<PAGE>   1
                             SELECTED FINANCIAL DATA
                 Getty Petroleum Marketing Inc. and Subsidiaries

<TABLE>
<CAPTION>

                                                                                For the years ended January 31,
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share and per gallon data,
  and number of outlets)                                        2000           1999           1998            1997           1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                         <C>            <C>            <C>            <C>            <C>
OPERATIONS:
Sales and operating revenues                                $  832,051     $  660,754     $  891,109     $  888,388     $ 790,912
Cost of sales and operating expenses
  (excluding depreciation and amortization)                    787,762        624,182        847,234        879,187       750,680
----------------------------------------------------------------------------------------------------------------------------------
Gross profit (before depreciation and amortization)(a)          44,289         36,572         43,875          9,201        40,232
Selling, general and administrative expenses                    23,234         20,006         25,794         20,307        20,702
Depreciation and amortization                                   16,932         15,927         13,647         13,922        13,099
----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)                                     $    4,123     $      639     $    4,434     $  (25,028)(b) $   6,431
==================================================================================================================================
Net earnings (loss)                                         $    2,055     $      568     $    1,181     $  (15,225)(c) $   3,664(d)
Basic and diluted net earnings per share(e)                 $      .15     $      .04     $      .09

FINANCIAL POSITION:
Total assets                                                $  170,915     $  149,421     $  146,329     $  135,500     $ 124,498
Stockholders' equity                                        $   62,246     $   60,220     $   60,015     $   54,541     $  50,311

OTHER DATA:
Gallonage sold:
  Retail                                                       879,636        837,162        800,940        768,294       718,400
  Wholesale                                                     99,193         98,069        232,824        237,925       247,913
  Heating oil                                                   24,917         23,957         26,695         29,428        29,565
----------------------------------------------------------------------------------------------------------------------------------
    Total                                                    1,003,746        959,188      1,060,459      1,035,647       995,878
Average sales gallonage per outlet                                 806            770            775            749           695
Average sales price per gallon (net of taxes)               $    .7909     $    .6527     $    .8075     $    .8256     $   .7692
Retail margin per gallon (a)                                $    .0975     $    .0897     $    .0942     $    .0923     $   .1049
Number of outlets at year end                                    1,291          1,263          1,317          1,560         1,625
Capital expenditures and acquisitions                       $   27,811     $   25,332     $   19,105     $   17,839     $  15,858
</TABLE>


(a)  Gross profit includes LIFO charge (credit) of $4,328, $(2,481) and $2,555
     for the years ended January 31, 2000, 1998 and 1997, respectively. Retail
     margin per gallon excludes impact of LIFO charge (credit).

(b)  Includes charge of $21,182 related to revision of estimate of future
     environmental costs.

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

(d)  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."

(e)  The Company was spun off from Getty Realty Corp. on March 21, 1997.
     Accordingly, per share data is not presented for each of the two years
     ended January 31, 1997.



<PAGE>   2




                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                 Getty Petroleum Marketing Inc. and Subsidiaries

Overview and Outlook

Getty Petroleum Marketing Inc., a Maryland corporation, was formed on October 1,
1996 as a wholly-owned subsidiary of Getty Petroleum Corp., now known as Getty
Realty Corp. ("Realty"). Realty separated its petroleum marketing business from
its real estate business by transferring to Getty Marketing the assets and
liabilities of its petroleum marketing business and the New York Mid-Hudson
Valley heating oil business. On March 21, 1997, Realty distributed all of the
common shares of Getty Marketing to its stockholders.

Getty is one of the nation's largest independent marketers of petroleum
products. We distribute, market and sell gasoline and diesel fuel at retail
through a network of 1,291 Getty and other branded retail outlets located in 13
Northeastern and Middle-Atlantic states, some of which also have convenience
food stores. We also sell gasoline, fuel oil, diesel fuel and kerosene in
truckload and barge quantities on a wholesale basis. We purchase 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 our nine storage and distribution terminals and bulk
plants, all of which are located in our distribution region. We distribute and
market products to retail outlets through our distribution network, our truck
transportation fleet and also through common carriers. We engage 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 products
to our customers, monitoring compliance by the service station and convenience
store operators with our retail standards program and providing marketing
services to operators.

We also derive revenue from our 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 our control, including global, national and regional factors and,
accordingly, their prices may vary substantially over time. From time to time,
competitive market conditions may limit our ability to pass on to our customers
large, rapid changes in the price we pay for products and, accordingly, our
operating margins may vary substantially. Because our operating margins may vary
significantly from time to time while certain of our expenses do not, our
earnings may fluctuate substantially.

Our financial results have depended largely on retail marketing margins and
rental income from 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, we cannot predict with any
degree of accuracy future product margin levels. However, we believe that we
have only been modestly affected by inflation since increased costs are passed
along to customers to the extent permitted by competition.

Results of Operations

FISCAL YEAR ENDED JANUARY 31, 2000 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1999

Sales and operating revenues for the year ended January 31, 2000 ("fiscal 2000")
were $832.1 million as compared with $660.8 million for the year ended January
31, 1999 ("fiscal 1999"). The 25.9% increase in sales and operating revenues was
primarily due to a 21.2% increase in sales prices (net of taxes) to 79.1 cents
per gallon from 65.3 cents per gallon and a 4.6% increase in sales volume to
1.004 billion gallons from 959.2 million gallons. Retail gallonage sold
increased by 42.5 million gallons or 5.1% to 879.6 million gallons. The average
gasoline volume per retail outlet increased by 4.5% to 806,000 gallons per
outlet. Wholesale gallonage sold increased by 1.1 million gallons or 1.1% to
99.2 million gallons and heating oil sales increased by 1.0 million gallons or
4.0% to 24.9 million gallons.

Gross profit before depreciation and amortization was $44.3 million for fiscal
2000 as compared to $36.6 million in fiscal 1999. The improvement of $7.7
million was principally due to an increase in retail product margins of
approximately 0.8 cents per gallon which contributed an additional $7.8 million
of gross profit, and higher retail volumes which contributed an additional $4.4
million of gross profit, partially offset by a $4.3 million LIFO charge in
fiscal 2000 which resulted from the higher product costs.

Other income was $0.7 million in fiscal 2000 as compared to $1.5 million for
fiscal 1999. Fiscal 2000 included a charge of $0.3 million related to the early
termination of eight leases under a master lease agreement with Realty whereas
the prior year included a gain of $0.4 million related to the early termination
of four leases under the master lease agreement. The prior year also included a
$0.2 million legal charge related to the Company's Mount Vernon terminal. Also
included in other income for the years ended January 31, 2000 and 1999 were
$749,000 and $960,000, respectively, of net fees received from Realty for
administrative and technical services we have provided pursuant to the services
agreement since the spin-off.

Selling, general and administrative expenses amounted to $23.2 million for
fiscal 2000, an increase of $3.2 million or 16.1% from the $20.0 million for
fiscal 1999. The increase was primarily due to higher incentive compensation of
$1.0 million recorded during fiscal 2000 and a stock compensation credit of $2.1
million recorded during the prior fiscal year.

<PAGE>   3




Depreciation and amortization was $16.9 million for fiscal 2000 as compared with
$15.9 million for fiscal 1999. The increase was due to higher depreciation as a
result of additions to equipment and improvements to facilities.

Interest expense of $1.0 million in fiscal 2000 increased by $0.1 million over
fiscal 1999 interest expense of $0.9 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.

Pre-tax earnings for fiscal 2000 were $3.8 million, comprised of $2.5 million
from the petroleum marketing business and $1.3 million from the Company's
heating oil business. For fiscal 1999, pre-tax earnings 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 2000, the Company had net earnings of $2.1 million or $.15 per
diluted share as compared with $0.6 million or $.04 per diluted share for the
prior fiscal year.

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 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.

On December 31, 1997, our leases and supply contract with Uni-Marts, Inc. were
terminated. As a result of the termination of the supply contract pursuant to
which we previously supplied an additional 190 Uni-Marts controlled locations,
sales of petroleum products were reduced by approximately 84 million gallons per
annum, or about 8% of 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
Getty-controlled locations previously leased to Uni-Marts. The termination of
the Uni-Marts leases, however, negatively affected our 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 our
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.

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 our 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 Getty's
stock price during the respective periods.

Depreciation and amortization was $15.9 million for fiscal 1999 as compared with
$13.6 million for fiscal 1998. 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.


<PAGE>   4





                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
                 Getty Petroleum Marketing Inc. and Subsidiaries

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.

Liquidity and Capital Resources

As of January 31, 2000, we had a working capital deficit of $10.6 million as
compared to $2.5 million as of January 31, 1999. The decrease in working capital
was primarily due to $19.8 million of capital expenditures and $8.0 million of
acquisitions, partially offset by working capital generated during the year from
operations. We are able to operate our business with negative working capital,
principally because most of our product sales are for cash and payment terms
have been received from vendors and for gasoline taxes.

Our principal source of liquidity is cash flows from operations, which amounted
to $33.6 million during the fiscal year ended January 31, 2000. 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. We have
uncommitted lines of credit with three banks in the aggregate amount of $50.0
million, which may be utilized for working capital borrowings and letters of
credit. As of January 31, 2000, we were utilizing $3.1 million of the lines of
credit in connection with outstanding letters of credit to support insurance
programs. Borrowings under the lines of credit are unsecured and principally
bear interest at the applicable bank's prime rate or, at our option, 1.1% above
LIBOR. The lines of credit are subject to renewal at the discretion of the
banks.

On January 30, 1998, we purchased, for investment purposes, 487,000 shares or
approximately 7.3% of Uni-Marts, Inc. common stock for $1,461,000. As of January
31, 2000 and 1999, the fair market value of such shares recorded in our
consolidated balance sheets was $548,000 and $1,339,000, respectively.

During fiscal 2000, we experienced product cost increases of approximately 39
cents per gallon, which resulted in higher sales prices to customers and higher
accounts receivable balances as compared to January 31, 1999. In addition, our
inventory and accounts payable balances increased as of January 31, 2000 in
comparison to the prior fiscal year end, principally due to the product cost
increases.

As of January 31, 2000, we leased 1,013 retail outlets and 9 terminal facilities
from Realty under a master lease agreement. The annual rental expense under the
master lease for fiscal 2000 was $56.4 million.

Our capital expenditures for the fiscal years ended January 31, 2000, 1999 and
1998 were $19.8 million, $21.5 million and $19.1 million, respectively. Our
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.

In addition, during fiscal 2000, we spent $8.0 million for improvements to
properties which we commenced leasing in fiscal 2000 and for the acquisition of
one property as compared with $3.8 million expended in the prior fiscal year.

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 underground storage tanks ("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, which include identifying 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, we consider, among
other things, enacted laws and regulations, assessments of contamination,
currently available technologies for treatment, alternative methods of
remediation and prior experience. These estimates are subject to change as
contingencies become more clearly defined and remediation treatment progresses.
For the fiscal years ended January 31, 2000, 1999 and 1998, environmental
expenses included in cost of sales and operating expenses were $3,958,000,
$2,774,000 and $1,375,000, respectively.

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 Getty Marketing. 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 our responsibility.


<PAGE>   5


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

We have not reflected a liability for the Realty Environmental Liabilities in
our consolidated balance sheets since Realty remains the primary obligor for
such liabilities. In the unlikely event that Realty fails to remediate a
contaminated property and we are held jointly and severally responsible for the
Remediation Costs, Realty is obligated to indemnify us, and any Remediation
Costs we pay will be offset against our rental obligations under the master
lease. Because of this rental offset, the likelihood that we will incur any
incremental costs in connection with any such remediation is remote.

We are responsible for, and will indemnify Realty with respect to, all
environmental obligations and liabilities other than the Realty Environmental
Liabilities. As of January 31, 2000 and 1999, we had accrued $2,117,000 and
$1,415,000, respectively, as management's best estimate for environmental
remediation costs to be incurred. In view of the uncertainties associated with
environmental expenditures, however, we believe it is possible that such
expenditures could be substantially higher. Any additional amounts will be
reflected in our 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, we believe that such
costs will not have a material adverse effect on our financial position.

We 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 our financial position or operations and could require
substantial additional expenditures for future remediation or the installation
and operation of required environmental or pollution control systems and
equipment.

Year 2000

We implemented a comprehensive program to address Year 2000 issues which was
completed as of December 31, 1999. As a result of these efforts, we have not
experienced any disruptions to our systems or operations. The cost of these Year
2000 efforts was not material since the majority of the compliance costs were
funded by reallocating existing internal resources rather than incurring
incremental costs. Although unlikely, the possibility still exists that
interruptions to our systems could occur from the Year 2000 issue.

Strategic Alternatives

On April 5, 2000, we announced that we have retained the investment banking firm
ING Barings, LLC in connection with a review of strategic alternatives,
including a possible sale or merger or some other form of business transaction.
We cannot assure you that any transaction will result from this process.

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 we use the words "believes," "expects," "plans," "estimates" and
similar expressions, we intend to identify forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, performance and achievements
to be materially different from any future results, performance or achievements
expressed or implied by these 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; and potential effects of Year 2000 issues.

As a result of these and other factors, we may experience material fluctuations
in future operating results on a quarterly or annual basis, which could
materially and adversely affect our business, financial condition, operating
results and stock price. An investment in our common stock involves various
risks, including those mentioned above and elsewhere in this report and those
which are detailed from time to time in our other filings with the Securities
and Exchange Commission.

You should not place undue reliance on forward-looking statements, which reflect
our view only as of the date hereof. We undertake no obligation to publicly
release revisions to these forward-looking statements that reflect future events
or circumstances or reflect the occurrence of unanticipated events.


<PAGE>   6





                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 Getty Petroleum Marketing Inc. and Subsidiaries


<TABLE>
<CAPTION>



                                                                                For the years ended January 31,
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)                                       2000           1999           1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>            <C>            <C>
Sales and operating revenues                                               $  832,051     $  660,754     $  891,109
Other income                                                                      658          1,538          1,734
-----------------------------------------------------------------------------------------------------------------------------------
                                                                              832,709        662,292        892,843
-----------------------------------------------------------------------------------------------------------------------------------
Cost of sales and operating expenses
  (excluding depreciation and amortization)                                   787,762        624,182        847,234
Selling, general and administrative expenses                                   23,234         20,006         25,794
Depreciation and amortization                                                  16,932         15,927         13,647
Interest expense                                                                  973            909            786
Severance charges                                                                  --            216          2,175
Change of control charge                                                           --             --            637
-----------------------------------------------------------------------------------------------------------------------------------
                                                                              828,901        661,240        890,273
-----------------------------------------------------------------------------------------------------------------------------------
Earnings before provision for income taxes                                      3,808          1,052          2,570
Provision for income taxes                                                      1,753            486          1,389
-----------------------------------------------------------------------------------------------------------------------------------
Net earnings                                                               $    2,055     $      566     $    1,181
===================================================================================================================================
Net earnings per share:
  Basic                                                                    $      .15     $      .04     $      .09
  Diluted                                                                  $      .15     $      .04     $      .09
Weighted average shares outstanding:
  Basic                                                                        13,585         13,422         12,970
  Diluted                                                                      13,599         13,526         13,257
</TABLE>


See accompanying notes.

<PAGE>   7




                           CONSOLIDATED BALANCE SHEETS
                 Getty Petroleum Marketing Inc. and Subsidiaries

<TABLE>
<CAPTION>


                                                                                                      January 31,
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)                                                                 2000         1999
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                             <C>          <C>
ASSETS:
Current assets:
  Cash and equivalents                                                                          $ 10,266     $  6,169
  Investments                                                                                        548        1,339
  Accounts receivable, less allowance for doubtful
    accounts of $841 in 2000 and $901 in 1999                                                     12,200        9,458
  Inventories                                                                                     20,760       16,475
  Deferred income taxes                                                                            4,860        7,315
  Prepaid expenses and other current assets                                                        5,065        2,886
-----------------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                                        53,699       43,642
Property and equipment, at cost, less
  accumulated depreciation and amortization                                                      112,458      101,504
Other assets                                                                                       4,758        4,275
-----------------------------------------------------------------------------------------------------------------------------------
      Total assets                                                                              $170,915     $149,421
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
  Short-term borrowings                                                                         $     --     $  1,900
  Accounts payable                                                                                34,541       16,781
  Accrued expenses                                                                                15,591       12,836
  Gasoline taxes payable                                                                          14,181       13,560
  Income taxes payable                                                                                --        1,086
-----------------------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                                   64,313       46,163
Deferred income taxes                                                                             22,010       21,863
Other, principally deposits                                                                       22,346       21,175
-----------------------------------------------------------------------------------------------------------------------------------
      Total liabilities                                                                          108,669       89,201
-----------------------------------------------------------------------------------------------------------------------------------

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 13,960,898 at January 31, 2000 and 13,945,156 at January 31, 1999                           140          139
  Paid-in capital                                                                                 60,231       60,446
  Retained earnings                                                                                3,802        1,747
  Unearned ESOP stock (290,896 shares at January 31, 2000
    and 425,155 shares at January 31, 1999)                                                       (1,396)      (2,041)
  Accumulated other comprehensive loss                                                              (531)         (71)
-----------------------------------------------------------------------------------------------------------------------------------
      Total stockholders' equity                                                                  62,246       60,220
-----------------------------------------------------------------------------------------------------------------------------------
      Total liabilities and stockholders' equity                                                $170,915     $149,421
===================================================================================================================================
</TABLE>


See accompanying notes.


<PAGE>   8



                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 Getty Petroleum Marketing Inc. and Subsidiaries

<TABLE>
<CAPTION>


                                                                                      For the years ended January 31,
-----------------------------------------------------------------------------------------------------------------------------------
(in thousands)                                                                        2000         1999         1998
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>            <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings                                                                        $  2,055    $    566     $  1,181
Adjustments to reconcile net earnings to net cash provided by operating activities:
  Depreciation and amortization                                                       16,932      15,927       13,647
  Deferred income taxes                                                                2,933      (1,967)      (2,099)
  Stock option charge (credit)                                                            --      (1,146)       2,029
  ESOP charge                                                                            386         645          593
  Change of control charge                                                                --          --          637
  (Gain) loss on dispositions of property and equipment                                  271        (317)         (26)
Changes in assets and liabilities, net of acquisitions:
  Accounts receivable                                                                 (2,742)      1,643        4,094
  Inventories                                                                         (4,285)      4,373       (4,900)
  Prepaid expenses and other current assets                                           (2,184)        207        2,919
  Other assets                                                                          (987)       (650)        (198)
  Accounts payable, accrued expenses and gasoline taxes payable                       21,136      (1,578)         165
  Income taxes payable                                                                (1,086)        779          307
  Other, principally deposits                                                          1,171         436        3,527
-----------------------------------------------------------------------------------------------------------------------------------
    Net cash provided by operating activities                                         33,600      18,918       21,876
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                               (19,794)    (21,492)     (19,105)
  Acquisitions                                                                        (8,017)     (3,840)          --
  Proceeds from dispositions of property and equipment                                   163         527           84
  Investments                                                                             --          --       (1,461)
-----------------------------------------------------------------------------------------------------------------------------------
    Net cash used in investing activities                                            (27,648)    (24,805)     (20,482)
-----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Short-term borrowings (repayments)                                                  (1,900)      1,900           --
  Stock options and common stock                                                          45         358          887
-----------------------------------------------------------------------------------------------------------------------------------
    Net cash provided by (used in) financing activities                               (1,855)      2,258          887
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents                                        4,097      (3,629)       2,281
Cash and equivalents at beginning of year                                              6,169       9,798        7,517
-----------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                                                 $ 10,266    $  6,169     $  9,798
===================================================================================================================================
Supplemental disclosures of cash flow information
  Cash paid during the year for:
    Interest                                                                        $    767    $    704     $    390
    Income taxes, net                                                                  2,086       1,674        2,739

</TABLE>

See accompanying notes.

<PAGE>   9



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 Getty Petroleum Marketing Inc. and Subsidiaries



1. Basis of Presentation

Getty Petroleum Marketing Inc., a Maryland corporation (the "Company"), was
formed on October 1, 1996 as a wholly-owned subsidiary of Getty Petroleum Corp.,
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 "Spinoff").

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
services to the Company. The Company received net fees from Realty for services
performed (after deducting the fees paid by the Company to Realty for services
provided by Realty) of $749,000, $960,000 and $960,000 for the years ended
January 31, 2000, 1999 and 1998, respectively, which 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 13 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, 2000, 1999 and 1998, net unrealized gains (losses) of
($460,000), ($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 immaterial for each of the three years in the period
ended January 31, 2000. As of January 31, 2000 and 1999, 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 (including renewal options if the
Company intends to exercise such options) or the useful life of the related
asset.

<PAGE>   10






              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
                 Getty Petroleum Marketing Inc. and Subsidiaries



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. 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 14,000, 104,000 and 287,000
shares for the years ended January 31, 2000, 1999 and 1998, respectively.

NEW ACCOUNTING STANDARDS: In June 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which in June
1999 was amended by SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133."
The Statement, as amended, is effective for the fiscal year beginning February
1, 2001 and establishes accounting and reporting standards for derivative
instruments and for hedging activities. The Company is currently assessing the
impact of this Statement but does not expect any material effect on its
consolidated financial statements.

3. Inventories

As of January 31, 2000, had the Company utilized the first-in, first out
("FIFO") inventory method, inventories would have been higher by $4,328,000. As
of January 31, 1999 and 1998, the carrying value of the Company's LIFO
inventories approximated the FIFO inventory method or replacement cost.

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, 2000, 1,013 retail
outlets and 9 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
requires 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 under which the Company has responsibility
for all taxes, maintenance, repairs and insurance. For financial statement
purposes, the Master Lease has been recorded as an operating lease.

<PAGE>   11
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 those scheduled 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 during that five-year
period, but not more than 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, a shorter period as provided
in the underlying lease), 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 Realty and the Company. In the event that the Company desires not
to renew the sublease keep coming, 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 sublease term, the Company must 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, was
$58,470,000, $57,007,000 and $57,213,000 for the years ended January 31, 2000,
1999 and 1998, 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, 2000, are as follows:

                                                         Other
Year ended January 31,                       Realty     Lessors    Total
-------------------------------------------------------------------------------
                                                  (in thousands)
2001                                       $ 56,103   $ 3,698   $ 59,801
2002                                         55,696     3,708     59,404
2003                                         55,121     3,170     58,291
2004                                         54,297     3,052     57,349
2005                                         53,661     2,706     56,367
Thereafter                                  359,177     6,787    365,964
-------------------------------------------------------------------------------
                                           $634,055   $23,121   $657,176
===============================================================================

Rent income received under subleases, which is included in sales and operating
revenues, was $38,131,000, $34,712,000 and $34,828,000 for the years ended
January 31, 2000, 1999 and 1998, 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.




<PAGE>   12




              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
                Getty Petroleum Marketing Inc. and Subsidiaries



5. Property and Equipment
Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                                    Depreciable
                                                                 2000       1999    Life (Years)
-----------------------------------------------------------------------------------------------
                                                                  (in thousands)
<S>                                                              <C>           <C>
Land                                                           $    158   $     --
Buildings                                                           137         --        25
Equipment                                                       208,755    192,160     10 to 15
Motor vehicles                                                    4,139      4,166      3 to 10
Furniture and fixtures                                            1,433      1,404        10
Leasehold improvements                                           24,508     14,619    See Note 2
----------------------------------------------------------------------------------
                                                                239,130    212,349
Less, accumulated depreciation and amortization                 126,672    110,845
----------------------------------------------------------------------------------
                                                               $112,458   $101,504
==================================================================================
</TABLE>


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, 2000, 1999 and 1998, environmental expenses included in the
Company's cost of sales and operating expenses were $3,958,000, $2,774,000 and
$1,375,000, respectively.

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

The Company has not reflected a liability for the Realty Environmental
Liabilities in its consolidated balance sheets since Realty remains the primary
obligor for such liabilities. 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, the likelihood that the Company will incur any incremental costs in
connection with any such remediation is remote.

The Company is responsible for, and will indemnify Realty with respect to, all
environmental obligations and liabilities other than the Realty Environmental
Liabilities. As of January 31, 2000 and 1999, the Company had accrued $2,117,000
and $1,415,000, respectively, as management's best estimate for environmental
remediation costs to be incurred. 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.



<PAGE>   13


7. Commitments and Contingencies

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

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, 2000, the Company had uncommitted lines of credit with three
banks in the aggregate amount of $50,000,000, of which $3,095,000 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.

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 future product margin
levels with any degree of accuracy.

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 Spinoff and with respect to certain tax attributes of Realty after the
Spinoff. 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 Spinoff. For periods
subsequent to the Spinoff, the Company has filed its own tax returns.

The provision for income taxes is summarized as follows:

<TABLE>
<CAPTION>
                                                  2000       1999      1998
-------------------------------------------------------------------------------
                                                      (in thousands)
<S>                                             <C>      <C>        <C>
Federal:
  Current                                       $(1,526) $  1,806   $  2,483
  Deferred                                        2,795    (1,475)    (1,499)
State and local:
  Current                                           346       647        908
  Deferred                                          138      (492)      (503)
-------------------------------------------------------------------------------
Provision for income taxes                      $ 1,753     $ 486   $  1,389
===============================================================================
</TABLE>





<PAGE>   14




              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
                Getty Petroleum Marketing Inc. and Subsidiaries



The tax effects of temporary differences which comprise the deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
                                                     2000      1999
-------------------------------------------------------------------------------
                                                    (in thousands)
<S>                                               <C>        <C>
Property and equipment                            $(22,261)  $(21,826)
Accruals                                             5,008      3,109
Inventories                                            103      4,169
-------------------------------------------------------------------------------
Net deferred tax liabilities                      $(17,150)  $(14,548)
===============================================================================
</TABLE>

The following is a reconciliation of the expected statutory federal income tax
provision and the actual provision for income taxes:

<TABLE>
<CAPTION>
                                                                     2000       1999      1998
-----------------------------------------------------------------------------------------------
                                                                         (in thousands)
<S>                                                                <C>         <C>        <C>
Expected provision at statutory federal income tax rate            $ 1,295     $ 358      $ 874
State and local income taxes, net of federal benefit                   319       102        267
Other                                                                  139        26        248
-----------------------------------------------------------------------------------------------
Provision for income taxes                                         $ 1,753     $ 486   $  1,389
===============================================================================================
</TABLE>

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 executive under the Retirement
Plan. Contributions to the Retirement Plan and Supplemental Plan, net of
forfeitures, made by the Company, were approximately $556,000, $569,000 and
$470,000 for the years ended January 31, 2000, 1999 and 1998, respectively. In
addition, the Company contributed $345,000, $342,000 and $345,000 to a union
welfare plan for the years ended January 31, 2000, 1999 and 1998, respectively.
These amounts are included in the accompanying consolidated statements of
operations.

In connection with the Spinoff, 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 5% of the then outstanding
shares. The ESOP purchased 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 the 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 aggregate approximately 134,260 shares of Company Common
Stock per year and are allocated to covered employees in proportion to
compensation over a five-year period. The Company recognized a charge to
operating results of $386,000, $645,000 and $593,000 for the years ended January
31, 2000, 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
402,779 and 537,038 suspense shares at January 31, 2000 and 1999, respectively;
111,883 shares are committed to be released as of each respective period.



<PAGE>   15




Immediately prior to the Spinoff, 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-Spinoff 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. The "Aggregate Spread" is the difference
between the exercise price of an option and the price of a share of Realty
Common Stock immediately prior to the Spinoff multiplied by the number of shares
underlying the option. Certain previously unexercisable options covering a total
of 223,587 shares became immediately exercisable at the date of the Spinoff 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 Spinoff
equal to the product of the number of these 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 may 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% of the total number of shares
covered by the option.

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 Spinoff)
for the three fiscal years ended January 31, 2000:


<TABLE>
<CAPTION>
                                                          2000                     1999                   1998
----------------------------------------------------------------------------------------------------------------------
                                                               WEIGHTED                Weighted               Weighted
                                                                AVERAGE                 Average                Average
                                                   NUMBER      EXERCISE      Number    Exercise    Number     Exercise
                                                  OF SHARES      PRICE     of Shares     Price    of Shares   Price(a)
----------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>        <C>          <C>      <C>           <C>
Outstanding at beginning of year                  826,711        $4.48      851,586      $4.44    1,014,226     $3.02
Granted                                           146,000         2.77       71,750       3.25      410,389      5.87
Exercised                                              --           --      (86,251)      2.92     (461,542)     2.89
Cancelled                                         (55,488)        4.83      (10,374)      5.97     (111,487)     3.19
----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year                        917,223        $4.18      826,711      $4.48      851,586     $4.44
=====================================================================================================================
Exercisable at end of year                        589,680        $4.27      586,245      $4.21      594,026     $3.86
=====================================================================================================================
Available for grant at end of year                590,533                   681,045                  42,421
=====================================================================================================================
</TABLE>

(a) In connection with the Spinoff, each Realty Option was reformed into
separate options for Realty Common Stock and Marketing Common Stock. The
exercise price of each reformed Marketing Option represents 22.71% of the
original exercise price.



<PAGE>   16




              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
                Getty Petroleum Marketing Inc. and Subsidiaries



The following table summarizes information concerning options outstanding and
exercisable at January 31, 2000:

<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                    542,129                  6                 $3.02               343,154            $3.09
 5.69-6.00                    375,094                  6                  5.86               246,526             5.92
----------------------------------------------------------------------------------------------------------------------

                              917,223                                                        589,680
======================================================================================================================
</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 and net earnings per share
on a diluted basis would have resulted in the following pro forma amounts:

<TABLE>
<CAPTION>
                                                 2000                        1999                         1998
------------------------------------------------------------------------------------------------------------------------
                                     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)                    $2,055         $1,779         $566         $(112)          $1,181        $1,755
Net earnings (loss) per share             .15            .13          .04          (.01)             .09           .13
</TABLE>


The fair value of the options granted during fiscal 2000, 1999 and 1998 were
estimated as $1.47, $1.91 and $3.03 per share, respectively, on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                   2000        1999      1998
-------------------------------------------------------------------------------
<S>                                                <C>         <C>       <C>
Expected dividend yield                              0%         0%        0%
Expected volatility                                 40%        38%       37%
Risk-free interest rate                              6.5%       5.1%      5.6%
Expected life of options (years)                     7          7         6
</TABLE>


<PAGE>   17



10. Stockholders' Equity
A summary of the changes in stockholders' equity for the three years ended
January 31, 2000 is as follows:



<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                        Capital Stock                                     Other
                                                     ------------------    Paid-in       Retained      Comprehensive
                                                     Shares      Amount    Capital       Earnings     Earnings (Loss)
-----------------------------------------------------------------------------------------------------------------------
                                                                                              (in thousands)
<S>                                                      <C>     <C>       <C>            <C>         <C>
Balance, February 1, 1997                                1       $  --     $ 54,541       $    --       $   --
Distribution of stock in Spinoff                    12,754         127         (127)
Comprehensive earnings:
Net earnings                                                                                1,181
Net unrealized gain on equity securities                                                                   147

    Total

Issuance of stock to ESOP                              671           7        3,215
ESOP stock committed to be released                                              58
Issuance of common stock                                 3          --           18
Stock options                                          406           4        3,531
-----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1998                           13,835         138       61,234         1,181          147
Comprehensive earnings:
Net earnings                                                                                  566
Net unrealized loss on equity securities                                                                  (218)

    Total

ESOP stock committed to be released                                               1
Issuance of common stock                                24          --          107
Stock options                                           86           1         (896)
-----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1999                           13,945         139       60,446         1,747          (71)
Comprehensive earnings:
Net earnings                                                                                2,055
Net unrealized loss on equity securities                                                                  (460)

    Total

ESOP stock committed to be released                                            (259)
Issuance of common stock                                16           1           44
-----------------------------------------------------------------------------------------------------------------------
Balance, January 31, 2000                           13,961       $ 140     $ 60,231       $ 3,802       $ (531)
=======================================================================================================================
</TABLE>





<TABLE>
<CAPTION>

                                                             ESOP
                                                       ----------------
                                                       Shares    Amount        Total
--------------------------------------------------------------------------------------

<S>                                                     <C>     <C>            <C>
Balance, February 1, 1997                                --     $   --         $54,541
Distribution of stock in Spinoff                                                    --
Comprehensive earnings:
Net earnings                                                                     1,181
Net unrealized gain on equity securities                                           147
                                                                               -------
    Total                                                                        1,328
                                                                               -------
Issuance of stock to ESOP                              (671)     (3,222)            --
ESOP stock committed to be released                     112         537            593
Issuance of common stock                                                            18
Stock options                                                                    3,535
--------------------------------------------------------------------------------------
Balance, January 31, 1998                              (559)     (2,685)        60,015
Comprehensive earnings:
Net earnings                                                                       566
Net unrealized loss on equity securities                                          (218)
                                                                               -------
    Total                                                                          348
                                                                               -------
ESOP stock committed to be released                     134         644            645
Issuance of common stock                                                           107
Stock options                                                                     (895)
--------------------------------------------------------------------------------------
Balance, January 31, 1999                              (425)     (2,041)        60,220
Comprehensive earnings:
Net earnings                                                                     2,055
Net unrealized loss on equity securities                                          (460)
                                                                               -------
    Total                                                                        1,595
                                                                               -------
ESOP stock committed to be released                     134         645            386
Issuance of common stock                                                            45
--------------------------------------------------------------------------------------
Balance, January 31, 2000                              (291)    $(1,396)       $62,246
======================================================================================
</TABLE>





<PAGE>   18





              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
                Getty Petroleum Marketing Inc. and Subsidiaries



11. Quarterly Financial Data

The following is a summary of the quarterly results of operations for the years
ended January 31, 2000 and 1999 (unaudited as to quarterly information):

<TABLE>
<CAPTION>

                                                                        Three months ended                  Year ended
----------------------------------------------------------------------------------------------------------------------
Fiscal 2000:                                               April 30      July 31   October 31  January 31   January 31
----------------------------------------------------------------------------------------------------------------------
                                                                   (in thousands, except per share amounts)
<S>                                                       <C>          <C>         <C>          <C>          <C>
Revenues                                                  $159,149     $195,353    $227,845     $250,362     $832,709
Gross profit(a)                                             10,033       10,130       9,758       14,368       44,289
Depreciation and amortization                                4,090        4,232       3,972        4,638       16,932
Earnings before income taxes                                   437          161         241        2,969        3,808
Net earnings                                                   244           90         132        1,589        2,055
Basic and diluted net earnings per share                       .02          .01         .01          .12          .15
</TABLE>


<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
Basic and diluted net earnings (loss) per share              (.25)        (.11)         .01          .39          .04
</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.
These 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. These 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.



<PAGE>   19



13. Segment Information

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 1,291 Getty and other branded
retail outlets. The Heating Oil segment sells fuel oil, kerosene and propane,
and provides 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).

The financial results of the Petroleum Marketing and Heating Oil segments for
the years ended January 31, 2000, 1999 and 1998 are set forth below:


<TABLE>
<CAPTION>
                                                                      For the years ended January 31,
---------------------------------------------------------------------------------------------------------------
                                                     2000                          1999
---------------------------------------------------------------------------------------------------------------
                                                                                      (in thousands)
                                              Petroleum Heating             Petroleum     Heating
                                              Marketing    Oil      Total    Marketing      Oil       Total
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>        <C>       <C>        <C>         <C>        <C>
Sales and operating revenues                  $801,509   $30,542   $832,051   $635,041    $25,713    $660,754
Other income                                       617        41        658      1,487         51       1,538
---------------------------------------------------------------------------------------------------------------
                                               802,126    30,583    832,709    636,528     25,764     662,292
---------------------------------------------------------------------------------------------------------------
Cost of sales and operating expenses
  (excluding depreciation and amortization)    761,735    26,027    787,762    602,725     21,457     624,182
Selling, general and administrative expense     20,727     2,507     23,234     17,622      2,384      20,006
Depreciation and amortization                   16,155       777     16,932     15,498        429      15,927
Interest expense                                   973        --        973        908          1         909
Severance charges                                   --        --         --        216         --         216
Change of control charge                            --        --         --         --         --          --
---------------------------------------------------------------------------------------------------------------
                                               799,590    29,311    828,901    636,969     24,271     661,240
---------------------------------------------------------------------------------------------------------------
Earnings (loss) before provision (credit)
  for income taxes                                2,536    1,272      3,808       (441)     1,493       1,052
Provision (credit) for income taxes               1,167      586      1,753       (204)       690         486
---------------------------------------------------------------------------------------------------------------
Net earnings (loss)                            $  1,369  $   686   $  2,055   $   (237)   $   803    $    566
===============================================================================================================

Identifiable assets                            $160,714  $10,201   $170,915   $ 140,299   $ 9,122    $149,421
Capital expenditures                             19,579      215     19,794      21,180       312      21,492
</TABLE>






<TABLE>
<CAPTION>

------------------------------------------------------------------------------
                                                    1998
------------------------------------------------------------------------------

                                             Petroleum    Heating
                                             Marketing      Oil        Total
------------------------------------------------------------------------------
<S>                                           <C>         <C>        <C>
Sales and operating revenues                  $858,656    $32,453    $ 891,109
Other income                                     1,687         47        1,734
------------------------------------------------------------------------------
                                               860,343     32,500      892,843
------------------------------------------------------------------------------
Cost of sales and operating expenses
  (excluding depreciation and amortization)    819,169     28,065      847,234
Selling, general and administrative expense     23,466      2,328       25,794
Depreciation and amortization                   13,341        306       13,647
Interest expense                                   786         --          786
Severance charges                                2,175         --        2,175
Change of control charge                           637         --          637
------------------------------------------------------------------------------
                                               859,574     30,699      890,273
------------------------------------------------------------------------------
Earnings (loss) before provision (credit)
  for income taxes                                 769      1,801        2,570
Provision (credit) for income taxes                416        973        1,389
------------------------------------------------------------------------------
Net earnings (loss)                             $  353    $   828    $   1,181
==============================================================================

Identifiable assets                           $139,440    $ 6,889    $ 146,329
Capital expenditures                            19,014         91       19,105
</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, 2000 and 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 2000, in conformity with accounting principles generally
accepted in the United States. 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 auditing standards generally accepted in the
United States, 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 9, 2000






                                  COMMON STOCK
                Getty Petroleum Marketing Inc. and Subsidiaries

The common stock of Getty Petroleum Marketing Inc., our only outstanding voting
security, is traded on the New York Stock Exchange (symbol: "GPM"). At April
18, 2000, there were approximately 3,000 holders of record of our common stock.
The price ranges of common stock during the past two fiscal years were as
follows:

<TABLE>
<CAPTION>
                                             Price Range
-----------------------------------------------------------
Quarter Ending                              High     Low
-----------------------------------------------------------
<S>                                       <C>       <C>
January 31, 2000                          $3 1/16   $2 1/16
October 31, 1999                           3 1/2     2 3/4
July 31, 1999                              3 1/2     2 3/4
April 30, 1999                             3 1/2     2 3/16
-----------------------------------------------------------
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
-----------------------------------------------------------
</TABLE>

We have not paid any dividends on our common stock.