UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.20549

FORM 10-K/A

ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004COMMISSION FILE NUMBER: 0-29182

THE MAJOR AUTOMOTIVECOMPANIES, INC.(Exact name of registrant as specified in itscharter)

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|---------------------------------------------------------------|--|------------------------------------|--|--|--|--|
| NEVADA                                                        |  | 11-3292094                         |
| (Stateor other jurisdiction of incorporation or organization) |  | (I.R.S. EmployerIdentificationNo.) |
|                                                               |

43-40 NORTHERN BOULEVARD, LONGISLAND CITY, NEW YORK 11101(Address, including Zip Code, ofprincipal executive offices)Registrant's telephone number,including area code: (718) 937-3700

SECURITIESREGISTERED PURSUANT TO SECTION 12(g) OF THEACT:

COMMON STOCK, $0.01 PAR VALUE(Titleof Class)

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the SecuritiesAct. YES  NO 

Indicate by checkmark if the registrant is not required to file reports pursuant toSection 13 or Section 15(d) of the Act. YES  NO

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant as required to file suchreports) and (2) has been subject to such filing requirements for thepast 90 days. YES  NO 

Indicate bycheck mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, tothe best of registrant's knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant isa large accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of ‘‘accelerated filer and largeaccelerated filer’’ in Rule 12b-2 of the Exchange Act.(Check one):

Large accelerated filer   Accelerated filer   Non-accelerated filer  X 

Indicateby checkmark whether the registrant is a shell company (as defined inRule 12b-2 of the Act). YES  NO

The aggregate market value of the voting andnon-voting equity held by non-affiliates computed by reference to theprice at which the common equity was sold, or the average bid and askedprice of such common equity, as of January 26, 2006 was approximately$7,693,773.

As of January 26, 2006, there were 9,222,228shares of the registrant's common stockoutstanding.

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INDEX TOFORM 10-K

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|----------|--|----------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--|--|
|     |  |                                                                                         |        | Page   |
| PART I   |  |                                                                                         |   |   |        |   |   |   |
| Item1.   |  | Business                                                                                     |        |   | 3      |   |
| Item2.   |  | Properties                                                                                   |        |   | 26     |   |
| Item3.   |  | Legal Proceedings                                                                            |        |   | 27     |   |
| Item4.   |  | Submission Of Matters To A Vote of SecurityHolders                                           |        |   | 29     |   |
| PARTII   |  |                                                                                         |        |   |   |   |
| Item 5.  |  | Market For Registrant’sCommon Equity And Related StockholderMatters                    |        |   | 30     |   |
| Item 6.  |  | SelectedFinancial Data                                                                       |        |   | 31     |   |
| Item7.   |  | Management’s Discussion And Analysis Of FinancialCondition And Results of Operations   |        |   | 32     |   |
| Item7A.  |  | Quantitative Snd Qualitative Disclosures About MarketRisk                                    |        |   | 40     |   |
| Item 8.  |  | Financial StatementsAnd Supplementary Data                                                   |        |   | 40     |   |
| Item9.   |  | Changes In And Disagreements With Accountants On AccountingAnd Financial Disclosure          |        |   | 41     |   |
| Item9A.  |  | Controls And Procedures                                                                      |        |   | 41     |   |
| Item9B.  |  | OtherInformation                                                                        |        |   | 41     |   |
| PARTIII  |  |                                                                                         |        |   |   |   |
| Item 10. |  | Directors And ExecutiveOfficers Of The Registrant                                            |        |   | 42     |   |
| Item11.  |  | Executive Compensation                                                                       |        |   | 43     |   |
| Item12.  |  | Security Ownership Of Certain Beneficial Owners AndManagement And Related StockholderMatters |        |   | 48     |   |
| Item 13. |  | CertainRelationships And RelatedTransactions                                                 |        |   | 49     |   |
| Item 14. |  | PrincipalAccountant Fees AndServices                                                         |        |   | 51     |   |
| PARTIV   |  |                                                                                         |        |   |   |   |
| Item 15. |  | Exhibits and FinancialStatementSchedules                                                     |        |   | 52     |   |
|     |  | Signatures                                                                                   |        |   | 63     |   |
|          |

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PART I

ExplanatoryNote

The Major Automotive Companies, Inc.(‘‘we,’’‘‘us,’’ ‘‘our’’or the ‘‘Company’’) is filing thisAmendment No. 1 on Form 10-K/A (the‘‘Amendment’’) to amend our previouslyfiled Annual Report on Form 10-K for the year ended December31,  2004, as filed with the Securities and Exchange Commission(the ‘‘SEC’’) on July  26,2005 (the ‘‘Original Filing’’). ThisAmendment is being filed to reflect the results of comments that theCompany received from the staff of the Division of Corporation Finance(the Staff) of the Securities and Exchange Commission (the SEC) inconnection with the Staff’s normal periodic review of itsfilings and has resulted in the Company restating its balance sheets asof December  31,  2004 and 2003 and the relatedconsolidated statements of cash flows for each of the three years inthe period ended December  31,  2004.

Adiscussion of the restatement is set forth in Item 7.Management’s Discussion and Analysis of Financial Condition andResults of Operations and in Note 7 to the Consolidated FinancialStatements included in this Amendment. Changes have also been made tothe following items in this Amendment as a result of therestatement:

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|  | •  | Item 7. Management’sDiscussion and Analysis of Financial Condition and Results ofOperations, and |

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|  | •  | Item 8. FinancialStatements and Supplementary Data, including the Notes to theConsolidated Financial Statements. |

The changes do notaffect working capital or total cash flows. The other portions of theOriginal Filing are unaffected and have not been amended. Allinformation in this Amendment is as of the date of the Original Filingand does not reflect any subsequent information or events occurringafter the date of the Original Filing, except to reflect the changesdiscussed in the restatement note. Accordingly, this Amendment shouldbe read in conjunction with the Original Filing and our other filingswith the SEC subsequent to the filing of the Original Filing, includingany amendments to those filings.

Item1.    Business

The statements which are nothistorical facts contained in this Annual Report are forward-lookingstatements that involve risks and uncertainties, including, but notlimited to, changes in the automotive market, government regulation,the nature of possible supplier or customer arrangements which maybecome available to us in the future, uncollectible accountsreceivable, slow moving inventory, lack of adequate financing,increased competition and unfavorable general economic conditions. Ouractual results may differ materially from the results discussed in anyforward-looking statement.

When used in the AnnualReport on Form 10-K, the words ‘‘may’’,‘‘will’’,‘‘should’’,‘‘expect’’,‘‘believe’’,‘‘anticipate’’,‘‘continue’’,‘‘estimate’’,‘‘project’’,‘‘intend’’ and similar expressions areintended to identify forward-looking statements within the meaning ofSection 27A of the Securities Act and Section 21E of the Exchange Actregarding events, conditions and financial trends that may affect ourfuture plans of operations, business strategy, results of operationsand financial condition. We wish to ensure that such statements areaccompanied by meaningful cautionary statements pursuant to the safeharbor established in the Private Securities Litigation Reform Act of1995. Prospective investors are cautioned that any forward-lookingstatements are not guarantees of future performance and are subject torisks and uncertainties and that actual results may differ materiallyfrom those included within the forward-looking statements as a resultof various factors including our ability to consummate, and the termsof, acquisitions, if any. Such forward-looking statements should,therefore, be considered in light of various important factors,including those set forth herein and others set forth from time to timein our reports and registration statements filed with the Securitiesand Exchange Commission (the‘‘Commission’’). We disclaim any intent orobligation to update such forward-lookingstatements.

Although we believe that theexpectations in the forward-looking statements are reasonable, wecannot guarantee future results, levels of activity, performance orachievements.

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The Company

General

The Major Automotive Companies, Inc. was incorporated inNevada on November  7,  1995. We historically have operatedas a holding company and, accordingly, we derive our revenues solelyfrom our operating subsidiaries. Our first full year of operations was1996. Unless otherwise indicated, all references to the‘‘Company,’’‘‘we,’’ ‘‘us,’’and ‘‘our’’ include reference to oursubsidiaries as well.

Automotive Operations

We sell new and used vehicles through the Major Dealer Group(the ‘‘Major Dealer Group’’), a leadingconsolidator of automobile dealerships in the New York metropolitanarea, which, in 2004, operated through six (6) retail automobilefranchises in five showrooms in three locations. Our leasing operationsconsist of providing leases and other financing.

DiscontinuedOperations

In November  2000, we announced ourintent to divest our non-automotive activities, specifically, ourformer technology division, by way of sale, merger, consolidation orotherwise. By July  2001, we completed our divestiture of ourformer technology division, which was undertaken in order to maximizeshareholders' value from these operations and to maintain ourfocus on the operation and consolidation of our retail automotivedealerships.

Year 2004 Summary

The year2004 reflected a number of significant events that significantlyaffected our business and results of operation. First, our operationsimproved from the prior year and we achieved near-record revenues ofapproximately $397  million, almost $17  million more thanour revenues of $380  million in 2003. Our gross profits were atan all-time high of approximately $65  million, approximately$4  million more than our 2003 gross profit of $61million. However, in the fourth quarter of 2004, we incurred a non-cashcharge of $8.1  million relating to the write-down of goodwillfollowing our annual evaluation. This write-down was primarilyresponsible for our net loss of $6.8  million in 2004 comparedwith a net loss of approximately $1.1  million for the year endedDecember  31,  2003.

Automotive Operations

Major Auto Acquisition

On April21,  1997, we and our wholly-owned subsidiary, Major AcquisitionCorp., entered into a merger agreement with Major Automotive Group,Inc. (‘‘Major Auto’’) and its solestockholder, Bruce Bendell, our President, Chief Executive Officer,Acting Chief Financial Officer, Chairman and beneficial owner ofapproximately 47.0% of our outstanding common stock. Pursuant tothe merger agreement, Bruce Bendell contributed to Major Auto all ofhis shares of common stock of Major Chevrolet, Inc., Major Subaru,Inc., Major Dodge, Inc. and Major Chrysler, Plymouth, Jeep Eagle, Inc.Major Acquisition Corp. then acquired from Bruce Bendell all of theissued and outstanding shares of common stock of Major Auto in exchangefor shares of a new class of our preferred stock. Major AcquisitionCorp. purchased the remaining 50% of the issued and outstandingshares of common stock of Major Dodge, Inc. and Major Chrysler,Plymouth, Jeep Eagle, Inc. from Harold Bendell, Bruce Bendell'sbrother, for $4  million in cash pursuant to a stock purchaseagreement. In addition, Major Acquisition Corp. acquired certain realestate components from Bruce Bendell and Harold Bendell (together,‘‘the Bendells’’) for $3  million.The foregoing acquisitions are collectively referred to herein as the‘‘Major Auto Acquisition.’’

Tofinance the cash portion of the Major Auto Acquisition, whichaggregated $7  million ($4  million for Harold Bendell and$3  million to purchase the real estate component), MajorAcquisition Corp. borrowed $7.5  million from Falcon Financial,LLC (‘‘Falcon’’) for a 15 year term at aninterest rate of 10.18% pursuant to a loan and securityagreement dated May  14,  1998 (the ‘‘Loanand Security Agreement’’). 

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Prepayment may be made, in full only, alongwith the payment of a premium. Pursuant to the Loan and SecurityAgreement, the collateral securing the transaction includes theacquired real estate and, subject to the interests of any current orprospective ‘‘floor plan or cap loanlender,’’ the assets of Major Acquisition Corp. Moreover,Major Acquisition Corp. is required to comply with certain financialcovenants related to its net worth and cash flow. In addition, weprovided an unconditional guarantee of the Falcon loan pursuant to aguarantee agreement dated May  14,1998.

General

The Major Dealer Group isone of the largest volume automobile retailers in New York City. In2004, Major Auto owned and operated the following five (5) franchisedautomobile dealerships operating in three showrooms in Long IslandCity, New York: (i) Chevrolet; (ii) Chrysler; (iii) Dodge; (iv) Jeepand (v) Kia. In addition, the Major Dealer Group owns two (2) otherfranchised dealerships in the New York metropolitan area: (i) Dodge, inOrange, New Jersey, and (ii) Nissan, in Hempstead, Long Island. MajorAuto also distributes General Motors’ vehicles to EasternEuropean countries. Through its dealerships, the Major Dealer Groupsells new and used automobiles, provides related financing, sellsreplacement parts and provides vehicle repair service and maintenance.See ‘‘Sale and Termination of FranchiseAgreements.’’

Our President, ChiefExecutive Officer, Acting Chief Financial Officer and Chairman, BruceBendell, has more than 32 years experience in the automobile industry.Mr.  Bendell began selling and leasing used vehicles in 1972 andhas owned and managed franchised automobile dealerships since heacquired Major Auto's Chevrolet dealership in 1985. UnderMr.  Bendell's leadership, the Major Dealer Group hasexpanded from a single-franchise dealership having approximately$10  million in revenues and 25 employees in 1985 to a seven (7)franchise dealership group having almost $397  million inrevenues and more than 500 employees in 2004.

IndustryBackground

According to industry data from theNational Automobile Dealers Association (‘‘NADAData’’), on average in 2004, new vehicle salesconstituted 60.9% of a franchised dealership's totalsales. Unit sales of new vehicles increased 1.6% in 2004 to atotal of 16.9  million units sold. At an average retail-sellingprice of $28,060 per vehicle, new vehicle sales totaled approximately$473.1  billion in 2004. From 2000 to 2004, sales revenue fromthe sale of new vehicles increased approximately 9.1%. Theaverage dealership's gross profit as a percentage of sellingprice for new vehicles was 5.2% in 2004.

Accordingto NADA Data, on average in 2004, used vehicle sales constituted27.5% of a franchised dealership's total sales. In 2004,franchised new vehicle dealers sold approximately 11.8  millionretail used vehicles. At an average selling price of $14,247 pervehicle, used vehicle retail sales totaled approximately $168.1billion in 2004. From 2000 to 2004, sales revenue from the retail saleof used vehicles decreased approximately 2.3%. The averagedealership's gross profit as a percentage of selling price forused vehicles was 11.2% in 2004.

The followingtable sets forth information regarding vehicle sales by franchised newvehicle dealerships for the periods indicated:

United StatesFranchised Dealers’ VehiclesSales

|                             |
|-----------------------------|
|                             |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                        |  | 2000 |  | 2001 |  | 2002 |  | 2003 |  | 2004 |
|                        |  | (Unitsin millions; dollars in billions) |
| New vehicle unitsales       |  |   | 17.4 |   |  |   | 17.1 |   |  |   | 16.8 |   |  |   | 16.6 |   |  |   | 16.9 |   |
| Newvehicle salesrevenue(1)  |  | $ | 433.7 |   |  | $ | 441.1 |   |  | $ | 439.5 |   |  | $ | 434.3 |   |  | $ | 473.1 |   |
| Usedvehicle unitsales       |  |   | 12.6 |   |  |   | 12.9 |   |  |   | 11.6 |   |  |   | 11.6 |   |  |   | 11.8 |   |
| Usedvehicle salesrevenue(1) |  | $ | 172.0 |   |  | $ | 179.8 |   |  | $ | 160.6 |   |  | $ | 160.0 |   |  | $ | 168.1 |   |
|                             |

|  |           |                                                                                                                                                                       |
|--|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (1)  | Salesrevenue figures were generated by multiplying the total unit sales bythe average retail-selling price of the vehicle for the given year.Source: NADA Data, 2004. |

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In addition to revenues from thesale of new and used vehicles, automotive dealerships derive revenuesfrom repair and warranty work, sale of replacement parts, financing andcredit insurance and the sale of extended warranty coverage. Accordingto NADA Data, revenues resulting from service and parts sales increasedapproximately 0.2% in 2004 for franchised dealerships. In 2004,revenue from parts and services constitutes, on average, approximately11.5% of a franchised dealership's totalsales.

Automotive dealerships' profits vary widelyand depend in part upon the effective management of inventory,marketing, quality control and responsiveness to customers. Accordingto NADA Data, in 2004, total franchised dealership gross profits were,on average, $4.4  million, with an average net profit beforetaxes of $560,000.

Over the past several years, to reducethe costs of owning a new vehicle, automobile manufacturers haveoffered favorable short-term lease terms. This attracted consumers toshort-term leases and resulted in consumers returning to the newvehicle market sooner than if they had purchased a new vehicle withlonger-term financing. In addition, the previous expansion of theshort-term lease market provided new car dealerships with a continuingsource of off-lease vehicles and also enabled dealerships' partsand service departments to provide repair service under factorywarranty for the lease term. In more recent years, however, this trendhas diminished and continues to do so in part due to other favorablealternatives being offered by automobile manufacturers such as zeropercent financing and rebates.

The automotive dealershipindustry has been consolidating in recent years. Until the 1960s,automotive dealerships were typically owned and operated by a singleindividual who controlled a single franchise. However, because ofcompetitive and economic pressures in the 1970s and 1980s, particularlythe oil embargo of 1973 and the subsequent loss of market shareexperienced by United States automobile manufacturers to importedvehicles, many automotive dealerships were forced to close or to sellto better-capitalized dealer groups. Continued competitive and economicpressure faced by automotive dealers and an easing of restrictionsimposed by automobile manufacturers on multiple-dealer ownership haveled to further consolidation. According to NADA Data, the number offranchised dealerships has declined from 36,336 in 1960 to 21,640 atthe end of 2004.

We believe that franchised automobiledealerships will continue to consolidate because the capital requiredto operate dealerships continues to increase, many dealership ownersare approaching retirement age and certain automobile manufacturerswant to consolidate their franchised dealerships to strengthen theirbrand identity. For example, General Motors Corporation and Ford MotorCompany have been reducing the number of their franchises to upgradetheir retail networks and increase dealer profitability. We believethat dealership groups that have significant equity capital andexperience in acquiring and running dealerships will have anopportunity to acquire additional franchised dealerships. Additionally,while we believed that the increased percentages of leased versus ownedvehicles that was the trend several years ago, may have provided someprotection against the history of decreased motor vehicle purchasersduring periods of economic downturns, the decline of such leasedvehicles in recent years has reduced that level of protection, if, infact, such a downturn occurs.

Operating Strategy

Our operating strategy is to continually increase customersatisfaction and loyalty and to increase operating efficiencies. Keyelements of this operating strategy are asfollows:

Focus on Used Vehicle Sales. A keyelement of our operating strategy is to focus on the sale of usedvehicles. According to NADA data, in 2004, approximately 11.8million used cars were sold retail by dealers, which is approximatelythe same number of such sales in 2003. Sales of used vehicles aregenerally more profitable than sales of new vehicles. For the industryas a whole, average gross profit on used vehicles sales was11.2%, compared with new vehicle average gross profits of5.2%. In 2004, our dealerships’ average gross profit onused vehicles was approximately 19.4% and on new vehicles wasapproximately 9.4%.

We believe that the New Yorkmetropolitan area is one of the largest markets for used vehicle salesin the United States and that we sell more used vehicles in the NewYork metropolitan area than any other automobile dealership ordealership group. We strive to attract customers and enhance buyersatisfaction 

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by offering multiple financing and leasingoptions and competitive warranty products on every used vehicle wesell. We believe that a well-managed used vehicle operation affords usan opportunity to: (i) generate additional customer traffic from a widevariety of prospective buyers; (ii) increase new and used vehicle salesby aggressively pursuing customer trade-ins; (iii) generate incrementalrevenues from customers financially unable or unwilling to purchase anew vehicle; and (iv) increase ancillary product sales to improveoverall profitability. To maintain a broad selection of high-qualityused vehicles and to meet local demand preferences, we acquire usedvehicles from trade-ins and a variety of sources nationwide, includingdirect purchases from individuals and fleets, and manufacturers'and independent auctions. We believe that the price at which we acquireused vehicles, our success in providing non-recourse financing toprospective buyers who may otherwise find it difficult to obtainfinancing and selling high priced quality used cars are the mostsignificant factors contributing to the profitability of our usedvehicle operations. We believe that, because of the large volume ofused vehicles that we sell each month and our experienced managementteam, we are able to identify quality used vehicles, assess theirvalue, purchase them for a favorable price and sell them profitably toa diverse customer base.

Major World Branding. Wehave established and continue to focus on maintaining the strength ofour Major World brand and www.majorworld.com Internet brandfor our current used car operations and those of the Major DealerGroup's participating regional dealerships. With centralizedbuying and advertising as its focus, Major World is a catalyst in usedcar sales through our dealerships in the New York metropolitanarea.

Provide a Broad Range of Products andServices. We offer a broad range of products and services,including an extensive selection of new and used cars and light trucks,vehicle financing, replacement parts and service. In 2004, at ourvarious locations, we offered six (6) makes of new vehicles- Chevrolet,Chrysler, Dodge, Jeep, Kia, and Nissan. In addition, we sold a varietyof used vehicles at a wide range of prices. We believe that offeringnumerous makes and models of vehicles, both new and used, appeals to abroad cross section of customers, minimizes dependence on any oneautomobile manufacturer and helps reduce our exposure to supplyproblems and product cycles.

Operate MultipleDealerships in Target Market. Our goal is to become the leadingautomotive dealer in our target market, the New York metropolitan area,by operating multiple dealerships in that market. To accomplish this,we had sought to acquire new franchises at favorable prices in ourexisting market and to expand our existing franchises to new markets,where practicable. We believed this strategy would enable us to achieveeconomies of scale in advertising, inventory management, managementinformation systems and corporate overhead. We still believe that theoperation of multiple dealerships provides synergies and economies, andour concentrations of dealerships in Long Island City, New York,Orange, New Jersey, and Hempstead, Long Island, give us effectivegeographic coverage. However, individual dealership profitability hasbecome our primary focus and our strategies are designed to enhance theprofitability of our highest potential dealerships and to close ordivest non-performing or under-performing dealerships. No assurancescan be given that such strategy will be successful.

Emphasize Sales of Higher Margin Products andServices. We generate substantial incremental revenue and achieveincreased profitability through the sale of certain ancillary productsand services such as financing, extended service contracts and vehiclemaintenance. We provide our employees with special training andcompensate them, in part, with commissions based on their sales of suchproducts and services. We believe that these ancillary products andservices enhance the value of purchased or leased vehicles and increasecustomer satisfaction.

Employ Professional ManagementTechniques. We employ professional management techniques in allaspects of our operations, including information technology, employeetraining, profit-based compensation and cash management. Each of ourdealership locations, our centralized used vehicle operation and ourservice and parts operations is managed by a trained and experiencedgeneral manager who is primarily responsible for decisions relating toinventory, advertising, pricing and personnel. We compensate ourgeneral managers based, in part, on the profitability of the operationsthey control rather than on sales volume. Our senior management meetsweekly with our general managers and utilizes computer-based managementinformation systems to monitor each dealership's sales,profitability and 

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inventory on a daily basis and to identifyareas requiring improvement. We believe that the application of ourprofessional management techniques provides us with a competitiveadvantage over other dealerships and dealershipgroups.

Internet Sales and Other Innovations. Webelieve that we have achieved a competitive advantage through the useof technology. We have generated revenues of more than $1million each month from our Internet website,www.majorworld.com, and other websites such aswww.autotrader.com, www.nytimes.com,www.newsday.com and www.yahoo.com. Additionally, wepresently enable our customers to obtain credit approvals over thetelephone via a customized telephone interactive voice response system,that operates 24 hours per day, seven days per week, in multiplelanguages and permits customers to obtain answers to the mostfrequently asked questions, obtain price quotes, place orders, scheduleand confirm service appointments, obtain directions to the dealershipand request faxes of product and price information. We continue to seekto take advantage of new innovations that will enable us to providebetter customer service and enhance customersatisfaction.

Target Sales to Ethnic Groups.Because the New York metropolitan area, our primary market, isethnically diverse, we target our selling efforts to a broad range ofethnic groups. We employ a multi-lingual sales force, advertise inethnic media and intend to further expand our electronic-related mediato accommodate multiple languages.

Growth Strategy

Historically, our strategy for growth was focused onexpanding our dealership group by making acquisitions of non-performingor underperforming dealerships in the New York metropolitan area. Whenthis strategy was formulated, our common stock price was relativelyattractive and thus, a key component of the purchase price was the useof our common stock. Since the price of our stock has significantlydeclined from its levels at the time our acquisition strategy wasconceived, the use of payment in the form of our common stock asconsideration in acquiring automotive dealerships would be extremelydilutive to our shareholders. Additionally, we believe that the pricesbeing sought for dealerships, at this time, make their acquisitionunattractive. Consequently, we have postponed our plans for growththrough acquisition. Instead, our focus is on maximizing revenues andprofitability in our existing dealerships. However, while we are notpresently seeking dealerships to acquire, if a particularly attractiveopportunity should present itself, we would evaluate anacquisition.

We seek to grow our volume and hope toachieve profitability by focusing on our core dealership group andexpanding and enhancing those operations. Part of this focus will be tocontinue to build on our new and used vehicle sales. In particular, webelieve that we can enhance used vehicle sales by capitalizing on ourMajor World brand and by continuing and expanding our successful salesefforts. In addition to thorough training of our sales and servicestaff and attentive customer service at the dealership level, we expectto expand our advertising in all media outlets. In addition, wecontinuously look to find attractive and viable financing products forour customers. We will look to improve upon our used car vehiclechoices for our customers and maintain and augment our already widerange of late model used vehicles, which go from entry level to luxuryand include custom vans and specialty vehicles.

To attainprofitability, we will continue to utilize our expertise, buying powerand facilities to take advantage of opportunities to obtain substantialnumbers of quality used vehicles at attractive prices from publicauctions and off-lease programs. Additionally, we will continue to useour substantial buying power to lower costs for equipment, supplies andoutside vendor services.

Dealership Operations

In 2004, we owned and operated five (5) automobile franchisesat three (3) locations in Long Island City, New York, one (1) franchiseat one (1) location in Hempstead, New York and one (1) franchise at one(1) location in Orange, New Jersey. We offered the following six (6)makes of new vehicles: Chevrolet, Chrysler, Dodge, Jeep, Kia andNissan. Each of our locations is run by a separate manager who isresponsible for overseeing all aspects of the business conducted atthat location. Each of the parts and service locations has two (2)managers, one for parts and one for service. Each manager meets withour senior management on a weekly basis.

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Bruce Bendell, our President, ChiefExecutive Officer, Acting Chief Financial Officer and Chairman, andHarold Bendell, a key employee and the brother of Bruce Bendell, areresponsible for management of our dealerships. The Bendells’management control is accomplished through (i) their ownership of 100shares of our 1997A-Major Automotive Group Series of Preferred Stock(of which shares Bruce Bendell had a proxy to vote the 50 shares of the1997A-Major Automotive Group Series of Preferred Stock owned by HaroldBendell for a seven-year period which ended on January  7,2005) which carries voting rights allowing them to elect a majority ofthe board of directors of Major Auto and (ii) a related managementagreement with us. See ‘‘Certain Relationships andRelated Transactions.’’ Should either of the Bendellscease managing the dealerships, his respective management rights underthe management agreement will be automatically transferred to theother, and should both cease managing the dealerships for any reason,the shares and management rights will be automatically transferred to asuccessor manager designated in a successor addendum to each dealershipagreement or, failing such designation, to a successor managerdesignated by us (subject to approval by the applicable manufacturers).In March  2004, we extended the term of the management agreementuntil December  31,  2005. The management agreement hadbeen previously extended from its initial term upon the mutual oralagreement of the parties.

New Vehicle Sales. In2004, we sold a complete product line of cars, sport utility vehicles,minivans and light trucks manufactured by Chevrolet, Chrysler, Dodge,Jeep, Kia and Nissan. For the year ended December  31,2004, our dealerships sold new vehicles generating revenue ofapproximately $155.6  million, which constituted approximately39.2% of our total dealerships’ revenues. Our grossprofit margin on new vehicle sales for the year ended December31,  2004 was approximately 9.4%, as compared to theindustry average of 5.2%. Included in our gross profit isapproximately $2.7  million of factory dealer incentives,primarily interest and advertising credits. The relative percentages ofour new vehicle sales among the makes of vehicles we sold for the yearended December  31,  2004 was asfollows:

|                        |  |                              |      |         |  |  |
|------------------------|--|------------------------------|------|---------|--|--|
| Manufacturer           |  | Percentageof NewVehicleSales |
| Chevrolet              |  |                         | 42.5 | %  |
| Dodge,Chrysler andJeep |  |                         | 22.3 | %  |
| Kia                    |  |                         | 3.2  | %  |
| Nissan                 |  |                         | 32.0 | %  |
|                        |

Thefollowing table sets forth information with respect to our new vehiclesales for the year ended December  31,2004:

**New Vehicle Sales**(dollars inmillions)

|                    |  |        |       |         |  |        |        |        |  |  |
|--------------------|--|--------|-------|---------|--|--------|--------|--------|--|--|
| Unitsales          |  |   | 5,340 |    |  |   |   |   |
| Sales revenue      |  | $      | 155.6 |    |  |   |   |   |
| Grossprofit        |  | $      | 14.6  |    |  |   |   |   |
| Gross profitmargin |  |   | 9.4   | %  |  |   |   |   |
|                    |

Wepurchase substantially all of our new vehicle inventory directly fromthe respective manufacturers, who allocate new vehicles to dealershipsbased upon the amount of vehicles sold by the dealership and thedealership's market area. As required by law, we post themanufacturer's suggested retail price on all new vehicles, butthe final sales price of a new vehicle is typically determined bynegotiation between the dealership and the purchaser.

Inaddition to our dealership operations, we have a distributorshipagreement with General Motors pursuant to which we distribute newvehicles manufactured by General Motors to a number of Eastern Europeanand Western and Central Asian countries, primarily, Ukraine, Belarusand Kazakhstan and, to a lesser extent Uzbekistan, Turkmenistan,Georgia, Armenia and others. We generally receive a deposit on thepurchase price of the vehicle from the local dealer and release thevehicle to the dealer upon full payment of the balance of the wholesalepurchase price plus a percentage of the dealer's profit on thesale. We have started, on a limited basis, the sale of used vehicles tothese countries. Amounts of such new 

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vehicle sales have not been material inrelation to our aggregate revenues and such used vehicle sales havebeen insignificant. We are considering initiatives and additional areasin which to expand our overseas sales.

Used VehicleSales. We offer a wide variety of makes and models of usedvehicles, retail and wholesale, for sale. For the year endedDecember  31,  2004, we sold 14,898 used vehicles, retailand wholesale, generating revenues of approximately $222.9million, which constituted approximately 56.1% of our totaldealerships’ revenues. Our gross profit margin on used vehiclesales for the year ended December  31,  2004 wasapproximately 19.4%, as compared with the industry average of11.2%. We believe we are one of the largest sellers of usedvehicles in the New York metropolitan area.

Our primarylocation for used vehicle sales is at a single site at Long IslandCity, New York. We also sell used vehicles at dealerships located inHempstead, New York and Orange, New Jersey. We acquire the usedvehicles we sell through customer trade-ins, at‘‘closed’’ auctions, which may be attendedby only new vehicle dealers and which offer off-lease, rental and fleetvehicles, and at ‘‘open’’ auctions, whichoffer repossessed vehicles and vehicles being sold by otherdealers.

We believe that the market for used vehicles isdriven by the relationship of the purchase price of new vehicles tothose of used vehicles and the quality and selection of used vehicles,as well as the availability of financing alternatives for purchasers atall credit levels.

The following table sets forthinformation with respect to our used vehicle sales for the year endedDecember  31,  2004:

**Used VehicleSales**(dollars inmillions)

|                    |  |        |        |         |  |        |        |        |  |  |
|--------------------|--|--------|--------|---------|--|--------|--------|--------|--|--|
| Unitsales          |  |   | 14,898 |    |  |   |   |   |
| Sales revenue      |  | $      | 222.9  |    |  |   |   |   |
| Grossprofit        |  | $      | 43.3   |    |  |   |   |   |
| Gross profitmargin |  |   | 19.4   | %  |  |   |   |   |
|                    |

Parts andService. We provide parts and service for new and used vehiclesthat we sell, and also service other makes of vehicles. For the periodended December  31,  2004, our parts and service operationsgenerated revenues of approximately $16.8  million, whichconstituted approximately 4.2% of our total dealerships’revenues at a gross profit margin of approximately29.8%.

The increased use of electronics andcomputers in vehicles makes it more difficult for independent repairshops to retain the expertise to perform major or technical repairs. Inaddition, because motor vehicles are increasingly more complex and aresubject to longer warranty periods, we believe that repair work willincreasingly be performed at dealerships, like ours, that have thesophisticated equipment and skilled personnel necessary to perform therepairs.

We consider our parts and service departments tobe integral to our customer service efforts and a valuable opportunityto strengthen customer relations and deepen customer loyalty. Weattempt to notify owners of vehicles purchased at our dealerships whentheir vehicles are due for periodic service, thereby encouragingpreventative maintenance rather than post-breakdownrepairs.

Our parts and service business provides a stable,recurring revenue stream to our dealerships. In addition, we believethat, to a limited extent, these revenues are counter-cyclical to newvehicle sales since vehicle owners may repair their existing vehiclesrather than purchasing new vehicles. We believe that this revenuestream helps mitigate the effects of a downturn in the new-vehiclesales cycle.

We do not operate a body shop, but insteadcontract with third parties for body repairwork.

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The following table sets forthinformation with respect to our sales of parts and services for theyear ended December  31,2004:

**Sales Of Parts AndServices**(dollars inmillions)

|                    |  |        |      |         |  |        |        |        |  |  |
|--------------------|--|--------|------|---------|--|--------|--------|--------|--|--|
| Salesrevenue       |  | $      | 16.8 |    |  |   |   |   |
| Grossprofit        |  | $      | 5.0  |    |  |   |   |   |
| Gross profitmargin |  |   | 29.8 | %  |  |   |   |   |
|                    |

VehicleFinancing. We provide a wide variety of financing and leasingalternatives for our customers. We believe that our customers'ability to obtain financing at our dealerships significantly enhancesour ability to sell new and used vehicles. We believe that our abilityto provide our customers with a variety of financing options providesus with an advantage over many of our competitors, particularly smallercompetitors that do not have sufficient sales volumes to attract thediversity of financing sources available to us.

In mostinstances, we assign our vehicle finance contracts and leases to thirdparties, instead of directly financing vehicle sales or leases, whichminimizes our credit risk. We typically receive a finance fee orcommission from the third party, which provides the financing. Incertain limited instances in which we determine that our credit risk ismanageable, estimated by us to be less than 1% of our vehiclessales and leases, we directly finance the purchase or lease of avehicle. In such instances, we bear the credit risk that the customerwill default, but will have the right to repossess the vehicle upondefault. We maintain relationships with a wide variety of financingsources, including commercial banks, automobile finance companies andother financial institutions. We also utilize the financial services ofour subsidiary, Major Fleet & Leasing Corp. (‘‘MajorFleet’’), which purchases less than 1% of ourleases and none of our finance contracts. See ‘‘LeasingOperations.’’

Sales and Marketing

We believe that marketing and advertising are significant toour operations. As is typical in our industry, we receive a subsidy fora portion of our expenses from the automobile manufacturers with whichwe have franchise agreements. The automobile manufacturers also assistus by providing us with market research to develop our ownadvertising.

Our marketing effort is conducted overnumerous forms of media including television, radio, newspaper, directmail, billboards and the Internet. Our advertising seeks to promote ourimage as a reputable dealer offering quality products at affordableprices and with attractive financing options. Each of our dealershipsperiodically offers price discounts or other promotions to attractadditional customers. The individual dealerships' promotions arecoordinated by us and, because we own and operate several dealershipsin the metropolitan New York market, we realize cost savings throughvolume discounts and other media concessions.

Ouroperations have been fostered by our ability to achieve economies ofscale with respect to our marketing and advertising. Althoughadvertising costs in the New York metropolitan area are generallyhigher than the national average, historically, we believe our cost ofmarketing and advertising per new vehicle sold has been less than thenational average. Combined with a substantial increase in mediaexposure, which resulted in increased volume, our costs show theeconomies that we have achieved. These lower costs result from the factthat we: (i) have favorable contracts with four (4) major area dailynewspapers; (ii) advertise in lower-cost niche markets (such as localethnic markets, employee purchase programs and discount buyingservices); and (iii) utilize telephonic marketing and electronicmarketing via services such as the Internet.

Relationshipswith Manufacturers

Each of our dealerships operatesunder a separate franchise or dealer agreement, which governs therelationship between the dealership and the relevant manufacturer. Ingeneral, each dealer agreement specifies the location of the dealershipfor the sale of vehicles and for the performance of certain approved

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services in the specified market area. Thedesignation of such areas, the allocation of such areas and theallocation of new vehicles among dealerships is discretionary with therelevant manufacturer. Dealer agreements do not generally provide adealer with an exclusive franchise in the designated market area. Adealer agreement generally requires that a dealer meet specifiedstandards regarding showrooms, the facilities and equipment forservicing vehicles, the maintenance of inventories, the maintenance ofminimum net working capital, personnel training and other aspects ofthe dealer's business. The dealer agreement also gives therelevant manufacturer the right to approve the dealer's generalmanager and any material change in management or ownership of thedealership. The dealer agreement provides the relevant manufacturerwith the right to terminate the dealer agreement under certaincircumstances, such as: (i) a change in control of the dealershipwithout the consent of the relevant manufacturer; (ii) the impairmentof the financial condition or reputation of the dealership; (iii) thedeath, removal or withdrawal of the dealership's general manager;(iv) the conviction of the dealership or the dealership's generalmanager of certain crimes; (v) the dealer's failure to adequatelyoperate the dealership or to maintain wholesale financing arrangements;(vi) the bankruptcy or insolvency of the dealership; or (vii) thedealer's or dealership's material breach of otherprovisions of the dealer agreement. Many of the dealership agreementsrequire the consent of the relevant manufacturer to the dealer'sacquisition of additional dealerships. In addition, our dealershipagreement with General Motors, with respect to our Chevroletdealership, provides General Motors with a right of first refusal topurchase such a dealership.

The dealership agreement withGeneral Motors imposes on us several additional restrictions. As aconsequence of the Major Auto Acquisition, our Chevrolet franchise, andany other General Motors' franchises that we may subsequentlyacquire, could be at risk if: (i) any person or entity acquires morethan 20% of our voting stock with the intention of acquiringadditional shares or effecting a material change in our business orcorporate structure; or (ii) if we take any corporate action that wouldresult: (a) in any person or entity owning more than 20% of ourvoting stock for a purpose other than passive investment; (b) anextraordinary corporate transaction such as a merger, reorganization,liquidation or transfer of assets; (c) a change in the control of ourboard of directors within a rolling one-year period; or (d) theacquisition of more than 20% of our voting stock by anotherautomobile dealer or such dealer's affiliates. If General Motorsdetermines that any of such actions could have a material or adverseeffect on its image or reputation in the General Motors'dealerships, or be materially incompatible with General Motors'interests, we must either (x) transfer the assets of the GeneralMotors' dealerships to General Motors or a third party acceptableto General Motors for fair market value or (y) demonstrate that theperson or entity will not own 20% of our voting stock or thatthe actions in question will not occur.

We have alsoagreed that our dealerships offering new vehicles manufactured byGeneral Motors will not sell new vehicles of othermanufacturers.

New York law, and many other states'laws, limit manufacturers' control over dealerships. In additionto various other restrictions imposed upon manufacturers, New York lawprovides that, notwithstanding the terms of the dealer agreement withthe relevant manufacturer, the manufacturer may not: (i) except incertain limited instances, terminate or refuse to renew a dealershipagreement except for due cause and with prior written notice; (ii)attempt to prevent a change in the dealer's capital structure orthe means by which the dealer finances dealership operations; or (iii)unreasonably withhold its consent to a dealer's transfer of itsinterest in the dealership or fail to give notice to the dealerdetailing its reasons for notconsenting.

Competition

We believe thatthe market for new and used vehicle sales in the New York metropolitanarea is one of the most competitive in the nation. In the sale of newvehicles, we compete with other new automobile dealers that operate inthe New York metropolitan area. Some competing dealerships offer someof the same makes as our dealerships and other competing dealershipsoffer other manufacturer's vehicles. Some competing new vehicledealers are local, single-franchise dealerships, while others aremulti-franchise dealership groups. In the sale of used vehicles, wecompete with other used vehicle dealerships and with new vehicledealerships that operate in the New York metropolitan area that alsosell used cars. In addition, we compete with used car‘‘superstores’’ that have inventories thatare larger and more varied than ours.

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We believe that the principalcompetitive factors in vehicle sales are the marketing campaignsconducted by automobile manufacturers, the ability of dealerships tooffer a wide selection of popular vehicles, pricing (includingmanufacturers' rebates and other special offers), the location ofdealerships, the quality of customer service, warranties, customerpreference for particular makes of vehicles and the availability offinancing. We believe that our dealerships are competitive in all ofthese areas.

In addition, we, due to the size and numberof automobile dealerships we own and operate, are larger than most ofthe independent operators with which we compete. Our size hashistorically permitted us to attract experienced and professional salesand service personnel and has provided us with the resources to competeeffectively. However, should we enter other markets, we may facecompetitors that are larger and that have access to greaterresources.

We believe that our principal competitorswithin the New York metropolitan area are United Auto Group, a publiclytraded company, and Potamkin Auto Group, Burn's Auto Group,Paragon, Koeppel and Auto-Land, each of which is privatelyheld.

We also compete though our Internet vehiclepurchasing services against a variety of Internet and traditionalvehicle purchasing services and automotive brokers. Entities thatmaintain similar commercial websites include Autoweb.com,Autobytel.com, Carsdirect.com, eBay and Microsoft Corporation'sCarpoint and Stoneage Corporation. Additionally, we compete indirectlyagainst vehicle brokerage firms and affinity programs offered byseveral companies, including Costco Wholesale Corporation and Wal-MartStores, Inc. Moreover, our major vehicle manufacturers have their ownwebsites and many have launched online buying services. We also competewith vehicle insurers, lenders and lessors as well as other dealersthat are not part of our network. Such companies may already maintainor may introduce websites, which compete with ours.

Inaddition, the automobile industry is subject to seasonal variations inrevenues. Demand for vehicles is generally lower during the wintermonths than in other seasons, particularly, in regions of the UnitedStates, which experience potentially severe winters.

Governmental Regulation

Automobile dealersand manufacturers are subject to various federal and state lawsestablished to protect consumers, including the so-called‘‘Lemon Laws,’’ which require a dealer ormanufacturer to replace a new vehicle or accept it for a full refundwithin a specified period of time, generally one (1) year after theinitial purchase, if the vehicle does not conform to themanufacturer's express warranties and the dealer or manufacturer,after a reasonable number of attempts, is unable to correct or repairthe defect. Federal laws require that certain written disclosures beprovided on new vehicles, including mileage and pricing information. Inaddition, our financing activities are subject to certain statutesgoverning credit reporting and debt collection. In recent years, anumber of state governments have limited or are seeking to limit theamounts that dealerships may make from introducing credit providers tocustomers. Although this has not yet occurred in our areas ofoperation, if it does come to pass in any of our operating regions, itwill have an adverse effect on our revenues and profitability.

As with automobile dealerships generally, and parts andservice operations in particular, our business involves the use,handling and contracting for recycling or disposal of hazardous ortoxic substances or wastes, including environmentally sensitivematerials such as motor oil, waste motor oil and filters, transmissionfluid, antifreeze, freon, waste paint and lacquer thinner, batteries,solvents, lubricants, degreasing agents, gasoline and diesel fuels.Accordingly, we are subject to federal, state and local environmentallaws governing health, environmental quality, and remediation ofcontamination at facilities we operate or to which we send hazardous ortoxic substances or wastes for treatment, recycling or disposal. Webelieve that we are in material compliance with all environmental lawsand that such compliance will not have a material adverse effect on ourbusiness, financial condition or results ofoperations.

Leasing Operations

Oursubsidiary, Major Fleet, has historically provided lease financingsolely for motor vehicles. Major Fleet typically arranges for the saleor lease to its customers of new or used vehicles of all makes and

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models. Major Fleet will purchase thedesired vehicle from an automobile dealer and either resell it to itscustomer for a markup over its cost, or lease the vehicle to thecustomer and provide the related lease financing. If a customer ofMajor Fleet wants to purchase or lease a new vehicle that is availablefrom one of our dealerships, in almost all cases, Major Fleet willacquire the vehicle from us and then resell or lease it to itscustomer. Major Fleet estimates that it acquires approximately50% of the vehicles it sells and leases from us.

Inmost instances, Major Fleet will broker vehicle finance contracts for,or assign its leases to, third parties instead of directly financingvehicle sales or leases. This minimizes our credit risk. In theseinstances, Major Fleet typically receives a finance fee or commissionfrom the third party who provides the financing. In certain instances,Major Fleet directly finances the lease of a vehicle. When Major Fleetprovides lease financing, it bears the credit risk that its customerswill default in the payment of the lease installments. In order tominimize its risk of loss, Major Fleet carefully evaluates the creditof its lease customers. It also requires that its lease customers haveadequate collision and liability insurance on the leased vehicle andthat Major Fleet be named as loss payee and additional insured on thecustomer's collision and liability insurance policies. MajorFleet does not finance the purchase of the vehicles, so if a customerdesires purchase financing, the customer will need to obtain financingfrom a third party; however, as discussed above, Major Fleet willbroker financing contracts.

Acquisition Strategy

Our prior acquisition strategy contemplated that a keycomponent of the purchase price would be paid in our common stock.Since the price of our stock has significantly declined from its levelsat the time our acquisition strategy was conceived, it is no longerpracticable for us to consider using our common stock as considerationin acquiring automotive dealerships. Additionally, we believe that thecurrent prices being sought for dealerships at this time makes theiracquisition unattractive. Consequently, we have postponed our plans forgrowth through acquisition. Instead, our focus is on maximizingrevenues and profitability in our existing dealerships. However, whilewe are not seeking dealerships to acquire, if a particularly attractiveopportunity should present itself, we would evaluate anacquisition.

Recent Developments

Floor PlanFinancing

In prior years, in order to obtain floorplan financing for our various dealerships at favorable rates, each ofthe Bendells agreed to either guarantee certain of our floor plan debtor provide certain collateral in connection with our floor plan orother borrowings. Our Board of Directors agreed to obtain independentvaluations of such credit enhancement and collateral usage andcompensate each of the Bendells the fair value of his respectivecontributions. We engaged an independent valuation firm to value thecredit enhancement and have received a preliminary valuation from suchfirm of $160,000 for the economic risk value of the credit enhancement.Accordingly, we accrued such amount as a liability in the third quarterof 2002. In the third quarter of 2003, our Board of Directors receivedadditional indications that the value of the Credit Enhancement mayapproximate $450,000. As such, we accrued an additional $290,000 in thethird quarter of 2003. In March  2004, our Board of Directorsconcluded that the $450,000, as accrued, is the appropriate value ofthe Credit Enhancement. Subsequently, our Board of Directors approvedthe continuation of payments of $450,000 per year to Bruce Bendell solong as the Credit Enhancement remains in effect.

Sale andTermination of Franchise Agreements

InFebruary  2004, we sold our Subaru franchise, which includedcertain parts, to an unrelated third party for a cash purchase price of$450,000. Additionally, the purchaser received our inventory of new2004 Subaru vehicles and assumed the related floor planliability.

In March  2004, we received notice fromAmerican Suzuki Motor Corporation, the franchisor of our Suzukidealership in Hempstead, New York, that they had terminated ourfranchise agreement.

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Neither the Subaru nor Suzukidealerships were material to our operations and the sale andtermination of such dealerships will not have a significant effect onour results of operations or cashflow.

Employees

As of April  4,  2005,we had 513 employees, of whom 18 are part-time employees. We believethat we have good relations with our employees.

RISKFACTORS

The following risk factors should be reviewedcarefully, in conjunction with the other information in this Form 10-Kand our consolidated financial statements. These factors, among others,could cause actual results to differ materially from those currentlyanticipated and contained in forward-looking statements made in thisForm 10-K and presented elsewhere by our management from time to time.These factors are not intended to represent a complete list of thegeneral or specific factors that may affect us. Other factors,including general economic factors and business strategies, may have asignificant effect on our business, financial condition and results ofoperations.

Continued losses may affect the viability of ourbusiness.

We experienced net losses of approximately$6.8  million in 2004 and approximately $1  million in2003. While the loss in 2004 was attributable, primarily, to the$8.1  million non-cash charge associated with the write-down ofour goodwill and we believe that we are taking the necessary steps tomaintain the profitability of our dealerships, there is no assurancethat we will be able to do so. If we continue to incur significantlosses in the future, for any reason, our business could be materiallyand adversely affected.

Our limited cash and working capitalcould have an adverse effect on our business.

AtDecember  31,  2004, our total cash and cash equivalentswas approximately $3.7  million and our working capital wasapproximately $1.9  million. If we continue to incur net lossesin 2005 or subsequent years, then we may have insufficient workingcapital to maintain our current level of operations or provide forunexpected contingencies. In such event, we will need to seekadditional capital from public or private equity or debt fundingsources and we may not be able to raise needed cash on terms acceptableto us or at all. Financings, if available, may be on terms that aredilutive or potentially dilutive to our stockholders. If sources offinancing are required, but are insufficient or unavailable, we will berequired to modify our growth and operating plans or curtail ouroperations to the extent of available funding, which could have anadverse effect on our business.

Automobile manufacturersexercise significant control over our operations and we are dependenton them to operate our business.

Like other franchisednew vehicle dealers, we are significantly dependent upon ourrelationships with, and the success of, the manufacturers with which wehave franchised dealerships. We are also dependent on the manufacturersto provide us with an inventory of new vehicles. The most popularvehicles tend to provide us with the highest profit margin and are themost difficult to obtain from the manufacturers. In order to obtainsufficient quantities of these vehicles, we may be required to purchasea larger number of less desirable makes and models than we wouldotherwise purchase. Sales of less desirable makes and models may resultin lower profit margins than sales of more popular vehicles. If we areunable to obtain sufficient quantities of the most popular makes andmodels, our profitability may be adversely affected. We may becomedependent on additional manufacturers in the future as a result of ouracquisition strategy and changes in our salesmix.

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As is typical of franchised newvehicle dealers, the success of our franchises depend to a great extenton the success of the respective manufacturers. Our success will,therefore, be linked to many factors affecting the manufacturers suchas:

|  |              |                      |
|--|--------------|----------------------|
|  | •  | financial condition; |

|  |              |                     |
|--|--------------|---------------------|
|  | •  | marketing strategy; |

|  |              |                 |
|--|--------------|-----------------|
|  | •  | vehicle demand; |

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | production capabilities; |

|  |              |             |
|--|--------------|-------------|
|  | •  | management; |

|  |              |                                   |
|--|--------------|-----------------------------------|
|  | •  | events such as labor strikes; and |

|  |              |                                                                            |
|--|--------------|----------------------------------------------------------------------------|
|  | •  | negative publicity, including safetyrecalls of a particular vehicle model. |

To a certainextent, our dealerships also depend on the manufacturers for salesincentives, warranties and other programs that are intended to promoteand support new vehicle sales by our dealerships. Some of theseprograms include customer rebates on new vehicles, dealer incentives onnew vehicles, special financing or leasing terms, warranties on new andused vehicles and sponsorship of used vehicle sales by authorized newvehicle dealers. Manufacturers have historically made many changes totheir incentive programs during each year. A reduction ordiscontinuation of a manufacturer’s incentive programs couldadversely affect our new vehicle sales volume and ourprofitability.

**Our franchise agreements containgeographic and other restrictions, which could limit our futuregrowth.**

Our franchise agreements with themanufacturers, like those of other franchised new vehicle dealers, donot grant us the exclusive right to sell that manufacturer'svehicles within a given geographical area. Accordingly, a manufacturercould grant another dealer a franchise to start a new dealership orpermit an existing dealer to relocate to a geographic location thatwould be directly competitive with us. Such an event could have amaterial adverse effect on our business, financial condition andresults of operations.

Historically, manufacturers haveexercised significant control over dealerships through the terms andconditions of the franchise agreements pursuant to which ourdealerships operate. These franchise agreements restrict dealerships tospecific locations and retain for the manufacturers approval rightsover changes in the dealerships' ownership and management. Ourability to expand through the acquisition of new dealerships requiresthe consent of the manufacturers. To date, our acquisitions have beenapproved by the respective manufacturers and we have not beenmaterially adversely affected by other limitations imposed by themanufacturers. However, there can be no assurance that in the future wewill be able to obtain necessary approvals on acceptable terms or thatwe will not be materially adversely affected by otherlimitations.

The franchise agreements between themanufacturers and us are for fixed terms with no renewal obligation onthe part of the manufacturers and permit the manufacturers to terminatethe agreements for a variety of causes. Each of these agreementsincludes provisions for the termination or non-renewal of themanufacturer-dealer relationship for a variety of causes including anyunapproved change of ownership or management and other materialbreaches of the franchise agreement. We believe that we have been andcontinue to be in material compliance with the terms of our franchiseagreements. While none of the manufacturers have terminated or failedto renew our franchise agreements, other than our Suzuki franchisewhich was immaterial to our results of operations, any such terminationor failure to renew could have a material adverse effect on us and ourbusiness, financial condition and results ofoperations.

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The automobile industry is amature industry with limited growth potential in new vehicle sales andautomobile sales are cyclical and subject todownturns.

The United States automobile industry isgenerally considered to be a mature industry in which minimal growth isexpected in unit sales of new vehicles. In addition, the market forautomobiles, particularly new vehicles, is subject to substantialcyclical variation and has experienced significant downturnscharacterized by oversupply and weak demand. Many factors affect theautomobile industry, including:

|  |              |                                     |
|--|--------------|-------------------------------------|
|  | •  | generaland local economicconditions |

|  |              |       |
|--|--------------|-------|
|  | •  | taxes |

|  |              |                    |
|--|--------------|--------------------|
|  | •  | consumerconfidence |

|  |              |                |
|--|--------------|----------------|
|  | •  | interest rates |

|  |              |                     |
|--|--------------|---------------------|
|  | •  | credit availability |

|  |              |                                        |
|--|--------------|----------------------------------------|
|  | •  | levels of personal discretionaryincome |

Although we believe that our access to new and usedvehicles over a wide range of price points provides us some measure ofstability in a potentially cyclical market, a material decrease invehicle sales from the historical level of vehicle sales achieved by uswould materially adversely affect our business, financial condition andresults of operations.

The automotive industry is subject toseasonal variations.

The automobile industry is subjectto seasonal variations in revenues. Demand for vehicles is generallylower during the winter months than in other seasons, particularly inregions of the United States, which experience potentially severewinters. Accordingly, revenues and operating results may be lower inour first and fourth quarters than in our second and thirdquarters.

Imported products may affect our operations.

A portion of our new vehicle business involves the sale ofvehicles, parts or vehicles composed of parts that are manufacturedoutside the United States. As a result, our operations will be subjectto customary risks of importing merchandise, including fluctuations inthe value of currencies, import duties, exchange controls, traderestrictions, work stoppages and general political and economicconditions in foreign countries. The United States or the countriesfrom which our products are imported may, from time to time, impose newquotas, duties, tariffs or other restrictions, or adjust presentlyprevailing quotas, duties or tariffs, which could affect our operationsand our ability to purchase imported vehicles and/or parts.

Ourautomobile operations are geographically concentrated and subject tolocal economic conditions.

We believe that the automotiveretail industry is influenced by general economic conditions andparticularly by consumer confidence, the level of personaldiscretionary spending, interest rates, fuel prices, unemployment ratesand credit availability. Historically, unit sales of motor vehicles,particularly new vehicles, have been cyclical, fluctuating with generaleconomic cycles. During economic downturns, retail new vehicle salestend to experience periods of decline characterized by oversupply andweak demand. The automotive retail industry may experience sustainedperiods of decline in vehicle sales in the future. In addition, changesin interest rates could significantly impact our vehicle sales becausea significant portion of vehicle buyers finance their purchases. Anydecline in vehicle sales as a result of changes in any of the factorsdescribed, could have a material adverse effect on our business,revenues and profitability.

In addition, all of ourdealerships are located in the greater New York metropolitan area. As aconsequence, our results of operations depend substantially on generaleconomic conditions and consumer spending habits and preferences in theNew York metropolitan area, as well as various other factors, such astax rates and applicable state and local regulation. There can be noassurance that we will be able to adequately insulate ourselves fromthe adverse effects of local or regional economicconditions.

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Our future operating results will bedirectly related to the availability and cost of capital tous.

The principal sources of financing for new and usedautomobile inventories have historically been lines of credit fromcommercial lenders and other financial institutions and from cashgenerated from operations. For instance, during 2001, we were notifiedby Chrysler Financial Company, LLC(‘‘CFC’’) that it was terminating itsfinancing. In order to obtain floor plan financing for our variousdealership’s at favorable rates, each of Bruce Bendell andHarold Bendell agreed to either guarantee certain of our floor plandebt or provide certain collateral in connection with our floor plan orother borrowings. Although we were successfully able to replace CFC andour other floor plan lenders, there can be no assurance that we will beable to continue to obtain capital for our current or expandedoperations on terms and conditions that are acceptable tous.

If we choose to pursue growth through the acquisitionof additional dealerships, it will require substantial capital. In suchcase, our expansion and new acquisitions may involve cash, the need toincur debt or the need to issue equity securities, which could have adilutive effect on our then outstanding capital stock. We may seek toobtain funds through borrowings from institutions or by the public orprivate sale of our securities. There can be no assurance that we willbe able to obtain capital to finance our growth on terms and conditionsacceptable to us.

Risks associated with expansion may hinderour ability to increase revenues and earnings.

Our futuregrowth may depend, in part, on our ability to acquire additionalautomobile dealerships. If we pursue such a strategy of acquiringadditional dealerships, we would face risks commonly encountered withgrowth through acquisitions. These risksinclude:

|  |              |                                                                           |
|--|--------------|---------------------------------------------------------------------------|
|  | •  | incurring significantly highercapital expenditures and operatingexpenses; |

|  |              |                                                                               |
|--|--------------|-------------------------------------------------------------------------------|
|  | •  | failing to assimilate theoperations and personnel of the acquireddealerships; |

|  |              |                                 |
|--|--------------|---------------------------------|
|  | •  | disrupting our ongoingbusiness; |

|  |              |                                              |
|--|--------------|----------------------------------------------|
|  | •  | dissipating our limitedmanagement resources; |

|  |              |                                                              |
|--|--------------|--------------------------------------------------------------|
|  | •  | failing tomaintain uniform standards, controls and policies; |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | impairing relationships with employees andcustomers as a result of changes in management;and |

|  |              |                                                                   |
|--|--------------|-------------------------------------------------------------------|
|  | •  | diluting ownership percentages ofcurrent and future shareholders. |

There can be noassurance that we will be successful in overcoming these risks or anyother problems encountered with such acquisitions. In addition,acquiring additional dealerships could have a significant impact on ourfinancial condition and could cause substantial fluctuations in ourquarterly and annual operating results. Acquisitions could result insignificant goodwill and intangible assets, which could result insubstantial impairment charges to us that would reduce stated earnings,if any.

There exist risks relating to the failure to meetmanufacturers’ customer satisfaction scores.

Manymanufacturers attempt to measure customers' satisfaction withautomobile dealerships through a customer satisfaction index(‘‘CSI’’) score, or customer satisfactionindex, rating system. These manufacturers may use a dealership'sCSI scores as a factor in evaluating applications for additionaldealership acquisitions and participation by a dealership in incentiveprograms. The dealerships operated by us currently meet or exceed theirmanufacturers' CSI standards. However, there can be no assurancethat either our dealerships or other subsequently acquired dealershipswill continue to meet such standards. Moreover, from time to time, thecomponents of the various manufacturer CSI scores have been modifiedand there is no assurance that such components will not be furthermodified or replaced by different systems in the future, which make itmore difficult for our dealerships to meet suchstandards.

The loss of key personnel and our limitedmanagement and personnel resources could adversely affect ouroperations and growth.

Our future success will depend toa significant extent on key personnel and on the continued services ofour senior management and other key personnel, particularly BruceBendell and Harold Bendell, a senior 

18

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executive of the Major Dealer Group. BruceBendell’s employment is pursuant to a renewable employmentagreement which currently expires on June  30,  2005.Harold Bendell’s employment is pursuant to an oral employmentagreement. The loss of the services of these employees, or certainother key employees, are likely have a material adverse effect on ourbusiness. See ‘‘Executive Compensation: EmploymentContracts, Termination of Employment and Change-In-ControlArrangements.’’ We do not maintain ‘‘keyperson’’ life insurance for any of our personnel. Ourfuture success will depend on our continuing ability to attract, retainand motivate other highly skilled employees. Competition for suchpersonnel in our industry is intense. We may be unable to retain ourkey employees or attract, assimilate or retain other highly qualifiedemployees in the future. If we do not succeed in attracting newpersonnel or retaining and motivating our current personnel, ourbusiness, financial condition and operations may be adverselyaffected.

Potential conflicts of interest between ourmanagement personnel and us could adversely affect our futureperformance.

We have entered into, or contemplate that wemay enter into, several transactions with the Bendells. Suchtransactions include the following:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In1996, we acquired Major Fleet from the Bendells. In exchange, theBendells received (i) 100 shares of our 1996-Major Series ofConvertible Preferred Stock, (ii) warrants for 45,000 shares of ourcommon stock, which have been exercised, and (ii) the right to managethe operations Major Fleet pursuant to a management agreement withMajor Fleet. In March  2004, the management agreement wasextended until December  31,  2005 with automaticadditional one-year extensions unless notice is given by either party.The term of the management agreement had been previously extended uponthe mutual oral agreement of the parties. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | We acquired Major Auto from the Bendells inMay  1998. In this transaction, the Bendells received shares ofour 1997A-Major Automotive Group Series of Preferred Stock and BruceBendell received a proxy to vote the 50 shares of the 1997A-MajorAutomotive Group Series of Preferred Stock owned by Harold Bendell fora seven-year period, which ended on January  7,  2005.These shares allow the Bendells to elect a majority of the directors ofMajor Auto. The Bendells are also parties to a management agreementwith us that gives them control over the day-to-day operations of MajorAuto. Should the Board of Directors of Major Auto and we disagree as toa particular course of action, the Board of Directors of Major Autowill be able to take that action over our objection. Conflicts couldarise between our Board of Directors and the Board of Directors ofMajor Auto as to the appropriate course of action to be taken in thefuture. However, the management agreement does prohibit certain actionsfrom being taken without the prior approval of our Board of Directors,including: (i) disposition of any of the Major Auto dealerships; (ii)acquisition of new dealerships; and (iii) our incurring liability forMajor Auto indebtedness. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | The managementagreement between the Bendells and us provides that, should either ofthe Bendells cease managing the dealerships, ownership of his1997A-Major Automotive Group Series of Preferred Stock shares and hismanagement rights under the management agreement will be automaticallytransferred to the other, and should both cease managing thedealerships for any reason, the shares and management rights will beautomatically transferred to a successor manager designated in asuccessor addendum to each dealership agreement or, failing suchdesignation, to a successor manager designated by us (subject toapproval by the applicable manufacturers). |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In connection with the acquisition of ourNissan dealership in Hempstead, New York, we obtained an option toacquire that dealership’s land and building from the landlordwho held the lease on that property. We exercised our option, but wereunable to obtain the financing necessary to effect the purchase. Thelease expiration was concurrent with the required property acquisitiondate and we were unsuccessful in obtaining an extension of the leaseterm. In order to ensure continuity of the dealership’soperations, in a transaction approved by our Board of Directors, theBendells agreed to personally acquire the property through a companythey |

19

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|  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | formed and lease it back to us. As a result,in 2002, we eliminated the capitalized lease of approximately$3.6  million and the related liability of $3.0  millionthat we had recorded in connection with this property. The differenceof $637,000, the book value of the purchase option, was recorded as along-term related party receivable, which is included in othernon-current assets. We entered into a lease with the new landlord forfive (5) years with a five-year renewal option for approximately thesame monthly rental we were previously paying. The receivable will berepaid, ratably, through monthly payments over the remaining term ofthe lease, together with related interest at a market rate. Based onthe report of an independent appraiser, the purchase option wasrecorded at its fair value and the monthly rent is at a marketrate. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | In unrelated transactions, inorder to obtain floor plan financing at favorable rates, each of theBendells has agreed to either guarantee certain of our floor plan debtor provide certain collateral in connection with our floor plan orother borrowings. Our Board of Directors has obtained independentvaluations of such credit enhancement and collateral usage (together,‘‘the Credit Enhancements’’) and agreed topay each of the Bendells the fair value of his respectivecontributions. We engaged an independent valuation firm and received apreliminary valuation from such firm of $160,000 for the economic riskvalue of the Credit Enhancement. Accordingly, we accrued such amount asa liability in the third quarter of 2002. In the third quarter of 2003,the Company’s Board of Directors received additional indicationsthat the value of the Credit Enhancement may approximate $450,000. Assuch, the Company accrued an additional $290,000 in the third quarterof 2003. In March  2004, our Board of Directors concluded thatthe $450,000, as accrued, was the appropriate value of the CreditEnhancement. Subsequently, our Board of Directors approved thecontinuation of payments to Mr.  Bendell, which is expected toapproximate $450,000, annually, for the continuation of his creditenhancement to us through the provision of his personal guarantee onour floor plan financing. |

|  |              |                                                                                                                                                                                                                                                                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Harold Bendellhas acquired the rights to an off premises storage facility that waspreviously leased by us, on a month-to-month basis, from an independentthird party. Accordingly, we are now leasing such facility fromMr.  Bendell for $15,000 per month, approximately the samemonthly rental we were paying to the priorlandlord. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Each of the Bendells has totalor partial ownership interests in dealerships that are not owned by us.We have ongoing business relationships with each of these unrelateddealerships, whereby we sell vehicles to them and they sell vehicles tous. In 2004, we had sales aggregating $6.0  million todealerships owned by the Bendells and had purchases aggregating$7.0  million from such dealerships. We believe that all suchpurchases and sales were made at prices approximating those that wouldotherwise obtained in arms-length transactions. However, there is apotential for conflicts of interest in pricing of vehicles and referralof customers and, although our internal controls are designed toidentify situations where adverse consequences to us may occur due toconflicts of interests, we cannot provide absolute assurance that suchconsequences will not occur. |

Our focus on existing dealershipschange may affect our operations.

In the past, ourstrategy for growth was principally focused on expanding our dealershipgroup through acquisitions of non-performing or underperformingdealerships in the New York metropolitan area. When this strategy wasformulated, our stock price was relatively attractive and thus, a keycomponent of the purchase price was our common stock. Since the priceof our stock has significantly declined from its levels at the time ouracquisition strategy was conceived, the use of payment in the form ofour common stock as consideration in acquiring automotive dealershipsat this time would be extremely dilutive to our shareholders.Additionally, we believe that the current prices being sought fordealerships makes their acquisition unattractive. Consequently, we havepostponed our plans for growth through acquisition. Instead, our focusis on maximizing revenues and profitability in our existingdealerships. There can be no assurance our adoption of such a strategywill not adversely affect our business, financial condition andoperations.

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**The markets in which we operateare highly competitive, and we may not be able to compete effectively,especially against established industry competitors with significantlygreater financial resources.**

The automobile dealershipbusiness is highly competitive. Our competitorsinclude:

|  |              |                     |
|--|--------------|---------------------|
|  | •  | automobile dealers; |

|  |              |                                   |
|--|--------------|-----------------------------------|
|  | •  | private sellers of used vehicles; |

|  |              |                       |
|--|--------------|-----------------------|
|  | •  | used vehicle dealers; |

|  |              |                           |
|--|--------------|---------------------------|
|  | •  | other franchised dealers; |

|  |              |                            |
|--|--------------|----------------------------|
|  | •  | service center chains; and |

|  |              |                                       |
|--|--------------|---------------------------------------|
|  | •  | independent service and repair shops. |

Gross profit margins on the sale of new vehicles have beendecreasing over the past two decades and the used car market facesincreasing competition from independent leasing companies and from usedvehicle ‘‘superstores’’ that may haveinventories that are larger and more varied than ours. Some of ourcompetitors may be larger, have access to greater financial resourcesand be capable of operating on smaller gross margins than we do. Therecan be no assurance that we will continue to compete effectively orthat manufacturers will not modify the historical automobile franchisesystem in a manner that increases competition among dealers or marketand sell their vehicles through other distributionchannels.

Government regulation and environmentalregulation compliance costs may adversely affect ourprofitability.

Our operations are subject to variousfederal, state and local laws and regulations including those relatingto local licensing and consumer protection. While we believe that wemaintain all requisite licenses and permits and that we are insubstantial compliance with all applicable laws and regulations, therecan be no assurance that we will be able to continue to maintain allrequisite licenses and permits or to comply with applicable laws andregulations, and our failure to do so may have a material adverseeffect on our business, financial condition and results of operations.In addition, the adoption of any new laws or regulations and the costto us of complying with any new laws or regulations, could have amaterial adverse effect on our business, financial condition andresults of operations.

In addition, as with automobiledealerships generally, and parts and service operations in particular,our business involves the use, handling and contracting for recyclingor disposal of hazardous or toxic substances or wastes, includingenvironmentally sensitive materials suchas:

|  |              |            |
|--|--------------|------------|
|  | •  | motor oil; |

|  |              |                              |
|--|--------------|------------------------------|
|  | •  | waste motor oil and filters; |

|  |              |                     |
|--|--------------|---------------------|
|  | •  | transmission fluid; |

|  |              |             |
|--|--------------|-------------|
|  | •  | antifreeze; |

|  |              |        |
|--|--------------|--------|
|  | •  | freon; |

|  |              |                                  |
|--|--------------|----------------------------------|
|  | •  | waste paint and lacquer thinner; |

|  |              |            |
|--|--------------|------------|
|  | •  | batteries; |

|  |              |           |
|--|--------------|-----------|
|  | •  | solvents; |

|  |              |             |
|--|--------------|-------------|
|  | •  | lubricants; |

|  |              |                        |
|--|--------------|------------------------|
|  | •  | degreasing agents; and |

|  |              |                            |
|--|--------------|----------------------------|
|  | •  | gasoline and diesel fuels. |

Accordingly, we are subject to federal, state and localenvironmental laws governing health, environmental quality, andremediation of contamination at facilities we operate or to which wesends hazardous or toxic substances or wastes for treatment, recyclingor disposal. We believe that we are in material 

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compliance with all environmental laws andthat such compliance will not have a material adverse effect on ourbusiness, financial condition or results of operations. However,environmental laws are complex and subject to frequent change. Therecan be no assurance that compliance with amended, new or more stringentlaws, stricter interpretations of existing laws or the future discoveryof environmentally hazardous conditions will not require materialexpenditures by us.

We face risks in our internationaloperations.

We are considering the expansion of our newand used vehicle purchasing service to additional foreign markets byestablishing relationships with vehicle dealers and strategic partnerslocated in certain foreign markets.

If we expand ouroperations to various other countries, we may become subject to laws ortreaties that regulate the marketing, distribution and sale of motorvehicles. In addition, the laws of other countries may imposelicensing, bonding or similar requirements on us as a condition todoing business therein. In addition, there are certain risks inherentin doing business in international markets, suchas:

|  |              |                                  |
|--|--------------|----------------------------------|
|  | •  | changes in political conditions; |

|  |              |                          |
|--|--------------|--------------------------|
|  | •  | regulatory requirements; |

|  |              |                                                      |
|--|--------------|------------------------------------------------------|
|  | •  | potentially weaker intellectual propertyprotections; |

|  |              |                                  |
|--|--------------|----------------------------------|
|  | •  | tariffs and other tradebarriers; |

|  |              |                                         |
|--|--------------|-----------------------------------------|
|  | •  | fluctuations in currencyexchange rates; |

|  |              |                                      |
|--|--------------|--------------------------------------|
|  | •  | potentially adverse taxconsequences; |

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | difficulties in managingor overseeing foreign operations; |

|  |              |                                                                                              |
|--|--------------|----------------------------------------------------------------------------------------------|
|  | •  | seasonal reductions in business activitiesduring summer months in Europe and other areas;and |

|  |              |                                                                                                         |
|--|--------------|---------------------------------------------------------------------------------------------------------|
|  | •  | educating consumers and dealers whomay be unfamiliar with the benefits of online marketing andcommerce. |

One or more of such factors may have a materialadverse effect on our current or future international operations and,consequently, on our business, results of operations and financialcondition.

We face risks in connection with legal proceedings inwhich we are involved.

We are subject to a number oflawsuits. While we believe that we have substantial defenses tothe asserted claims and intend to vigorously defend the active suits,judgments against us with respect to the active actions could have amaterial adverse effect on our financial condition. See‘‘Legal Proceedings.’’

Thesale of automobiles over the Internet is highly competitive andincreased competition could adversely affect our operations andgrowth.

Our Internet vehicle purchasing services competeagainst a variety of Internet and traditional vehicle purchasingservices and automotive brokers. The market for Internet-basedcommercial services is fairly new, and competition among commercialwebsites is expected to increase significantly in the future. TheInternet is characterized by minimal barriers to entry, and newcompetitors can launch new websites at relatively low cost. To competesuccessfully over the Internet, we must significantly increaseawareness of our services and brand name.

We compete withother entities, which maintain similar commercial websites,including:

|  |              |              |
|--|--------------|--------------|
|  | •  | Autoweb.com; |

|  |              |                |
|--|--------------|----------------|
|  | •  | Autobytel.com; |

|  |              |                 |
|--|--------------|-----------------|
|  | •  | Carsdirect.com; |

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|  |              |           |
|--|--------------|-----------|
|  | •  | eBay; and |

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | Microsoft Corporation's Carpoint andStoneage Corporation. |

Some of these entities may havegreater financial, marketing and personnel resources and/or loweroverhead or sales costs than we do. We also compete indirectly againstvehicle brokerage firms and affinity programs offered by severalcompanies, including Costco Wholesale Corporation and Wal-Mart Stores,Inc. In addition, our major vehicle manufacturers have their ownwebsites and launched online buying services. We also compete withvehicle insurers, lenders and lessors as well as other dealers that arenot part of our network. Such companies may already maintain or mayintroduce websites, which compete with ours.

We cannotassure you that we can compete successfully against current or futurecompetitors, many of which have substantially more capital, existingbrand recognition, resources and access to additional financing. Inaddition, competitive pressures may result in increased marketingcosts, decreased website traffic or loss of market share or otherwisemay materially and adversely affect our business, results of operationsand financial condition. Further, there can be no assurance that ourstrategy will be more effective than the strategies of ourcompetitors.

We could face liability for information retrievedfrom or transmitted over the Internet and liability for products soldover the Internet.

We could be exposed to liability withrespect to third-party information that may be accessible through ourwebsite, or content and materials that may be posted by consumersthrough www.majorworld.com. Such claims might assert, among otherthings, that, by directly or indirectly providing links to websitesoperated by third parties, we should be liable for copyright ortrademark infringement or other wrongful actions by such third partiesthrough such websites. It is also possible that, if any third-partycontent information provided on our website contains errors, consumerscould make claims against us for losses incurred in reliance on suchinformation.

We also may enter into agreements with othercompanies under which any revenue that results from the purchase ofservices through direct links to or from our website is shared. Sucharrangements may expose us to additional legal risks and uncertainties,including local, state, federal and foreign government regulation andpotential liabilities to consumers of these services, even if we do notprovide the services ourselves. There can be no assurances that anyindemnification provided to us in our agreements with these parties, ifavailable, will be adequate.

Even to the extent suchclaims do not result in liability to us, we could incur significantcosts in investigating and defending against such claims. Theimposition on us of potential liability for information carried on ordisseminated through our system could require us to implement measuresto reduce our exposure to such liability, which might require theexpenditure of substantial resources or limit the attractiveness of ourservices to consumers, member dealers, automotive-related vendors andothers.

Our general liability insurance and ourcommunications liability insurance may not cover all potential claimsto which we are exposed and may not be adequate to indemnify us for allliability that may be imposed. Any imposition of liability that is notcovered by insurance or is in excess of insurance coverage could have amaterial adverse effect on our business, results of operations andfinancial condition.

Concentration of voting power andanti-takeover provisions in our charter documents may reducestockholder value in any potential change ofcontrol.

Bruce Bendell is the beneficial owner ofapproximately 47.0% of our common stock. This concentration ofvoting power may severely limit the ability of other of ourstockholders to elect directors or influence other corporate decisionsand may, among other things, have the effect of delaying or preventinga change in control of the Company or preventing our stockholders fromrealizing a premium on the sale of their shares upon an acquisition ofthe Company. In a letter dated June  9,  2004, BruceBendell contemplated a transaction pursuant to which an entity to beformed by him would be merged into the Company for cash considerationof approximately $0.70 per share (the‘‘Offer’’). Such Offer was extended onJune  17,  2004, July  6,  2004 and July23,  2004. On September  7,  2004, the Offerexpired.

23

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Our Board of Directors has theauthority to issue shares of preferred stock and to determine theprice, rights, preferences and privileges, including voting rights, ofthose shares without any further action by our stockholders. The rightsof holders of our common stock will be subject to and may be adverselyaffected by the rights of the holders of any preferred stock. Anyfuture designation and issuance of preferred stock could have theeffect of making it more difficult for a third party to acquire controlof us. We are also subject to the provisions of the Nevada RevisedStatutes regulating business combinations, takeovers and control shareacquisitions, which also might hinder or delay a change in control ofus. Anti-takeover provisions that could be included in the preferredstock when designated and issued and the Nevada statutes can have adepressive effect on the market price of our common stock and canprevent our stockholders from realizing a premium on the sale of theirshares by discouraging takeover and tender offer bids. In addition,under our dealer agreement with General Motors, we may be at risk oflosing the Chevrolet franchise if any person or entity acquires20% or more of our voting stock without the approval of GeneralMotors.

Moreover, our Articles of Incorporation, asamended, provide for the classification of our Board of Directors intothree classes of directors with staggered terms of office. Thisclassified board significantly extends the time required to effect achange in control of our Board of Directors and may discourage hostiletakeover bids for us. Because of the additional time required to changecontrol of our Board of Directors, the classified board structure tendsto perpetuate present management. Without the ability to obtainimmediate control of our Board of Directors, a takeover bidder will notbe able to take action to remove other impediments to its acquisitionof us. The classified board structure also makes it more difficult forthe shareholders to change the composition of our Board of Directorseven if the shareholders believe such a change would bedesirable.

Future sales of our common stock may depress ourstock price.

Future sales of shares of common stock byexisting shareholders under Rule 144 of the Securities Act of 1933, asamended (the ‘‘Securities Act’’) or throughthe exercise of outstanding registration rights or the issuance ofshares of our common stock upon the exercise of options or warrants orthe conversion of our outstanding Preferred Stock could materiallyadversely affect the market price of the common stock and couldmaterially impair our future ability to raise capital through anoffering of equity securities. A substantial number of shares of ourcommon stock is available for sale pursuant to certain registrationrights and under Rule 144 in the public market or will become availablefor sale in the near future and no predictions can be made as to theeffect, if any, that market sales of such shares or the availability ofsuch shares for future sale will have on the market price of our commonstock prevailing from time to time.

Holders of ouroutstanding options and warrants are likely to exercise them when, inall likelihood, we can obtain additional capital on terms morefavorable than those provided in the options and warrants. Our abilityto obtain additional financing may also be adversely affected by ourobligation to register shares of common stock under the Securities Act.Castle Trust and Management Services Limited, as Trustee under theMillennium I Trust created under that certain Deed of Settlement datedOctober  2,  1996, has the right (on an unlimited number ofoccasions) to require us to register all or any portion of the commonstock, aggregating 147,784 shares, into which the 125,000 shares of our1996-Major Series of convertible preferred stock has beenconverted.

We have never paid cash dividends on our commonstock.

We have never paid cash dividends on our commonstock. We intend to retain any future earnings to finance our growth.In addition, dividends on our common stock are subject to thepreferences for dividends on our preferred stock. Any future dividendswill depend upon our earnings, if any, our financial requirements, andother factors.

We may be subject to the securities enforcementand Penny Stock Reform Act of 1990.

The SecuritiesEnforcement and Penny Stock Reform Act of 1990 requires additionaldisclosure and documentation related to the market for penny stock andfor trades in any stock defined as a penny stock. 

24

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Unless we can acquire substantial assets andtrade at over $5.00 per share on the bid, it is more likely than notthat our securities, for some period of time, would be defined underthat Act as a ‘‘penny stock.’’ As a result,those who trade in our securities may be required to provide additionalinformation related to their fitness to trade our shares. Also, thereis the requirement of a broker-dealer, prior to a transaction in apenny stock, to deliver a standardized risk disclosure document thatprovides information about penny stocks and the risks in the pennystock market. Further, a broker-dealer must provide the customer withcurrent bid and offer quotations for the penny stock, the compensationof the broker-dealer and its salesperson in the transaction, andmonthly account statements showing the market value of each penny stockheld in the customer's account. These requirements present asubstantial burden on any person or brokerage firm who plans to tradeour securities and would thereby make it unlikely that any liquidtrading market would ever result in our securities while the provisionsof this Act might be applicable to those securities.

We may besubject to blue sky compliance.

The trading of pennystock companies may be restricted by the blue sky laws of severalstates. We are aware that a number of states currently prohibit theunrestricted trading of penny stock companies absent the availabilityof exemptions, which are in the discretion of the states'securities administrators. The effect of these states' laws wouldbe to limit the trading market, if any, for our shares and to makeresale of shares acquired by investors moredifficult.

Our common stock has been de-listed from TheNasdaq Stock Market and trades on the OTC Bulletin Board.

On April  29,  2004, we received a Notificationof Deficiency from the Nasdaq Stock Market, Inc.(‘‘Nasdaq’’) indicating that we were not incompliance with Nasdaq Marketplace Rule 4310(c)(4), relating to minimumbid price per share ($1.00) for continued listing on The NasdaqSmallCap Market.

We had until October  26,2004 to demonstrate compliance with this rule (and maintain compliancewith all other listing requirements) or face possible delisting fromThe Nasdaq SmallCap Market. Such compliance was not achieved by thedeadline date and, accordingly, our common stock was delisted from theNasdaq SmallCap Market. On November  10,  2004, our commonstock commenced trading on the Over-the-Counter BulletinBoard.

We may be subject to a sales tax assessment, which couldmaterially affect our operations.

In February2004, we were notified by the New York State Department of Taxation& Finance of an assessment of $4,000,000, including interest andpenalties, after their audit concluded that certain of our subsidiarieshad failed to pay sales and use taxes of approximately $2,000,000 fromFebruary  1999 through August  2001. We believed that allsales taxes due were properly paid and that if any additional salestaxes were due they would be minimal. Accordingly, in prior periods, wedid not accrue any liability in connection with this matter. Weappealed the findings of the taxing authorities**.**Afterinvestigation, the taxing authorities and we agreed on a finalaggregate amount due of $65,383.66, including 19,106.69 of interest.This amount is reflected in accrued expenses at December31,  2004. Had we not prevailed on a substantial portion of ourappeal, the resulting assessment could have had a material adverseeffect on our results of operations and cash position.

We may belimited in our ability to derive revenues from the provision offinancing to our customers.

A number ofstates’ attorneys general have investigated the amounts of moneycar dealers have derived by securing financing for vehicle purchasers(‘‘finance reserves’’) and, in some cases,deemed them ‘‘excessive.’’ Consequently,several states, as well as banks and other institutions, have limited,or are seeking to limit, such finance reserves. It is possible thatthis will be the case in New York State and New Jersey and among someof our consumer finance sources. If restrictions are placed on ourability to generate revenues from finance reserves, it could have theeffect of limiting our future revenues and gross profits.

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Item 2.    Properties

Weown an approximately 12,000 square foot facility consisting of officeand automobile showroom space in Long Island City, New York, anapproximately 40,000 square foot service facility in Long Island City,New York and a vehicle storage facility in Orange, New Jersey. All ofour other operations and subsidiaries are conducted from leasedlocations.

One of our subsidiaries, Major Motors of LongIsland City, Inc. (formerly, Subaru, Inc.), was a sublessee from anunrelated third party approximately 2,500 square feet of office andautomobile showroom space in Woodside, New York. This lease expired onDecember  31,  2004. The annual rent under such lease was$128,000.

In addition, we have an interest in thefollowing leases, under which we presently make annual rental paymentsaggregating $1,419,700:

|  |              |                                                                                                                                                                                                                                                           |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Major ChryslerJeep Dodge, Inc. leases approximately 17,400 square feet of office andautomobile showroom and storage space in Long Island City, New Yorkfrom an unrelated third party at an annual rent of $95,500. This leaseexpires on October  31,2011. |

|  |              |                                                                                                                                                                                                                                                                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Major Auto leases approximately2,000 square feet of lot space in Astoria, New York adjacent to themain Major Fleet (formerly, Major Dodge) showroom from an unrelatedthird party. This lease expired on June  30,  1997 at whichtime the annual rent was $33,000. Major Auto remains in possession ofthe premises on a month-to-monthbasis. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | One of our subsidiaries, CompassDodge, Inc. (‘‘Compass’’), leases from FordMotor Car Company, an unrelated third party, approximately 30,000square feet used for showroom, office, service department and storagefacilities in Orange, New Jersey. This lease is currently on amonth-to-month basis at an annual rental of $90,000. Additionally, ourinactive subsidiary, Compass Lincoln Mercury, Inc., had a lease for7,000 square feet of showroom, office and storage space in Orange, NewJersey, from an unaffiliated third party, at an annual rent of $90,000,which was the subject of litigation. The litigation was settled and thelease canceled during the second quarter of 2004 for a payment by us of$115,000. See ‘‘Legal Proceedings – TillroeRealty Co. vs. Compass Lincoln Mercury, Inc. and Fidelity Holdings Co.,Inc.’’ Compass also leases space for a servicedepartment and storage facilities in Orange, New Jersey, at an annualrent of $150,000. This lease expires on August  31,  2006.Finally, Compass leases additional space for storage facilities, on amonth-to-month basis, from an unaffiliated third party at an annualrent of $19,200. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Major Chevrolet leasedapproximately 250,000 square feet of adjacent automobile dealershipfacilities in Long Island City, New York, from an unrelated third partyat an annul rate of $300,000 through February  1,  2004. Weexercised our option and extended this lease to February1,  2009 at an annual rental of $330,000. Major Chevrolet has theadditional option to extend the lease for up to two additionalfive-year terms. Major Chevrolet also leases storage space in LongIsland City from an unaffiliated third party at an annual rent of$84,000, pursuant to a one-year lease, which expired in October2004, after which it continued on a month-to-monthbasis. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | One of our subsidiaries,Hempstead Mazda, Inc., whose franchise was voluntarily surrendered,leases from its former owner, an unrelated third party, on behalf ofour subsidiary, Major Nissan of Garden City, Inc.(‘‘Major Nissan’’), approximately 140,000square feet of land and buildings in Hempstead, New York, that is usedfor showroom, office and storage space. The lease expires onSeptember  30,  2009. The current annual rent is $234,000.This property has been subleased to Harold Bendell through hisownership of HB Automotive, Inc, under the same terms as our originallease. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Major Nissan leases from 316 N.Franklin LLC, a company owned by the Bendells, approximately 105,000square feet used for showroom, office, service department and storagefacilities. The property is located on the borderline of Hempstead, NewYork and Garden City, New York. The current annual rent is $384,000 andthe lease expires on June  30,  2007. We originally had an |

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|  |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | option on the purchase of the property, butwere unable to obtain financing to consummate the purchase. TheBendells agreed to buy the property and lease it to Major Nissan at afair market rent and pay us the fair value of the purchase option,approximately $360,000, over the initial term of the lease. Anindependent appraiser whom we retained determined the fair values.Accordingly, the amount due for the option is being repaid by reducingthe actual monthly lease payment to 316 N. Franklin LLC byapproximately $6,000 per month (See Note 12 of Notes to ConsolidatedFinancial Statements included elsewhere in this Form 10-K). |

Item 3.    Legal Proceedings

Daniel Tepper v.Fidelity Holdings, Inc; Fidelity Holdings, Inc. (Third Party Plaintiff)v. InvestAmerica et  al.

In and aroundJuly  10,  2001, Daniel Tepper commenced suit in theSouthern District of New York against Bruce Bendell, Doron Cohen andRichard Feinstein, our former Chief Financial Officer. While theinitial complaint had eight (8) causes of action, three (3) remain: (i)conversion; (ii) breach of fiduciary duty and (iii) negligence. Theclaims allege that we failed to remove restrictive legends thatappeared on certain stock certificates held by Mr.Tepper.  This action mirrors a Nevada action brought byMr.  Tepper several years ago for which he obtained a judgment of$553,000, which has been satisfied. In light of the satisfaction of theNevada judgment, the Court directed that a motion be made to dismissthe New York action to ban a double recovery. The motion was made inJuly  2003 and was denied in lieu of a settlement conference.Such conference was held and failed. A second motion to dismiss wasfiled and in the third quarter of 2004 this case was adjudicated in ourfavor and, consequently, dismissed. However, plaintiff filed a noticeof appeal of the court’s decision on November  3,2004. We believe that plaintiff’s appeal will not prevail andthat, in any event, Mr.  Tepper’s allegations have nomerit and we intend to vigorously defend thissuit.

Fidelity Holdings, Inc., IG2, Inc and 786710Ontario, Ltd. v. Michael Marom and M.M. Telecom,Corp.

We and our former subsidiaries IG2, Inc.(‘‘IG2’’) and 786710 Ontario, Ltd. areplaintiffs in a legal action against Michael Marom and M.M. Telecom,Corp. in the Supreme Court of the State of New York, County of Queens,Index No. 25678/96. We filed a complaint on December  23,1996 against the defendants alleging: (i) breach of a letter agreementbetween the parties; (ii) tortuous interference with businessopportunities; and (iii) slander. Defendants filed an answer withcounterclaims, which included, inter alia: (i) fraud; (ii) breach ofcontract; (iii) tortious interference with business opportunities; and(iv) tortious interference with contract. Both parties have completeddiscovery and the collective plaintiffs, including us, have made amotion for summary judgment against the defendants seeking to have thedefendants' counterclaims dismissed entirely and with prejudice.A decision was rendered by the court, which dismissed the claims fortortuous interference with business opportunities and contract, butdenied the remainder of the motion. The case had been stayed as aresult of IG2 filing for bankruptcy protection in January  2003.The stay was subsequently lifted. In March  2004, we reached asettlement agreement with the defendants whereby we are required to payan aggregate of $250,000, as follows: $50,000 on April  1,2005 and the balance of $200,000 over the next 24 months at the rate of$8,333.33 per month. In addition, we are required to pay to defendantsany amounts we receive from IG2, until such time as an additional$250,000 has been paid to defendants. To the extent the amounts wereceive from IG2 and, in turn, pay to the defendants by February28,  2009 (the ‘‘IG2 Payments’’), isless than $250,000, we will be liable for the difference between$250,000 and the aggregate IG2 Payments at that time. The effects ofthis settlement have been recorded in our financial statements as ofDecember  31,  2004.

Sanford Goldfarb v.Robert LeRea, Doron Cohen, Bruce Bendell, Kimberly Peacock and TheMajor Automotive Companies, Inc. f/k/a Fidelity Holdings,Inc.

On September  23,  2002, a lawsuitwas commenced by Ira Hochman and Sanford Goldfarb against us, RobertLaRea, a former consultant to us, Doron Cohen, Bruce Bendell andKimberly Peacock, our former employee. The suit seeks damages of up to$10,000,000 for breach of contract, quantum merit, unjust enrichment,conversion and fraud. Plaintiffs contend that they entered intoagreements with us and the other defendants to promote our company inexchange for stock. Plaintiffs further contend that, in spite of theirsubstantial time and efforts, we and the other defendants failed tocompensate plaintiffs as per the agreements. Plaintiffs also allegethat they provided a bridge loan to defendants in the sum of

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$1,830,000, which has not been repaid. OnJanuary  28,  2005, the parties agreed to settle this byour paying an aggregate of $400,000 to the plaintiffs in exchange forthe aggregate of 120,820 shares of common stock owned by theplaintiffs. An initial payment of $200,000 was made on February1,  2005, an additional payment of $20,000 was made onMarch  1,  2005 and nine additional monthly payments arescheduled for each of the succeeding months. The shares to be returnedto us will be returned, ratably, as payments are received by theplaintiff. Accordingly, a liability of $400,000 was accrued in thefourth quarter of 2004 and we recorded the acquisition of treasurystock for $144,984, based on the closing price of our common stock onthe day prior to the settlement, and $255,016 was charged to litigationexpense, representing the difference between the total amount to bepaid and the fair value of the shares received.

GELCOCorporation, et al. v. Major Chevrolet, Inc.

OnDecember  19,  2001, GELCO Corporation(‘‘GELCO’’) filed a complaint against MajorChevrolet, Inc. in the United States District Court for the NorthernDistrict of Illinois, Eastern Division. The lawsuit alleged breach byMajor Chevrolet, Inc. of the terms and conditions of the purchase ofautomobiles and automobile leases under that certain dealer lease planagreement and alleged breach arising out of the purchaser of retailsales contracts under that certain dealer retail agreement by andbetween the parties. GELCO was seeking $2,767,000 in damages. OnJanuary  24,  2003, the action was settled for $900,000,consisting of an initial payment of $300,000 and a 20-month promissorynote for $600,000, which was paid in full by September2004.

Steel City Telecom, Inc. v. The Major AutomotiveCompanies, Inc., et al.

In and around September2002, an action was commenced against us and our former subsidiary,Computer Business Sciences, Inc., in Pennsylvania, Allegheny County bySteel City Telecom, Inc. (‘‘Steel City’’)for up to $300,000. The complaint alleged that certain software sold toSteel City was defective and that we were negligent in its production.We are in the process of requesting a removal of this case to Federalcourt, while continuing with the discovery phase. We believe that theplaintiff’s allegations have no merit and we intend tovigorously defend this suit.

Zvi Barak v. The MajorAutomotive Companies, Inc.

An application to theOntario Superior Court (Toronto Court File No. 02-CV-229810CM2) wasfiled by Zvi Barak on May  23,  2002 seeking an Order ofthat court directing us to proceed with arbitration in Toronto, Canadaregarding Dr.  Barak’s claims that we failed to pay him$546,249.99 under an alleged letter dated June  5,  1996 tothat certain Master Agreement dated April  18,  1996between us and Dr.  Barak. We brought a motion before the OntarioSuperior Court of Justice seeking a permanent stay of Dr.Barak’s application on grounds which include, but are notlimited to: (a) Ontario is not a convenient forum for the hearing ofthe application; and (b) the Ontario Superior Court of Justice does nothave jurisdiction over the subject matter of the parties. The motionwas heard by the Court in Toronto on February  18,  2003.At that time, our motion was denied and we subsequently filed a motionfor leave to appeal. In July  2003, our motion for leave toappeal was denied. On February  2,  2005, we agreed tosettle this case by purchasing from Mr.  Barak and his wife SarahBarak all of the shares of our common stock that they own, aggregating167,808 shares for the purchase price of $250,000 and the forgivenessof a promissory note due to one of our inactive subsidiaries in theprincipal amount of $119,500. Inasmuch as the promissory note was fullyreserved and written off in prior years, we accrued a liability of$250,000 for this settlement in the fourth quarter of 2004 and haverecorded the transaction as the acquisition of treasury stock of$206,404, the fair market value of the shares based on the closingprice on the day prior to the agreement, and litigation expense of$43,596, representing the difference between the amount to be paid andthe fair value of the shares.

Tillroe Realty Co. vs.Compass Lincoln Mercury, Inc. and Fidelity Holdings Co.,Inc.

On September  4,  2003, an action wascommenced against us and our subsidiary Compass Lincoln Mercury, Inc.in the Superior Court of New Jersey, Essex County by a landlord of ourformer Compass Lincoln Mercury showroom in Orange, New Jersey. The suitalleged that current rent and damages to the showroom space at 170Central Avenue, Orange New Jersey are presently due and owing by us.The suit alleged damages in the amount of $123,556 and rent ofapproximately $7,900 per month. This case was settled during the secondquarter of 2004 for $115,000.

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GRIT, LLC vs. Major AutomotiveCompanies, Inc.

On September  24,  2003 wereceived notice of a default judgment in the Superior Court of theState of California, Los Angeles, for an aggregate amount of $66,718stemming from the plaintiff’s purchase in 1998 of a TalkieCommunication Server from a former subsidiary. In the third quarter of2004 this case was adjudicated in our favor and, consequently,dismissed. In the fourth quarter of 2004, the plaintiff refiled itscomplaint under a slightly different theory from its initial suit. Itis our belief that this claim is also without merit and we intend tovigorously defend this suit.

Justin Jung et al. v.Major Automotive Companies, Inc.

In December2004, we were served with a Summons and Complaint, (filed in New YorkState Supreme Court, County of the Bronx) alleging the sale ofdefective or otherwise dangerous vehicles. Named plaintiff bases hissuit on a single-vehicle accident. The action includes provisions forthe possible promulgation of a class action lawsuit regarding theprevious accusations. We believe that the suit has no merit and weintend to vigorously defend this action.

Maryann Cerbo,et al. v. Ford of Englewood, Inc., et al.

InNovember  2004, we received notice of a pending class action inthe state of New Jersey for the above action in the Superior Court ofthe State of New Jersey. The lead plaintiff had alleged the systematicovercharge by all New Jersey Licensed Automotive Dealers for thedocumentation fees for the registration of new/used vehicles. Underadvice of counsel, we, through our Compass Dodge, Inc. franchise,agreed to accept the proposed settlement offer by theplaintiff’s counsel. Using a complex set of guidelines,including total sales and ratio of new and used vehicles sold, weagreed to comply with the settlement provisions. The current estimatedcost of settlement is approximately $30,000, which has been accrued inthe fourth quarter of 2004. The settlement proposal awaits approval bythe New Jersey Superior Court.

Various claims against oursubsidiaries.

Various claims and lawsuits arising inthe normal course of business are pending against our subsidiaries. Theresults of such litigation are not expected to have a material oradverse effect on our combined financial position or results ofoperations.

Item 4.    Submission Of Matters To A Vote OfSecurity Holders

On December  17,  2004, weheld our Annual Meeting of Shareholders. Proxies were solicited by uspursuant to Regulation 14A under the Exchange Act. On October29,  2004, the record date for the Annual Meeting, there wereapproximately 9,492,856 shares of common stock outstanding and entitledto vote, of which 8,229,436 shares of common stock were present inperson or by proxy and voted at the meeting. At the Annual Meeting, ourshareholders approved the followingproposals:

1. To elect two (2) Class I Directors,Bruce Bendell and Alan Pearson, for terms ending in2007.

|              |  |        |           |          |  |         |         |          |  |        |   |        |  |        |         |        |  |  |
|--------------|--|--------|-----------|----------|--|---------|---------|----------|--|--------|---|--------|--|--------|---------|--------|--|--|
|         |  | For    |           | Withheld |  | Against |         | NotVoted |
| BruceBendell |  |   | 8,199,961 |     |  |    | 334,583 |     |  |   | 0 |   |  |   | 958,312 |   |
| AlanPearson  |  |   | 8,229,336 |     |  |    | 305,208 |     |  |   | 0 |   |  |   | 958,312 |   |
|              |

Theterms of Steven Hornstock, the Class II Director, and David Edelsteinand Jeffrey Weiner, the Class III, Directors, continued after theAnnual Meeting.

2. To ratify the appointment of BDOSeidman, LLP as our independent registered public accounting firm forthe year2005.

|           |  |        |           |        |  |  |
|-----------|--|--------|-----------|--------|--|--|
| For       |  |   | 8,493,056 |   |
| Against   |  |   | 26,352    |   |
| Abstain   |  |   | 15,046    |   |
| Not Voted |  |   | 958,402   |   |
|           |

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PART II

|              |                                                                      |
|--------------|----------------------------------------------------------------------|
| Item5.  | Market For Registrant's Common Equity AndRelated Stockholder Matters |

Market Information

Our common stock trades on the Over-the-Counter BulletinBoard under the symbol ‘‘MAJR.OB,’’ sinceNovember  10,  2004 after being delisted from the NasdaqSmallCap. The quarter-end high and low sales prices of our common stockwere as reported by the Nasdaq Stock Market and the Over-the-CounterBulletin Board, which quotations reflect inter-dealer prices, withoutretail mark-up, mark-down or commission, and may not reflect actualtransactions:

|                    |
|--------------------|
|                    |  |  |  |  |  |  |  |  |  |  |
| QuarterEnded       |  | High |  | Low |
| June30,2005        |  | $ | 1.13 |   |  | $ | 0.93 |   |
| March31,2005       |  | $ | 1.24 |   |  | $ | 0.86 |   |
| December31,  2004  |  | $ | 0.95 |   |  | $ | 0.70 |   |
| September  30,2004 |  | $ | 1.05 |   |  | $ | 0.84 |   |
| June30,2004        |  | $ | 1.00 |   |  | $ | 0.60 |   |
| March31,2004       |  | $ | 1.37 |   |  | $ | 0.58 |   |
| December31,  2004  |  | $ | 0.81 |   |  | $ | 0.72 |   |
| September  30,2003 |  | $ | 0.80 |   |  | $ | 0.80 |   |
| June30,2003        |  | $ | 0.87 |   |  | $ | 0.80 |   |
| March31,2003       |  | $ | 0.91 |   |  | $ | 0.73 |   |
|                    |

Shareholders

As of June  30,  2005 there were approximately479 holders of record of our common stock.

Dividends

We have never declared cash dividends on any class of oursecurities and have no present intention to declare any dividends onany class of our securities in the future.

SecuritiesAuthorized for Issuance Under Equity CompensationPlans.

Item 12 of Part III contains informationconcerning securities authorized for issuance under our equitycompensation plans.

Recent Sales of UnregisteredSecurities

The securities described below were soldby us during the fiscal year 2004 without being registered under theSecurities Act. All such sales made in reliance on Section 4(2) and/orRule 506 promulgated thereunder of the Securities Act were, to the bestof our knowledge, made to investors that, either alone or together witha representative that assisted such investor in connection with theapplicable investment, had such sufficient knowledge and experience infinancial and business matters to be capable of evaluating the meritsand risks connected with the applicable investment.

|  |          |                                                                                                                                                                                 |
|--|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 1.  | On April  30,  2004, we issued 4,500shares of common stock to David Edelstein, at a per share price of$0.79, as compensation for services as a member of our Board ofDirectors. |

|  |          |                                                                                                                                                                                |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 2.  | On April  30,  2004, weissued 4,500 shares of common stock to Jeffrey Weiner, at a per shareprice of $0.79, as compensation for services as a member of our Boardof Directors. |

|  |          |                                                                                                                                                                             |
|--|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3.  | On April  30,  2004,we issued 4,500 shares of common stock to Steven Nawi, at a per shareprice of $0.79, as compensation for services as a member of our Boardof Directors. |

|  |          |                                                                                                                                                                                  |
|--|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 4.  | On April  30,  2004,we issued 4,500 shares of common stock to Steven Hornstock, at a pershare price of $0.79, as compensation for services as a member of ourBoard of Directors. |

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Item 6.    Selected FinancialData

The selected data presented below for, and asof the end of, each of the years in the five-year period endedDecember  31,  2004, are derived from our audited financialstatements. The data set forth below should be read in connection with,and are qualified by reference to, ‘‘Management'sDiscussion and Analysis of Financial Condition and Results ofOperations’’ and our financial statements and the relatednotes included elsewhere in this Form10-K.

|                                            |  |                                         |             |         |  |        |             |         |  |        |             |         |  |        |             |        |  |        |             |         |  |  |
|--------------------------------------------|--|-----------------------------------------|-------------|---------|--|--------|-------------|---------|--|--------|-------------|---------|--|--------|-------------|--------|--|--------|-------------|---------|--|--|
|                                       |  | Asat and for the year ended December31, |
|                                       |  | 2004                                    |             | 2003    |  | 2002   |             | 2001    |  | 2000   |
| STATEMENTOF OPERATIONSDATA                 |  |                                    |             |    |  |   |             |    |  |   |
| Revenues                                   |  | $                                       | 396,981,562 |    |  | $      | 380,298,852 |    |  | $      | 397,947,494 |    |  | $      | 375,114,505 |   |  | $      | 322,142,231 |    |
| Income(loss) from continuingoperations*    |  |                                    | (6,837,962  | )  |  |   | (1,130,264  | )  |  |   | (84,772     | )  |  |   | 2,089,524   |   |  |   | 1,302,247   |    |
| Income(loss) from discontinuedoperations   |  |                                    | —     |    |  |   | —     |    |  |   | (206,000    | )  |  |   | 590,000     |   |  |   | (22,427,322 | )  |
| Netincome(loss)                            |  |                                    | (6,837,962  | )  |  |   | (1,130,264  | )  |  |   | (290,772    | )  |  |   | 2,679,524   |   |  |   | (21,125,075 | )  |
| Income(loss) per commonshare               |  |                                    |        |    |  |   |        |    |  |   |        |    |  |   |        |   |  |   |        |    |
| Incomefrom continuingoperations            |  |                                    |        |    |  |   |        |    |  |   |        |    |  |   |        |   |  |   |        |    |
| Basic                                      |  | $                                       | (0.72       | )  |  | $      | (0.12       | )  |  | $      | (0.01       | )  |  | $      | 0.32        |   |  | $      | 0.26        |    |
| Diluted                                    |  |                                    | (0.72       | )  |  |   | (0.12       | )  |  |   | (0.01       | )  |  |   | 0.24        |   |  |   | 0.19        |    |
| Income(loss) from discontinuedoperations   |  |                                    |        |    |  |   |        |    |  |   |        |    |  |   |        |   |  |   |        |    |
| Basic                                      |  |                                    | —     |    |  |   | —     |    |  |   | (0.02       | )  |  |   | 0.09        |   |  |   | (4.40       | )  |
| Diluted                                    |  |                                    | —     |    |  |   | —     |    |  |   | (0.02       | )  |  |   | 0.07        |   |  |   | (4.40       | )  |
| Netincome(loss)                            |  |                                    |        |    |  |   |        |    |  |   |        |    |  |   |        |   |  |   |        |    |
| Basic                                      |  |                                    | (0.72       | )  |  |   | (0.12       | )  |  |   | (0.03       | )  |  |   | 0.41        |   |  |   | (4.14       | )  |
| Diluted                                    |  |                                    | (0.72       | )  |  |   | (0.12       | )  |  |   | (0.03       | )  |  |   | 0.31        |   |  |   | (4.14       | )  |
| Averagenumber of shares used incomputation |  |                                    |        |    |  |   |        |    |  |   |        |    |  |   |        |   |  |   |        |    |
| Basic                                      |  |                                    | 9,486,905   |    |  |   | 9,436,969   |    |  |   | 8,947,332   |    |  |   | 6,558,356   |   |  |   | 5,101,829   |    |
| Diluted                                    |  |                                    | 9,486,905   |    |  |   | 9,436,969   |    |  |   | 8,947,332   |    |  |   | 8,662,979   |   |  |   | 6,791,104   |    |
| **BALANCESHEETDATA**                       |  |                                    |        |    |  |   |        |    |  |   |        |    |  |   |        |   |  |   |        |    |
| Totalassets                                |  | $                                       | 86,014,467  |    |  | $      | 87,612,939  |    |  | $      | 87,247,341  |    |  | $      | 82,329,517  |   |  | $      | 86,781,397  |    |
| Long-termliabilities, less currentportion  |  |                                    | 6,910,269   |    |  |   | 7,156,125   |    |  |   | 7,701,700   |    |  |   | 9,853,587   |   |  |   | 10,411,463  |    |
| Totalstockholders'equity                   |  |                                    | 9,695,524   |    |  |   | 16,870,654  |    |  |   | 17,947,597  |    |  |   | 17,948,321  |   |  |   | 15,599,970  |    |
|                                            |

*Includesa write-off of goodwill of $8.1  million in the fourth quarter of2004. Also, see Notes 1, 9, 15 and 16 to Consolidated FinancialStatements for discussions of business acquisitions and divestitures,restatements, stockholders' equity, earnings (loss) per share,restructuring and impairment charges, discontinued operations and theireffects on comparability of year-to-year data. See ‘‘Item5. Market for Registrant's Common Equity and Related StockholderMatters’’ for a discussion of our dividendpolicy.

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Item 7. Management'sDiscussion And Analysis Of Financial Condition And Results OfOperations

The following discussion of our and oursubsidiaries’ operations, financial condition, liquidity andcapital resources should be read in conjunction with our auditedConsolidated Financial Statements and related notes thereto includedelsewhere herein.

This annual report contains, inaddition to historical information, forward-looking statements thatinvolve risks and uncertainties. Our actual results could differsignificantly from the results discussed in the forward-lookingstatements.

The Company

On May14,  1998, The Major Automotive Companies, Inc., a holdingcompany involved in the acquisition and development of synergistictechnological and telecommunications businesses and the regionalconsolidation of the retail automotive industry, acquired, from arelated party, Major Auto, and related real property and leases. Wehave historically operated in two divisions: Automotive andTechnology.

On November  3,  2000, our Boardof Directors determined to sell our non-automotive operations,including our Technology division, by the most appropriate economicallyviable means, in order to maximize shareholders' value from thoseoperations and to maintain our focus on the regional consolidation ofretail automotive dealerships. Accordingly, all non-automotiveoperations had been classified collectively as‘‘Discontinued Operations.’’ Continuingoperations are represented by our automotive dealerships activities,including our Major Auto subsidiary and other dealerships, as well asour automotive leasing subsidiary, Major Fleet.

The year2004 saw an increase in our revenues and gross profits. Our managementbelieves that the strong growth of new vehicle unit sales and theincrease in average sales prices of such vehicles were the significantcontributors to our increase in dealership revenues and gross profits.Revenues and gross profits increased approximately $16.7million and$3.9  million, respectively. The retail automotive business is,generally, subject to the effects of economic inflation. In recentyears, however, inflation has been relatively low and, therefore, hasnot significantly impacted either our revenues, costs or results ofoperations.

Pursuant to the rules for accounting forlong-lived assets, such as goodwill, as more fully described, below, wedetermined that we had an impairment of such asset. This was based, inpart, on future projections of our operating results, which assumescertain continuing trends in our product mix and profitability.Accordingly, in the fourth quarter of 2004, we wrote down our goodwilland, thereby, incurred a non-cash charge of $8.1  million. Thisresulted in a net loss of $6.8  million for the year endedDecember  31,  2004 compared with a net loss of $1.1million in the prior year.

Critical AccountingPolicies

We prepare our consolidated financial statementsin conformity with accounting principles generally accepted in theUnited States. Such principles require that we make estimates andassumptions that affect the reported amounts of assets and liabilitiesand disclosure of contingent assets and liabilities as of the date ofthe financial statements and the reported amounts of income andexpenses during the reporting period. Operating results in the futurecould vary from the amounts derived from those estimates andassumptions. We have identified the policies below that are critical toour business operations and the understanding of our results ofoperations and involve significant estimates. For detailed discussionof other significant accounting policies see Note 1, Nature of Businessand Summary of Significant Accounting Policies, of the Notes toConsolidated Financial Statements.

Inventory. Our inventory policy determines thevaluation of inventory, which is a significant component of ourconsolidated balance sheets. Our inventory consists primarily of retailvehicles held for sale valued at the lower of cost or market with newvehicles valued on the first-in, first-out basis and used vehicles andvehicles held for lease with cost determined using the specificidentification method, net of reserves. Cost includes the actual pricepaid for each vehicle plus reconditioning and transportation expenses.We establish reserves based on vehicle inventory aging andmanagement's estimate of market values. While we believe that ourestimates of market value are appropriate, we are subject to the riskthat our inventory may be overvalued from time to time primarily withrespect to used vehicles, which could require additional reserves to berecorded.

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Long-livedAssets. Our policies related to long-lived assets, such ason-going client relationships, goodwill and property and equipment,which constitute a significant component of our consolidated balancesheets, require that we evaluate such assets for impairment when eventsor changes in circumstances indicate that the carrying amount of suchassets may not be recoverable through the estimated undiscounted futurecash flows resulting from the use of those assets. If any impairment isfound to exist, the related assets will be written down to fair value.Additionally, these policies affect the amount and timing of futureamortization. Intangible assets consist primarily of the cost ofbusinesses acquired in excess of the fair value of net assets acquired.In accordance with Statements of Financial Accounting Standards No.141, ‘‘Business Combinations’’(‘‘SFAS 141’’), and Statements of FinancialAccounting Standards No. 142, ‘‘Goodwill and OtherIntangible Assets’’ (‘‘SFAS142’’), goodwill and intangible assets deemed to haveindefinite lives are no longer amortized but, instead, are subject toimpairment tests at least annually. We have applied the new rules onaccounting for goodwill beginning in the first quarter of 2002. During2003, we performed the required impairment tests of goodwill as ofDecember  31,  2003, and concluded, based, in part on theanalysis performed and conclusions reached by an independent valuationappraiser we retained, that there was no impairment of goodwill at thattime. During 2004, we performed the required impairment tests ofgoodwill as of December  31,  2004. We have concluded,based, in part, on the analysis performed and conclusions reached by anindependent valuation appraiser we retained, that there is animpairment of goodwill and indefinite lived intangible assets as ofDecember  31,  2004 aggregating approximately $8.1million. Accordingly, we incurred a non-cash charge of this amount inthe fourth quarter of 2004 as we wrote down goodwill to its estimatedfair value. We remain, however, subject to financial statement risk tothe extent that intangible assets become additionally impaired due todecreases in the fair market value of the related underlyingbusiness.

Account classifications. In orderto maintain consistency and comparability of financial informationbetween periods presented, certain reclassifications have been made toour prior year financial statements.

Floor plan andadvertising assistance received from manufacturers are recorded asoffsets to the cost of the vehicle and recognized as income upon thesale of the vehicle or when earned under a specificmanufacturer’s program, whichever is later. Floor planassistance payments have been included as offsets to cost of sales.Floor plan interest expense is included as a component of operatingexpense in the accompanying consolidated statement of operations.

For the years ended December  31,  2004, 2003 and2002, aggregate floor plan interest included in operating expense wasapproximately $2.0  million, $2.2  million and $1.7million, respectively. The increase in 2003 of interest expenserelative to decreased sales volume is primarily attributable to thehigher levels of inventory, i.e. reduced turnover, caused by the lowersales levels during 2003, most significantly during the first twoquarters.

For the years ended December  31,2004, 2003 and 2002, aggregate floor plan assistance included as areduction of cost of sales was approximately $1.8  million,$1.2  million and $1.3  million, respectively.

Advertising assistance received from manufacturers for theyears ended December  31,  2004, 2003 and 2002, included asa reduction of cost of sales was approximately $944,000, $723,000 and$714,000, respectively.

Commitments andContingencies. As further discussed in ‘‘Note12, Commitments and Contingencies, of Notes to Consolidated FinancialStatements,’’ we are involved, and will continue to beinvolved, in a number of legal proceedings arising out of the conductof our business, including litigation with customers, current andformer business associates, employment-related lawsuits and classactions. We intend to vigorously defend ourselves and assert availabledefenses with respect to each of these matters. Where necessary, wehave accrued our estimate of the probable costs for the resolution ofthese proceedings based on consultation with outside counsel, assumingvarious strategies. Further, we have certain insurance coverage andrights of indemnification with respect to certain aspects of thesematters. However, a settlement or an adverse resolution of one or moreof these matters may result in the payment of significant costs anddamages, which could have a material adverse effect on our business,financial condition, results of operations, cash flows andprospects.

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Furthermore, in February2004, the New York State taxing authorities notified us of anassessment of $4,000,000, including interest and penalties. We wereconfident that we had paid all sales taxes that are due and notifiedthe taxing authorities that we were appealing their findings. Afterinvestigation, the taxing authorities and we agreed on a finalaggregate amount due of approximately $65,000, including $19,000 ofinterest. This amount is reflected in accrued expenses atDecember  31,  2004.

RevenueRecognition. The majority of our revenue is from the salesof new and used vehicles, including any commissions from relatedvehicle financings. We recognize revenue upon delivery of the vehicleto the customer. At time of delivery, all financing arrangementsbetween and among the parties have been concluded. Commission revenueon warranty and insurance products sold in connection with vehiclesales is recognized upon sale. Additionally, we record income fromdirect financing leases based on a constant periodic rate of return onthe net investment in the lease. Income earned from operating leaseagreements is recorded evenly over the term of the lease.

Income Taxes. Our income tax policy requiresthat we compute the provision for income taxes on the pretax income(loss) based on the current law. We provide for deferred income taxesto show the effect of tax consequences in future years of differencesbetween the tax bases of assets and liabilities and their financialreporting amounts at each year-end based on enacted tax laws andstatutory tax rates. We use valuation allowances to reduce the value ofdeferred tax assets when we believe that their recovery is indoubt.

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Selected Operating Data

|                                         |  |                        |        |         |  |               |        |              |  |        |            |               |  |          |        |         |  |        |        |         |  |        |            |         |  |        |        |         |  |  |
|-----------------------------------------|--|------------------------|--------|---------|--|---------------|--------|--------------|--|--------|------------|---------------|--|----------|--------|---------|--|--------|--------|---------|--|--------|------------|---------|--|--------|--------|---------|--|--|
|                                    |  | YearsEnded December31, |
| ($ in millions,except per vehicle data) |  | 2004 vs.2003           |        |    |  |          |        | 2003 vs.2002 |
|                                    |  |                   |        |    |  | Variance-     |        |         |  |   |            | Variance-     |  |     |
|                                    |  |                   |        |    |  | Favorable     |        | %            |  |   |            | Favorable     |  | %        |
|                                    |  | 2004                   |        | 2003    |  | (Unfavorable) |        | Variance     |  | 2002   |            | (Unfavorable) |  | Variance |
| Revenues                                |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
| Newvehicles                             |  | $                      | 155.6  |    |  | $             | 131.7  |         |  | $      | 23.9       |          |  |     | 18.1   |    |  | $      | 140.7  |    |  | $      | (9.0       | )  |  |   | (6.4   | )  |
| Usedvehicles                            |  |                   | 222.9  |    |  |          | 231.6  |         |  |   | (8.7       | )        |  |     | (3.8   | )  |  |   | 236.8  |    |  |   | (5.2       | )  |  |   | (2.2   | )  |
| Serviceandparts                         |  |                   | 16.8   |    |  |          | 15.5   |         |  |   | 1.3        |          |  |     | 8.4    |    |  |   | 19.3   |    |  |   | (3.8       | )  |  |   | (19.7  | )  |
| Other                                   |  |                   | 1.7    |    |  |          | 1.5    |         |  |   | 0.2        |          |  |     | 13.3   |    |  |   | 1.1    |    |  |   | 0.4        |    |  |   | 36.4   |    |
| Totalrevenues                           |  | $                      | 397.0  |    |  | $             | 380.3  |         |  | $      | 16.7       |          |  |     | 4.4    |    |  | $      | 397.9  |    |  | $      | (17.6      | )  |  |   | (4.4   | )  |
| **Grossprofit**                         |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
| Newvehicles                             |  | $                      | 14.6   |    |  | $             | 13.6   |         |  | $      | 1.0        |          |  |     | 7.4    |    |  | $      | 14.4   |    |  | $      | (0.8       | )  |  |   | (5.6   | )  |
| Usedvehicles                            |  |                   | 43.3   |    |  |          | 40.3   |         |  |   | 3.0        |          |  |     | 7.4    |    |  | $      | 42.4   |    |  |   | (2.1       | )  |  |   | (5.0   | )  |
| Serviceandparts                         |  |                   | 5.0    |    |  |          | 5.2    |         |  |   | (0.2       | )        |  |     | (3.8   | )  |  | $      | 6.2    |    |  |   | (1.0       | )  |  |   | (16.1  | )  |
| Other                                   |  |                   | 1.6    |    |  |          | 1.5    |         |  |   | 0.1        |          |  |     | 13.3   |    |  |   | 1.1    |    |  |   | 0.4        |    |  |   | 36.4   |    |
| Totalgrossprofit                        |  | $                      | 64.5   |    |  | $             | 60.6   |         |  | $      | 3.9        |          |  |     | 6.4    |    |  | $      | 64.1   |    |  | $      | (3.5       | )  |  |   | (5.5   | )  |
| **Newvehicles**                         |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
| Unitsales                               |  |                   | 5,340  |    |  |          | 4,997  |         |  |   | 343        |          |  |     | 6.9    |    |  |   | 5,557  |    |  |   | (560       | )  |  |   | (10.1  | )  |
| Revenuepervehicle                       |  | $                      | 29,146 |    |  | $             | 26,351 |         |  | $      | 2,795      |          |  |     | 10.56  |    |  | $      | 25,320 |    |  | $      | 1,031      |    |  |   | 4.1    |    |
| Grossprofit pervehicle                  |  | $                      | 2,729  |    |  | $             | 2,712  |         |  | $      | 17         |          |  |     | 0.6    |    |  | $      | 2,590  |    |  | $      | 122        |    |  |   | 4.7    |    |
| Grossprofitpercentage                   |  |                   | 9.4    | %  |  |          | 10.3   | %       |  |   | −0.9 | %        |  |     | (8.7   | )  |  |   | 10.2   | %  |  |   | 0.1        | %  |  |   | 1.0    |    |
| **Usedvehicles**                        |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
| Unitsales                               |  |                   | 14,898 |    |  |          | 16,555 |         |  |   | (1,657     | )        |  |     | (10.0  | )  |  |   | 16,050 |    |  |   | 505        |    |  |   | 3.1    |    |
| Revenuepervehicle                       |  | $                      | 14,965 |    |  | $             | 13,988 |         |  | $      | 977        |          |  |     | 7.0    |    |  | $      | 14,754 |    |  | $      | (766       | )  |  |   | (5.2   | )  |
| Grossprofit pervehicle                  |  | $                      | 2,906  |    |  | $             | 2,435  |         |  | $      | 471        |          |  |     | 19.3   |    |  | $      | 2,644  |    |  | $      | (209       | )  |  |   | (7.9   | )  |
| Grossprofitpercentage                   |  |                   | 19.4   | %  |  |          | 17.4   | %       |  |   | 2.0        | %        |  |     | 11.5   |    |  |   | 17.9   | %  |  |   | −0.5 | %  |  |   | (2.8   | )  |
| **Percentageof totalrevenues**          |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
| Newvehicles                             |  |                   | 39.2   | %  |  |          | 34.6   | %       |  |   | 4.6        | %        |  |     | 13.3   |    |  |   | 35.4   | %  |  |   | −0.8 | %  |  |   | (2.3   | )  |
| Usedvehicles                            |  |                   | 56.1   | %  |  |          | 60.9   | %       |  |   | −4.8 | %        |  |     | (7.9   | )  |  |   | 59.5   | %  |  |   | 1.4        | %  |  |   | 2.4    |    |
| Serviceandparts                         |  |                   | 4.2    | %  |  |          | 4.1    | %       |  |   | 0.1        | %        |  |     | 2.4    |    |  |   | 4.9    | %  |  |   | −0.8 | %  |  |   | (16.3  | )  |
| Other                                   |  |                   | 0.5    | %  |  |          | 0.4    | %       |  |   | 0.1        | %        |  |     | 25.0   |    |  |   | 0.2    | %  |  |   | 0.2        | %  |  |   | 100.0  |    |
|                                    |  |                   | 100.0  | %  |  |          | 100.0  | %       |  |   | 0.0        | %        |  |     | 0.0    | %  |  |   | 100.0  | %  |  |   | 0.0        | %  |  |   | 0.0    | %  |
| **Otheroperatingdata**                  |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
| Totaloperatingexpenses                  |  | $                      | 62.3   |    |  | $             | 60.9   |         |  | $      | 1.4        |          |  |     | 2.3    |    |  | $      | 63.1   |    |  | $      | (2.2       | )  |  |   | (3.5   | )  |
| Goodwillwrite-down                      |  | $                      | 8.1    |    |  | $             | -0-    |         |  | $      | 8.1        |          |  |     | N/A    |    |  | $      | -0-    |    |  | $      | -0-        |    |  |   | N/A    |    |
| Floor planinterest                      |  |                   | 2.0    |    |  |          | 2.2    |         |  |   | (0.2       | )        |  |     | (9.1   | )  |  |   | 1.7    |    |  |   | 0.5        |    |  |   | 29.4   |    |
| Advertisingexpense*                     |  |                   | 11.8   |    |  |          | 15.8   |         |  |   | (4.0       | )        |  |     | (25.3  | )  |  |   | 14.5   |    |  |   | 1.3        |    |  |   | 9.0    |    |
| *Includedin operatingexpenses           |  |                   |   |    |  |          |   |         |  |   |       |          |  |     |   |    |  |   |   |    |  |   |       |    |  |   |   |    |
|                                         |

ResultsOf Continuing Operations Year Ended December  31,  2004 AndYear Ended December  31,2003

Revenues. Revenues for the year endedDecember  31,  2004 increased to approximately$397.0  million, which is $16.7  million, or 4.4%,more than the prior year's revenues of $380.3  million. Theprimary reasons for the increase in total revenue were (1) thesignificant increase in unit sales of new vehicles and (2) the largeincrease in average selling prices for new vehicles. New car unit salesincreased by 343 units, or 6.9%, in 2004 from 2003. At the sametime, average revenue for each new vehicle sold increased by $2,795.This increase in revenues generated by new vehicle sales was partiallyoffset by a decrease in revenues from used vehicles of $8.7million. Used vehicle units sold decreased by 1,657 units, or10.0% in 2004. While the average revenue per used vehicle soldincreased by $977, or 7.0%, it was not sufficient to overcomethe decline in units and resulted in overall decrease in used vehiclerevenues in 2004. We believe that these 

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results are reflective of the trend thatcontinues whereby new vehicle manufacturers are offering customerincentives that are wide-ranging and deep. This has created a situationwhere our dealerships are selling more new vehicles, but at the expenseof used vehicle sales. With the prices of new vehicles reaching levelsthat are attractive to buyers who would have previously purchased usedvehicles, many more new vehicle buyers have been created. Because ourdealerships have only a limited number of new vehicle brands to sell,customers who previously may have come to our centers because of thelarge selection of used vehicles available may go elsewhere for a newvehicle purchase. As a consequence, the customers who do buy usedvehicles tend to be (a) those who still cannot afford an entry levelnew vehicle and are, therefore, buying the lower priced used vehicles,which tends to reduce the average sales price per unit and (b) thosewho can afford to buy higher end vehicle and either prefer usedvehicles or have difficulty in qualifying for credit at new vehicledealerships. The significant decrease of used vehicles sold in 2004 isreflective of the trend whereby some of our potential used vehiclecustomers have become new vehicle customers. This can also be seen inour sales mix where, in 2004, 39.2% of our total revenue wasgenerated by new vehicle sales and 56.1% of our total revenuecame through used vehicle sales. In 2003, the comparable percentageswere 34.6% and 60.9% for new and used vehicles,respectively.

New vehicle sales revenue was approximately$155.6  million in 2004, an increase of $23.9  million or18.1% from 2003 new vehicle sales revenue of $131.7million. This increase is significantly attributable to incentivesgiven consumers by new vehicle manufacturers, including cash rebatesand attractive financing options which has increased customer demand bylowering the average net cost to consumers, while leaving gross sellingprices high.

Used vehicle sales revenue was $222.9million in 2004 and $231.6  million in 2003, a decrease ofapproximately $8.7  million or 3.8%. The most significantfactor in this decrease was the decrease in unit sales. As noted above,our average sales price per used vehicle unit sold increased, but thevolume decrease more than offset the average sales price increase. Webelieve that both the migration of the used vehicle buyer to newvehicles and the very competitive marketplace in the New Yorkmetropolitan area, contributed significantly to our volume decline.

Cost of sales. The cost of sales increased$12.8  million, or 4.0%, to $332.5  million in theyear 2004 from $319.7  million in the year ended December31,  2003. The percentage increase is 0.4% less than therevenues percentage increase and reflects both the disproportionatelyhigher cost of new vehicles, which increased by 19.4% and thedisproportionately lower cost of used vehicles, which decreased by6.1%. The average cost of a new vehicle increased by $2,778, or11.8%, and the average cost of a used vehicle increased by $506,or 4.4%, resulting in the increase in cost of sales. As noted,above, the cost of sales in both years reflects the net effect ofautomotive manufacturers’ floor plan assistance incentives andadvertising incentives.

Gross profit. Ourautomotive dealership operations generated almost all of the totalgross profit of $64.5  million for the year ended December31,  2004 compared with the 2003 amount of $60.6  million,an increase of $3.9  million or 6.4%. The gross profits ofnew vehicles increased by $1.0  million, or 7.4%, and thegross profits of used vehicles increased by $3.0  million, or7.4%. Other gross profits were relatively flat.

New vehicle unit sales and revenue per vehicle eachincreased substantially. However, as discussed previously, the costs ofsuch sales increased at a disproportionately higher rate, whichresulted in a decrease in new vehicle gross profit percentage, but asmall increase in gross profit per new vehicle sold and an overallincrease in new vehicle gross profit. Total gross profit from newvehicles sales increased $1.0  million, or 7.4%, from$13.6  million in 2003 to $14.6  million in 2004. Grossprofit per new vehicle sold increased $17, or 0.6%, from $2,712in 2003 to $2,729 in 2004. The gross profit percentage decreased to9.4% in 2004 from 10.3% in 2003. We believe that themanufacturers incentives have permitted customers to purchase moreexpensive new vehicles and brought in more first-time new vehiclebuyers. The competitive environment for new vehicle purchasers in theNew York metropolitan area has not allowed us to maintain the higherprofit margins that we enjoyed in the past.

The grossprofit percentage for used vehicles increased substantially, from17.4% to 19.4%. The increase in the average selling priceof used vehicles, retail and wholesale, from $13,988 to $14,965resulted in the amount of such increase being $977 per vehicle, anincrease of 7.0%. The increase in the average cost of usedvehicles sold was only 4.4%. The effect of this was to increasetotal used vehicle gross profit to 

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$43.3  million in 2004 from$40.3  million in 2003, an increase of $3.0  million, or7.4%. We believe that the trend towards our sales of lower salesvolume, but increased sales of higher priced used vehicles contributedsubstantially to these results and expect this trend tocontinue.

We expect that this environment and themanufacturers’ incentive will continue in the foreseeablefuture. Furthermore, we believe that the change our product mix, i.e.,our somewhat reduced concentration on the more profitable used vehiclesegment, will also continue. However, our ability to buy, at favorableprices, quality used vehicles, ranging from entry level to luxury, andour ability to find competitive financing sources for our customers, webelieve, will enable us to attract used vehicle purchasers and will besignificant factors in our ability to maintain our relatively highgross profit percentages.

Operatingexpenses. In the year ended December  31,  2004,operating expenses increased approximately $1.6  million toapproximately $60.3  million, from $58.7  million in 2003.In addition to the normal increase in selling, general andadministrative expenses relative to the growth of sales, this increaseis attributable, in large part, to the compensation earned by HBAutomotive, Inc. and Bruce Bendell, aggregating approximately$3.6  million in 2004 as compared with approximately $1.2million in 2003, an increase of approximately $2.4  million. Asubstantial offset to such increases was attributable to thecost-cutting efforts initiated throughout our dealership group, withthe most significant decreases resulting from reductions in advertisingexpenditures, which declined approximately $4.0  million toapproximately $11.8  million in 2004 from approximately$15.8  million in 2003.

Goodwillwrite-down. As discussed under the caption‘‘Critical Accounting Policies — Long-livedAssets,’’ above, we incurred a non-cash charge of$8.1  million in the fourth quarter of 2004. There was nocomparable such charge in any of our prior periods.

Interest expense. Interest expense had a netdecrease of approximately $237,000 to approximately $2.7  millionin 2004, which represents a $42,000 decrease in interest related to ourfloor plan financing and a $195,000 decline in other interest as wecontinue to repay our long-term debt obligations.

Income tax expense. For 2004, the effective taxrate is lower than the normal effective tax rate, primarily, as aresult of the tax effects of the non-deductibility of the write-off ofgoodwill and a change in the valuation allowance of the deferred taxasset of approximately $5.0  million and $1.0  million,respectively. Income tax expense is comprised of $88,000 of localincome taxes and $141,000 of federal income taxes. Deferred taxes,including valuation allowances, are reviewed throughout fiscal 2004. In2003, local income tax expense of approximately $82,000 for the yearended December  31,  2003 was calculated on pre-tax incomefrom continuing operations.

Results Of Continuing OperationsYear Ended December  31,  2003 And Year Ended    December  31,2002

Revenues. Revenues for the year endedDecember  31,  2003 decreased to approximately$380.3  million, which is $17.6  million, or 4.4%,less than the prior year's revenues of $397.9  million.Such decrease was solely attributable to the revenues of our automotivedealership operations. The primary reasons for the decrease in totalrevenue were (1) the significant decrease in unit sales of new vehiclesand (2) the large decrease in average selling prices for used vehicles.New car unit sales decreased by 560 units, or 10.1% in 2003 from2002, while used car unit sales increased by 505 units, or only3.1%, in the 2003 year over the prior year. We believe thatapproximately one-third of the decrease in new vehicle unit sales isattributable to our dealerships that were closed during the prior yearand the balance to our performance in the first half of 2003. Althoughthe average sales price per new vehicle sold increased by $1,031 or4.1% from the prior year, such increase was not sufficient tooffset the steep decline in unit sales. We believe that theexceptionally severe weather conditions in our operating area in thefirst quarter of 2003, combined with the negative effects on consumerspending caused by the anticipation and then the realization of the warwith Iraq during the first half of 2003 were the significantcontributory factors in our decreased revenues. Further, while in 2003we increased the average number of used vehicles sold per month by 42units to 1,380 from 1,338 used vehicles, retail and wholesale, thatwere sold during each of the months in the 2003 year, an increase of3.1%, such increase was not sufficient to offset the decline inthe average sales price per used vehicle sold of $766 or 5.2%from the prior year’s average sales price per used vehicle.

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New vehicle sales revenue wasapproximately $131.7  million in 2003, a decrease of $9.0million or 6.4% from 2002 new vehicle sales revenue of$140.7  million. This decrease is significantly attributable todecreases in revenue from the dealerships we closed during the 2002fiscal year whose aggregate new vehicle sales revenue decrease ofapproximately $4.5  million represents approximately half of thetotal new vehicle revenue decrease.

Used vehicle salesrevenue was $231.6  million in 2003 and $236.8  million in2002, a decrease of approximately $5.2  million or 2.2%.The most significant factor in this decrease was a decrease in sales atour Chevrolet dealership in Long Island City, New York, whose usedvehicle sales revenues decreased by 5.8%, which was partiallyoffset by increases in other dealerships, primarily our Suzukidealership located in Hempstead, Long Island. As noted above, ouroverall used vehicle unit sales volume increased, but the average salesprice decrease more than offset the unit increase. We believe that thevery competitive marketplace in the New York metropolitan areacontributed significantly to the sales price decline.

Cost of sales. The cost of sales decreased$14.1  million, or 4.2%, to $319.7  million in theyear 2003 from $333.8  million in the year ended December31,  2002. The percentage decrease is approximately the same asthe revenues percentage decrease and reflects both the closeddealerships and an increase of $909 or 4.0% in the average costof new vehicles and a decrease of $557 or 4.6% in the averageunit cost of used vehicles. Because of the significantly greater volumeof used vehicle unit sales, this results in a net decrease in cost ofsales. As noted, above, the cost of sales in both years reflects thenet effect of floor plan interest and automotive manufacturers’floor plan assistance incentives and advertising incentives.

Gross profit. Our automotive dealershipoperations generated almost all of the total gross profit of$60.6  million for the year ended December  31,  2003compared with the 2002 amount of $64.1  million, a decrease of$3.5  million or 5.5%. The gross profits decrease wasgenerally attributable to the lower percentage of decrease of cost ofsales as compared with the overall percentage decrease in sales revenueand, specifically, to (i) the decrease in new units sold with a highergross profit per vehicle and (ii) the correspondingly higher number ofused vehicles sold but with a significantly lower gross profit perunit. In other words, we sold 560 fewer new vehicles in 2003 than wedid in 2002 and although each had, on average, a gross profit in 2003of $122 more than in 2002, the decreased volume led to a decrease innew vehicle gross profit. Similarly, while we sold 505 more usedvehicles in 2003 than we did in 2002, each had an average decrease of$209 in gross profit. This resulted in a net decrease in used vehiclegross profit. Our dealerships' overall gross profit as apercentage of sales was 15.9%, compared with the industryaverage of 13.4%. Our gross profit percentage on new vehicles of10.3% is above the industry average of 5.4%, while ourgross profit percentage on used vehicle sales of 17.4%, issignificantly over the industry average used vehicle gross profit of11.5%. We believe that our product mix, i.e., our concentrationon the more profitable used vehicle segment, our ability to buy, atfavorable prices, quality used vehicles, ranging from entry level toluxury, and our ability to find competitive financing sources for ourcustomers are the significant factors in our relatively high grossprofit percentages.

Operating expenses. Inthe year ended December  31,  2003, operating expensesdecreased approximately $2.7  million to approximately$58.7  million, from $61.4  million in 2002. We believe wehave been successful in our efforts to generally reduce operatingexpenses in light of the decline in revenues, the general reductions weachieved was significantly offset by an increase of $1.3  millionin advertising expenses incurred to stimulate laggingsales.

Interest expense. Interest expensehad a net increase of approximately $309,000 to approximately$3.0  million in 2003, which represents an increase ofapproximately $491,000 in floor plan interest as partially offset by a$182,000 decline in other interest as we continue to repay ourlong-term debt obligations.

Income taxexpense. Local income tax expense of approximately $82,000and $190,000 for the years ended December  31,  2003 and2002, respectively, was calculated on pre-tax income from continuingoperations. In 2002, we recorded tax benefits of $138,000 in connectionwith our discontinued operations. 

Discontinuedoperations. We had no loss from discontinued operations inthe year ended December  31,  2003, compared with a lossfrom discontinued operations of $206,000 (net of $138,000 of income

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tax benefits) in the comparable priorperiod. We believe that all potential expenses that could arise fromour previously discontinued operations have been provided for andanticipates that no future such losses will be incurred.

Liquidity And Capital Resources — December  31,2004

At December  31,  2004, our totalassets were approximately $86.0  million, a decrease ofapproximately $1.6  million, or 1.8%, from our assets of$87.6  million at December  31,  2003. Thesignificant changes among the components included decreases of$8.1  million in goodwill and an $800,000 decrease in due fromrelated parties as partially offset by net increases in cash, accountsreceivable and inventories of $2.7  million, $1.8  millionand $3.2  million, respectively.

Our cash increaseof $2,720,363 in the year ended December  31,  2004 wasprimarily attributable to financing activities, which provided cash of$2,287,769. This was attributable to net additions to floor plan notespayable to non-trade creditors of $2,339,957 and an additionallong-term obligation of $250,000 we incurred in connection with thesettlement of litigation, net of payments of long-term debt of$302,188.

Our operating activities provided cash of$981,994. This increase is primarily attributable to our net loss of$6,837,962, as adjusted for non-cash charges of $8,884,458, a netincrease in liabilities of $2,957,000 (primarily attributable toincreases in accounts payable and accrued expenses totaling $841,408and accrued expenses-related parties of $2,693,702, as reduced by a netdecrease in floor plan notes payable to trade creditors of $559,013)and a net increase in assets of $4,021,502 (principally, increases inaccounts receivable and inventories of $1,696,621 and $3,461,889,respectively, as partially offset by a decrease in due from relatedparties of $805,079). Our inventories increased, primarily, as a resultof our taking advantage of favorable buying opportunities inanticipation of the spring selling season and our accounts receivableincreased, primarily, as a result of our significantly higher salesvolume in the fourth quarter of 2004 as compared to the same quarter inthe prior year.

Our investing activities used $549,400 ofcash, with $600,356 used for additions to property and equipment. We donot anticipate any significant increases in spending for property andequipment in 2005.

The foregoing activities, i.e.,operating, investing and financing, resulted in a net cash increase of$2,720,363 for the year ended December  31,2004.

In September  2001, CFC, one of our primaryfloor plan credit sources for approximately $30  million for thefinancing of our vehicle inventory, notified us that CFC hadre-evaluated its credit and lending relationship with us and wasrequiring us to seek a replacement lending institution to refinance andreplace all existing CFC credit facilities. Consequently, inMarch  2002, we entered into a floor plan financing arrangementwith GMAC for GMAC to provide the floor plan credit for the financingof our Chevrolet dealership’s new and used vehicle inventory.This is the flagship dealership of our operations and accounted formore than 30% of our new vehicle revenues and more than80% of our consolidated used vehicle revenues in the year 2004.Additionally, in March  2002, we entered into a credit agreementwith HSBC pursuant to which HSBC is providing the floor plan credit forthe financing of our Chrysler/Jeep, Dodge and Kia dealerships’new and used vehicle inventory. As a result of the GMAC and HSBC creditfacilities, we completed the replacement of financing for all of thedealerships that were previously financed by CFC.

InMay  2002, entered into an agreement with NMAC pursuant to whichNMAC replaced the then existing floor plan credit for the financing ofour Nissan dealership’s new and used vehicle inventory up to anaggregate of $8.5  million. Subsequently, in December2002, NMAC took over the floor plan financing for our Suzuki dealershipup to an aggregate of $2  million.

In January2003, we entered into an agreement with Primus pursuant to which Primusreplaced the then existing floor plan credit for the financing of ourCompass Dodge dealership’s new and used vehicle inventory up toan aggregate of $1.5  million.

We believe that theterms of each of these new floor plan lines, including interest rates,are more favorable than those of each of the lines they replace. Inorder to obtain floor plan financing at favorable rates, each of BruceBendell and Harold Bendell agreed to either guarantee certain of ourfloor plan debt or provide 

39

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certain collateral in connection with ourfloor plan or other borrowings. Our Board of Directors agreed to obtainindependent valuations of such credit enhancement and collateral usageand compensate each of the Bendells the fair value of his respectivecontributions. Consequently, we engaged an independent valuation firmto value the credit enhancement and received a preliminary valuationfrom such firm of $160,000 for the economic risk value of the creditenhancement. Accordingly, we accrued such amount as a liability in thethird quarter of 2002. In the third quarter of 2003, our Board ofDirectors received additional indications that the value of the CreditEnhancement may approximate $450,000. As such, we accrued an additional$290,000 in the third quarter of 2003. In March  2004, our Boardof Directors concluded that the $450,000, as accrued, was theappropriate value of the portion of the Credit Enhancement and,subsequently, agreed to extend the annual $450,000 Credit Enhancementpayments to Bruce Bendell as long-long as such Credit Enhancementscommitments remain in place at the levels at which they are currentlymaintained.

We believe that the cash generated fromexisting operations, together with cash on hand, available credit fromour current lenders, including banks and floor planning, will besufficient to finance our current operations and internal growth for atleast the next twenty-four months. However, if we elect to expand ourdealership network through acquisitions, we will require additionalfinancing. There can be no assurance that, for such growth, fundingwill be available. Nor can we be certain that we will have sufficientcash in the event that we continue to incur losses and/or some or allof our significant litigation and taxes issues are resolved in a mannerthat is negative to our interests. We are exploring financingalternatives with respect to our projected cashrequirements.

|                                            |  |        |            |            |  |             |            |             |  |             |           |        |  |        |           |        |  |        |           |        |  |  |
|--------------------------------------------|--|--------|------------|------------|--|-------------|------------|-------------|--|-------------|-----------|--------|--|--------|-----------|--------|--|--------|-----------|--------|--|--|
|                                       |  | Total  |            | <1 Year |  | 1 - 3 Years |            | 4 - 5 Years |  | > 5Years |
| ContractualObligations:                    |  |   |            |       |  |        |            |        |  |        |
| FloorPlan Notes – TradeCreditors     |  | $      | 21,575,506 |       |  | $           | 21,575,506 |        |  | $           | —   |   |  | $      | —   |   |  | $      | —   |   |
| FloorPlan Notes – Non-TradeCreditors |  |   | 29,804,804 |       |  |        | 29,804,804 |        |  | $           | —   |   |  | $      | —   |   |  | $      | —   |   |
| Long-termDebt                              |  |   | 7,805,677  |       |  |        | 895,408    |        |  |        | 3,394,583 |   |  |   | 1,367,040 |   |  |   | 2,148,646 |   |
| Interest                                   |  |   | 2,866,070  |       |  |        | 698,302    |        |  |        | 1,368,020 |   |  |   | 587,119   |   |  |   | 212,629   |   |
| OperatingLeaseObligations                  |  |   | 4,321,583  |       |  |        | 1,193,500  |        |  |        | 2,654,500 |   |  |   | 394,000   |   |  |   | 79,583    |   |
|                                       |  | $      | 66,373,640 |       |  | $           | 54,167,520 |        |  | $           | 7,417,103 |   |  | $      | 2,348,159 |   |  | $      | 2,440,858 |   |
|                                            |

Item7A. Quantitative And Qualitative Disclosures About MarketRisk

Foreign Currency Risk

Although we sellsome vehicles in certain Eastern European and other countries,principally, Ukraine, Belarus and Kazakhstan, substantially all ourrevenues come from sales of vehicles in the United States.Consequently, foreign sales constitute a minimal amount of ourrevenues. Even so, our financial results could be affected by changesin foreign currency exchange rates or weak economic conditions inforeign markets. Because substantially all our revenues are currentlydenominated in U.S. dollars, a strengthening of the dollar could makeour vehicles less competitive in foreign markets. Due to the nature ofour investments and operations, we believe that there is not a materialrisk exposure.

Interest Rate Risk

Our interestincome is sensitive to changes in the general level of U.S. interestrates, particularly since all of our investments are in short-terminstruments, including money market funds. Our interest rate expense isalso sensitive to changes in the general level of U.S. interest ratesbecause the interest rate charged varies with the prime rate. Due tothe nature of our operations, we believe that there is not a materialrisk exposure.

Item 8. Financial Statements AndSupplementary Data

The financial statements required bythis Item 8 are set forth in Item 15 of this Form 10-K. All informationwhich has been omitted is either inapplicable or notrequired.

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|               |                                                                                    |
|---------------|------------------------------------------------------------------------------------|
| Item 9.  | Changes InAnd Disagreements With Accountants On Accounting And FinancialDisclosure |

Not applicable.

Item9A. Controls And Procedures

Evaluation of DisclosureControls and Procedures

We carried out an evaluationunder the supervision and with the participation of our Chief ExecutiveOfficer, who is also our Chief Financial Officer, of the design andeffectiveness of our disclosure controls and procedures, as defined inthe Exchange Act Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, as amended (the ‘‘ExchangeAct’’), as of the end of the period covered by thisreport (the ‘‘Evaluation Date). Based on this evaluationof our disclosure controls and procedures, we have concluded that, asof the Evaluation Date, our disclosure controls and procedures were noteffective in timely alerting us to material information required to beincluded in our periodic SEC reports. We have insufficient accountingpersonnel who can analyze, record and resolve complex transactions andaccounting matters, including certain inventory reconciliations, on atimely basis. With respect to a relatively small portion of ourinventory, specifically, certain vehicles not covered by floor planfinancing, we have recognized some weaknesses in financial reportingprocedures. However, the error which did occur during 2004 with respectto this inventory was less than 1% of the total inventory andnot material to the financial statements.

In response tothe matters discussed above, we intend to take the following steps tostrengthen our internal controls over financialreporting:

Expand our accounting and reporting resourcesby adding a full-time chief financial officer and such other accountingpersonnel, as required.

Strengthen our inventoryreporting controls by providing more frequent period-endreconciliations of physical to book inventorydifferences.

Changes in Internal Controls

Therewere no significant changes in our internal controls over financialreporting during the most recently completed fiscal quarter thatmaterially affected, or are reasonably likely to materially affect, ourinternal controls over financial reporting.

Item9B. Other Information

The Company did not have anyreportable events during the fourth quarter of the fiscal year endedDecember  31,  2004 which were be required to be filed onForm 8-K which were not so reported.

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PARTIII

Item 10.    Directors And Executive Officers Of TheRegistrant

As of June  30,  2005, our currentdirectors and executive officer and their respective ages are asfollows:

|                        |  |        |    |          |  |                                                                                            |  |  |  |  |
|------------------------|--|--------|----|----------|--|--------------------------------------------------------------------------------------------|--|--|--|--|
| Name                   |  | Age    |    | Position |
| BruceBendell           |  |   | 51 |     |  | Chairmanof the Board, President, Chief Executive Officer and Acting ChiefFinancial Officer |
| David Edelstein(1)(2)  |  |   | 51 |     |  | Director                                                                                   |
| Steven Hornstock(1)(2) |  |   | 55 |     |  | Director                                                                                   |
| Alan A. Pearson(1)(2)  |  |   | 60 |     |  | Director                                                                                   |
| JeffreyWeiner          |  |   | 47 |     |  | Director                                                                                   |
|                        |

|  |
|--|
|  |  |
|  |

|     |                              |
|-----|------------------------------|
| (1) | Memberof the Audit Committee |

|     |                                     |
|-----|-------------------------------------|
| (2) | Member of theCompensation Committee |

The following is a briefdescription of the professional experience and background of ourdirectors and executive officer:

BruceBendell. Mr. Bendell has served as the Chairman of our Boardof Directors since our formation in November  1995, our Presidentand Chief Operating Officer since September  2001, and as ourActing Chief Financial Officer since October  2003. Mr.Bendell served as our Chief Executive Officer from May  1998until February  2000, as our President from May  14,1998 to December  1998, and as our Chief Executive Officer sinceJuly  2000. Mr.  Bendell has also served as the Presidentand a Director of Major Auto and its affiliates since December1985.

David Edelstein. Mr. Edelstein hasserved as our Director since May  1998. Mr.  Edelstein hasbeen in the real estate development business since 1979. CurrentlyMr.  Edelstein is the Managing Member of Sutton East AssociatesLLC, a real estate development limited liability company and isinvolved in several sizable real estate projects in New York andFlorida.

Steven Hornstock. Mr. Hornstock hasserved as our Director since December  2002. Mr.  Hornstockis a senior partner at Altman\Burack Partners, LLC, an affiliateof Murray Hill Properties, TCN, since April  2000. FromOctober  1994 to April  2000, Mr.  Hornstock servedas director of investment sales at Helmsley Spear Inc. Mr.Hornstock was also founding partner in Sutton East Associates, where heworked from 1982 to 1993. Mr.  Hornstock has been active in thereal estate business for the past 25 years as a developer, owner andinvestment sales broker. Mr.  Hornstock is a licensed real estatebroker in the state of New York, a member of the Real Estate Board ofNew York (REBNY), a member of the REBNY Sales Brokers Committee and afounding board member of the New York Owners Council.

Alan A. Pearson. Mr. Pearson has served as ourdirector since July  2004. Mr.  Pearson has been the ChiefFinancial Officer of Conesko Doka, Ltd., a construction supply company,since August  1977, and served as a member of its board ofdirectors from 1985 to 2000.

JeffreyWeiner. Mr. Weiner has served as our Director sinceMay  1998. Mr. Weiner is a certified public accountant and hasbeen with the accounting firm of Marcum & Kliegman LLP, where he iscurrently Managing Partner, since 1981.

KeyEmployee

The following person, although not an executiveofficer or director, is regarded by us as a keyemployee:

Harold Bendell. Mr. Bendell, age56, has served as a senior executive of Major Dealer Group sinceDecember  1985. He, together with his brother, Bruce Bendell, isresponsible for the day-to-day operations of the Major DealerGroup.

Committees of the Board of Directors

We have the following standing committees: a CompensationCommittee and an Audit Committee. The Compensation Committee iscomprised of Mr.  Edelstein,  Mr.  Hornstock andMr.  Pearson, each of whom 

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is a non-employee director. The CompensationCommittee determines the compensation of our Chief Executive andrecommends to the Board of Directors the compensation of otherprincipal executive officers.

The Audit Committeereviews, acts on and reports to our Board of Directors with respect tovarious auditing and accounting matters, including selecting ourindependent auditors, the scope of the annual audits, fees to be paidto the auditors, the performance of our independent auditors and ouraccounting practices. The members of the Audit Committee currently areMr.  Edelstein,  Mr.  Hornstock and Mr.Pearson, each of whom is a non-employee director.

We donot currently have a nominating committee. The functions customarilyperformed by a nominating committee are performed by the Board ofDirectors as a whole. In making its nominations, the Board of Directoridentifies candidates who meet the current challenges and needs of theBoard of Directors. In determining whether it is appropriate to add orremove individuals, the Board of Directors will consider issues ofjudgment, diversity, age, skills, background and experience. In makingsuch decisions, the Board of Directors considers, among other things,an individual’s business experience, industry experience,financial background and experiences.

Audit CommitteeFinancial Expert

Our Board of Directors has determinedthat Mr.  Pearson, the Chairman of our Audit Committee, is anaudit committee financial expert, as that term is defined underRegulation S-K, Item 401(h).

Compliance with Section16(a) of the Exchange Act

Section 16(a) of the ExchangeAct requires our officers and directors, and persons who own more thanten percent (10%) of a registered class of our equitysecurities, to file reports of ownership and changes in ownership withthe Commission. Officers, directors and greater than ten percent(10%) stockholders are required by SEC regulations to furnish uswith copies of all Section 16(a) forms they file. Based solely on ourreview of the copies of such forms received by us, or writtenrepresentations from certain reporting persons, we believe that allrequired reports have been filed timely during 2004 except for Forms 4that should have been filed on behalf of Messrs. Edelstein, Hornstock,Weiner and Pearson relating to an option each of whom was granted onDecember  17,  2004 to purchase 4,500 shares of our commonstock pursuant to our 2001 Outside Director Stock OptionPlan.

Code of Ethics

We have adopted a‘‘Code of Ethics,’’ as defined byregulations promulgated under the Securities Act and the Exchange Actand a ‘‘Code of Conduct,’’ as defined byqualitative listing requirements promulgated by the Nasdaq NationalMarket, that apply to all of our directors, officers and employees,including our principal executive officer, principal financial officer,principal accounting officer or controller, or persons performingsimilar functions. We collectively refer to these codes as our Code ofConduct and Ethics, a current copy of which was filed as an exhibit toour Annual Report on Form 10-K for the year endedDecember  31,  2003. A copy of the Code of Conduct andEthics is available on our website at www.majorworld.com andprint copies are available to any shareholder who requests a copy. Anyamendment to the Code of Conduct and Ethics or any waiver of the Codeof Conduct and Ethics will be disclosed on our website promptlyfollowing the date of such amendment or waiver.

Item11.    Executive Compensation

The following table setsforth information for each of our fiscal years ended December31,  2004, 2003 and 2002 concerning compensation of our soleexecutive officer (the ‘‘Named ExecutiveOfficer’’):

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Summary Compensation Table

|                                                             |  |                    |      |                        |  |       |         |        |  |                                |         |        |  |        |   |        |  |        |   |        |  |  |
|-------------------------------------------------------------|--|--------------------|------|------------------------|--|-------|---------|--------|--|--------------------------------|---------|--------|--|--------|---|--------|--|--------|---|--------|--|--|
|                                                        |  | AnnualCompensation |      | Long-Term Compensation |
| Name and PrincipalPosition                                  |  | Year               |      | Salary                 |  | Bonus |         | Other  |  | SecuritiesUnderlyingOptions(#) |
| Bruce Bendell(1)                                            |  |               | 2004 |                   |  | $     | 500,000 |   |  | $                              | 386,455 |   |  |   | 0 |   |  |   | 0 |   |
| Chairmanof the Board, President, Chief Executive Officerand |  |               | 2003 |                   |  | $     | 500,000 |   |  | $                              | 77,336  |   |  |   | 0 |   |  |   | 0 |   |
| ActingChief Financial Officer                               |  |               | 2002 |                   |  | $     | 500,000 |   |  | $                              | 461,379 |   |  |   | 0 |   |  |   | 0 |   |
|                                                             |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | InMay  2001, the Compensation Committee of our Board of Directorsapproved an adjustment to Mr.  Bendell’s compensationpackage that included an increase in his base salary to $500,000 peryear for the period July  1,  2001 to June30,  2004 and, effective April  1,  2001 a bonusequal to 10% of the net income attributable to our automotiveoperations after all expenses, including bonus amounts paid to otheremployees. The amounts shown for each of the years reflect those terms.In addition to his compensation for services, in March  2004,Mr.  Bendell received $450,000 for a credit enhancementarrangement through which he provided personal guarantees in connectionwith our various floor plan credit lines. In 2004, an additional$450,000 has been accrued as compensation to Mr.  Bendell inconnection with the continuation of such credit enhancementarrangement. See ‘‘Certain Relationships and RelatedTransactions.’’ |

Option/SAR Grants In LastFiscal Year

No stock options were granted to the NamedExecutive Officer during 2004. We have never granted any stockappreciation rights.

Aggregated Option/SAR Exercises In LastFiscal Year And Fiscal Year-End Option/SAR Values

Nooptions were exercised by the Named Executive Officer during the fiscalyear ended December  31,  2004. There were no unexercised‘‘in-the-money’’ options held by the NamedExecutive Officer as of December  31,2004.

Compensation Of Directors

Non-employeeDirectors each received 4,500 shares of our common stock and options topurchase 4,500 shares of common stock in 2004 under our 2001 OutsideDirectors Stock Plan. We reimburse directors for their expenses ofattending meetings of the Board of Directors.

EmploymentContracts, Termination of Employment and Change-In-ControlArrangements

On July  24,  2003, we enteredinto an employment agreement effective January  1,  2003with Bruce Bendell, pursuant to which he serves as our President, ChiefExecutive Officer and Acting Chief Financial Officer. The agreementextended automatically for an additional one-year period at the end ofthe initial term, June  30,  2004, and extends for anadditional one-year period on each anniversary thereafter, unless90-day prior notice of termination is provided by either Mr.Bendell or us. The agreement provides for an annual base salary of$500,000 and a quarterly bonus equal to 10% of the net income ofour automotive operations after all expenses, including any otherbonuses paid or accrued. In the event that Mr.  Bendell’semployment is terminated prior to June  30,  2004, he willcontinue to receive his base salary and a guaranteed annual bonus of$250,000 per year until that date.

In March  2004,we agreed in principal with Harold Bendell that, effectiveJanuary  1,  2004, he would serve as a manager ofoperations of Major Auto. The agreement extends automatically for anadditional one-year period at the end of the initial term and on eachanniversary thereafter, unless 90-day prior notice of termination isprovided by either Mr.  Bendell or us. The agreement provides foran annual base salary of $500,000. Additionally, in March  2004,we agreed in principal to a consulting agreement with HB Automotive,Inc. (‘‘HB Automotive’’), a company ownedby Harold Bendell, that, effective January  1,  2004, HBAutomotive provide dealership management consulting services to us andfor us to compensate HB Automotive. The agreement provides for a $200fee for each used vehicle sold at our Chevrolet dealership and to aparticipation in the pre-tax profits of Major Auto. Had the per-vehiclefee provision been in effect on January  1,  2003, HBAutomotive would have earned an additional $2  million in 2003.In 2004, we accrued $2,484,000 as due to HB Automotive pursuant to thisagreement. We believe that definitive agreements memorializing suchterms will be executed by both parties.

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On March  3,  1997, inconnection with the acquisition of Major Auto from the Bendells, weentered into a management agreement with the Bendells, which gave themcontrol over the day-to-day operations of Major Auto. In March2004, we extended the term of the management agreement untilDecember  31,  2005. The management agreement had beenextended from its initial termination upon the mutual oral agreement ofthe parties.

Compensation Committee Interlocks And InsiderParticipation

The Compensation Committee of our Board ofDirectors consists of Messrs. Edelstein, Hornstock and Pearson, none ofwhom has been an officer or employee at any time since our inception.Our executive officer does not serve as a member of the board ofdirectors or compensation committee of any entity that has one or moreexecutive officers serving as a member of our Board of Directors orCompensation Committee. Prior to the formation of the CompensationCommittee, the Board of Directors as a whole made decisions relating tothe compensation of our executive officers.

Report of theCompensation Committee of the Board of Directors

TheCompensation Committee of the Board of Directors is responsible forestablishing, monitoring, and implementing the policies of governingthe compensation of the Company’s executives. The CompensationCommittee believes that the compensation programs for our executiveofficers should reflect our performance and the value created for ourstockholders. In addition, the compensation programs should support ourshort-term and long-term strategic goals and values and should rewardindividual contribution to our success. The Compensation Committee,which is comprised entirely of non-employee members of our Board ofDirectors, has furnished the following report on executivecompensation.

General CompensationPolicy. The Compensation Committee’s policy is toprovide our executive officers with compensation opportunities that arebased upon their personal performance, our financial performance andtheir contribution to that performance and which are competitive enoughto attract and retain highly skilled individuals. Each executiveofficer’s compensation package is comprised of a base salary,bonus and long-term incentive awards. We review compensation levels ofother companies in its industry to ensure that our executivecompensation is appropriate in light of industry practices.

Base Salary.    The salary for our executive officerfor 2004 was generally determined by the Board of Directors by takinginto account the individual’s experience and performance and ourspecific needs. For 2005, the Compensation Committee will review thebase salaries of executive officers by evaluating eachexecutive’s scope of responsibility, performance, priorexperience and salary history, as well as the salaries for similarpositions at comparable companies.

Bonus. Weaward bonuses as a reward for performance based principally on ouroverall financial results and or achievements of specified businessobjectives. We believe that bonuses properly motivate the officers toperform to the greatest extent of their abilities to generate thehighest attainable profits for us. In 2004, a bonus of $386,455 wasaccrued for Bruce Bendell.

Long Term IncentiveAwards. The Compensation Committee believes thatequity-based compensation in the form of stock options links theinterests of executives with the long-term interests of ourstockholders and encourages executives to remain in our employ. Wegrant stock options in accordance with our various stock option plans.Grants are awarded based on a number of factors, including theindividual’s level of responsibility, the amount and term ofoptions already held by the individual, the individual’scontributions to the achievement of our financial and strategicobjectives, and industry practices and norms.

Compensation of Chief Executive Officer. BruceBendell was paid a base salary of $500,000 for the year endedDecember  31,  2004. See ‘‘EmploymentContracts, Termination of Employment and Change-In-ControlArrangements.’’

Compliance with InternalRevenue Code Section 162(m).    Section 162(m) of the InternalRevenue Code, enacted in 1993, generally disallows a tax deduction topublicly held companies for compensation exceeding $1  millionpaid to certain of our executive officers. The limitation applies onlyto compensation 

45

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that is not considered to beperformance-based. The non-performance based compensation paid to ourexecutive officers in 2004 did not exceed the $1  million limitper officer and the Compensation Committee does not anticipate that thenon-performance based compensation to be paid to our executive officersin 2005, if any, will exceed that limit. Our stock option plans arestructured so that any compensation deemed paid to an executive officerin connection with the exercise of option grants made under that planwill qualify as performance-based compensation which will not besubject to the $1  million limitation. The Compensation Committeecurrently intends to limit the dollar amount of all other compensationpayable to our executive officers to no more than $1  million.The Compensation Committee is aware of the limitations imposed bySection 162(m), and the exemptions available therefrom, and willaddress the issue of deductibility when and if circumstanceswarrant.

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Stock Price PerformanceGraph

Our common stock commenced trading on the NasdaqSmall Cap Market on October  7,  1998 and on the NasdaqNational Market under the symbol ‘‘FDHG’’on August  3,  1999. Our symbol was changed to‘‘MAJR’’ on May  2,  2001.Subsequently, our common stock was transferred back to the NasdaqSmallCap Market on January  2,  2003 and then transferredto the Over-the-Counter Bulletin Board on November  10,2004 with the symbol‘‘MAJR.OB.’’

The stock priceperformance graph below compares the cumulative total stockholderreturn on our common stock with the Total Return Index for Nasdaq StockMarket U.S. Companies and the Nasdaq Non-Financial Index for the periodcommencing on December  31,  1999 and endingDecember  31,  2004. The graph assumes that $100.00 wasinvested in the common stock and in each index on December31,  1997. The total return for the common stock and the indicesused assumes the reinvestment of dividends, even though dividends havenot been declared on the common stock. The information contained in thegraph does not reflect present performance of ourstock.

The information contained in the performance graphshall not be deemed ‘‘soliciting material’’or to be ‘‘filed’’ with the Commission norshall such information be deemed incorporated by reference into anyfuture filing under the Securities Act or the Exchange Act, except tothe extent that we specifically incorporate it by reference into suchfiling.

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Item 12. Security Ownership OfCertain Beneficial Owners And Management And Related StockholderMatters

Stock Option Plans

Our currentlyactive stock option plans include the 1999 Employee Stock Option Plan(the ‘‘1999 Plan’’) and the 2001 OutsideDirector Option Plan (the ‘‘2001Plan’’).

The 1999 Plan is intended toenhance our ability to provide individuals with awards and incentivescommensurate with their contributions and compete with those offered byother employers, and to increase stockholder value by further aligningthe interests of these individuals with the interests of ourstockholders by providing an opportunity to benefit from stock priceappreciation that generally accompanies improved financial performance.The 1999 Plan provides for the granting of options to purchase up to anaggregate of 1,100,000 shares of our authorized but unissued commonstock to our officers, directors, employees, consultants andindependent contractors.

The 2001 Plan is intended toattract and retain the best available personnel for service as ouroutside directors, to provide additional incentive to our outsidedirectors to serve as Directors and to encourage their continuedservice on the Board of Directors. The 2001 Plan provides for automaticand nondiscretionary grants of options and share grants to outsidedirectors. Specifically, on each date of our annualstockholders’ meetings, each outside director who served as amember of the Board of Directors shall be automatically granted anoption to purchase 4,500 shares of our common stock. The term of theoption is for ten (10) years. The option is exercisable only while theoutside director remains on the Board. Additionally, on April  30and on each anniversary thereafter, each outside director who served asa member of the Board of Directors shall be automatically granted 4,500shares of our common stock. The shares issued pursuant to a share grantvest fully and immediately upon issuance. The 2001 Plan provides forthe granting or issuance of 250,000 shares of our authorized butunissued common stock.

Securities Authorized for IssuanceUnder Equity Compensation Plans.

The following tablesets forth information as of December  31,  2004 withrespect to compensation plans under which our equity securities areauthorized forissuance.

|                                                          |  |                                                                                          |  |                                                                           |  |                                                                                                                                          |  |  |  |  |  |  |  |  |
|----------------------------------------------------------|--|------------------------------------------------------------------------------------------|--|---------------------------------------------------------------------------|--|------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|--|--|--|--|
| PlanCategory                                             |  | Numberof securities to be issued upon exercise of outstanding options,warrants andrights |  | Weighted-averageexercise price of outstanding options, warrants andrights |  | Numberof securities remaining available for future issuance under equitycompensation plans (excluding securities reflected in column(a)) |
|                                                     |  | (a)                                                                                      |  | (b)                                                                       |  | (c)                                                                                                                                      |
| Equitycompensation plans approved by securityholders     |  | 280,888(1)                                                                               |  | $3.38                                                                     |  | 1,069,112(2)                                                                                                                             |
| Equitycompensation plans not approved by securityholders |  | —                                                                                  |  | —                                                                   |  | —                                                                                                                                  |
|                                                          |

|        |                                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)(1) | Includes213,388 options issued and outstanding under the 1999 Plan with anaverage exercise price of $4.24 per share, and 67,500 options issuedand outstanding under the 2001 Outside Director Plan with an averageexercise price of $0.68 pershare. |

|                                   |                                                                                                                                 |
|-----------------------------------|---------------------------------------------------------------------------------------------------------------------------------|
|      (2) | Includes886,612 shares available for issuance under the 1999 Plan and 182,500shares available for issuance under the 2001 Plan. |

Asof April  12,  2005, 1,100,000 options were authorizedunder the 1999 Plan and options to purchase 213,388 shares wereoutstanding and 886,612 options were available for future grants. As ofApril  12,  2005, 250,000 options were authorized under the2001 Plan, 67,500 options to purchase shares had been granted and182,500 options were available for future grants.

Security Ownership Of Certain Beneficial Owners AndManagement

The following tables sets forth informationwith respect to the beneficial ownership of each class of oursecurities as of June  30,  2005, respectively, by (i) eachof our directors, (ii) each of our executive officers, 

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(iii) all of our directors and executiveofficers as a group and (iv) each person known to us to own more than5% of any class of oursecurities:

|                                               |  |                 |           |                     |  |        |        |         |  |  |
|-----------------------------------------------|--|-----------------|-----------|---------------------|--|--------|--------|---------|--|--|
| Nameand Address of Beneficial Owner           |  | Number ofShares |           | Percent of Class(1) |
| Executive Officers andDirectors:              |  |            |      |                |  |   |   |    |
| BruceBendell.                                 |  |            | 4,459,235 | (2)            |  |   | 48.35  | %  |
| DavidEdelstein..                              |  |            | 64,580    | )(3)(4)        |  |   |        | *  |
| StevenHornstock .                             |  |            | 27,090    | (5)            |  |   |        | *  |
| AlanPearson                                   |  |            | 9,000     | (6)            |  |   |        | *  |
| JeffreyWeiner                                 |  |            | 128,090   | (7)            |  |   | 1.37   | %  |
| Alldirectors and executive officers as agroup |  |            | 4,687,995 | )(8)(9)        |  |   | 49.45  | %  |
| Other5%Stockholders:                          |  |            |      |                |  |   |   |    |
|                                               |

|  |                                                                    |
|--|--------------------------------------------------------------------|
|  | *Represents less than 1% of the outstanding shares of commonstock. |

|     |                                                                        |
|-----|------------------------------------------------------------------------|
| (1) | Based on 9,222,228 shares of commonstock outstanding on June  30,2005. |

|     |                                                                                                                                                                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes: (i) 5 shares of common stockowned by Mr.  Bendell's wife and the following shares ofcommon stock which Mr.  Bendell has the right to acquire within60 days: 22,500 shares of common stock which Mr.  Bendell has theright to acquire upon the exercise of warrants; and (ii) options for80,000 shares of common stock which are immediatelyexercisable. |

|     |                                                                                      |
|-----|--------------------------------------------------------------------------------------|
| (3) | Includes options for 43,700shares of common stock, which are immediatelyexercisable. |

|     |                                                                         |
|-----|-------------------------------------------------------------------------|
| (4) | Includes 1,980 shares of commonstock owned by Mr.  Edelstein'schildren. |

|     |                                                                                                                                                        |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5) | Includes 90 shares of common stockowned by Mr.  Hornstock’s wife and options for 13,500shares of common stock, which are immediatelyexercisable. |

|     |                                                                                     |
|-----|-------------------------------------------------------------------------------------|
| (6) | Includes options for 4,500shares of common stock, which are immediatelyexercisable. |

|     |                                                                                                                                               |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------|
| (7) | Includes options for 93,700shares of common stock, which are immediately exercisable and 900shares of common stock owned by Mr. Weiner'swife. |

|     |                                                                                                                                                                                                                                                                                                                                                 |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (8) | Includes (i) 2,975 shares of commonstock owned by immediate family members of directors and executiveofficers as a group, (ii) 22,500 shares of common stock that thedirectors and executive officers as a group have the right to acquirewithin 60 days and (iii) options for 248,900 shares of common stockwhich are immediately exercisable. |

|     |                                                                                                                                                     |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| (9) | Theaddress for each executive officer and director is c/o The MajorAutomotive Companies, Inc., 43-40 Northern Boulevard, Long Island City,NY 11101. |

Item 13.    Certain Relationships And RelatedTransactions

We have retained the accounting firm ofMarcum & Kliegman LLP to provide certain accounting and taxservices for our subsidiary, Major Fleet, and us. In 2004, we werebilled approximately $87,500 by Marcum & Kliegman LLP for itsservices. Mr. Weiner, one of our directors, is the Managing Partner ofMarcum & Kliegman LLP.

The Bendells have interests inseveral non-affiliated auto dealerships, including Five Towns Nissan,Bronx Automotive Group, HB Automotive, Mitsubishi of Hempstead andMajor of Pennsylvania, for which we purchase cars and provide otherservices, and from which we buy vehicles. We charge a fee to offset anyexpenses incurred in providing our services. The volume of suchtransactions is immaterial to our operations, with such related-partysales aggregating approximately $6.0  million and suchrelated-party purchases aggregating approximately $7.0million in 2004.At December  31,  2004, these affiliated dealerships wereindebted to us in an aggregate amount of approximately $1.7million.

On December  11,  2000, we issued toM&K Equities, Ltd., a New York corporation(‘‘M&K’’), which is an affiliate ofJeffrey Weiner, a member of our Board of Directors, a seniorsubordinated secured promissory note in the principal amount of$2,000,000 in consideration for a $2,000,000 loan from M&K. Thenote was initially due on December  11,  2002 (the‘‘Maturity Date’’) at a rate per annum often percent (10%). The Maturity Date of the note has beenextended until January  2,  2006. The total amountoutstanding at December  31,  2004 was $1,270,000. Interestunder the note is payable in monthly installments with all outstandingprincipal and interest due on the Maturity Date. In order to induceM&K to make the loan, we also agreed to grant a lien on andsecurity interest in all of our assets, other than our technologyassets, as collateral security for the due payment and performance ofall indebtedness, liabilities and obligations under the note, whichcollateral is set forth in a security agreement, subject to priorsenior liens. Mr. Weiner also received options under the 1999 Plan topurchase 50,000 shares of our common stock at an 

49

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exercise price of $2.35. The fair valueascribed to the options was approximately $95,000, based on theBlack-Scholes option-pricing model. Such amount was recorded as adeferred charge and as additional paid-in-capital of stockholdersequity. The amount of the deferred charge has been amortized over theinitial term of the note, with the Company having charged $47,500 tooperations in each of the years 2002 and 2001.

Wepurchase from and sell vehicles to Nawi Leasing, Inc., a company ofwhich Steven Nawi is President. Mr.  Nawi was a member of ourBoard of Directors until July  2004. During the year 2004, therewere no sales to Nawi Leasing, Inc. and purchases from Nawi Leasing,Inc. and its affiliates represented approximately $218,000.

In connection with the acquisition of our Nissan dealershipin Hempstead, New York, we obtained an option to acquire thatdealership’s land and building from the landlord who held thelease on that property. We exercised our option, but were unable toobtain the financing necessary to effect the purchase. Since the leaseexpiration was concurrent with the required property acquisition dateand we were unsuccessful in obtaining an extension of the lease term,it became imperative to the Nissan dealership’s operations tomaintain its presence at that location. In order to ensure continuityof the dealership’s operations, in a transaction approved by ourBoard of Directors, the Bendells agreed to personally acquire theproperty through a company they formed and lease it back to us. Theresult of this transaction was to eliminate the capitalized lease ofapproximately $3.6  million and the related liability of$3.0  million that we had recorded in connection with thisproperty. The difference of $637,000, the book value of the purchaseoption, was recorded as a long-term related party receivable, which isincluded in other non-current assets. We entered into a lease with thenew landlord for five years with a five-year renewal option forapproximately the same monthly rental we were previously paying. Thereceivable will be repaid, ratably, through monthly payments over theremaining term of the lease, including extensions to the initial term,together with related interest at a market rate. Bruce Bendell hasguaranteed payment in the event the lease is prematurely terminated.Based on the report of an independent appraiser, the purchase optionwas recorded at its fair value and the monthly rent is at a marketrate.

In unrelated transactions, in order to obtain floorplan financing at favorable rates, each of the Bendells has agreed toeither guarantee certain of our floor plan debt or provide certaincollateral in connection with our floor plan or other borrowings. OurBoard of Directors agreed to obtain independent valuations the CreditEnhancements and pay each of the Bendells the fair value of hisrespective contributions. We engaged an independent valuation firm andreceived a preliminary valuation from such firm of $160,000 for theeconomic risk value of the Credit Enhancement. Accordingly, we accruedsuch amount as a liability in the third quarter of 2002. In the thirdquarter of 2003, our Board of Directors received additional indicationsthat the value of the Credit Enhancement may approximate $450,000. Assuch, we accrued an additional $290,000 in the third quarter of 2003.In March  2004, our Board of Directors concluded that the$450,000, as accrued, was the appropriate value of the CreditEnhancement. At December  31,  2004, we have accrued, butnot paid, an aggregate of $1,355,735, due to Bruce Bendell for bonusesand credit enhancement, which amount is included in accrued expenses.Included in the amount, is a credit enhancement of $900,000, of which$450,000 was accrued in 2004. The Company’s Board of Directorsapproved this amount. In addition, we have a receivable from BruceBendell of $1,395,358, based on advances made to him prior to 2002,recorded as due from related parties on our balancesheets.

In March  2004, we agreed in principal withHarold Bendell that, effective January  1,  2004, he wouldserve as a manager of operations of Major Auto. The agreement extendsautomatically for an additional one-year period at the end of theinitial term and on each anniversary thereafter, unless eitherMr.  Bendell or we provide 90-day prior notice of termination.The agreement provides for an annual base salary of $500,000.Additionally, in March  2004, we agreed in principal to aconsulting agreement with HB Automotive, Inc. (‘‘HBAutomotive’’), a company owned by Harold Bendell, that,effective January  1,  2004, HB Automotive providedealership management consulting services to us. The agreement providesfor a $200 fee for each used vehicle sold at our Chevrolet dealershipand to a participation in the pre-tax profits of Major Auto. In 2004,we accrued $2,484,000 as due to HB Automotive pursuant to thisagreement.

50

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Harold Bendell has acquired theright to an off premises storage facility that was previously leased byus, on a month-to-month basis, from an independent third party.Accordingly, we are leasing such space from Mr.  Bendell for$15,000 per month, approximately the same monthly rental we were payingto the prior landlord.

Item 14. Principal AccountantFees And Services

Audit Fees. All of thefees billed by our principal accountant, BDO Seidman, LLP, in 2004 and2003 were audit fees incurred in connection with our annual audit andreporting on Forms 10-K and for reviews in connection with ourquarterly reporting on Forms 10-Q. The aggregate fees billed for suchservices were $444,000 and $452,000 in 2004 and 2003,respectively.

Audit-Related Fees. There wereno other audit-related services performed or fees billed by ourprincipal accountant, BDO Seidman, LLP, in 2004 and2003.

Tax Fees. There were no tax servicesperformed or fees billed by our principal accountant, BDO Seidman, LLP,in 2004 and 2003.

All Other Fees. There wereno other services performed or fees billed by our principal accountant,BDO Seidman, LLP, in 2004 and 2003.

Pre-ApprovalPolicies. Pursuant to the rules and regulations of theCommission, before our independent accountant is engaged to renderaudit or non-audit services, the engagement must be approved by ourAudit Committee or entered into pursuant to the AuditCommittee’s pre-approval policies and procedures. The policygranting pre-approval to certain specific audit and audit-relatedservices and specifying the procedures for pre-approving other servicesis set forth in the Amended and Restated Charter of our AuditCommittee.

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**Item.15.    Exhibits and Financial StatementSchedules.**

|  |           |          |
|--|-----------|----------|
|  | (a)  | Exhibits |

|               |  |                                                                                                                                                                                                                                                                                    |  |      |  |  |  |  |  |  |
|---------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                        |  | Page |
| 3.1(1)        |  | Articlesof Incorporation of Fidelity Holdings, Inc.,(‘‘Company’’) incorporated by reference toExhibit 3.1 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.           |  | N/A  |
| 3.2(1)        |  | Articlesof Incorporation of Computer Business Sciences, Inc., incorporated byreference to Exhibit 3.2 of Company’s Registration Statement onForm 10-SB, as amended, filed with the Securities and ExchangeCommission on March  7,1997.                                       |  | N/A  |
| 3.3(1)        |  | Articles ofIncorporation of 786710 (Ontario) Limited, incorporated by reference toExhibit 3.3 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.                                               |  | N/A  |
| 3.4(1)        |  | Articles ofIncorporation of Premo-Plast, Inc., incorporated by reference toExhibit 3.4 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.                                                      |  | N/A  |
| 3.5(1)        |  | Articles ofIncorporation of C.B.S. Computer Business Sciences Ltd., incorporatedby reference to Exhibit 3.5 of Company’s Registration Statementon Form 10-SB, as amended, filed with the Securities and ExchangeCommission on March  7,1997.                                 |  | N/A  |
| 3.6(1)        |  | Articles ofIncorporation of Major Fleet & Leasing Corp., incorporated byreference to Exhibit 3.6 of Company’s Registration Statement onForm 10-SB, as amended, filed with the Securities and ExchangeCommission on March  7,1997.                                        |  | N/A  |
| 3.7(1)        |  | Articles ofIncorporation of Reynard Service Bureau, Inc., incorporated byreference to Exhibit 3.7 of Company’s Registration Statement onForm 10-SB, as amended, filed with the Securities and ExchangeCommission on March  7,1997.                                           |  | N/A  |
| 3.8(1)        |  | Articles ofIncorporation of Major Acceptance Corp., incorporated by reference toExhibit 3.8 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.                                                 |  | N/A  |
| 3.9(1)        |  | By-Laws of theCompany incorporated by reference to Exhibit 3.9 of Company’sRegistration Statement on Form 10-SB, as amended, filed with theSecurities and Exchange Commission on March  7,1997.                                                                              |  | N/A  |
| 3.10(14)      |  | Certificate ofAmendment to Articles of Incorporation of the Company filed onDecember  12,2000.                                                                                                                                                                                     |  | N/A  |
| 4.1(1)        |  | Certificate ofDesignation for the Company’s 1996-MAJOR Series of ConvertiblePreferred Stock, incorporated by reference to Exhibit 4.1 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997. |  | N/A  |
| 4.1(i)(2)     |  | Formof Amended and Restated Certificate of Designation for theCompany’s 1996-MAJOR Series of Convertible PreferredStock.                                                                                                                                                     |  | N/A  |
|               |

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|               |  |                                                                                                                                                                                                                                                               |  |      |  |  |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                   |  | Page |
| 4.2(1)        |  | Warrant Agreement forNissko Warrants, incorporated by reference to Exhibit 4.2 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997.                                         |  | N/A  |
| 4.3(1)        |  | WarrantAgreement for Major Fleet Warrants, incorporated by reference toExhibit 4.3 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.                                     |  | N/A  |
| 4.3(i)(2)     |  | Amended andRestated Warrant Agreement, dated October  11,  1997between the Company, Bruce Bendell and HaroldBendell.                                                                                                                                          |  | N/A  |
| 4.4(1)        |  | WarrantAgreement for Progressive Polymerics International, Inc. Warrants,incorporated by reference to Exhibit 4.4 of Company’sRegistration Statement on Form 10-SB, as amended, filed with theSecurities and Exchange Commission on March  7,1997.      |  | N/A  |
| 4.5(2)        |  | Form of Certificateof Designation for the Company’s 1997A-Major Automotive GroupSeries of PreferredStock.                                                                                                                                               |  | N/A  |
| 4.6(2)        |  | Form ofCertificate of Designation for the Company’s 1997 Major Seriesof Convertible PreferredStock.                                                                                                                                                     |  | N/A  |
| 4.7(2)        |  | Form ofRegistration Rights Agreement between the Company and BruceBendell.                                                                                                                                                                                    |  | N/A  |
| 4.8(2)        |  | Stock Pledge andSecurity Agreement, dated March  26,  1996, between DoronCohen, Bruce Bendell, Avraham Nissanian, Yossi Koren, Sam Livian andRobert Rimberg.                                                                                                  |  | N/A  |
| 4.9(2)        |  | Form ofRegistration Rights Agreement between the Company, Castle Trust andManagement Services Limited and BruceBendell.                                                                                                                                       |  | N/A  |
| 4.10(2)       |  | Form of theCompany’s 10% Convertible Subordinated Debenture due1999.                                                                                                                                                                                    |  | N/A  |
| 4.11(4)       |  | Certificate ofDesignation for the Company’s 1997-Major Series of ConvertiblePreferred Stock.                                                                                                                                                            |  | N/A  |
| 4.11(6)       |  | Form ofWarrant.                                                                                                                                                                                                                                               |  | N/A  |
| 4.12(6)       |  | Form of CBSWarrant.                                                                                                                                                                                                                                           |  | N/A  |
| 4.13(6)       |  | Form ofDebenture.                                                                                                                                                                                                                                             |  | N/A  |
| 4.14(7)       |  | Form ofClosing Warrant.                                                                                                                                                                                                                                       |  | N/A  |
| 4.15(7)       |  | Form ofAdjustable Warrant.                                                                                                                                                                                                                                    |  | N/A  |
| 4.16(8)       |  | Formof Closing Warrant.                                                                                                                                                                                                                                       |  | N/A  |
| 4.17(8)       |  | Formof AdjustableWarrant.                                                                                                                                                                                                                                     |  | N/A  |
| 4.18(9)       |  | Form of ClosingWarrant.                                                                                                                                                                                                                                       |  | N/A  |
| 4.19(9)       |  | Form ofAdjustableWarrant.                                                                                                                                                                                                                                     |  | N/A  |
| 10.1(1)       |  | EmploymentAgreement, dated November  7,  1995, between the Companyand Doron Cohen, incorporated by reference to Exhibit 10.1 ofCompany's Registration Statement on Form 10-SB, as amended, filedwith the Securities and Exchange Commission on March  7,1997. |  | N/A  |
| 10.1(i)(2)    |  | Amendment No. 1to Employment Agreement, dated as of November  7,  1995between the Company and DoronCohen.                                                                                                                                                     |  | N/A  |
|               |

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|               |  |                                                                                                                                                                                                                                                                                                       |  |      |  |  |  |  |  |  |
|---------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                           |  | Page |
| 10.2(1)       |  | ConsultingAgreement, dated November  7,  1995, between the Companyand Bruce Bendell, incorporated by reference to Exhibit 10.2 ofCompany's Registration Statement on Form 10-SB, as amended, filedwith the Securities and Exchange Commission on March  7,1997.                                       |  | N/A  |
| 10.2(i)(2)    |  | Amendment No. 1to Consulting Agreement, dated as of November  7,  1995between Fidelity Holdings, Inc. and BruceBendell.                                                                                                                                                                               |  | N/A  |
| 10.3(1)       |  | Agreement forPurchase of Patents, dated November  14,  1995, between theCompany and Progressive Polymerics, Inc., incorporated by reference toExhibit 10.3 of the Company’s Registration Statement on Form10-SB, as amended, filed with the Securities and Exchange Commission onMarch  7,1997. |  | N/A  |
| 10.3(i)(1)    |  | FirstAmendment, dated September  30,  1996, to Agreement forPurchase of Patents, dated November  14,  1995,incorporated by reference to Exhibit 10.4 of Company’sRegistration Statement on Form 10-SB as amended, filed with theSecurities and Exchange Commission on March  7,1997.            |  | N/A  |
| 10.5(1)       |  | Agreement, datedMarch  25,  1996, between Nissko Telecom, Ltd. and ComputerBusiness Sciences, Inc., incorporated by reference to Exhibit 10.5 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997.                  |  | N/A  |
| 10.6(1)       |  | AssetPurchase Agreement, dated April  18,  1996, between theCompany and Zvi and Sarah Barak, incorporated by reference to Exhibit10.6 of Company’s Registration Statement on Form 10-SB, asamended, filed with the Securities and Exchange Commission onMarch  7,1997.                          |  | N/A  |
| 10.6(i)(2)    |  | Amendment toAsset Purchase Agreement dated August  7,1997.                                                                                                                                                                                                                                            |  | N/A  |
| 10.7(1)       |  | EmploymentAgreement dated April  18,  1996 between the Company andDr.  Zvi  Barak, incorporated by reference to Exhibit 10.7of Company’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                                     |  | N/A  |
| 10.8(1)       |  | EmploymentAgreement dated October  18,  1996 between ComputerBusiness Sciences, Inc. and Paul Vesel, incorporated by reference toExhibit 10.8 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.                  |  | N/A  |
| 10.9(1)       |  | IndemnificationAgreement dated November  7,  1995 between the Company andDoron Cohen, incorporated by reference to Exhibit 10.9 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                                  |  | N/A  |
| 10.10(1)      |  | IndemnificationAgreement dated November  7,  1995 between the Company andBruce Bendell, incorporated by reference to Exhibit 10.10 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                               |  | N/A  |
| 10.11(1)      |  | IndemnificationAgreement dated December  6,  1995 between the Company andRichard C. Fox, incorporated by reference to Exhibit 10.11 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997.                            |  | N/A  |
|               |

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|               |  |                                                                                                                                                                                                                                                                                                                                         |  |      |  |  |  |  |  |  |
|---------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                                                             |  | Page |
| 10.12(1)      |  | IndemnificationAgreement dated March  28,  1996 between the Company andDr.  Barak, incorporated by reference to Exhibit 10.12 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                                                                      |  | N/A  |
| 10.13(1)      |  | IndemnificationAgreement dated March  28,  1996 between the Company andYossi Koren, incorporated by reference to Exhibit 10.13 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997.                                                                   |  | N/A  |
| 10.14(1)      |  | Plan ofReorganization for acquisition of Major Fleet & Leasing Corp. datedAugust  23,  1996 between the Company, Bruce Bendell andHarold Bendell, incorporated by reference to Exhibit 10.17 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997. |  | N/A  |
| 10.15(1)      |  | PatentPurchase Agreement dated December  30,  1996 betweenPremo-Plast, Inc. and John Pinciaro, incorporated by reference toExhibit 10.16 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,1997.                                                         |  | N/A  |
| 10.16(1)      |  | EmploymentAgreement dated December  30,  1996 between Premo-Plast,Inc. and John Pinciaro, incorporated by reference to Exhibit 10.17 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                                                               |  | N/A  |
| 10.17(1)      |  | EmploymentAgreement dated January  27,  1997 between the Company andRonald K. Premo, incorporated by reference to Exhibit 10.18 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,  1997.                                                                  |  | N/A  |
| 10.18(1)      |  | Planand Agreement of Merger, dated April  21,  1997, theCompany, Major Automotive Group, Inc., Major Acquisition Corp. andBruce Bendell, incorporated by reference to Exhibit 10.19 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                |  | N/A  |
| 10.18(i)(2)   |  | Amendment toPlan and Agreement of Merger, dated August  1,  1997,between Fidelity Holdings, Inc., Major Automotive Group, Inc., MajorAcquisition Corp. and BruceBendell.                                                                                                                                                                |  | N/A  |
| 10.18(ii)(2)  |  | Amendmentto Plan and Agreement of Merger, dated August  26,  1997,between Fidelity Holdings, Inc., Major Automotive Group, Inc., MajorAcquisition Corp. and BruceBendell.                                                                                                                                                               |  | N/A  |
| 10.18(iii)(2) |  | Amendmentto Plan and Agreement of Merger, dated November  20,  1997,between Fidelity Holdings, Inc., Major Automotive Group, Inc., MajorAcquisition Corp. and BruceBendell.                                                                                                                                                             |  | N/A  |
| 10.18(iv)(4)  |  | Amendmentto Plan and Agreement of Merger, dated March  20,  1998,between Fidelity Holdings, Inc., Major Automotive Group, Inc., MajorAcquisition Corp., and BruceBendell.                                                                                                                                                               |  | N/A  |
| 10.19(1)      |  | Stock PurchaseAgreement with Escrow Agreement attached, incorporated by reference toExhibit 10.20 of Company’s Registration Statement on Form 10-SB,as amended, filed with the Securities and Exchange Commission onMarch  7,  1997.                                                                                              |  | N/A  |
|               |

55

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|               |  |                                                                                                                                                                                                                          |  |      |  |  |  |  |  |  |
|---------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                              |  | Page |
| 10.20(1)      |  | ManagementAgreement, incorporated by reference to Exhibit 10.21 ofCompany’s Registration Statement on Form 10-SB, as amended,filed with the Securities and Exchange Commission on March7,1997.                     |  | N/A  |
| 10.21(1)      |  | EmploymentAgreement with Moise Benedid, incorporated by reference to Exhibit10.22 of Company’s Registration Statement on Form 10-SB, asamended, filed with the Securities and Exchange Commission onMarch  7,1997. |  | N/A  |
| 10.22(2)      |  | PartnershipAgreement between Nissko Telecom Associates and theCompany.                                                                                                                                                   |  | N/A  |
| 10.23(2)      |  | Memorandum ofUnderstanding, dated September  9,  1997, by and amongComputer Business Sciences, Inc., Nissko Telecom Ltd., the Company andRobert L.Rimberg.                                                               |  | N/A  |
| 10.24(2)      |  | Letter ofIntent, dated June  6,  1997, between the Company andSouthWall Capital Corp. (formerly known as Sun Coast CapitalCorp.)                                                                                         |  | N/A  |
| 10.25(2)      |  | Letter ofIntent, dated September  1997, between the Company, LichtenbergRobbins Buick, Inc. and Lichtenberg MotorsInc.                                                                                                   |  | N/A  |
| 10.26(2)      |  | ConsultingAgreement, dated February  18,  1997, with Ronald ShappsCorporate Services,Inc.                                                                                                                                |  | N/A  |
| 10.27(2)      |  | Value AddedReseller Agreement between Summa Four, Inc. and Computer BusinessSciences, Inc., asReseller.                                                                                                                  |  | N/A  |
| 10.28(2)      |  | LeaseAgreement, dated March  1996, between 80-02 Leasehold Company, asOwners and the Company, asTenant.                                                                                                                  |  | N/A  |
| 10.29(2)      |  | Master LeaseAgreement, dated December  26,  1996, between Major Fleet& Leasing Corp., as Lessor, and Nissko Telecom, Ltd., asLessee.                                                                                 |  | N/A  |
| 10.30(2)      |  | SubleaseAgreement, dated March  1995, between Speedy R.A.C., Inc., asSublessor, and Major Subaru Inc., asSublessee.                                                                                                      |  | N/A  |
| 10.31(2)      |  | LeaseAgreement, dated November  1,  1991, between Gloria Hinsch,as Landlord, and Major Chrysler-Plymouth, Inc., asTenant.                                                                                                |  | N/A  |
| 10.32(2)      |  | Store LeaseAgreement, dated June  10,  1992, between Bill K.Kartsonis, as Owner, and Major Automotive Group, asTenant.                                                                                                   |  | N/A  |
| 10.33(2)      |  | LeaseAgreement, dated June  3,  1994, between General MotorsCorporation, as Lessor, and Major Chevrolet, Inc., asLessee.                                                                                                 |  | N/A  |
| 10.34(2)      |  | LeaseAgreement, dated August  1990, between Bruce Bendell and HaroldBendell, as Landlord and Major Chrysler-Plymouth, Inc., asTenant.                                                                                    |  | N/A  |
| 10.34(i)(2)   |  | Extension ofLease Agreement, dated August  14,  1997, between BruceBendell and Harold Bendell, as Landlord and Major Dodge, Inc. (formerlyknown as Major Chrysler-Plymouth, Inc.), asTenant.                             |  | N/A  |
| 10.34(ii)(2)  |  | Extensionof Lease Agreement, dated December  16,  1997, betweenBruce Bendell and Harold Bendell, as Landlord and Major Dodge (formerlyknown as Major Chrysler-Plymouth, Inc.), asTenant.                                 |  | N/A  |
| 10.35(2)      |  | LeaseAgreement, dated February  1995, between Bendell Realty, L.L.C.,as Landlord, and Major Chrysler-Plymouth Jeep Eagle, Inc., asTenant.                                                                                |  | N/A  |
|               |

56

----

|               |  |                                                                                                                                                                        |  |      |  |  |  |  |  |  |
|---------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                            |  | Page |
| 10.35(i)(2)   |  | Extension ofLease Agreement, dated August  14,  1997, between BendellRealty, L.L.C., as Landlord and Major Chrysler-Plymouth Jeep Eagle,Inc., asTenant.                |  | N/A  |
| 10.35(ii)(2)  |  | Extensionof Lease Agreement, dated December  16,  1997, betweenBendell Realty, L.L.C., as Landlord and Major Chrysler-Plymouth JeepEagle, Inc., asTenant.              |  | N/A  |
| 10.36(2)      |  | LeaseAgreement, dated February  1996, between Prajs DrimmerAssociates, as Landlord, and Barak Technology Inc., asTenant.                                               |  | N/A  |
| 10.37(2)      |  | SubleaseAgreement, dated January  8,  1997, between Newsday, Inc.,as Sublessor, and Major Fleet & Leasing Corp., asSublessee.                                      |  | N/A  |
| 10.37(i)(2)   |  | Consentto Sublease Agreement, dated January  16,  1997, between80-02 Leasehold Company, Newsday Inc. and Major Fleet and LeasingCorp.                                  |  | N/A  |
| 10.38(2)      |  | General SecurityAgreement between Major Fleet & Leasing Corp., as Debtor, andMarine Midland Bank, as SecuredParty.                                                 |  | N/A  |
| 10.39(2)      |  | Retail andWholesale Dealer’s Agreement, dated March  30,1995, between Marine Midland Bank, as Bank, and Major Fleet &Leasing Corp., asDealer.                |  | N/A  |
| 10.40(2)      |  | Wholesale LeaseFinancing Line of Credit between General Electric Capital Corporation,as Lender, and Major Fleet & Leasing Corp., asBorrower.                       |  | N/A  |
| 10.41(2)      |  | ChryslerLeasing System License Agreement between Chrysler Motors Corporation,as Licensor, and Major Fleet & Leasing Corp., asLicensee.                             |  | N/A  |
| 10.42(2)      |  | GMAC RetailPlan Agreement between General Motors Acceptance Corp. and Major Fleet& Leasing Corp., asDealer.                                                        |  | N/A  |
| 10.43(2)      |  | FidelityHoldings, Inc. 1996 Employees' Performance RecognitionPlan.                                                                                                    |  | N/A  |
| 10.44(2)      |  | SecuredPromissory Note, dated December  31,  1996, between DoronCohen, as Maker, and Fidelity Holdings, Inc., asHolder.                                                |  | N/A  |
| 10.45(2)      |  | Dealer MasterAgent Agreement and License, dated February  1996, betweenComputer Business Sciences, Inc. and Progressive PolymericsInternational, Inc., as MasterAgent. |  | N/A  |
| 10.46(2)      |  | Dealer MasterAgent Agreement and License, dated February  1996, betweenComputer Business Sciences, Inc. and Cellular Credit Corp. of America,Inc., as MasterAgent.     |  | N/A  |
| 10.47(2)      |  | Dealer MasterAgent Agreement and License, dated February  1996, betweenComputer Business Sciences, Inc. and America's New Beginning,Inc., as MasterAgent.              |  | N/A  |
| 10.48(2)      |  | Dealer MasterAgent Agreement and License, dated February  1996, betweenComputer Business Sciences, Inc. and Korean Telecom, as MasterAgent.                            |  | N/A  |
| 10.49(2)      |  | Dealer MasterAgent Agreement and License, dated February  1996, betweenComputer Business Sciences, Inc. and Philcom Telecommunications, asMasterAgent.                 |  | N/A  |
| 10.50(2)      |  | ManagementAgreement, dated August  23,  1996, between Major Fleet,Bruce Bendell and Harold Bendell.                                                                    |  | N/A  |
|               |

57

----

|               |  |                                                                                                                                                                                                                                                                                             |  |      |  |  |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                                 |  | Page |
| 10.51(2)      |  | Wholesale SecurityAgreement, dated April  26,  1990, between General MotorsAcceptance Corporation (‘‘GMAC’’) and MajorFleet.                                                                                                                                        |  | N/A  |
| 10.51(i)(2)   |  | Amendment,dated February  14,  1991, to Wholesale Security Agreementbetween GMAC and MajorFleet.                                                                                                                                                                                            |  | N/A  |
| 10.52(2)      |  | Direct LeasingPlan Dealer Agreement, dated July  24,  1986, between GMACand Major Fleet.                                                                                                                                                                                                    |  | N/A  |
| 10.53(2)      |  | RetailLease Service Plan Agreement, dated April  3,  1987,between GMAC and MajorFleet.                                                                                                                                                                                                      |  | N/A  |
| 10.54(2)      |  | ContributionAgreement dated as of October  6,  1997 between theCompany, Bruce Bendell and DoronCohen.                                                                                                                                                                                       |  | N/A  |
| 10.55(2)      |  | Letter ofCommitment dated March  16,  1998 from Falcon Financial,LLC to Major Auto Acquisition,Inc.                                                                                                                                                                                         |  | N/A  |
| 10.56(4)      |  | SecurityAgreement, dated May  14,  1998, made by Major AcquisitionCorp., Major Automotive Realty Corp., and Falcon Financial,LLC.                                                                                                                                                           |  | N/A  |
| 10.57(4)      |  | Guarantee, datedas of May  14,  1998, made by Fidelity Holdings, Inc. infavor of Falcon Financial,LLC.                                                                                                                                                                                      |  | N/A  |
| 10.58(4)      |  | Amended andrestated secured promissory note, dated May  14,  1998 andbetween Major Acquisition Corp. and Falcon Financial,LLC.                                                                                                                                                              |  | N/A  |
| 10.59(3)      |  | ConsultingAgreement among Fidelity Holdings, Inc., Major Automotive Group, Inc.and Clemont Investors Ltd., dated October  1,1998.                                                                                                                                                           |  | N/A  |
| 10.60(6)      |  | Placement AgentAgreement, dated as of January  25,  1999, between FidelityHoldings, Inc. and The Zanett Securities Corporation, Claudio Guazzoni,David McCarthy, and TonyMilbank.                                                                                                           |  | N/A  |
| 10.61(6)      |  | SecuritiesPurchase Agreement dated as of January  25,  1999, by andamong Fidelity Holdings, Inc., Computer Business Sciences, Inc., ZanettLombardier, Ltd., Goldman Sachs Performance Partners, L.P., GoldmanSachs Performance Partners, (Offshore) L.P., David McCarthy and BrunoGuazzoni. |  | N/A  |
| 10.62(6)      |  | RegistrationRights Agreement dated as of January  25,  1999, by andamong Fidelity Holdings, Inc., Zanett Lombardier, Ltd., Goldman SachsPerformance Partners, L.P., Goldman Sachs Performance Partners,(Offshore) L.P., David McCarthy and BrunoGuazzoni.                                   |  | N/A  |
| 10.63(7)      |  | LetterAgreement, dated as of June  24,1999, by and among FidelityHoldings, Inc. and Strong River Investments, Inc., Bay HarborInvestments, Inc. and Augusta StreetLLC.                                                                                                                      |  | N/A  |
| 10.64(7)      |  | SecuritiesPurchase Agreement dated as of June  24,  1999, by andamong Fidelity Holdings, Inc. and Strong River Investments, Inc., BayHarbor Investments, Inc. and Augusta StreetLLC.                                                                                                        |  | N/A  |
| 10.65(7)      |  | RegistrationRights Agreement dated as of June  24,  1999, by and amongFidelity Holdings, Inc. and Strong River Investments, Inc., Bay HarborInvestments, Inc. and Augusta StreetLLC.                                                                                                        |  | N/A  |
| 10.66(8)      |  | SecuritiesPurchase Agreement dated as of December  8,  1999, by andamong Fidelity Holdings, Inc. and Strong River Investments, Inc.,Montrose Investments Ltd. and Augusta StreetLLC.                                                                                                        |  | N/A  |
|               |

58

----

|               |  |                                                                                                                                                                                                                                       |  |      |  |  |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                           |  | Page |
| 10.67(9)      |  | Registration RightsAgreement dated as of December  8,  1999, by and amongFidelity Holdings, Inc. and Strong River Investments, Inc., MontroseInvestments Ltd. and Augusta StreetLLC.                                                  |  | N/A  |
| 10.68(9)      |  | SecuritiesPurchase Agreement dated as of February  8,  2000, by andamong Fidelity Holdings, Inc. and Strong River Investments, Inc.,Montrose Investments Ltd. and Augusta StreetLLC.                                                  |  | N/A  |
| 10.69(9)      |  | RegistrationRights Agreement dated as of February  8,  2000, by andamong Fidelity Holdings, Inc. and Strong River Investments, Inc.,Montrose Investments Ltd. and Augusta StreetLLC.                                                  |  | N/A  |
| 10.70(10)     |  | Merger Agreementdated January  18,  2000 by and among Fidelity Holdings,Inc., Cars Acquisition, Inc., CarsTV.com, Inc., and Jack H.Singer.                                                                                            |  | N/A  |
| 10.71(10)     |  | TransferRestriction and Optional Conversion Agreement dated January18,  2000 by and among Fidelity Holdings, Inc., Jack H. Singerand certain other individualinvestors.                                                               |  | N/A  |
| 10.72(10)     |  | EscrowAgreement dated January  18,  2000 by and among FidelityHoldings, Inc., Cars Acquisition, Inc., CarsTV.com, Inc., and Jack H.Singer, certain other individual investors and Littman Krooks Roth& Ball P.C., as escrowagent. |  | N/A  |
| 10.73(10)     |  | SecuritiesPurchase Agreement dated as of March  14,  2000, by andbetween Fidelity Holdings, Inc. and Strong River Investments,Inc.                                                                                                    |  | N/A  |
| 10.74(10)     |  | RegistrationRights Agreement dated as of March  14,  2000, by andbetween Fidelity Holdings, Inc. and Strong River Investments,Inc.                                                                                                    |  | N/A  |
| 10.75(10)     |  | Lease Agreementdated as of January  28,  2000, by 80-02 Leasehold Company,L.P. and Mid-Atlantic Telecommunications,Inc.                                                                                                               |  | N/A  |
| 10.76(10)     |  | Repurchase ofNissko Master Rights Agreement among Computer Business Sciences Inc,Nissko L.P. and shareholders of Nissko Telecom Ltd datedNovember  30,1999.                                                                           |  | N/A  |
| 10.77(11)     |  | Separation andRelease Agreement dated as of August  8,  2000, enteredinto by and among Fidelity Holdings, Inc. and DoronCohen.                                                                                                        |  | N/A  |
| 10.78(12)     |  | RedemptionAgreement dated as of September  8,  2000, entered into byand among Fidelity Holdings, Inc., Strong River Investments, Inc. andMontrose InvestmentsLtd.                                                                     |  | N/A  |
| 10.79(12)     |  | RedemptionAgreement dated as of September  8,  2000, entered intobetween Fidelity Holdings, Inc. and Augusta StreetLLC.                                                                                                               |  | N/A  |
| 10.80(13)     |  | Senior SecuredPromissory Note due December  11,  2002 datedDecember  11,2000.                                                                                                                                                         |  | N/A  |
| 10.81(13)     |  | Security andPledge Agreement dated December  11,  2000 between FidelityHoldings, Inc. and M&K Equities,Ltd.                                                                                                                       |  | N/A  |
| 10.82(14)     |  | Asset PurchaseAgreement Asset dated as of February  12,  2001 betweenInternet Creations, Inc. (d/b/a Internet Connections) and AccessTechnology, Inc.                                                                                 |  | N/A  |
| 10.83(14)     |  | StockPurchase Agreement dated of March  27,  2001 by and amongGlobal Communications of NY, Inc., Fidelity Holdings, Inc. and IG2,Inc.                                                                                                 |  | N/A  |
| 10.84(14)     |  | Senior SecuredPromissory Note due March  27,  2006 dated March27,  2001.                                                                                                                                                              |  | N/A  |
|               |

59

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|               |  |                                                                                                                                                                                                                                                                                       |  |         |  |  |  |  |  |  |
|---------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|---------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                                                                                           |  | Page    |
| 10.85(14)     |  | Separation andRelease Agreement dated March  27,  2001 entered into byand between Fidelity Holdings, Inc. and KimberlyPeacock.                                                                                                                                                        |  | N/A     |
| 10.86(14)     |  | Letter datedNovember  21,  2000 regarding Promissory Notes in favor ofStrong River Investments, Inc. and Montrose InvestmentsLtd.                                                                                                                                                     |  | N/A     |
| 10.87(15)     |  | Stock PurchaseAgreement by and among Global Communications of NY, Inc., the MajorAutomotive Companies, Inc. and ICS Globe, Inc. dated July31,  2001.                                                                                                                                  |  | N/A     |
| 10.88(15)     |  | Senior Secured PromissoryNote due December  31,  2003 dated July  31,2001.                                                                                                                                                                                                            |  |    |
| 10.89(16)     |  | 2001 OutsideDirector Stock Plan                                                                                                                                                                                                                                                       |  | N/A     |
| 10.90(17)     |  | Wholesale SecurityAgreement dated March  12,  2002 between General MotorsAcceptance Corporation and Major Chevrolet, Inc.                                                                                                                                                             |  |    |
| 10.91(17)     |  | Letter from HSBC Bank, USAdated March  20,  2002 regarding floor plan lines.                                                                                                                                                                                                          |  | N/A     |
| 10.92(18)     |  | Separation and ReleaseAgreement by and among Bruce Bendell, Fidelity Holdings, Inc., TheMajor Automotive Companies, Inc., Major Chevrolet, Inc., Major Motorsof Hempstead, Inc., d/b/a Mazda of Hempstead, Compass Dodge, Inc., andCompass Lincoln-Mercury, Inc. and James R.Wallick. |  | N/A     |
| 10.92(19)     |  | AmendedSenior Secured Promissory Note due December  11,  2002effective as of January  3,2003.                                                                                                                                                                                         |  | N/A     |
| 10.93(19)     |  | Amended Securityand Pledge Agreement dated December  11,  2000 betweenFidelity Holdings, Inc. and M&K Equities,Ltd.                                                                                                                                                               |  | N/A     |
| 10.94(20)     |  | EmploymentAgreement dated July  24,  2003 by and between The MajorAutomotive Companies, Inc. and Bruce Bendell.                                                                                                                                                                       |  | — |
| 10.95(21)     |  | Extension toManagement Agreement by and between Major Fleet & Leasing Corp. andBruce Bendell and Harold Bendell dated March  25,2004.                                                                                                                                             |  | — |
| 10.96(21)     |  | Extensionto Management Agreement by and between The Major Automotive Companies,Inc. and Bruce Bendell and Harold Bendell dated March  25,2004.                                                                                                                                        |  | — |
| 10.97(21)     |  | SecondAmended Senior Secured Promissory Note due December  11,2002 effective as of January  3,2004.                                                                                                                                                                                   |  | — |
| 10.98(21)     |  | SecondAmended Security and Pledge Agreement dated December  11,2000 between The Major Automotive Companies, Inc. and M&K Equities,Ltd.                                                                                                                                            |  | — |
| 14.1(21)      |  | Code ofEthics andConduct                                                                                                                                                                                                                                                              |  | — |
| 16.1(5)       |  | Letter fromPeter C. Cosmas Co., CPAs, dated February  9,1999.                                                                                                                                                                                                                         |  | N/A     |
| 21.1          |  | List of Subsidiariesof theCompany.                                                                                                                                                                                                                                                    |  | — |
| 31.1          |  | Certificationof Chief Executive Officer and Acting Chief Financial Officer pursuantto Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                             |  | — |
| 32.1          |  | Certification of ChiefExecutive Officer and Acting Chief Financial Officer pursuant toSection 906 of the Sarbanes-Oxley Act of2002.                                                                                                                                                   |  | — |
| (1)           |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s registration statement on Form10-SB (File No. 0-29182).                                                                                                             |  |    |
|               |

60

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|               |  |                                                                                                                                                                                                                |  |        |  |  |  |  |  |  |
|---------------|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                                                    |  | Page   |
| (2)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s annual report on Form 10-KSB for the yearended December  31,  1997 (File No.0-29182)         |  |   |
| (3)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s quarterly report on Form 10-QSB for thequarter ended September  30,  1998 (File No.0-29182). |  |   |
| (4)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s current report on Form 8-K, dated May14,  1998. (File No.0-29182).                           |  |   |
| (5)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s current report on Form 8-K, datedFebruary  5,  1999. (File No.0-29182).                      |  |   |
| (6)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s current report on Form 8-K, datedJanuary  26,  1999. (File No.0-29182).                      |  |   |
| (7)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s current report on Form 8-K, datedJuly  3,  1999. (File No.0-29182).                          |  |   |
| (8)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s current report on Form 8-K, datedDecember  10,  1999. (File No.0-29182).                     |  |   |
| (9)           |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s current report on Form 8-K, datedFebruary  16,  2000 (File No.0-29182).                      |  |   |
| (10)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s annual report on Form 10-KSB forthe year ended December  31,  1999 (File No.0-29182).        |  |   |
| (11)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s quarterly report on Form 10-Q,dated August  21,  2000 (File No.0-29182).                     |  |   |
| (12)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s current report on Form 8-K, datedSeptember  22,  2000 (File No.0-29182).                     |  |   |
| (13)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s current report on Form 8-K, datedDecember  21,  2000 (File No.0-29182).                      |  |   |
| (14)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s annual report on Form 10-K, datedApril  17,  2001 (File No.0-29182).                         |  |   |
| (15)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s quarterly report on Form 10-Q,dated August  20,  2001 (File No.0-29182).                     |  |   |
| (16)          |  | Previously filedwith the Commission as an Exhibit to, and incorporated herein byreference from, the Company’s definitive proxy statement onSchedule 14A, dated October  24,  2001 (File No.0-29182).     |  |   |
|               |

61

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|               |  |                                                                                                                                                                                         |  |        |  |  |  |  |  |  |
|---------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------|--|--|--|--|--|--|
| ExhibitNumber |  | Description                                                                                                                                                                             |  | Page   |
| (17)          |  | Previously filed withthe Commission as Exhibits to, and incorporated herein by referencefrom, the Company’s annual report on Form 10-K, datedApril  16,  2002 (File No.0-29182).  |  |   |
| (18)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s current report on Form 8-K datedOctober  21,  2002 (File No.0-29182). |  |   |
| (19)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s annual report on Form 10-K, datedApril  15,  2003 (File No.0-29182).  |  |   |
| (20)          |  | Previously filedwith the Commission as Exhibits to, and incorporated herein byreference from, the Company’s current report on Form 8-K datedJuly  28,  2003 (File No. 0-29182).   |  |   |
|               |

(b) Financial Statements and FinancialStatement Schedules.

Our consolidated financialstatements that we are filing as part of this Form 10-K/A are filed onpages F-1 to F-48 of this Form 10-K. The financial statement schedulerequired by Regulation S-X is filed on pages S-1 andS-2.

62

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SIGNATURES

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto dulyauthorized.

|                        |  |                                                                                                                                                                                                                                                                  |  |  |  |  |
|------------------------|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
|                   |  | TheMajor Automotive Companies,Inc.                                                                                                                                                                                                                               |
| Dated: January 27,2006 |  | /s/ BruceBendell                                         |
|                   |  | BruceBendell,President, Chief Executive Officer andActing ChiefFinancial Officer                                                                                                                                                                                 |
|                        |

In accordance with theSecurities Exchange Act of 1934, as amended, this report has beensigned below by the following persons on behalf of the Company and inthe capacities and on the datesindicated:

|                     |  |                                                                               |  |                  |
|---------------------|--|-------------------------------------------------------------------------------|--|------------------|
| Signature           |  | Title                                                                         |  | Date             |
|                     |
| /s/Bruce Bendell    |  | President,Chief Executive Officer, Acting Chief Financial Officer andDirector |  | January 27, 2006 |
|                     |
| Bruce Bendell       |
|                     |
| /s/David Edelstein  |  | Director                                                                      |  | January 27,2006  |
|                     |
| DavidEdelstein      |
|                     |
| /s/ StevenHornstock |  | Director                                                                      |  | January 27,2006  |
|                     |
| StevenHornstock     |
|                     |
| /s/AlanPearson      |  | Director                                                                      |  | January 27,2006  |
|                     |
| AlanPearson         |
|                     |
| /s/ JeffreyWeiner   |  | Director                                                                      |  | January 27,2006  |
|                     |
| JeffreyWeiner       |
|                     |

63

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TheMajor AutomotiveCompanies,Inc.

ConsolidatedFinancial StatementsYears Ended December31,  2004, 2003 and 2002

F-1

----

TheMajor Automotive Companies,Inc.

Contents

|  |
|--|
|  |  |
|  |

|                                                                                              |
|----------------------------------------------------------------------------------------------|
|                                                                                              |  |  |  |  |  |  |
| **Reportof independent registered public accountingfirm**                                    |  | F-3 |
| **Consolidatedfinancialstatements:**                                                         |  |   |
| Balancesheets as of December  31,  2004 and2003                                              |  | F-4 |
| Statements ofoperations for the years ended December  31,  2004, 2003and 2002                |  | F-5 |
| Statements ofstockholders’ equity for the years ended December31,  2004, 2003 and 2002 |  | F-6 -F-8 |
| Statements of cash flows forthe years ended December  31,  2004, 2003 and2002                |  | F-9 - F-10 |
| Notes toconsolidated financial statements                                                    |  | F-11 -F-48 |
|                                                                                              |

F-2

----

Report of Independent Registered PublicAccounting Firm

To the Board of Directors andStockholdersThe Major Automotive Companies, Inc.Long IslandCity, New York

We have audited the consolidated balancesheets of The Major Automotive Companies, Inc. and subsidiaries as ofDecember  31,  2004 and 2003, and the related consolidatedstatements of operations, stockholders’ equity, and cash flowsfor each of the three years in the period ended December31,  2004. These financial statements are the responsibility ofthe Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standardsof the Public Company Accounting Oversight Board (United States). Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement. The Company is not required to have, nor were weengaged to perform, an audit of its internal controls over financialreporting. Our audits included examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

In ouropinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the financial position of TheMajor Automotive Companies, Inc. and subsidiaries at December31,  2004 and 2003, and the results of their operations and theircash flows for each of the three years in the period endedDecember  31,  2004, in conformity with accountingprinciples generally accepted in the United States ofAmerica.

As discussed in Note 7 to the consolidatedfinancial statements, the Company restated the balance sheets as ofDecember  31,  2004 and 2003 and the related consolidatedstatements of cash flows for each of the three years in the period thenended.

|  | /s/BDO Seidman,LLP |
|--|--------------------|

May  17,  2005, except for Note7, which is as of January 27, 2006

New York,New York

F-3

----

TheMajor Automotive Companies,Inc.

Consolidated BalanceSheets

|  |
|--|
|  |  |
|  |

|                                                                                                                                                                                   |  |              |             |               |  |        |             |         |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|-------------|---------------|--|--------|-------------|---------|--|--|
| December 31,                                                                                                                                             |  | 2004Restated |             | 2003 Restated |
| **Assets**                                                                                                                                                                        |  |         |        |          |  |   |        |    |
| **Current:**                                                                                                                                                                      |  |         |        |          |  |   |        |    |
| Cashand cashequivalents                                                                                                                                                           |  | $            | 3,723,500   |          |  | $      | 1,003,137   |    |
| Short-terminvestment                                                                                                                                                              |  |         | 433,145     |          |  |   | 430,325     |    |
| Netinvestment in direct financing leases, current                                                                                                                                 |  |         | 181,079     |          |  |   | 213,311     |    |
| Accountsreceivable, net of allowance for doubtful accounts of $492,000 in 2004and2003                                                                                             |  |         | 11,849,314  |          |  |   | 10,066,439  |    |
| Inventories,net ofreserves                                                                                                                                                        |  |         | 53,719,844  |          |  |   | 50,257,955  |    |
| Duefrom relatedparties                                                                                                                                                            |  |         | 1,216,925   |          |  |   | 1,974,008   |    |
| Othercurrentassets                                                                                                                                                                |  |         | 224,416     |          |  |   | 277,942     |    |
| **Totalcurrentassets**                                                                                                                                                            |  |         | 71,348,223  |          |  |   | 64,223,117  |    |
| **Netinvestment in direct financing leases, net of currentportion**                                                                                                               |  |         | 285,495     |          |  |   | 62,773      |    |
| **Propertyand equipment,net**                                                                                                                                                     |  |         | 5,028,024   |          |  |   | 4,899,059   |    |
| **Deferredincometaxes**                                                                                                                                                           |  |         | 1,459,535   |          |  |   | 1,576,000   |    |
| **Goodwill**                                                                                                                                                                      |  |         | 5,260,000   |          |  |   | 13,589,000  |    |
| **Duefrom relatedparties**                                                                                                                                                        |  |         | 493,745     |          |  |   | 541,741     |    |
| **Duefromofficer**                                                                                                                                                                |  |         | 1,395,358   |          |  |   | 1,395,358   |    |
| **Notesreceivable and otherassets**                                                                                                                                               |  |         | 744,087     |          |  |   | 1,325,891   |    |
|                                                                                                                                                                              |  | $            | 86,014,467  |          |  | $      | 87,612,939  |    |
| **Liabilitiesand Stockholders’Equity**                                                                                                                                      |  |         |        |          |  |   |        |    |
| **Currentliabilities:**                                                                                                                                                           |  |         |        |          |  |   |        |    |
| Floor plannotes payable to trade creditors                                                                                                                                        |  | $            | 21,575,506  |          |  | $      | 22,134,519  |    |
| Floorplan notes payable to non-tradecreditors                                                                                                                                     |  |         | 29,804,804  |          |  |   | 27,464,847  |    |
| Accountspayable                                                                                                                                                                   |  |         | 8,565,886   |          |  |   | 7,761,992   |    |
| Accruedexpenses                                                                                                                                                                   |  |         | 4,010,148   |          |  |   | 3,640,745   |    |
| Accruedexpenses – relatedparties                                                                                                                                            |  |         | 4,008,172   |          |  |   | 1,314,470   |    |
| Currentmaturities of long-termdebt                                                                                                                                                |  |         | 895,409     |          |  |   | 701,741     |    |
| Customerdeposits and other currentliabilities                                                                                                                                     |  |         | 548,749     |          |  |   | 567,846     |    |
| **Total currentliabilities**                                                                                                                                                      |  |         | 69,408,674  |          |  |   | 63,586,160  |    |
| **Long-termdebt, less currentmaturities**                                                                                                                                         |  |         | 6,910,269   |          |  |   | 7,156,125   |    |
| **Totalliabilities**                                                                                                                                                              |  |         | 76,318,943  |          |  |   | 70,742,285  |    |
| **Commitmentsandcontingencies**                                                                                                                                                   |  |         |        |          |  |   |        |    |
| **Stockholders’equity:**                                                                                                                                                    |  |         |        |          |  |   |        |    |
| Preferredstock, $.01 par value – 2,000,000 shares authorized; 0 sharesissued and outstanding in 2004 and2003                                                                |  |         | —     |          |  |   | —     |    |
| Commonstock, $.01 par value – 50,000,000 shares authorized; 9,720,047and 9,702,047 shares issued and 9,204,228and 9,474,856 sharesoutstanding in 2004 and 2003,respectively |  |         | 97,200      |          |  |   | 97,020      |    |
| Additionalpaid-incapital                                                                                                                                                          |  |         | 40,189,749  |          |  |   | 40,175,709  |    |
| Deficit                                                                                                                                                                           |  |         | (28,276,273 | )        |  |   | (21,438,311 | )  |
| Treasurystock, at cost; 515,819 and 227,191 shares in 2004 and 2003,respectively                                                                                                  |  |         | (2,315,152  | )        |  |   | (1,963,764  | )  |
| **Totalstockholders’equity**                                                                                                                                                |  |         | 9,695,524   |          |  |   | 16,870,654  |    |
|                                                                                                                                                                              |  | $            | 86,014,467  |          |  | $      | 87,612,939  |    |
|                                                                                                                                                                                   |

Seeaccompanying notes to consolidated financialstatements.

F-4

----

TheMajor Automotive Companies,Inc.

ConsolidatedStatements of Operations

|  |
|--|
|  |  |
|  |

|                                                                                          |  |        |             |         |  |        |             |         |  |        |             |         |  |  |
|------------------------------------------------------------------------------------------|--|--------|-------------|---------|--|--------|-------------|---------|--|--------|-------------|---------|--|--|
| Yearsended December 31,                                         |  | 2004   |             | 2003    |  | 2002   |
| **Revenues:**                                                                            |  |   |        |    |  |   |        |    |  |   |        |    |
| Sales                                                                                    |  | $      | 396,981,562 |    |  | $      | 380,298,852 |    |  | $      | 397,947,494 |    |
| Costofsales                                                                              |  |   | 332,455,524 |    |  |   | 319,655,160 |    |  |   | 333,809,386 |    |
| **Grossprofit**                                                                          |  |   | 64,526,038  |    |  |   | 60,643,692  |    |  |   | 64,138,108  |    |
| **Operatingexpenses**                                                                    |  |   | (60,288,707 | )  |  |   | (58,725,010 | )  |  |   | (61,375,094 | )  |
| **Goodwillimpairment**                                                                   |  |   | (8,116,000  |    |  |   | —     |    |  |   | —     |    |
| **Interestexpense, net of interestincome**                                               |  |   | (2,730,018  | )  |  |   | (2,967,028  | )  |  |   | (2,657,786  | )  |
| **Income(loss) before income tax expense (benefit) and loss fromdiscontinuedoperations** |  |   | (6,608,687  | )  |  |   | (1,048,346  | )  |  |   | 105,228     |    |
| **Incometaxexpense**                                                                     |  |   | 229,275     |    |  |   | 81,918      |    |  |   | 190,000     |    |
| **Lossfrom continuing operations**                                                       |  |   | (6,837,962  | )  |  |   | (1,130,264  | )  |  |   | (84,772     | )  |
| **Lossfrom discontinued operations (net of income taxbenefit)**                          |  |   | —     |    |  |   | —     |    |  |   | (206,000    | )  |
| **Netloss**                                                                              |  | $      | (6,837,962  | )  |  | $      | (1,130,264  | )  |  | $      | (290,772    | )  |
| Lossper common share – continuingoperations:                                       |  |   |        |    |  |   |        |    |  |   |        |    |
| Basicanddiluted                                                                          |  | $      | (0.72       | )  |  | $      | (0.12       | )  |  | $      | (0.01       | )  |
| Lossper common share – discontinuedoperations:                                     |  |   |        |    |  |   |        |    |  |   |        |    |
| Basicanddiluted                                                                          |  | $      | —     |    |  | $      | —     |    |  | $      | (0.02       | )  |
| Netloss per commonshare:                                                                 |  |   |        |    |  |   |        |    |  |   |        |    |
| Basicanddiluted                                                                          |  | $      | (0.72       | )  |  | $      | (0.12       | )  |  | $      | (0.03       | )  |
| Averagenumber of shares used incomputation:                                              |  |   |        |    |  |   |        |    |  |   |        |    |
| Basicanddiluted                                                                          |  |   | 9,486,905   |    |  |   | 9,436,969   |    |  |   | 8,947,332   |    |
|                                                                                          |

Seeaccompanying notes to consolidated financialstatements.

F-5

----

TheMajor Automotive Companies,Inc.

ConsolidatedStatements of Stockholders’ Equity

|  |
|--|
|  |  |
|  |

|                                                  |  |                |          |              |  |               |         |                           |  |                            |           |                                  |  |                                 |         |         |  |        |         |        |  |        |            |         |  |        |            |         |  |        |             |         |  |        |          |         |  |        |            |         |  |  |
|--------------------------------------------------|--|----------------|----------|--------------|--|---------------|---------|---------------------------|--|----------------------------|-----------|----------------------------------|--|---------------------------------|---------|---------|--|--------|---------|--------|--|--------|------------|---------|--|--------|------------|---------|--|--------|-------------|---------|--|--------|----------|---------|--|--------|------------|---------|--|--|
|                                             |  | Preferredstock |          | Common stock |  | Treasurystock |         | Additional paid-incapital |  | Retained earnings(deficit) |           | Unearned stock-basedcompensation |  | Total stockholders’equity |
|                                             |  | Shares         |          | Amount       |  | Shares        |         | Amount                    |  | Shares                     |           | Amount                           |
| **Balance, January 1,2002**                      |  |           | 100,000  |         |  | $             | 1,000   |                      |  |                       | 7,994,338 |                             |  | $                               | 79,943  |    |  |   | 227,191 |   |  | $      | (1,963,764 | )  |  | $      | 39,964,363 |    |  | $      | (20,017,275 | )  |  | $      | (115,946 | )  |  | $      | 17,948,321 |    |
| Netloss                                          |  |           | —  |         |  |          | — |                      |  |                       | —   |                             |  |                            | — |    |  |   | — |   |  |   | —    |    |  |   | —    |    |  |   | (290,772    | )  |  |   | —  |    |  |   | (290,772   | )  |
| Issuanceof common stockfor:                      |  |           |     |         |  |          |    |                      |  |                       |      |                             |  |                            |    |    |  |   |    |   |  |   |       |    |  |   |       |    |  |   |        |    |  |   |     |    |  |   |       |    |
| Settlementoflitigation                           |  |           | —  |         |  |          | — |                      |  |                       | 225,000   |                             |  |                            | 2,250   |    |  |   | — |   |  |   | —    |    |  |   | 159,750    |    |  |   | —     |    |  |   | —  |    |  |   | 162,000    |    |
| Stockcompensation, net of deferredamounts        |  |           | —  |         |  |          | — |                      |  |                       | 16,200    |                             |  |                            | 162     |    |  |   | — |   |  |   | —    |    |  |   | 11,940     |    |  |   | —     |    |  |   | —  |    |  |   | 12,102     |    |
| Cancellationofshares                             |  |           | —  |         |  |          | — |                      |  |                       | (4,500    | )                           |  |                            | (45     | )  |  |   | — |   |  |   | —    |    |  |   | 45         |    |  |   | —     |    |  |   | —  |    |  |   | —    |    |
| Conversionof preferredstock                      |  |           | (100,000 | )       |  |          | (1,000  | )                    |  |                       | 1,333,333 |                             |  |                            | 13,333  |    |  |   | — |   |  |   | —    |    |  |   | (12,333    | )  |  |   | —     |    |  |   | —  |    |  |   | —    |    |
| Amortizationof deferredincome                    |  |           | —  |         |  |          | — |                      |  |                       | —   |                             |  |                            | — |    |  |   | — |   |  |   | —    |    |  |   | —    |    |  |   | —     |    |  |   | 115,946  |    |  |   | 115,946    |    |
| **Balance,December  31,  2002 (carriedforward)** |  |           | —  |         |  |          | — |                      |  |                       | 9,564,371 |                             |  |                            | 95,643  |    |  |   | 227,191 |   |  |   | (1,963,764 | )  |  |   | 40,123,765 |    |  |   | (20,308,047 | )  |  |   | —  |    |  |   | 17,947,597 |    |
|                                                  |

Seeaccompanying notes to consolidated financialstatements.

F-6

----

TheMajor AutomotiveCompanies

ConsolidatedStatements of Stockholders’ Equity

|  |
|--|
|  |  |
|  |

|                                                  |  |                |         |              |  |               |         |                           |  |                            |           |                                  |  |                                 |        |        |  |        |         |        |  |        |            |         |  |        |            |        |  |        |             |         |  |        |         |        |  |        |            |         |  |  |
|--------------------------------------------------|--|----------------|---------|--------------|--|---------------|---------|---------------------------|--|----------------------------|-----------|----------------------------------|--|---------------------------------|--------|--------|--|--------|---------|--------|--|--------|------------|---------|--|--------|------------|--------|--|--------|-------------|---------|--|--------|---------|--------|--|--------|------------|---------|--|--|
|                                             |  | Preferredstock |         | Common stock |  | Treasurystock |         | Additional paid-incapital |  | Retained earnings(deficit) |           | Unearned stock-basedcompensation |  | Total stockholders’equity |
|                                             |  | Shares         |         | Amount       |  | Shares        |         | Amount                    |  | Shares                     |           | Amount                           |
| **Balance, January 1, 2003(broughtforward)**     |  |           | — |         |  | $             | — |                      |  |                       | 9,564,371 |                             |  | $                               | 95,643 |   |  |   | 227,191 |   |  | $      | (1,963,764 | )  |  | $      | 40,123,765 |   |  | $      | (20,308,047 | )  |  | $      | — |   |  | $      | 17,947,597 |    |
| Netloss                                          |  |           |    |         |  |          |    |                      |  |                       |      |                             |  |                            |   |   |  |   |    |   |  |   |       |    |  |   |       |   |  |   | (1,130,264  | )  |  |   |    |   |  |   | (1,130,264 | )  |
| Issuanceof common stockfor:                      |  |           |    |         |  |          |    |                      |  |                       |      |                             |  |                            |   |   |  |   |    |   |  |   |       |    |  |   |       |   |  |   |        |    |  |   |    |   |  |   |       |    |
| Settlementsoflitigation                          |  |           | — |         |  |          | — |                      |  |                       | 119,676   |                             |  |                            | 1,197  |   |  |   | — |   |  |   | —    |    |  |   | 38,803     |   |  |   | —     |    |  |   | — |   |  |   | 40,000     |    |
| Stockcompensation, net of deferredamounts        |  |           | — |         |  |          | — |                      |  |                       | 18,000    |                             |  |                            | 180    |   |  |   | — |   |  |   | —    |    |  |   | 13,141     |   |  |   | —     |    |  |   | — |   |  |   | 13,321     |    |
| **Balance,December  31,  2003 (carriedforward)** |  |           | — |         |  |          | — |                      |  |                       | 9,702,047 |                             |  | $                               | 97,020 |   |  |   | 227,191 |   |  | $      | (1,963,764 | )  |  | $      | 40,175,709 |   |  | $      | (21,438,311 | )  |  | $      | — |   |  | $      | 16,870,654 |    |
|                                                  |

Seeaccompanying notes to consolidated financialstatements.

F-7

----

TheMajor AutomotiveCompanies

ConsolidatedStatements of Stockholders’ Equity

|  |
|--|
|  |  |
|  |

|                                                 |  |                |         |              |  |               |         |                           |  |                            |           |                                  |  |                                 |         |        |  |        |         |        |  |        |            |         |  |        |            |        |  |        |             |         |  |        |         |        |  |        |            |         |  |  |
|-------------------------------------------------|--|----------------|---------|--------------|--|---------------|---------|---------------------------|--|----------------------------|-----------|----------------------------------|--|---------------------------------|---------|--------|--|--------|---------|--------|--|--------|------------|---------|--|--------|------------|--------|--|--------|-------------|---------|--|--------|---------|--------|--|--------|------------|---------|--|--|
|                                            |  | Preferredstock |         | Common stock |  | Treasurystock |         | Additional paid-incapital |  | Retained earnings(deficit) |           | Unearned stock-basedcompensation |  | Total stockholders’equity |
|                                            |  | Shares         |         | Amount       |  | Shares        |         | Amount                    |  | Shares                     |           | Amount                           |
| **Balance, January 1, 2004(broughtforward)**    |  |           | — |         |  | $             | — |                      |  |                       | 9,702,047 |                             |  | $                               | 97,020  |   |  |   | 227,191 |   |  | $      | (1,963,764 | )  |  | $      | 40,175,709 |   |  | $      | (21,438,311 | )  |  | $      | — |   |  | $      | 16,870,654 |    |
| Netloss                                         |  |           | — |         |  |          | — |                      |  |                       | —   |                             |  |                            | — |   |  |   | — |   |  |   | —    |    |  |   | —    |   |  |   | (6,837,962  | )  |  |   | — |   |  |   | (6,837,962 | )  |
| Issuanceof common stockfor:                     |  |           |    |         |  |          |    |                      |  |                       |      |                             |  |                            |    |   |  |   |    |   |  |   |       |    |  |   |       |   |  |   |        |    |  |   |    |   |  |   |       |    |
| Stockcompensation, net of deferredamounts       |  |           | — |         |  |          | — |                      |  |                       | 18,000    |                             |  |                            | 180     |   |  |   | — |   |  |   | —    |    |  |   | 14,040     |   |  |   | —     |    |  |   | — |   |  |   | 14,220     |    |
| Treasurystock acquired in litigationsettlements |  |           | — |         |  |          | — |                      |  |                       | —   |                             |  |                            | — |   |  |   | 288,628 |   |  |   | (351,388   | )  |  |   | —    |   |  |   | —     |    |  |   | — |   |  |   | (351,388   | )  |
| **Balance,December  31,2004**                   |  |           | — |         |  |          | — |                      |  |                       | 9,720,047 |                             |  | $                               | 97,200  |   |  |   | 515,819 |   |  | $      | (2,315,152 | )  |  | $      | 40,189,749 |   |  | $      | (28,276,273 | )  |  | $      | — |   |  | $      | 9,695,524  |    |
|                                                 |

Seeaccompanying notes to consolidated financialstatements.

F-8

----

TheMajor Automotive Companies, Inc.

Consolidated Statements ofCash Flows

|  |
|--|
|  |  |
|  |

|                                                                                         |  |              |              |               |  |              |              |         |  |        |              |         |  |  |
|-----------------------------------------------------------------------------------------|--|--------------|--------------|---------------|--|--------------|--------------|---------|--|--------|--------------|---------|--|--|
| YearsendedDecember 31,                                         |  | 2004Restated |              | 2003 Restated |  | 2002Restated |
| **Cash flows from operatingactivities:**                                                |  |         |         |          |  |         |         |    |  |   |         |    |
| Netloss                                                                                 |  | $            | (6,837,962   | )        |  | $            | (1,130,264   | )  |  | $      | (290,772     | )  |
| Adjustmentsto reconcile net loss to net cash provided by (used in) operatingactivities: |  |         |         |          |  |         |         |    |  |   |         |    |
| Amortizationof intangibleassets                                                         |  |         | —      |          |  |         | —      |    |  |   | 395,000      |    |
| Depreciationandamortization                                                             |  |         | 424,773      |          |  |         | 362,405      |    |  |   | 397,947      |    |
| Increaseof deferred income taxes                                                        |  |         | 116,465      |          |  |         | —      |    |  |   | —      |    |
| Stock-basedcompensation                                                                 |  |         | —      |          |  |         | —      |    |  |   | 115,946      |    |
| Discontinuedoperations, net of tax                                                      |  |         | —      |          |  |         | —      |    |  |   | 206,000      |    |
| Stockissuance for services andother                                                     |  |         | 14,220       |          |  |         | 53,321       |    |  |   | 162,000      |    |
| Additionsto (reductions of) allowance for doubtful accounts                             |  |         | —      |          |  |         | 250,000      |    |  |   | 235,000      |    |
| Goodwillwritten off on franchisetermination                                             |  |         | 213,000      |          |  |         | —      |    |  |   | —      |    |
| Impairmentofgoodwill                                                                    |  |         | 8,116,000    |          |  |         | —      |    |  |   | —      |    |
| (Increase)decrease inassets:                                                            |  |         |         |          |  |         |         |    |  |   |         |    |
| Netinvestment in direct financingleases                                                 |  |         | (190,490     | )        |  |         | 122,408      |    |  |   | (72,317      | )  |
| Accountsreceivable,net                                                                  |  |         | (1,696,621   | )        |  |         | 3,536,865    |    |  |   | 329,902      |    |
| Inventories                                                                             |  |         | (3,461,889   | )        |  |         | (3,736,982   | )  |  |   | (13,847,072  | )  |
| Duefrom relatedparties                                                                  |  |         | 805,079      |          |  |         | —      |    |  |   | —      |    |
| Otherassets                                                                             |  |         | 522,419      |          |  |         | (372,748     | )  |  |   | 1,070,535    |    |
| Increase(decrease) inliabilities:                                                       |  |         |         |          |  |         |         |    |  |   |         |    |
| Accountspayable                                                                         |  |         | 803,894      |          |  |         | 1,034,414    |    |  |   | (2,590,832   | )  |
| Accruedexpenses                                                                         |  |         | 37,514       |          |  |         | (2,264,844   | )  |  |   | 787,427      |    |
| Accruedexpenses — relatedparties                                                  |  |         | 2,693,702    |          |  |         | 228,732      |    |  |   | 253,137      |    |
| Floorplan notes payable to tradecreditors                                               |  |         | (559,013     | )        |  |         | 548,063      |    |  |   | 5,883,629    |    |
| Customerdeposits and otherliabilities                                                   |  |         | (19,097      | )        |  |         | (411,135     | )  |  |   | 208,310      |    |
| **Netcash provided by (used in) operatingactivities**                                   |  |         | 981,994      |          |  |         | (1,779,765   | )  |  |   | (6,756,160   | )  |
| **Cashflows from investingactivities:**                                                 |  |         |         |          |  |         |         |    |  |   |         |    |
| Additionsto property andequipment                                                       |  |         | (600,356     | )        |  |         | (398,358     | )  |  |   | (49,760      | )  |
| Proceedsfrom certificate ofdeposit                                                      |  |         | (2,820       | )        |  |         | 4,395        |    |  |   | —      |    |
| Proceedsfrom sale of leasedequipment                                                    |  |         | 53,776       |          |  |         | 73,481       |    |  |   | —      |    |
| **Netcash used in investingactivities**                                                 |  |         | (549,400     | )        |  |         | (320,482     | )  |  |   | (49,760      | )  |
| **Cashflows from financingactivities:**                                                 |  |         |         |          |  |         |         |    |  |   |         |    |
| Paymentsof long-termdebt                                                                |  |         | (302,188     | )        |  |         | (519,286     | )  |  |   | (2,888,656   | )  |
| Additionsto long-termdebt                                                               |  |         | 250,000      |          |  |         | —      |    |  |   | —      |    |
| Paymentsfromofficers                                                                    |  |         | —      |          |  |         | —      |    |  |   | 200,191      |    |
| Additionsto floor plan notes payable to non-tradecreditors                              |  |         | 146,553,831  |          |  |         | 147,129,429  |    |  |   | 143,112,077  |    |
| Paymentsof floor plan notes payable to non-tradecreditors                               |  |         | (144,213,874 | )        |  |         | (144,302,833 | )  |  |   | (136,734,902 | )  |
| Capitalleasereduction                                                                   |  |         | —      |          |  |         | —      |    |  |   | (111,643     | )  |
| **Netcash provided by financingactivities**                                             |  |         | 2,287,769    |          |  |         | 2,307,310    |    |  |   | 3,577,067    |    |
| **Netincrease (decrease) in cash and cashequivalents**                                  |  |         | 2,720,363    |          |  |         | 207,063      |    |  |   | (3,228,853   | )  |
| **Cashand cash equivalents, beginning ofyear**                                          |  |         | 1,003,137    |          |  |         | 796,074      |    |  |   | 4,024,927    |    |
| **Cashand cash equivalents, end ofyear**                                                |  | $            | 3,723,500    |          |  | $            | 1,003,137    |    |  | $      | 796,074      |    |
|                                                                                         |

Seeaccompanying notes to consolidated financialstatements.

F-9

----

TheMajor Automotive Companies,Inc.

ConsolidatedStatements of CashFlows

|  |
|--|
|  |  |
|  |

|                                                         |  |        |           |        |  |        |           |        |  |        |            |         |  |  |
|---------------------------------------------------------|--|--------|-----------|--------|--|--------|-----------|--------|--|--------|------------|---------|--|--|
| YearsendedDecember 31,                             |  | 2004   |           | 2003   |  | 2002   |
| **Supplemental disclosures of cash flowinformation:**   |  |   |      |   |  |   |      |   |  |   |       |    |
| Cashpaid during the yearfor:                            |  |   |      |   |  |   |      |   |  |   |       |    |
| Interest                                                |  | $      | 2,447,233 |   |  | $      | 2,643,773 |   |  | $      | 2,011,288  |    |
| Incometaxes                                             |  |   | 77,000    |   |  |   | 123,967   |   |  |   | 52,000     |    |
| Noncashfinancingactivities:                             |  |   |      |   |  |   |      |   |  |   |       |    |
| Commonstock issued as stockcompensation                 |  |   | 14,220    |   |  |   | 13,321    |   |  |   | 12,002     |    |
| Acquisitionof treasury stock in settlement oflitigation |  |   | 351,388   |   |  |   | —   |   |  |   | —    |    |
| Commonstock issued for settlement oflitigation          |  |   | —   |   |  |   | 40,000    |   |  |   | 162,000    |    |
| Capitalleaseobligations                                 |  |   | —   |   |  |   | —   |   |  |   | (3,000,000 | )  |
|                                                         |

Seeaccompanying notes to consolidated financialstatements.

F-10

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|        |                                                                      |  |     |                   |
|--------|----------------------------------------------------------------------|--|-----|-------------------|
| **1.** | **Natureof Business and Summary of Significant Accounting Policies** |  | (a) | Nature ofBusiness |
|        |                                                                      |  |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheMajor Automotive Companies, Inc. (the “Company”) wasincorporated under the laws of the State of Nevada onNovember 7, 1995. The Company’s business is the operationand consolidation of retail automotive dealerships. The Company sellsnew and used vehicles through six retail automobile franchises in fiveshowrooms in three locations. The Company’s leasing operationsconsist of providing leases and otherfinancing. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|  |  |     |                           |
|--|--|-----|---------------------------|
|  |  | (b) | PrinciplesofConsolidation |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Theaccompanying consolidated financial statements include the accounts ofThe Major Automotive Companies, Inc. and its wholly-owned subsidiaries,each of which is engaged in the sales and leasing of new and usedvehicles. All significant intercompany accounts, transactions andprofits have beeneliminated. |
|  |  |                                                                                                                                                                                                                                                                                                                |

|  |  |     |                         |
|--|--|-----|-------------------------|
|  |  | (c) | Earnings(Loss) perShare |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany has presented basic and diluted earnings (loss) per share,where applicable. Basic earnings (loss) per share excludes potentialdilution and is calculated by dividing income (loss) available tocommon stockholders by the weighted average number of outstandingcommon shares. Diluted earnings per share incorporates, in periods inwhich they have a dilutive effect, the potential dilutions from allpotential dilutive securities that would have reduced earnings pershare. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|  |  |                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Thereis no effect given to dilution for the years ended December31,  2004, 2003 and 2002, because potential common shares of9,517, 411,413 and 385,163, respectively, related to theCompany’s outstanding stock options and warrants were excludedfrom the computation of diluted net loss per shares because theireffect on net loss per share isanti-dilutive. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                        |

|  |  |     |                                          |
|--|--|-----|------------------------------------------|
|  |  | (d) | CashEquivalents and Short-termInvestment |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Cashequivalents consist of highly liquid investments, principally moneymarket accounts with a maturity of three months or less at the time ofpurchase. Cash equivalents are stated at cost, which approximatesmarket value. At December  31,  2004 and 2003, the Companyhad an investment in a certificate of deposit with a financialinstitution. The amount shown at the balance sheet date is at the fairvalue of the investment, which approximates itscost. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|  |  |     |                    |
|--|--|-----|--------------------|
|  |  | (e) | AccountsReceivable |
|  |  |     |

|  |  |                                                                                                                    |
|--|--|--------------------------------------------------------------------------------------------------------------------|
|  |  | Accountsreceivable consist primarily of amounts due from fleet salesmanufacturers for repair services performed on |
|  |  |                                                                                                                    |

F-11

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | vehicles with a remaining factory warranty,third parties from the sale of parts and contracts in transit.Contracts in transit represent customer finance contracts evidencingloan agreements or lease agreements between the Company, as creditor,and the customer, as borrower, to acquire or lease a vehicle insituations where a third-party finance source has given the Companyinitial, non-binding approval to assume the Company’s positionas creditor. Funding and final approval from the finance source isprovided upon the finance source’s review of the loan or leaseagreement and related documentation executed by the customer at thedealership. These finance contracts are typically funded within tendays of the initial approval of the finance transaction given by thethird-party finance source. The finance source is not contractuallyobligated to make the loan or lease to the customer until it gives itsfinal approval and funds the transaction, and until such final approvalis given, the contracts in transit represent amounts due from thecustomer to the Company. Contracts in transit are included in accountsreceivable on the accompanying consolidated balance sheets and totaled$5.9  million and $6.7  million at December31,  2004 and December  31,  2003 respectively.Management believes that there is minimal risk of uncollectibility onwarranty receivables. The Company evaluates fleet sales, parts andother receivables for collectibility based on the age of thereceivable, the credit history of the customer and past collectionexperience. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|  |  |     |             |
|--|--|-----|-------------|
|  |  | (f) | Inventories |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                           |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Newand used vehicle inventories are valued at the lower of cost or market,with cost determined on a specific identification basis. Parts andaccessories inventories are also valued at the lower of cost or market,with cost determined on the first-in, first-outmethod. |
|  |  |                                                                                                                                                                                                                                                                           |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany assesses the valuation of all of its vehicle and partsinventories and maintains a reserve where the cost basis exceeds thefair market value. In making this assessment for new vehicles, theCompany primarily considers the age of the vehicles along with thetiming of annual and model changeovers. For used vehicles, the Companyconsiders recent market data and trends such as loss histories alongwith the current age of the inventory. Parts inventories are primarilyassessed considering excess quantity and continued usefulness of thepart. The risk with parts inventories is minimized by the fact thatexcess or obsolete parts can generally be returned to themanufacturer. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

F-12

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |     |                      |
|--|--|-----|----------------------|
|  |  | (g) | PropertyandEquipment |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Propertyand equipment are recorded at cost. Depreciation and amortization ofproperty and equipment are computed using the straight-line method overthe estimated useful lives of the assets, ranging from three to twentyyears. Maintenance and repairs are charged to operations as incurred.When property and equipment are sold or otherwise disposed of, theasset cost and accumulated depreciation are removed from the accounts,and the resulting gain or loss, if any, is included in the results ofoperations. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|  |  |     |                    |
|--|--|-----|--------------------|
|  |  | (h) | RevenueRecognition |
|  |  |     |

|  |  |                                                                                                                                         |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany records revenue when vehicles are delivered to customers, whenvehicle service work is performed and when parts aredelivered. |
|  |  |                                                                                                                                         |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany arranges financing for customers through various financialinstitutions and receives a commission from the lender equal to thedifference between the interest rates charged to customers over thepredetermined interest rates set by the financing institution. TheCompany may be assessed a chargeback fee in the event of earlycancellation of a loan by the customer. Finance commission revenue isrecorded net of estimated chargebacks at the time the related contractis placed with the financialinstitution. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany also receives commissions from the sale of non-recourse thirdparty extended service contracts to customers. Under these contractsthe applicable manufacturer or third party warranty company is directlyliable for all warranties provided within the contract. Commissionrevenue from the sale of these third party extended service contractsis recorded net of estimated chargebacks at the time ofsale. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                        |

|  |  |     |                                 |
|--|--|-----|---------------------------------|
|  |  | (i) | OtherComprehensive Income(Loss) |
|  |  |     |

|  |  |                                                      |
|--|--|------------------------------------------------------|
|  |  | TheCompany has no other comprehensive income orloss. |
|  |  |                                                      |

|  |  |     |                                                       |
|--|--|-----|-------------------------------------------------------|
|  |  | (j) | Useof Estimates in Preparation of FinancialStatements |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Thepreparation of financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosures of contingent assetsand liabilities as of the date of the financial statements and thereported amounts of income and expenses during the reporting periods.Operating results in the future could vary from the amounts derivedfrom management’s estimates andassumptions. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

F-13

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |     |          |
|--|--|-----|----------|
|  |  | (k) | Goodwill |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | EffectiveJuly 1, 2001, the Company adopted the provisions of Statement ofFinancial Accounting Standards (‘‘SFAS’’)No. 141, ‘‘Business Combinations.’’Among other provisions, SFAS No. 141 provides guidance regardingthe recognition and measurement of goodwill and other acquiredintangible assets. For acquisitions after July 1, 2001, theprovisions of SFAS No. 141 require separate recognition ofintangible assets acquired if the benefit of the asset is obtainedthrough contractual or other legal rights, or if the asset can be sold,transferred, licensed, rented, or exchanged. Goodwill is recognized tothe extent that the purchase price of the acquisition exceeds theestimated fair value of the net assets acquired, including otheridentifiable intangibleassets. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | EffectiveJanuary 1, 2002, the Company also adopted the provisions of SFASNo. 142, ‘‘Goodwill and Other IntangibleAssets.’’ Among other things, SFAS No. 142 nolonger permits the amortization of goodwill or intangible assets withindefinite lives, but requires that the carrying amount of such assetsbe reviewed for impairment and reduced against operations if they arefound to be impaired. Prior to the adoption of SFAS No. 142,goodwill and intangible assets acquired prior to July 1, 2001were amortized over various periods up to 40 years. EffectiveJanuary 1, 2002, such amortizationceased. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Withthe assistance of an independent appraisal firm, the Company completedthe impairment tests required by SFAS No. 142 for the excess of costsover net assets acquired (‘‘goodwill’’). Inorder to evaluate goodwill for impairment, the Company compared thecarrying value to the fair value of the underlying businesses. For thispurpose, the Company has one reporting unit and one reporting segment.The valuation methods used to determine the amount of goodwillimpairment included the discounted cash flows of future projectedoperating income, various extrapolations based on results and values ofcomparable companies and on a calculation of the Company’smarket capitalization. The results of these valuation methods indicatedan impairment of goodwill, inasmuch as the recorded value of theCompany’s net assets (book value) was in excess of itscalculated fair value at December  31,  2004. In recordingthe amount of a goodwill write-down, SFAS No. 142 requires anallocation of the estimated fair value to the Company’s netassets. This allocation resulted in a significant increase in the valueof certain of the Company’s assets, including tradename,favorable leases and customer relationships, which, under theprovisions of SFAS No. 142, may not be written up from their historicalcarrying values. Since the |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

F-14

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | allocation process uses the value of thoseassets in arriving at the remaining amount of goodwill to be comparedwith the historical carrying value of the goodwill, the amount of thegoodwill impairment is increased. As a result, the Company recorded an$8,116,000 non-cash charge for the impairment of goodwill to itsestimated fair value during the fourth quarter of 2004. The goodwillimpairment deductibility for tax purposes is approximately $2,500,000.The tax benefit of such deduction would be approximately $1,100,000.However, the Company recorded a valuation allowance equal to the amountof this potential future benefit. The Company will continue to testgoodwill for impairment annually, or more frequently if events orcircumstances indicate possible impairment. As of December31,  2004 and 2003, the carrying amount of goodwill was$5,260,000 and $13,589,000,respectively. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

|  |  |     |                  |
|--|--|-----|------------------|
|  |  | (l) | Long-livedAssets |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Long-livedassets, such as ongoing client relationships and property andequipment, are evaluated for impairment when events or changes incircumstances indicate that the carrying amount of the assets may notbe recoverable through the estimated undiscounted future cash flowresulting from the use of these assets. When any such impairmentexists, the related assets will be written down to fairvalue. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                              |

|  |  |     |                      |
|--|--|-----|----------------------|
|  |  | (m) | FairValueDisclosures |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                            |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Thecarrying amounts reported in the consolidated balance sheet for cashand cash equivalents, short-term investments, notes and accountsreceivable, inventories, accounts payable, and notes payable —floor plan approximate fair value because of the immediate orshort-term maturity of these financialinstruments. |
|  |  |                                                                                                                                                                                                                                                                                                                            |

|  |  |                                                                                                            |
|--|--|------------------------------------------------------------------------------------------------------------|
|  |  | Thefair value of long-term debt is estimated based on current ratesoffered to the Company for similardebt. |
|  |  |                                                                                                            |

|  |  |     |             |
|--|--|-----|-------------|
|  |  | (n) | IncomeTaxes |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Theprovision for income taxes is computed on the pretax income (loss)based on the current tax law. Deferred income taxes are recognized forthe tax consequences in future years of differences between the taxbases of assets and liabilities and their financial reporting amountsat each year-end based on enacted tax laws and statutory tax rates.Valuation allowances are recorded when recoverability of the deferredtax asset is in doubt. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

F-15

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |     |                         |
|--|--|-----|-------------------------|
|  |  | (o) | Stock-BasedCompensation |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InDecember  2002, the Financial Accounting Standards Board(‘‘FASB’’) issued SFAS No. 148,‘‘Accounting for Stock-Based Compensation —Transition and Disclosure’’. SFAS No. 148 amendsStatement of Financial Accounting Standards No. 123,‘‘Accounting for Stock-BasedCompensation,’’ to provide alternate methods oftransition for companies electing to voluntarily change to the fairvalue method of accounting for stock-based compensation and also amendsthe disclosure provisions of SFAS No. 123. The provisions ofSFAS No. 148 are effective for fiscal years endingDecember 15, 2002. The Company has adopted the disclosureprovisions of SFAS No. 148 and No123. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany accounts for its stock option rewards to employees under theintrinsic value based method of accounting prescribed by the AccountingPrinciples Board (‘‘APB’’) OpinionNo. 25, ‘‘Accounting for Stock Issued toEmployees’’, and related interpretations. In accordancewith those provisions, because the exercise price of all optionsgranted under those plans equaled the market value of the underlyingstock at the grant date, no stock-based employee compensation cost isrecorded. Using the Black-Scholes option pricing model for all optionsgranted, the following table illustrates the effect on net loss andloss per share if the Company had applied the fair value recognitionprovisions of SFAS No 123, ‘‘Accounting forStock-Based Compensation, to stock-based employeecompensation: |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|                                               |
|-----------------------------------------------|
|                                               |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| YearendedDecember 31,                    |  | 2004 |  | 2003 |  | 2002 |
| Reported netloss                              |  | $ | (6,837,962 | )  |  | $ | (1,130,264 | )  |  | $ | (290,772 | )  |
| Deduct:  Fairvalue compensationcost |  |   | (11,900 | )  |  |   | (18,000 | )  |  |   | (174,624 | )  |
| Proforma netloss                              |  | $ | (6,849,862 | )  |  | $ | (1,148,264 | )  |  | $ | (465,396 | )  |
| Basicand diluted net loss pershare:           |  |   |   |   |  |   |   |   |  |   |   |   |
| Reportednetloss                               |  | $ | (.72 | )  |  | $ | (.12 | )  |  | $ | (.03 | )  |
| Proforma netloss                              |  |   | (.72 | )  |  |   | (.12 | )  |  |   | (.05 | )  |
|                                               |

|  |  |                                                                                                                                                                                                                                                                                                                |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Theweighted average fair value of options granted or assumed was $.70,$.68 and $1.13 per share in 2004, 2003 and 2002, respectively. The fairvalue of each option granted during 2004, 2003 and 2002 was estimatedusing the Black-Scholes option-pricing model with the followingweighted average assumptions: |
|  |  |                                                                                                                                                                                                                                                                                                                |

F-16

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|                       |
|-----------------------|
|                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|                  |  | 2004 |  | 2003 |  | 2002 |
| Dividendyield         |  |   | 0 | %  |  |   | 0 | %  |  |   | 0 | %  |
| Riskfree interestrate |  |   | 4.5 |   |  |   | 4.0 |   |  |   | 4.0 |   |
| Expectedlives         |  | 10years |  | 10 years |  | 10years |
| Volatility            |  |   | 91.1 | %  |  |   | 104 | %  |  |   | 104 | %  |
|                       |

|  |  |     |                                              |
|--|--|-----|----------------------------------------------|
|  |  | (p) | Effectof Recently Issued AccountingStandards |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InJanuary  2003, the FASB issued FIN 46,‘‘Consolidation of Variable Interest Entities, anInterpretation of APB No. 50.’’ FIN 46requires the consolidation of certain variable interest entities by theprimary beneficiary if the equity investors do not have a controllingfinancial interest or sufficient equity at risk to finance theentities’ activities without additional subordinated financialsupport of other parties. The provisions of FIN 46 are effectivefor all variable interest entities created or acquired after January31,2003. For variable interest entities created or acquired prior to thatdate, the provisions of FIN 46 must be applied for the firstinterim or annual period beginning after June 15, 2003. Theadoption of FIN 46 had no impact on the Company’sconsolidated results of operations, financial position or cashflows. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InNovember  2003, the EITF reached a consensus on EITF Issue No.03-10, ‘‘Application of Issue No. 02-16 to Resellers toSales Incentives Offered to Consumers by Manufacturers.’’EITF Issue 03-10 provides guidance on how to account for salesincentive arrangements provided by manufacturers directly to consumersand accepted by resellers. The provisions of EITF Issue 03-10 apply tofiscal years beginning after November  25,  2003. Theadoption of EITF Issue 03-10 did not have a material impact on theCompany’s financialstatements. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InDecember  2004, the FASB issued SFAS No. 153,‘‘Exchanges of Nonmonetary Assets’’(SFAS 153) which amends Accounting Principles Board OpinionNo. 29, ‘‘Accounting for Nonmonetary Transactions(APB 29). SFAS 153 amends APB 29 to eliminate thefair-value exception for nonmonetary exchanges of similar productiveassets and replace it with a general exception for nonmonetaryexchanges that do not have commercial substance. It is effective fornonmonetary asset exchanges occurring in fiscal periods beginning afterJune 15, 2005. This statement is not anticipated to have amaterial impact on the Company’s financial position or resultsofoperations. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|  |  |                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InDecember  2004, the FASB issued SFAS No. 123(R),‘‘Share-Based Payment’’(SFAS 123(R)) which establishes accounting standards for alltransactions in which an entity |
|  |  |                                                                                                                                                                                                        |

F-17

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | exchanges its equity instruments for goodsand services. SFAS 123(R) revises SFAS No. 123,‘‘Accounting for Stock-BasedCompensation’’, supersedes Accounting Principles BoardOpinion No. 25, ‘‘Accounting for Stock Issued toEmployees’’ and amends Financial Accounting StandardNo. 95, ‘‘Statement of Cash Flows’’.SFAS No. 123(R) generally requires companies to measure the cost ofemployee services received in exchange for an award of equityinstruments based on the fair value of the award on the date of thegrant. The standard requires the fair value on the grant date to beestimated using either an option-pricing model, which is consistentwith the terms of the award or a market observed price, if such a priceexists. The resulting cost must be recognized over the period duringwhich an employee is required to provide service in exchange for theaward, which is usually the vesting period. SFAS 123(R) must beadopted no later than periods beginning after June 15, 2005 andthe Company expects to adopt SFAS 123(R) on the effective date.The Company expects that the adoption of SFAS 123(R) will nothave a material impact on its net income and earnings pershare. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|  |  |     |                                     |
|--|--|-----|-------------------------------------|
|  |  | (q) | FloorPlan and AdvertisingAssistance |
|  |  |     |

|  |  |                                                                                                                                                                                                                                                         |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Floorplan and advertising assistance received from manufacturers arerecorded as offsets to the cost of the vehicle and recognized as incomeupon the sale of the vehicle or when earned under a specificmanufacturer’s program, whichever islater. |
|  |  |                                                                                                                                                                                                                                                         |

|  |  |                                                                                                                                                                         |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Forthe years ended December  31,  2004, 2003 and 2002,aggregate floor plan assistance included in cost of sales was$1,800,257, $1,195,534, and $1,294,109,respectively. |
|  |  |                                                                                                                                                                         |

|  |  |                                                                                                                                                                                     |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Advertisingassistance received from manufacturers for the years endedDecember  31,  2004, 2003 and 2002, included in cost ofsales was $944,383, $723,111 and $714,216,respectively. |
|  |  |                                                                                                                                                                                     |

|  |  |                                                                                                                                                                                                             |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Advertisingcosts, which are charged to expense as incurred, for the years endedDecember  31,  2004, 2003 and 2002, included in operatingexpense were $11,761,463, $15,768,832 and $14,453,062,respectively. |
|  |  |                                                                                                                                                                                                             |

|  |  |     |                   |
|--|--|-----|-------------------|
|  |  | (r) | Reclassifications |
|  |  |     |

|  |  |                                                                                                            |
|--|--|------------------------------------------------------------------------------------------------------------|
|  |  | Certainreclassifications were made to the prior years to conform with thecurrent year’spresentation. |
|  |  |                                                                                                            |

|  |  |     |                    |
|--|--|-----|--------------------|
|  |  | (s) | SegmentInformation |
|  |  |     |

|  |  |                                                                                                                           |
|--|--|---------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany sells similar products and services (new and used vehicles,parts, service and collision repair services), uses |
|  |  |                                                                                                                           |

F-18

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                             |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | similar processes in selling products andservices, and sells its products and services to similar classes ofcustomers. As a result of this and the way the Company manages itsbusiness, the Company has aggregated its results into a single segmentfor purposes of reporting financial condition and results ofoperations. |
|  |  |                                                                                                                                                                                                                                                                                                                             |

F-19

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|        |                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **2.** | **Note Receivable Officer/Stockholder** |  | The Companyheld a note from one officer/stockholder in the amount of $1,395,358 atDecember  31,  2004 and 2003. The balance on this note hasremained unchanged since prior to 2002. The note is non-interestbearing and is classified as long term. This note arose from a seriesof advances to the officer/stockholder. The Company has aggregateemployment and related liabilities to this individual thatsubstantially offset the amount due from him. It is, however, theCompany’s intent to obtain repayment of thisnote. |
|        |                                         |  |

|        |                                             |  |                                                                          |
|--------|---------------------------------------------|--|--------------------------------------------------------------------------|
| **3.** | **NetInvestment in Direct FinancingLeases** |  | Components of thenet investment in direct financing leases is asfollows: |
|        |                                             |  |

|                                                                 |
|-----------------------------------------------------------------|
|                                                                 |  |  |  |  |  |  |  |  |  |  |
| December 31,                                               |  | 2004 |  | 2003 |
| Totalminimum lease payments to bereceived                       |  | $ | 473,252 |   |  | $ | 244,829 |   |
| Estimatedresidual value of leasedproperty                       |  |   | 103,251 |   |  |   | 71,750 |   |
| Unearnedincome                                                  |  |   | (109,929 | )  |  |   | (40,495 | )  |
|                                                            |  |   | 466,574 |   |  |   | 276,084 |   |
| Less:  Currentportion                                 |  |   | (181,079 | )  |  |   | (213,311 | )  |
| Netinvestment in direct financing leases, net of currentportion |  | $ | 285,495 |   |  | $ | 62,773 |   |
|                                                                 |

|  |  |                                                                              |
|--|--|------------------------------------------------------------------------------|
|  |  | Futureminimum lease payments receivable at December  31,  2004are asfollows: |
|  |  |                                                                              |

|                              |
|------------------------------|
|                              |  |  |  |  |  |  |
| Yearending December 31, |  | Amount |
| 2005                         |  | $ | 195,055 |   |
| 2006                         |  |   | 158,526 |   |
| 2007                         |  |   | 119,671 |   |
| Total                        |  | $ | 473,252 |   |
|                              |

|        |                 |  |                                     |
|--------|-----------------|--|-------------------------------------|
| **4.** | **Inventories** |  | Inventoriesconsist of thefollowing: |
|        |                 |  |

|                           |
|---------------------------|
|                           |  |  |  |  |  |  |  |  |  |  |
| December 31,         |  | 2004 |  | 2003 |
| Newautomobiles            |  | $ | 16,187,727 |   |  | $ | 16,339,679 |   |
| Newtrucks andvans         |  |   | 14,583,590 |   |  |   | 15,785,288 |   |
| Usedautomobiles andtrucks |  |   | 21,547,355 |   |  |   | 16,618,207 |   |
| Partsandaccessories       |  |   | 1,348,715 |   |  |   | 1,473,761 |   |
| Other                     |  |   | 52,457 |   |  |   | 41,020 |   |
|                      |  | $ | 53,719,844 |   |  | $ | 50,257,955 |   |
|                           |

|  |  |                                                                                                                                        |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Aggregatereserves included in the inventories were $647,000 and $720,000 for theyears ended December  31,  2004 and 2003,respectively. |
|  |  |                                                                                                                                        |

F-20

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|        |                           |  |                                                  |
|--------|---------------------------|--|--------------------------------------------------|
| **5.** | **Propertyand Equipment** |  | Property and equipment consists of thefollowing: |
|        |                           |  |

|                                                          |
|----------------------------------------------------------|
|                                                          |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| December 31,                                        |  | 2004 |  | 2003 |  | Estimateduseful lives |
| Land                                                     |  | $ | 2,400,000 |   |  | $ | 2,400,000 |   |  | — |
| Building                                                 |  |   | 1,000,000 |   |  |   | 1,000,000 |   |  | 20years |
| Leaseholdimprovements                                    |  |   | 1,646,585 |   |  |   | 1,505,485 |   |  | 15years |
| Furniture andfixtures                                    |  |   | 1,170,243 |   |  |   | 1,130,984 |   |  | 3-7years |
| Equipment                                                |  |   | 1,775,210 |   |  |   | 1,441,160 |   |  | 3-7years |
|                                                     |  |   | 7,992,045 |   |  |   | 7,477,629 |   |  |   |
| Less:  Accumulateddepreciation andamortization |  |   | (2,964,021 | )  |  |   | (2,578,570 | )  |  |   |
|                                                     |  | $ | 5,028,024 |   |  | $ | 4,899,059 |   |  |   |
|                                                          |

|  |  |                                                                                                                             |
|--|--|-----------------------------------------------------------------------------------------------------------------------------|
|  |  | Depreciation expense was $424,773, $362,405and $397,947 for the years ended December  31,  2004, 2003and 2002,respectively. |
|  |  |                                                                                                                             |

|        |                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-----------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **6.** | **IncomeTaxes** |  | The Company accounts for income taxesusing the asset and liability method whereby deferred assets andliabilities are recorded for differences between the book and taxcarrying amounts of balance sheet items. Deferred liabilities or assetsat the end of each period are determined using the tax rate expected tobe in effect when the taxes are actually paid or recovered. Themeasurement of deferred tax assets is reduced, if necessary, by avaluation allowance for any tax benefits that are not expected to berealized. The effects of changes in tax rates and laws on deferred taxassets and liabilities are reflected in net income in the period inwhich such changes are enacted. |
|        |                 |  |

|  |  |                                                                                                                                                     |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The provision(benefit) for taxes on income, including amounts relating to the lossfrom discontinued operations of $(138,000) in 2002, is asfollows: |
|  |  |                                                                                                                                                     |

|                            |
|----------------------------|
|                            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| YearendedDecember 31, |  | 2004 |  | 2003 |  | 2002 |
| Federal:                   |  |   |   |   |  |   |   |   |  |   |   |   |
| Current                    |  | $ | 25,000 |   |  | $ | — |   |  | $ | — |   |
| Deferred                   |  |   | 116,000 |   |  |   | — |   |  |   | — |   |
| State:                     |  |   |   |   |  |   |   |   |  |   |   |   |
| Current                    |  |   | 88,000 |   |  |   | 82,000 |   |  |   | 52,000 |   |
| Deferred                   |  |   | — |   |  |   | — |   |  |   | — |   |
| Total                      |  | $ | 229,000 |   |  | $ | 82,000 |   |  | $ | 52,000 |   |
|                            |

F-21

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                             |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Thereconciliation between the amount computed by applying the Federalstatutory rate to loss from continuing and discontinued operationsbefore income taxes and the actual income tax expense was asfollows: |
|  |  |                                                                                                                                                                                                             |

|                                                        |
|--------------------------------------------------------|
|                                                        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| YearendedDecember 31,                             |  | 2004 |  | 2003 |  | 2002 |
| Amountusing the statutory Federal taxrate              |  | $ | (2,247,000 | )  |  | $ | (356,000 | )  |  | $ | (81,000 | )  |
| Stateand local income taxes, net of Federal taxbenefit |  |   | 58,000 |   |  |   | 54,000 |   |  |   | 34,000 |   |
| Non-deductiblewrite-off ofgoodwill                     |  |   | 1,925,000 |   |  |   | — |   |  |   | — |   |
| Changein valuation allowance on deferred taxasset      |  |   | 954,000 |   |  |   | 410,000 |   |  |   | 96,000 |   |
| Taxbenefit of net operating losscarryforward           |  |   | (434,000 | )  |  |   | — |   |  |   | — |   |
| Other,net                                              |  |   | 27,000 |   |  |   | (26,000 | )  |  |   | 3,000 |   |
| Provisionfor taxes onincome                            |  | $ | 229,000 |   |  | $ | 82,000 |   |  | $ | 52,000 |   |
|                                                        |

|  |  |                                                              |
|--|--|--------------------------------------------------------------|
|  |  | Thecomponents of the net deferred tax assets were asfollows: |
|  |  |                                                              |

|                                                |
|------------------------------------------------|
|                                                |  |  |  |  |  |  |  |  |  |  |
|                                           |  | 2004 |  | 2003 |
| Deferredassets:                                |  |   |   |   |  |   |   |   |
| Net operating losscarryforwards                |  | $ | 492,000 |   |  | $ | 910,000 |   |
| Reservesand accruals not deductible until paid |  |   | 1,786,000 |   |  |   | 1,791,000 |   |
| Capital losscarryforward                       |  |   | 547,000 |   |  |   | 517,000 |   |
| Goodwill                                       |  |   | 1,064,000 |   |  |   | (244,000 | )  |
| Other                                          |  |   | 254,000 |   |  |   | 331,000 |   |
| Less:  Valuationallowance            |  |   | (2,683,000 | )  |  |   | (1,729,000 | )  |
| Totaldeferred taxassets                        |  | $ | 1,460,000 |   |  | $ | 1,576,000 |   |
|                                                |

|  |  |                                                                                                                                                                                                                                                                                                                                                                       |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | AtDecember 31, 2004, the Company had available net operating losscarryforwards primarily related to continuing operations ofapproximately $0.7 million, which begin to expire in the year 2020. TheCompany believes that valuation allowances to offset portions ofdeferred tax assets are necessary since the realization of suchdeferred tax assets is not assured. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                       |

|        |                                                         |  |                        |
|--------|---------------------------------------------------------|--|------------------------|
| **7.** | **Secured Lines of Credit and Floor PlanNotes Payable** |  | Secured Lines ofCredit |
|        |                                                         |  |

|  |  |                                                                                                                                                                                                                               |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company has two lines of credit(“Lines”) with a bank for a total availability of$3,000,000. The interest rate is a variable rate based on thebank’s prime rate of interest. Interest is payablemonthly. |
|  |  |                                                                                                                                                                                                                               |

|  |  |                                                                                                                                                                                                   |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Lines are collateralized by a firstsecurity interest in all assets of The Major Automotive Companies, Inc.and the personal guarantees of Bruce Bendell, the Company’sPresident, CEO and |
|  |  |                                                                                                                                                                                                   |

F-22

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                         |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Acting Chief Financial Officer, and hisbrother, Harold Bendell, each of whom will be limited to 50% ofthe total obligation to the bank. |
|  |  |                                                                                                                                         |

|  |  |                                                                                                                              |
|--|--|------------------------------------------------------------------------------------------------------------------------------|
|  |  | As of December31, 2004 and 2003, there was no outstanding balance on the Lines whichare renewable annually at December 31st. |
|  |  |                                                                                                                              |

|  |  |                         |
|--|--|-------------------------|
|  |  | Floor PlanNotes Payable |
|  |  |                         |

|  |  |                                                                                                                                                                                                                                                                                                                          |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company finances the majorityof its inventory primarily through secured revolving floor planfinancing arrangements with various lenders. The Company makes monthlyinterest payments on the amount financed, but is required to make loanprincipal repayments following the sale of the related new and usedvehicles. |
|  |  |                                                                                                                                                                                                                                                                                                                          |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In September 2001, Chrysler FinancialCompany, LLC (“CFC”), one of the Company’s primaryfloor plan credit sources for approximately $30 million for thefinancing of vehicle inventory, notified the Company that CFC had reevaluated its credit and lending relationship with the Company and wasrequiring the Company to seek a replacement lending institution torefinance and replace all existing CFC credit facilities. Consequently,in March 2002, the Company entered into a floor plan financingarrangement with General Motors Acceptance Corporation(“GMAC”) for GMAC to provide the floor plan credit forthe financing of the Company’s Chevrolet dealership’s newand used vehicle inventory. This is the flagship dealership of theCompany’s operations and accounted for more than 40% ofthe Company’s new vehicle revenues and more than 80% ofthe Company’s consolidated used vehicle revenues in the year2004. Additionally, in March 2002, the Company entered into a creditagreement with HSBC Bank, USA (“HSBC”) pursuant to whichHSBC is providing the floor plan credit for the financing of theCompany’s Chrysler, Jeep, Dodge and Kia dealerships’ newand used vehicle inventory. As a result of the GMAC and HSBC creditfacilities, the Company completed the replacement of financing for allthe dealerships that were previously financed byCFC. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

|  |  |                                                                                                                                                                                                                                                                                                                       |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In May 2002, the Company entered into anagreement with Nissan Motor Acceptance Corporation(“NMAC”) pursuant to which NMAC replaced the thenexisting floor plan credit for the financing of the Company’sNissan dealership’s new and used vehicle inventory up to anaggregate of $8.5 million. |
|  |  |                                                                                                                                                                                                                                                                                                                       |

|  |  |                                                                                                                                                                                                                                                                                                                                  |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In January2003, the Company entered into an agreement with Primus FinancialServices, Inc. (“Primus”) pursuant to which Primusreplaced the then existing floor plan credit for the financing of theCompany’s Compass Dodge dealership’s new and used vehicleinventory up to an aggregate of $1.5 million. |
|  |  |                                                                                                                                                                                                                                                                                                                                  |

F-23

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                       |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Management believesthat the terms of each of these new floor plan lines, includinginterest rates, are more favorable than those of each of the lines theyreplaced. Bruce Bendell has agreed, temporarily, to guarantee theseobligations. The Company has agreed to compensate Mr. Bendellfor the fair market value of such credit enhancement (seeNote 12). |
|  |  |                                                                                                                                                                                                                                                                                                                                                                       |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company finances thepurchases of a portion of its new vehicle inventories through floorplan borrowings from certain lenders which are affiliated with theautomotive manufacturers from which it buys its new vehicles. Balancesdue to these lenders are classified as “floor plan notes payableto trade creditors.” At December 31, 2004 and 2003, outstandingfloor plan borrowings due to trade creditors was approximately $21.6million and $22.1 million, respectively. The balance of theCompany’s new vehicle inventory and its used vehicle inventoryis financed through floor plan borrowings through lenders who are notaffiliated with the vendors of such inventory. Balances due to theselenders are classified as “floor plan notes payable to non-tradecreditors.” At December 31, 2004 and 2003, outstanding floorplan borrowings due to trade creditors was approximately $29.8 millionand $27.5 million, respectively. The Company has restated its BalanceSheets and Statements of Cash Flows in this Annual Report on Form10-K/A for the year ended December 31, 2004. The restatement of theBalance Sheets is to disaggregate the floor plan notes payable intotrade and non-trade components, where it had previously been presentedas a single line item, consistent with industry practice. TheStatements of Cash Flow reclassification is the non-trade component offloor plan notes payable as a financing activity, where it hadpreviously been presented as an operating activity. Thisreclassification is being made to comply with guidance under SFAS 95,“Statement of Cash Flows,” which states that payments tosuppliers should be classified as an operatingactivity. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The floor plan arrangementsgrant a security interest in the vehicles financed as well as therelated sales proceeds. Interest rates on the floor plan agreements arevariable and increase or decrease based on movement in LIBOR or primeborrowing rates. Floor plan interest for the years ended December 31,2004, 2003 and 2002, previously included as a component of operatingexpenses and now classified in interest expense was $1,992,244,$2,187,296 and $1,695,960, respectively. Interest rates in effect inthe year 2004 ranged between 3.5% and 6.75%. At December31, 2004, committed capacity of the facilities was approximately$52 million. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

F-24

----

TheMajor Automotive Companies,Inc.                Notesto Consolidated FinancialStatements        

__________________________________________________________________________________

|                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-------------------------------------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **8.**    **Long-termDebt** |  | One lender has advanced funds tothe Company’s leasing subsidiary in the form of notes payable tofinance leased vehicles. Interest on each note is charged depending onthe prime rate in effect at the time the vehicle is leased and remainsconstant over the term of the lease. Applicable rates atDecember  31,  2004 ranged between 4.0% and5.25%. Equal monthly installments are paid over the term of thelease (which range from 12 to 60 months), together with a final balloonpayment, if applicable. These loans are collateralized by thevehicles. |
|                                                 |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

|  |  |                                                                                                                                                                                                                                                                                                    |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On May 14, 1998, theCompany borrowed $7.5 million from Falcon Financial, LLC (anunrelated party) to finance the Major Auto Acquisition (seeNote 9). The term of the loan is for fifteen years with interestat 10.18%. Payments of principal and interest of $81,423 are duemonthly. |
|  |  |                                                                                                                                                                                                                                                                                                    |

|  |  |                                                                                                                                                                                                                                                                                                   |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Pursuant to a separation andrelease agreement dated August  8,  2000 with its formerpresident, the Company incurred a liability requiring periodic paymentsthat aggregated $662,000. The $29,167 balance outstanding atDecember  31,  2004 will be fully paid during2005.     |
|  |  |                                                                                                                                                                                                                                                                                                   |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | OnDecember 11, 2000 the Company issued to M&K Equities, Ltd.(‘‘M&K’’), an affiliate of a directorof the Company, a senior subordinated promissory note in the principalamount of $2,000,000 in exchange for a $2,000,000 loan from M&K.The terms of the note required payment of the $2,000,000 principal onDecember 11, 2002. The date of such repayment has been extendedto January 2, 2006. In 2003 and 2002 the Company made principalpayments of $600,000 and $130,000, respectively, towards this note,leaving a balance at December  31,  2004 of $1,270,000. Thenote requires monthly interest payments at a rate of 10% perannum. In order to induce M&K to make the loan, the Company grantedto M&K a lien on, and a security interest in, all of itsnon-technology assets, subject to prior senior liens. The director alsoreceived options under the 1999 Employee Stock Option Plan to purchase50,000 shares of the Company’s common stock at an exercise priceof $2.35 per share. The fair value ascribed to the options wasapproximately $95,000 based on the Black-Scholes option-pricing model;such amount was recorded as a deferred charge and as additional paid-incapital of stockholders’ equity. The amount of the deferredcharge has been amortized over the initial term of thenote. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

F-25

----

TheMajor Automotive Companies,Inc.                Notesto Consolidated FinancialStatements        

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                         |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In March  2005,in connection with the settlement in of a lawsuit entitled FidelityHoldings, Inc., IG2, Inc. and 786710 Ontario, Ltd. v. Michael Marom andM.M. Telecom, Corp., the Company incurred a liability aggregating$250,000, which is due with an initial payment of $50,000 onApril  1,  2005 and twenty-four monthly payments of $8,333,beginning May  1,  2005. (See Note12.) |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                         |

|  |  |                                          |
|--|--|------------------------------------------|
|  |  | Long-term debt consists of thefollowing: |
|  |  |                                          |

|                                   |
|-----------------------------------|
|                                   |  |  |  |  |  |  |  |  |  |  |
| December 31,                 |  | 2004 |  | 2003 |
| Leasing notespayable              |  | $ | 713,306 |   |  | $ | 570,436 |   |
| Falconloanpayable                 |  |   | 5,543,205 |   |  |   | 5,934,097 |   |
| Notepayable to formerpresident    |  |   | 29,167 |   |  |   | 83,333 |   |
| M&KEquities notepayable       |  |   | 1,270,000 |   |  |   | 1,270,000 |   |
| Maromlitigation settlementpayable |  |   | 250,000 |   |  |   | — |   |
|                              |  |   | 7,805,678 |   |  |   | 7,857,866 |   |
| Less:  Currentportion   |  |   | 895,409 |   |  |   | 701,741 |   |
|                              |  | $ | 6,910,269 |   |  | $ | 7,156,125 |   |
|                                   |

|  |  |                          |
|--|--|--------------------------|
|  |  | Maturitiesare asfollows: |
|  |  |                          |

|                   |
|-------------------|
|                   |  |  |  |  |  |  |
| December 31, |  |   |
| 2005              |  | $ | 895,409 |   |
| 2006              |  |   | 2,245,075 |   |
| 2007              |  |   | 563,158 |   |
| 2008              |  |   | 586,350 |   |
| 2009              |  |   | 648,905 |   |
| 2010              |  |   | 718,135 |   |
| Thereafter        |  |   | 2,148,646 |   |
|              |  | $ | 7,805,678 |   |
|                   |

|                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------------------------------------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **9.**    **BusinessCombinations** |  | On April 21, 1997,the Company, through a wholly-owned subsidiary, Major AcquisitionCorp., entered into a merger agreement with The Major Automotive GroupInc. (‘‘Major Auto’’) and its solestockholder, Bruce Bendell, the Company’s President, ChiefExecutive Officer and Chairman. Pursuant to the Merger Agreement, BruceBendell contributed to Major Auto all of his shares of common stock ofMajor Chevrolet Inc., Major Subaru Inc., Major Dodge Inc. and MajorChrysler, Plymouth, Jeep Eagle Inc. Major Acquisition Corp. thenacquired from Bruce Bendell all of the issued and outstanding shares ofcommon stock of Major Auto in exchange for shares of a new class of theCompany’s preferred stock. Major Acquisition Corp. purchased theremaining 50% of the issued and outstanding shares of commonstock of Major Dodge Inc. |
|                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

F-26

----

TheMajor Automotive Companies,Inc.                Notesto Consolidated FinancialStatements        

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | and Major Chrysler, Plymouth, Jeep Eagle Inc.from Harold Bendell, Bruce Bendell’s brother, for$4 million in cash pursuant to a stock purchase agreement. Inaddition, Major Acquisition Corp. acquired two related real estatecomponents (the ‘‘Major Real Estate’’,defined hereinafter) from Bruce Bendell and Harold Bendell(collectively ‘‘the Bendells’’) for$3 million. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The preferred stockissued to Bruce Bendell is designated as the ‘‘1997-MAJORSeries of Convertible Preferred Stock.’’ It had votingrights and was convertible into the Company’s common stock (the‘‘Common Stock’’). The minimum number ofshares of Common Stock into which the new class is convertible is810,000 shares. By February 28, 2002, Mr. Bendell hasconverted all of the shares of this preferred stock into 3,471,111shares of Common Stock (see Note 14). The foregoing acquisitionsfrom Major Auto and Harold Bendell are collectively referred to hereinas the ‘‘Major AutoAcquisition.’’ |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | To financethe cash portion of the Major Auto Acquisition, aggregating$7 million ($4 million for Harold Bendell and$3 million to purchase the Major Real Estate), Major AcquisitionCorp. borrowed $7.5 million from Falcon Financial, LLC pursuantto a loan and security agreement dated May 14, 1998, for a15-year term with interest equal to 10.18% (see Note 8).Prepayment may be made, in full only, along with the payment of apremium. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The collateral securing the loantransaction includes the Major Real Estate and, subject to theinterests of any current or prospective ‘‘floor plan orcap loan lender,’’ the assets of Major Acquisition Corp.Major Acquisition Corp. is required to comply with certain financialcovenants related to net worth and cash flow. In addition, the Companyprovided an unconditional guarantee of the loan pursuant to a guaranteeagreement dated May 14, 1998. This acquisition was treated as apurchase by Major AcquisitionCorp. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

|                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|----------------------------------------------------------|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **10.**    **FranchiseTerminations** |  | In February2004, the Company sold its Subaru franchise and certain Subaru parts toan unrelated third party for a cash purchase price of $450,000.Additionally, the purchaser received the Company’s inventory ofnew 2004 Subaru vehicles and assumed the related floor liability. Allproceeds from this transaction were put in escrow pending receipt ofcertain approvals from third parties. In the second quarter of 2004,the Company closed the sale and |
|                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

F-27

----

TheMajor Automotive Companies,Inc.                Notesto Consolidated FinancialStatements        

__________________________________________________________________________________

|  |  |                                                                                                                                                |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | recorded a gain of $237,000, included inoperating expense, which is net of a reduction of goodwill of $213,000as a result of this transaction. |
|  |  |                                                                                                                                                |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InMarch  2004, the Company received notice from American SuzukiMotor Corporation, the franchisor of the Company’s Suzukidealership in Hempstead, New York, of a proposed termination of theirfranchise agreement with the Company. At the time, the Company had apotential buyer for the franchise and requested that Suzuki delay thetermination pending completion of the sale. When the potential salenegotiations were terminated the Company requested that Suzukireinstate the termination and purchase the Company’s inventoryof new Suzuki vehicles. The Suzuki dealership was not material to theCompany’s operations and management does not expect thetermination of such dealership to have a significant effect on resultsof operations or cashflow. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|------------------------------------------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **11.**    **GovernmentalRegulations** |  | Substantially all of theCompany’s facilities are subject to Federal, state and localregulations relating to the discharge of materials into theenvironment. Compliance with these provisions has not had, nor does theCompany expect such compliance to have, any material effect on thefinancial condition or results of operations of the Company. Managementbelieves that its current practices and procedures for the control anddisposition of such wastes comply with applicable Federal and staterequirements. |
|                                                            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|                                                                 |  |                 |
|-----------------------------------------------------------------|--|-----------------|
| **12.**    **Commitments andContingencies** |  | OperatingLeases |
|                                                                 |  |                 |

|  |  |                                                                                                                                                                                                                                                                                                               |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company leases realproperty under various operating leases, most of which have terms fromone to six years. The Company’s most significant lease, forproperty in Long Island City, New York, expires 2009, but the Companyhas an option to extend the lease for up to two additional five-yearterms. |
|  |  |                                                                                                                                                                                                                                                                                                               |

|  |  |                                                                                                                         |
|--|--|-------------------------------------------------------------------------------------------------------------------------|
|  |  | Future net minimum lease paymentsunder noncancelable operating lease agreements as of December31,  2004 are as follows: |
|  |  |                                                                                                                         |

F-28

----

TheMajor Automotive Companies,Inc.                Notesto Consolidated FinancialStatements        

__________________________________________________________________________________

|                   |
|-------------------|
|                   |  |  |  |  |  |  |
| December 31, |  |   |
| 2005              |  | $ | 1,193,500 |   |
| 2006              |  |   | 1,143,500 |   |
| 2007              |  |   | 851,500 |   |
| 2008              |  |   | 659,500 |   |
| 2009              |  |   | 298,500 |   |
| Thereafter        |  |   | 179,083 |   |
|              |  | $ | 4,321,583 |   |
|                   |

|  |  |                                                                                                                           |
|--|--|---------------------------------------------------------------------------------------------------------------------------|
|  |  | Rentexpense was $2,083,500, $1,950,000 and $1,999,000 for the years endedDecember  31,  2004, 2003 and 2002,respectively. |
|  |  |                                                                                                                           |

|  |  |               |
|--|--|---------------|
|  |  | CapitalLeases |
|  |  |               |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In connection with an earlieracquisition, the Company was assigned a lease agreement for facilitiesused for operations of the dealership. The lease agreement provided forthe transfer of ownership at the option of the Company at the end ofthe lease term for $3 million. In 2002, the Company transferredthe purchase option to a related party and entered into an operatinglease arrangement with such party (seeNote 13). |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                            |

F-29

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                      |
|--|--|----------------------|
|  |  | **LegalProceedings** |
|  |  |                      |

|  |  |                                                                                                                 |
|--|--|-----------------------------------------------------------------------------------------------------------------|
|  |  | Daniel Tepper v.Fidelity Holdings, Inc; Fidelity Holdings, Inc. (Third Party Plaintiff)v. InvestAmerica, et al. |
|  |  |                                                                                                                 |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In and aroundJuly 10, 2001, Daniel Tepper commenced suit in the SouthernDistrict of New York against Bruce Bendell, Doron Cohen and RichardFeinstein. While the initial complaint had eight causes of action,three remain: (i) conversion (ii) breach of fiduciary duty and (iii)negligence. The claims allege that the defendants failed to removerestrictive legends that appeared on certain stock certificates held byMr.  Tepper.  This action mirrors a Nevada action broughtby Mr. Tepper several years ago for which he obtained a judgmentof $553,000, which has been satisfied. In light of the satisfaction ofthe Nevada judgment, the Court has directed that a motion be made todismiss the New York action, as there is a ban to double recovery. Themotion was made in July  2003 and was denied in lieu of asettlement conference. Such conference was held and failed. A secondmotion to dismiss was filed and in the third quarter of 2004. This casewas adjudicated in the Company’s favor and, consequently,dismissed. However, plaintiff filed a notice of appeal of thecourt’s decision on November  3,  2004. Managementbelieves that plaintiff’s appeal will not prevail and that, inany event, Mr.  Tepper’s allegations have no merit andintends to vigorously defend thissuit. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|  |  |                                                                                                    |
|--|--|----------------------------------------------------------------------------------------------------|
|  |  | Fidelity Holdings, Inc., IG2,Inc. and 786710 Ontario, Ltd. v. Michael Marom and M.M. Telecom,Corp. |
|  |  |                                                                                                    |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company and theCompany’s former subsidiaries, IG2, Inc.(‘‘IG2’’) and 786710 Ontario, Ltd., areplaintiffs in a legal action against Michael Marom and M.M. Telecom,Corp. in the Supreme Court of the State of New York, County of Queens,Index No. 25678/96. The Company filed a complaint onDecember 23, 1996 against the defendants alleging: (i) breach ofa letter agreement between the parties; (ii) tortuous interference withbusiness opportunities; and (iii) slander. Defendants filed an answerwith counterclaims, which included, inter alia: (i) fraud; (ii) breachof contract; (iii) tortuous interference with business opportunities;and (iv) tortuous interference with contract. Both parties havecompleted discovery and the collective plaintiffs, including theCompany, have made a motion for summary judgment against Defendantsseeking to have Defendants’ counterclaims dismissed entirely andwith prejudice.  |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

F-30

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | A decision wasrendered by the court, which dismissed the claims for tortuousinterference with business opportunities and contract, but denied theremainder of the motion. The case had been stayed as a result of IG2filing for bankruptcy protection in January  2003. The stay hasbeen lifted. In March  2004, the Company reached a settlementagreement with the defendants whereby the Company is required to pay anaggregate of $250,000, as follows: $50,000 on April  1,2005 and the balance of $200,000 over the next 24 months at the rate of$8,333.33 per month. Also, the Company is required to pay to defendantsany amounts the Company receives from IG2, until such time as anadditional $250,000 has been paid to defendants. To the extent theamounts the Company receives from IG2 and forwards on to the defendantsby February  28,  2009 (the ‘‘IG2Payments’’), is less than $250,000, the Company will beliable for the difference between $250,000 and the aggregate IG2Payments at that time. The effects of this settlement have beenrecorded in our financial statements as of December  31,2004. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|  |  |                                                                                                                                                    |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Sanford Goldfarb v. Robert LeRea,Doran Cohen, Bruce Bendell, Kimberly Peacock and The Major AutomotiveCompanies, Inc. f/k/a Fidelity Holdings,Inc. |
|  |  |                                                                                                                                                    |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On September 23, 2002, alawsuit was commenced by Ira Hochman and Sanford Goldfarb against theCompany, Robert LeRea, a former consultant to the Company, Doron Cohen,Bruce Bendell and Kimberly Peacock, a former employee of the Company.The suit seeks damages of up to $10,000,000 for breach of contract,quantum merit, unjust enrichment, conversion and fraud. Plaintiffscontend that they entered into agreements with the Company and theother defendants to promote the stock of the Company in exchange forstock. Plaintiffs further contend that, in spite of the substantialtime and efforts plaintiffs put in promoting the stock, the Company andthe other defendants failed to compensate plaintiffs as per theagreements. Plaintiffs also allege that they provided a bridge loan todefendants in the sum of $1,830,000, which has not been repaid. InJuly  2003, the Company had filed a motion to dismiss, which wasdenied. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On January  28,  2005,the parties agreed to settle this by the Company paying an aggregate of$400,000 to the plaintiffs in exchange for the aggregate of 120,820 ofthe Company’s common shares owned by the plaintiffs. An initialpayment of $200,000 was made on February  1,  2005, anadditional payment of $20,000 was made on March  1,  2005and nine additional monthly payments are |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                 |

F-31

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | scheduled for each of the succeeding months.The shares to be returned to the Company will be returned, ratably, aspayments are received by the plaintiff. Accordingly, a liability of$400,000 was accrued in the fourth quarter of 2004 and the Companyrecorded the acquisition of treasury stock for $144,984, based on theclosing price of the Company’s common stock on the day prior tothe settlement, and $255,016 was charged to litigation expense,representing the difference between the total amount to be paid and thefair value of the sharesreceived. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

|  |  |                                                          |
|--|--|----------------------------------------------------------|
|  |  | International SecuritiesCorp. v. Fidelity Holdings, Inc. |
|  |  |                                                          |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On orabout March  2001, an action was commenced against the Company inthe Supreme Court of the state of New York, New York County. Thisaction alleged that International Securities Corp.(‘‘ISC’’) was owed commissions for money itsecured for the Company in connection with a private placement of theCompany’s securities. This action was settled in January2003 for $133,125, which was included in the consolidated statement ofoperations for the year ended December  31,  2003 and whichwas paid, in full, by February 1,2003. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|  |  |                                                                                   |
|--|--|-----------------------------------------------------------------------------------|
|  |  | Dr.  Roland  Nassimv. Computer Business Sciences, Inc. and Fidelity Holdings,Inc. |
|  |  |                                                                                   |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On April 12, 2001,Dr.  Roland  Nassim commenced a lawsuit against CBS and theCompany in the Supreme Court, New York County. The basis of the lawsuitwas for breach of contract of an agreement entered into onDecember 1, 1999. The agreement was part of a buyout of theCompany’s former subsidiary, Computer Business Sciences, Inc.The purchase price was approximately $500,000 to be paid out in theCompany’s stock. It was Dr.  Nassim’s position thatthe stock was only worth $27,000. In January  2002, the Companyreached a settlement with Dr.  Nassim and has issued 225,000shares of the Company’s stock in his name as fullsettlement. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|  |  |                                           |
|--|--|-------------------------------------------|
|  |  | Ronald K. Premo v. FidelityHoldings, Inc. |
|  |  |                                           |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In May  2001,Ronald Premo, a former officer of one of the Company’s formertechnology subsidiaries, filed suit in Connecticut Supreme Courtseeking employment related damages in excess of $300,000. InOctober  2001, through an arbitration proceeding, the Companyreached a settlement agreement with Mr. Premo for $144,158 bywhich he would be paid an aggregate of $72,079 over ten months plus15,000 shares of the Company’s common stock with a guaranteedaggregate value, at the first anniversary date of |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

F-32

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | the shares’ issuance, of $72,079. Theaggregate amount of this settlement was included in the consolidatedstatement of operations for the year ended December  31,2002. The initial 15,000 shares of common stock were issued and the$72,079 was paid. Based on the market value of the Company’scommon stock at the anniversary date, an additional 69,800 shares ofthe Company’s common stock were issued to Mr. Premoduring the first quarter of 2003. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|  |  |                                                                                                                                                                                 |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | JamesR. Wallick v. Bruce Bendell, Individually and in his Capacity as anOfficer, Director and Majority Shareholder of the DefendantCorporations, Fidelity Holdings, Inc., etal. |
|  |  |                                                                                                                                                                                 |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On September 25, 2001,Mr. Wallick, a former director and officer, filed a lawsuitagainst the Company in the United States District Court of New Jersey.In this action, Mr. Wallick alleged that the defendants breachedan oral, written and implied-in-fact employment agreement withMr. Wallick, acted in bad faith in connection with theemployment agreement, intentionally and negligently misrepresentedpromises relating to Mr. Wallick’s employment andintentionally and tortuously interfered with the contractual andemployment relationship of Mr. Wallick. Mr. Wallicksought, among other things, compensatory and punitive damages for thealleged violations in the amount of $540,000. On October 10,2002, the Company entered into a Separation and Release Agreement withMr. Wallick, wherein the Company settled all matters withMr. Wallick arising out of his former employment with theCompany and itssubsidiaries. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Mr. Wallick received,among other things, an aggregate amount of $452,000, an amountapproximately equal to the minimum to be paid during the remaining termof his employment agreement, in consideration to be bound by the termsof the Agreement. Pursuant to the Agreement, Mr. Wallickreturned the 4,500 shares of the Company’s common stock thatwere issued to him in February  2000 and dismissed, withprejudice, and without an award of costs or attorneys’ fees, thecomplaint previously filed against theCompany. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|  |  |                                                   |
|--|--|---------------------------------------------------|
|  |  | GELCO Corporation, et al. v.Major Chevrolet, Inc. |
|  |  |                                                   |

|  |  |                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | OnDecember 19, 2001, GELCO Corporation(‘‘GELCO’’) filed a complaint against MajorChevrolet, Inc. in the United States District Court for the NorthernDistrict of Illinois, Eastern Division. The basis lawsuit allegedbreach by our subsidiary, Major Chevrolet, Inc., of the terms andconditions of the purchase of automobiles and automobile |
|  |  |                                                                                                                                                                                                                                                                                                                                                                              |

F-33

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | leases under that certain dealer lease planagreement and alleged breach arising out of the purchaser of retailsales contracts under that certain dealer retail agreement by andbetween the parties. GELCO was seeking $2,767,000 in damages. OnJanuary 24, 2003, the action was settled for $900,000, which wascharged to litigation expense in the fourth quarter of 2002, consistingof an initial payment of $300,000 and a 20-month promissory note for$600,000 which was paid in full by September2004. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|  |  |                                                                      |
|--|--|----------------------------------------------------------------------|
|  |  | Zanett Lombardier Ltd., et al. v.The Major Automotive Companies,Inc. |
|  |  |                                                                      |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On October 24, 2001,Zanett Lombardier Ltd. and others(‘‘Zanett’’) filed a suit against theCompany for breach of contract and for the Company’s failure toissue shares in exchange for certain warrants held by Zanett. Thealleged damages totaled $856,011. This matter was settled in the firstquarter of 2003 for payment of $130,000 and issuance of shares of theCompany’s common stock with a value of $40,000, which wasincluded in the consolidated statement of operations for the year endedDecember  31,  2003. The $130,000 was paid in five equalinstallments during 2003 and 49,876 shares of the Company’scommon stock were issued in April  2003 in full satisfaction ofthis settlement. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|  |  |                                                                        |
|--|--|------------------------------------------------------------------------|
|  |  | Steel City Telecom,Inc. v. The Major Automotive Companies, Inc., etal. |
|  |  |                                                                        |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In and around September, 2002, anaction was commenced against the Company and its former subsidiary,Computer Business Sciences, Inc., in Pennsylvania, Allegheny County bySteel City Telecom, Inc. (‘‘Steel City’’)for up to $300,000. The complaint alleges that the software sold toSteel City was defective and that the Company was negligent in itsproduction. The Company is in the process of requesting a removal ofthis case to Federal court, while continuing with the discovery phase.Management believes that the plaintiff’s allegations have nomerit and intends to vigorously defend thissuit. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

|  |  |                                                  |
|--|--|--------------------------------------------------|
|  |  | Zvi Barak v. The Major AutomotiveCompanies, Inc. |
|  |  |                                                  |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | An application to theOntario Superior Court (Toronto Court File No. 02-CV-229810CM2) wasfiled by Zvi Barak on May 23, 2002 seeking an Order of thatcourt directing the Company to proceed forthwith with arbitration inToronto, Canada regarding Zvi Barak’s claims that we failed topay him $546,249.99 under an alleged letter dated June  5,1996 to that certain Master Agreement dated April 18, 1996between the Company and Zvi Barak |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

F-34

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company brought amotion before the Ontario Superior Court of Justice seeking a permanentstay of Zvi Barak’s application on grounds which include, butare not limited to: a) Ontario is not a convenient forum for thehearing of the application; and b) the Ontario Superior Court ofJustice does not have jurisdiction over the subject matter or theparties. The motion was heard by the Court in Toronto onFebruary 18, 2003. At that time, the Company’s motion wasdenied and the Company subsequently filed a motion for leave to appeal.In July  2003, the Company’s motion for leave to appealwas denied |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On February  2,2005, the Company agreed to settle this case by purchasing fromMr.  Barak and his wife Sarah Barak all of the shares of theCompany’s common stock that they own, aggregating 167,808shares, for the purchase price of $250,000 and the forgiveness of apromissory note, in the principal amount of $119,500, due to one of ourinactive subsidiaries. The promissory note was fully reserved andwritten off in prior years. Accordingly, a liability of $250,000 wasaccrued for this settlement in the fourth quarter of 2004 and thetransaction was recorded as the acquisition of treasury stock of$206,404, the fair market value of the shares based on the closingprice on the day prior to the agreement, and litigation expense of$43,596, representing the difference between the amount to be paid andthe fair value of the shares. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|  |  |                                                                                    |
|--|--|------------------------------------------------------------------------------------|
|  |  | TillroeRealty Co. vs. Compass Lincoln Mercury, Inc. and Fidelity Holdings Co.,Inc. |
|  |  |                                                                                    |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | On September  4,2003, an action was commenced against the Company and its subsidiaryCompass Lincoln Mercury, Inc. in the Superior Court of New Jersey,Essex County by a landlord of the Company’s former CompassLincoln Mercury showroom in Orange New Jersey. The suit alleges thatcurrent rent and damages to the showroom space at 170 Central Avenue,Orange New Jersey are presently due and owing by the Company. The suitalleges damages in the amount of $123,556 and rent of approximately$7,900 per month. This case was settled during the second quarter of2004 for $115,000. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|  |  |                                               |
|--|--|-----------------------------------------------|
|  |  | GRIT, LLC vs. MajorAutomotive Companies, Inc. |
|  |  |                                               |

|  |  |                                                                                                                                                                                                                                                                                                                                                  |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | OnSeptember  24,  2003 the Company received notice of adefault judgment in the Superior Court of the State of California, LosAngeles, for an aggregate amount of $66,718 stemming from theplaintiff’s purchase in 1998 of a Talkie Communication Serverfrom a former subsidiary. In the third quarter of 2004, this case wasadjudicated in |
|  |  |                                                                                                                                                                                                                                                                                                                                                  |

F-35

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                  |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | the Company’s favor and, consequently,dismissed. In the fourth quarter of 2004, the plaintiff refiled itscomplaint under a slightly different theory from its initial suit. Itis management’s belief that this claim is also without merit andintends to vigorously defend thissuit. |
|  |  |                                                                                                                                                                                                                                                                                                  |

|  |  |                                                       |
|--|--|-------------------------------------------------------|
|  |  | Justin Jung et al. v. MajorAutomotive Companies, Inc. |
|  |  |                                                       |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | InDecember  2004, the Company was served with a Summons andComplaint, (filed in New York State Supreme Court, County of the Bronx)alleging the sale of defective or otherwise dangerous vehicles. Namedplaintiff bases his suit on a single-vehicle accident. The actionincludes provisions for the possible promulgation of a class actionlawsuit regarding the previous accusations. It is the position ofCompany that the suit has no merit and management intends to vigorouslydefend this action. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|  |  |                                                        |
|--|--|--------------------------------------------------------|
|  |  | Maryann Cerbo, etal. v. Ford of Englewood, Inc., etal. |
|  |  |                                                        |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In November  2004, theCompany received notice of a pending class action in the state of NewJersey for the above action in the Superior Court of the State of NewJersey. The lead plaintiff had alleged the systematic overcharge of allNew Jersey Licensed Automotive Dealers for the documentation fees forthe registration of new/used vehicles. Under advice of counsel, theCompany, through its Compass Dodge, Inc. franchise, agreed to acceptthe proposed settlement offer by the plaintiff’s counsel. Usinga complex set of guidelines, including total sales and ratio of new andused vehicles sold, the Company has agreed to comply with thesettlement provisions. The current estimated cost of settlement isapproximately $30,000, which has been accrued in the fourth quarter of2004. The settlement proposal awaits approval by the New JerseySuperior Court. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|  |  |                                                       |
|--|--|-------------------------------------------------------|
|  |  | Various Claims Againstthe Company’sSubsidiaries |
|  |  |                                                       |

|  |  |                                                                                                                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Various other claims andlawsuits arising in the normal course of business are also pendingagainst the Company’s subsidiaries. The results of suchlitigation are not expected to have a material or adverse effect on theCompany’s consolidated financial position or results ofoperations. |
|  |  |                                                                                                                                                                                                                                                                                                        |

F-36

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                             |
|--|--|-----------------------------|
|  |  | Officer’sCompensation |
|  |  |                             |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | OnMay 15, 2001, the Compensation Committee of the Board ofDirectors of the Company approved an increase in the annual base salaryof Bruce Bendell to $500,000, annually, through June 30, 2004.The agreement provided for continuity of his base salary and aguaranteed annual bonus of $250,000 per year until that date in theevent that Mr. Bendell’s employment was terminated priorto June 30, 2004. The agreement extended automatically for anadditional one-year period at the end of the initial term, June30,  2004, and will extend for an additional one-year period oneach anniversary, thereafter, unless 90-day prior notice of terminationis provided by either Mr.  Bendell or the Company. Additionalapproval was given to a bonus plan under which Mr.  Bendellreceives a bonus equal to 10% of the ‘‘netincome’’ of the dealerships, as defined. Such definitionincludes the aggregate pre-tax income of the Company’sautomotive dealership operations after any other bonuses paid oraccrued and excludes the Company’s substantial corporateoverhead costs which encompass, among others, being a public companyand settlements of litigation related to the Company’s formernon-automotive technology operations, as well as miscellaneousoperating expenses incurred in the Company’s leasing operations,all of which are not directly related to dealership operations. Theamounts of such bonuses earned by Mr.  Bendell were $461,379,$77,386 and $386,455 in 2002, 2003 and 2004, respectively. Accordingly,Mr.  Bendell’s aggregate compensation pursuant to all ofhis employment agreements was $961,379, $577,386 and $886,455 in 2002,2003 and 2004, respectively. Company. (See Note 13 Related PartyTransactions.) |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|  |  |                                                                                                                                                                                                                                                                         |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In each of theyears 2002, 2003 and 2004, Mr.  Bendell earned additional$160,000, $450,000 and $450,000 in 2002, 2003 and 2004, respectively,in connection with a credit enhancement arrangement for the benefit ofthe Company. (See Note 13 Related PartyTransactions.) |
|  |  |                                                                                                                                                                                                                                                                         |

|  |  |               |
|--|--|---------------|
|  |  | Sale TaxAudit |
|  |  |               |

|  |  |                                                                                                                                                                                                                                                                                                                                                |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In February  2004, theCompany was notified by the New York State Department of Taxation &Finance of an assessment of $4,000,000, including interest andpenalties, after their audit concluded that certain of theCompany’s subsidiaries had failed to pay sales and use taxes ofapproximately $2,000,000 from February  1999 through |
|  |  |                                                                                                                                                                                                                                                                                                                                                |

F-37

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | August  2001. Management believed thatthe tax authorities based their assessment on an extrapolation from asample of certain transactions that were not representative and thatany additional sales taxes due would be minimal. Accordingly, in priorperiods, the Company did not accrue any liability in connection withthis matter. The Company appealed the findings of the taxingauthorities**.**After investigation, the taxing authorities and theCompany agreed on a final aggregate amount due of $65,384, including$19,107 of interest. This amount is reflected in accrued expenses atDecember  31,2004. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|         |                               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------|-------------------------------|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **13.** | **Related PartyTransactions** |  | Amounts due from relatedparties result from sales of vehicles to dealerships owned by BruceBendell, the Company’s President, Chief Executive Officer,Acting Chief Financial Officer and Chairman, and his brother, HaroldBendell (the ‘‘Bendell Dealerships’’), aswell as previous advances made in the ordinary course of business.These amounts are all due on demand and are non-interest bearing. Aspart of its arrangement with the Bendell Dealerships, the Companymaintains inventory of consigned vehicles on its premises. For theyears ended December  31,  2004, 2003 and 2002 the relatedparty sales approximated $6,000,000, $5,300,000 and $4,000,000,respectively. |
|         |                               |  |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Additionally, the Companypurchases vehicles from the Bendell Dealerships. All of the purchasesand sales to and from the related dealerships are made at wholesalecost plus related fees and have, therefore, resulted in no profit orloss to the Company. For the years ended December  31,2004, 2003 and 2002 the purchases from related parties approximated$7,000,000, $13,700,000 and $14,900,000,respectively. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                     |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Pursuant to a managementagreement with Harold Bendell, the Company has accrued a management feefor services performed by Harold Bendell. For the year endedDecember  31,  2002, such accrual amounted to $624,359.Mr. Harold Bendell’s management agreement expired atDecember  31,  2003. Starting in 2002, the Company enteredinto negotiations with Harold Bendell regarding his fees for 2003 andfuture periods. In 2003, the Company accrued $361,361 as a managementfee for Mr.  Bendell pursuant to the provisions of the expiredagreement. Additionally, the Company’s Board of Directorsawarded him an additional $500,000, which was accrued in the fourthquarter of 2003, for his services. In March  2004, the |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

F-38

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Company concluded its negotiations andagreed in principle as to a new consulting agreement with a companyowned by Harold Bendell, HB Automotive, Inc. This agreement wasconsidered to be effective January  1,  2004 through theyear ending December  31,  2005. It provides for amanagement fee equal to $200 per used vehicle sold at retail by theCompany’s Chevrolet dealership and 10% of the pre-taxprofits from the Company’s dealerships in Long Island City, NewYork. Had the per-vehicle fee provision been in effect onJanuary  1,  2003, HB Automotive would have earned anadditional $2  million in 2003. In 2004, HB Automotive earned$2,484,000 in connection with thisagreement. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In connection with theCompany’s acquisition of its Nissan dealership in Hempstead, NewYork, the Company obtained an option to acquire thatdealership’s land and building from the landlord who held thelease on that property. The Company exercised its option, but wasunable to obtain the financing necessary to effect the purchase. Sincethe lease expiration was concurrent with the required propertyacquisition date and the Company was unsuccessful in obtaining anextension of the lease term, it became imperative to the Nissandealership’s operations to maintain its presence at thelocation. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In order to ensure continuity ofthe dealership’s operations, in a transaction approved by theCompany’s Board of Directors, the Company’s Chairman andhis brother agreed to personally acquire the property through a companythey formed and lease it back to the Company. The result of thistransaction was to eliminate the capitalized lease of approximately$3.6  million and the related liability of $3.0  millionthat the Company had recorded in connection with this property. Thedifference of $637,000, the book value of the purchase option, wasrecorded as a related party receivable, which is included in due fromrelated parties. The Company entered into a lease with the new landlordfor five years, through June  2007 with a five-year renewaloption for approximately the same rent, $32,000 per month, it waspreviously paying. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | An independentappraiser was retained in order to determine a fair market rent, sothat the current rent could be adjusted and the lease revisedaccordingly, if necessary. Similarly, the value of the purchase optionwas required to be determined so that an adjustment to the relatedparty receivable could be made and a loss could be recorded, at thattime, if the value of the option at the date of transfer exceeded itsbook value of $637,000. The receivable will |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

F-39

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | be repaid, ratably, through monthly paymentsover the remaining term of the lease, including extensions to theinitial term, together with related interest at the market rate. BruceBendell has guaranteed payment in the event the lease is prematurelyterminated. Based on the report of the appraiser, no adjustment wasrequired for either the rental rate or the receivable balance. AtDecember  31,  2004 and 2003, $541,745 and $589,741,respectively, was receivable on this balance and included in due fromrelated parties. Of such amount, in 2004 $493,745 islong-term. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In unrelated transactions, inorder to obtain floor plan financing at favorable rates (seeNote 7), each of Bruce Bendell and Harold Bendell has agreed toeither guarantee certain floor plan debt of the Company or providecertain collateral in connection with the Company’s floor planor other borrowings. The Board of Directors has agreed to obtainindependent valuations of such credit enhancement and collateral usage(together, ‘‘Credit Enhancements’’) and payeach of the Bendell’s the fair value of his respectivecontributions. The Company engaged an independent valuation firm andreceived a preliminary valuation from such firm of $160,000 for theeconomic risk value of the Credit Enhancements. Accordingly, theCompany accrued such amount as a liability in the third quarter of2002. In the third quarter of 2003, the Company’s Board ofDirectors received additional indications that the value of the CreditEnhancement may approximate $450,000. As such, the Company accrued anadditional $290,000 in the third quarter of 2003. In March  2004,the Company’s Board of Directors concluded that the $450,000,that had been accrued as deferred debt costs, is the appropriate valueof the Credit Enhancement. Additionally, the Board of Directors hasapproved the payments to Mr.  Bendell for the continuation of hisCredit Enhancement to the Company, of which $450,000 was accrued in2004 and which is expected to approximate $450,000,annually. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Additionally, Harold Bendell hasacquired the right to an off- premises storage facility that waspreviously leased by the Company, on a month-to-month basis, from anindependent third party. Accordingly, the Company is now leasing suchfacility from Mr. Bendell on the same basis for approximatelythe same monthly rental, $33,000, it was paying to the priorlandlord. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                  |

|  |  |                                                                                                                                                                                                                                |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company also purchases fromand sells vehicles to Nawi Leasing, Inc., a company of which StevenNawi is President. Mr. Nawi was a member of the Company’sBoard of Directors until December  2004. For each of the |
|  |  |                                                                                                                                                                                                                                |

F-40

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                  |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | years ended December  31,  2004,2003 and 2002, the Company’s purchases from and sales to NawiLeasing, Inc. and its affiliates represented less than 1% of theCompany’s aggregate sales andpurchases. |
|  |  |                                                                                                                                                                                                                  |

|  |  |                                                                                                                                                                                                                                                          |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Marcum & Kliegman LLP, anaccounting firm of which a director is a member, charged the Companyapproximately $87,500, $75,000 and $105,000 in fees for accounting andtax services for the years ended December  31,  2004, 2003and 2002, respectively. |
|  |  |                                                                                                                                                                                                                                                          |

|                                                    |  |                                     |
|----------------------------------------------------|--|-------------------------------------|
| **14.    Warrants andOptions** |  | (a)    Warrants |
|                                                    |  |                                     |

|  |  |           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--|-----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | (i)  | InMarch 1996, the Company issued to Nissko Telecom, Inc. and itsinvestors warrants to purchase 450,000 shares of the Company’scommon stock at a price of $2.75 per share. In 1997, warrants topurchase 156,900 shares were exercised, leaving a balance of 293,100outstanding. Of this amount, Class B warrants for 225,000shares, which were exercisable through March 19, 1998, wereunexercised by that date and, therefore, lapsed and warrants topurchase 43,414 shares of the Company’s common stock wereexercised in December 1998, leaving a balance of 37,029outstanding as of December  31,2004. |
|  |  |           |

|  |  |            |                                                                                                                                                                                                                                                                                                 |
|--|--|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | (ii)  | Inaddition, the Company issued warrants in 1996 for the purchase of45,000 shares at a price of $2.75 per share, in connection with themanagement agreement entered into when the Company acquired Major Fleet& Leasing Corp. As of December  31,  2004, thesewarrants are stilloutstanding. |
|  |  |            |

|  |  |             |                                                                                                                                                                                                                                             |
|--|--|-------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | (iii)  | Inconnection with the private placement of its common stock in 2001, theCompany issued warrants for 116,275 shares of its common stock at anexercise price of $80.00. Such warrants have an exercise period of fiveyears from date ofgrant. |
|  |  |             |

|  |  |                       |
|--|--|-----------------------|
|  |  | (b) StockOptions |
|  |  |                       |

|  |  |                                                                                                                                                                                                                                                                                                                                          |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | DuringNovember  2000, the Company adopted the 1999 Stock Option Plan(the ‘‘Plan’’) pursuant to which 360,000shares of common stock are reserved for issuance upon the exercise ofoptions, designated as 1999 options. At the discretion of theCompany’s Board of Directors or members of any committee the |
|  |  |                                                                                                                                                                                                                                                                                                                                          |

F-41

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Board of Directors has designated, optionsmay be granted to consultants, non-employee members of the Board ofDirectors, employees, officers or anyone who performs services for theCompany. The Plan will terminate upon the date on which all shares ofthe Plan have been exercised. In December  2001, the Companyamended the Plan to increase the shares reserved for issuance by750,000 shares to1,110,000. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                 |

|  |  |                                                                                                                                                                |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Options grantedunder the Plan expire not more than 10 years from the date ofgrant. Generally, options vest in 3 years beginning on the dateof grant. |
|  |  |                                                                                                                                                                |

|  |  |                                                                                                                                                                                                                                                           |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In consideration forcertain consulting services related to the acquisition of the MajorAuto Group, the Company issued options to purchase 22,500 shares of theCompany’s common stock for $10.00 per share (market price),exercisable until May2002. |
|  |  |                                                                                                                                                                                                                                                           |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In December  2000,the Company adopted the 2001 Outside Director Stock Plan (the‘‘2001 Plan’’) pursuant to which 250,000shares are reserved for issuance to non-employee members of the Boardof Directors (‘‘Outside Directors’’). ThePlan provides, that, commencing on the date of the annualstockholders’ meeting in 2001 and on each anniversarythereafter, each Outside Director who served as a member of the Boardof Directors shall automatically be granted an option to purchase 4,500shares. The term of the option shall be ten years. The option shall beimmediately exercisable, but only while the optionee serves as a memberof the Board of Directors and for the three months following thetermination of service or 12 months, if such termination is for reasonof death or disability. The exercise price shall be equal to the pricefor the Company’s common stock on the date of the grant. InDecember  2002, the Company granted 22,500 shares to OutsideDirectors at an exercise price of $0.75. Additionally, the 2001 Plancalls for grants of 4,500 shares of the Company’s common stockto each Outside Director on April  30 and each anniversarythereafter. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

|  |  |                                                                                                                                                                                  |
|--|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Each of theCompany’s stock options has been issued at the fair value of theCompany’s common stock at the date of grant and no issuedoptions have ever beenexercised. |
|  |  |                                                                                                                                                                                  |

|  |  |                                                                                                  |
|--|--|--------------------------------------------------------------------------------------------------|
|  |  | During 2001,pursuant to a separation agreement, the Company granted options to anemployee of IG2 |
|  |  |                                                                                                  |

F-42

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                   |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | for 30,000 shares of common stock. TheCompany recorded a charge of $260,616 against the reserve establishedfor discontinued operations and a corresponding increase in additionalpaid-in capital. |
|  |  |                                                                                                                                                                                                   |

|  |  |                                                                                                                                                                                               |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In 2001, theCompany issued options for an aggregate of 25,200 shares of commonstock to Outside Directors at an average exercise price of $.85 pershare, the market price at the date ofgrant. |
|  |  |                                                                                                                                                                                               |

|  |  |                                                                                                                                                                                                                                                                                                                       |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In 2002, the Companyissued options for an aggregate of 18,000 shares of common stock toOutside Directors at an average exercise price of $.68 per share, themarket price at the date of grant. In addition, the Company cancelledoptions for 134,800 shares of common stock, with an average exerciseprice of $13.71. |
|  |  |                                                                                                                                                                                                                                                                                                                       |

|  |  |                                                                                                                                                                                               |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In 2003, theCompany issued options for an aggregate of 18,000 shares of commonstock to Outside Directors at an average exercise price of $.62 pershare, the market price at the date ofgrant. |
|  |  |                                                                                                                                                                                               |

|  |  |                                                                                                                                                                                               |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In 2004, the Companyissued options for an aggregate of 18,000 shares of common stock toOutside Directors at an average exercise price of $.70 per share, themarket price at the date ofgrant. |
|  |  |                                                                                                                                                                                               |

|  |  |                                                                                                                                                                                                                                             |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The Company applies APBOpinion 25 and related Interpretations in accounting for itsstock option plan by recording as compensation expense the excess ofthe fair market value over the exercise price per share as of the dateof grant. |
|  |  |                                                                                                                                                                                                                                             |

F-43

----

TheMajor Automotive Companies,Inc.        Notesto Consolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                          |
|--|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | A summaryof the status of the Company’s stock option plan as ofDecember  31,  2004 and changes during the periodJanuary 1, 2001 through December  31,  2004 ispresentedbelow: |
|  |  |                                                                                                                                                                                          |

|                                         |  |                 |          |                 |  |                                |           |        |  |        |       |        |  |  |
|-----------------------------------------|--|-----------------|----------|-----------------|--|--------------------------------|-----------|--------|--|--------|-------|--------|--|--|
|                                    |  | Numberof shares |          | Expiration date |  | Weightedaverage exercise price |
| Options outstandingat December  31,2001 |  |            | 361,688  |            |  |                           | 2002-2011 |   |  |   | 7.64  |   |
| Optionsgranted                          |  |            | 18,000   |            |  |                           | 2012      |   |  |   | .68   |   |
| Optionscancelled andexpired             |  |            | (134,800 | )          |  |                           | 2002-2011 |   |  |   | 13.71 |   |
| Optionsoutstanding at December  31,2002 |  |            | 244,888  |            |  |                           | 2009-2012 |   |  |   | 3.78  |   |
| Optionsgranted                          |  |            | 18,000   |            |  |                           | 2013      |   |  |   | .62   |   |
| Optionsoutstanding at December  31,2003 |  |            | 262,888  |            |  |                           | 2009-2013 |   |  |   | 3.57  |   |
| Optionsgranted                          |  |            | 18,000   |            |  |                           | 2014      |   |  |   | .70   |   |
| Optionsoutstanding at December  31,2004 |  |            | 280,888  |            |  |                           | 2009-2014 |   |  |   | 3.38  |   |
|                                         |

F-44

----

TheMajor Automotive Companies,Inc.

Notes to ConsolidatedFinancialStatements

|  |
|--|
|  |  |
|  |

Thefollowing table summarizes information about stock options outstandingat December  31,2004.

|                     |  |                                     |         |                                         |  |                              |     |                                     |  |                              |       |        |  |        |         |        |  |        |       |        |  |  |
|---------------------|--|-------------------------------------|---------|-----------------------------------------|--|------------------------------|-----|-------------------------------------|--|------------------------------|-------|--------|--|--------|---------|--------|--|--------|-------|--------|--|--|
|                |  | OptionsOutstanding                  |         | OptionsExercisable                      |
| ExercisePrice Range |  | NumberOutstanding atDecember31,2004 |         | WeightedAverageRemainingContractualLife |  | WeightedAverageExercisePrice |     | NumberExercisableatDecember 31,2004 |  | WeightedAverageExercisePrice |
| $24.44-$38.75       |  |                                | 4,388   |                                    |  |                         | 4.6 |                                |  | $                            | 33.25 |   |  |   | 4,388   |   |  | $      | 33.25 |   |
| $13.40              |  |                                | 1,200   |                                    |  |                         | 0.4 |                                |  |                         | 13.40 |   |  |   | 1,200   |   |  |   | 13.40 |   |
| $4.38               |  |                                | 126,000 |                                    |  |                         | 0.8 |                                |  |                         | 4.38  |   |  |   | 126,000 |   |  |   | 4.38  |   |
| $2.34-$2.35         |  |                                | 80,000  |                                    |  |                         | 2.9 |                                |  |                         | 2.35  |   |  |   | 76,000  |   |  |   | 2.35  |   |
| $1.65               |  |                                | 1,800   |                                    |  |                         | 0.3 |                                |  |                         | 1.65  |   |  |   | 1,800   |   |  |   | 1.65  |   |
| $0.62-$0.75         |  |                                | 67,500  |                                    |  |                         | 8.6 |                                |  |                         | 0.68  |   |  |   | 67,500  |   |  |   | 0.68  |   |
|                |  |                                | 280,888 |                                    |  |                         | 3.3 |                                |  | $                            | 3.38  |   |  |   | 276,288 |   |  | $      | 3.40  |   |
|                     |

F-45

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|         |                    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------|--------------------|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **15.** | **PreferredStock** |  | On May 14, 1998, theCompany designated 900,000 shares as the 1997 — Major Series ofConvertible Preferred Stock (the ‘‘1997 PreferredStock’’). The shares of the 1997 Preferred Stock hadvoting rights and voted with the common stock and not as a separateclass. Each share entitled the holder to 0.9 votes per share reflectingthe underlying conversion rate. The shares of 1997 Preferred Stock wereconvertible, with each share converting into four and a half shares ofcommon stock if the market value was equal to or greater than$6,000,000 for the 810,000 shares of common stock. If the 810,000shares of common stock had a market value of less than $6,000,000, thenadditional shares of common stock would be issued to equal a marketvalue of $6,000,000. In the event that a dividend is declared on thecommon stock, a dividend of twice the per share dividend of commonstock would be paid on the 1997 Preferred Stock. The 1997 PreferredStock has a liquidation value of $6,000,000. On the fifth anniversary,the 1997 Preferred Stock would automatically convert into shares ofcommon stock. During October  2000 and May  2001,400,000 shares and 400,000 shares were converted into 360,000 sharesand 1,777,778 shares, respectively, of common stock (after thethree-for-two and one-for-five stock splits). In February  2002,Mr. Bendell converted the remaining 100,000 shares of 1997Preferred Stock into 1,333,333 shares of commonstock. |
|         |                    |  |

|         |                            |  |                                                                                                                                                                                                                                                                                                                                                                                           |
|---------|----------------------------|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **16.** | **DiscontinuedOperations** |  | On November 3, 2000,the Board of Directors determined to divest the Company’snon-automotive operations within the next twelve months. Continuingoperations are represented by the Company’s automotivedealership activities, including its automotive leasing subsidiary,Major Fleet and Leasing, Inc. Non-automotive operations are reported asdiscontinued operations. |
|         |                            |  |

|  |  |                                                                    |
|--|--|--------------------------------------------------------------------|
|  |  | The loss fromdiscontinued operations is comprised of thefollowing: |
|  |  |                                                                    |

|                                  |
|----------------------------------|
|                                  |  |  |  |  |  |  |
| YearendedDecember 31,       |  | 2002 |
| Lossfrom discontinued operations |  | $ | (344,000 | )  |
| Income taxbenefit                |  |   | 138,000 |   |
|                             |  | $ | (206,000 | )  |
|                                  |

|  |  |                                                                                                                                                                                                                     |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | TheCompany completed the sale of its non-automotive assets during 2001resulting in the complete divestiture of all non-automotive operations.In February  2001, The Company completed an asset sale of itsRichmond, |
|  |  |                                                                                                                                                                                                                     |

F-46

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Virginia-based Internet Creations, Inc.(d/b/a Internet Connections) to Access Technology, Inc. The sale pricefor the assets was $320,000, $47,000 of which was paid at the closing,and $273,000 of which was evidenced by a senior secured promissorynote. No payments have been received on thenotes. |
|  |  |                                                                                                                                                                                                                                                                                                        |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Effective March 27, 2001,the Company sold its interest in its telecommunications subsidiary,IG2, to Global Communications of NY, Inc. The sale price was$3,000,000, less the assumption of certain of the Company’sliabilities, resulting in a net amount due to the Company of$1,778,803. Such indebtedness is evidenced by a note payable to theCompany in the principal amount of $1,778,803, bearing interest at8.5% and payable in quarterly installments over 48 months,beginning in March  2002. Such payments have been deferred tobegin in June  2002. No payments have been received on thenote. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Effective June 27, 2001, inrelated transactions, the Company sold its interest in its Israelitechnology subsidiary, C.B.S (Israel), Ltd. and the assets of itsCanadian subsidiary, 786710 Ontario, Ltd., doing business as InfoSystems, to GYT International, Ltd., a Nevis corporation. The combinedsales price in connection with these transactions was $350,000 for bothoperations, less the assumption of certain of the Company’sliabilities, resulting in a net amount due to the Company of $119,500.Such indebtedness is evidenced by a note payable to the Company in theprincipal amount of $119,500, bearing interest at 5% and payablein quarterly installments over 60 months, beginning in June2002. No payments have been received on thenote. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Effective July 31, 2001, theCompany sold its interest in its telephone calling card subsidiary, ICSGlobe, Inc., to Global Communications of NY, Inc. The sale price was$250,000, with a down payment of $10,000. The balance is evidenced by anote payable to the Company in the principal amount of $240,000,bearing interest at 12% and payable in monthly installments forsixteen months, beginning in August  2002. No payments have beenreceived. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

|  |  |                                                                                                                                         |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------|
|  |  | The aggregate sales price of theassets of these discontinued operations was $3.6  million. Thebook value of these assets was $1million. |
|  |  |                                                                                                                                         |

|  |  |                                                                                                                 |
|--|--|-----------------------------------------------------------------------------------------------------------------|
|  |  | The gains on the sales of thesediscontinued operations were deferred due to a lack of credit history.Such gains |
|  |  |                                                                                                                 |

F-47

----

TheMajor Automotive Companies,Inc.        Notes toConsolidated FinancialStatements

__________________________________________________________________________________

|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | were to be reflected when collectibility wasreasonably assured. Accordingly, the Company had reclassified thebalance of $1,000,000 from assets held for sale at December 31,2000 to notes receivable at December 31, 2001 and recorded avaluation allowance of $300,000 at that date to reflect the estimatedrealizable value of the amounts expected to be received from the saleof its discontinued operations. The balance of the related receivablesof approximately $182,000 was written off in 2002 because of theuncertainty ofcollectibility. |
|  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|         |                                        |  |                          |
|---------|----------------------------------------|--|--------------------------|
| **17.** | **QuarterlyFinancial Data(Unaudited)** |  |      |
|         |                                        |  |

|                                                                  |
|------------------------------------------------------------------|
|                                                                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2004                                                             |  | Firstquarter |  | Second quarter |  | Thirdquarter |  | Fourthquarter |
|                                                             |  | (In thousands except for persharedata) |
| Sales                                                            |  | $ | 84,872 |   |  | $ | 103,923 |   |  | $ | 104,118 |   |  | $ | 104,069 |   |
| Grossprofit                                                      |  |   | 14,114 |   |  |   | 16,990 |   |  |   | 15,993 |   |  |   | 17,429 |   |
| Operatingincome (loss) from continuingoperations                 |  |   | (188 | )  |  |   | 1,243 |   |  |   | 592 |   |  |   | (8,464 | )  |
| Netincome (loss)                                                 |  |   | (188 | )  |  |   | 1,243 |   |  |   | 592 |   |  |   | (8,464 | )  |
| Income(loss) from continuing operations per share –diluted |  | $ | (.02 | )  |  | $ | .13 |   |  | $ | .06 |   |  | $ | (.87 | )  |
| Netincome (loss) per share –(diluted)                      |  |   | (.02 | )  |  |   | .13 |   |  |   | .06 |   |  |   | (.87 | )  |
|                                                                  |

|                                                                  |
|------------------------------------------------------------------|
|                                                                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| 2003                                                             |  | Firstquarter |  | Second quarter |  | Thirdquarter |  | Fourthquarter |
|                                                             |  | (In thousands except for persharedata) |
| Sales                                                            |  | $ | 91,146 |   |  | $ | 98,873 |   |  | $ | 103,957 |   |  | $ | 86,323 |   |
| Grossprofit                                                      |  |   | 14,530 |   |  |   | 16,075 |   |  |   | 17,361 |   |  |   | 12,677 |   |
| Operatingincome (loss) from continuingoperations                 |  |   | (477 | )  |  |   | 600 |   |  |   | 812 |   |  |   | (2,076 | )  |
| Netincome (loss)                                                 |  |   | (477 | )  |  |   | 600 |   |  |   | 812 |   |  |   | (2,076 | )  |
| Income(loss) from continuing operations per share –diluted |  | $ | (.05 | )  |  | $ | .06 |   |  | $ | .09 |   |  | $ | (.22 | )  |
| Netincome (loss) per share –(diluted)                      |  |   | (.05 | )  |  |   | .06 |   |  |   | .09 |   |  |   | (.22 | )  |
|                                                                  |

|  |  |                                                                                                                                                                                                        |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | Income(loss) per share data are computed independently for each of theperiods presented; therefore the sum of the income (loss) per shareamounts for the quarters may not equal the total for theyear. |
|  |  |                                                                                                                                                                                                        |

|  |  |                                                                                                                                                                                                                                                                                                              |
|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |  | In the fourth quarter of 2004, theCompany incurred an impairment charge of approximately $8.1million in connection with the valuation of its goodwill and a chargeof approximately $549,000 in connection with litigation settlementexpenses. There were no comparable charges in the fourth quarter of2003. |
|  |  |                                                                                                                                                                                                                                                                                                              |

F-48

----

REPORT OFINDEPENDENT REGISTERED ACCOUNTING FIRM ON SCHEDULE

To the Shareholders and Directors of The MajorAutomotive Companies, Inc.

The audits referred to in ourreport dated May  17,  2005, except for Note  7,which is as of January  27, 2006, relating to the consolidatedfinancial statements of The Major Automotive Companies, Inc., which iscontained in Item 8 of this Form 10-K included the audits of thefinancial statement schedule listed in the accompanying index. Thisfinancial statement schedule is the responsibility of theCompany's management. Our responsibility is to express an opinionon this financial statement schedule based upon ouraudits.

In our opinion such financial statement schedulepresents fairly, in all material respects, the information set forththerein.

|                  |  |                     |  |  |  |  |
|------------------|--|---------------------|--|--|--|--|
| NewYork, NewYork |  | /s/BDO Seidman, LLP |
| May 17, 2005     |  | BDO Seidman,LLP     |
|                  |

S-1

----

SCHEDULE II

VALUATIONAND QUALIFYING ACCOUNTSFor the Years Ended December31,  2004, 2003 and 2002

|                                |  |                           |         |                                     |  |                            |         |                      |  |        |          |         |  |        |         |        |  |  |
|--------------------------------|--|---------------------------|---------|-------------------------------------|--|----------------------------|---------|----------------------|--|--------|----------|---------|--|--------|---------|--------|--|--|
| AmountDescription              |  | BalanceatBeginningof Year |         | AdditionsCharged toCostsandExpenses |  | Deductions,NetofWrite-offs |         | Balance atEnd ofYear |
| Allowance for doubtfulaccounts |  |                      |    |                                |  |                       |    |                 |  |   |     |    |  |   |    |   |
| Year ended December31,2004     |  | $                         | 492,000 |                                |  | $                          | 760,000 |                 |  | $      | (760,000 | )  |  | $      | 492,000 |   |
| Yearended December  31,2003    |  | $                         | 507,000 |                                |  | $                          | 250,000 |                 |  | $      | (265,000 | )  |  | $      | 492,000 |   |
| Yearended December  31,2002    |  | $                         | 700,000 |                                |  | $                          | 235,000 |                 |  | $      | (428,000 | )  |  | $      | 507,000 |   |
|                                |

|                             |  |                           |           |                                 |  |                            |           |                      |  |        |            |         |  |        |           |        |  |  |
|-----------------------------|--|---------------------------|-----------|---------------------------------|--|----------------------------|-----------|----------------------|--|--------|------------|---------|--|--------|-----------|--------|--|--|
|                        |  | BalanceatBeginningof Year |           | Reserves onCurrentYearPurchases |  | Sales ofPriorYearInventory |           | Balance atEnd ofYear |
| Inventory reserves          |  |                      |      |                            |  |                       |      |                 |  |   |       |    |  |   |      |   |
| Yearended December  31,2004 |  | $                         | 720,000   |                            |  | $                          | 647,000   |                 |  | $      | (720,000   | )  |  | $      | 647,000   |   |
| Yearended December  31,2003 |  | $                         | 1,016,000 |                            |  | $                          | 720,000   |                 |  | $      | (1,016,000 | )  |  | $      | 720,000   |   |
| Yearended December  31,2002 |  | $                         | 756,000   |                            |  | $                          | 1,016,000 |                 |  | $      | (756,000   | )  |  | $      | 1,016,000 |   |
|                             |

S-2

----