            |  | 2003 |  |            | 2002 | 
|                                                                 |  |                         |            |  |      |  |            |      | 
|Weighted-average common shares outstanding                       |  |                         | 22,106,125 |  |      |  | 22,146,031 |      |  |  | 22,757,296 | 
|Assumed exercise of stock options                                |  |                         | 9,725      |  |      |  |           |      |  |  |           | 
|                                                                 |  |                         |            |  |      |  |            |      | 
|Weighted-average common shares outstanding
    assuming dilution |  |                         | 22,115,850 |  |      |  | 22,146,031 |      |  |  | 22,757,296 | 
|                                                                 |  |                         |            |  |      |  |            |      | 



|                                |  |                         |            |  |      |   |            |      |  |   |            | 
|------------------------------- |  | ----------------------- | ---------- |  | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                |  | Year Ended December 31, |           
|                                |  |                         |           
|                                |  | 2004                    |            |  | 2003 |   |            | 2002 | 
|                                |  |                         |            |  |      |   |            |      | 
|Number of stock options         |  |                         | 105,333    |  |      |   | 165,333    |      |  |   | 145,333    | 
|                                |  |                         |            |  |      |   |            |      | 
|Weighted-average exercise price |  | $                       | 5.30       |  |      | $ | 4.79       |      |  | $ | 4.90       | 
|                                |  |                         |            |  |      |   |            |      | 
|Number of warrants              |  |                         | 17,867,438 |  |      |   | 17,867,438 |      |  |   | 17,867,438 | 
|                                |  |                         |            |  |      |   |            |      | 
|Weighted-average exercise price |  | $                       | 11.30      |  |      | $ | 11.30      |      |  | $ | 11.30      | 
|                                |  |                         |            |  |      |   |            |      | 

Stock-Based Compensation.




|                                                                |  |      |        |   |      |   |        |      |  |   |         |  
|--------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                |  | 2004 |        |   | 2003 |   |        | 2002 | 
|                                                                |  |      |        |   |      |   |        |      | 
|Net income (loss) applicable to Common Shares, as reported      |  | $    | 26,457 |   |      | $ | (5,662 | )    |  | $ | (21,912 | )
|Deduct: Amortization of fair value of New Valley option grants  |  |      | (50    | ) |      |   | (50    | )    |  |   | (234    | )
|Deduct: Amortization of fair value of Vector option grants, net |  |      |       |   |      |   | (572   | )    |  |   | (713    | )
|                                                                |  |      |        |   |      |   |        |      | 
|Net income (loss) applicable to Common Shares, as adjusted      |  | $    | 26,407 |   |      | $ | (6,284 | )    |  | $ | (22,859 | )
|                                                                |  |      |        |   |      |   |        |      | 
|Adjusted net income (loss) per share  basic and
    diluted    |  | $    | 1.19   |   |      | $ | (0.28  | )    |  | $ | (1.00   | )
|                                                                |  |      |        |   |      |   |        |      | 



Recoverability of Long-Lived Assets.


44



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Other Comprehensive Income (Loss).




|                                                                               |  |                         |        |   |      |   |        |      |  |   |         |  
|------------------------------------------------------------------------------ |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                                                               |  | Year Ended December 31, |       
|                                                                               |  |                         |       
|                                                                               |  | 2004                    |        |   | 2003 |   |        | 2002 | 
|                                                                               |  |                         |        |   |      |   |        |      | 
|Net income (loss)                                                              |  | $                       | 26,457 |   |      | $ | (5,662 | )    |  | $ | (21,912 | )
|                                                                              
|Net unrealized gains (losses) on investment securities
    available for sale: |  |                         |        |   |      |   |        |      |  |   |         |  
|                                                                              
|Change in net unrealized gains (losses)                                        |  |                         | 3,787  |   |      |   | 9,014  |      |  |   | (7,938  | )
|                                                                              
|Net unrealized (gains) losses reclassified into net income
    (loss)          |  |                         | (8,245 | ) |      |   | (1,566 | )    |  |   | 4,926   |  
|                                                                               |  |                         |        |   |      |   |        |      | 
|                                                                               |  |                         | (4,458 | ) |      |   | 7,448  |      |  |   | (3,012  | )
|                                                                               |  |                         |        |   |      |   |        |      | 
|Comprehensive income (loss)                                                    |  | $                       | 21,999 |   |      | $ | 1,786  |      |  | $ | (24,924 | )
|                                                                               |  |                         |        |   |      |   |        |      | 



|                                                                 |  |                   |       |  |                   |   |       | 
|---------------------------------------------------------------- |  | ----------------- | ----- |  | ----------------- | - | ----- | 
|                                                                 |  | December 31, 2004 |       |  | December 31, 2003 |  
|                                                                 |  |                   |       |  |                   |  
|Net unrealized gains on investment securities available for sale |  | $                 | 1,953 |  |                   | $ | 6,411 | 
|                                                                 |  |                   |       |  |                   |  
|                                                                
|Accumulated other comprehensive income                           |  | $                 | 1,953 |  |                   | $ | 6,411 | 
|                                                                 |  |                   |       |  |                   |  

New Accounting Pronouncements.




45



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


3.  Investment in Real Estate Held for Sale and
Mortgage Note Payable




|                                          |                               |                   |        |        |                   |   |        |        | 
|----------------------------------------- | ----------------------------- | ----------------- | ------ | ------ | ----------------- | - | ------ | ------ | 
|                                          |                               | December 31, 2004 |        |        | December 31, 2003 |  
|                                          |                               |                   |        |        |                   |  
|Land                                      |                               | $                 | 7,636  |        |                   | $ | 7,636  |       
|Buildings                                 |                               |                   | 46,622 |        |                   |   | 46,622 |       
|                                          |                               |                   |        |        |                   |  
|                                          | Total                         |                   |        | 54,258 |                   |   |        | 54,258 | 
|Less accumulated depreciation             |                               |                   | (2,441 | )      |                   |   | (1,246 | )     
|                                          |                               |                   |        |        |                   |  
|                                          | Net investment in real estate |                   | $      | 51,817 |                   |   | $      | 53,012 | 
|                                          |                               |                   |        |        |                   |  
|Mortgage note payable                     |                               | $                 | 39,213 |        |                   | $ | 39,910 |       
|Current portion of mortgage note payable  |                               |                   | 644    |        |                   |   | 644    |       
|                                          |                               |                   |        |        |                   |  
|Mortgage note payable  long-term portion |                               | $                 | 38,569 |        |                   | $ | 39,266 |       
|                                          |                               |                   |        |        |                   |  

Office Buildings






Subsequent Event.


Shopping Centers




Russian Real Estate




46



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






4.  Investments in Non-Consolidated Real Estate
Businesses


Residential Brokerage
Business












47



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                   |  |                   |        |  |                   |   |        |  
|---------------------------------- |  | ----------------- | ------ |  | ----------------- | - | ------ | -
|                                   |  | December 31, 2004 |        |  | December 31, 2003 |  
|                                   |  |                   |        |  |                   |  
|Cash                               |  | $                 | 21,375 |  |                   | $ | 9,062  |  
|Other current assets               |  |                   | 4,726  |  |                   |   | 6,385  |  
|Property, plant and equipment, net |  |                   | 15,520 |  |                   |   | 11,311 |  
|Trademarks                         |  |                   | 21,663 |  |                   |   | 21,663 |  
|Goodwill                           |  |                   | 36,676 |  |                   |   | 34,319 |  
|Other intangible assets, net       |  |                   | 2,748  |  |                   |   | 4,021  |  
|Other noncurrent assets            |  |                   | 1,112  |  |                   |   | 632    |  
|Notes payable  current            |  |                   | 4,998  |  |                   |   | 8,944  |  
|Other current liabilities          |  |                   | 17,757 |  |                   |   | 10,176 |  
|Notes payable  long term          |  |                   | 69,942 |  |                   |   | 68,562 |  
|Members equity (deficiency)       |  |                   | 11,123 |  |                   |   | (289   | )

|                      |  |                         |         |  |      |   |         |      |  |   |        | 
|--------------------- |  | ----------------------- | ------- |  | ---- | - | ------- | ---- |  | - | ------ | 
|                      |  | Year Ended December 31, |        
|                      |  |                         |        
|                      |  | 2004                    |         |  | 2003 |   |         | 2002 | 
|                      |  |                         |         |  |      |   |         |      | 
|Revenues              |  | $                       | 286,816 |  |      | $ | 179,853 |      |  | $ | 59,290 | 
|Costs and expenses    |  |                         | 253,862 |  |      |   | 166,278 |      |  |   | 56,929 | 
|Depreciation expense  |  |                         | 4,533   |  |      |   | 3,640   |      |  |   | 556    | 
|Amortization expense  |  |                         | 968     |  |      |   | 5,037   |      |  |   | 10     | 
|Interest expense, net |  |                         | 6,208   |  |      |   | 4,767   |      |  |   | 370    | 
|Other income          |  |                         |        |  |      |   | 67      |      |  |   | 87     | 
|Income tax expense    |  |                         | 645     |  |      |   |        |      |  |   |       | 
|                      |  |                         |         |  |      |   |         |      | 
|Net income            |  | $                       | 20,600  |  |      | $ | 198     |      |  | $ | 1,512  | 
|                      |  |                         |         |  |      |   |         |      | 



Hawaiian Hotel






48



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                               |  |                   |        |  |                   |   |        | 
|---------------------------------------------- |  | ----------------- | ------ |  | ----------------- | - | ------ | 
|                                               |  | December 31, 2004 |        |  | December 31, 2003 |  
|                                               |  |                   |        |  |                   |  
|Cash                                           |  | $                 | 2,062  |  |                   | $ | 679    | 
|Restricted assets                              |  |                   | 5,538  |  |                   |   |       | 
|Other current assets                           |  |                   | 988    |  |                   |   | 141    | 
|Property, plant and equipment, net             |  |                   | 77,339 |  |                   |   | 19,850 | 
|Deferred financing costs, net                  |  |                   | 1,724  |  |                   |   | 139    | 
|Accounts payable and other current liabilities |  |                   | 11,064 |  |                   |   | 3,350  | 
|Notes payable                                  |  |                   | 60,356 |  |                   |   | 5,000  | 
|Members equity                                |  |                   | 16,231 |  |                   |   | 12,459 | 

|                                 |  |                         |        |   |      |   |      |      |  |   |        |  
|-------------------------------- |  | ----------------------- | ------ | - | ---- | - | ---- | ---- |  | - | ------ | -
|                                 |  | Year Ended December 31, |       
|                                 |  |                         |       
|                                 |  | 2004                    |        |   | 2003 |   |      | 2002 | 
|                                 |  |                         |        |   |      |   |      |      | 
|Revenues                         |  | $                       | 2,806  |   |      | $ |     |      |  | $ |       |  
|Costs and operating expenses     |  |                         | 4,588  |   |      |   |     |      |  |   |       |  
|Management fees                  |  |                         | 440    |   |      |   | 500  |      |  |   | 500    |  
|Depreciation expense             |  |                         | 625    |   |      |   |     |      |  |   |       |  
|Amortization expense             |  |                         | 104    |   |      |   |     |      |  |   |       |  
|Loss on disposal of fixed assets |  |                         |       |   |      |   |     |      |  |   | 2,108  |  
|Interest expense, net            |  |                         | 709    |   |      |   |     |      |  |   |       |  
|                                 |  |                         |        |   |      |   |      |      | 
|Net loss                         |  | $                       | (3,660 | ) |      | $ | (500 | )    |  | $ | (2,608 | )
|                                 |  |                         |        |   |      |   |      |      | 



5.  Investment Securities Available For Sale




49



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                      |  |      |        |            |      |   |            |      |  |      |       |  |  |   |        | 
|--------------------- |  | ---- | ------ | ---------- | ---- | - | ---------- | ---- |  | ---- | ----- |  |  | - | ------ | 
|                      |  |      |        | Gross      |      |   | Gross      |      |  |     
|                      |  |      |        | Unrealized |      |   | Unrealized |      |  | Fair |      
|                      |  | Cost |        |            | Gain |   |            | Loss |  |      | Value | 
|                      |  |      |        |            |      |   |            |      |  |      |       | 
|2004                  |  |      |        |            |      |   |            |      |  |      |       |  |  |   |        | 
|Investment securities |  | $    | 5,884  |            |      | $ | 2,211      |      |  | $    | 258   |  |  | $ | 7,837  | 
|                      |  |      |        |            |      |   |            |      |  |      |       | 
|2003                  |  |      |        |            |      |   |            |      |  |      |       |  |  |   |        | 
|Investment securities |  | $    | 11,533 |            |      | $ | 6,411      |      |  | $    |      |  |  | $ | 17,944 | 
|                      |  |      |        |            |      |   |            |      |  |      |       | 

6.  Ladenburg Thalmann Financial Services














50



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












7.  Long-Term Investments




|                     |  |                   |       |  |                   |   |        |          |  |   |       |  |  |   |        | 
|-------------------- |  | ----------------- | ----- |  | ----------------- | - | ------ | -------- |  | - | ----- |  |  | - | ------ | 
|                     |  | December 31, 2004 |       |  | December 31, 2003 |  
|                     |  |                   |       |  |                   |  
|                     |  | Carrying          |       |  | Fair              |   |        | Carrying |  |   | Fair  | 
|                     |  | Value             |       |  | Value             |   |        | Value    |  |   | Value | 
|                     |  |                   |       |  |                   |   |        |          |  |   |       | 
|Limited partnerships |  | $                 | 2,408 |  |                   | $ | 15,204 |          |  | $ | 2,429 |  |  | $ | 11,739 | 





8.  Pensions and Retiree Benefits




51



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


9.  Commitment and Contingencies


Leases




Investment Company Act
of 1940




Lawsuits






52



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Other








10.  Income Taxes






53



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                                                                 |                                     |                    |         |       |         |   |        |       |      |   |         |       |     |  
|-------------------------------------------------------------------------------- | ----------------------------------- | ------------------ | ------- | ----- | ------- | - | ------ | ----- | ---- | - | ------- | ----- | --- | -
|                                                                                 |                                     | 2004               |         |       | 2003    |   |        | 2002  |     
|                                                                                 |                                     |                    |         |       |         |   |        |       |     
|Income (loss) from continuing operations                                         |                                     | $                  | 5,449   |       |         | $ | (8,008 | )     |      | $ | (22,025 | )    
|                                                                                 |                                     |                    |         |       |         |   |        |       |     
|Provision (benefit) under statutory U.S. tax rates                               |                                     |                    | 1,907   |       |         |   | (2,803 | )     |      |   | (7,709  | )    
|Increase in taxes resulting from:                                                |                                     |                    |         |       |         |   |        |       |      |   |         |      
|                                                                                 | Nontaxable items                    |                    |         | 1,250 |         |   |        | 1,212 |      |   |         | 1,774 |    
|                                                                                 | State taxes, net of Federal benefit |                    |         | 10    |         |   |        | (294  | )    |   |         | (876  | )  
|Impact of (increase) decrease in net equity adjustments                          |                                     |                    | (704    | )     |         |   | 2,994  |       |      |   | (1,211  | )    
|Intraperiod reclassifications between continuing and
    discontinued operations |                                     |                    | (4,921  | )     |         |   | (952   | )     |      |   | (46     | )    
|(Decrease) increase in valuation reserve, net of tax audit
    adjustments       |                                     |                    | (11,403 | )     |         |   | (1,109 | )     |      |   | 8,022   |      
|                                                                                 |                                     |                    |         |       |         |   |        |       |     
|                                                                                 |                                     | Income tax benefit |         | $     | (13,861 | ) |        | $     | (952 | ) |         | $     | (46 | )
|                                                                                 |                                     |                    |         |       |         |   |        |       |     



|                               |                                                  |                                  |         |        |        |   |         |        |        | 
|------------------------------ | ------------------------------------------------ | -------------------------------- | ------- | ------ | ------ | - | ------- | ------ | ------ | 
|                               |                                                  | 2004                             |         |        | 2003   |  
|                               |                                                  |                                  |         |        |        |  
|Deferred tax assets:           |                                                  |                                  |         |        |        |   |         |       
|                               | Net operating loss and tax credit carryforwards: |                                  |         |        |        |   |         |        |       
|                               |                                                  | Minimum tax credit carryforwards |         | $      | 13,542 |   |         | $      | 13,542 | 
|                               |                                                  | Unrestricted capital loss        |         |        |       |   |         |        | 1,996  | 
|                               |                                                  | Unrestricted net operating loss  |         |        | 65,073 |   |         |        | 64,915 | 
|                               | Other                                            |                                  |         | 18,595 |        |   |         | 17,700 |       
|                               |                                                  |                                  |         |        |        |  
|                               | Total deferred tax assets                        |                                  |         | 97,210 |        |   |         | 98,153 |       
|                               |                                                  |                                  |         |        |        |  
|Deferred tax liabilities:      |                                                  |                                  |         |        |        |   |         |       
|                               | Other                                            |                                  |         | 4,209  |        |   |         | 2,749  |       
|                               |                                                  |                                  |         |        |        |  
|Total deferred tax liabilities |                                                  |                                  | 4,209   |        |        |   | 2,749   |       
|                               |                                                  |                                  |         |        |        |  
|Net deferred tax assets        |                                                  |                                  | 93,001  |        |        |   | 95,404  |       
|Valuation allowance            |                                                  |                                  | (84,001 | )      |        |   | (95,404 | )     
|                               |                                                  |                                  |         |        |        |  
|Net deferred taxes             |                                                  | $                                | 9,000   |        |        | $ |        |       
|                               |                                                  |                                  |         |        |        |  

54



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






11.  Other Long-Term Liabilities




|                                   |  |                   |       |  |                   |   |     |           |  |   |         |  |  |   |     | 
|---------------------------------- |  | ----------------- | ----- |  | ----------------- | - | --- | --------- |  | - | ------- |  |  | - | --- | 
|                                   |  | December 31, 2004 |       |  | December 31, 2003 |  
|                                   |  |                   |       |  |                   |  
|                                   |  | Long-term         |       |  | Current           |   |     | Long-term |  |   | Current | 
|                                   |  | portion           |       |  | Portion           |   |     | Portion   |  |   | portion | 
|                                   |  |                   |       |  |                   |   |     |           |  |   |         | 
|Retiree and disability obligations |  | $                 | 2,429 |  |                   | $ | 500 |           |  | $ | 2,497   |  |  | $ | 500 | 
|Other long-term liabilities        |  |                   | 146   |  |                   |   |    |           |  |   | 193     |  |  |   |    | 
|                                   |  |                   |       |  |                   |   |     |           |  |   |         | 
|Total other long-term liabilities  |  | $                 | 2,575 |  |                   | $ | 500 |           |  | $ | 2,690   |  |  | $ | 500 | 
|                                   |  |                   |       |  |                   |   |     |           |  |   |         | 

12.  Warrants




13.  Stock Option Plans


New Valley






55



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Subsequent Event.


Vector




56



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




New Valley


|                                 |           |           |         |          |                |               |            |          |           |              |  |  |      |  | 
|-------------------------------- | --------- | --------- | ------- | -------- | -------------- | ------------- | ---------- | -------- | --------- | ------------ |  |  | ---- |  | 
|                                 |           |           |         |          |                |               |            | Weighted |          
|                                 |           |           |         |          |                |               |            | Average  |          
|                                 |           |           |         |          |                | Weighted      |            |          | Remaining |             
|                                 |           | Number of |         |          |                |               | Average    |          |           | Contractual  | 
|                                 |           | Shares    |         |          | Exercise Price |               | Fair Value |          |           | Life (Years) | 
|                                 |           |           |         |          |                |               |            |          |           |              | 
|Outstanding on December 31, 2001 |           |           | 331,613 |          |                | $3.57 - $5.80 |            | $        | 7.50      |              |  |  | 6.50 | 
|                                 | Granted   |           |         | 20,000   |                |               | $4.15      |          | $         | 2.13         |  |  |      |  | 
|                                 | Exercised |           |         | (68,276  | )              |               |            |          |           |              |  |  |      |  | 
|                                 | Cancelled |           |         | (138,004 | )              |               |            |          |           |              |  |  |      |  | 
|                                 |           |           |         |          |                |               |            |          |           |              | 
|Outstanding on December 31, 2002 |           |           | 145,333 |          |                | $3.57 - $5.80 |            | $        | 13.74     |              |  |  | 6.02 | 
|                                 | Granted   |           |         | 20,000   |                |               | $4.01      |          | $         | 2.45         |  |  |      |  | 
|                                 | Exercised |           |         |         |                |               |            |          |           |              |  |  |      |  | 
|                                 | Cancelled |           |         |         |                |               |            |          |           |              |  |  |      |  | 
|                                 |           |           |         |          |                |               |            |          |           |              | 
|Outstanding on December 31, 2003 |           |           | 165,333 |          |                | $3.57 - $5.80 |            | $        | 12.37     |              |  |  | 5.56 | 
|                                 | Granted   |           |         | 20,000   |                |               | $4.13      |          | $         | 2.32         |  |  |      |  | 
|                                 | Exercised |           |         |         |                |               |            |          |           |              |  |  |      |  | 
|                                 | Cancelled |           |         |         |                |               |            |          |           |              |  |  |      |  | 
|                                 |           |           |         |          |                |               |            |          |           |              | 
|Outstanding on December 31, 2004 |           |           | 185,333 |          |                | $3.57 - $5.80 |            | $        | 11.28     |              |  |  | 4.06 | 
|                                 |           |           |         |          |                |               |            |          |           |              | 

|                        |                   |           |  |          |                |  |       |  |  |  |  |  |  |  | 
|----------------------- | ----------------- | --------- |  | -------- | -------------- |  | ----- |  |  |  |  |  |  |  | 
|                        |                   |           |  | Weighted |                |  |       | 
|                        |                   | Number of |  |          | Average        |  |       |  | 
|                        |                   | Shares    |  |          | Exercise Price |  |       |  | 
|                        |                   |           |  |          |                |  |       |  | 
|Options exercisable at: |                   |           |  |          |                |  |       |  |  |  |  |  |  | 
|                        | December 31, 2002 |           |  | 125,333  |                |  | $5.02 |  |  |  |  |  |  |  | 
|                        | December 31, 2003 |           |  | 145,333  |                |  | $4.90 |  |  |  |  |  |  |  | 
|                        | December 31, 2004 |           |  | 165,333  |                |  | $4.72 |  |  |  |  |  |  |  | 



Vector




57



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##### Table of Contents



NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                 |                               |           |         |        |          |          |       |            |           |   |              |  |  |  |      |  | 
|-------------------------------- | ----------------------------- | --------- | ------- | ------ | -------- | -------- | ----- | ---------- | --------- | - | ------------ |  |  |  | ---- |  | 
|                                 |                               |           |         |        |          |          |       | Weighted   |          
|                                 |                               |           |         |        |          |          |       | Average    |          
|                                 |                               |           |         |        |          | Weighted |       |            | Remaining |  
|                                 |                               | Number of |         |        | Exercise |          |       | Average    |           |   | Contractual  | 
|                                 |                               | Shares    |         |        | Price    |          |       | Fair Value |           |   | Life (Years) | 
|                                 |                               |           |         |        |          |          |       |            |           |   |              | 
|Outstanding on December 31, 2001 |                               |           | 600,863 |        |          | $        | 14.00 |            |           | $ | 11.23        |  |  |  | 7.85 | 
|                                 | Granted                       |           |         |       |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 | Adjustment for stock dividend |           |         | 30,043 |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 | Cancelled                     |           |         |       |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 |                               |           |         |        |          |          |       |            |           |   |              | 
|Outstanding on December 31, 2002 |                               |           | 630,906 |        |          | $        | 13.33 |            |           | $ | 10.69        |  |  |  | 6.85 | 
|                                 | Granted                       |           |         |       |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 | Adjustment for stock dividend |           |         | 31,545 |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 | Cancelled                     |           |         |       |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 |                               |           |         |        |          |          |       |            |           |   |              | 
|Outstanding on December 31, 2003 |                               |           | 662,451 |        |          | $        | 12.70 |            |           | $ | 9.71         |  |  |  | 5.85 | 
|                                 | Granted                       |           |         |       |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 | Adjustment for stock dividend |           |         | 33,122 |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 | Cancelled                     |           |         |       |          |          |       |            |           |   |              |  |  |  |      |  | 
|                                 |                               |           |         |        |          |          |       |            |           |   |              | 
|Outstanding on December 31, 2004 |                               |           | 695,573 |        |          | $        | 12.10 |            |           | $ | 9.25         |  |  |  | 4.85 | 
|                                 |                               |           |         |        |          |          |       |            |           |   |              | 





14.  Accounts Payable and Accrued Liabilities




|                                          |                                             |              |   |       |       |  |   |       |       | 
|----------------------------------------- | ------------------------------------------- | ------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                                          |                                             | December 31, |  
|                                          |                                             |              |  
|                                          |                                             | 2004         |   |       | 2003  | 
|                                          |                                             |              |   |       |       | 
|Accounts payable and accrued liabilities: |                                             |              |   |       |       |  |   |      
|                                          | Accrued compensation                        |              | $ | 1,674 |       |  | $ | 1,522 |      
|                                          | Unearned revenues                           |              |   | 170   |       |  |   | 461   |      
|                                          | Expenses associated with lawsuit settlement |              |   | 2,150 |       |  |   |      |      
|                                          | Taxes                                       |              |   | 88    |       |  |   | 302   |      
|                                          | Accrued expenses and other liabilities      |              |   | 1,723 |       |  |   | 1,399 |      
|                                          |                                             |              |   |       |       | 
|                                          |                                             | Total        |   | $     | 5,805 |  |   | $     | 3,684 | 
|                                          |                                             |              |   |       |       | 

15.  Prepetition Claims Under Chapter 11 and
Restructuring Accruals




16.  Related Party Transactions




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NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








17.  Fair Value of Financial Instruments




|                       |                                |                   |   |        |                   |  |   |          |  |  |       |        |  |  |   |        | 
|---------------------- | ------------------------------ | ----------------- | - | ------ | ----------------- |  | - | -------- |  |  | ----- | ------ |  |  | - | ------ | 
|                       |                                | December 31, 2004 |   |        | December 31, 2003 | 
|                       |                                |                   |   |        |                   | 
|                       |                                | Carrying          |   |        | Fair              |  |   | Carrying |  |  | Fair  |       
|                       |                                | Amount            |   |        | Value             |  |   | Amount   |  |  | Value |       
|                       |                                |                   |   |        |                   |  |   |          |  |  |       |       
|Financial assets:      |                                |                   |   |        |                   |  |   |          |  |  |       |        |  |  |   |       
|                       | Cash and cash equivalents      |                   | $ | 70,688 |                   |  | $ | 70,688   |  |  | $     | 66,593 |  |  | $ | 66,593 | 
|                       | Investments available for sale |                   |   | 7,837  |                   |  |   | 7,837    |  |  |       | 17,944 |  |  |   | 17,944 | 
|                       | Restricted assets              |                   |   | 606    |                   |  |   | 606      |  |  |       | 771    |  |  |   | 771    | 
|                       | Long-term investments          |                   |   | 2,408  |                   |  |   | 15,204   |  |  |       | 2,429  |  |  |   | 11,739 | 
|Financial liabilities: |                                |                   |   |        |                   |  |   |          |  |  |       |        |  |  |   |       
|                       | Mortgage note payable          |                   |   | 39,213 |                   |  |   | 39,213   |  |  |       | 39,910 |  |  |   | 39,910 | 

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NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


18.  Business Segment Information




|                                                                                 |  |             |        |           |           |   |         |       |  |   |         |  
|-------------------------------------------------------------------------------- |  | ----------- | ------ | --------- | --------- | - | ------- | ----- |  | - | ------- | -
|                                                                                 |  |             |        | Corporate |           |   |        
|                                                                                 |  | Real Estate |        |           | and Other |   |         | Total | 
|                                                                                 |  |             |        |           |           |   |         |       | 
|2004                                                                             |  |             |        |           |           |   |         |       |  |   |         |  
|Revenues                                                                         |  | $           |       |           |           | $ |        |       |  | $ |        |  
|Other results from continuing operations                                         |  |             | 9,782  |           |           |   | 9,445   |       |  |   | 19,227  |  
|Income (loss) from continuing operations before taxes and
    minority interests |  |             | 9,782  |           |           |   | (4,328  | )     |  |   | 5,454   |  
|Identifiable assets                                                              |  |             | 82,087 | (a)       |           |   | 93,091  |       |  |   | 175,178 |  
|Depreciation and amortization                                                    |  |             |       |           |           |   |        |       |  |   |        |  
|Capital expenditures                                                             |  |             |       |           |           |   |        |       |  |   |        |  
|                                                                                
|2003                                                                             |  |             |        |           |           |   |         |       |  |   |         |  
|Revenues                                                                         |  | $           |       |           |           | $ |        |       |  | $ |        |  
|Other results from continuing operations                                         |  |             | 1,379  |           |           |   | 2,494   |       |  |   | 3,873   |  
|Income (loss) from continuing operations before taxes and
    minority interests |  |             | 1,379  |           |           |   | (9,407  | )     |  |   | (8,028  | )
|Identifiable assets                                                              |  |             | 74,594 | (a)       |           |   | 87,302  |       |  |   | 161,896 |  
|Depreciation and amortization                                                    |  |             |       |           |           |   |        |       |  |   |        |  
|Capital expenditures                                                             |  |             |       |           |           |   |        |       |  |   |        |  
|                                                                                
|2002                                                                             |  |             |        |           |           |   |         |       |  |   |         |  
|Revenues                                                                         |  | $           | 661    |           |           | $ |        |       |  | $ | 661     |  
|Other results from continuing operations                                         |  |             | 7,888  |           |           |   | (16,334 | )     |  |   | (8,446  | )
|Income (loss) from continuing operations before taxes and
    minority interests |  |             | 7,125  |           |           |   | (29,301 | )     |  |   | (22,176 | )
|Identifiable assets                                                              |  |             | 62,755 | (a)       |           |   | 100,793 |       |  |   | 163,548 |  
|Depreciation and amortization                                                    |  |             | 191    |           |           |   |        |       |  |   | 191     |  
|Capital expenditures                                                             |  |             | 687    |           |           |   |        |       |  |   | 687     |  






|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Identifiable assets in the real estate segment include $54,927,
    $55,876 and $54,947 in 2004, 2003 and 2002, respectively, of
    assets attributable to discontinued real estate operations.

19.  Discontinued Operations


Real Estate Leasing.


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NEW VALLEY CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|                                           |  |      |       |  |      |   |       |      |  |   |     | 
|------------------------------------------ |  | ---- | ----- |  | ---- | - | ----- | ---- |  | - | --- | 
|                                           |  | 2004 |       |  | 2003 |   |       | 2002 | 
|                                           |  |      |       |  |      |   |       |      | 
|Revenues                                   |  | $    | 7,333 |  |      | $ | 7,298 |      |  | $ | 340 | 
|Expenses                                   |  |      | 5,240 |  |      |   | 4,952 |      |  |   | 227 | 
|                                           |  |      |       |  |      |   |       |      | 
|Income from operations before income taxes |  | $    | 2,093 |  |      | $ | 2,346 |      |  | $ | 113 | 
|Income taxes                               |  |      | 873   |  |      |   | 952   |      |  |   | 46  | 
|                                           |  |      |       |  |      |   |       |      | 
|Income from discontinued operations        |  | $    | 1,220 |  |      | $ | 1,394 |      |  | $ | 67  | 
|                                           |  |      |       |  |      |   |       |      | 

Gain on Disposal of Discontinued Operations.


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NEW VALLEY CORPORATION AND SUBSIDIARIES


QUARTERLY FINANCIAL DATA (UNAUDITED)


(Dollars in thousands, except per share amounts)


|      |                                           |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |         |        |  
|----- | ----------------------------------------- | ------------------------------------------- | - | ------ | ------ | - | - | ------ | ------ | - | ------ | ----- | ----- | - | - | ------- | ------ | -
|      |                                           | Quarters                                    |  
|      |                                           |                                             |  
|      |                                           | 1st                                         |   |        | 2nd    |   |   | 3rd    |        |   | 4th(c) |      
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|2004: |                                           |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |        
|      | Revenues                                  |                                             | $ |       |        |   | $ |       |        |   | $      |      |       |   | $ |        |       
|      | Expenses(a)                               |                                             |   | 2,414  |        |   |   | 3,224  |        |   |        | 3,259 |       |   |   | 4,881   |       
|      | Other results from continuing operations  |                                             |   | 890    |        |   |   | 10,134 |        |   |        | 5,078 |       |   |   | 3,125   |       
|      | Income tax benefit                        |                                             |   | (244   | )      |   |   | (212   | )      |   |        | (160  | )     |   |   | (13,245 | )     
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Income (loss) from continuing operations    |   |        | (1,280 | ) |   |        | 7,122  |   |        |       | 1,979 |   |   |         | 11,489 |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income from discontinued operations       |                                             |   | 358    |        |   |   | 355    |        |   |        | 299   |       |   |   | 208     |       
|      | Gain from discontinued operations         |                                             |   |       |        |   |   |       |        |   |        |      |       |   |   | 5,927   |       
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Income from discontinued operations         |   |        | 358    |   |   |        | 355    |   |        |       | 299   |   |   |         | 6,135  |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Net income (loss)(b)                        |   | $      | (922   | ) |   | $      | 7,477  |   |        | $     | 2,278 |   |   | $       | 17,624 |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income (loss) per Common Share (Basic):   |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |         |       
|      |                                           | Income (loss) from continuing operations(b) |   | $      | (0.06  | ) |   | $      | 0.32   |   |        | $     | 0.09  |   |   | $       | 0.52   |  
|      |                                           | Discontinued operations                     |   |        | 0.02   |   |   |        | 0.02   |   |        |       | 0.01  |   |   |         | 0.28   |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Net income (loss)(b)                        |   | $      | (0.04  | ) |   | $      | 0.34   |   |        | $     | 0.10  |   |   | $       | 0.80   |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income (loss) per Common Share (Diluted): |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |         |       
|      |                                           | Income (loss) from continuing operations(b) |   | $      | (0.06  | ) |   | $      | 0.32   |   |        | $     | 0.09  |   |   | $       | 0.52   |  
|      |                                           | Discontinued operations                     |   |        | 0.02   |   |   |        | 0.02   |   |        |       | 0.01  |   |   |         | 0.28   |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Net income (loss)(b) Net loss               |   | $      | (0.04  | ) |   | $      | 0.34   |   |        | $     | 0.10  |   |   | $       | 0.80   |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|     
|2003: |                                           |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |        
|      | Revenues                                  |                                             | $ |       |        |   | $ |       |        |   | $      |      |       |   | $ |        |       
|      | Expenses(a)                               |                                             |   | 3,224  |        |   |   | 2,538  |        |   |        | 2,595 |       |   |   | 3,524   |       
|      | Other results from continuing operations  |                                             |   | (280   | )      |   |   | (37    | )      |   |        | 2,156 |       |   |   | 2,034   |       
|      | Income tax benefit                        |                                             |   | (215   | )      |   |   | (268   | )      |   |        | (248  | )     |   |   | (221    | )     
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Loss from continuing operations             |   |        | (3,289 | ) |   |        | (2,307 | ) |        |       | (191  | ) |   |         | (1,269 | )
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income from discontinued operations       |                                             |   | 314    |        |   |   | 392    |        |   |        | 363   |       |   |   | 325     |       
|      | Gain from discontinued operations         |                                             |   |       |        |   |   |       |        |   |        |      |       |   |   |        |       
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income from discontinued operations       |                                             |   | 314    |        |   |   | 392    |        |   |        | 363   |       |   |   | 325     |       
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Net income (loss)(b)                      |                                             | $ | (2,975 | )      |   | $ | (1,915 | )      |   | $      | 172   |       |   | $ | (944    | )     
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income (loss) per Common Share (Basic):   |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |         |       
|      |                                           | Loss from continuing operations(b)          |   | $      | (0.14  | ) |   | $      | (0.11  | ) |        | $     | (0.01 | ) |   | $       | (0.05  | )
|      |                                           | Discontinued operations                     |   |        | 0.01   |   |   |        | 0.02   |   |        |       | 0.02  |   |   |         | 0.01   |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Net income (loss)(b)                        |   | $      | (0.13  | ) |   | $      | (0.09  | ) |        | $     | 0.01  |   |   | $       | (0.04  | )
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      | Income (loss) per Common Share (Diluted): |                                             |   |        |        |   |   |        |        |   |        |       |       |   |   |         |       
|      |                                           | Loss from continuing operations(b)          |   | $      | (0.14  | ) |   | $      | (0.11  | ) |        | $     | (0.01 | ) |   | $       | (0.05  | )
|      |                                           | Discontinued operations                     |   |        | 0.01   |   |   |        | 0.02   |   |        |       | 0.02  |   |   |         | 0.01   |  
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      
|      |                                           | Net income (loss)(b)                        |   | $      | (0.13  | ) |   | $      | (0.09  | ) |        | $     | 0.01  |   |   | $       | (0.04  | )
|      |                                           |                                             |   |        |        |   |   |        |        |   |        |      






|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(a) | Includes minority interests in results from operations of
    consolidated subsidiaries.



|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) | The sum of quarterly income (loss) per share may not equal
    income (loss) per share for the year because the per share data
    for each quarter and for the year is independently computed.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(c) | Fourth quarter 2004 income from continuing operations included a
    $2,150 charge for the settlement of a stockholder derivative
    suit and a $9,000 income tax benefit related to the recognition
    of deferred tax assets of $9,000 based upon managements
    belief that it is more likely than not such deferred tax assets
    will be realized based on a projection of taxable income for
    2005. Fourth quarter 2004 income from discontinued operations
    included a gain of $5,927, net of income taxes of $4,048,
    related to the adjustment of accruals previously established
    during New Valleys bankruptcy proceedings in 1993 and
    1994. The adjustment to these accruals reduced various tax and
    bankruptcy accruals and was made due to the completion of
    settlements related to these matters. The adjustment of these
    accruals is classified as a gain on disposal of discontinued
    operations since the original establishment of such accruals was
    similarly classified as a reduction of gain on disposal of
    discontinued operations.

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SCHEDULE III


NEW VALLEY CORPORATION


REAL ESTATE AND ACCUMULATED DEPRECIATION


As of December 31, 2004


(Amounts in thousands)


|                  |                       |              |   |              |        |      |             |          |       |                      |           |        |        |  |   |              |   |  |       |       |       |              |   |        |             |  |   |          |        |  |      |       |       |  |  |      |  |  |  |          |  |  |  |    |  | 
|----------------- | --------------------- | ------------ | - | ------------ | ------ | ---- | ----------- | -------- | ----- | -------------------- | --------- | ------ | ------ |  | - | ------------ | - |  | ----- | ----- | ----- | ------------ | - | ------ | ----------- |  | - | -------- | ------ |  | ---- | ----- | ----- |  |  | ---- |  |  |  | -------- |  |  |  | -- |  | 
|                  |                       |              |   |              |        |      |             |          |       | Gross Amount Carried |           |        |        |  |   |              |   |  |      
|                  |                       |              |   |              |        |      |             |          |       | At Close of Period   |           |        |        |  |   |              |   |  |      
|                  |                       |              |   |              |        | Cost |             |          |       |                      |           |        |        |  |   |              |  
|                  |                       |              |   | Initial Cost |        |      | Capitalized |          |       |                      | Buildings |        |        |  |   |              |   |  |       |       |       |             
|Description       |                       |              |   |              |        |      | Net of      |          |       |                      | and       |        |        |  |   | Accumulated  |   |  | Date  |       |       | Date         |   |        | Depreciable | 
|And Location      |                       | Encumbrances |   |              | Land   |      |             | Building |       |                      | Deletions |        | Land   |  |   | Improvements |   |  | Total |       |       | Depreciation |   |        | Constructed |  |   | Acquired |        |  | Life |      
|                  |                       |              |   |              |        |      |             |          |       |                      |           |        |        |  |   |              |   |  |       |       |       |              |   |        |             |  |   |          |        |  |      |      
|Office Buildings: |                       |              |   |              |        |      |             |          |       |                      |           |        |        |  |   |              |   |  |       |       |       |              |   |        |             |  |   |          |        |  |      |       |       |  |  |      |  |  |  |          |  |  |  |   
|                  | 100 College Road West |              | $ | 26,784       |        |      | $           | 5,219    |       |                      | $         | 31,842 |        |  | $ |             |   |  | $     | 5,219 |       |              | $ | 31,842 |             |  | $ | 37,061   |        |  | $    | 1,667 |       |  |  | 2000 |  |  |  | Dec 2002 |  |  |  | 39 | 
|                  | 150 College Road West |              |   | 12,429       |        |      |             | 2,417    |       |                      |           | 14,780 |        |  |   |             |   |  |       | 2,417 |       |              |   | 14,780 |             |  |   | 17,197   |        |  |      | 774   |       |  |  | 2001 |  |  |  | Dec 2002 |  |  |  | 39 | 
|                  |                       |              |   |              |        |      |             |          |       |                      |           |        |        |  |   |              |   |  |       |       |       |              |   |        |             |  |   |          |        |  |      |       |      
|                  |                       | Total        |   | $            | 39,213 |      |             | $        | 7,636 |                      |           | $      | 46,622 |  |   | $            |  |  |       | $     | 7,636 |              |   | $      | 46,622      |  |   | $        | 54,258 |  |      | $     | 2,441 |  |  |      |  |  |  |          |  |  |  |    |  | 
|                  |                       |              |   |              |        |      |             |          |       |                      |           |        |        |  |   |              |   |  |       |       |       |              |   |        |             |  |   |          |        |  |      |       |      

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SCHEDULE III


NEW VALLEY CORPORATION


REAL ESTATE AND ACCUMULATED DEPRECIATION


For the three years ended December 31, 2004


(Amounts in thousands)


Reconciliation of Carrying Costs and Accumulated
Deprecation


|                             |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |       |       | 
|---------------------------- | ------------------------ | --------------- | ------ | ------------- | ------------ | - | ------ | ------ | ----------- | - | ------------ | ------ | ------ | - | ----- | ----- | ----- | 
|                             |                          |                 |        | Buildings and |              |   |        |        | Accumulated |  
|                             |                          | Land            |        |               | Improvements |   |        | Total  |             |   | Depreciation |       
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Balance at January 1, 2002   |                          | $               | 39,937 |               |              | $ | 11,198 |        |             | $ | 51,135       |        |        | $ | 2,148 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Additions during period:     |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |      
|                             | Other acquisitions       |                 |        | 7,636         |              |   |        | 46,622 |             |   |              | 54,258 |        |   |       |      |      
|                             | Improvements, etc        |                 |        | 687           |              |   |        |       |             |   |              | 687    |        |   |       |      |      
|                             | Reclassifications        |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Depreciation expense     |                 |        |              |              |   |        |       |             |   |              |       |        |   |       | 2,123 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|                             |                          | Total Additions |        |               | 8,323        |   |        |        | 46,622      |   |              |        | 54,945 |   |       |       | 2,123 | 
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Deductions during period:    |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |      
|                             | Cost of real estate sold |                 |        | 40,624        |              |   |        | 11,198 |             |   |              | 51,822 |        |   |       | 4,221 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Balance at December 31, 2002 |                          | $               | 7,636  |               |              | $ | 46,622 |        |             | $ | 54,258       |        |        | $ | 50    |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Additions during period:     |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |      
|                             | Other acquisitions       |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Improvements, etc        |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Reclassifications        |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Depreciation expense     |                 |        |              |              |   |        |       |             |   |              |       |        |   |       | 1,196 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|                             |                          | Total Additions |        |               |             |   |        |        |            |   |              |        |       |   |       |       | 1,196 | 
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Deductions during period:    |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |      
|                             | Cost of real estate sold |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Balance at December 31, 2003 |                          | $               | 7,636  |               |              | $ | 46,622 |        |             | $ | 54,258       |        |        | $ | 1,246 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Additions during period:     |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |      
|                             | Other acquisitions       |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Improvements, etc        |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Reclassifications        |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             | Depreciation expense     |                 |        |              |              |   |        |       |             |   |              |       |        |   |       | 1,195 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|                             |                          | Total Additions |        |               |             |   |        |        |            |   |              |        |       |   |       |       | 1,195 | 
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Deductions during period:    |                          |                 |        |               |              |   |        |        |             |   |              |        |        |   |       |      
|                             | Cost of real estate sold |                 |        |              |              |   |        |       |             |   |              |       |        |   |       |      |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       
|Balance at December 31, 2004 |                          | $               | 7,636  |               |              | $ | 46,622 |        |             | $ | 54,258       |        |        | $ | 2,441 |      
|                             |                          |                 |        |               |              |   |        |        |             |   |              |       

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##### Table of Contents






SIGNATURES






| |                       
| | ----------------------
| | NEW VALLEY CORPORATION
|
| | (REGISTRANT)          



| |     |                           
| | --- | --------------------------
| | By: | /s/ J. Bryant Kirkland III

| |                            
| | ---------------------------
| |                            
| | J. Bryant Kirkland III     
| | Vice President, Treasurer  
| | and Chief Financial Officer



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##### Table of Contents



POWER OF ATTORNEY






|                                                         |  |                                                                                                                         
|-------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------
|Signature                                                |  | Title                                                                                                                   
|                                                         |  |                                                                                                                         
|                                                        
|/s/ Bennett S. LeBowBennett
    S. LeBow                 |  | Chairman of the Board and Chief Executive Officer (Principal
    Executive Officer)                                     
|                                                        
|/s/ J. Bryant Kirkland
    IIIJ.
    Bryant Kirkland III |  | Vice President, Treasurer and Chief Financial Officer (Principal
    Financial Officer and Principal Accounting Officer)
|                                                        
|/s/ Henry C. BeinsteinHenry
    C. Beinstein             |  | Director                                                                                                                
|                                                        
|/s/ Arnold I. BurnsArnold
    I. Burns                   |  | Director                                                                                                                
|                                                        
|/s/ Ronald J. KramerRonald
    J. Kramer                 |  | Director                                                                                                                
|                                                        
|/s/ Richard J. LampenRichard
    J. Lampen               |  | Director                                                                                                                
|                                                        
|/s/ Howard M. LorberHoward
    M. Lorber                 |  | Director                                                                                                                
|                                                        
|/s/ Barry W. RidingsBarry
    W. Ridings                 |  | Director                                                                                                                
|                                                        
|/s/ Victor M. RivasVictor
    M. Rivas                   |  | Director                                                                                                                

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