<PAGE>   1
                                                                     Exhibit 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS


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Getty Petroleum     OVERVIEW AND OUTLOOK
Marketing Inc.      Getty Petroleum Marketing Inc., a Maryland corporation (the
and Subsidiaries    "Company"), was formed on October 1, 1996 as a wholly-owned
                    subsidiary of Getty Petroleum Corp., the successor to which
                    is now known as Getty Realty Corp. ("Realty"). Realty
                    separated its petroleum marketing business from its real
                    estate business with each business to be conducted by a
                    separate, New York Stock Exchange listed company. In order
                    to effect the separation of these businesses, Realty
                    transferred to the Company the assets and liabilities of its
                    petroleum marketing business and the New York Mid-Hudson
                    Valley heating oil business, and on March 21, 1997
                    distributed all of the common shares of the Company to the
                    stockholders of Realty.

                         The Company is one of the nation's largest independent
                    marketers of petroleum products. It distributes, markets and
                    sells gasoline and diesel fuel to the general public through
                    a network of 1,263 Getty and other branded retail outlets
                    located in 12 Northeastern and Middle-Atlantic states,
                    certain of which also have convenience food stores. The
                    Company also sells gasoline, fuel oil, diesel fuel and
                    kerosene in truckload and barge quantities on a wholesale
                    basis. The Company purchases its gasoline, fuel oil and
                    related petroleum products from a number of Northeast and
                    Middle-Atlantic suppliers. These products are delivered by
                    cargo ship, barge, pipeline and truck to the Company's 10
                    storage and distribution terminals and bulk plants, all of
                    which are located in the Company's distribution region. The
                    Company distributes and markets its products to retail
                    outlets through its distribution network, its truck
                    transportation fleet and also through common carriers. The
                    Company engages in activities such as negotiating the prices
                    and terms in connection with the purchase of petroleum
                    products, developing the prices, terms and methods of
                    selling the products to its customers, monitoring
                    compliance by the service station and convenience store
                    operators with its retail standards program and providing
                    marketing services to the operators.

                         The Company also derives revenues from its heating oil
                    business, which involves the purchase, storage,
                    transportation and sale of fuel oil, kerosene and propane,
                    and oil burner and related services to residential and
                    commercial customers in the New York Mid-Hudson Valley
                    region.

                         Petroleum products are commodities whose prices depend
                    on numerous factors beyond the Company's control including
                    global, national and regional factors and, accordingly, such
                    prices may vary substantially over time. From time to time,
                    competitive market conditions may limit the Company's
                    ability to pass on to its customers large, rapid changes in
                    the price the Company pays for its products and,
                    accordingly, its operating margins may vary substantially.
                    Because the Company's operating margins may vary
                    significantly from time to time while certain of its
                    expenses do not, its earnings may fluctuate substantially.

                    RESULTS OF OPERATIONS
                    Fiscal year ended January 31, 1999 compared to fiscal year 
                    ended January 31, 1998 

                         Sales and operating revenues for the year ended January
                    31, 1999 ("fiscal 1999") were $660.8 million as compared
                    with $891.1 million for the year ended January 31, 1998
                    ("fiscal 1998"). The 25.9% decrease in sales and operating
                    revenues was primarily due to a 19.2% decrease in sales
                    prices and a 9.5% decrease in sales volume. Total gallonage
                    sold in fiscal 1999 decreased by 101.3 million gallons to
                    959.2 million gallons, primarily because of the termination
                    of a wholesale supply contract as of December 31, 1997.
                    Wholesale gallonage sold decreased by 134.8 million gallons
                    or 57.9% to 98.1 million gallons and heating oil decreased
                    by 2.7 million gallons or 10.3% to 24.0 million gallons,
                    principally due to warmer weather. These gallonage declines
                    were partially offset by an increase in retail gallonage
                    sold of 36.2 million gallons or 4.5% to 837.2 million
                    gallons. The average gasoline volume per retail outlet
                    decreased by 0.6% to 770,000 gallons per outlet.

                         Gross profit before depreciation and amortization was
                    $36.6 million for fiscal 1999 as compared to $43.9 million
                    in fiscal 1998. The $7.3 million decrease was principally
                    due to a decrease in retail product margins of approximately
                    0.4 cents per gallon which resulted in a reduction of $3.5
                    million of gross profit. In addition, gross profit declined
                    due to $2.2 million of higher environmental and maintenance
                    expenses during the current year and a LIFO benefit of $2.5
                    million which was recorded during the prior year.

                         The Company's financial results have depended largely
                    on retail marketing margins and rental income from its
                    dealers. The petroleum marketing industry has been and
                    continues to be volatile and highly competitive. The cost of
                    petroleum products purchased as well as the price of
                    petroleum products sold have fluctuated widely. As a result
                    of the historic volatility of product margins and the fact
                    that they are affected by numerous diverse factors, it is
                    not possible to predict with any degree of accuracy future
                    product margin levels. However, the Company believes that it
                    has only been modestly affected by inflation since increased
                    costs are passed along to its customers to the extent
                    permitted by competition.

                         Other income was $1.5 million in fiscal 1999 as
                    compared to $1.7 million for fiscal 1998. The decrease was
                    primarily due to a $0.2 million legal charge related to the
                    Company's Mount Vernon terminal.

                         Selling, general and administrative expenses amounted
                    to $20.0 million for fiscal 1999, a decrease of $5.8 million
                    or 22.4% from the $25.8 million for fiscal 1998. The
                    decrease was primarily due to a stock compensation credit of
                    $2.1 million recorded during fiscal 1999 and a charge of
                    $4.2 million recorded during fiscal 1998 for stock
                    compensation resulting from changes in the Company's stock
                    prices during the respective periods.


                                                                              9



<PAGE>   2



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Continued

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Getty Petroleum          Depreciation and amortization was $15.9 million for
Marketing Inc.      fiscal 1999 as compared with $13.6 million for fiscal 1998.
and Subsidiaries    The increase was due to higher depreciation as a result of
                    additions to equipment and improvements to facilities.

                         Interest expense of $0.9 million in fiscal 1999
                    increased by $0.1 million over fiscal 1998 interest expense
                    of $0.8 million, primarily due to interest on higher dealer
                    security deposits.

                         Severance charges of $0.2 million were recorded during
                    fiscal 1999 in connection with a work force reduction of six
                    employees and $2.2 million were recorded during fiscal 1998
                    related to the resignations of two Company officers. 

                         A "change of control" charge of $0.6 million was
                    recorded during fiscal 1998 in connection with the spin-off.

                         Pre-tax earnings for fiscal 1999 were $1.1 million,
                    comprised of a pre-tax loss of $0.4 million from the
                    petroleum marketing business and pre-tax earnings of $1.5
                    million from the Company's heating oil business. For fiscal
                    1998, pre-tax earnings were $2.6 million, comprised of $0.8
                    million of pre-tax earnings from the petroleum marketing
                    business and $1.8 million from the Company's heating oil
                    business.

                         For fiscal 1999, the Company had net earnings of $0.6
                    million or $.04 per diluted share as compared with $1.2
                    million or $.09 per diluted share for the prior fiscal year.

                    Fiscal year ended January 31, 1998 compared to fiscal year
                    ended January 31, 1997

                         Sales and operating revenues for fiscal 1998 were
                    $891.1 million as compared with $888.4 million for the year
                    ended January 31, 1997 ("fiscal 1997"). The 0.3% increase in
                    sales and operating revenues for fiscal 1998 was primarily
                    due to an increase in sales volume, partially offset by a
                    decrease in sales prices. Retail gallonage sold increased by
                    32.6 million gallons or 4.2% to 800.9 million gallons,
                    partially offset by a 5.1 million gallon or 2.1% decrease in
                    wholesale gallonage sold to 232.8 million gallons, and a
                    decrease in average selling prices of 2.2%. During fiscal
                    1998, the average gasoline volume per retail outlet
                    increased by 3.5% to 775,000 gallons per outlet.

                         Gross profit before depreciation and amortization was
                    $43.9 million for fiscal 1998 compared to $9.2 million in
                    fiscal 1997. This $34.7 million increase was principally due
                    to a $21.2 million pre-tax charge recorded in the fourth
                    quarter of fiscal 1997 related to a revision of the
                    Company's estimated future environmental costs (see
                    "Environmental Matters"). During fiscal 1998, the Company's
                    increased retail sales volume of 32.6 million gallons added
                    $3.1 million in gross profit while higher retail product
                    margins of approximately 0.8 cents per gallon generated $6.1
                    million of additional gross profit. In addition, the Company
                    recorded a LIFO benefit of $2.5 million during fiscal 1998,
                    reversing a LIFO charge of $2.5 million which was recorded
                    during fiscal 1997.

                         Other income was $1.7 million in fiscal 1998 as
                    compared to $0.2 million for fiscal 1997. The increase was
                    primarily due to $1.0 million of net fees received from
                    Realty under an administrative services agreement and $0.5
                    million of additional investment income.

                         Selling, general and administrative expenses amounted
                    to $25.8 million for fiscal 1998, an increase of $5.5
                    million or 27.0% over the $20.3 million for fiscal 1997. The
                    increase was primarily due to $4.2 million of stock
                    compensation expense resulting from appreciation of the
                    Company's stock price during fiscal 1998 and $0.6 million
                    relating to the Company's Employee Stock Ownership Plan.

                         Depreciation and amortization was $13.6 million for
                    fiscal 1998, which was comparable to the $13.9 million
                    expense for fiscal 1997.

                         Interest expense of $0.8 million in fiscal 1998
                    increased by $0.4 million over fiscal 1997 interest expense
                    of $0.4 million, primarily due to interest on higher dealer
                    security deposits.

                         A severance charge of $2.2 million was recorded during
                    fiscal 1998 relating to the resignations of the Company's
                    Senior Vice President and Chief Operating Officer and the
                    Vice President of Marketing.

                         A "change of control" charge of $.6 million was
                    recorded during fiscal 1998 in connection with the spin-off.

                    LIQUIDITY AND CAPITAL RESOURCES
                    As of January 31, 1999, the Company had a working capital
                    deficit of $2.5 million as compared to positive working
                    capital of $5.8 million as of January 31, 1998. The decrease
                    in working capital was primarily due to $21.5 million of
                    capital expenditures and $3.8 million of acquisitions,
                    partially offset by working capital generated during the
                    year from operations. The Company is able to operate its
                    business with negative working capital, principally because
                    most sales are for cash and payment terms have been received
                    from vendors and for gasoline taxes.

                         The Company's principal source of liquidity is its cash
                    flows from operations, which amounted to $18.9 million
                    during the fiscal year ended January 31, 1999. Management
                    believes that cash requirements for operations, including
                    rental payments required under the master lease with Realty
                    and capital expenditures, can be met by cash flows from
                    operations, cash and equivalents and credit lines. The
                    Company has uncommitted lines of credit with three banks in
                    the aggregate amount of $60 million, which may be utilized
                    for working capital borrowings and letters of credit. As of
                    January 31, 1999, $1.9 million of the lines of credit were
                    utilized for short-term borrowings and $2.0 million were
                    utilized in connection with outstanding letters of credit to
                    support the Company's insurance programs. Borrowings under
                    the lines of credit are unsecured and principally bear
                    interest at the applicable bank's prime rate or, at the
                    Company's option, 1.1% above LIBOR. The lines of credit are
                    subject to renewal at the discretion of the banks.


10



<PAGE>   3


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                         During fiscal 1999, the Company experienced product
                    cost decreases of approximately 16 cents per gallon which
                    resulted in lower sales prices to customers and lower
                    accounts receivable balances as compared to January 31,
                    1998. In addition, the Company's inventory and accounts
                    payable balances decreased as of January 31, 1999, in
                    comparison to the prior fiscal year end, principally due to
                    the product cost declines.

                         As of January 31, 1999, the Company leased 1,013 retail
                    outlets and 10 terminal facilities from Realty under a
                    master lease agreement. The annual rental expense under the
                    master lease for fiscal 1999 was $56.4 million.

                         The Company's capital expenditures for the fiscal years
                    ended January 31, 1999, 1998 and 1997 amounted to $21.5
                    million, $19.1 million and $17.8 million, respectively,
                    which included $10.0 million for the replacement of
                    underground storage tanks ("USTs") in 1997. The Company's
                    capital expenditures include discretionary expenditures to
                    improve the image of the retail outlets, to improve the
                    terminal facilities and for routine replacement of service
                    station equipment at existing and newly acquired locations.
                    In accordance with the master lease agreement and the
                    reorganization and distribution agreement with Realty
                    pursuant to which the spin-off was effected, commencing
                    February 1, 1997, expenditures with respect to tank
                    replacements required to meet the 1998 federal standards
                    have remained the responsibility of, and will be paid by,
                    Realty.

                         In addition, during fiscal 1999, the Company expended
                    $2.1 million related to the acquisition of a heating oil
                    business and $1.7 million for improvements to 21 additional
                    properties which the Company commenced leasing in the last
                    quarter of fiscal 1999.

                    ENVIRONMENTAL MATTERS
                         The petroleum products industry is subject to numerous
                    existing federal, state and local laws and regulations,
                    including matters relating to the protection of the
                    environment. Environmental expenses have been attributable
                    to remediation, monitoring, soil disposal and governmental
                    agency reporting (collectively, "Remediation Costs")
                    incurred in connection with contaminated sites and the
                    replacement or upgrading of USTs to meet federal, state and
                    local environmental standards, as well as routine monitoring
                    and tank testing. Environmental exposures are difficult to
                    assess and estimate for numerous reasons, including the
                    extent of contamination, alternative treatment methods that
                    may be applied, location of the property which subjects it
                    to differing local laws and regulations and their
                    interpretations, as well as the time it takes to remediate
                    contamination. In developing the estimates of environmental
                    remediation costs, consideration is given to, among other
                    things, enacted laws and regulations, assessments of
                    contamination, currently available technologies for
                    treatment, alternative methods of remediation and prior
                    experience. Estimates of such costs are subject to change as
                    contingencies become more clearly defined and remediation
                    treatment progresses. For the fiscal years ended January 31,
                    1999, 1998 and 1997, environmental expenses included in the
                    Company's cost of sales and operating expenses amounted to
                    $2,774,000, $1,375,000 and $22,822,000, respectively, of
                    which $21,182,000 was paid by Realty in fiscal 1997.

                         Under the master lease, Realty committed to a program
                    to bring the leased properties requiring remediation to
                    regulatory closure and, thereafter, transfer all future
                    environmental risks from Realty to the Company. Upon
                    achieving closure of each individual site, Realty's
                    environmental liability under the master lease for that site
                    will be satisfied, and future remediation obligations will
                    be the responsibility of the Company. In order to establish
                    the Remediation Costs obligation and estimate the
                    incremental cost of accelerated remediation, the Company and
                    Realty commissioned a detailed property-by-property
                    environmental study of all retail outlets, with the
                    objective of achieving closure in approximately five years.
                    This acceleration program, utilizing new, more effective
                    remediation techniques, resulted in a substantial increase
                    in environmental costs over those that had been previously
                    identified and accrued, as the acceleration program
                    contemplated the use of additional active remediation
                    systems at many sites in lieu of relying on periodic
                    monitoring and natural attenuation permitted by applicable
                    environmental regulations. As a result, the Company revised
                    its estimate of future Remediation Costs in the fourth
                    quarter of fiscal 1997 and recorded a pre-tax charge in such
                    quarter for Remediation Costs of $21.2 million. The pre-tax
                    charge resulted from the acceleration of remediation
                    activities to be paid by Realty through more aggressive
                    means of treating contaminated sites to bring them to
                    closure in approximately five years, which resulted in
                    significant incremental Remediation Costs, changes in
                    estimated Remediation Costs at previously identified
                    properties, including costs to be incurred in connection
                    with UST upgrades, and additional charges to comply with
                    AICPA Statement of Position 96-1, "Environmental Remediation
                    Liabilities."

                         Realty has agreed to pay all costs relating to, and to
                    indemnify the Company for, all scheduled known pre-spin-off
                    environmental liabilities and obligations, all scheduled
                    upgrades necessary to cause USTs to conform to the 1998
                    federal standards, and all environmental liabilities and
                    obligations arising out of discharges with respect to
                    properties containing USTs that have not been upgraded to
                    meet the 1998 federal standards that are discovered prior to
                    the date such USTs are upgraded to meet the 1998 federal
                    standards (collectively, the "Realty Environmental
                    Liabilities"). Realty will also collect recoveries from
                    state UST remediation funds related to Realty Environmental
                    Liabilities.

                         The Company has not reflected a liability for the
                    Realty Environmental Liabilities in its consolidated balance
                    sheet since Realty remains the primary obligor for such
                    liabilities. The liabilities, which were initially recorded
                    in the Company's balance sheet, were subsequently
                    capitalized into stockholders' equity as a contribution to
                    capital by Realty to the Company.


                                                                             11



<PAGE>   4


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

Continued

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Getty Petroleum     In the unlikely event that Realty fails to remediate a
Marketing Inc.      contaminated property and the Company is held jointly and
and Subsidiaries    severally responsible for the Remediation Costs, Realty is
                    obligated to indemnify the Company, and any Remediation
                    Costs paid by the Company will be offset against the
                    Company's rental obligations under the master lease. Because
                    of such rental offset, it is remote that the Company would
                    incur any incremental costs in connection with any such
                    remediation.

                         The Company will be responsible for, and will indemnify
                    Realty with respect to, all environmental obligations and
                    liabilities other than the Realty Environmental Liabilities.
                    As of January 31, 1999 and 1998, the Company had accrued
                    $1,415,000 and $442,000, respectively, as management's best
                    estimate for environmental remediation costs. In view of the
                    uncertainties associated with environmental expenditures,
                    however, the Company believes it is possible that such
                    expenditures could be substantially higher. Any additional
                    amounts will be reflected in the Company's financial
                    statements as they become known. Although future
                    environmental expenditures may have a significant impact on
                    results of operations for any single fiscal year or interim
                    period, the Company believes that such costs will not have a
                    material adverse effect on the Company's financial position.

                         The Company cannot predict what environmental
                    legislation or regulations may be enacted in the future or
                    how existing laws or regulations will be administered or
                    interpreted with respect to products or activities to which
                    they have not previously been applied. Compliance with more
                    stringent laws or regulations as well as more vigorous
                    enforcement policies of the regulatory agencies or stricter
                    interpretation of existing laws which may develop in the
                    future, could have an adverse effect on the financial
                    position or operations of the Company and could require
                    substantial additional expenditures for future remediation
                    or the installation and operation of required environmental
                    or pollution control systems and equipment.

                    TERMINATION OF WHOLESALE SUPPLY CONTRACT
                         On December 31, 1997, the leases and supply contract
                    with Uni-Marts, Inc. were terminated. As a result of the
                    termination of the supply contract pursuant to which the
                    Company previously supplied an additional 190 Uni-Marts
                    controlled locations, the Company's sales of petroleum
                    products were reduced by approximately 84 million gallons
                    per annum, or about 8% of the Company's total annual volume
                    from fiscal 1998. Product sales to Uni-Marts had been on a
                    lower margin, wholesale basis, and the loss of sales volume
                    was substantially offset in fiscal 1999 by higher retail
                    margin sales at the Getty-controlled locations previously
                    leased to Uni-Marts. The termination of the Uni-Marts
                    leases, however, negatively affected the Company's results
                    of operations for fiscal 1999 by approximately $4.0 million
                    in comparison to fiscal 1998 due to higher maintenance
                    charges, lower rental income received as a result of the
                    Company's decision to divest, temporarily close or Company
                    operate certain locations and higher depreciation charges
                    related to equipment purchased and capital improvements made
                    to the locations.

                         On January 30, 1998, the Company purchased, for
                    investment purposes, 487,000 shares or approximately 7.3% of
                    Uni-Marts, Inc. Common Stock for $1,461,000, all of which
                    was funded by available cash. As of January 31, 1999 and
                    1998, the fair market value of such shares recorded in the
                    Company's consolidated balance sheets was $1,339,000 and
                    $1,705,000, respectively.

                    YEAR 2000
                    The Year 2000 issue has arisen because for many years some
                    computer software programs and systems have utilized only
                    two digits to specify the year. As a result, these programs
                    and systems may not be able to recognize and process dates
                    beyond 1999, which may cause these programs to malfunction
                    or not be able to accurately process information.

                         The Company has implemented a Year 2000 program for its
                    internal systems and equipment relating to its information
                    technology systems and non-information technology systems
                    which has four phases: (1) identification; (2) assessment;
                    (3) remediation (including modification, upgrading and
                    replacement); and (4) testing. The identification and
                    assessment phases for all of the Company's significant
                    internal business systems and equipment are complete. Of the
                    information technology systems that require modification,
                    approximately 90% have been remediated as of January 31,
                    1999. The remediation phase is expected to be completed in
                    April 1999. Most of the remediation phase consists of
                    modifying existing systems and programs. Testing of systems
                    and programs following remediation is expected to be
                    completed by July 31, 1999.

                         The Company is also reviewing the Year 2000 readiness
                    of third parties who provide goods or services which are
                    essential to the Company's operations, such as the parties
                    who provide banking services, credit card processing and
                    product suppliers. The Company has initiated formal
                    communications with significant third parties in order to
                    determine the extent to which the Company is vulnerable to
                    any failure by such third parties to remediate their
                    respective Year 2000 problems and resolve such problems to
                    the extent practicable.

                         The Company is developing a contingency plan to address
                    issues specific to the Year 2000 problem. The Plan is
                    expected to include performing certain processes manually,
                    obtaining replacement systems, changing suppliers where
                    necessary as well as other appropriate measures.

                         The Company's senior management and the Board of
                    Directors receive regular updates on the status of the
                    Company's Year 2000 program. The Company does not expect the
                    cost of these Year 2000 efforts to be material since the
                    Company believes the majority of the compliance costs have
                    been, and will continue to be, funded by reallocating
                    existing internal resources rather than incurring
                    incremental costs.


12


<PAGE>   5


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                         The Year 2000 issue presents a number of risks and
                    uncertainties that could affect the Company, which include,
                    but are not limited to, the availability of qualified
                    personnel and other information technology resources; the
                    ability to identify and remediate all date sensitive lines
                    of computer code or to replace embedded computer chips in
                    affected systems or equipment; and the ability of third
                    parties to remediate their respective systems. The failure
                    to correct a material Year 2000 problem could result in an
                    interruption in, or a failure of, certain normal business
                    activities or operations. Such failures could materially and
                    adversely affect the Company's results of operations,
                    liquidity and financial condition. Due to the general
                    uncertainty inherent in the Year 2000 problem, resulting in
                    part from the uncertainty of the Year 2000 readiness of
                    third-party suppliers and customers, the Company is unable
                    to determine at this time whether the consequences of Year
                    2000 failures will have a material impact on the Company's
                    results of operations, liquidity or financial condition.

                    SPECIAL FACTORS REGARDING FORWARD-LOOKING STATEMENTS
                    Certain statements in this Annual Report may constitute
                    "forward-looking statements" within the meaning of the
                    Private Securities Litigation Reform Act of 1995. When used
                    herein, the words "believes", "expects", "plans",
                    "estimates" and similar expressions are intended to identify
                    forward-looking statements. Such forward-looking statements
                    involve known and unknown risks, uncertainties and other
                    factors which may cause the actual results, performance and
                    achievements of the Company to be materially different from
                    any future results, performance or achievements expressed or
                    implied by such forward-looking statements. These factors
                    include, but are not limited to: volatility of petroleum
                    marketing margins; maturity of the petroleum marketing
                    industry; the impact of economic growth, energy efficiency
                    and technology on demand for petroleum products; natural and
                    political events that may affect the supply of petroleum
                    products; competition; the effects of regulation; the
                    Company's expectations as to when it will complete the
                    remediation and testing phases of its Year 2000 program as
                    well as its Year 2000 contingency plan; the estimated cost
                    of achieving Year 2000 readiness; and the Company's belief
                    that its internal systems and equipment will be Year 2000
                    compliant in a timely manner.




SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>

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

Getty Petroleum 
Marketing Inc.                                                          For the years ended January 31,
and Subsidiaries    -----------------------------------------------------------------------------------------------------------
                    (in thousands, except per share amounts)   1999           1998           1997          1996          1995
                    -----------------------------------------------------------------------------------------------------------
                    <S>                                      <C>            <C>            <C>           <C>           <C>
                    OPERATIONS:
                    Revenues                                 $662,292       $892,843       $888,543      $791,194      $753,735
                    ===========================================================================================================
                    Net earnings (loss)                           566          1,181        (15,225)(a)     3,664(b)     (2,434)
                    ===========================================================================================================
                    Net earnings per share (c):
                      Basic                                       .04            .09
                      Diluted                                     .04            .09
                    ===========================================================================================================


                    FINANCIAL POSITION:
                    Total assets                              149,421        146,329        135,500       124,498       117,097
                    ===========================================================================================================
                    Stockholders' equity                       60,220         60,015         54,541        50,311        37,061
                    ===========================================================================================================
</TABLE>

                    (a) Includes after-tax charge of $12,323 related to revision
                        of estimate of future environmental costs.

                    (b) Includes after-tax charge of $282 from the cumulative
                        effect of adopting Statement of Financial Accounting
                        Standards No. 121, "Accounting for the Impairment of
                        Long-Lived Assets and for Long-Lived Assets to be 
                        Disposed Of."

                    (c) The Company was spun-off from Getty Realty Corp. on
                        March 21, 1997. Accordingly, per share amounts are not
                        presented for each of the three years ended January 31,
                        1997.


                                                                             13



<PAGE>   6


CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

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

Getty Petroleum                                                                              For the years ended January 31,
Marketing Inc.      ---------------------------------------------------------------------------------------------------------
and Subsidiaries    (in thousands, except per share amounts)                                 1999         1998         1997
                    ---------------------------------------------------------------------------------------------------------
                    <S>                                                                    <C>          <C>          <C>
                    Sales and operating revenues                                           $660,754     $891,109     $888,388
                    Other income                                                              1,538        1,734          155
                    ---------------------------------------------------------------------------------------------------------
                                                                                            662,292      892,843      888,543
                    ---------------------------------------------------------------------------------------------------------

                    Cost of sales and operating expenses 
                         (excluding depreciation and amortization)                          624,182      847,234      879,187
                    Selling, general and administrative expenses                             20,006       25,794       20,307
                    Depreciation and amortization                                            15,927       13,647       13,922
                    Interest expense                                                            909          786          426
                    Severance charges                                                           216        2,175           --
                    Change of control charge                                                     --          637           --
                    ---------------------------------------------------------------------------------------------------------
                                                                                            661,240      890,273      913,842
                    ---------------------------------------------------------------------------------------------------------

                    Earnings (loss) before provision (credit) for income taxes                1,052        2,570      (25,299)
                    Provision (credit) for income taxes                                         486        1,389      (10,074)
                    ---------------------------------------------------------------------------------------------------------

                    Net earnings (loss)                                                    $    566     $  1,181     $(15,225)
                    =========================================================================================================

                    Net earnings per share: 
                      Basic                                                                $    .04     $    .09
                      Diluted                                                              $    .04     $    .09
                    ---------------------------------------------------------------------------------------------------------
                    Weighted average shares outstanding: 
                      Basic                                                                  13,422       12,970
                      Diluted                                                                13,526       13,257
                    =========================================================================================================
</TABLE>

                    See accompanying notes. 


14


<PAGE>   7


CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

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

Getty Petroleum                                                                                  January 31,
Marketing Inc.      -----------------------------------------------------------------------------------------------
and Subsidiaries    (in thousands, except share data)                                         1999            1998
                    -----------------------------------------------------------------------------------------------
                    <S>                                                                      <C>           <C>
                    ASSETS:
                    Current assets: 
                         Cash and equivalents                                                $  6,169      $  9,798
                         Investments                                                            1,339         1,705
                         Accounts receivable, less allowance for doubtful accounts
                              of $901 in 1999 and $1,208 in 1998                                9,458        11,101
                         Inventories                                                           16,475        20,844
                         Deferred income taxes                                                  7,315         4,325
                         Prepaid expenses and other current assets                              2,886         2,663
                    -----------------------------------------------------------------------------------------------
                              Total current assets                                             43,642        50,436
                    Property and equipment, at cost, less accumulated 
                         depreciation and amortization                                        101,504        93,952
                    Other assets                                                                4,275         1,941
                    -----------------------------------------------------------------------------------------------
                              Total assets                                                   $149,421      $146,329
                    ===============================================================================================

                    LIABILITIES AND STOCKHOLDERS' EQUITY:
                    Current liabilities:
                         Short-term borrowings                                               $  1,900      $     --
                         Accounts payable                                                      16,781        19,308
                         Accrued expenses                                                      12,836        11,933
                         Gasoline taxes payable                                                13,560        13,039
                         Income taxes payable                                                   1,086           307
                    -----------------------------------------------------------------------------------------------
                              Total current liabilities                                        46,163        44,587
                    Deferred income taxes                                                      21,863        20,988
                    Other, principally deposits                                                21,175        20,739
                    -----------------------------------------------------------------------------------------------
                              Total liabilities                                                89,201        86,314
                    -----------------------------------------------------------------------------------------------

                    Commitments and contingencies (Notes 4 and 7)

                    Stockholders' equity:
                         Preferred stock, par value $.01 per share; 
                              authorized 10,000,000 shares for issuance in series 
                              (none of which is issued)                                            --            --
                         Common stock, par value $.01 per share; authorized 
                              30,000,000 shares; issued 13,945,156 at January 31, 1999
                              and 13,835,956 at January 31, 1998                                  139           138
                         Paid-in capital                                                       60,446        61,234
                         Retained earnings                                                      1,747         1,181
                         Unearned ESOP stock (425,155 shares at January 31, 1999 
                              and 559,415 shares at January 31, 1998)                          (2,041)       (2,685)
                         Accumulated other comprehensive earnings (loss)                          (71)          147
                    -----------------------------------------------------------------------------------------------
                              Total stockholders' equity                                       60,220        60,015
                    -----------------------------------------------------------------------------------------------
                              Total liabilities and stockholders' equity                     $149,421      $146,329
                    ===============================================================================================
</TABLE>

                    See accompanying notes
                                          
                                                                                
                                                                              15
<PAGE>   8


CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

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

Getty Petroleum                                                                              For the years ended January 31,
Marketing Inc.      ---------------------------------------------------------------------------------------------------------
and Subsidiaries    (in thousands)                                                           1999         1998         1997
                    ---------------------------------------------------------------------------------------------------------
                    <S>                                                                    <C>          <C>          <C>
                    CASH FLOWS FROM OPERATING ACTIVITIES:
                    Net earnings (loss)                                                    $    566     $  1,181     $(15,225)
                    Adjustments to reconcile net earnings (loss) to net cash 
                         provided by operating activities: 
                         Depreciation and amortization                                       15,927       13,647       13,922
                         Deferred income taxes                                               (1,967)      (2,099)       7,096
                         Stock option charge (credit)                                        (1,146)       2,029           --
                         ESOP charge                                                            645          593           --
                         Change of control charge                                                --          637           --
                         Gain on dispositions of property and equipment                        (317)         (26)         (72)
                    Changes in assets and liabilities, net of acquisitions:
                         Accounts receivable                                                  1,643        4,094       (3,001)
                         Inventories                                                          4,373       (4,900)       3,973
                         Prepaid expenses and other current assets                              207        2,919       (2,827)
                         Other assets                                                          (650)        (198)         257
                         Accounts payable, accrued expenses and gasoline taxes payable       (1,578)         165       (2,442)
                         Income taxes payable                                                   779          307           --
                         Other, principally deposits                                            436        3,527        3,371
                    ---------------------------------------------------------------------------------------------------------
                              Net cash provided by operating activities                      18,918       21,876        5,052
                    ---------------------------------------------------------------------------------------------------------

                    CASH FLOWS FROM INVESTING ACTIVITIES:
                         Capital expenditures                                               (21,492)     (19,105)     (17,839)
                         Acquisitions                                                        (3,840)          --           --
                         Investments                                                             --       (1,461)          --
                         Proceeds from dispositions of property and equipment                   527           84          173
                    ---------------------------------------------------------------------------------------------------------
                              Net cash used in investing activities                         (24,805)     (20,482)     (17,666)
                    ---------------------------------------------------------------------------------------------------------

                    CASH FLOWS FROM FINANCING ACTIVITIES:
                         Short-term borrowings                                                1,900           --           --
                         Stock options and common stock                                         358          887           --
                         Net cash transferred from Getty Realty Corp.                            --           --       19,455
                    ---------------------------------------------------------------------------------------------------------
                              Net cash provided by financing activities                       2,258          887       19,455
                    ---------------------------------------------------------------------------------------------------------
                    Net increase (decrease) in cash and equivalents                          (3,629)       2,281        6,841
                    Cash and equivalents at beginning of year                                 9,798        7,517          676
                    ---------------------------------------------------------------------------------------------------------
                    Cash and equivalents at end of year                                    $  6,169     $  9,798     $  7,517
                    =========================================================================================================
                    Supplemental disclosures of cash flow information 
                         Cash paid during the year for:
                              Interest                                                     $    704     $    390     $    426
                              Income taxes, net                                               1,674        2,739           --
</TABLE>


                    See accompanying notes. 

16



<PAGE>   9



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



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

Getty Petroleum     1. BASIS OF PRESENTATION
Marketing Inc.           Getty Petroleum Marketing Inc., a Maryland corporation
and Subsidiaries    (the "Company"), was formed on October 1, 1996 as a
                    (the "Company"), was formed on October 1, 1996 as a
                    wholly-owned subsidiary of Getty Petroleum Corp., the
                    successor to which is now known as Getty Realty Corp.
                    ("Realty"). Realty then separated its petroleum marketing
                    business from its real estate business and, on March 21,
                    1997, distributed all of the common shares of the Company to
                    the stockholders of Realty (the "Distribution").

                         For periods prior to the Distribution, the consolidated
                    financial statements of the Company contained herein have
                    been prepared on the basis that the assets and liabilities
                    of the petroleum marketing business were transferred using
                    historical carrying values as recorded by Realty, and the
                    Company's results of operations and cash flows were derived
                    from Realty's historical financial statements. Assets,
                    liabilities, revenues and expenses were specifically
                    identified as being related to either the business of the
                    Company or Realty, except that the Company's results of
                    operations included allocations of certain selling, general
                    and administrative expenses, namely employee benefits,
                    payroll taxes and travel and entertainment expenses. Such
                    allocations were generally based on number of personnel and
                    salaries specifically identified to the Company. Selling,
                    general and administrative expenses allocated to the Company
                    from Realty were $1,879,000 for the fiscal year ended
                    January 31, 1997. Management believes this allocation to be
                    reasonable. The financial information presented for periods
                    prior to the Distribution is not necessarily indicative of
                    the financial results that would have occurred had the
                    Company been operated as a separate, stand-alone entity
                    during such reporting periods.

                         As part of the separation of the petroleum marketing
                    business from the real estate business, the Company and
                    Realty entered into various agreements which addressed the
                    allocation of assets and liabilities between them and govern
                    future relationships, including a Reorganization and
                    Distribution Agreement, a Master Lease Agreement, a Tax
                    Sharing Agreement, a Services Agreement and a Trademark
                    License Agreement.

                         Under the terms of the Services Agreement, the Company
                    provides certain administrative and technical services to
                    Realty, and Realty provides certain limited services to the
                    Company. The net fees paid by Realty to the Company for
                    services performed (after deducting the fees paid by the
                    Company to Realty for services provided by Realty) were
                    $960,000 for each of the years ended January 31, 1999 and
                    1998, and are included in other income in the Company's
                    consolidated statements of operations.

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

                    2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

                    CONSOLIDATION: The consolidated financial statements include
                    the accounts of the Company and its wholly-owned
                    subsidiaries. The Company is principally engaged in the
                    marketing and distribution of petroleum products in 12
                    Northeastern and Middle-Atlantic states. All significant
                    intercompany accounts and transactions have been eliminated.

                    USE OF ESTIMATES: The financial statements have been
                    prepared in conformity with generally accepted accounting
                    principles and include amounts that are based on
                    management's best estimates and judgments. While all
                    available information has been considered, actual results
                    could differ from those estimates.

                    CASH AND EQUIVALENTS: The Company considers highly liquid
                    investments purchased with an original maturity of three
                    months or less to be cash equivalents.

                    INVESTMENTS: Investments, which consist of equity
                    securities, are all considered available-for-sale and are
                    carried at fair value, based on quoted market prices, with
                    unrealized gains or losses excluded from earnings and
                    reported as a separate component of stockholders' equity
                    until realized. During the years ended January 31, 1999 and
                    1998, net unrealized gains (losses) of ($218,000) and
                    $147,000, respectively, were reported as a separate
                    component of stockholders' equity (see Note 10).

                    Inventories: Inventories, primarily finished petroleum
                    products, are principally accounted for under the lower of
                    last-in, first-out ("LIFO") cost or market. The Company
                    enters into product exchange agreements with various
                    parties to improve its supply logistics and reduce its
                    delivery costs. Net product exchange positions with other
                    companies are reflected in inventory and are generally
                    immaterial. The Company may take positions in the futures
                    market as part of its overall purchasing strategy in order
                    to reduce the risk associated with price fluctuations. Gains
                    and losses on futures contracts are included as a part of
                    product costs and have been 


                                                                             17


<PAGE>   10



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Continued


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

                    immaterial for each of the three years in the period ended
                    January 31, 1999. As of January 31, 1999 and 1998,
                    outstanding futures contracts were immaterial.

                    PROPERTY AND EQUIPMENT: Expenditures for renewals and
                    betterments are capitalized; maintenance and repairs are
                    charged to income when incurred. When property and equipment
                    is sold or retired, the cost and related accumulated
                    depreciation and amortization are eliminated from the
                    respective accounts and any gain or loss is credited or
                    charged to income.

                    Depreciation and Amortization: Depreciation of property and
                    equipment is computed on the straight-line method based upon
                    the estimated useful lives of the assets. Leasehold
                    improvements are amortized on the straight-line method over
                    the shorter of the term of the lease or the useful life of
                    the related asset.

                    Insurance: The Company is self-insured for workers'
                    compensation, general liability and vehicle liability up to
                    predetermined amounts above which third-party insurance
                    applies. Accruals are based on the Company's claims
                    experience and actuarial assumptions followed in the
                    insurance industry. Due to uncertainties inherent in the
                    estimation process, actual losses could differ from accrued
                    amounts.

                    ENVIRONMENTAL COSTS: The estimated future costs for known
                    environmental remediation requirements are accrued when it
                    is probable that a liability has been incurred and the
                    amount of remediation costs can be reasonably estimated.
                    Recoveries of environmental costs, principally from state
                    underground storage tank remediation funds, are accrued as
                    income when such recoveries are considered probable. Such
                    accruals are adjusted as further information develops or
                    circumstances change.

                    INCOME TAXES: Deferred income taxes are provided for the
                    effect of items which are reported for income tax purposes
                    in years different from that in which they are recorded for
                    financial statement purposes.

                    REVENUE RECOGNITION: Revenue is recognized from sales when
                    product ownership is transferred to the customer and from
                    rentals as earned.

                    EARNINGS PER SHARE: Basic earnings per share is computed by
                    dividing net earnings by the weighted average number of
                    shares of common stock outstanding during the year. Diluted
                    earnings per share reflects the potential dilution from the
                    exercise of stock options in the amounts of 104,000 and
                    287,000 shares for the years ended January 31, 1999 and
                    1998, respectively. There are no earnings per share amounts
                    presented for periods prior to the Distribution.

                    ACCOUNTING CHANGES: In fiscal 1999, the Company adopted
                    Statement of Financial Accounting Standards ("SFAS") No.
                    130, "Reporting Comprehensive Income." The Statement
                    establishes standards for the reporting and display of
                    comprehensive income and its components. Comprehensive
                    income consists of earnings and net unrealized gains and
                    losses on equity securities (see Note 10). The adoption of
                    SFAS No. 130 had no effect on the Company's net earnings or
                    stockholders' equity.

                         In fiscal 1999, the Company also adopted SFAS No. 131,
                    "Disclosures About Segments of an Enterprise and Related
                    Information." The Statement establishes standards for the
                    way that companies report information about operating
                    segments (see Note 13).

                         In June 1998, the Financial Accounting Standards Board
                    issued SFAS No. 133, "Accounting for Derivative Instruments
                    and Hedging Activities." The Statement, which is effective
                    for the fiscal year beginning February 1, 2000, establishes
                    accounting and reporting standards for derivative
                    instruments and for hedging activities. The Company is
                    currently assessing the impact of this new Statement but
                    does not expect any material effect on its consolidated
                    financial statements.

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

                    3. INVENTORIES

                    As of January 31, 1999 and 1998, the carrying value of the
                    Company's LIFO inventories approximated the first-in,
                    first-out ("FIFO") inventory method or replacement cost. As
                    of January 31, 1997, had the Company utilized the FIFO
                    inventory method, inventories would have been higher by
                    $2,481,000.



18


<PAGE>   11


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

                    4. LEASES
                    Effective February 1, 1997, the Company and Realty entered
                    into a Master Lease Agreement (the "Master Lease") under
                    which, as of January 31, 1999, 1,013 retail outlets and 10
                    terminal facilities (the "Properties") were leased or
                    subleased by Realty as the lessor to the Company as the
                    lessee. The Properties are used for gasoline sales,
                    convenience store uses and other complementary or related
                    lawful uses in conjunction with the sale of petroleum
                    products and convenience store items, except when the
                    provisions of any underlying lease are more restrictive. The
                    Company may sublet any property, provided that the Company
                    remains fully responsible for a sublessee's performance and,
                    except in cases of economic abandonment (as described
                    below), a sublease for non-petroleum purposes will require
                    Realty's consent. Except for certain environmental
                    obligations, and obligations pertaining to certain
                    underground storage tanks, related piping, underground
                    pumps, wiring and monitoring devices (collectively, the
                    "USTs"), the Master Lease is a "triple-net" lease, with the
                    Company having responsibility for all taxes, maintenance,
                    repairs and insurance. For financial statement purposes, the
                    Master Lease has been recorded as an operating lease.

                         Rent for each of the Properties was set using the then
                    fair market value of each such Property, assuming the USTs
                    had been upgraded to meet the 1998 federal standards and
                    such Properties were free of known environmental
                    contamination, since Realty was responsible for such known
                    items. Rent for each Property will increase at the end of
                    each five-year period by the net increase in the Consumer
                    Price Index for all items in the Northeast Region for such
                    five-year period, such increase not to exceed fifteen
                    percent (15%). Rents for all Properties are payable in
                    advance on the first day of the month. The initial term of
                    the Master Lease is (i) fifteen years with respect to
                    Properties owned in fee by Realty and leased to the Company
                    and (ii) the length of time remaining (which ranges up to
                    fifteen years under the Master Lease) with respect to
                    Properties leased by Realty from third parties and subleased
                    to the Company. The Master Lease terms for each category of
                    Properties described above also include four ten-year
                    renewal options (or, with respect to category (ii) above,
                    such shorter period as the underlying lease may provide),
                    which may be exercised by the Company with two years advance
                    notice on an individual property basis for all Properties
                    then subject to the Master Lease. For the subleased
                    Properties, Realty has agreed to use reasonable efforts to
                    extend the underlying lease terms upon conditions acceptable
                    to the Company. In the event that the Company desires not to
                    renew the sublease upon terms (including any underlying
                    lease term extension negotiated by Realty) available to it,
                    Realty may extend or renew the lease and sublease the
                    property to a third party after the end of the Company's
                    term.

                         The Master Lease provides that if during the lease term
                    the Company determines that any of the leased premises have
                    become uneconomic or unsuitable for their use as a service
                    station or convenience store and has discontinued use of the
                    property or intends to discontinue use of the property as a
                    service station or convenience store within one year of the
                    date of said determination, the Company has the right to
                    sublet the property for any lawful use without Realty's
                    consent and, prior to the commencement of any such sublease
                    term, the Company will remove any USTs on the Property and
                    thereafter perform all requisite environmental
                    investigations and/or remediations. The Company has this
                    right of economic abandonment with respect to no more than
                    ten properties during any fiscal year of the lease term. The
                    Company has no right of economic abandonment for the
                    terminal premises and the premises subject to third party
                    leases.

                         Rent expense, which is included in cost of sales and
                    operating expenses, amounted to $57,007,000, $57,213,000 and
                    $56,460,000 for the years ended January 31, 1999, 1998 and
                    1997, respectively, substantially all of which is payable to
                    Realty under the Master Lease. Future minimum annual
                    rentals, which have terms in excess of one year as of
                    January 31, 1999, are as follows:

                    -----------------------------------------------------------
                                                                        Other
                    Years ended January 31,         Realty   Lessors    Total
                    -----------------------------------------------------------
                                                           (in thousands)
                    2000........................   $ 56,200  $ 1,558  $ 57,758
                    2001........................     55,797    1,542    57,339
                    2002........................     55,475    1,557    57,032
                    2003........................     54,794    1,673    56,467
                    2004........................     53,933    1,337    55,270
                    Thereafter..................    402,792    5,714   408,506
                    -----------------------------------------------------------
                                                   $678,991  $13,381  $692,372
                                                   ============================


                                                                             19


<PAGE>   12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Continued


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

                         Rent income received under subleases, which is included
                    in sales and operating revenues, amounted to $34,712,000,
                    $34,828,000 and $33,312,000 for the years ended January 31,
                    1999, 1998 and 1997, respectively. Substantially all of
                    these subleases have remaining terms which range from one to
                    three years. Although there is no assurance that these
                    subleases will be renewed, no significant difficulty has
                    been experienced in subleasing retail outlets.

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

                    5. PROPERTY AND EQUIPMENT
                    Property and equipment consists of the following:
                    -----------------------------------------------------------
                                                                   Depreciable
                                                 1999       1998   Life (Years)
                    -----------------------------------------------------------
                                                  (in thousands)
                    Equipment................. $192,160   $178,227   10 to 15
                    Motor vehicles............    4,166      3,798    3 to 10
                    Furniture and fixtures....    1,404      1,338      10
                    Leasehold improvements....   14,619      5,991   See Note 2
                    ----------------------------------------------
                                                212,349    189,354
                    Less, accumulated 
                      depreciation and 
                       amortization...........  110,845     95,402
                    ----------------------------------------------
                                               $101,504   $ 93,952
                                               ===================

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

                    6. ENVIRONMENTAL REMEDIATION COSTS
                    The petroleum products industry is subject to numerous
                    existing federal, state and local laws and regulations,
                    including matters relating to the protection of the
                    environment. Environmental expenses have been attributable
                    to remediation, monitoring, soil disposal and governmental
                    agency reporting (collectively, "Remediation Costs")
                    incurred in connection with contaminated sites and the
                    replacement or upgrading of USTs to meet federal, state and
                    local environmental standards, as well as routine monitoring
                    and tank testing. For the years ended January 31, 1999, 1998
                    and 1997, environmental expenses included in the Company's
                    cost of sales and operating expenses amounted to $2,774,000,
                    $1,375,000 and $22,822,000, respectively.

                         Under the Master Lease with Realty, Realty committed to
                    a program to bring the leased properties requiring
                    remediation to regulatory closure and, thereafter, transfer
                    all future environmental risks from Realty to the Company.
                    In order to establish the Remediation Costs obligation and
                    estimate the incremental cost of accelerated remediation,
                    the Company and Realty commissioned a detailed
                    property-by-property environmental study of all retail
                    outlets in fiscal 1997, with the objective of achieving
                    closure in approximately five years. As a result, the
                    Company revised its estimate of future Remediation Costs in
                    the fourth quarter of fiscal 1997 and recorded a pre-tax
                    charge in such quarter for Remediation Costs of $21,182,000.
                    The pre-tax charge resulted from the acceleration of
                    remediation activities to be paid by Realty through more
                    aggressive means of treating contaminated sites to bring
                    them to closure in approximately five years, which resulted
                    in significant incremental Remediation Costs, changes in
                    estimated Remediation Costs at previously identified
                    properties, including costs to be incurred in connection
                    with UST upgrades, and additional charges to comply with
                    AICPA Statement of Position 96-1, "Environmental Remediation
                    Liabilities."

                         Realty has agreed to pay all costs relating to, and to
                    indemnify the Company for, all known pre-Distribution
                    environmental liabilities and obligations as scheduled in
                    the Master Lease, all upgrades necessary to cause USTs to
                    conform to the 1998 federal standards (the "1998 Standards")
                    as scheduled in the Master Lease, and all environmental
                    liabilities and obligations arising out of discharges with
                    respect to properties containing USTs that have not been
                    upgraded to meet the 1998 Standards that are discovered
                    prior to the date such USTs are upgraded to meet the 1998
                    Standards (collectively, the "Realty Environmental
                    Liabilities").



20

<PAGE>   13
-------------------------------------------------------------------------------

                         The Company has not reflected a liability for the
                    Realty Environmental Liabilities in its consolidated balance
                    sheet since Realty remains the primary obligor for such
                    liabilities. In connection with the Distribution, the
                    liabilities, which were initially recorded in the Company's
                    balance sheet, were subsequently capitalized into
                    stockholders' equity as a contribution to capital by Realty
                    to the Company. In the unlikely event that Realty fails to
                    remediate a contaminated property and the Company is held
                    jointly and severally responsible for the Remediation Costs,
                    Realty is obligated to indemnify the Company, and any
                    Remediation Costs paid by the Company will be offset against
                    the Company's rental obligations under the Master Lease.
                    Because of such rental offset, it is remote that the Company
                    would incur any incremental costs in connection with any
                    such remediation.

                         The Company will be responsible for, and will indemnify
                    Realty with respect to, all environmental obligations and
                    liabilities other than the Realty Environmental Liabilities.
                    As of January 31, 1999 and 1998, the Company had accrued
                    $1,415,000 and $442,000, respectively, as management's best
                    estimate for environmental remediation costs. In view of the
                    uncertainties associated with environmental expenditures,
                    however, the Company believes it is possible that such
                    expenditures could be substantially higher. Any additional
                    amounts will be reflected in the Company's financial
                    statements as they become known. Although future
                    environmental expenditures may have a significant impact on
                    results of operations for any single fiscal year or interim
                    period, the Company currently believes that such costs will
                    not have a material adverse effect on the Company's
                    financial position.

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

                    7. COMMITMENTS AND CONTINGENCIES

                    The Company is subject to various legal proceedings in the
                    ordinary course of its business. Such proceedings are not
                    expected to have a material adverse effect on the Company's
                    financial condition or results of operations. Pursuant to
                    the Distribution Agreement, Realty has agreed to defend all
                    claims or proceedings that existed prior to the Distribution
                    and indemnify the Company with respect thereto.

                         On September 16, 1996, Realty entered into an Agreement
                    with the New York State Department of Taxation and Finance
                    (the "Department"), settling the license revocation
                    proceedings brought by the Department whereby the Company's
                    wholly-owned subsidiary Getty Terminals Corp.'s ("Getty
                    Terminals") licenses and permits for its three New York
                    State terminals and its New York motor fuels and diesel
                    distributor licenses would be terminated. Prior to the
                    Distribution, the Company became a party to the Agreement,
                    and in connection with the Distribution, Kingston Oil Supply
                    Corp. ("KOSCO") became a subsidiary of the Company. Under
                    the terms of the Agreement, KOSCO will be permitted to
                    assume all of the storage and distribution activities and
                    operations now performed by Getty Terminals in New York.
                    KOSCO is required to obtain new or amended licenses and
                    permits and, upon the issuance thereof, Getty Terminals will
                    surrender its licenses and permits. KOSCO's Board of
                    Directors consists of three persons, one of whom is an
                    independent director, and KOSCO provides periodic reports to
                    the Department relating to New York tax laws. The Agreement
                    terminates on September 15, 1999. Under the terms of the
                    settlement, no penalties or fines are payable. The
                    implementation of the settlement will have no adverse impact
                    on the results of operations, financial condition or
                    liquidity of the Company, including the ability to sell
                    motor fuels in New York or operate its New York State
                    terminals.

                         In order to minimize the Company's exposure to credit
                    risk associated with financial instruments, the Company
                    places its temporary cash investments with high credit
                    quality institutions and, by policy, limits the amount
                    invested with any one institution other than the U.S.
                    Government. Concentration of credit risk with respect to
                    trade receivables generally is limited due to the large
                    number of customers comprising the Company's customer base.

                         As of January 31, 1999, the Company had uncommitted
                    lines of credit with three banks in the aggregate amount of
                    $60,000,000, of which $1,900,000 was utilized for working
                    capital borrowings and $2,000,000 was utilized in the form
                    of outstanding letters of credit to support the Company's
                    insurance programs. Borrowings under the lines of credit
                    are unsecured and principally bear interest at the
                    applicable bank's prime rate or, at the Company's option,
                    1.1% above LIBOR. The lines of credit are subject to renewal
                    at the discretion of the banks.

21
<PAGE>   14


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Continued


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

                         The Company's financial results depend largely on
                    retail marketing margins and rental income from its dealers.
                    Retail marketing margins in the petroleum marketing industry
                    have been and continue to be volatile and highly
                    competitive. The cost of petroleum products purchased by the
                    Company as well as the price of petroleum products sold have
                    fluctuated widely in the past. As a result of the historic
                    volatility of product margins and the fact that they are
                    affected by numerous diverse factors, it is not possible to
                    predict with any degree of accuracy future product margin
                    levels.

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

                    8. INCOME TAXES
                    The Company and Realty have entered into a Tax Sharing
                    Agreement that defines the parties' rights and obligations
                    with respect to filing of returns, payments, deficiencies
                    and refunds of federal, state and other income, franchise or
                    motor fuel taxes relating to Realty's business for tax years
                    prior to and including the Distribution and with respect to
                    certain tax attributes of Realty after the Distribution. In
                    general, the Tax Sharing Agreement provides that Realty will
                    be responsible for all federal, state and local tax
                    liabilities that relate to periods (or portions thereof)
                    ending on or prior to the Distribution. For periods
                    subsequent to the Distribution, the Company will file its
                    own tax returns. The provision for income taxes is reflected
                    in the consolidated financial statements as if Marketing
                    had been operating on a stand-alone basis for periods prior
                    to the Distribution.

                         The provision (credit) for income taxes is summarized
                    as follows:
                    -----------------------------------------------------------
                                                   1999      1998       1997
                    -----------------------------------------------------------
                                                        (in thousands)
                    Federal:
                      Current..................  $  1,806  $  2,483   $(12,534)
                      Deferred.................    (1,475)   (1,499)     5,322
                    State and local:
                      Current..................       647       908     (4,636)
                      Deferred.................      (492)     (503)     1,774
                    -----------------------------------------------------------
                    Provision (credit) for 
                      income taxes.............  $    486  $  1,389   $(10,074)
                                                 ==============================

                         The tax effects of temporary differences which comprise
                    the deferred tax assets and liabilities are as follows:
                    -----------------------------------------------------------
                                                             1999      1998
                    -----------------------------------------------------------
                                                              (in thousands)
                    Property and equipment.....            $(21,826)  $(21,503)
                    Accruals...................               3,109      3,249
                    Inventories................               4,169      1,591
                    -----------------------------------------------------------
                    Net deferred tax 
                      liabilities..............            $(14,548)  $(16,663)
                                                           ===================

                         The following is a reconciliation of the expected
                    statutory federal income tax provision (credit) and the
                    actual provision (credit) for income taxes:
                    -----------------------------------------------------------
                                                   1999      1998       1997
                    -----------------------------------------------------------
                                                         in thousands)
                    Expected provision (credit)
                      at statutory federal 
                      income tax rate..........  $    358  $    874   $ (8,856)
                    State and local income 
                      taxes, net of federal 
                      benefit..................       102       267     (1,716)
                    Other......................        26       248        498
                    -----------------------------------------------------------
                    Provision (credit) for 
                      income taxes.............  $    486  $  1,389   $(10,074)
                                                 ==============================



22



<PAGE>   15




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

                    9. EMPLOYEE BENEFIT PLANS
                    The Company has a retirement and profit sharing plan with
                    deferred 401(k) savings plan provisions (the "Retirement
                    Plan") for non-union employees meeting certain service
                    requirements and a Supplemental Plan for executives. Under
                    the terms of these plans, the annual discretionary
                    contributions to the plans are determined by the Board of
                    Directors. Under the Retirement Plan, employees may make
                    voluntary contributions and the Company has elected to match
                    an amount equal to 50% of such contributions but in no event
                    more than 3% of the employee's eligible compensation. Under
                    the Supplemental Plan, participating executives may receive
                    an amount equal to 10% of their compensation, reduced by the
                    amount of any contributions allocated to such executives
                    under the Retirement Plan. Contributions to the Retirement
                    Plan and Supplemental Plan, net of forfeitures, made by the
                    Company, or by Realty prior to the Distribution in respect
                    of persons who are Company employees, approximated $569,000,
                    $470,000 and $557,000 for the years ended January 31, 1999,
                    1998, and 1997, respectively. In addition, the Company has
                    contributed $342,000, $345,000 and $328,000 to a union
                    welfare plan for the years ended January 31, 1999, 1998 and
                    1997, respectively. Such amounts are included in the
                    accompanying consolidated statements of operations.

                         In connection with the Distribution, the Company
                    established in April 1997 a leveraged Employee Stock
                    Ownership Plan (the "ESOP") that purchased newly issued
                    shares of Common Stock from the Company equal to five
                    percent of the then outstanding shares of the Company. The
                    ESOP purchased such newly-issued shares from the Company
                    using the proceeds of a loan made by the Company to the
                    ESOP. The ESOP loan is being repaid over a five-year
                    period, and the Company contributes annually to the ESOP the
                    funds required to repay such loan. The original principal
                    amount of the ESOP loan was equal to the number of shares
                    purchased by the ESOP (671,298) multiplied by the purchase
                    price per share of $4.80. Allocations to participants'
                    accounts will aggregate approximately 134,260 shares of
                    Company Common Stock per year and will be allocated to
                    covered employees in proportion to compensation over a
                    five-year period. The Company recognized a charge to
                    operating results of $645,000 and $593,000 for the years
                    ended January 31, 1999 and 1998, respectively, relating to
                    the ESOP based on the average market value of the Common
                    Stock during the respective years. The ESOP had 537,038 and
                    671,298 suspense shares at January 31, 1999 and 1998,
                    respectively, of which 111,883 shares were committed to be
                    released as of each respective period.

                         Immediately prior to the Distribution, each holder of
                    an option to acquire shares of Realty Common Stock pursuant
                    to Realty's Stock Option Plans received, in exchange
                    therefor, two separately exercisable options: one to
                    purchase shares of Realty Common Stock (a "Realty Option")
                    and one to purchase Marketing Common Stock (a "Marketing
                    Option"), each exercisable for the same number of shares and
                    containing substantially equivalent terms as the
                    pre-Distribution option. The exercise price of each Realty
                    Option and Marketing Option (each, a "Replacement Option")
                    was set so as to preserve the Aggregate Spread (as defined
                    below) in value attributed to the options held by such
                    directors, officers and key employees. The "Aggregate
                    Spread" is an amount representing the difference between the
                    exercise price of an option and the price of a share of
                    Realty Common Stock immediately prior to the Distribution
                    multiplied by the number of shares underlying such option.
                    Certain previously unexercisable options covering a total of
                    223,587 shares became immediately exercisable at the date of
                    the Distribution for persons covered by "change of control"
                    agreements. Accordingly, the Company recognized a charge to
                    operating results of $637,000 at the date of the
                    Distribution equal to the product of the number of such
                    options and the difference between their exercise price and
                    the market price.

                         The Company's Stock Option Plan authorizes the Company
                    to grant options to purchase shares of the Company's Common
                    Stock. The aggregate number of shares of the Company's
                    Common Stock which may be made the subject of options under
                    the Stock Option Plan will not exceed 2,000,000 shares,
                    subject to further adjustment for stock dividends and stock
                    splits. The Stock Option Plan provides that options are
                    exercisable starting one year from the date of grant, on a
                    cumulative basis at the annual rate of 25 percent of the
                    total number of shares covered by the option.



                                                                             23

<PAGE>   16


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Continued


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

                         The following is a schedule of stock option prices and
                    activity relating to the Marketing Stock Option Plan (and
                    Realty Stock Option Plan prior to the Distribution) for the
                    three fiscal years ended January 31, 1999:
<TABLE>
<CAPTION>

                    --------------------------------------------------------------------------------------------
                                                       1999                 1998                   1997
                    --------------------------------------------------------------------------------------------
                                                          WEIGHTED               Weighted               Weighted
                                                 NUMBER    AVERAGE    Number     Average      Number    Average
                                                   OF     EXERCISE      of       Exercise       of      Exercise
                                                 SHARES    PRICE      Shares      Price(a)    Shares    Price(a)
                    --------------------------------------------------------------------------------------------
                    <S>                          <C>       <C>       <C>           <C>      <C>           <C>
                    Outstanding at 
                         beginning of year...    851,586   $4.44     1,014,226     $3.02      927,428     $2.96
                    Granted..................     71,750    3.25       410,389      5.87      166,400      3.35
                    Exercised................    (86,251)   2.92      (461,542)     2.89     ( 29,519)     2.63
                    Cancelled................    (10,374)   5.97      (111,487)     3.19      (50,083)     3.17
                    --------------------------------------------------------------------------------------------
                    Outstanding at 
                         end of year.........    826,711   $4.48       851,586     $4.44    1,014,226     $3.02
                                                 ===============================================================
                    Exercisable at 
                         end of year.........    568,245   $4.21       594,026     $3.86      687,761     $3.04
                                                 ===============================================================
                    Available for grant at 
                         end of year.........    681,045                42,421                176,881
                                                 ===============================================================
</TABLE>

                    (a) In connection with the Distribution, each Realty Option
                        was reformed into separate options for Realty Common 
                        Stock and Marketing Common Stock. The exercise price 
                        of each reformed Marketing Option shown herein, 
                        except grants in 1998, represents 22.71% of the 
                        original exercise price.

                         The following table summarizes information concerning
                    options outstanding and exercisable at January 31, 1999:
<TABLE>
<CAPTION>
                    --------------------------------------------------------------------------------------------
                                                         Options Outstanding               Options Exercisable
                    --------------------------------------------------------------------------------------------
                                                               Weighted
                                                                Average     Weighted                  Weighted
                                                               Remaining     Average                   Average
                       Range of                   Number      Contractual   Exercise     Number       Exercise
                    Exercise Prices            Outstanding    Life (Years)    Price    Exercisable      Price
                    --------------------------------------------------------------------------------------------
                    <S>                          <C>              <C>         <C>        <C>            <C>

                    $2.47-4.23...............    426,696            6         $3.17      353,509        $3.15
                     5.69-6.00...............    400,015            7          5.87      214,736         5.94
                    --------------------------------------------------------------------------------------------
                                                 826,711                                 568,245
                                                 ===============================================================
</TABLE>


                         The Company accounts for its stock-based employee
                    compensation plans under Accounting Principles Board Opinion
                    No. 25, "Accounting for Stock Issued to Employees." The
                    Company recorded a stock compensation (credit) charge of
                    $(2,087,000) and $4,203,000 for the years ended January 31,
                    1999 and 1998, respectively, since certain options required
                    variable plan accounting treatment.

                         Had compensation cost for the Company's Plans been
                    determined based upon the fair value methodology prescribed
                    under SFAS No. 123, "Accounting for Stock-Based
                    Compensation," the Company's net earnings (loss) and net
                    earnings (loss) per share on a diluted basis would have
                    resulted in the following pro forma amounts:

<TABLE>
<CAPTION>
                    -------------------------------------------------------------------------------------------------
                                                        1999                    1998                     1997
                    -------------------------------------------------------------------------------------------------
                                              AS REPORTED  PRO FORMA  As Reported  Pro Forma  As Reported   Pro Forma
                    -------------------------------------------------------------------------------------------------
                                                            (in thousands, except per share amounts)
<S>                                               <C>       <C>         <C>         <C>        <C>          <C>      
                    Net earnings (loss)......     $566      $(112)      $1,181      $1,755     $(15,225)    $(15,380)
                    Net earnings (loss) 
                      per share..............      .04       (.01)         .09         .13           (a)          (a)
</TABLE>

                    (a) The Company was spun-off from Getty Realty Corp. on
                        March 21, 1997. Accordingly, per share amounts are 
                        not presented for fiscal 1997.


24

<PAGE>   17
-------------------------------------------------------------------------------

                         The fair value of the options granted during fiscal
                    1999, 1998 and 1997 were estimated as $1.91, $3.03 and $1.47
                    per share, respectively, on the date of grant using the
                    Black-Scholes option pricing model with the following
                    weighted average assumptions:

<TABLE>
<CAPTION>
                    -----------------------------------------------------------
                                                            1999    1998   1997
                    -----------------------------------------------------------
<S>                                                         <C>     <C>    <C>
                    Expected dividend yield...............    0%      0%     0%
                    Expected volatility...................   38%     37%    35%
                    Risk-free interest rate...............  5.1%    5.6%   6.2%
                    Expected life of options (years)......    7       6      5
</TABLE>
-------------------------------------------------------------------------------
                    10. STOCKHOLDERS' EQUITY

                    A summary of the changes in stockholders' equity for the
                    three years ended January 31, 1999 is as follows:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                 Accumulated  
                                          Capital Stock                            Other             ESOP
                                        ----------------   Paid-in   Retained   Comprehensive   -------------- 
                                        Shares    Amount   Capital   Earnings  Earnings (Loss)  Shares  Amount     Total
-----------------------------------------------------------------------------------------------------------------------------
                                                                                           in thousands)
<S>                                    <C>        <C>    <C>        <C>         <C>              <C>                               
 Balance, February 1, 1996...........      --     $ --  $  50,311   $  --       $  --            --       $ --    $ 50,311        
 Net loss............................                     (15,225)                                                 (15,225)       
 Net cash transferred from Realty....                      19,455                                                   19,455        
 Issuance of common stock............       1       --                                                                 --          
-----------------------------------------------------------------------------------------------------------------------------      
 Balance, January 31, 1997...........       1       --     54,541      --          --             --        --       54,541       
 Distribution of stock in spin-off     12,754      127       (127)                                                     --         
 Comprehensive earnings:                                                                                                           
 Net earnings........................                                 1,181                                           1,181       
 Net unrealized gain                                                                                                               
   on equity securities..............                                               147                                 147       
                                                                                                                   --------       
      Total..........................                                                                                 1,328       
                                                                                                                   --------       
                                                                                                                                   
 Issuance of stock to ESOP...........     671        7      3,215                                (671)     (3,222)      --         
 ESOP stock committed                                                                                                              
   to be released....................                          56                                 112         537       593       
 Issuance of common stock............       3       --         18                                                        18       
 Stock options.......................     406        4      3,531                                                     3,535       
 ---------------------------------------------------------------------------------------------------------------------------       
 Balance, January 31, 1998...........  13,835      138     61,234     1,181         147          (559)     (2,685)   60,015       
 Comprehensive earnings:                                                                                                           
 Net earnings........................                                   566                                             566       
 Net unrealized loss                                                                                                               
   on equity securities..............                                              (218)                               (218)
                                                                                                                   --------       
      Total..........................                                                                                   348        
                                                                                                                   --------       
                                                                                                                                   
 ESOP stock committed                                                                                                              
 to be released......................                           1                                 134         644       645        
 Issuance of common stock............      24       --        107                                                       107        
 Stock options.......................      86        1       (896)                                                     (895)       
 --------------------------------------------------------------------------------------------------------------------------        
 Balance, January 31, 1999...........  13,945     $139   $ 60,446    $1,747       $ (71)         (425)    $(2,041)  $60,220        
                                       ====================================================================================        
                                                                                                                                   
</TABLE>

                                                                              25
<PAGE>   18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONTINUED



--------------------------------------------------------------------------------
                     11. Quarterly Financial Data
                     The following is a summary of the quarterly results of
                     operations for the years ended January 31, 1999 and 1998
                     (unaudited as to quarterly information):
                     --------------------------------------------------------

<TABLE>
<CAPTION>
                     ------------------------------------------------------------------------------------------------------------
                                                                         Three months ended                            Year ended
                     ------------------------------------------------------------------------------------------------------------
                     Fiscal 1999:                        April 30       July 31      October 31    January 31          January 31
                     ------------------------------------------------------------------------------------------------------------
                                                                         (in thousands, except per share amounts)
<S>                                                             <C>           <C>            <C>            <C>           <C>
                     Revenues.................................  $170,911      $173,230       $159,148       $159,003      $662,292
                     Gross profit (a).........................     3,486         6,190          9,308         17,588        36,572
                     Depreciation and amortization............     3,717         3,784          3,889          4,537        15,927
                     Earnings (loss) before income taxes......    (5,470)       (2,492)           165          8,849         1,052
                     Net earnings (loss)......................    (3,312)       (1,496)            96          5,278           566
                     Net earnings (loss) per share:
                       Basic..................................      (.25)         (.11)           .01            .39           .04
                       Diluted................................      (.25)         (.11)           .01            .39           .04
</TABLE>


<TABLE>
<CAPTION>
                     ------------------------------------------------------------------------------------------------------------
                                                                         Three months ended                            Year ended
                     ------------------------------------------------------------------------------------------------------------
                     Fiscal 1998:                        April 30       July 31      October 31    January 31           January 31
                     ------------------------------------------------------------------------------------------------------------
                                                                         (in thousands, except per share amounts)
<S>                                                          <C>           <C>            <C>            <C>            <C>      
                     Revenues............................... $ 225,923     $ 222,751      $ 235,560      $ 208,609      $ 892,843
                     Gross profit (a).......................    11,690         4,453         11,923         15,809         43,875
                     Depreciation and amortization..........     3,298         3,362          3,461          3,526         13,647
                     Earnings (loss) before income taxes ...     2,664        (7,442)         3,021          4,327          2,570
                     Net earnings (loss)....................     1,560        (4,491)         1,859          2,253          1,181
                     Net earnings (loss) per share:.........                                                         
                       Basic................................       .12          (.35)           .14            .17            .09
                       Diluted..............................       .12          (.35)           .14            .17            .09
</TABLE>                                                     

                     (a) Gross profit is calculated as sales and operating
                     revenues less cost of sales and operating expenses
                     (excluding depreciation and amortization).
--------------------------------------------------------------------------------

                        12. SEVERANCE CHARGES
                        During the year ended January 31, 1999, the Company
                        recorded severance charges aggregating $216,000 related
                        to a reduction in work force of six employees. Such
                        amounts are payable through February 2000 pursuant to
                        the Company's severance policy.
                               During the year ended January 31, 1998, the
                        Company recorded severance charges aggregating
                        $2,175,000 related to the resignations of two of the
                        Company's officers. Such amounts are payable over the
                        terms of the severance agreements and aggregate
                        approximately $558,000 per year through June 2000 and
                        $287,000 per year thereafter through October 2002. The
                        agreement with one of the officers includes a covenant
                        not to compete and provides for consulting services.
--------------------------------------------------------------------------------

                        13. SEGMENT INFORMATION
                        In fiscal 1999, the Company adopted SFAS No. 131,
                        "Disclosures About Segments of an Enterprise and Related
                        Information." The Statement establishes standards for
                        the way that companies report information about
                        operating segments.
                               The Company has two reportable segments:
                        Petroleum Marketing and Heating Oil. The Petroleum
                        Marketing segment distributes, markets and sells
                        gasoline and diesel fuel to consumers through a network
                        of 1,263 Getty and other branded retail outlets. The
                        Heating Oil segment is involved in the sale of fuel oil,
                        kerosene and propane, and oil burner and related
                        services to residential and commercial customers in the
                        New York Mid-Hudson Valley region. The accounting
                        policies of each business segment are the same as those
                        described in the summary of significant accounting
                        policies (see Note 2).

26
<PAGE>   19
--------------------------------------------------------------------------------

     The financial results of the Petroleum Marketing and Heating Oil segments 
for the years ended January 31, 1999, 1998 and 1997 are set forth below:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
                                                For the years ended January 31,
--------------------------------------------------------------------------------------------------------------------------------
                                                 1999                          1998                           1997
--------------------------------------------------------------------------------------------------------------------------------
                                                         (in thousands)
                                   PETROLEUM   HEATING            Petroleum   Heating            Petroleum   Heating
                                   MARKETING     OIL     TOTAL    Marketing     Oil     Total    Marketing     Oil      Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                 <C>        <C>      <C>         <C>       <C>      <C>         <C>       <C>        <C>
Sales and operating
  revenues                          $ 635,041  $25,713  $660,754    $858,656  $32,453  $891,109    $851,255  $37,133    $888,388
Other income                            1,487       51     1,538       1,687       47     1,734         124       31         155
--------------------------------------------------------------------------------------------------------------------------------
                                      636,528   25,764   662,292     860,343   32,500   892,843     851,379   37,164     888,543
--------------------------------------------------------------------------------------------------------------------------------
Cost of sales and
  operating expenses
  (excluding depreciation
  and amortization)                   602,725   21,457   624,182     819,169   28,065   847,234     846,274   32,913     879,187
Selling, general and
  administrative expenses              17,622    2,384    20,006      23,466    2,328    25,794      18,010    2,297      20,307
Depreciation and
  amortization                         15,498      429    15,927      13,341      306    13,647      13,450      472      13,922
Interest expense                          908        1       909         786       --       786         426       --         426
Severance charges                         216       --       216       2,175       --     2,175          --       --          --
Change of control charge                   --       --        --         637       --       637          --       --          --
--------------------------------------------------------------------------------------------------------------------------------
                                      636,969   24,271   661,240     859,574   30,699   890,273     878,160   35,682     913,842
--------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before
  provision (credit)
  for income taxes                       (441)   1,493     1,052         769    1,801     2,570     (26,781)   1,482     (25,299)
Provision (credit) for
  income taxes                           (204)     690       486         416      973     1,389     (10,664)     590     (10,074)
--------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss)                 $    (237) $   803  $    566    $    353  $   828  $  1,181    $(16,117) $   892    $(15,225)
                                    ============================================================================================
Identifiable assets                 $ 140,299  $ 9,122  $149,421    $139,440  $ 6,889  $146,329    $127,972  $ 7,528    $135,500
Capital expenditures                   21,180      312    21,492      19,014       91    19,105      17,553      286      17,839
                                    ============================================================================================
</TABLE>
<PAGE>   20
REPORT OF INDEPENDENT ACCOUNTANTS

--------------------------------------------------------------------------------
                        To the Board of Directors and Stockholders of Getty 
                        Petroleum Marketing Inc.:

                        In our opinion, the accompanying consolidated balance
                        sheets and the related consolidated statements of
                        operations and cash flows present fairly, in all
                        material respects, the financial position of Getty
                        Petroleum Marketing Inc. and Subsidiaries (the
                        "Company") at January 31, 1999 and January 31, 1998, and
                        the results of their operations and their cash flows for
                        each of the three years in the period ended January 31,
                        1999, in conformity with generally accepted accounting
                        principles. These financial statements are the
                        responsibility of the Company's management; our
                        responsibility is to express an opinion on these
                        financial statements based on our audits. We conducted
                        our audits of these statements in accordance with
                        generally accepted auditing standards which require that
                        we plan and perform the audit to obtain reasonable
                        assurance about whether the financial statements are
                        free of material misstatement. An audit includes
                        examining, on a test basis, evidence supporting the
                        amounts and disclosures in the financial statements,
                        assessing the accounting principles used and significant
                        estimates made by management, and evaluating the overall
                        financial statement presentation. We believe that our
                        audits provide a reasonable basis for the opinion
                        expressed above.



                        /s/ PRICEWATERHOUSECOOPERS LLP


                        New York, New York
                        March 11, 1999



COMMON STOCK


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

                        The common stock of Getty Petroleum Marketing Inc., its
                        only outstanding voting security, is traded on the New
                        York Stock Exchange (symbol: "GPM"). At April 22, 1999,
                        there were approximately 2,800 holders of record of
                        Getty Petroleum Marketing's common stock. The price
                        range of common stock from March 21, 1997, the effective
                        date of the spin-off, to January 31, 1999 was as
                        follows:

<TABLE>
<CAPTION>
                        --------------------------------------------------------
                                                                   Price Range
                                                                ----------------
                        Quarter Ending                          High       Low
                        --------------------------------------------------------
<S>                                                             <C>      <C>
                        January 31, 1999....................... $4 3/8   $2 5/8

                        October 31, 1998.......................  4 11/16  3 1/4

                        July 31, 1998..........................  6 1/2    4 3/8

                        April 30, 1998.........................  6 3/4    5 7/8


                        January 31, 1998.......................  6 3/4     4 3/4

                        October 31, 1997.......................  6 15/16   5 

                        July 31, 1997..........................  7 3/8     3 1/2

                        April 30, 1997.........................  5 3/8     3 1/4
</TABLE>



28