<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

             FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
                        COMMISSION FILE NUMBER: 0-29182


                             FIDELITY HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                           <C>
                       NEVADA                                    11-3292094

                    (State or other jurisdiction of            (I.R.S. Employer
                     incorporation or organization)           Identification No.)
</TABLE>

         80-02 KEW GARDENS ROAD, SUITE 5000, KEW GARDENS, NEW YORK 11415

          (Address, including Zip Code, of principal executive offices)
       Registrant's telephone number, including area code: (718) 520-6500

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                          COMMON STOCK, $0.01 PAR VALUE

                                (Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of April 10, 2001, the aggregate market value of voting stock held by
non-affiliates of the registrant, based on the closing sales price for the
registrant's common stock, as reported by the Nasdaq National Market was
approximately $5,872,040 calculated by excluding shares owned beneficially by
directors and officers).

As of April 10, 2001, there were 25,184,699 shares of the registrant's common
stock outstanding.
<PAGE>   2
                                     PART I

ITEM 1.        BUSINESS

        The statements which are not historical facts contained in this Annual
Report are forward looking statements that involve risks and uncertainties,
including, but not limited to, possible delays in our expansion efforts, changes
in the automotive market, government regulation, the nature of possible supplier
or customer arrangements which may become available to us in the future,
uncollectible accounts receivable, slow moving inventory, ability to dispose of
discontinued operations, lack of adequate financing, increased competition and
unfavorable general economic conditions. Our actual results may differ
materially from the results discussed in any forward-looking statement.

        Although we believe that the expectations in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.

THE COMPANY

GENERAL

        Fidelity Holdings, Inc. (d/b/a The Major Automotive Companies) ("we,"
"us," "our" or the "Company") was incorporated in Nevada on November 7, 1995. We
historically have operated as a holding company and, accordingly, we derive our
revenues solely from our operating subsidiaries. Our first full year of
operations was 1996. Unless otherwise indicated, all references to the
"Company," "we," "us," and "our" include reference to our subsidiaries.

Automotive Operations

        We sell new and used vehicles through the Major Dealer Group (the "Major
Dealer Group"), a leading consolidator of automobile dealerships in the New York
metropolitan area, which operates through twelve (12) retail automobile
franchises. Our leasing operations consist of providing leases and other
financing.

Discontinued Operations

        In November 2000, we announced our intent to divest our non-automotive
activities, specifically, our former technology division, by way of sale,
merger, consolidation or otherwise. Our former technology division was headed by
IG2, Inc. (f/k/a Computer Business Services, Inc. ("CBS")). Its operations
consisted primarily of voice processing and computer telephony technology,
including development of a proposed leading edge network, the IG2(R) Network. We
have divested and continue to divest our former technology division in order to
maximize shareholders' value from these operations and to maintain our focus on
the operation and consolidation of our retail automotive dealerships.

Year 2000 Summary

        The year 2000 has been one of significant change for us. Our automotive
operations generated revenues in excess of $322 million and a historical high
gross profit of approximately $50 million. These levels were reached through
both internal growth and expansion of dealer networks.


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Although the automotive operations were profitable, losses from our discontinued
operations were primarily responsible for a net loss of $21,125,075.

AUTOMOTIVE OPERATIONS

Major Auto Acquisition

         On April 21, 1997, we and our wholly-owned subsidiary, Major
Acquisition Corp., entered into a merger agreement (the "Merger Agreement") with
Major Automotive Group, Inc. ("Major Auto") and its sole stockholder, Bruce
Bendell, our Chief Executive Officer, Chairman and beneficial owner of
approximately 30% of our outstanding common stock. Pursuant to the Merger
Agreement, Bruce Bendell contributed to Major Auto all of his 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 the issued and outstanding shares of common stock of Major
Auto in exchange for shares of a new class of our preferred stock. Major
Acquisition Corp. purchased the remaining 50% of the issued and outstanding
shares of common stock of Major Dodge, Inc. 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. In addition, Major Acquisition Corp.
acquired certain real estate components from Bruce Bendell and Harold Bendell
for $3 million.

        The preferred stock issued to Bruce Bendell is designated as the
"1997-Major Series of Convertible Preferred Stock." It has voting rights and is
convertible into our common stock. The number of shares of common stock into
which the 500,000 shares of 1997-Major Series of Convertible Preferred Stock
issued to Mr. Bendell were originally convertible was 2,250,000 shares. The
foregoing acquisitions from Major Auto and Harold Bendell are collectively
referred to herein as the "Major Auto Acquisition."

        To finance the cash portion of the Major Auto Acquisition, which
aggregated $7 million ($4 million for Harold Bendell and $3 million to purchase
the real estate component), Major Acquisition Corp. borrowed $7.5 million from
Falcon Financial, LLC ("Falcon") pursuant to a loan and security agreement dated
May 14, 1998, for a 15 year term at an interest rate of 10.18%. Prepayment is
not permitted for the first five (5) years, after which time prepayment may be
made, in full only, along with the payment of a premium.

        The collateral securing the Falcon loan transaction includes the
acquired real estate and, subject to the interests of any current or prospective
"floor plan or cap loan lender," the assets of Major Acquisition Corp. Major
Acquisition Corp. is required to comply with certain financial covenants related
to its net worth and cash flow. In addition, we provided an unconditional
guarantee of the Falcon loan pursuant to a guarantee agreement dated May 14,
1998.

General

        The Major Dealer Group is one of the largest volume automobile retailers
in New York City. Major Auto owns and operates the following seven franchised
automobile dealerships in the New York metropolitan area: (i) Chevrolet; (ii)
Chrysler; (iii) Plymouth; (iv) Dodge; (v) Jeep; (vi) Subaru; and (vii) Kia. In
addition, the Major Dealer Group owns five other franchised dealerships in the
New York metropolitan area: (i) Lincoln-Mercury; (ii) Mazda; (iii) Dodge; (iv)
Nissan; and (v) Daewoo. Major Auto also distributes General Motors vehicles in
the former Soviet Union. Through its


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dealerships, the Major Dealer Group sells new and used automobiles, provides
related financing, sells replacement parts and provides vehicle repair service
and maintenance.

        Our Chief Executive Officer and Chairman, Bruce Bendell, has
approximately 29 years experience in the automobile industry. Mr. Bendell began
selling and leasing used vehicles in 1972 and has owned and managed franchised
automobile dealerships since he acquired Major Auto's Chevrolet dealership in
1985. Under Mr. Bendell's leadership, the Major Dealer Group has expanded from a
single-franchise dealership having approximately $10 million in revenues and 25
employees in 1985 to a twelve-franchise dealership group having more than $320
million in revenues and more than 300 employees in 2000.

Industry Background

        According to industry data from the National Automobile Dealers
Association ("NADA Data"), on average in 2000, new vehicle sales constituted
60.1% of a franchised dealership's total sales. Unit sales of new vehicles rose
3.9% in 2000 to a total of 17.4 million units sold. At an average retail selling
price of $24,923 per vehicle, new vehicle sales totaled approximately $432
billion in 2000. From 1995 to 2000 sales revenue from the sale of new vehicles
increased approximately 42.5%. The annual net profit before taxes of the typical
United States franchised dealer is estimated to be $453,000. The average
dealership's gross profit as a percentage of selling price for new vehicles was
6.1% in 2000.

        According to NADA Data, on average in 2000, used vehicle sales
constituted 28.6% of a franchised dealership's total sales. In 2000, franchised
new vehicle dealers sold 12.6 million retail used vehicles. At an average
selling price of $13,648 per vehicle, used vehicle sales totaled approximately
$172 billion in 2000. From 1995 to 2000, sales revenue from the retail sale of
used vehicles increased approximately 36.5%. The average dealership's gross
profit as a percentage of selling price for used vehicles was 10.9% in 2000. No
assurance can be given that results of Major Auto's operations will conform to
NADA's industry results.

        The following table sets forth information regarding vehicle sales by
franchised new vehicle dealerships for the periods indicated:

UNITED STATES FRANCHISED DEALER'S VEHICLES SALES

<TABLE>
<CAPTION>
                                    1995     1996     1997     1998      1999     2000
                                    ----     ----     ----     ----      ----     ----
                                          (Units in million; dollars in billions)
<S>                                <C>      <C>      <C>      <C>       <C>      <C>
New vehicle unit sales               14.8     15.1     15.1     16.2      16.9     17.4
New vehicle sales revenue (1)      $303.0   $328.0   $338.2   $383.0    $413.1   $432.0
Used vehicle unit sales-retail       11.4     11.9     12.0     12.2      11.1     12.6
Used vehicle retail sales revenue  $126.0   $137.0   $145.2   $153.0    $146.9   $172.0
</TABLE>

(1)  Sales revenue figures were generated by multiplying the total unit sales by
     the average retail selling price of the vehicle for the given year. Source:
     National Automobile Dealers Association (NADA) Data, 2000.

        In addition to revenues from the sale of new and used vehicles,
automotive dealerships derive revenues from repair and warranty work, sale of
replacement parts, financing and credit insurance and the sale of extended
warranty coverage. According to NADA Data, revenues resulting from service and
parts sales increased approximately 8.3% in 2000 for franchised dealerships, a
portion of


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which is accounted for by the increase in the amount of used vehicle
reconditioning. Revenue from parts and services constitutes, on average,
approximately 11.4% of a franchised dealership's total sales.

        Automotive dealerships' profits vary widely and depend in part upon the
effective management of inventory, marketing, quality control and responsiveness
to customers. According to NADA Data, in 2000, total franchised dealership gross
profits were, on average, $3.7 million, with an average net profit before taxes
of $453,000.

        To reduce the costs of owning a new vehicle, in recent years, automobile
manufacturers have offered favorable short-term lease terms. This has attracted
consumers to short-term leases and has resulted in consumers returning to the
new vehicle market sooner than if they had purchased a new vehicle with
longer-term financing. In recent years, however, this trend has diminished and
continues to do so. In addition, this has provided new car dealerships with a
continuing source of off-lease vehicles and has also enabled dealerships' parts
and service departments to provide repair service under factory warranty for the
lease term.

        The automotive dealership industry has been consolidating in recent
years. Until the 1960s, automotive dealerships were typically owned and operated
by a single individual who controlled a single franchise. However, because of
competitive and economic pressures in the 1970s and 1980s, particularly the oil
embargo of 1973 and the subsequent loss of market share experienced by United
States automobile manufacturers to imported vehicles, many automotive
dealerships were forced to close or to sell to better-capitalized dealer groups.
Continued competitive and economic pressure faced by automotive dealers and an
easing of restrictions imposed by automobile manufacturers on multiple-dealer
ownership have led to further consolidation. According to NADA Data, the number
of franchised dealerships has declined from 36,336 in 1960 to 21,674 at the end
of 2000.

        We believe that franchised automobile dealerships will continue to
consolidate because the capital required to operate dealerships continues to
increase, many dealership owners are approaching retirement age and certain
automobile manufacturers want to consolidate their franchised dealerships to
strengthen their brand identity. For example, General Motors Corporation and
Ford Motor Company have been reducing the number of their franchises to upgrade
their retail networks and increase dealer profitability. We believe that
dealership groups that have significant equity capital and experience in
acquiring and running dealerships will have an opportunity to acquire additional
franchised dealerships. Additionally, we believe that the increased percentages
of leased versus owned vehicles in recent years may provide some protection
against the historical trends of decreased motor vehicle purchasers during
periods of economic downturns.

Operating Strategy

        Our operating strategy is to continually increase customer satisfaction
and loyalty and to increase operating efficiencies. Key elements of this
operating strategy are as follows:

        Focus on Used Vehicle Sales. A key element of our operating strategy is
to focus on the sale of used vehicles. In 2000, approximately 12.6 million used
cars were sold retail by dealers, over 13.5% more than the number of such sales
in 1999. Sales of used vehicles are generally more profitable than sales of new
vehicles. For the industry as a whole, average gross profit on used vehicles was
10.9%, compared with new vehicle average gross profits of 6.1%. Our dealerships
average gross profit on used vehicles was approximately 18.1% and on new
vehicles was


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approximately 8.2%. We believe that the New York metropolitan area is one of the
largest markets for used car sales in the United States and that we sell more
used cars in the New York metropolitan area than any other automobile dealership
or dealership group. We strive to attract customers and enhance buyer
satisfaction by offering multiple financing and leasing options and competitive
warranty products on every used vehicle we sell. We believe that a well-managed
used vehicle operation affords us an opportunity to: (i) generate additional
customer traffic from a wide variety of prospective buyers; (ii) increase new
and used vehicle sales by aggressively pursuing customer trade-ins; (iii)
generate incremental revenues from customers financially unable or unwilling to
purchase a new vehicle; and (iv) increase ancillary product sales to improve
overall profitability. To maintain a broad selection of high-quality used
vehicles and to meet local demand preferences, we acquire used vehicles from
trade-ins and a variety of sources nationwide, including direct purchases from
individuals and fleets, and manufacturers' and independent auctions. We believe
that the price at which we acquire used vehicles, our success in providing
non-recourse financing to prospective buyers who may otherwise find it difficult
to obtain financing and selling high priced quality used cars are the most
significant factors contributing to the profitability of our used vehicle
operations. We believe that, because of the large volume of used vehicles that
we sell each month and the more than 29 years of experience in the used vehicle
business of our Chief Executive Officer, we are able to identify quality used
vehicles, assess their value, purchase them for a favorable price and sell them
profitably to a diverse customer base.

        Major World Branding. We have established our Major World brand and
www.majorworld.com Internet brand for its current used car operations and those
of the Major Dealer Group's participating regional dealerships. With centralized
buying and advertising as its focus, Major World is a natural extension of our
efforts in our regional acquisition strategy and our accomplishments in used car
sales through our dealerships in the New York metropolitan area.

        Provide a Broad Range of Products and Services. 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. At our
various locations, we offer, collectively, twelve (12) makes of new vehicles-
Chevrolet, Chrysler, Plymouth, Dodge, Jeep, Subaru, Kia, Lincoln, Mercury,
Nissan, Mazda and Daewoo. In addition, we sell a variety of used vehicles at a
wide range of prices. We believe that offering numerous makes and models of
vehicles, both new and used, appeals to a broad cross section of customers,
minimizes dependence on any one automobile manufacturer and helps reduce our
exposure to supply problems and product cycles.

        Operate Multiple Dealerships in Target Market. Our goal is to become the
leading automotive dealer in our target market, the New York metropolitan area,
by operating multiple dealerships in that market. To accomplish this, we seek to
acquire new franchises at favorable prices in our existing market and to expand
our existing franchises to new markets. This strategy enables us to achieve
economies of scale in advertising, inventory management, management information
systems and corporate overhead.

        Emphasize Sales of Higher Margin Products and Services. We generate
substantial incremental revenue and achieve increased profitability through the
sale of certain ancillary products and services such as financing, extended
service contracts and vehicle maintenance. We provide our employees with special
training and compensate them, in part, with commissions based on their sales of
such products and services. We believe that these ancillary products and
services enhance the value of purchased or leased vehicles and increase customer
satisfaction.


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        Employ Professional Management Techniques. We employ professional
management techniques in all aspects of our operations, including information
technology, employee training, profit-based compensation and cash management.
Each of our dealership locations, our centralized used vehicle operation and our
service and parts operations is managed by a trained and experienced general
manager who is primarily responsible for decisions relating to inventory,
advertising, pricing and personnel. We compensate our general managers based, in
part, on the profitability of the operations they control rather than on sales
volume. Our senior management meets weekly with our general managers and
utilizes computer-based management information systems to monitor each
dealership's sales, profitability and inventory on a daily basis and to identify
areas requiring improvement. We believe that the application of our professional
management techniques provides us with a competitive advantage over other
dealerships and dealership groups.

        Internet Sales and Other Innovations. We believe that we have achieved a
competitive advantage through the use of technology. Our dealerships were one of
the first to provide customers with an 800 telephone number and price quotations
via facsimile. During the past several years, the Major Dealer Group has also
increased revenue to a present level of more than $1 million each month from its
Internet website, www.majorworld.com, and other electronic media such as
Bloomberg. Additionally, we presently enable our customers to obtain credit
approvals over the telephone via a customized telephone interactive voice
response system, that operates 24 hours per day, seven days per week, in nine
different languages and permits customers to obtain answers to the most
frequently asked questions, obtain price quotes, place orders, schedule and
confirm service appointments, obtain directions to the dealership and request
faxes of product and price information. We continue to seek to take advantage of
new innovations that will enable us to provide better customer service and
enhance customer satisfaction.

        Target Sales to Ethnic Groups. Because the New York metropolitan area,
our primary market, is ethnically diverse, we target our selling efforts to a
broad range of ethnic groups. We employ a multi-lingual sales force, advertise
in ethnic media, intend to further expand our electronic-related media to
accommodate multiple languages and also offer pre-paid international telephone
calling time.

Growth Strategy

        We intend to expand our automotive business by acquiring additional
dealerships and improving their performance and profitability by implementing
our operating strategy. As part of our growth strategy, we intend to focus our
efforts on dealerships or dealer groups that, among other criteria, we believe
are underperforming and possess either the sole franchise of a major automobile
manufacturer or a significant share of new vehicle sales in each targeted
market. In evaluating potential acquisition candidates, we also consider the
dealership's or dealer group's profitability, customer base, reputation with
customers, strength of management and location (e.g., along a major thoroughfare
or interstate highway), and the possibility that we will be able to acquire
additional franchises in that market to achieve larger market share. We believe
that the most attractive acquisition candidates can be found in the greater New
York metropolitan area, but we may consider acquisitions in other markets. The
financing of such acquisitions may involve expending cash, incurring debt or
issuing equity securities, which could have a dilutive effect on our then
outstanding capital stock. We, like all other automotive dealership holding
companies, will continue to be subject to the requirement of obtaining prior
approval for each acquisition from the appropriate automotive manufacturer.


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        Upon completing an acquisition, we intend to implement our operating
strategy, which includes selling more new and used vehicles, increasing finance
revenues, enhancing employee training and lowering purchasing costs for used car
inventories, supplies and outside vendor expenses. We also intend to install our
management information system in acquired dealerships as soon as possible after
an acquisition, which will allow our senior management to carefully monitor each
aspect of the dealership's operations and performance. Whenever possible, we
intend to implement our strategies and operation procedures prior to a closing
of an acquisition to enable us to accelerate the implementation of our operating
strategy after a closing. See "Operating Strategy." No assurance can be given
that we will successfully locate suitable acquisition candidates, or even if
such candidates are located and acquired, that such acquisitions will ultimately
prove profitable to us.

        We believe that our management team has considerable experience in
evaluating potential acquisition candidates, determining whether a particular
dealership can be successfully integrated into our existing operations and
implementing our operating strategy to improve our performance and profitability
following an acquisition. We also believe that an increasing number of
acquisition opportunities will become available to us. See "Industry Background"
and "Proposed Acquisitions."

Dealership Operations

        We own and operate seven (7) automobile franchises at four (4) locations
in Long Island City, New York, three (3) franchises in three (3) locations in
Hempstead, New York and two (2) franchises in two (2) locations in Orange, New
Jersey. We conduct our parts and service business and our used vehicle business
from three additional locations in Long Island City. We offer the following
twelve (12) makes of new vehicles: Chevrolet, Chrysler, Plymouth, Dodge, Jeep,
Subaru, Kia, Lincoln, Mercury, Mazda, Nissan and Daewoo. Each location is run by
a separate manager who is responsible for overseeing all aspects of the business
conducted at that location. Each of the parts and service locations has two (2)
managers, one for parts and one for service. Each manager meets with our senior
management on a weekly basis.

        Bruce Bendell, our Chief Executive Officer and Chairman, James Wallick,
our President and Chief Operating Officer, and Harold Bendell, a key employee,
are responsible for management of our dealerships. The Bendell brothers'
management control is accomplished through (i) their ownership of 100 shares of
our 1997A-Major Automotive Group Series of Preferred Stock (of which shares
Bruce Bendell has a proxy to vote the 50 shares of the 1997A-Major Automotive
Group Series of Preferred Stock owned by Harold Bendell for a seven-year period
which commenced on January 7, 1998) which carries voting rights allowing them to
elect a majority of the board of directors of Major Auto and (ii) a related
management agreement. See "Description of Securities-Preferred Stock-1997A-Major
Automotive Group Series of Preferred Stock" and "Certain Relationships and
Related Transactions" below. Should either of the Bendell brothers cease
managing the dealerships, the management agreement provides that ownership of
his respective 1997A-Major Automotive Group Series of Preferred Stock shares and
his respective management rights under the management agreement will be
automatically transferred to the other, and should both brothers cease managing
the dealerships for any reason, the shares and management rights will be
automatically transferred to a successor manager designated in a successor
addendum to each dealership agreement or, failing such designation, to a
successor manager designated by us (subject to approval by the applicable
manufacturers).

        New Vehicle Sales. We sell a complete product line of cars, sport
utility vehicles, minivans and light trucks manufactured by Chevrolet, Chrysler,
Plymouth, Dodge, Jeep, Subaru, Kia, Lincoln,


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Mercury, Nissan, Mazda and Daewoo. For the year ended December 31, 2000, our
dealerships sold new vehicles generating total sales of approximately $132.5
million, which constituted approximately 41.2% of our total revenues. Our gross
profit margin on new vehicle sales for the year ended December 31, 2000 was
approximately 8.2%, which is significantly higher than the industry average of
6.1%. The relative percentages of our new vehicle sales among makes of vehicles
for the year ended December 31, 2000 was as follows:

<TABLE>
<CAPTION>
                                            Percentage of
        Manufacturer                        New Vehicle Sales
        ------------                        -----------------

<S>                                         <C>
        Chevrolet                            42.6%
        Dodge                                19.4%
        Chrysler, Plymouth and Jeep          13.7%
        Subaru and Kia                        8.6%
        Lincoln-Mercury                       6.3%
        Mazda                                 5.8%
        Nissan and Daewoo                     3.6%
</TABLE>

        The following table sets forth information with respect to our new
vehicle sales for the year ended December 31, 2000:

        NEW VEHICLE SALES
        (dollars in millions)

<TABLE>
<S>                                 <C>
        Unit Sales                     5,369
        Sales Revenue                 $132.5
        Gross Profit                  $ 10.8
        Gross Profit Margin              8.2%
</TABLE>

        We purchase substantially all of our new vehicle inventory directly from
the respective manufacturers, who allocate new vehicles to dealerships based
upon the amount of vehicles sold by the dealership and the dealership's market
area. As required by law, we post the manufacturer's suggested retail price on
all new vehicles, but the final sales price of a new vehicle is typically
determined by negotiation between the dealership and the purchaser.

        In addition to our dealership operations, we have a distributorship
agreement with General Motors pursuant to which we distribute new vehicles
manufactured by General Motors to countries of the former Soviet Union. We
generally receive a deposit on the purchase price of the vehicle from the local
dealer and release the vehicle to the dealer upon full payment of the balance of
the wholesale purchase price plus a percentage of the dealer's profit on the
sale. We intend to expand our distributorship operation to former countries of
the Soviet Union in the future to include the sale of used vehicles.

        Used Vehicle Sales. We offer a wide variety of makes and models of used
vehicles, retail and wholesale, for sale. For the year ended December 31, 2000,
we sold 13,291 used vehicles generating total sales of approximately $178.0
million, which constituted approximately 55.4% of our total revenues. Our gross
profit margin on used vehicle sales for the year ended December 31, 2000 was


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approximately 18.1%, as compared with the industry average of 10.9%. We are one
of the largest sellers of used vehicles in the New York metropolitan area.

        Our primary location for used vehicle sales is at a single site at Long
Island City, New York. We also sell used vehicles, however, at dealerships
located in Hempstead, New York and Orange, New Jersey. We acquire the used
vehicles we sell through customer trade-ins, at "closed" auctions, which may be
attended by only new vehicle dealers and which offer off-lease, rental and fleet
vehicles, and at "open" auctions, which offer repossessed vehicles and vehicles
being sold by other dealers.

        We believe that the market for used vehicles is driven by the escalating
purchase price of new vehicles and the increase in the quality and selection of
used vehicles primarily due to an increase in the number of popular cars coming
off short-term leases.

        The following table sets forth information with respect to our used
vehicle sales for the year ended December 31, 2000:

        USED VEHICLE SALES
        (dollars in millions)

<TABLE>
<S>                                   <C>
        Unit Sales                    13,291
        Sales Revenue                 $178.0
        Gross Profit                  $ 32.2
        Gross Profit Margin             18.1%
</TABLE>

        Parts and Service. We provide parts and service for new and used
vehicles that we sell, and also service other makes of vehicles. For the period
ended December 31, 2000, our parts and service operations generated total
revenues of approximately $11.0 million, which constituted approximately 4.3% of
our total revenues at a gross profit margin of approximately 50.9%.

        The increased use of electronics and computers in vehicles makes it more
difficult for independent repair shops to retain the expertise to perform major
or technical repairs. In addition, because motor vehicles are increasingly more
complex and are subject to longer warranty periods, we believe that repair work
will increasingly be performed at dealerships that have the sophisticated
equipment and skilled personnel necessary to perform the repairs.

        We consider our parts and service departments to be integral to our
customer service efforts and a valuable opportunity to strengthen customer
relations and deepen customer loyalty. We attempt to notify owners of vehicles
purchased at our dealerships when their vehicles are due for periodic service,
thereby encouraging preventative maintenance rather than post-breakdown repairs.

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

        We do not operate a body shop, but instead contract with third parties
for body repair work.


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        The following table sets forth information with respect to our sales of
parts and services for the year ended December 31, 2000:

        SALES OF PARTS AND SERVICES
        (dollars in millions)

<TABLE>
<S>                                    <C>
        Sales Revenue                  $11.0
        Gross Profit                   $ 5.6
        Gross Profit Margin             50.9%
</TABLE>

        Vehicle Financing. We provide a wide variety of financing and leasing
alternatives for our customers. We believe that our customers' ability to obtain
financing at our dealerships significantly enhances our ability to sell new and
used vehicles. We believe that our ability to provide our customers with a
variety of financing options provides us with an advantage over many of our
competitors, particularly smaller competitors that do not have sufficient sales
volumes to attract the diversity of financing sources available to us.

        In most instances, we assign our vehicle finance contracts and leases to
third parties, instead of directly financing vehicle sales or leases, which
minimizes our credit risk. We typically receive a finance fee or commission from
the third party, which provides the financing. In certain limited instances in
which we determine that our credit risk is manageable, estimated by us to be
less than 1% of our vehicles sales and leases, we directly finance the purchase
or lease of a vehicle. In such instances, we bear the credit risk that the
customer will default, but will have the right to repossess the vehicle upon
default. We maintain relationships with a wide variety of financing sources,
including commercial banks, automobile finance companies and other financial
institutions. We also utilize the financial services of our subsidiary, Major
Fleet, which purchases less than 1% of our leases and none of our finance
contracts. See "Leasing Operations."

Sales and Marketing

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

        Our marketing effort is conducted over numerous forms of media including
television, newspaper, direct mail, billboards and the Internet. Our advertising
seeks to promote our image as a reputable dealer offering quality products at
affordable prices and with attractive financing options. Each of our dealerships
periodically offers price discounts or other promotions to attract additional
customers. The individual dealerships' promotions are coordinated by us and,
because we own and operate several dealerships in the metropolitan New York
market, we realize cost savings through volume discounts and other media
concessions.

        Our operations have been fostered by our ability to achieve economies of
scale with respect to our marketing and advertising. Nationwide, the average
cost of marketing and advertising per new vehicle sold in 2000 was approximately
$448. Although advertising costs in the New York metropolitan area are generally
higher than the national average, our cost of marketing and


                                       11
<PAGE>   12
advertising per vehicle sold is approximately equal to the national average.
Combined with a substantial increase in media exposure, which resulted in
increased volume, our costs show the economies that we have achieved. These
lower costs result from the fact that we: (i) have favorable contracts with four
major area daily newspapers; (ii) advertise in lower-cost niche markets (such as
local ethnic markets, employee purchase programs and discount buying services);
and (iii) utilize telephonic marketing and electronic marketing via services
such as the Internet.

Relationships with Manufacturers

        Each of our dealerships operates under a separate franchise or dealer
agreement which governs the relationship between the dealership and the relevant
manufacturer. In general, each dealer agreement specifies the location of the
dealership for the sale of vehicles and for the performance of certain approved
services in the specified market area. The designation of such areas, the
allocation of such areas and the allocation of new vehicles among dealerships is
discretionary with the relevant manufacturer. Dealer agreements do not generally
provide a dealer with an exclusive franchise in the designated market area. A
dealer agreement generally requires that a dealer meet specified standards
regarding showrooms, the facilities and equipment for servicing vehicles, the
maintenance of inventories, the maintenance of minimum net working capital,
personnel training and other aspects of the dealer's business. The dealer
agreement also gives the relevant manufacturer the right to approve the dealer's
general manager and any material change in management or ownership of the
dealership. The dealer agreement provides the relevant manufacturer with the
right to terminate the dealer agreement under certain circumstances, such as:
(i) a change in control of the dealership without the consent of the relevant
manufacturer; (ii) the impairment of the financial condition or reputation of
the dealership; (iii) the death, removal or withdrawal of the dealership's
general manager; (iv) the conviction of the dealership or the dealership's
general manager of certain crimes; (v) the dealer's failure to adequately
operate the dealership or to maintain wholesale financing arrangements; (vi) the
bankruptcy or insolvency of the dealership; or (vii) the dealer's or
dealership's material breach of other provisions of the dealer agreement. Many
of the dealership agreements require the consent of the relevant manufacturer to
the dealer's acquisition of additional dealerships. In addition, our dealership
agreement with General Motors, with respect to our Chevrolet dealership,
provides General Motors with a right of first refusal to purchase such a
dealership.

        The dealership agreement with General Motors imposes on us several
additional restrictions. As a consequence of the Major Dealer Group Acquisition,
our Chevrolet franchise, and any other General Motors' franchises that we may
subsequently acquire, could be at risk if: (i) any person or entity acquires
more than 20% of our voting stock with the intention of acquiring additional
shares or effecting a material change in our business or corporate structure; or
(ii) if we take any corporate action that would result: (a) in any person or
entity owning more than 20% of our voting stock for a purpose other than passive
investment; (b) an extraordinary corporate transaction such as a merger,
reorganization, liquidation or transfer of assets; (c) a change in the control
of our board of directors within a rolling one-year period; or (d) the
acquisition of more than 20% of our voting stock by another automobile dealer or
such dealer's affiliates. If General Motors determines that any of such actions
could have a material or adverse effect 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 General Motors'
dealerships to General Motors or a third party acceptable to General Motors for
fair market value or (y) demonstrate that the person or entity will not own 20%
of our voting stock or that the actions in question will not occur.


                                       12
<PAGE>   13
        We have also agreed that our dealerships offering new vehicles
manufactured by General Motors will not sell new vehicles of other
manufacturers.

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

Competition

        The market for new and used vehicle sales in the New York metropolitan
area is one of the most competitive in the nation. In the sale of new vehicles,
we compete with other new automobile dealers that operate in the New York
metropolitan area. Some competing dealerships offer some of the same makes as
our dealerships and other competing dealerships offer other manufacturer's
vehicles. Some competing new vehicle dealers are local, single-franchise
dealerships, while others are multi-franchise dealership groups. In the sale of
used vehicles, we compete with other used vehicle dealerships and with new
vehicle dealerships which also sell used cars that operate in the New York
metropolitan area. In addition, we compete with used car "superstores" that have
inventories that are larger and more varied than ours.

        We believe that the principal competitive factors in vehicle sales are
the marketing campaigns conducted by automobile manufacturers, the ability of
dealerships to offer a wide selection of popular vehicles, pricing (including
manufacturers' rebates and other special offers), the location of dealerships,
the quality of customer service, warranties and customer preference for
particular makes of vehicles. We believe that our dealerships are competitive in
all of these areas.

        In addition, we, due to the size and number of automobile dealerships we
own and operate, are larger than most of the independent operators with which we
compete. Our size has historically permitted us to attract experienced and
professional sales and service personnel and has provided us with the resources
to compete effectively. However, as we enter other markets, we may face
competitors that are larger and that have access to greater resources.

        We believe that our principal competitors within the New York
metropolitan area are United Auto Group, a publicly traded company, and Potamkin
Auto Group, Burn's Auto Group and Auto-Land, each of which is privately held.

        We also compete though our Internet vehicle purchasing services against
a variety of Internet and traditional vehicle purchasing services and automotive
broker. Entities which maintain similar commercial Web sites include
Autoweb.com, Autobytel.com, Carsdirect.com, Cendant Membership Service, Inc.'s
AutoVantage and Microsoft Corporation's Carpoint and Stoneage Corporation.
Additionally, we compete indirectly against vehicle brokerage firms and affinity
programs offered by several companies, including Costco Wholesale Corporation
and Wal-Mart Stores, Inc. Moreover, our major vehicle manufacturers have their
own Web sites and many have recently launched or announced plans to launch
online buying services. We also compete with vehicle insurers, lenders


                                       13
<PAGE>   14
and lessors as well as other dealers that are not part of our network. Such
companies may already maintain or may introduce Web sites which compete with
ours.

Governmental Regulation

        Automobile dealers and manufacturers are subject to various federal and
state laws established to protect consumers, including the so-called "Lemon
Laws," which require a dealer or manufacturer to replace a new vehicle or accept
it for a full refund within a specified period of time, generally one year after
the initial purchase, if the vehicle does not conform to the manufacturer's
express warranties and the dealer or manufacturer, after a reasonable number of
attempts, is unable to correct or repair the defect. Federal laws require that
certain written disclosures be provided on new vehicles, including mileage and
pricing information. In addition, our financing activities are subject to
certain statutes governing credit reporting and debt collection.

        As with automobile dealerships generally, and parts and service
operations in particular, our business involves the use, handling and
contracting for recycling or disposal of hazardous or toxic substances or
wastes, including environmentally sensitive materials such as motor oil, waste
motor oil and filters, transmission fluid, 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
environmental laws governing health, environmental quality, and remediation of
contamination at facilities we operate or to which we send hazardous or toxic
substances or wastes for treatment, recycling or disposal. We believe that we
are in material compliance with all environmental laws and that such compliance
will not have a material adverse effect on our business, financial condition or
results of operations.

Leasing Operations

        In October 1996, we acquired Major Fleet & Leasing Corp. ("Major
Fleet"). Major Fleet has historically provided lease financing solely for motor
vehicles. Major Fleet typically arranges for the sale or lease to its customers
of new or used vehicles of all makes and models. Major Fleet will purchase the
desired vehicle from an automobile dealer and either resell it to its customer
for a markup over its cost, or lease the vehicle to the customer and provide the
related lease financing. If a customer of Major Fleet wants to purchase or lease
a new vehicle that is available from one of our dealerships, in almost all
cases, Major Fleet will acquire the vehicle from us and then resell or lease it
to its customer. Major Fleet estimates that it acquires approximately 50% of the
vehicles it sells and leases from us.

        In most instances, Major Fleet will broker vehicle finance contracts
for, or assign its leases to, third parties instead of directly financing
vehicle sales or leases. This minimizes our credit risk. In these instances,
Major Fleet typically receives a finance fee or commission from the third party
who provides the financing. In certain instances, Major Fleet directly finances
the lease of a vehicle. When Major Fleet provides lease financing, it bears the
credit risk that its customers will default in the payment of the lease
installments. In order to minimize its risk of loss, Major Fleet carefully
evaluates the credit of its lease customers. It also requires that its lease
customers have adequate collision and liability insurance on the leased vehicle
and that Major Fleet be named as loss payee and additional insured on the
customer's collision and liability insurance policies. Major Fleet does not
finance the purchase of the vehicles, so if a customer desires purchase
financing, the customer will need to obtain financing from a third party;
however, as discussed above, Major Fleet will broker financing contracts.


                                       14
<PAGE>   15
Proposed Acquisitions

        We signed a letter of intent to acquire the Long Island, New York based
Major of the Five Towns (formerly Nissanland and Kialand), currently doing
business as Five Towns Nissan and Five Towns Kia. This dealership is 80% owned
by our Chief Executive Officer and Chairman, Bruce Bendell. This dealership has
three separate showroom locations. Nicholas Guadagno is the President and 20%
shareholder of Major of the Five Towns. Mr. Guadagno's interest is in the
process of being purchased by Bruce Bendell, which purchase must be completed
before any transaction may occur with us.

        We are also under contract to acquire Brunner Cadillac/Buick/Pontiac, an
Essex County, New Jersey dealer, from William Brunner. The purchase price is the
assumption of up to $600,000 of the seller's liabilities and $150,000 payable in
the form of shares of our common stock. This is an additional step in building a
northern New Jersey automotive group that will utilize the "Major World"
strategies.

        An agreement has been reached to acquire Major Motors of Pennsylvania, a
Hyundai dealer in Stroudsburg, Pennsylvania, from Bruce Bendell and John
McDermott, a 33% owner. The related real estate owned jointly by Bruce Bendell
and Harold Bendell is undergoing a revision in corporate structure. After this
restructuring takes place, a fairness opinion is to be obtained from an
independent appraiser before a sale price can be determined.

        We have terminated an agreement to purchase 80% of B&L Auto Group Inc.,
a Bronx, New York-based dealer. This dealership group includes Toyota, Subaru
and Kia franchises, and has subsequently been acquired by Harold Bendell.

        An agreement has been reached, and approval has granted by Suzuki, to
acquire a Suzuki franchise at a certain location in Hempstead, New York from
Hempstead F.S. Motors, Ltd. Approval, however, is required from Suzuki for a
different location for the franchise before a final price can be determined.

        No assurance can be given that we will successfully consummate any or
all of the aforementioned potential acquisitions, or, if consummated, that such
acquisitions will ultimately prove profitable to us.

DISCONTINUED OPERATIONS

        In November 2000, we announced our intention to divest our
non-automotive operations by way of sale, merger, consolidation or otherwise by
the most economically viable means, in order to maximize shareholders' value
from these operations and to maintain our focus on the operation and
consolidation of our retail automotive dealerships. The non-automotive
components of our business that our Board of Directors has determined to divest
have generated a substantial loss. The aggregate amount of such loss from
discontinued operations, net of taxes, for the year ended December 31, 2000 was
approximately $23.7 million, compared with a loss from discontinued operations
of $4.9 million for the year ended December 31, 1999. Such loss includes, net of
taxes, the actual operating costs of those operations of approximately $2.5
million, plus a one-time, non-cash, charge of approximately $19.2 million to
write-down the assets associated with those operations to their


                                       15
<PAGE>   16
estimated net realizable value and a charge of $2.0 million to accrue an
estimate of operating and other costs to be incurred until the divestiture has
been completed.

        In partial fulfillment of such intent, in February 2001, we completed an
asset sale of our Richmond, Virginia based Internet Creations, Inc. (d/b/a/
Internet Connections) to Access Technology, Inc. ("Access"). The purchase price
for the assets was $320,000, of which $47,000 was paid at the closing, and of
which $273,000 was evidenced by a senior secured promissory note, bearing
interest at a rate of nine percent (9%) per annum, payable in equal installments
every three months for thirty-six (36) months beginning one year following the
closing. As collateral security for the due payment and performance of all
indebtedness, liabilities and obligation under the note, Access granted a lien
and security interest in all of its assets. See "Recent Developments."

        Additionally, in March 2001, we sold our majority interest in our IG2,
Inc. subsidiary (f/k/a/ Computer Business Sciences, Inc.), which, at the time of
sale, consisted solely of IG2, Inc., a Florida corporation, incorporated as
Reynard Service Bureau, Inc., through a stock purchase to Global Communications
of NY, Inc. ("Global"). The purchase price consisted of a senior subordinated
secured promissory note in the amount of approximately $1,800,000 and a certain
number of Series A Preferred Stock of Global, equal to 10% of the capital stock
of Global as of the closing date. The subordinated note bears interest at a rate
of eight and one-half percent (8-1/2%) per annum, payable in equal payments
every three months for forty-eight (48) months beginning on the first
anniversary of the closing. The indebtedness evidenced by the subordinated note
and the payment of the principal and interest thereof is senior to, and has
priority in right of payment over, any and all other indebtedness of Global,
except in connection with any extension of credit to Global by equipment vendors
(including loans, lines of credit, guarantees or other financing arrangements).
As collateral security for the due payment and performance of all indebtedness,
liabilities and obligations under the subordinated note, Global and IG2 granted
a lien on and security interest in all of their assets, subject to a senior lien
by holder(s) of senior indebtedness, as well pledged the interest sold in IG2.
See "Recent Developments."

        We are also currently in negotiations to divest ourselves of our
remaining technological subsidiaries, including C.B.S. Computer Business
Sciences Ltd. (Israel), 786710 Ontario Ltd., ICS Globe, Inc. and International
Calling Services, Inc.

Arrangements with Nissko

        In November 1999, IG2 entered an agreement (the "Nissko Agreement") with
Joseph Koren, Chamuel Livian, Avraham Nissanian and Robert Rimburg (the "Nissko
Group") and Nissko Telecom Ltd. to purchase their interest in a joint venture
which is a master agent to provide the Telephony Business (defined below).

        As a result of this transaction with our former subsidiary, we placed
588,000 restricted shares (which will include any issuances, dividends, stock
splits and conversions occurring after January 10, 2000) of our common stock in
escrow. If by May 30, 2001 we have not caused the common stock of IG2 to become
publicly traded, the Nissko Group will receive the accrued shares to the extent
that they receive a value of $2,500,000, valued at the average closing price for
the 30 trading days prior to May 30, 2001, and discounted at 35% if restricted.

        The remaining shares, if any, are to remain in escrow until November 30,
2001. In the event we have caused the common stock of IG2 to become publicly
traded prior to May 30, 2001 and the


                                       16
<PAGE>   17
net proceeds of the sale of the IG2 Shares by the Nissko Group do not equal a
total of $2,500,000, or, if the IG2 Shares have not been sold, and the value of
such IG2 Shares does not equal at least $2,500,000, then additional shares, if
any, already in escrow, will be released to the Nissko Group to cover any
shortfall in value. In the event that at any time prior to November 30, 2001,
IG2 secures a bona fide third party purchaser of the IG2 Shares for a cash
purchase price of $2,500,000, or a proportional amount of the IG2 Shares, and
any member of the Nissko Group rejects such offer, then no additional shares are
to be issued to such member on November 30, 2001. The escrow agreement includes
a provision that awards a further 200,000 restricted shares of our common stock
(which will include any issuances, dividends, stock splits and conversions) to
the Nissko Group as penalty in the event that we have not caused the common
stock of IG2 to become publicly traded by May 30, 2001.

        An additional 200,000 restricted shares of our common stock (which will
include any issuances, dividends, stock splits and conversions occurring after
January 10, 2000) have been placed in escrow under the agreement to cover
personal guarantees of the Nissko Group and Nissko Jewelry of MCI, Sprint or any
other creditor with respect to liabilities of IG2 or related to the purchased
liabilities, as described above. In the event that IG2 has exhausted all options
and payment remains due, then the escrowed shares are to be sold to satisfy the
payment of any such obligations.

        In December 1999, IG2 entered an agreement with Dr. Roland Nassim and
Roberto Nassim where it agreed to purchase the Telephony Business (long distance
telephone service, internet service, data and any and all other telephony
services) which includes all Telephony Business in Venezuela, Brazil, Chile,
Mexico, Argentina and the United States and all rights to any and all equipment
related to the Telephony Business in exchange for 25,000 shares of our common
stock, pre-June-1999-split ("Pre-Split Stock") to be issued in the name of Dr.
Nassim and 40,000 shares of CBS, now IG2, to be issued in the name of Roberto
Nassim.

        IG2 guaranteed the value per share of the Pre-Split Stock to be no less
than $500,000 ($20.00 per share, pre-split) thirteen months from December 1,
1999 ("Guaranteed Value"). If the closing price per share of our common stock on
the trading day preceding January 1, 2001 is less than the Guaranteed Value (the
"Closing Price"), the difference between the Closing Price per share (adjusted
for the 3-for-2 June 1999 stock split) multiplied by the Pre-Split Stock and the
Guaranteed Value (the "Shortfall") will be paid, at the option of IG2, either in
cash or in shares of our common stock whose approximate value is equal to the
Shortfall. IG2 shall not be released from its obligations as provided in such
agreement. We are currently negotiating the settlement of such Shortfall either
in cash or in shares of our common stock.

The Hardge Companies

        In June 1999 we entered into an agreement with Mr. Lawrence Hardge, a
Los Angeles, California based inventor of approximately 80 proprietary
inventions. Mr. Hardge assigned the rights to these inventions in consideration
for 45,000 restricted shares of our common stock, vesting 25% per year,
beginning in June 2000. We formed four subsidiary corporations (the "Hardge
Companies"): (i) Cryogenix, Inc., formed to develop, exploit and promote a fire
extinguishing agent, patent pending; (ii) Energy Plus, Inc., formed to develop,
exploit and promote a long-life battery invention, patent pending; (iii) Ever
Safe, Inc., formed to develop, exploit and promote a safety helmet apparatus
with eye-spraying capacity, patent granted; and (iv) Slack 2000, Inc., formed to
develop, exploit and promote proprietary sludge treatment uses, two patents
pending. Mr. Hardge served as President of the Hardge Companies. We maintain
100% ownership of the Hardge Companies. Mr. Hardge will receive 20% of net
profits, and retains an option to purchase up to 20%


                                       17
<PAGE>   18
of the Hardge Companies, and has the right to direct us to issue an aggregate of
less than 1% of the Hardge Companies as gifts to Hardge donees. All Hardge
inventions are presently in various degrees of development.

        Since our decision to discontinue our technology operations, we are
currently in negotiations with Mr. Hardge to renegotiate the transaction entered
into in June 1999, with the intent of returning all rights acquired by us to Mr.
Hardge and canceling all of our obligations under the agreement.

Intellectual Property

        We have various rights in various patents and patent applications. We
own two U.S. patents issued in June 1993 and May 1994 relating to armored
conduit technology and also own a Canadian patent application relating to such
technology. We own one U.S. patent issued November 1999 relating to a head cover
with an eye spraying capability. We own at least a partial interest in one U.S.
patent issued March 1999 to a long-life storage battery with a magnetic field
source and an acid based heat source, and have filed a further U.S. patent
application related to the same technology. We also filed three U.S. patent
applications relating to a fire extinguishing agent, a sludge treatment and
fertilizer, and a cleaning and treatment agent. Further, we have filed a
provisional U.S. patent application relating to the control of internet protocol
traffic in a wide- or local-area-network (LAN or WAN).

        Currently, we have two U.S. Trademark registrations to the names
"Talkie(R)" and "Talkie Globe(R)," and three pending U.S. Trademark applications
to the names "BCS," Knock-Out 112"and "Browse N Talk." We have also registered
the name "Talkie" as a trademark in Canada.

        In connection with our divestiture of our IG2 subsidiary, we have
subsequently relinquished our rights to a U.S. Trademark registration to the
name "IG2(R) and three pending U.S. Trademark applications to the names "IG2
Networks," "IG2 Communications," and "NAICS."

RECENT DEVELOPMENTS

Financing Transactions

        On June 24, 1999, we entered into an agreement with three investors,
pursuant to which we had the right or obligation to sell, under certain
circumstances, in a series of private placement transactions, up to $20 million
of our common stock and warrants in three tranches. Pursuant to a series of
Securities Purchase Agreements (the "Purchase Agreements"), the first tranche
closed on June 24, 1999 and we sold an aggregate of 285,714 shares of our common
stock for an aggregate of $6,000,000 or $21 per share. On December 8, 1999, a
portion representing three-sevenths of the second tranche closed and we sold an
aggregate of 176,472 shares of our common stock for an aggregate of $3,000,000
or $17 per share. On February 8, 2000, a portion representing four-sevenths of
the second tranche closed and we sold an aggregate of 266,667 shares of our
common stock for an aggregate of $4,000,000 or $15 per share. On March 14, 2000,
a portion representing approximately 10% of the third tranche closed and we sold
an aggregate of 50,000 shares of our common stock for an aggregate of $695,000
or $13.90 per share. Under the terms of the Purchase Agreements, we issued
adjustable warrant in connection with the purchase of our common stock, which
entitled the purchasers to acquire additional shares of common stock exercisable
at $.01 per share, pursuant to a "reset" formula which takes into account the
market price of our common stock at future dates, commencing 40 trading days
after the date on which the purchasers may resell the shares pursuant to


                                       18
<PAGE>   19
an effective re-sale registration statement. In addition, we issued warrants to
the purchasers enabling them to purchase up to an aggregate 285,714 shares of
our common stock at a purchase price of $23 per share, 176,472 shares of our
common stock at a purchase price of $17.25 per share, 266,667 shares of our
common stock at a purchase price of $16.00 per share, and 50,000 shares of our
common stock at a purchase price of $16.00 per share exercisable for a five-year
period. If specified closing conditions were satisfied, we and the purchasers
would have been entitled, upon satisfaction of certain milestones to be
established with respect to the third tranche, to effect three investments
during applicable periods ending 100 trading days after the expiration date for
adjustable warrants issued in the preceding tranche. The amount of the
investment in tranche three would be $7 million. We have subsequently registered
the shares purchased and the shares underlying the warrants issued to
purchasers. With respect to the first tranche, adjustable warrants issued
pursuant to the Purchase Agreements, based on the market price of the various
measurement dates, we issued an aggregate of 273,495 shares of our common stock.
The calculation of amounts due pursuant to the adjustable warrants issued in the
second tranche resulted in a potential liability to us for approximately 4.7
million shares or we could elect to issue only the minimum number of 393,587
shares plus a cash payment of $6,625,016. We entered into a Redemption Agreement
and promissory note with the investors whereby we would issue the minimum number
of shares and make cash payments aggregating $6,000,000 to be paid in
installments of varying amounts over time. Accordingly, we issued 393,587 shares
of our common stock on August 28, 2000 and made aggregate cash payments of
$4,750,000 through December 31, 2000, and owed a balance of $1,250,000 at that
date. Pursuant to the terms of the note, this balance is due to be paid in
aggregate installments of $250,000 in each of five months beginning in February
2001.

CarsTV.com, Inc. Acquisition

        On February 23, 2000, we acquired CarsTV.com, Inc. ("Cars"), a regional
full service Internet Service Provider (ISP) and DSL provider, as well as a
content supplier for the cable industry focused on the automotive sector, in
exchange for 575,862 restricted shares of our common stock. Based in Richmond,
Virginia, Cars' two subsidiaries, Internet Creations, Inc., doing business as
Internet Connections and C.A.R.S., represented its Internet division and cable
divisions, respectively. Since our decision to discontinue our technology
operations, we have recently completed an asset sale of our subsidiary Internet
Creations, Inc. (d/b/a/ Internet Connections) to Access Technology, Inc. and
integrated operations of Cars into those of Major Auto.

Asset Sale of Internet Creations, Inc.

        In February 2001, we completed an asset sale of our Richmond, Virginia
based Internet Creations, Inc. (d/b/a/ Internet Connections) to Access
Technology, Inc. The purchase price for 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 promissory note. See "Discontinued Operations."

Sale of IG2, Inc. Interest

        In March 2001, we sold our majority interest in our IG2, Inc. subsidiary
(f/k/a/ Computer Business Sciences, Inc.), which, at the time of sale, consisted
solely of IG2, Inc., a Florida corporation, incorporated as Reynard Service
Bureau, Inc., through a stock purchase to Global Communications of NY, Inc. The
purchase price consisted of a senior subordinated secured promissory note in the
amount of approximately $1,800,000 and a certain number of Series A


                                       19
<PAGE>   20
Preferred Stock of Global, equal to 10% of the capital stock of Global as of the
closing date. See "Discontinued Operations."

RISK FACTORS

        The following risk factors should be reviewed carefully, in conjunction
with the other information in this Form 10-K and our consolidated financial
statements. These factors, among others, could cause actual results to differ
materially from those currently anticipated and contained in forward-looking
statements made in this Form 10-K and presented elsewhere by our management from
time to time.

AUTOMOBILE MANUFACTURERS EXERCISE SIGNIFICANT CONTROL OVER OUR OPERATIONS AND WE
ARE DEPENDENT ON THEM TO OPERATE OUR BUSINESS.

        Like other franchised new vehicle dealers, we are significantly
dependent upon our relationships with, and the success of, the manufacturers
with which we have franchised dealerships. We are also dependent on the
manufacturers to provide us with an inventory of new vehicles. The most popular
vehicles tend to provide us with the highest profit margin and are the most
difficult to obtain from the manufacturers. In order to obtain sufficient
quantities of these vehicles, we may be required to purchase a larger number of
less desirable makes and models than we would otherwise purchase. Sales of less
desirable makes and models may result in lower profit margins than sales of more
popular vehicles. If we are unable to obtain sufficient quantities of the most
popular makes and models, our profitability may be adversely affected. The
Company may become dependent on additional manufacturers in the future as a
result of its acquisition strategy and changes in the Company's sales mix.

        As is typical of franchised new vehicle dealers, the success of our
franchises depend to a great extent on the success of the respective
manufacturers. Our success will, therefore, be linked to many factors affecting
the manufacturers such as:

        -   financial condition;

        -   marketing strategy;

        -   vehicle demand;

        -   production capabilities;

        -   management;

        -   events such as labor strikes; and

        -   negative publicity, including safety recalls of a particular vehicle
            model.

OUR FRANCHISE AGREEMENTS CONTAIN GEOGRAPHIC AND OTHER RESTRICTIONS WHICH COULD
LIMIT OUR FUTURE GROWTH.

        Our franchise agreements with the manufacturers, like those of other
franchised new vehicle dealers, do not grant us the exclusive right to sell that
manufacturer's vehicles within a given geographical area. Accordingly, a
manufacturer could grant another dealer a franchise to start a new dealership or
permit an existing dealer to relocate to a geographic location that would be
directly competitive with us. Such an event could have a material adverse effect
on our business, financial condition and results of operations.


                                       20
<PAGE>   21
        Historically, manufacturers have exercised significant control over
dealerships through the terms and conditions of the franchise agreements
pursuant to which our dealerships operate. These franchise agreements restrict
dealerships to specific locations and retain for the manufacturers approval
rights over changes in the dealerships' ownership and management. Our ability to
expand through the acquisition of new dealerships requires the consent of the
manufacturers. To date, our acquisitions have been approved and we have not been
materially adversely affected by other limitations imposed by the manufacturers.
However, there can be no assurance that in the future we will be able to obtain
necessary approvals on acceptable terms or that we will not be materially
adversely affected by other limitations.

        The franchise agreements between us and the manufacturers are for fixed
terms with no renewal obligation on the part of the manufacturers and permit the
manufacturers to terminate the agreements for a variety of causes. Each of these
agreements includes provisions for the termination or non-renewal of the
manufacturer-dealer relationship for a variety of causes including any
unapproved change of ownership or management and other material breaches of the
franchise agreement. We believe that we have been and continue to be in material
compliance with the terms of our franchise agreements. While none of the
manufacturers have terminated or failed to renew our franchise agreements, any
such termination or failure to renew could have a material adverse effect on us
and our business, financial condition and results of operations.

THE AUTOMOBILE INDUSTRY IS A MATURE INDUSTRY WITH LIMITED GROWTH POTENTIAL IN
NEW VEHICLE SALES AND AUTOMOBILE SALES ARE CYCLICAL AND SUBJECT TO DOWNTURNS.

        The United States automobile industry is generally considered to be a
mature industry in which minimal growth is expected in unit sales of new
vehicles. In addition, the market for automobiles, particularly new vehicles, is
subject to substantial cyclical variation and has experienced significant
downturns characterized by oversupply and weak demand. Many factors affect the
automobile industry, including:

        -   general and local economic conditions;

        -   taxes;

        -   consumer confidence;

        -   interest rates;

        -   credit availability; and

        -   the level of personal discretionary income.

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

THE AUTOMOTIVE INDUSTRY IS SUBJECT TO SEASONAL VARIATIONS.

        The automobile industry is subject to seasonal variations in revenues.
Demand for vehicles is generally lower during the winter months than in other
seasons, particularly in regions of the United States which experience
potentially severe winters. Accordingly, revenues and operating results may be
lower in our first and fourth quarters than in our second and third quarters.


                                       21
<PAGE>   22
IMPORTED PRODUCTS MAY AFFECT OUR OPERATIONS.

        A portion of our new vehicle business involves the sale of vehicles,
parts or vehicles composed of parts that are manufactured outside the United
States. As a result, our operations will be subject to customary risks of
importing merchandise, including fluctuations in the value of currencies, import
duties, exchange controls, trade restrictions, work stoppages and general
political and economic conditions in foreign countries. The United States or the
countries from which our products are imported may, from time to time, impose
new quotas, duties, tariffs or other restrictions, or adjust presently
prevailing quotas, duties or tariffs, which could affect our operations and our
ability to purchase imported vehicles and/or parts.

OUR AUTOMOBILE OPERATIONS ARE GEOGRAPHICALLY CONCENTRATED AND SUBJECT TO LOCAL
ECONOMIC CONDITIONS.

        All of the dealerships we have acquired are located in the greater New
York metropolitan area. While we may pursue acquisitions outside of the New York
metropolitan area, we expect that our automotive operations will be concentrated
in the New York metropolitan area for the foreseeable future. As a result, our
results of operations will depend substantially on general economic conditions
and consumer spending habits and preferences in the New York metropolitan area,
as well as various other factors, such as tax rates and applicable state and
local regulation. There can be no assurance that we will be able to expand
geographically or that any such expansion will adequately insulate us from the
adverse effects of local or regional economic conditions.

OUR FUTURE OPERATING RESULTS WILL BE DIRECTLY RELATED TO THE AVAILABILITY AND
COST OF CAPITAL TO US.

        The principal sources of financing for new and used automobile
inventories have historically been lines of credit from commercial lenders and
other financial institutions and from cash generated from operations. There can
be no assurance that we will be able to continue to obtain capital for our
current or expanded operations on terms and conditions that are acceptable to
us.

        Our strategy of growth through the acquisition of additional dealerships
will require substantial capital. Our expansion and new acquisitions may involve
cash, the need to incur debt or the need to issue equity securities, which could
have a dilutive effect on our then outstanding capital stock. We may seek to
obtain funds through borrowings from institutions or by the public or private
sale of our securities. There can be no assurance that we will be able to obtain
capital to finance our growth on terms and conditions acceptable to us.

RISKS ASSOCIATED WITH EXPANSION MAY HINDER OUR ABILITY TO INCREASE REVENUES AND
EARNINGS.

        Our future growth will depend, in part, on our ability to acquire
additional automobile dealerships. In pursuing a strategy of acquiring
additional dealerships, we will face risks commonly encountered with growth
through acquisitions. These risks include:


                                       22
<PAGE>   23
        -   incurring significantly higher capital expenditures and operating
            expenses;

        -   failing to assimilate the operations and personnel of the acquired
            dealerships;

        -   disrupting our ongoing business;

        -   dissipating our limited management resources;

        -   failing to maintain uniform standards, controls and policies; and

        -   impairing relationships with employees and customers as a result of
            changes in management.

        There can be no assurance that we will be successful in overcoming these
risks or any other problems encountered with such acquisitions. In addition,
acquiring additional dealerships, as we intend, will have a significant impact
on our financial condition and could cause substantial fluctuations in our
quarterly and annual operating results. Acquisitions could result in significant
goodwill and intangible assets, which are likely to result in substantial
amortization charges to us that would reduce stated earnings, if any.

THERE EXIST RISKS RELATING TO THE FAILURE TO MEET MANUFACTURER CSI SCORES.

        Many manufacturers attempt to measure customers' satisfaction with
automobile dealerships through a CSI, or customer satisfaction index, rating
system. These manufacturers may use a dealership's CSI scores as a factor in
evaluating applications for additional dealership acquisitions and participation
by a dealership in incentive programs. The dealerships operated by us currently
meet or exceed their manufacturers' CSI standards. However, there can be no
assurance that either our dealerships or other subsequently acquired dealerships
will continue to meet such standards. Moreover, from time to time, the
components of the various manufacturer CSI scores have been modified and there
is no assurance that such components will not be further modified or replaced by
different systems in the future, which make it more difficult for our
dealerships to meet such standards.

THE LOSS OF KEY PERSONNEL AND OUR LIMITED MANAGEMENT AND PERSONNEL RESOURCES
COULD ADVERSELY AFFECT OUR OPERATIONS AND GROWTH.

        Our future success will depend to a significant extent on key personnel
and on the continued services of our senior management and other key personnel,
particularly Bruce Bendell, our Chief Executive Officer and Chairman of the
Board, and James Wallick, our President and Chief Operating Officer. The loss of
the services of these, or certain other key employees, would likely have a
material adverse effect on our business. Mr. Bendell is currently employed at
will. We do not maintain "key person" life insurance for any of our personnel.
Our future success will depend on our continuing ability to attract, retain and
motivate other highly skilled employees. Competition for such personnel in our
industry is intense. We may be unable to retain our key employees or attract,
assimilate or retain other highly qualified employees in the future. If we do
not succeed in attracting new personnel or retaining and motivating our current
personnel, our business, financial condition and operations may be adversely
affected.

POTENTIAL CONFLICTS OF INTEREST BETWEEN US AND OUR MANAGEMENT PERSONNEL COULD
ADVERSELY AFFECT OUR FUTURE PERFORMANCE.

        We have entered into, or contemplate that we may enter into, several
transactions with our Chief Executive Officer and controlling stockholder, Bruce
Bendell, and/or his brother, Harold


                                       23
<PAGE>   24
Bendell, a senior executive of the Major Dealer Group. Such transactions include
the following:

        -  In 1996, we acquired Major Fleet from the Bendell brothers. In
           exchange, the Bendell brothers received (a) shares of our 1996-Major
           Series of Convertible Preferred Stock, (b) warrants that carry
           registration rights and (c) the right to manage the operations of the
           Major Dealer Group's vehicle leasing activities pursuant to a
           management agreement.

        -  We acquired Major Auto from Bruce Bendell and Harold Bendell in May
           1998. Bruce Bendell and Harold Bendell received shares of our
           1997A-Major Automotive Group Series of Preferred Stock in that
           transaction and Bruce Bendell has a proxy to vote the 50 shares of
           the 1997A-Major Automotive Group Series of Preferred Stock owned by
           Harold Bendell for a seven-year period which commenced on January 7,
           1998. These shares allow the Bendell brothers to elect a majority of
           the directors of Major Auto. The Bendell brothers are also parties to
           a management agreement with Major Auto that gives them control over
           its day-to-day operations. Should we and the Board of Directors of
           Major Auto disagree as to a particular course of action, the Board of
           Directors of Major Auto will be able to take that action over our
           objection. Conflicts could arise between our Board of Directors and
           the Board of Directors of Major Auto as to the appropriate course of
           action to be taken in the future. The management agreement does
           prohibit certain actions from 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 for Major Auto indebtedness.

           Should either of the Bendell brothers cease managing the dealerships,
           the management agreement provides that ownership of his 1997A-Major
           Automotive Group Series of Preferred Stock shares and his management
           rights under the management agreement will be automatically
           transferred to the other, and should both brothers cease managing the
           dealerships for any reason, the shares and management rights will be
           automatically transferred to a successor manager designated in a
           successor addendum to each dealership agreement or, failing such
           designation, to a successor manager designated by us (subject to
           approval by the applicable manufacturers).

        -  We are currently negotiating a transaction with Bruce Bendell
           concerning our acquisition of Major of the Five Towns, a dealership
           which will be wholly-owned by Bruce Bendell.

        -  We are currently negotiating a transaction with Bruce Bendell
           concerning our acquisition of Major Motors of Pennsylvania, a Hyundai
           dealer in Stroudsberg, Pennsylvania, of which Bruce Bendell is a 67%
           owner.

        -  In March 2001, Harold Bendell acquired B&L Auto Group, Inc., a Bronx,
           New York based-dealer, which includes Toyota, Subaru and Kia
           franchises.

        These transactions may involve situations in which Bruce Bendell's
interests as our officer, director and majority shareholder conflict with his or
his brother Harold Bendell's interests as Major Auto's counterpart. Major Auto
supplies used vehicles to other dealerships in which the Bendells have an
interest. Such vehicles are charged to the other dealerships at amounts
sufficient to cover all of Major Auto's costs and expenses in connection with
the transactions.


                                       24
<PAGE>   25
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE, AND WE MAY NOT BE ABLE
TO COMPETE EFFECTIVELY, ESPECIALLY AGAINST ESTABLISHED INDUSTRY COMPETITORS WITH
SIGNIFICANTLY GREATER FINANCIAL RESOURCES.

        The automobile dealership business is highly competitive. Our
competitors include:

        -   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 been decreasing
over the past two decades and the used car market faces increasing competition
from independent leasing companies and from used vehicle "superstores" that may
have inventories that are larger and more varied than ours. Some of our
competitors may be larger, have access to greater financial resources and be
capable of operating on smaller gross margins than we do. There can be no
assurance that we will continue to compete effectively or that manufacturers
will not modify the historical automobile franchise system in a manner that
increases competition among dealers or market and sell their vehicles through
other distribution channels.

GOVERNMENT REGULATION AND ENVIRONMENTAL REGULATION COMPLIANCE COSTS MAY
ADVERSELY AFFECT OUR PROFITABILITY.

        Our operations are subject to various federal, state and local laws and
regulations including those relating to local licensing and consumer protection.
While we believe that we maintain all requisite licenses and permits and that we
are in substantial compliance with all applicable laws and regulations, there
can be no assurance that we will be able to continue to maintain all requisite
licenses and permits or to comply with applicable laws and regulations, and our
failure to do so may have a material adverse effect on our business, financial
condition and results of operations. In addition, the adoption of any new laws
or regulations and the cost to us of complying with any new laws or regulations,
could have a material adverse effect on our business, financial condition and
results of operations.

        In addition, as with automobile dealerships generally, and parts and
service operations in particular, our business involves the use, handling and
contracting for recycling or disposal of hazardous or toxic substances or
wastes, including environmentally sensitive materials such as:

        -   motor oil;

        -   waste motor oil and filters;

        -   transmission fluid;

        -   antifreeze;

        -   freon;

        -   waste paint and lacquer thinner;

        -   batteries;

        -   solvents;

        -   lubricants;


                                       25
<PAGE>   26
        -   degreasing agents; and

        -   gasoline and diesel fuels.

        Accordingly, we are subject to federal, state and local environmental
laws governing health, environmental quality, and remediation of contamination
at facilities we operate or to which we sends hazardous or toxic substances or
wastes for treatment, recycling or disposal. We believe that we are in material
compliance with all environmental laws and that such compliance will not have a
material adverse effect on our business, financial condition or results of
operations. However, environmental laws are complex and subject to frequent
change. There can be no assurance that compliance with amended, new or more
stringent laws, stricter interpretations of existing laws or the future
discovery of environmentally hazardous conditions will not require material
expenditures by us.

WE FACE RISKS IN OUR INTERNATIONAL OPERATIONS.

        We intend to expand our new and used vehicle purchasing service to
foreign markets by establishing relationships with vehicle dealers and strategic
partners located in certain foreign markets.

        By expanding our operations to various other countries, we may become
subject to laws or treaties that regulate the marketing, distribution and sale
of motor vehicles. In addition, the laws of other countries may impose
licensing, bonding or similar requirements on us as a condition to doing
business therein. In addition, there are certain risks inherent in doing
business in international markets, such as:

        -   changes in political conditions;

        -   regulatory requirements;

        -   potentially weaker intellectual property protections;

        -   tariffs and other trade barriers;

        -   fluctuations in currency exchange rates;

        -   potentially adverse tax consequences;

        -   difficulties in managing or overseeing foreign operations;

        -   seasonal reductions in business activities during summer months in
            Europe and other areas; and

        -   educating consumers and dealers who may be unfamiliar with the
            benefits of online marketing and commerce.

        One or more of such factors may have a material adverse effect on our
current or future international operations and, consequently, on our business,
results of operations and financial condition.

WE FACE RISKS IN CONNECTION WITH LEGAL PROCEEDINGS IN WHICH WE ARE INVOLVED.

        We are subject to a number of lawsuits including the following: (i)
Stephen B. Wechsler, et al. v. Fidelity Holdings, Inc., et al.; (ii) In re:
Fidelity Holdings Securities Litigation; (iii) S & L Telecom, Inc., Jacob
Steinmetz and Joseph Luria v. Fidelity Holdings, Inc. and Doron Cohen; (iv) Dale
A. Harris and Fouad Tobagi v. Computer Business Sciences, Inc., et al; (v)
RealTech Systems Corporation v. IG2, Inc. v. Fidelity Holdings, Inc.; (vi)
Fidelity Holdings, Inc., Computer Business


                                       26
<PAGE>   27
Sciences, Inc. and 786710 Ontario, Ltd. v. Michael Marom and M.M. Telecom Corp.;
(vii) Daniel Tepper v. Fidelity Holdings, Inc; Fidelity Holdings, Inc. (Third
Party Plaintiff) v. InvestAmerica et al.; (viii) Russell Reynolds, Inc. v.
Fidelity Holdings Inc.; (ix) MCI International, Inc. v. Schiano Bros. Inc.;
Schiano Bros. Inc. (Third Party Plaintiff) v. Computer Business Sciences Inc.
(Third Party Defendant); (x) Waterview Resolution Corp. f/k/a Colonial Pacific
Leasing Corporation v. Schiano Bros. Inc. and Ronald Tiongson; Schiano Bros.
Inc. and Ronald Tiongson (Third Party Plaintiffs) v. Fidelity Holdings, Inc.,
Taylor Financial Services et al. (Third Party Defendants); and (xi) Ronald
Shapss Corporate Services, Inc. v. Fidelity Holdings, Inc. While we believe that
we have substantial defenses to the asserted claims and intend to vigorously
defend these suits, judgments against us with respect to these actions could
have a material adverse effect on our financial condition. See "Legal
Proceedings."

WE FACE RISKS ASSOCIATED WITH THE SALE OF AUTOMOBILES OVER THE INTERNET.

        Competition

        Our Internet vehicle purchasing services compete against a variety of
Internet and traditional vehicle purchasing services and automotive brokers. The
market for Internet-based commercial services is new, and competition among
commercial Web sites is expected to increase significantly in the future. The
Internet is characterized by minimal barriers to entry, and new competitors can
launch new Web sites at relatively low cost. To compete successfully over the
Internet, we must significantly increase awareness of our services and brand
name.

        We compete with other entities which maintain similar commercial Web
sites, including:

        -   Autoweb.com;

        -   Autobytel.com;

        -   Carsdirect.com;

        -   Cendant Membership Service, Inc.'s AutoVantage; and

        -   Microsoft Corporation's Carpoint and Stoneage Corporation.

        Some of these recent market entrants may have greater financial,
marketing and personnel resources and/or lower overhead or sales costs than the
Company. We also compete indirectly against vehicle brokerage firms and affinity
programs offered by several companies, including Costco Wholesale Corporation
and Wal-Mart Stores, Inc. In addition, our major vehicle manufacturers have
their own Web sites and many have recently launched or announced plans to launch
online buying services. We also compete with vehicle insurers, lenders and
lessors as well as other dealers that are not part of our network. Such
companies may already maintain or may introduce Web sites which compete with
ours.

        We cannot assure you that we can compete successfully against current or
future competitors, many of which have substantially more capital, existing
brand recognition, resources and access to additional financing. In addition,
competitive pressures may result in increased marketing costs, decreased Web
site traffic or loss of market share or otherwise may materially and adversely
affect our business, results of operations and financial condition. Further,
there can be no assurance that our strategy will be more effective than the
strategies of our competitors.


                                       27
<PAGE>   28
        The Internet industry is characterized by rapid technological change.

               Rapid technological developments, evolving industry standards and
consumer demands, and frequent new product introductions and enhancements
characterize the market for Internet products and services. These market
characteristics are exacerbated by the emerging nature of the market and the
fact that many companies are expected to introduce new Internet products and
services in the near future. Our future success will depend in part on our
ability to continually improve the vehicle purchasing experience, the addition
of new and useful services and content to our Web site, and the performance,
features and reliability of our Web site. In addition, the widespread adoption
of developing multimedia-enabling technologies could require fundamental and
costly changes in our technology and could fundamentally affect the nature,
viability and measurability of Internet-based advertising, which may adversely
affect our business, results of operations and financial condition.

        We could face liability for information retrieved from or transmitted
        over the Internet and liability for products sold over the Internet.

        We could be exposed to liability with respect to third-party information
that may be accessible through our Web site, or content and materials that may
be posted by consumers through our www.majorworld.com site. Such claims might
assert, among other things, that, by directly or indirectly providing links to
Web sites operated by third parties, we should be liable for copyright or
trademark infringement or other wrongful actions by such third parties through
such Web sites. It is also possible that, if any third-party content information
provided on our Web site contains errors, consumers could make claims against us
for losses incurred in reliance on such information.

        We also may enter into agreements with other companies under which any
revenue that results from the purchase of services through direct links to or
from our Web site is shared. Such arrangements may expose us to additional legal
risks and uncertainties, including local, state, federal and foreign government
regulation and potential liabilities to consumers of these services, even if we
do not provide the services ourselves. There can be no assurances that any
indemnification provided to us in our agreements with these parties, if
available, will be adequate.

        Even to the extent such claims do not result in liability to us, we
could incur significant costs in investigating and defending against such
claims. The imposition on us of potential liability for information carried on
or disseminated through our system could require us to implement measures to
reduce our exposure to such liability, which might require the expenditure of
substantial resources or limit the attractiveness of our services to consumers,
member dealers, automotive-related vendors and others.

        Our general liability insurance and our communications liability
insurance may not cover all potential claims to which we are exposed and may not
be adequate to indemnify us for all liability that may be imposed. Any
imposition of liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on our business, results
of operations and financial condition.

        We face risks associated with security breaches involving confidential
        information transmitted via the Internet.

        We rely on technology licensed from third parties that is designed to
facilitate the secure


                                       28
<PAGE>   29
transmission of confidential information. Nevertheless, our computer
infrastructure is potentially vulnerable to physical or electronic computer
break-ins, viruses and similar disruptive problems. A party who is able to
circumvent our security measures could misappropriate proprietary information,
jeopardize the confidential nature of information transmitted over the Internet
or cause interruptions in our operations. Concerns over the security of Internet
transactions and the privacy of users could also inhibit the growth of the
Internet in general, particularly, as a means of conducting commercial
transactions. To the extent that our activities or those of third party
contractors involve the storage and transmission of proprietary information
(such as personal financial information), security breaches could expose us to a
risk of financial loss, litigation and other liabilities. Our insurance does not
currently protect against such losses. Any such security breach could have a
material adverse effect on our business, results of operations and financial
condition.

        We face risks associated with government regulation and legal
        uncertainties associated with the Internet.

        There are numerous state laws regarding the sale of vehicles. In
addition, government authorities may take the position that state or federal
insurance licensing laws, motor vehicle dealer laws or related consumer
protection or product liability laws apply to aspects of our business. As we
introduce new services and expand our operations to other countries, we will
need to comply with additional licensing and regulatory requirements.

        A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including, but not
limited to:

       -   online content;
       -   user privacy;
       -   taxation;
       -   access charges;
       -   liability for third-party activities; and
       -   jurisdiction.

        Additionally, it is uncertain as to how existing laws will be applied to
the Internet. The adoption of new laws or the application of existing laws may
decrease the growth in the use of the Internet, which could, in turn, decrease
the demand for our services, increase our cost of doing business or otherwise
have a material adverse effect on our business, results of operations and
financial condition.

        The tax treatment of the Internet and e-commerce is currently unsettled.
A number of proposals have been made at the federal, state and local level and
by certain foreign governments that could impose taxes on the sale of goods and
services and certain other Internet activities. Recently, the Internet Tax
Information Act was signed into law placing a moratorium on new state and local
taxes on Internet commerce. However, we cannot assure you that future laws
imposing taxes or other regulations on commerce over the Internet would not
substantially impair the growth of e-commerce and as a result have a material
adverse effect on our business, results of operations and financial condition.


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<PAGE>   30
CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS IN OUR CHARTER
DOCUMENTS MAY REDUCE STOCKHOLDER VALUE IN ANY POTENTIAL CHANGE OF CONTROL OF THE
COMPANY.

        Mr. Bruce Bendell is the beneficial owner of approximately 30.0% of our
common stock (in both instances giving effect to Mr. Bendell's right to vote his
1997 Major Series Preferred Stock as our common stock on an "as converted"
basis.) In addition, our former President and Chief Executive Officer, Mr. Doron
Cohen, is the beneficial owner of approximately 10.3% of our common stock.
Pursuant to a Separation and Release Agreement with us dated August 8, 2000, Mr.
Cohen is required to take all necessary steps to cause all of these shares to be
voted in accordance with the recommendation of the majority of our Board of
Directors, provided that such majority includes a majority of our non-employee
directors. This concentration of voting power may severely limit the ability of
other of our stockholders to elect directors or influence other corporate
decisions and may, among other things, have the effect of delaying or preventing
a change in control of the Company or preventing our stockholders from realizing
a premium on the sale of their shares upon an acquisition of the Company.

        Our Board of Directors has the authority to issue shares of preferred
stock and to determine the price, rights, preferences and privileges, including
voting rights, of those shares without any further action by our stockholders.
The rights of holders of our common stock will be subject to and may be
adversely affected by the rights of the holders of any preferred stock. Any
future designation and issuance of preferred stock could have the effect of
making it more difficult for a third party to acquire control of the Company. We
are also subject to the provisions of the Nevada Revised Statutes regulating
business combinations, takeovers and control share acquisitions, which also
might hinder or delay a change in control of us. Anti-takeover provisions that
could be included in the preferred stock when designated and issued and the
Nevada statutes can have a depressive effect on the market price of our common
stock and can prevent our stockholders from realizing a premium on the sale of
their shares by discouraging takeover and tender offer bids. In addition, under
our dealer agreement with General Motors, we may be at risk of losing the
Chevrolet franchise if any person or entity acquires 20% or more of our voting
stock without the approval of General Motors.

        Moreover, at our annual meeting, our Board of Directors and majority
shareholders approved amendments to our Articles of Incorporation to provide for
the classification of our Board of Directors into three classes of directors
with staggered terms of office. One class of directors holds office initially
for a term expiring at the 2001 annual meeting; a second class of directors
holds office initially for a term expiring at the 2002 annual meeting; and a
third class of directors holds office initially for a term expiring at the 2003
annual meeting. At each annual meeting following this initial classification and
election, the successors to the class of directors whose terms expire at that
meeting are elected for a term of office to expire at the third succeeding
annual meeting after their election and until their successors have been duly
elected and qualified. This classified board amendment will significantly extend
the time required to effect a change in control of our Board of Directors and
may discourage hostile takeover bids for us. It will take at least two annual
meetings for even a majority of shareholders to effect a change in control of
our Board of Directors, because only a minority of the directors will be elected
at each meeting. The classified board proposal is designed to assure continuity
and stability in our Board of Directors' leadership and policies. Because of the
additional time required to change control of our Board of Directors, the
classified board amendment tends to perpetuate present management. Without the
ability to obtain immediate control of our Board of Directors, a takeover bidder
will not be able to take action to remove other impediments to its acquisition
of us. Because the classified board amendment increases the amount of time
required for a takeover bidder to obtain control of us without the


                                       30
<PAGE>   31
cooperation of our Board of Directors, even if the takeover bidder were to
acquire a majority of our outstanding stock, it tends to discourage certain
tender offers, perhaps including some tender offers that shareholders may feel
would be in their best interests. The classified board proposal also makes it
more difficult for the shareholders to change the composition of our Board of
Directors even if the shareholders believe such a change would be desirable.

        Additionally, at our annual meeting, our Board of Directors and majority
shareholders approved amendments to our Articles of Incorporation to increase
the number of authorized shares of Common Stock from 50,000,000 to 100,000,000.
The amendment authorized sufficient additional shares of our Common Stock to
provide us with the flexibility to make such issuances from time to time for any
proper purpose approved by our Board of Directors, including issuances to effect
acquisitions or raise capital and issuances in connection with future stock
splits or dividends, without the necessity of delaying such activities for
further stockholder approval except as may be required in a particular case by
our charter documents, applicable law or the rules of any stock exchange or
other system on which our securities may then be listed. The amendment, however,
could have an anti-takeover effect, although that was not its intention. For
example, if we were the subject of a hostile takeover attempt, we could impede
the takeover by issuing shares of our Common Stock, thereby diluting the voting
power of the other outstanding shares and increasing the potential cost of the
takeover. The availability of this defensive strategy to us could discourage
unsolicited takeover attempts, thereby limiting the opportunity for our
stockholders to realize a higher price for their shares than is generally
available in the public markets.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.

        Future sales of shares of common stock by existing shareholders under
Rule 144 of the Securities Act of 1933, as amended (the "Securities Act") or
through the exercise of outstanding registration rights or the issuance of
shares of our common stock upon the exercise of options or warrants or the
conversion of our outstanding Preferred Stock could materially adversely affect
the market price of the common stock and could materially impair our future
ability to raise capital through an offering of equity securities. A substantial
number of shares of our common stock is available for sale under Rule 144 in the
public market or will become available for sale in the near future and no
predictions can be made as to the effect, if any, that market sales of such
shares or the availability of such shares for future sale will have on the
market price of our common stock prevailing from time to time.

        Holders of our outstanding options and warrants are likely to exercise
them when, in all likelihood, we can obtain additional capital on terms more
favorable than those provided in the options and warrants. Our ability to obtain
additional financing may also be adversely affected by our obligation to
register shares of common stock under the Securities Act. We have filed,
registration statements covering the common stock described under "Business -
Recent Developments - Financing Transactions." Castle Trust and Management
Services Limited, as Trustee under the Millennium I Trust created under that
certain Deed of Settlement dated October 2, 1996, the principal beneficiary of
which is Bruce Bendell, has the right (on an unlimited number of occasions) to
require us to register all or any portion of the common stock, aggregating
738,918 shares, into which the 125,000 shares of our 1996-Major Series of
convertible preferred stock has been converted (the "1996 Demand Shares"). In
addition, Bruce Bendell has the right to require us (on an unlimited number of
occasions) to register all or any portion of the 112,500 shares of common stock
underlying a warrant held by him (the "Warrant Demand Shares"). Further, if we
register any shares of common stock, we will have to offer to include the 1996
Demand Shares, the Warrant


                                       31
<PAGE>   32
Demand Shares and the shares of common stock (a minimum of 4,050,000 shares)
into which the 1997-MAJOR Series of Convertible Preferred Stock (the "1997 Major
Preferred"), issued to Bruce Bendell in the Major Auto Acquisition, is
convertible. In October 1999, Mr. Bruce Bendell converted 400,000 shares of 1997
Major Preferred into 1,000,000 shares of common stock.

WE HAVE NEVER PAID CASH DIVIDENDS ON OUR COMMON STOCK.

        We have never paid cash dividends on our common stock. We intend to
retain any future earnings to finance our growth. In addition, dividends on our
common stock are subject to the preferences for dividends on our preferred
stock. Any future dividends will depend upon our earnings, if any, our financial
requirements, and other factors.

WE MAY BE SUBJECT TO THE SECURITIES ENFORCEMENT AND PENNY STOCK REFORM ACT OF
1990.

        The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure and documentation related to the market for penny stock
and for trades in any stock defined as a penny stock. Unless we can acquire
substantial assets and trade at over $5.00 per share on the bid, it is more
likely than not that our securities, for some period of time, would be defined
under that Act as a "penny stock." As a result, those who trade in our
securities may be required to provide additional information related to their
fitness to trade our shares. Also, there is the requirement of a broker-dealer,
prior to a transaction in a penny stock, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. Further, a broker-dealer must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. These requirements present a substantial burden on any person or
brokerage firm who plans to trade our securities and would thereby make it
unlikely that any liquid trading market would ever result in our securities
while the provisions of this Act might be applicable to those securities.

WE MAY BE SUBJECT TO BLUE SKY COMPLIANCE.

        The trading of penny stock companies may be restricted by the blue sky
laws of several states. We are aware that a number of states currently prohibit
the unrestricted trading of penny stock companies absent the availability of
exemptions, which are in the discretion of the states' securities
administrators. The effect of these states' laws would be to limit the trading
market, if any, for our shares and to make resale of shares acquired by
investors more difficult.

OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET.

          Our common stock has been trading at below $1.00 per share for more
than thirty consecutive days. We received a letter from Nasdaq advising us that
our common stock had not met Nasdaq's minimum bid price closing requirement for
thirty (30) consecutive trading days and that, if we were unable to demonstrate
compliance with this requirement for ten (10) consecutive trading days during
the ninety (90) calendar days ending February 20, 2001, our common stock would
be de-listed at the opening of business on February 22, 2001. We, however,
applied to Nasdaq for a hearing, and the de-listing was stayed during the
hearing period. The hearing was held on March 22, 2001. As a result of the
hearing, Nasdaq determined to continue listing of our common stock on the Nasdaq
National Market provided that on or before May 4, 2001, we demonstrate a closing
bid price of at least $1.00 per share


                                       32
<PAGE>   33
and, immediately thereafter, a closing bid price of at least $1.00 per share for
a minimum of ten (10) consecutive trading days. If a delisting were to occur,
our common stock would trade on the OTC Bulletin Board or in the "pink sheets"
maintained by the National Quotation Bureau, Inc. Such alternatives are
generally considered to be less efficient markets, and our stock price, as well
as the liquidity of our common stock, may be adversely impacted as a result.


                                       33
<PAGE>   34
ITEM 2.        PROPERTIES

        We own an approximately 12,000 square foot facility consisting of office
and automobile showroom space in Long Island City, New York, an approximately
40,000 square foot service facility in Long Island City, New York and a vehicle
storage facility in Orange, New Jersey. All of our other operations and
subsidiaries are conducted from locations leased from unaffiliated third
parties.

        We lease approximately 2,800 square feet in Kew Gardens, New York, which
we use for executive offices. The lease expires on March 31, 2001, but we have
the option to extend the lease for one additional five-year term. We have not
exercised that option. The current annual rent under such lease is $69,448.50,
but will be increased by 3.5% on a compounded and cumulative basis each lease
year. If we elect to extend such lease, the base rent for the extension period
will be the greater of the base rent on March 31, 2001 at the termination of the
original lease period or the then fair market rental of the premises.

        One of our subsidiaries, C.B.S. Computer Business Sciences (Israel),
leases from an unrelated third party approximately 1,517 square feet of office
space in Raanana, Israel. The lease was renewed in September 1999 for an
additional two-year period. The current annual rent under such lease is $24,000.

        One of our subsidiaries, Info Systems leases from an unrelated third
party approximately 1,415 square feet of office space in Downsview, North York,
Canada. The lease expired on October 31, 1998, but Info Systems renewed the
lease for an additional two-year period. The current annual rent under such
lease is $19,810 and is not subject to escalation.

        One of our subsidiaries, Mid Atlantic Telecommunications, Inc. leased
from an unrelated third party approximately 3,500 square feet of office space in
Richmond, Virginia. The lease expired in March 2001.

        One of our subsidiaries, Major Subaru, Inc., subleases from an unrelated
third party approximately 2,500 square feet of office and automobile showroom
space in Woodside, New York. This lease expires on December 31, 2004. The
current annual rent under such lease is $128,000.

        We have an interest in the following leases, under which Major Dealer
Group presently pays aggregate annual rental payments of $706,000:

        -  Major Chrysler, Plymouth, Jeep Eagle leases from an unrelated third
           party approximately 17,400 square feet of office and automobile
           showroom and storage space in Long Island City, New York for an
           annual rental of $92,000. This lease expires on October 31, 2001, but
           Major Chrysler, Plymouth, Jeep Eagle has the option to extend the
           lease for one additional ten-year term.

        -  Major Auto leases from an unrelated third party approximately 2,000
           square feet of lot space in Astoria, New York adjacent to the main
           Major Dodge showroom. This lease expired on June 30, 1997 at which
           time the annual rent was $33,000. Major Auto is currently
           renegotiating such lease and remains in possession of the premises
           under an oral month-to-month lease. Major Auto does not believe that
           this property is material to the operation of Major Auto.


                                       34
<PAGE>   35
        -  Major Chevrolet leases from an unrelated third party, for $300,000
           annually, two adjacent automobile dealership facilities in Long
           Island City, New York, comprising approximately 250,000 square feet.
           This lease expires on February 1, 2004, but Major Chevrolet has the
           option to extend the lease for up to three additional five-year
           terms.

        Compass Lincoln Mercury ("Compass") leases from Ford Motor Car Company
approximately 30,000 square feet used for showroom, office, service department
and storage facilities in Orange, New Jersey. This lease was scheduled to expire
on April 30, 2000, but was extended until September 30, 2001, while a new lease
or purchase is negotiated. The annual rent is $70,000. Additionally, Compass
leases 7,000 square feet of showroom, office and storage space in Orange, New
Jersey, from an unaffiliated third party at an annual rental of $90,000. This
lease was scheduled to expire on March 31, 2001, but was extended for an
additional three years. Compass also leases space for a service department and
storage facilities in Orange, New Jersey, at an annual rental of $150,000. This
lease expires on August 31, 2006.

        One of our subsidiaries, Hempstead Mazda, Inc., leases from its former
owner, approximately 140,000 square feet of land and buildings in Hempstead, New
York, that is used for showroom, office and storage space. The leases expires on
September 30, 2009. The current annual rent is $234,000.

        One of our subsidiaries, Major Nissan of Garden City, Inc., leases from
an unrelated third party approximately 105,000 square feet used for showroom,
office, service department and storage facilities. The property is located on
the borderline of Hempstead, New York and Garden City, New York. The current
annual rent is $390,000 and the lease expires on March 15, 2002. Upon our
acquisition of the dealership, this lease was purchased for $1.0 million with a
bargain purchase option for $3 million, which must be executed prior to the
expiration of the lease. The property was appraised for $5 million.


ITEM 3.        LEGAL PROCEEDINGS

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

        On July 27, 1999, Mr. Daniel Tepper of Los Angeles, California, filed a
lawsuit against us, two of our officers (Bruce Bendell and Richard Feinstein)
and our former officer, Doron Cohen, in the Eighth Judicial District Court in
Clark County, Nevada. The original complaint was not served on the named
officers or us. On August 16, 1999, Mr. Tepper filed an Amended Complaint, which
was subsequently served on us. We and the individual defendants removed the
litigation to the United States District Court in Las Vegas, Nevada. We and the
individual defendants filed a motion to dismiss the claims against the
individuals on jurisdictional grounds, and to transfer the remainder of the case
to New York. Mr. Tepper subsequently agreed to dismiss all claims against the
individuals, and the Court declined to transfer the case. Mr. Tepper contends in
his lawsuit that he is the rightful owner of 360,000 shares of our common stock.
He contends that we wrongfully (i) refused to remove the "restricted" legend
from 240,000 of those shares and (ii) withheld the remaining 120,000 shares from
him. We were previously informed by Progressive Polymerics International, Inc.
n/k/a InvestAmerica that it is the rightful owner of the shares, and that Mr.
Tepper


                                       35
<PAGE>   36
acquired the shares improperly. Because of these competing claims to ownership
of the shares, we did not release full ownership of the shares to Mr. Tepper.
Subsequently, all shares were released in unrestricted form to Mr. Tepper, and
he has sold some of them. Mr. Tepper has filed another Amended Complaint
alleging, among other things, that our officers manipulated the price of the
shares to the disadvantage of Mr. Tepper and other shareholders. We have filed a
Third Party Complaint against InvestAmerica, alleging, among other things,
claims for indemnification and breach of contract. The basis of this pleading is
that if we are liable to Mr. Tepper, it is due to InvestAmerica's actions of:
(1) improperly transferring the shares in the first place; and (2) asserting a
claim of ownership in the shares. The court has now ruled that Mr. Tepper is the
proper present owner of the subject shares, and that neither we nor
InvestAmerica can claim ownership of those shares going forward. However, this
ruling has not ended the litigation. Mr. Tepper is still asserting damages
against us for our refusal to release the shares earlier. Our third party claims
against InvestAmerica are also being litigated in that same lawsuit. The court
has scheduled the trial of this case to begin October 15, 2001. We believe we
have substantial defenses to the asserted claims and intend to vigorously defend
this suit.

Ronald Shapss Corporate Services, Inc. v. Fidelity Holdings, Inc.

        By Summons and Complaint dated June 11, 1999, we were named as the
defendant in an action titled Ronald Shapss Corporate Services, Inc. v. Fidelity
Holdings, Inc., brought in the Supreme Court of the State of New York, Rockland
County, Index No. 3248/99. In this action, Ronald Shapss Corporate Services,
Inc. ("RSCS") has alleged that we breached a purported consulting agreement with
it and converted shares of our common stock that RSCS claims should have been
provided to it pursuant to that purported agreement. The plaintiff contended
that we wrongfully refused to allow the exercise of options for 50,000 shares of
our stock at $4.50 per share. The plaintiff also alleged an anticipatory breach
of plaintiff's right to exercise an option to purchase 100,000 more shares for
$4.50 per share. The plaintiff alleged it sustained damages in the sum of
$5,000,000 in punitive damages on the conversion claim.

        We initially filed a motion to dismiss the cause of action alleging
conversion. At that time RSCS cross-moved for partial summary judgment in its
favor on the claim for damages caused by our refusal to recognize the exercise
of the option to purchase the first 50,000 shares. The court granted our motion
and dismissed the cause of action for conversion. The court denied the
plaintiff's motion for partial summary judgment. We then filed an answer denying
the allegations of the complaint, asserting affirmative defenses and asserting
counterclaims against the plaintiff and Ronald Shapss, the principal of the
plaintiff corporation. The plaintiff re-filed its motion for partial summary
judgment and the motion was again denied. The plaintiff filed an appeal to the
Appellate Division of the Supreme Court, Second Department. The Appellate
Division affirmed the order of the lower court. During the pendency of the
appeal, we filed a motion for partial summary judgment declaring that the
plaintiff was not entitled to purchase the 100,000 shares for $1,000.00 and was
not entitled to receive or exercise the options for 100,000 shares at $4.50 per
share. The court granted that motion.

        The parties are conducting discovery on the plaintiff's remaining claim
that it was damaged in the sum of $1,375,000.00 for our failure to allow the
exercise of options for 50,000 shares. In addition, the parties are conducting
discovery on our counterclaim to rescind the contract and cancel said options as
well as cancel 50,000 shares of stock previously issued pursuant to that
contract.

        The plaintiff's motion for summary judgment was based on its claim that
we made various admissions that plaintiff had fully performed its contract. The
courts agreed that we had offered


                                       36
<PAGE>   37
sufficient factual details to support our claim that plaintiff had not fully
performed and failed to explain the alleged admissions. Therefore, we believe we
have substantial defenses to the asserted claims and intend to vigorously defend
this suit.

S&L Telecom, Inc., Jacob Steinmetz and Joseph Luria v. Fidelity Holdings, Inc.

        A legal action has been commenced against us by S&L Telecom, Inc., Jacob
Steinmetz and Joseph Luria in the Supreme Court of the State of New York, County
of New York, Index No. 605513/99. Plaintiffs filed a complaint on December 7,
1999 against us alleging that we failed to deliver shares of stock pursuant to
the terms of an agreement between the parties. Plaintiffs are seeking delivery
of the shares and damages. Limited discovery has begun and is continuing at this
time. While we believe that we have substantial defenses to the asserted claims
and intend to vigorously defend this suit, a judgment against us with respect to
this action could have a material adverse effect on our financial condition.

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

        We, IG2 and 786710 Ontario, Ltd. are plaintiffs 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
agreement between the parties; (ii) tortuous interference with business
opportunities; and (iii) slander. Defendants filed an answer with counterclaims,
which included, inter alia: (i) fraud; (ii) breach of contract; (iii) tortious
interference with business opportunities; and (iv) tortuous interference with
contract. Both parties are currently still engaged in ongoing discovery at this
time. While we believe that our asserted claims have merit and that we have
substantial defenses to the asserted counterclaims, a judgment against us with
respect to this action could have a material adverse effect on our financial
condition.

RealTech Systems Corporation v. IG2, Inc. & Fidelity Holdings, Inc.

        On or about November 9, 2000, Realtech Systems Corporation ("Realtech")
served us as well as IG2 a Demand for Arbitration before the Commercial
Arbitration tribunal of the American Arbitration Association relating to work
and services allegedly provided by Realtech to IG2. The Demand asserted that
pursuant to a Master Agreement dated November 16, 1999 between Realtech and IG2,
both parties agreed to arbitration in the event of any potential disputes. The
Demand further asserts that Realtech has provided work and services to us in the
unpaid amount of $198,000, and that we and IG2 further breached the agreement by
hiring John Honovich, a former Realtech employee. Realtech seeks in excess of
$243,849.50 in damages. Realtech included us in an arbitration based on the idea
that IG2 is "our wholly owned subsidiary" and not on the basis of the agreement.
On December 1, 2000, we served a Notice of Petition and a Petition seeking a
stay of arbitration on our behalf on the grounds that IG2 is not a signatory to
any arbitration agreements between Realtech and us. Realtech served reply papers
as well as a cross motion compelling us to arbitrate on December 14, 2000. On
January 12, 2001, we filed an Order to Show Cause, to which Realtech answered.
On January 29, 2001, Justice Tolub of the New York State Supreme Court ordered
the Arbitration stayed as to us, and denied Realtech's arbitration claim.

        With respect to IG2, there is a good possibility that the claim will be
dismissed since Realtech failed to perform as per the Agreement. We believe we
have substantial defenses to the asserted claims and intend to vigorously defend
this suit.


                                       37
<PAGE>   38
MCI International, Inc. v. Schiano Bros. Inc.; Schiano Bros. Inc. (Third Party
Plaintiff) v. Computer Business Sciences Inc. (Third Party Defendant).

        On August 28, 2000, Schiano Bros. Inc. ("Schiano") filed a third party
lawsuit against Computer Business Sciences Inc. ("CBS") in the Supreme Court of
the State of New York, Kings County. The suit alleged that phone services
provided to the Dominican Republic through MCI International, Inc. ("MCI") were
wrongfully attributed to Schiano and should have been attributed to CBS. In
addition, an intentional tort claim was also filed against CBS. The suit seeks
$150,000 in damages. We filed an Answer on September 20, 2000, as well as a
Demand for a Third Party Bill of Particulars on the plaintiff MCI, and Discovery
and Inspection Demands on all parties. Plaintiff responded only with a set of
invoices, to which we requested a more thorough inquiry. On December 10, 2000,
Schiano served a Bill of Particular and Interrogatory Demands upon us, as well
as Notices for Discovery and Inspection. A Preliminary Conference Order was
scheduled for March 3, 2001.

        There were no agreements made between us and Schiano, or between us and
MCI; the sole basis for Schiano's claim is a verbal/oral agreement upon facts
that do not exist. We believe we have substantial defenses to the asserted
claims and intend to vigorously defend this suit.

Waterview Resolution Corp. f/k/a Colonial Pacific Leasing Corporation v. Schiano
Bros. Inc. and Ronald Tiongson; Schiano Bros. Inc. and Ronald Tiongson (Third
Party Plaintiffs) v. Fidelity Holdings Inc., Taylor Financial Services Inc.,
Doron Cohen, and Geoffrey Alexander (Third Party Defendants).

        An action has been commenced by Waterview Resolution Corp. ("Waterview")
against Schiano, who third party impleaded us in November 2000 in the Supreme
Court of the State of New York, New York County. Schiano leased equipment from
Waterview with the expectation of entering into a business arrangement with us.
On January 23, 2001, Schiano served upon us a lawsuit alleging an agreement with
us to sell telephone service to the Philippines in which we (i) failed to
disclose the financial interest of Taylor Financial Services Inc. to Schiano,
(ii) failed to engage in a joint venture or partnership with Schiano and (iii)
failed to disclose the substantial risk of termination of the business by the
Philippine government. No written agreement has been produced to substantiate
the aforementioned claims. A Notice to take Examination Before Trial was served
on both the defendant and plaintiff by us on March 6, 2001.

        Since there were no written agreements regarding us, we believe we have
substantial defenses to the asserted claims and intend to vigorously defend this
suit.

Dale Harris & Fouad Tobagi v. Computer Business Sciences, Inc., et al.

        On June 6, 2000 plaintiffs filed a lawsuit against CBS in the amount of
$1,000,000 in the Northern District of California, San Francisco division.
Plaintiffs allege that they were convinced to join the advisory board of CBS in
return for: (i) a seat on the Technical Advisory Board; (ii) stock options;
(iii) a signing bonus; and (iv) a consulting agreement. Plaintiffs further
allege that CBS used their names to further our image and received nothing in
return. Plaintiffs filed an amended complaint on October 16, 2000, and we
subsequently filed a Motion to Dismiss and Transfer Venue on November 6, 2000.
Plaintiffs opposed the motion to dismiss, to which we replied on September 8,
2000. The Motion was granted as to Rule 10-5b for failure to state a claim,
granted as to Lack of Personal Jurisdiction over Mr. Cohen, Mr. Bendell and Ms.
Peacock, and denied as to all other


                                       38
<PAGE>   39
claims. A case management conference was re-set for April 6, 2001. A
substitution of Attorney Robert Rimberg for Brobeck, Phleger & Harrison was
entered March 30, 2001, and is pending.

        Since there were no damages sustained by either plaintiff, we believe we
have substantial defenses to the asserted claims and intend to vigorously defend
this suit.

Russell Reynolds Associates, Inc. v. Fidelity Holdings, Inc.

        On December 21, 2000, Russell Reynolds Associates, Inc. ("Russell
Reynolds") filed a complaint against us in the Supreme Court of the State of New
York, New York County. The suit alleged that we had not paid for employee search
services based upon an alleged agreement entered into by us with Russell
Reynolds. The suit further alleged an amount outstanding of $108,688.09 for
services rendered in connection with executive search services. We served an
Answer on the plaintiff on February 20, 2001 as well as a Notice to take
Deposition and a Notice to Produce.

        As discovery has not yet commenced and all the facts have not been
disclosed, it is too early to render a determination in this case. Nevertheless,
we believe we have substantial defenses to the asserted claims and intend to
vigorously defend this suit.

Stephen B. Wechsler, et al. v. Fidelity Holdings, Inc. et al.

        An action entitled Stephen B. Wechsler, et al. v. Fidelity Holdings,
Inc. et al., CV 00 6488 (CPS) (the "Wechsler Litigation") has been commenced in
the United States District Court for the Eastern District of New York. The
Wechsler Litigation is brought on behalf of certain persons who acquired an
unstated number of shares of our common stock between December 1999 and May
2000. Named as defendants are the Company, Doron Cohen, Richard L. Feinstein and
Bruce Bendell (the "Defendants"). On December 26, 2000, plaintiffs filed a
Second Amended Complaint, which alleged, among other things, that plaintiffs
sustained damages when they acquired our common stock because Defendants
allegedly issued materially false and misleading statements and failed to
disclose material information which purportedly caused such stock to trade at
artificially inflated prices. The Second Amended Complaint alleges violations of
Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") and Rule 10b-5 promulgated thereunder. The allegedly misstated and omitted
information concerns our reported income for the first three quarters of 1999
and the prospects for our technology business. The Second Amended Complaint
seeks, among other things, damages "in an amount, not less than" one million
dollars. On February 16, 2001, we and Messrs. Bendell and Feinstein filed a
motion to dismiss the Second Amended Complaint for failure to plead fraud with
particularity. We understand that Mr. Cohen has not been served with process for
this action. We believe we have substantial defenses to the asserted claims and
intend to vigorously defend this suit.

In re: Fidelity Holdings Securities Litigation.

        A class action has been commenced against us in an action entitled In
re: Fidelity Holdings Securities Litigation, Master File No. 005078 (CPS)
(E.D.N.Y.) (the "Class Action"). The Class Action, also pending in the United
States District Court for the Eastern District of New York, consists of twelve
putative class actions that were originally filed in the Southern District of
New York and the Eastern District of New York. The Class Action is purportedly
brought on behalf of all persons who acquired shares of Fidelity common stock
between June 24, 1999 and May 22, 2000. Named as defendants are Fidelity, Doron
Cohen, Richard L. Feinstein and Bruce Bendell (the


                                       39
<PAGE>   40
"Defendants"). The constituent actions were all commenced subsequent to our
April 12, 2000 announcement of our financial results for the fiscal year ended
December 31, 1999. The complaints allege, among other things, that plaintiffs
were damaged when they acquired shares of our common stock because Defendants
allegedly issued materially false and misleading statements and failed to
disclose material information during the class period, which purportedly caused
such stock to trade at artificially inflated prices during the class period. The
complaints allege violations of Sections 10(b) and 20(a) of the Exchange Act,
and Rule 10b-5 promulgated thereunder. The allegedly misstated and omitted
information concerns our reported income for the first three quarters of 1999
and the prospects for our technology business. To date, no consolidated
complaint has been served and our time to answer each of the constituent
complaints has been served has been adjourned indefinitely. The complaints seek,
among other things, damages in unspecified amounts. We believe we have
substantial defenses to the asserted claims and intend to vigorously defend this
suit.


                                       40
<PAGE>   41
ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        On December 8, 2000, we held our Annual Meeting of Shareholders, where
our shareholders approved the foregoing proposals. Proxies were solicited by us
pursuant to Regulation 14A under the Exchange Act, as amended. As of November 3,
2000, the record date for the Annual Meeting, there were approximately
26,148,699 shares of common stock outstanding and entitled to vote, of which
21,332,986 shares of common stock were present in person or by proxy and voted
at the meeting and 500,000 shares of 1997 Major Series of Convertible Preferred
Stock outstanding and entitled to two votes per share, all of which were present
in person or by proxy and voted at the meeting.

       1. Proposal to approve amendments to our Articles of Incorporation to
provide for the classification of the Board of Directors into three classes of
directors with staggered three-year terms of office.

<TABLE>
<S>                                     <C>
        For.....................        10,258,945
        Against.................                 0
        Abstain.................        11,074,039
        Not Voted...............         4,815,715
</TABLE>

       2. Proposal to elect five (5) directors to the Board of Directors to
serve for terms of one to three years, respectively, or until their successors
are elected and qualified if a classified board structure is approved, or to
elect the same persons as directors for a term of one year if classified board
structure is not approved.

<TABLE>
<CAPTION>
                                For            Abstain         Against       Not Voted
                                ---            -------         -------       ---------
<S>                             <C>            <C>             <C>           <C>
        Bruce Bendell           21,144,760     22,500          0             4,981,439
        James Wallick           21,167,260     0               0             4,981,439
        Dennis Roth             21,167,260     0               0             4,981,439
        Jeffrey Weiner          21,167,260     0               0             4,981,439
        David Edelstein         21,167,260     0               0             4,981,439
</TABLE>

        3. Proposal to approve an amendment to our Articles of Incorporation to
increase the number of authorized shares of our common stock from 50,000,000 to
100,000,000.

<TABLE>
<S>                                  <C>
        For.....................     20,846,828
        Against.................              0
        Abstain.................              0
        Not Voted...............      5,301,871
</TABLE>

        4. Proposal to ratify the appointment of BDO Seidman LLP as our
independent auditors for the year 2000.

<TABLE>
<S>                                   <C>
        For.....................      21,332,986
        Against.................               0
        Abstain.................               0
        Not Voted...............       4,815,713
</TABLE>


                                       41
<PAGE>   42
                                          PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

        Our common stock trades on the NASDAQ National Market. The quarter-end
high and low bid price of our common stock were (as reported by Nasdaq National
Market), which quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions and which have
been adjusted, as necessary, to reflect two stock splits, each in an amount of 3
for 2, effected in June, 1999 and January, 2000:

<TABLE>
<CAPTION>
    Quarter Ended         High Bid       Low Bid
    -------------         --------       -------

<S>                      <C>            <C>
December 31, 2000        $  1.00        $   .125
September 30, 2000       $  2.063       $   .875
June 30, 2000            $ 20.063       $  1.25
March 31, 2000           $ 23.625       $ 10.125
December 31, 1999        $ 12.7083      $  8.000
September 30, 1999       $ 17.125       $  9.1667
June 30, 1999            $ 15.250       $  8.4167
March 31, 1999           $  8.222       $  2.722
</TABLE>

Shareholders

        As of April 10, 2001 there were approximately 5,098 holders of record of
our common stock.

Dividends

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

Recent Sales of Unregistered Securities

        The securities described below were sold by us during 2000 without being
registered under the Securities Act. All such sales made in reliance on Section
4(2) and/or Rule 506 promulgated thereunder of the Securities Act were, to the
best of our knowledge, made to investors that, either alone or together with a
representative that assisted such investor in connection with the applicable
investment, had such sufficient knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks connected with
the applicable investment. All shares and prices have been adjusted to reflect
stock splits effected in June 1999 and January 2000.

1. In January 1999, we issued 33,750 shares of common stock to Kimberly Peacock
at a per share price of $1.56 as employment compensation.

2. In February 1999, we issued 22,500 shares of common stock, 11,250 each to
Arthur and Scott Picon, at a per share price of $2.44 in partial consideration
for the acquisition of Compass Lincoln-Mercury.


                                       42
<PAGE>   43
3. In January 1999, in connection with the private placement, of a convertible
debenture, we issued the following shares (each share at $1.56) and warrants:
Zanett Lombardier, Ltd. 40910 shares of common stock and 93,752 warrants;
Goldman Sachs Performance Partners, L.P., 91,637 shares of common stock and
210,000 warrants; Goldman Sachs Performance Partners (Offshore), L.P., 72,000
shares of common stock and 156,000 warrants; Bruno Guazzoni, 18,819 shares of
common stock and 43,127 warrants; David McCarthy, 43,825 shares of common stock
and 100,430 warrants; Claudio Guazzoni, 42,188 shares of common stock and 96,681
warrants; and Samuel Milbank, 26,125 shares of common stock and 54,454 warrants.

4. In January 1999, we issued 45,563 shares of common stock to Robert Rimberg,
Esq. at a per share price of $1.56 in consideration for legal services.

5. In January 1999, we issued 4,500 shares of common stock to Tom Mludzik at a
per share price of $1.56 pursuant to an employment agreement.

6. In January 1999, we issued 21,126 shares of common stock to Solomon Fromowitz
and 132,251 shares to Michael Fromm and 38,025 shares of common stock to
Elizabeth Deutch at a per share price of $1.56 in consideration for consulting
services.

7. In January 1999, we issued 2,383 shares common stock to Elias Fillas at a per
share of common stock price of $1.56 in consideration for settlement of
litigation.

8. In March 1999, we issued 26,910 shares of common stock to Dr. Zvi Barak at a
per share price of $1.56 pursuant to an employment agreement.

9. In January 1999, we issued 112,500 shares of common stock to Richard
Feinstein at a per share price of $1.56 as employment compensation.

10. In January 1999, we issued 87,804 shares of common stock to Bruce Bendell at
a per share price of $1.20 in consideration for past employment compensation.

11. In January 1999, we issued 87,804 shares of common stock to Doron Cohen at a
per share price of $1.20 in consideration for past employment compensation.

12. In January 1999 we issued 41,261 shares of common stock to Bruce Hall at a
per share price of $1.563.50 in consideration for consulting services rendered.

13. In April 1999, in connection with the conversion of $600,000 in debentures,
we issued the following shares (each at a conversion price of $1.96 per share):
Gross Foundation, Inc. 286,875 shares of common stock; Robert Kaszovitz 95,625
shares of common stock; and Harvey Glick 76,500 shares of common stock.

14. In June 1999, in connection with the conversion of all shares of 1996 Major
Preferred stock, we issued 1,477,833 shares of common stock to Millennium Trust
I.

15. In June 1999, in connection with a private placement offering, we issued
142,857 shares of common stock, at a per share price of $14.00, along with
warrants to purchase 142,857 shares of common stock and one adjustable warrant,
to each of three investors: Strong River Investments,


                                       43
<PAGE>   44
Inc., Bay Harbor Investments, Inc. and Augusta Street LLC.

16. In June 1999, in connection with the conversion and payoff of a convertible
debenture, we issued the following shares of common stock (each share at
$14.00): Zanett Lombardier, Ltd., 100,704 shares of common stock; Bruno
Guazzoni, 129,494 shares of common stock; and David McCarthy, 11,621 shares of
common stock.

17. In July 1999, we issued 4,500 shares of common stock to Deborah Arnott at a
per share price of $18.50 as an employment bonus, subject to a vesting schedule.

18. In July 1999, we issued 1,500 shares of common stock to Mordechai Book, Esq.
at a per share price of $18.50 for legal services.

19. In July 1999, we issued 900 shares of common stock to Zvi Lichter at a per
share price of $12.33 as an employment bonus.

20. In July 1999, we issued 9,000 shares of common stock to International
Securities Corporation at a per share price of $12.33 as a financing fee.

21. In July 1999, we issued 45,000 shares of common stock to Lawrence Hardge at
a per share price of $12.33, subject to a vesting schedule, in consideration for
inventions acquired.

22. In July 1999, we issued 4,500 shares of common stock to Joe Centner at a per
share price of $12.33 as an employment bonus.

23. In September 1999, we issued 43,676 shares of common stock to Arthur and
Scott Picon at a per share price of $12.30 as partial consideration for the
acquisition of Compass Lincoln Mercury.

24. In September 1999, we issued 2,439 shares of common stock to James Wallick
at a per share price of $12.30 as partial consideration for the acquisition of
Compass Lincoln Mercury.

25. In September 1999, we issued 7,500 shares of common stock to James Wallick
at a per share price of $12.30 in connection with the acquisition of Compass
Lincoln Mercury.

26. In October 1999, upon conversion of 400,000 shares of common stock of 1997
Major Preferred Stock, we issued 1,800,000 shares of common stock to Bruce
Bendell. Such shares were placed in Millennium Trust III, a trust in which Mr.
Bendell disavows any beneficial interest.

27. In November 1999, we issued 9,762 shares of common stock to Frank Graziadei,
Esq. at a per share price of $10.85 as a down payment for the acquisition of an
automotive dealership.

28. In November 1999, we issued 1,500 shares of common stock to William Brunner,
Esq. at a per share price of $10.85 as a down payment for the acquisition of an
automotive dealership.

29. In November 1999, in connection with the exercise of adjustable warrants, we
issued 32,430 shares of common stock, at a per share price of $.0067, to each of
three investors: Strong River Investments, Inc., Bay Harbor Investments, Inc.
and Augusta Street LLC.

30. In December 1999, in connection with a private placement offering, we issued
88,236 shares of


                                       44
<PAGE>   45
common stock, at a per share price of $11.33, along with warrants to purchase
88,236 shares of common stock and one adjustable warrant, to each of three
investors: Strong River Investments, Inc., Montrose Investments, Ltd. and
Augusta Street LLC.

31. In November 1999, we issued 37,500 shares of common stock to Roland Nassim
at a per share price of $20.00 in connection with the acquisition of Master
Agent's rights and equipment.

32. In January 2000, in connection with the exercise of adjustable warrants, we
issued 37,307 shares of common stock, at a per share price of $.0067, to each of
three investors: Strong River Investments, Inc, Bay Harbor Investments, Inc. and
Augusta Street LLC.

33. In January 2000, we issued 4,632 shares of common stock to International
Securities Corporation at a per share price of $12.50 as a financing fee.

34. In February 2000, in connection with a private placement offering, we issued
88,889 shares of common stock, at a per share price of $15.00, along with
warrants to purchase 88,889 shares of common stock and one adjustable warrant,
to each of three investors: Strong River Investments, Inc., Montrose
Investments, Ltd. and Augusta Street LLC.

35. In February 2000, we issued 22,500 shares of common stock to James Wallick
at a per share price of $10.77 as employment compensation.

36. In February 2000, we issued 4,667 shares of common stock to International
Securities Corporation at a per share price of $13.18 as a financing fee.

37. In February 2000, we issued 7,500 shares of common stock to Warren Foreman
at a per share price of $14.08 as employment compensation, subject to vesting
provisions.

38. In February 2000, in connection with a private placement offering, we issued
50,000 shares of common stock, at a per share price of $13.90, along with
warrants to purchase 50,000 shares of common stock Strong River Investments,
Inc.

39. In March 2000, we issued 1,125 shares of common stock at a per share price
of $19.34 to Packard Press, Inc. and 375 shares of common stock to Elliot
Fishman, Esq. at a per share price of $19.34, both issuances in consideration of
settlement of litigation.

40. In March 2000, we issued 200 shares of common stock to Mordechai Book at a
per share price of $19.33 as employment compensation.

41. In March 2000, we issued an aggregate of 577,591 shares at a per share price
of $12.11 in consideration for the acquisition of CarsTV, Inc.

42. In March 2000, we issued 4,500 shares of common stock to Tomasz Mludzik at a
per share price of $11.90 as employment compensation.

43. In March 2000, in connection with the exercise of warrants, we issued an
aggregate of 398,443 shares at a per share price of $1.87 to: Bruno Guazzoni,
43,127 shares; Claudio Guazzoni, 96,681 shares; David McCarthy, 100,430 shares;
Zannett Lombardier, Ltd., 93,752 shares and Samuel Milbank, 64,453 shares.


                                       45
<PAGE>   46
44. In March 2000, we issued 30,000 shares to Kimberly Peacock at a per share
price of $15.88 as employment compensation.

45. In March 2000, in connection with the exercise of adjustable warrants, we
issued 21,428 shares of common stock, at a per share price of $.067, to each of
three investors: Strong River Investments, Inc, Bay Harbor Investments, Inc. and
Augusta Street LLC.

46. In March 2000, we issued 1,971 shares of common stock to International
Securities Corporation at a per share price of $16.26 as a financing fee.

47. In March 2000, we issued 2,500 shares of common stock, 1,250 each to Arthur
and Scott Picon, at a per share price of $16.68 in partial consideration for the
acquisition of the Compass dealerships.

48. In April 2000, we issued an aggregate of 87,211 shares of common stock,
25,640 shares to Gabry, Inc. and 61,571 to Frank Graziadei, as Escrow Agent, at
a per share price of $12.38, in partial consideration for the acquisition of the
Hempstead Mazda dealership.

49. In April 2000 we issued 4,500 shares of common stock to Jeffrey Weiner, at a
per share price of $5.31, as consideration for services as a director of
Fidelity Holdings, Inc.

50. In April 2000 we issued 4,500 shares of common stock to David Edelstein, at
a per share price of $5.31, as consideration for services as a director of
Fidelity Holdings, Inc.

51. In May 2000, we issued 6,530 shares of common stock to Mordechai Book at a
per share price of $6.13, as employment compensation.

52. In August 2000, we issued 7,500 shares of common stock to Scott Picon, at a
per share price of $1.56 and 5,000 shares of common stock to Arthur Picon at a
per share price of $1.56, in partial consideration for the acquisition of the
Compass dealerships.

53. In August 2000, in connection with the exercise of adjustable warrants, we
issued 131,198 shares of common stock, at a per share price of $.01, to each of
three investors: Strong River Investments, Inc., Montrose Investments, Ltd. and
Augusta Street LLC.


                                       46
<PAGE>   47
ITEM 6.        SELECTED FINANCIAL DATA

        The selected data presented below for, and as of the end of, each of the
years in the five-year period ended December 31, 2000 are derived from our
audited financial statements. The data set forth below should be read in
connection with, and are qualified by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and the related notes included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                            As at and for the years ended:
                                                        2000            1999            1998            1997             1996
                                                        ----            ----            ----            ----             ----
                                                                     (restated)       (restated)      (restated)      (restated)

<S>                                                 <C>             <C>             <C>             <C>            <C>
Revenues                                            $ 322,142,231   $ 209,531,993   $  98,578,970   $     953,033  $     258,947

Income (loss) from continuing operations                1,302,247         815,955       1,052,897        (383,261)        63,621

Income (loss) from discontinued operations            (22,427,322)     (4,006,103)       (473,161)        752,400        612,345

Net income (loss)                                     (21,125,075)     (3,190,148)        579,736         369,139        675,966

Income per common share-continuing operations
      Basic:                                        $        0.05   $        0.04   $        0.06   $       (0.03) $        0.01
      Diluted:                                               0.04            0.04            0.05           (0.03)          0.00

Income (loss) from discontinued operations
      Basic:                                                (0.87)          (0.19)          (0.03)           0.05           0.05
      Diluted:                                              (0.87)          (0.19)          (0.03)           0.04           0.04

Net income (loss) per common share
      Basic:                                                (0.83)          (0.15)           0.04            0.03           0.05
      Diluted:                                              (0.83)          (0.15)           0.03            0.02           0.05

Average number of shares used in computation:
      Basic                                            25,509,144      21,054,183      16,507,786      14,522,288     12,653,413
      Diluted                                          33,955,520      21,054,183      20,207,034      16,988,729     14,209,850


BALANCE SHEET DATA:
Total assets                                        $  86,781,397   $  68,319,331   $  49,426,735   $   9,401,343  $   9,316,864
Long-term liabilities, less current
  Portion                                              10,411,463       7,416,784       7,953,278         427,387        515,609
Total stockholders' equity                             15,599,970      28,917,595      16,453,516       6,524,735      5,244,213
</TABLE>


                                       47
<PAGE>   48
See Notes 1, 10, 15 and 17 to Consolidated Financial Statements for discussions
of business acquisitions and divestitures, restatements, stockholders' equity,
earnings (loss) per share, restructuring and impairment charges, discontinued
operations and their effects on comparability of year- to-year data. See "Item
5. Market for the Registrant's Common Equity and Related Stockholder Matters"
for a discussion of our dividend policy.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         The following discussion of the operations, financial condition,
liquidity and capital resources of we and our subsidiaries should be read in
conjunction with our audited Consolidated Financial Statements and related notes
thereto included elsewhere herein.

        This annual report contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. Our actual
results could differ significantly from the results discussed in the
forward-looking statements.

The Company

        On May 14, 1998, Fidelity Holdings, Inc., a holding company involved in
the acquisition and development of synergistic technological and
telecommunications businesses and the regional consolidation of the retail
automotive industry, acquired, from a related party, the Major Automotive Group
of dealerships ("Major Auto") and related real property and leases. We have
historically operated in two divisions: Automotive and Technology.

        On November 3, 2000, our Board of Directors determined to sell our
non-automotive operations, including our Technology division, by the most
appropriate economically viable means, in order to maximize shareholders' value
from those operations and to maintain the Company's focus on the regional
consolidation of retail automotive dealerships. Accordingly, all non-automotive
operations have been classified collectively as "Discontinued Operations."
Continuing operations are represented by our automotive dealerships activities,
including our Major Auto subsidiary and other dealerships, as well as our
automotive leasing subsidiary, Major Fleet and Leasing, Inc. ("Major Fleet").

        The year 2000 has been significant in the Company's history. We have
substantially increased the revenues and gross profits from our existing
dealerships and at the same time integrated the operations of three dealerships
we acquired this year and the one we acquired in September of 1999. By that
measure, we have generated substantial growth. Despite the fact that our income
from continuing operations was adversely impacted by the expected one-time
operating costs incurred in the start-up and integration of these newly acquired
dealerships, we had record sales and gross profits from our automotive
dealerships' operations. On the other hand, we have discontinued the operations
of our former Technology division. In connection with the discontinuance of our
technology enterprises we have incurred material losses from their operations,
as well as significant charges associated with their discontinuance. Management
believes, however, that the divestiture of the technology operations will allow
it to focus on the historically profitable automotive dealership segment of the
business and, thereby, enhance shareholders' value.


                                       48
<PAGE>   49
RESULTS OF CONTINUING OPERATIONS - YEAR ENDED DECEMBER 31, 2000 AND YEAR ENDED
DECEMBER 31, 1999

        Revenues. Revenues for the year ended December 31, 2000 increased to
approximately $322.1 million, which is $112.6 million, or 53.7%, more than the
prior year's revenues of $209.5 million. Such increase was solely attributable
to the revenues of our automotive dealership operations, which were
approximately $321.5 million for the 2000 year, an increase of $112.7 million,
or 54.0%, over the prior year's revenue of $208.8 million. Of this increase,
approximately $43.6 million relates to revenues generated by four dealerships we
acquired between September 1999 and December 2000. The other primary reason for
the significant growth in revenues was the substantial increase in unit sales.
New car unit sales increased by 1,653 units, or 44.5% in 2000 from 1999, while
used car unit sales increased 5,595 units, or 72.7%, in the 2000 year over the
prior year. On a same-store basis, i.e., dealerships that were owned for the
entire twelve months in both the 2000 and 1999 years, the increase in new
vehicles sold was 662, or 18.2%, while used vehicles sold, retail and wholesale,
increased by 4,019 units or 53.4%. Management believes that the increase in unit
sales is primarily attributable to our automotive dealership operations'
successful efforts in selling used vehicles at its expansive facility in Long
Island City, New York and to a lesser extent the development of its used vehicle
operation in Northern New Jersey. An average of 1,108 used vehicles, retail and
wholesale, were sold during each of the months in the 2000 year, compared with
an average of 641 used vehicles per month during the prior year. Our automotive
dealership operations' sales efforts included extensive Internet promotions,
local advertising in all media and the branding of our used car operation as
"Major World." Management believes that market acceptance of its Major World
brand was a strong contributor to the 2000 sales volume performance.
Additionally, the average sales price per vehicle, for new vehicles, increased
by approximately $744 (3.1%), per vehicle in 2000 as compared with 1999, while
the average sales price in 2000 for used vehicles, retail and wholesale,
decreased by approximately $672 (4.8%) from the year 1999.

        New vehicle sales revenue was approximately $132.5 million in 2000, an
increase of $43.6 million or 49.0% from 1999 new vehicle sales revenue of $88.9
million. Approximately $18.9 million of this increase was represented by sales
from dealerships that were owned for twelve months in each of the years.

        Used vehicle sales revenue was $178.1 million in 2000 and $108.3 million
in 1999, an increase of approximately $69.8 million or 64.5%. On a same-store
basis, the increase in used vehicle sales revenue in 2000 over 1999 was
approximately $54.3 million, or 51.2%. These changes in sales volume of used
vehicles is attributable, in part, to our successful efforts in obtaining
non-recourse financing for prospective buyers who may have had difficulties
obtaining financing elsewhere and also selling higher priced luxury quality used
cars.

        Cost of sales. The cost of sales increase of $96.1 million, or 54.5 %,
to $272.2 million in the year 2000 from $176.1 million in the year ended
December 31, 1999, is solely attributable to our automotive dealership
operations. The percentage increase is slightly more than the revenues
percentage increase and reflects an increase of almost $981 or 4.5% in the
average cost of new vehicles and an decrease of $503 or 4.4% in the average unit
cost of used vehicles.

        Gross profit. Our automotive dealership operations generated almost all
of the total gross profit of $49.9 million for the year ended December 31, 2000.
The gross profit for automotive dealerships in 2000 was $49.2 million compared
with the 1999 amount of $32.2 million, an increase of $17.0 million or 52.8%.
The four dealerships we acquired between September 1999 and December


                                       49
<PAGE>   50
2000 generated approximately $6.0 million or 35.3% of this total increase.
Additionally, we changed our method of accounting for our new vehicle inventory
from the last-in, first-out method ("LIFO") to the first-in, first-out method.
This resulted in a positive gross profit effect of approximately $300,000 in
2000. We retroactively restated the 1999 and 1998 inventory to conform with the
current year's presentation. This resulted in increased gross profits of
approximately $400,000 in 1999 and $50,000 in 1998.

        The balance of the gross profits increase was primarily attributable to
(i) the increase in units sold and (ii) the change in revenue percentage mix.
Automotive dealership revenues went from 42.9% of total revenues generated by
new vehicle sales and 52.2% generated by used vehicles sales in 1999 to 40.8% of
total revenues generated by new vehicle sales and 54.9% generated by used
vehicle sales in 2000. For the industry as a whole, the average percentage of
new and used vehicles' revenue as a percentage of total dealership revenue is
60.1% and 28.6% respectively. Our dealerships' overall gross profit as a
percentage of sales was 15.0%, compared with the industry average of 12.7%. Our
gross profit percentage on new vehicles of 8.2% is above the industry average of
6.1%, while our gross profit percentage on used vehicle sales of 18.1% is
significantly over the industry average used vehicle gross profit of 10.9%.
Management believes that our product mix, i.e. our concentration on the more
profitable used vehicle segment, is the significant factor in our profitability.

        Operating expenses. In the year ended December 31, 2000, operating
expenses increased approximately $14.6 million to approximately $44.5 million,
from $29.9 million in 1999. The most significant component of this increase is
the start-up and integration expenses associated with the new dealerships we
acquired since September 1999. These dealerships accounted for approximately
$8.2 million of such increase. The balance of the increase is significantly
attributable to the costs associated with increased sales efforts and results,
principally, advertising and compensation of the previously existing
dealerships.

        Interest expense. Interest expense had a net increase of approximately
$900,000 to approximately $2.6 million in 2000 from interest expense of $1.7
million incurred in 1999. This is primarily related to the increase in floor
plan interest based on the higher levels of automotive dealership operation's
inventories and higher interest rates during 2000 as compared with 1999.

        Income tax expense. Local income tax expense of approximately $100,000
for the year ended December 31, 2000 was calculated on pre-tax income from
continuing operations. The Company has provided for tax expense on the pre-tax
income from its continuing operations for the year and recorded a tax benefit of
approximately $500,000 in total, in connection with its discontinued operations.

        Discontinued operations. The non-automotive components of our business
that our Board of Directors has determined to divest have generated a
substantial loss. The aggregate amount of such loss from discontinued
operations, net of taxes, in 2000 was approximately $22.4 million, compared with
a loss from discontinued operations of $4.0 million in 1999. Such loss includes,
net of taxes, the actual operating costs of those operations of approximately
$6.8 million, plus a one-time, non-cash, charge of approximately $13.6 million
to write-down the assets associated with those operations to their estimated net
realizable value and a charge of $2.0 million to accrue an estimate of operating
and other costs to be incurred until the divestiture has been completed.


                                       50
<PAGE>   51
RESULTS OF CONTINUING OPERATIONS - YEAR ENDED DECEMBER 31, 1999 AND YEAR ENDED
DECEMBER 31, 1998

            Revenues. Revenues for the year ended December 31, 1999 increased to
approximately $209.5 million, which is $110.9 million, or 112.5%, more than the
prior year's revenues of $98.6 million. The increase in revenues was
attributable primarily to the sales generated by our automotive dealerships,
which were $208.8 million in 1999, compared with $97.6 million for the period
from May 14, 1998 (date of acquisition) to December 31, 1998. This is an
increase of $111.2 million or almost 114%. Revenues for Major Fleet decreased
$(225,000) or (22.7%) to $767,000 in 1999 from $992,000 in 1998.

        A comparison of the average monthly revenue for the automotive
dealerships during the year 1999 with the average monthly revenue generated by
automotive dealerships for the seven and one-half month period they were owned
in 1998 shows an approximate 30% increase in 1999, to more than $17 million per
month in 1999 from approximately $13 million per month in 1998. Management
believes that this increase in average monthly sales is primarily attributable
to our successful efforts in selling used vehicles at our expansive facility in
Long Island City, New York. Average monthly used car sales revenues increased
almost 65% in the 1999 period as Major Auto continued to set used vehicle volume
records for itself almost every month. Major Auto's initiatives included
extensive Internet promotions, local increased advertising in all media,
intensive focus on customer service and the branding of its used car operation
as "Major World."

        Cost of sales. The automotive dealerships' cost of sales in 1999
increased $92.0 million or, 110%, to approximately $176.1 million from $84.1
million in 1998. The 1998 amount is attributable to Major Auto's operations
since its acquisition on May 14, 1998 and is not directly comparable to the
current year.

        Gross profit. Our automotive dealership operations generated almost all
of the total gross profit of $33.4 million for the year ended December 31, 1999.
Gross profit showed a net increase of $18.9 million, or 130% compared with 1998
gross profit of $14.5 million. This increase is almost solely attributable to
the automotive dealership operations, the gross profit of which was $32.2
million in 1999, compared with gross profit of $13.5 million in the period May
14, 1998 (date of acquisition) to December 31, 1998. Gross profit as a
percentage of sales for the dealership operations in 1999 was 15.9%, compared
with 13.8% in 1998. Almost $800,000 of the gross profit is attributable to Major
Fleet's leasing operations.

        Operating expenses. In the year ended December 31, 1999, operating
expenses increased approximately $18.2 million to approximately $29.9 million,
from $11.7 million in 1998. This increase is primarily attributable to a full
year's operations for our automotive division in 1999 and is not directly
comparable to 1998. Included in the Automotive Division's operating expenses in
1999 is a one-time charge of $1.8 million relating to reimbursement of certain
expenses and a bonus for the Company's Chairman.

        Interest expense. Interest expense had a net increase of approximately
$1.0 million, or 133%, to $1.7 million in 1999 from interest expense of $754,000
incurred in 1998. This increase is primarily related to the floor plan interest
of approximately $800,000 in 1999, an increase of $600,000 arising from both a
full year of operations for the automotive dealership operations and increased
automotive sales and related inventory carrying costs. Additionally, interest
incurred in financing the acquisition of Major Auto amounted to approximately
$700,000, an increase of $200,000 over the prior year's


                                       51
<PAGE>   52
amount of almost $500,000 and is reflective of a full year's payments compared
with the period May 14, 1998 (date of acquisition) to December 31, 1998 in the
prior year.

        Discontinued operations. The non-automotive components of our business
that our Board of Directors has determined to divest have generated a loss from
discontinued operations, net of taxes, in 1999 of approximately $4.0 million,
compared with a loss from discontinued operations of $.5 million in 1998.

ASSETS, LIQUIDITY AND CAPITAL RESOURCES - DECEMBER 31, 2000

        At December 31, 2000, our total assets were approximately $86.8 million,
an increase of approximately $18.5 million from December 31, 1999. This
aggregate increase is primarily related to the increases in our accounts
receivable of $2.7 million, inventories of $22.5 million, excess of costs over
net assets acquired of $6.4 million and net property and equipment of $3.3
million. These increases are directly attributable to (i) the increased sales
volume in our automotive dealership operations and (ii) the assets obtained
through the acquisitions in the year of 2000. Significant offsets to these asset
increases, include a decrease in cash of $3.8 million, a decrease in other
assets of $1.0 million and a decrease of $12.0 million in net assets held for
sale. This latter category represents the total of assets less related
liabilities from the Company's former technology operations, which the Company
has discontinued and is seeking to divest in an economically productive manner.

        The Company's primary source of liquidity for the year 2000 was
$1,659,689 from its financing activities. This was the net effect of $5,440,088
of net proceeds from the private placement and the exercise of warrants for our
common stock plus proceeds from long-term debt and lines of credit, aggregating
$2,500,000, as offset by a redemption of adjustable warrants for $4,746,079,
purchases of treasury stock for $631,390, payments of outstanding debt of
$397,371 and an increase of amounts due from officers and shareholders of
$505,559.

        Cash used in operating activities was $3,800,190. This was the result of
cash used through our loss of $34,992, comprised of our net loss of $21,125,075,
less non-cash charges of $21,090,083, and a net increase in assets of
$20,985,539 (primarily from increases in accounts receivable of $2,742,427;
inventories of $15,348,990 and other assets of $3,220,549, partially offset by
additions to liabilities of $17,220,341 (primarily from increases in floor plan
notes payable of $16,643,439 and accrued expenses of $2,286,126, partially
offset by a decrease in accounts payable of $1,715,428). The increases in assets
and liabilities were significantly attributable to the large volume of sales in
the year of 2000, as well as the acquisitions of automotive dealerships that
were consummated during that year.

        The net use of cash from operating activities of $3,800,190 was further
increased by the cash used in investing activities of $1,698,641 for the net
additions to property and equipment and business combinations.

        The foregoing activities, i.e. financing, operating and investing,
resulted in a net cash decrease of $3,839,142 for the year ended December 31,
2000.

        We believe that the cash generated from existing operations, together
with cash on hand, available credit from our current lenders, including banks
and floor planning, will be sufficient to finance our current operations and
internal growth for at least the next twenty-four months. However, we will
require additional financing in connection with future planned acquisitions of
automobile


                                       52
<PAGE>   53
dealerships. There can be no assurance that, for additional growth, such funding
will be available. We are exploring financing alternatives with respect to our
projected cash requirements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY RISK

        We have discontinued our non-automotive operations, which increased the
development of technology products in the United States, Canada and Israel.
Although we sell some vehicles in the former Soviet republics, substantially all
our revenues come from sales of vehicles in the United States. Consequently,
foreign sales constitute a minimal amount of our revenues. Even so, our
financial results could be affected by changes in foreign currency exchange
rates or weak economic conditions in foreign markets. Because substantially all
our revenues are currently denominated in U.S. dollars, a strengthening of the
dollar could make our vehicles less competitive in foreign markets. Due to the
nature of our investments and operations, we believe that there is not a
material risk exposure.

INTEREST RATE RISK

        Our interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since all of our investments are in short-term
instruments, including money market funds. Our interest rate expense is also
sensitive to changes in the general level of U.S. interest rates because the
interest rate charged varies with the prime rate. Due to the nature of our
operations, we believe that there is not a material risk exposure.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements required by this Item 8 are set forth in Item
14 of this Form 10-K. All information which has been omitted is either
inapplicable or not required.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        Not Applicable.


                                       53
<PAGE>   54
                                         PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        As of April 10, 2001, our directors and executive officers were as
follows:


<TABLE>
<CAPTION>
NAME                              AGE                          POSITION
----                              ---                          --------

<S>                               <C>   <C>
Bruce Bendell  .................  46    Chairman of the Board, Chief Executive Officer and
                                        Director

James Wallick  .................  49    President, Chief Operating Officer and Director

Richard L. Feinstein ...........  57    Senior Vice-President, Finance and Chief Financial
                                        Officer

David Edelstein ................  47    Director

Dennis Roth ....................  58    Director

Jeffrey Weiner .................  43    Director
</TABLE>

        The following is a brief description of the professional experience and
background of our directors and executive officers:

        Bruce Bendell. Mr. Bendell has served as our Chairman of the Board since
our formation in November 1995, as our Chief Executive Officer from May 1998
until February 2000, as our President from May 14, 1998 to December 1998, and as
our Chief Executive Officer since July 2000. Mr. Bendell has also served as the
Chief Executive Officer and Chairman of our former subsidiary IG2, Inc. since
its inception to March 2000 and as the President and a Director of Major Auto
and its affiliates since December 1985. Mr. Bendell also serves on the board of
E-Star Holdings, Inc., a privately held company.

        David Edelstein. Mr. Edelstein has served as our Director since May
1998. Mr. Edelstein has been in the real estate development business since 1979.
Currently he is the Managing Member of Sutton East Associates LLC, a real estate
development limited liability company and is involved in several sizable real
estate projects in New York and Florida.

        Richard L. Feinstein. Mr. Feinstein has served as our Senior Vice
President- Finance and Chief Financial Officer since December 1997. From 1994 to
December 1997, Mr. Feinstein maintained his own financial and management
consulting practice. From 1989 to 1994, Mr. Feinstein served as Managing
Director and Chief Financial Officer of Employee Benefit Services, Inc. From
1978 to 1989, Mr. Feinstein was a partner in KPMG Peat Marwick and a predecessor
firm.

        Dennis Roth. Mr. Roth has served as our Director since March 2000. Mr.
Roth also served as Chairman and Chief Executive Officer of our former
subsidiary, IG2, Inc. from March 2000 to September 2000. Mr. Roth has over 25
years experience at AT&T: most recently, Vice-President and Managing Partner,
AT&T Solutions (1999); Chief Executive Officer, AT&T-Unisource Communications
Services (1998); President & Managing Director, AT&T Communications (United
Kingdom) Ltd. (1996 to 1998); and Regional Managing Director, AT&T Business
Communications Services. Under Mr. Roth's direction, AT&T Communications (UK)
Ltd., a telecommunications start-up, grew to approximately $300 million a year
in revenues. Mr. Roth has served as President and Chief Executive Officer of
ViaGate Technologies, Inc. since October 2000.


                                       54
<PAGE>   55
        James Wallick. Mr. Wallick has served as our Director since May 1998,
Executive Vice President and Chief Operating Officer since September 1999 and
President and Chief Operating Officer since July 2000. Mr. Wallick was also
President of our former subsidiary, IG2, Inc. from September 2000 to March 2000.
Mr. Wallick has been in the automotive dealership and financing business since
1971. He is currently Vice-President of MIC Leasing.

        Jeffrey Weiner. Mr. Weiner has served as our Director since May 1998.
Mr. Weiner is a certified public accountant and has been with the accounting
firm of Marcum & Kliegman LLP, where he is currently Managing Partner, since
1981.

        The following person, although not an executive officers or director, is
regarded by management as a key employee:

        Harold Bendell. Mr. Bendell, age 52, has served as served as a senior
executive of Major Dealer Group since December 1985. He, together with his
brother, Bruce Bendell, is responsible for the day-to-day operations of the
Major Dealer Group.

Compliance with Section 16(a) of the Exchange Act

        Section 16(a) of the Exchange Act requires our officers and directors,
and persons who own more than ten percent of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "SEC"). Officers, directors and greater
than ten percent stockholders are required by SEC regulations to furnish us with
copies of all Section 16(a) forms they file.

        Based solely on our review of the copies of such forms received by us,
or written representations from certain reporting persons, we believe that
during 2000, Bruce Bendell is the only reporting person to have made late
filings under Section 16(a). Mr. Bendell filed (i) a Form 4 in May 2000, to
report sale transactions relating to our common stock that were consummated in
January, February, March and April of 2000 and (ii) a Form 4 in June 2000, to
report sale transactions relating to our common stock that were consummated
April and May of 2000. These transactions were required to be reported on a Form
4 by Mr. Bendell in February, March and April, respectively.


                                       55
<PAGE>   56
ITEM 11.       EXECUTIVE COMPENSATION

        The following table sets forth information for each of our fiscal years
ended December 31, 2000 and 1999 concerning compensation of (i) all individuals
serving as our Chief Executive Officer during the fiscal year ended December 31,
2000 and (ii) each other of our executive officers whose total annual salary and
bonus equaled or exceeded $100,000 in the fiscal year ended December 31, 2000
(collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                                              LONG-TERM
                                                                ANNUAL COMPENSATION                          COMPENSATION
                                                                -------------------                          ------------
                                                                                                             SECURITIES
                                                                                                            UNDERLYING
NAME AND PRINCIPAL POSITION                 YEAR          SALARY            BONUS           OTHER            OPTIONS (#)
---------------------------                 ----          ------            -----           -----            ----------
<S>                                         <C>        <C>              <C>              <C>                <C>
Doron Cohen (1)                             2000       $  118,248                0                0                0
President, Chief Executive Officer          1999       $  244,580                0                0                0
and Treasurer                               1998       $  246,500                0                0                0



Bruce Bendell (1)(2)                        2000       $  236,426                0                0          400,000
Chairman of the Board and                   1999       $  278,000        1,800,000                0                0
Chief Executive Officer                     1998       $  248,530       $  127,437                0                0


James Wallick (3)                           2000       $  200,000       $  492,251           19,100          200,000
President and Chief Operating Officer       1999       $   50,000                0                0                0
                                            1998                0                0                0                0


Richard L. Feinstein (4)                    2000       $  165,654                0       $    6,324           15,000
Senior Vice President, Finance              1999       $  170,715       $   70,000       $    6,324          112,500
and Chief Financial Officer                 1998       $  125,000                0       $    3,166                0
</TABLE>

(1)  Salary in 1998 includes $150,000 from us (subsequently paid through the
     issuance of 87,804 shares of our common stock). In July 2000, Mr. Cohen
     resigned from all of his positions with us. As part of his Separation and
     Release Agreement, we agreed to pay him an aggregate of $662,000, subject
     to certain considerations. Additionally, we agreed to a potential
     forgiveness of Mr. Cohen's indebtedness to us in the aggregate amount of
     $1,048,067 to begin, under certain circumstances, on August 8, 2003 and
     continue on the next two anniversary dates, with one-third lapsing at each
     date. See "Employment Contracts and Termination of Employment, and Change
     in Control Arrangements."

(2)  Salary in 1998 includes $150,000 from us (subsequently paid through the
     issuance of our 87,804 shares of common stock). In 1998, Mr. Bendell
     received $81,250 in salary and $127,437 in bonus from Major Dealer Group
     since its acquisition on May 14, 1998. In December 1999, we incurred a
     liability for a one-time charge of $1.8 million to Mr. Bendell for
     reimbursement of certain expenses and a bonus.


                                       56
<PAGE>   57
(3)  The amount reported for 1999 represents amounts paid Mr. Wallick in that
     year from the date of his employment. For 2000, the amount reported under
     Bonus represents an aggregate cash bonus of $250,000, plus the issuance of
     22,500 shares of our common stock valued at $242,251 at the date of
     issuance. The amount reported under Other Annual Compensation represents an
     automobile allowance of $1,175 per month.

(4)  Other Annual Compensation amount represents an automobile allowance of $527
     per month since July 1998. The amount reported under Bonus reflects the
     value of shares issued to Mr. Feinstein in January 1999.

OPTION GRANTS IN LAST FISCAL YEAR

        The following table sets forth certain information regarding stock
options granted to the Named Executive Officers during 2000. We have never
granted any stock appreciation rights.

                         INDIVIDUAL GRANTS (1)

<TABLE>
<CAPTION>
                                      PERCENT OF                           POTENTIAL REALIZABLE
                        NUMBER OF       TOTAL                                VALUE AT ASSUMED
                       SECURITIES       OPTIONS                            ANNUAL RATES OF STOCK
                       UNDERLYING     GRANTED TO    EXERCISE                  OPTION TERM (3)
                         OPTIONS     EMPLOYEES IN  PRICE PER  EXPIRATION
NAME                     GRANTED       2000 (2)    SHARE ($)     DATE         5%           10%
----                   ----------    ------------  ---------  ----------   ---------   ---------
<S>                    <C>           <C>           <C>        <C>          <C>         <C>
Bruce Bendell          400,000 (4)      62.0%        $.875    10/17/2010   $220,113    $557,810
James Wallick          200,000 (4)      31.0%        $.875    10/17/2010   $110,057    $278,905
Richard L. Feinstein    15,000 (4)       2.3%        $.875    10/17/2010   $  8,254    $ 20,918
</TABLE>

(1)  Each option represents the right to purchase one share of common stock. The
     options shown in this table were all granted under our 1999 Stock Option
     Plan.

(2)  In the year ended December 31, 2000, we granted options to officers and
     employees to purchase an aggregate of 645,000 shares of our common stock.

(3)  Amounts represent hypothetical gains that could be achieved for the
     respective options if exercised at the end of the option term. The 5% and
     10% assumed annual rates of compounded stock price appreciation are
     mandated by the rules of the Securities and Exchange Commission and do not
     represent our estimate or projection of future common stock price growth.
     These amounts represent certain assumed rates of appreciation in the value
     of our common stock from the fair market value on the date of grant. Actual
     gains, if any, on stock option exercises are dependent on the future
     performance of the common stock and overall stock market conditions. The
     amounts reflected in the table may not necessarily be achieved.

(4)  The options vested immediately upon their grant.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

        No options were exercised by any of the Named Executive Officers during
the fiscal year ended December 31, 2000. There were no unexercised
"in-the-money" options held by any Named Executive Officers as of December 31,
2000.


                                       57
<PAGE>   58
COMPENSATION OF DIRECTORS

        Non-employee Directors each received 4,500 shares of our Common Stock
and 4,500 options to purchase shares of Common Stock in 2000 under our 1999
Directors Stock Plan. We reimburse directors for their expenses of attending
meetings of the Board of Directors.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT, AND CHANGE IN CONTROL
ARRANGEMENTS

        As of November 7, 1995, our date of incorporation, we entered into a
Consulting Agreement with Bruce Bendell, our Chairman, pursuant to which he
serves as a business, management and financial consultant to us for a period
ending on December 31, 1998, subject to successive one-year extensions at our
option. Mr. Bendell receives an annual consulting fee as determined by our Board
of Directors from time to time, but not less than $150,000. The consulting fee
is subject to a yearly cost-of-living adjustment and may also be retroactively
increased based upon our profits per outstanding share of common stock for the
applicable year. The available percentage increase in consulting fee as a result
of profits ranges from 5% for break-even results to 150% for earnings per share
exceeding $1.00 per share. Mr. Bendell is also entitled to a bonus in such
amounts and at such times as determined by our Board of Directors. In addition,
the agreement provides that Mr. Bendell is entitled to various fringe benefits
and is entitled to participate in any incentive, stock option, deferred
compensation or pension plans established by our Board of Directors. Mr. Bendell
has agreed not to disclose confidential information relating to us and has
agreed not to compete with, or solicit employees or customers of, us during
specified periods following the breach or termination of his agreement to serve
as a consultant to us. Mr. Bendell has been serving at will since the expiration
of the agreement pursuant to the same terms.

        As of October 19, 1999, we have entered into a memorandum of
understanding with James Wallick, our President and Chief Operating Officer,
pursuant to which he is to serve as our Executive Vice-President for a term of
three years, at an annual base salary of $200,000. The annual salary is subject
to a $100,000 incentive pursuant to commissions to be mutually agreed upon. Mr.
Wallick was also granted a signing bonus consisting of 22,500 shares of our
common stock. In addition, Mr. Wallick is entitled to various fringe benefits
and is entitled to participate in any incentive, stock option, deferred
compensation or pension plans established by our Board of Directors.

        In July 2000, Doron Cohen resigned from all positions with the Company
and entered into a Separation and Release Agreement with the Company dated
August 8, 2000 (the "Agreement"). The financially significant provisions of the
Agreement provide for periodic payments to begin on August 15, 2000. Such cash
payments consist of an initial payment of $250,000; monthly payments of $500
beginning July 1, 2000 and ending June 1, 2002, aggregating $12,000; plus
monthly payments of $20,833.33 beginning July 1, 2001 through June 1, 2002 and
$4,166.66 per month beginning July 1, 2002 and ending on June 1, 2005, the
aggregate amount of which is $650,000. The total of all cash payments to Mr.
Cohen is $662,000. In order to qualify for such future payments, Mr. Cohen must
remain in compliance with non-disparagement, non-solicitation, non-compete and
voting restriction provisions embodied in the Agreement. We have also agreed to
continue Mr. Cohen and his family on our health plan and to provide him with an
automobile for two years. Additionally, we agreed to a potential forgiveness of
Mr. Cohen's indebtedness to us in the aggregate amount of $1,048,067 to begin,
under certain circumstances, on August 8, 2003 and continue on the next two
anniversary dates, with one-third lapsing at each date. The requirements for
such forgiveness also include Mr. Cohen's compliance with the restrictive
provisions of the Agreement.


                                       58
<PAGE>   59
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        The Compensation Committee of our Board of Directors consists of Messrs.
Edelstein and Weiner, none of whom has been an officer or employee at any time
since our inception. None of our executive officers serve as a member of the
Board of Directors or Compensation Committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or Compensation
Committee. Prior to the formation of the Compensation Committee, the Board of
Directors as a whole made decisions relating to the compensation of our
executive officers.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

        Under the Nevada Revised Statute, as amended, a director, officer,
employee or agent of a Nevada corporation may be entitled to indemnification by
the corporation under certain circumstances against expenses, judgments, fines
and amounts paid in settlement of claims brought against them by a third person
or by or in right of the corporation.

        We are obligated under our Articles of Incorporation to indemnify any of
our present or former directors who served at our request as a director, officer
or member of another organization against expenses, judgments, fines and amounts
paid in settlement of claims brought against them by a third person or by or in
right of the corporation if such director acted in good faith or in a manner
such director reasonably believed to be in, or not opposed to, our best
interests and, with respect to any criminal action or proceeding, if such
director had no reason to believe his or her conduct was unlawful. However with
respect to any action by or in the right of the Company, the Articles of
Incorporation prohibit indemnification in respect of any claim, issue or matter
as to which such director is adjudged liable for negligence or misconduct in the
performance is his or her duties to us, unless otherwise ordered by the relevant
court. Our Articles of Incorporation also permit us to indemnify other persons
except against gross negligence or willful misconduct.

        We are obligated under our bylaws to indemnify our directors, officers
and other persons who have acted as our representatives at our request to the
fullest extent permitted by applicable law as in effect from time to time,
except for costs, expenses or payments in relation to any matter as to which
such officer, director or representative is finally adjudged derelict in the
performance of his or her duties, unless we have received an opinion from
independent counsel that such person was not so derelict.

        Our indemnification obligations are broad enough to permit
indemnification with respect to liabilities arising under the Securities Act.
Insofar as we may otherwise be permitted to indemnify our directors, officers
and controlling persons against liabilities arising under the Securities Act or
otherwise, we have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.

        The Nevada Revised Statute, as amended, also permits a corporation to
limit the personal liability of its officers and directors for monetary damages
resulting from a breach of their fiduciary duty to the corporation and its
stockholders. Our Articles of Incorporation limit director liability to the
maximum extent permitted by the Nevada Revised Statute, which presently permits
limitation of director liability except (i) for a director's acts or omissions
that involve intentional misconduct, fraud or a knowing violation of law and
(ii) for a director's willful or grossly negligent violation of a Nevada
statutory provision that imposes personal liability on directors for improper
distributions to


                                       59
<PAGE>   60
stockholders. As a result of the inclusion in our Articles of Incorporation of
this provision, our stockholders may be unable to recover monetary damages
against directors as a result of their breach of their fiduciary duty to us and
our stockholders. This provision does not, however, affect the availability of
equitable remedies, such as injunctions or rescission based upon a breach of
fiduciary duty by a director.

        We maintain a $5 million liability insurance policy for the benefit of
our officers and directors.


ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following tables sets forth information with respect to the
beneficial ownership of each class of our securities as of April 10, 2001,
respectively, by (i) each of our directors, (ii) each of our executive officers,
(iii) all of our directors and executive officers as a group and (iv) each
person known to us to own more than 5% of any class of our securities:

<TABLE>
<CAPTION>
                                                                  1997 Major Series of
                                                                      Convertible
                                                                  Preferred Stock (2)
                                                                 ---------------------
Name and Address              Number of Shares      Percent(1)   Number        Percent
----------------              ----------------      ----------   ------        -------

<S>                            <C>                  <C>          <C>           <C>
Bruce Bendell                  8,754,344 (3)(12)      31.3%      2,250,000      100.0%
Doron Cohen                    2,599,462 (4)          10.3%
David Edelstein                  133,900 (5)(6)          *
Richard L. Feinstein             185,500 (7)             *
James Wallick                    287,439 (8)            1.1%
Jeffrey Weiner                   451,450 (5)(9)         1.8%
Dennis Roth                       15,000 (10)             *
Millennium III Trust           2,292,500 (11)           9.1%
All directors and
  executive officers as a
  group                        9,827,633 (12)(13)      34.2%
</TABLE>

*    Represents less than 1% of the outstanding shares of Common Stock.

(1)  Based on 25,184,199 shares of common stock outstanding on April 10, 2001.

(2)  Based on 500,000 shares of the 1997-Major Series of Convertible Preferred
     Stock outstanding on April 10, 2001, which converts into 2,250,000 shares
     of common stock.

(3)  Includes: (i) 23 shares of common stock owned by Mr. Bendell's wife and the
     following shares of common stock which Mr. Bendell has the right to acquire
     within 60 days: (a) 112,500 shares of common stock which Mr. Bendell has
     the right to acquire upon the exercise of warrants; and (b) 2,250,000
     shares of common stock, the minimum number of shares of common stock into
     which the 500,000 shares of the 1997-Major Series of Convertible Preferred
     Stock beneficially owned by Mr. Bendell are convertible into common stock;
     and (ii) options for 400,000 shares of common stock which are immediately
     exercisable.

(4)  Based on a Schedule 13G/A filed on February 1, 2001. Pursuant to a
     Separation and Release


                                       60
<PAGE>   61
     Agreement dated August 8, 2000, the shares will be voted in accordance with
     the recommendation of the majority of the non-employee directors of the
     Company.

(5)  Includes options for 124,000 shares of common stock which are immediately
     exercisable.

(6)  Includes 9,900 shares of common stock owned by Mr. Edelstein's children.

(7)  Includes options for 105,000 shares of common stock which are immediately
     exercisable.

(8)  Includes options for 204,500 shares of common stock which are immediately
     exercisable.

(9)  Includes options for 250,000 shares of common stock which are immediately
     exercisable and 14,500 shares of common stock owned by Mr. Weiner's wife.

(10) Includes options for 15,000 shares of common stock which are immediately
     exercisable.

(11) Include shares owned by an irrevocable trust of which Mr. Bendell is a
     beneficiary, but which Mr. Bendell disclaims any voting or dispositive
     power.

(12) Includes (i) 24,423 shares of common stock owned by immediate family
     members of directors and executive officers as a group, (ii) 2,362,500
     shares of common stock that the directors and executive officers as a group
     have the right to acquire within 60 days and (iii) options for 1,222,500 of
     common stock which are immediately exercisable.

(13) The address for each beneficial owner is c/o Fidelity Holdings, Inc., 80-02
     Kew Gardens Rd., Suite 5000, Kew Gardens, NY 11415.


ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        On August 8, 2000, Mr. Cohen signed a Separation and Release Agreement
(the "Agreement") with the Company. The financially significant provisions of
the Agreement provide for periodic payments to begin on August 15, 2000. Such
cash payments consist of an initial payment of $250,000; monthly payments of
$500 beginning July 1, 2000 and ending June 1, 2002, aggregating $12,000; plus
monthly payments of $20,833.33 beginning July 1, 2001 through June 1, 2002 and
$4,166.66 per month beginning July 1, 2002 and ending on June 1, 2005, the
aggregate amount of which is $650,000. The total of all cash payments to Mr.
Cohen is $662,000. In order to qualify for such future payments, Mr. Cohen must
remain in compliance with non-disparagement, non-solicitation, non-compete and
voting restriction provisions embodied in the Agreement. We have also agreed to
continue Mr. Cohen and his family on our health plan and to provide him with an
automobile for two years. Additionally, we have agreed to a potential
forgiveness of Mr. Cohen's indebtedness to us in the aggregate amount of
$1,048,067 to begin, under certain circumstances, on August 8, 2003 and continue
on the next two anniversary dates, with one-third lapsing at each date. The
requirements for such forgiveness also include Mr. Cohen's compliance with the
restrictive provisions of the Agreement. The payments are due to begin in August
2001. Based on the report of an independent appraiser, we have recorded a
deferred charge of $840,000 as the value of the non-compete and other provisions
of the Agreement, which relates to continuing operations of the Company. This
amount is being amortized over twenty-four months starting August 2000.
Accordingly, $175,000, representing five months of amortization, has been
charged in the year ended December 31, 2000.


                                       61
<PAGE>   62
        We have retained the accounting firm of Marcum & Kliegman LLP to provide
certain accounting and tax services for us and our subsidiary Major Fleet. In
2000, we paid Marcum & Kliegman LLP $99,500 for its services. Mr. Weiner, one of
our directors, is Managing Partner of Marcum & Kliegman LLP.

        Our Chairman, Bruce Bendell, has interests in several non-affiliated
auto dealerships, including Five Towns Nissan, for which Major Auto purchases
cars and provides other services. Major Auto charges a fee to offset any
expenses incurred in providing such services. The volume of such transactions is
immaterial to Major Auto's operations; however, at December 31, 2000, these
affiliated dealerships were indebted to Major Auto in an amount of approximately
$707,613.

        On December 11, 2000, we issued to M&K Equities, Ltd., a New York
corporation ("M&K"), which is an affiliate of Jeffrey Weiner, a member of our
board of directors, a senior subordinated secured promissory note in the
principal amount of $2,000,000 in consideration for a $2,000,000 loan from M&K.
The note is due on December 11, 2002 (the "Maturity Date") at a rate per annum
of ten percent (10%). Interest under the note is payable in monthly installments
with all outstanding principal and interest due on the Maturity Date. In order
to induce M&K to make the loan, we also agreed to grant a lien on and security
interest in all of our assets, other than our technology assets, as collateral
security for the due payment and performance of all indebtedness, liabilities
and obligations under the note, which collateral is set forth in a security
agreement, subject to prior senior liens. Mr. Weiner also received options under
the 1999 Employee Stock Option Plan to purchase 250,000 shares of our common
stock at an exercise price of $0.47. The fair value ascribed to the options was
approximately $95,000 based on the Black-Scholes option-pricing model; such
amount was recorded as a deferred charge and as additional paid-in-capital of
stockholders equity. The amount of the deferred charge will be amortized ratably
over the term of the note.


                                       62
<PAGE>   63
                                     PART IV

ITEM. 14.      EXHIBITS AND REPORTS ON FORM 8-K.

(a)     Exhibits

<TABLE>
<CAPTION>
Exhibit Number        Description                                                         Page
--------------        -----------                                                         ----

<S>                   <C>                                                                 <C>
3.1*                  Articles of Incorporation of Fidelity Holdings, Inc.,
                      ("Company") incorporated by reference to Exhibit 3.1 of
                      Company's Registration Statement on Form 10-SB, as
                      amended, filed with the Securities and Exchange Commission
                      on March 7, 1997.                                                   N/A

3.2*                  Articles of Incorporation of Computer Business Sciences,
                      Inc., incorporated by reference to Exhibit 3.2 of Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the Securities and Exchange Commission on March 7, 1997.            N/A

3.3*                  Articles of Incorporation of 786710 (Ontario) Limited,
                      incorporated by reference to Exhibit 3.3 of Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the Securities and Exchange Commission on March 7, 1997.            N/A

3.4*                  Articles of Incorporation of Premo-Plast, Inc., incorporated
                      by reference to Exhibit 3.4 of Company's Registration
                      Statement on Form 10-SB, as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

3.5*                  Articles of Incorporation of C.B.S. Computer Business
                      Sciences Ltd., incorporated by reference to Exhibit 3.5 of
                      Company's Registration Statement on Form 10-SB, as amended,
                      filed with the Securities and Exchange Commission on March          N/A
                      7, 1997.

3.6*                  Articles of Incorporation of Major Fleet & Leasing Corp.,
                      incorporated by reference to Exhibit 3.6 of Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the Securities and Exchange Commission on March 7, 1997.            N/A

3.7*                  Articles of Incorporation of Reynard Service Bureau, Inc.,
                      incorporated by reference to Exhibit 3.7 of Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the Securities and Exchange Commission on March 7, 1997.            N/A

3.8*                  Articles of Incorporation of Major Acceptance Corp.,
                      incorporated by reference to Exhibit 3.8 of Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the Securities and Exchange Commission on March 7, 1997.            N/A

3.9*                  By-Laws of the Company incorporated by reference to Exhibit
                      3.9
</TABLE>


                                       63
<PAGE>   64
<TABLE>
<S>                   <C>                                                                 <C>
                      of Company's Registration Statement on Form 10-SB, as
                      amended, filed with the Securities and Exchange Commission
                      on March 7, 1997.                                                   N/A

3.10                  Certificate of Amendment to Articles of Incorporation of the
                      Company filed on December 12, 2000.                                  -

4.1*                  Certificate of Designation for the Company's 1996-MAJOR
                      Series of Convertible Preferred Stock, incorporated by
                      reference to Exhibit 4.1 of Company's Registration Statement
                      on Form 10-SB, as amended, filed with the Securities and
                      Exchange Commission on March 7, 1997.                               N/A

4.1(i)**              Form of Amended and Restated Certificate of Designation for
                      the Company's 1996-MAJOR Series of Convertible Preferred            N/A
                      Stock.

4.2*                  Warrant Agreement for Nissko Warrants, incorporated by
                      reference to Exhibit 4.2 of Company's Registration Statement
                      on Form 10-SB, as amended, filed with the Securities and
                      Exchange Commission on March 7, 1997.                               N/A

4.3*                  Warrant Agreement for Major Fleet Warrants, incorporated by
                      reference to Exhibit 4.3 of Company's Registration Statement
                      on Form 10-SB, as amended, filed with the Securities and
                      Exchange Commission on March 7, 1997.                               N/A

4.3(i)**              Amended and Restated Warrant Agreement, dated October 11,
                      1997 between the Company, Bruce Bendell and Harold Bendell.         N/A

4.4*                  Warrant Agreement for Progressive Polymerics International,
                      Inc. Warrants, incorporated by reference to Exhibit 4.4 of
                      Company's Registration Statement on Form 10-SB, as
                      amended, filed with the Securities and Exchange Commission
                      on March 7, 1997.                                                   N/A

4.5**                 Form of Certificate of Designation for the Company's
                      1997A-Major Automotive Group Series of Preferred Stock.             N/A

4.6**                 Form of Certificate of Designation for the Company's
                      1997-Major Series of Convertible Preferred Stock.                   N/A

4.7**                 Form of Registration Rights Agreement between the Company
                      and Bruce Bendell.                                                  N/A

4.8**                 Stock Pledge and Security Agreement, dated March 26, 1996,
                      between Doron Cohen, Bruce Bendell, Avraham Nissanian, Yossi
                      Koren, Sam Livian and Robert Rimberg.                               N/A

4.9**                 Form of Registration Rights Agreement between the Company,
                      Castle Trust and Management Services Limited and Bruce
</TABLE>


                                       64
<PAGE>   65
<TABLE>
<S>                   <C>                                                                 <C>
                      Bendell.                                                            N/A

4.10**                Form of the Company's 10% Convertible Subordinated Debenture
                      due 1999.                                                           N/A

4.11****              Certificate of Designation for the Company's 1997-Major
                      series of Convertible Preferred Stock.                              N/A

4.11******            Form of Warrant.                                                    N/A

4.12******            Form of CBS Warrant.                                                N/A

4.13******            Form of Debenture.                                                  N/A

4.14*******           Form of Closing Warrant.                                            N/A

4.15*******           Form of Adjustable Warrant.                                         N/A

4.16********          Form of Closing Warrant.                                            N/A

4.17********          Form of Adjustable Warrant.                                         N/A

4.18*********         Form of Closing Warrant.                                            N/A

4.19*********         Form of Adjustable Warrant.                                         N/A

10.1*                 Employment Agreement, dated November 7, 1995, between the
                      Company and Doron Cohen, incorporated by reference to
                      Exhibit 10.1 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.1(i)**             Amendment No. 1 to Employment Agreement, dated as of
                      November 7, 1995 between the Company and Doron Cohen.               N/A

10.2*                 Consulting Agreement, dated November 7, 1995, between the
                      Company and Bruce Bendell, incorporated by reference to
                      Exhibit 10.2 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.2(i)**             Amendment No. 1 to Consulting Agreement, dated as of
                      November 7, 1995 between Fidelity Holdings, Inc. and Bruce
                      Bendell.                                                            N/A

10.3*                 Agreement for Purchase of Patents, dated November 14, 1995,
                      between the Company and Progressive Polymerics, Inc.,
                      incorporated by reference to Exhibit 10.3 of the Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the

</TABLE>


                                       65
<PAGE>   66
<TABLE>
<S>                   <C>                                                                 <C>
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.3(i)*              First Amendment, dated September 30, 1996, to Agreement for
                      Purchase of Patents, dated November 14, 1995, incorporated
                      by reference to Exhibit 10.4 of Company's Registration
                      Statement on Form 10-SB as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.5*                 Agreement, dated March 25, 1996, between Nissko Telecom,
                      Ltd. and Computer Business Sciences, Inc., incorporated by
                      reference to Exhibit 10.5 of Company's Registration
                      Statement on Form 10-SB, as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.6*                 Asset Purchase Agreement, dated April 18, 1996, between the
                      Company and Zvi and Sarah Barak, incorporated by reference
                      to Exhibit 10.6 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.6(i)**             Amendment to Asset Purchase Agreement dated August 7, 1997.         N/A

10.7*                 Employment Agreement dated April 18, 1996 between the
                      Company and Dr. Zvi Barak, incorporated by reference to
                      Exhibit 10.7 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.8*                 Employment Agreement dated October 18, 1996 between Computer
                      Business Sciences, Inc. and Paul Vesel, incorporated by
                      reference to Exhibit 10.8 of Company's Registration
                      Statement on Form 10-SB, as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.9*                 Indemnification Agreement dated November 7, 1995 between the
                      Company and Doron Cohen, incorporated by reference to
                      Exhibit 10.9 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.10*                Indemnification Agreement dated November 7, 1995 between the
                      Company and Bruce Bendell, incorporated by reference to
                      Exhibit 10.10 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.11*                Indemnification Agreement dated December 6, 1995 between the
                      Company and Richard C. Fox, incorporated by reference to
                      Exhibit 10.11 of Company's Registration Statement on Form
                      10-

</TABLE>


                                       66
<PAGE>   67
<TABLE>
<S>                   <C>                                                                 <C>
                      SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.12*                Indemnification Agreement dated March 28, 1996 between the
                      Company and Dr. Barak, incorporated by reference to Exhibit
                      10.12 of Company's Registration Statement on Form 10-SB,
                      as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.13*                Indemnification Agreement dated March 28, 1996 between the
                      Company and Yossi Koren, incorporated by reference to
                      Exhibit 10.13 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.14*                Plan of Reorganization for acquisition of Major Fleet &
                      Leasing Corp. dated August 23, 1996 between the Company,
                      Bruce Bendell and Harold Bendell, incorporated by reference
                      to Exhibit 10.17 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.15*                Patent Purchase Agreement dated December 30, 1996 between
                      Premo-Plast, Inc. and John Pinciaro, incorporated by
                      reference to Exhibit 10.16 of Company's Registration
                      Statement on Form 10-SB, as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.16*                Employment Agreement dated December 30, 1996 between
                      Premo-Plast, Inc. and John Pinciaro, incorporated by
                      reference to Exhibit 10.17 of Company's Registration
                      Statement on Form 10-SB, as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.17*                Employment Agreement dated January 27, 1997 between the
                      Company and Ronald K. Premo, incorporated by reference to
                      Exhibit 10.18 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.18*                Plan and Agreement of Merger, dated April 21, 1997, the
                      Company, Major Automotive Group, Inc., Major Acquisition
                      Corp. and Bruce Bendell, incorporated by reference to
                      Exhibit 10.19 of Company's Registration Statement on Form
                      10-SB, as amended, filed with the Securities and Exchange
                      Commission on March 7, 1997.                                        N/A

10.18(i)**            Amendment to Plan and Agreement of Merger, dated August 1,
                      1997, between Fidelity Holdings, Inc., Major Automotive
                      Group,
</TABLE>


                                       67
<PAGE>   68
<TABLE>
<S>                   <C>                                                                 <C>
                      Inc., Major Acquisition Corp. and Bruce Bendell.                    N/A

10.18(ii)**           Amendment to Plan and Agreement of Merger, dated August 26,
                      1997, between Fidelity Holdings, Inc., Major Automotive
                      Group, Inc., Major Acquisition Corp. and Bruce Bendell.             N/A

10.18(iii)**          Amendment to Plan and Agreement of Merger, dated November
                      20, 1997, between Fidelity Holdings, Inc., Major Automotive
                      Group, Inc., Major Acquisition Corp. and Bruce Bendell.             N/A


10.18(iv)****         Amendment to Plan and Agreement of Merger, dated March 20,
                      1998, between Fidelity Holdings, Inc., Major Automotive
                      Group, Inc., Major Acquisition Corp., and Bruce Bendell.            N/A

10.19*                Stock Purchase Agreement with Escrow Agreement attached,
                      incorporated by reference to Exhibit 10.20 of Company's
                      Registration Statement on Form 10-SB, as amended, filed with
                      the Securities and Exchange Commission on March 7, 1997.            N/A

10.20*                Management Agreement, incorporated by reference to Exhibit
                      10.21 of Company's Registration Statement on Form 10-SB, as
                      amended, filed with the Securities and Exchange Commission
                      on March 7, 1997.                                                   N/A

10.21*                Employment Agreement with Moise Benedid, incorporated by
                      reference to Exhibit 10.22 of Company's Registration
                      Statement on Form 10-SB, as amended, filed with the
                      Securities and Exchange Commission on March 7, 1997.                N/A

10.22**               Partnership Agreement between Nissko Telecom Associates and
                      the Company.                                                        N/A

10.23**               Memorandum of Understanding, dated September 9, 1997, by and
                      among Computer Business Sciences, Inc., Nissko Telecom Ltd.,
                      the Company and Robert L. Rimberg.                                  N/A

10.24**               Letter of Intent, dated June 6, 1997, between the Company
                      and SouthWall Capital Corp. (formerly known as Sun Coast
                      Capital Corp.)                                                      N/A

10.25**               Letter of Intent, dated September 1997, between the Company,
                      Lichtenberg Robbins Buick, Inc. and Lichtenberg Motors Inc.         N/A

10.26**               Consulting Agreement, dated February 18, 1997, with Ronald
                      Shapss Corporate Services, Inc.                                     N/A

10.27**               Value Added Reseller Agreement between Summa Four, Inc. and
                      Computer Business Sciences, Inc., as Reseller.                      N/A
</TABLE>


                                       68
<PAGE>   69
<TABLE>
<S>                   <C>                                                                 <C>
10.28**               Lease Agreement, dated March 1996, between 80-02 Leasehold
                      Company, as Owners and the Company, as Tenant.                      N/A

10.29**               Master Lease Agreement, dated December 26, 1996, between
                      Major Fleet & Leasing Corp., as Lessor, and Nissko Telecom,
                      Ltd., as Lessee.                                                    N/A

10.30**               Sublease Agreement, dated March 1995, between Speedy R.A.C.,
                      Inc., as Sublessor, and Major Subaru Inc., as Sublessee.            N/A


10.31**               Lease Agreement, dated November 1, 1991, between Gloria
                      Hinsch, as Landlord, and Major Chrysler-Plymouth, Inc., as
                      Tenant.                                                             N/A

10.32**               Store Lease Agreement, dated June 10, 1992, between Bill K.
                      Kartsonis, as Owner, and Major Automotive Group, as Tenant.         N/A

10.33**               Lease Agreement, dated June 3, 1994, between General Motors
                      Corporation, as Lessor, and Major Chevrolet, Inc., as Lessee.       N/A

10.34**               Lease Agreement, dated August 1990, between Bruce Bendell
                      and Harold Bendell, as Landlord and Major Chrysler-Plymouth,
                      Inc., as Tenant.                                                    N/A

10.34(i)**            Extension of Lease Agreement, dated August 14, 1997, between
                      Bruce Bendell and Harold Bendell, as Landlord and Major
                      Dodge, Inc. (formerly known as Major Chrysler-Plymouth,
                      Inc.), as Tenant.                                                   N/A

10.34(ii)**           Extension of Lease Agreement, dated December 16, 1997,
                      between Bruce Bendell and Harold Bendell, as Landlord and
                      Major Dodge (formerly known as Major Chrysler-Plymouth,
                      Inc.), as Tenant.                                                   N/A

10.35**               Lease Agreement, dated February 1995, between Bendell
                      Realty, L.L.C., as Landlord, and Major Chrysler-Plymouth
                      Jeep Eagle, Inc., as Tenant.                                        N/A

10.35(i)**            Extension of Lease Agreement, dated August 14, 1997, between
                      Bendell Realty, L.L.C., as Landlord and Major
                      Chrysler-Plymouth Jeep Eagle, Inc., as Tenant.                      N/A

10.35(ii)**           Extension of Lease Agreement, dated December 16, 1997,
                      between Bendell Realty, L.L.C., as Landlord and Major
                      Chrysler-Plymouth Jeep Eagle, Inc., as Tenant.                      N/A

10.36**               Lease Agreement, dated February 1996, between Prajs Drimmer

</TABLE>


                                       69
<PAGE>   70
<TABLE>
<S>                   <C>                                                                 <C>
                      Associates, as Landlord, and Barak Technology Inc., as              N/A
                      Tenant.

10.37**               Sublease Agreement, dated January 8, 1997, between Newsday,
                      Inc., as Sublessor, and Major Fleet & Leasing Corp.,
                      as Sublessee.                                                       N/A

10.37(i)**            Consent to Sublease Agreement, dated January 16, 1997,
                      between 80-02 Leasehold Company,    Newsday Inc. and Major
                      Fleet and Leasing Corp.                                             N/A

10.38**               General Security Agreement between Major Fleet & Leasing
                      Corp., as Debtor, and Marine Midland Bank, as Secured Party.        N/A

10.39**               Retail and Wholesale Dealer's Agreement, dated March 30,
                      1995, between Marine Midland Bank, as Bank, and Major Fleet
                      & Leasing Corp., as Dealer.                                         N/A

10.40**               Wholesale Lease Financing Line of Credit between General
                      Electric Capital Corporation, as Lender, and Major Fleet &
                      Leasing Corp., as Borrower.                                         N/A

10.41**               Chrysler Leasing System License Agreement between Chrysler
                      Motors Corporation, as Licensor, and Major Fleet &
                      Leasing Corp., as Licensee.                                         N/A

10.42**               GMAC Retail Plan Agreement between General Motors Acceptance
                      Corp. and Major Fleet & Leasing Corp., as Dealer.                   N/A

10.43**               Fidelity Holdings, Inc. 1996 Employees' Performance
                      Recognition Plan.                                                   N/A

10.44**               Secured Promissory Note, dated December 31, 1996, between
                      Doron Cohen, as Maker, and Fidelity Holdings, Inc., as              N/A
                      Holder.

10.45**               Dealer Master Agent Agreement and License, dated February
                      1996, between Computer Business Sciences, Inc. and
                      Progressive Polymerics International, Inc., as Master Agent.        N/A

10.46**               Dealer Master Agent Agreement and License, dated February
                      1996, between Computer Business Sciences, Inc. and Cellular
                      Credit Corp. of America, Inc., as Master Agent.                     N/A

10.47**               Dealer Master Agent Agreement and License, dated February
                      1996, between Computer Business Sciences, Inc. and America's
                      New Beginning, Inc., as Master Agent.                               N/A

10.48**               Dealer Master Agent Agreement and License, dated February
                      1996, between Computer Business Sciences, Inc. and Korean
                      Telecom, as Master Agent.                                           N/A
</TABLE>


                                       70
<PAGE>   71
<TABLE>
<S>                   <C>                                                                 <C>
10.49**               Dealer Master Agent Agreement and License, dated February
                      1996, between Computer Business Sciences, Inc. and Philcom
                      Telecommunications, as Master Agent.                                N/A

10.50**               Management Agreement, dated August 23, 1996, between Major
                      Fleet, Bruce Bendell and Harold Bendell.                            N/A

10.51**               Wholesale Security Agreement, dated April 26, 1990, between
                      General Motors Acceptance Corporation ("GMAC") and Major
                      Fleet.                                                              N/A

10.51(i)**            Amendment, dated February 14, 1991, to Wholesale Security
                      Agreement between GMAC and Major Fleet.                             N/A

10.52**               Direct Leasing Plan Dealer Agreement, dated July 24, 1986,
                      between GMAC and Major Fleet.                                       N/A

10.53**               Retail Lease Service Plan Agreement, dated April 3, 1987,
                      between GMAC and Major Fleet.                                       N/A

10.54**               Contribution Agreement dated as of October 6, 1997 between
                      the Company, Bruce Bendell and Doron Cohen.                         N/A

10.55**               Letter of Commitment dated March 16, 1998 from Falcon
                      Financial, LLC to Major Auto Acquisition, Inc.                      N/A

10.56****             Security Agreement, dated May 14, 1998, made by Major
                      Acquisition Corp., Major Automotive Realty Corp., and Falcon
                      Financial, LLC.                                                     N/A

10.57****             Guarantee, dated as of May 14, 1998, made by Fidelity
                      Holdings, Inc. in favor of Falcon Financial, LLC.                   N/A

10.58****             Amended and restated secured promissory note, dated May 14,
                      1998 and between Major Acquisition Corp. and Falcon
                      Financial, LLC.                                                     N/A

10.59***              Consulting Agreement among Fidelity Holdings, Inc., Major
                      Automotive Group, Inc. and Clemont Investors Ltd., dated
                      October 1, 1998.                                                    N/A

10.60******           Placement Agent Agreement, dated as of January 25, 1999,
                      between Fidelity Holdings, Inc. and The Zanett Securities
                      Corporation, Claudio Guazzoni, David McCarthy, and Tony
                      Milbank.                                                            N/A

10.61******           Securities Purchase Agreement dated as of January 25, 1999,
                      by and among Fidelity Holdings, Inc., Computer Business
                      Sciences,
</TABLE>


                                       71
<PAGE>   72
<TABLE>
<S>                   <C>                                                                 <C>
                      Inc., Zanett Lombardier, Ltd., Goldman Sachs Performance
                      Partners, L.P., Goldman Sachs Performance Partners,
                      (Offshore) L.P., David McCarthy and Bruno Guazzoni.                 N/A

10.62******           Registration Rights Agreement dated as of January 25, 1999,
                      by and among Fidelity Holdings, Inc., Zanett Lombardier,
                      Ltd., Goldman Sachs Performance Partners, L.P., Goldman
                      Sachs Performance Partners, (Offshore) L.P., David McCarthy
                      and Bruno Guazzoni.                                                 N/A

10.63*******          Letter Agreement, dated as of June 24,1999, by and among
                      Fidelity Holdings, Inc. and Strong River Investments, Inc.,
                      Bay Harbor Investments, Inc. and Augusta Street LLC.                N/A

10.64*******          Securities Purchase Agreement dated as of June 24, 1999, by
                      and among Fidelity Holdings, Inc. and Strong River
                      Investments, Inc., Bay Harbor Investments, Inc. and Augusta         N/A
                      Street LLC.

10.65*******          Registration Rights Agreement dated as of June 24, 1999, by
                      and among Fidelity Holdings, Inc. and Strong River
                      Investments, Inc., Bay Harbor Investments, Inc. and Augusta         N/A
                      Street LLC.

10.66********         Securities Purchase Agreement dated as of December 8, 1999,
                      by and among Fidelity Holdings, Inc. and Strong River
                      Investments, Inc., Montrose Investments Ltd. and Augusta            N/A
                      Street LLC.

10.67*********        Registration Rights Agreement dated as of December 8, 1999,
                      by and among Fidelity Holdings, Inc. and Strong River
                      Investments, Inc., Montrose Investments Ltd. and Augusta            N/A
                      Street LLC.

10.68*********        Securities Purchase Agreement dated as of February 8, 2000,
                      by and among Fidelity Holdings, Inc. and Strong River
                      Investments, Inc., Montrose Investments Ltd. and Augusta            N/A
                      Street LLC.

10.69*********        Registration Rights Agreement dated as of February 8, 2000,
                      by and among Fidelity Holdings, Inc. and Strong River
                      Investments, Inc., Montrose Investments Ltd. and Augusta            N/A
                      Street LLC.

10.70**********       Merger Agreement dated January 18, 2000 by and among
                      Fidelity Holdings, Inc., Cars Acquisition, Inc., CarsTV.com,
                      Inc., and Jack H. Singer.                                           N/A

10.71**********       Transfer Restriction and Optional Conversion Agreement dated
                      January 18, 2000 by and among Fidelity Holdings, Inc., Jack
                      H. Singer and certain other individual investors.                   N/A

10.72**********       Escrow Agreement dated January 18, 2000 by and among
                      Fidelity Holdings, Inc., Cars Acquisition, Inc., CarsTV.com,
                      Inc., and Jack H. Singer, certain other individual investors
                      and Littman Krooks
</TABLE>


                                       72
<PAGE>   73
<TABLE>
<S>                   <C>                                                                 <C>
                      Roth & Ball P.C., as escrow agent.                                  N/A

10.73**********       Securities Purchase Agreement dated as of March 14, 2000, by
                      and between Fidelity Holdings, Inc. and Strong River
                      Investments, Inc.                                                   N/A

10.74**********       Registration Rights Agreement dated as of March 14, 2000, by
                       and between Fidelity Holdings, Inc. and Strong River
                       Investments, Inc.                                                  N/A

10.75**********       Lease Agreement dated as of January 28, 2000, by 80-02
                       Leasehold Company, L.P. and Mid-Atlantic
                       Telecommunications, Inc.                                           N/A

10.76**********       Repurchase of Nissko Master Rights Agreement among Computer
                       Business Sciences Inc, Nisko L.P. and shareholders of
                       Nissko Telecom Ltd dated November 30, 1999.                        N/A

10.77***********      Separation and Release Agreement dated as of August 8, 2000,
                      entered into by and among Fidelity Holdings, Inc. and Doron
                      Cohen.                                                              N/A

10.78************     Redemption Agreement dated as of September 8, 2000, entered
                      into by and among Fidelity Holdings, Inc., Strong River
                      Investments, Inc. and Montrose Investments Ltd.                     N/A

10.79************     Redemption Agreement dated as of September 8, 2000, entered
                       into between Fidelity Holdings, Inc. and Augusta Street LLC.       N/A

10.80*************    Senior Secured Promissory Note due December 11, 2002 dated
                      December 11, 2000.                                                  N/A

10.81*************    Security and Pledge Agreement dated December 11, 2000
                      between Fidelity Holdings, Inc. and M&K Equities, Ltd.              N/A

10.82                 Asset Purchase Agreement Asset dated as of February 12, 2001
                       between Internet Creations, Inc. (d/b/a Internet
                       Connections) and Access Technology, Inc.                            -

10.83                 Stock Purchase Agreement dated of March 27, 2001 by and
                      among Global Communications of NY, Inc., Fidelity Holdings,
                      Inc. and IG2, Inc.                                                   -

10.84                 Senior Secured Promissory Note due March 27, 2006 dated
                       March 27, 2001.                                                     -

10.85                 Separation and Release Agreement dated March 27, 2001
                      entered into by and between Fidelity Holdings, Inc. and
                      Kimberly Peacock.                                                    -
</TABLE>


                                       73
<PAGE>   74
<TABLE>
<S>                   <C>                                                                 <C>
10.86                    Letter dated November 21, 2000 regarding Promissory Notes
                         in favor of Strong River Investments, Inc. and Montrose
                         Investments Ltd.                                                    -

11.1                     Statement re: computation of per share earnings.                     -

16.1*****                Letter from Peter C. Cosmas Co., CPAs, dated February 9,            N/A
                         1999.

18.1                     Letter from BDO Seidman, LLP, Independent Accountants,
                         regarding Change in Accounting Principles.                           -

21.1                     List of Subsidiaries of the Company.                                 -

23.1                     Consent of BDO Seidman, LLP, Independent Accountants.                -

*                     Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      registration statement on Form 10-SB (File No. 0-29182).

**                    Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      annual report on Form 10-KSB for the year ended December
                      31, 1997 (File No. 0-29182)

***                   Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      quarterly report on Form 10-QSB for the quarter ended
                      September 30, 1998 (File No. 0-29182).

****                  Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      current report on Form 8-K, dated May 14, 1998. (File No.
                      0-29182).

*****                 Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      current report on form 8-K, dated February 5, 1999. (File
                      No. 0-29182).

******                Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      current report on form 8-K, dated January 26, 1999. (File
                      No. 0-29182).

*******               Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      current report on form 8-K, dated July 3, 1999. (File No.
                      0-29182).

********              Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      current report on form 8-K, dated December 10, 1999. (File
                      No. 0-29182).

*********             Previously filed with the Commission as Exhibits to, and
                      incorporated herein by reference from, the Company's
                      current report on form 8-K, dated February 16, 2000 (File
                      No. 0-29182).

</TABLE>


                                       74
<PAGE>   75
<TABLE>
<S>            <C>

**********     Previously filed with the Commission as Exhibits to, and
               incorporated herein by reference from, the Company's annual
               report on Form 10-KSB for the year ended December 31, 1999 (File
               No. 0-29182).

***********    Previously filed with the Commission as Exhibits to, and
               incorporated herein by reference from, the Company's current
               report on form 10-Q, dated August 21, 2000 (File No. 0-29182).

************   Previously filed with the Commission as Exhibits to, and
               incorporated herein by reference from, the Company's current
               report on form 8-K, dated September 22, 2000 (File No. 0-29182).

*************  Previously filed with the Commission as Exhibits to, and
               incorporated herein by reference from, the Company's current
               report on form 8-K, dated December 21, 2000 (File No. 0-29182).
</TABLE>

(b)  Reports on Form 8-K

          The Company filed a Report on Form 8-K on December 12, 2000 reporting
the issuance to M&K Equities, Ltd. a certain senior subordinated secured
promissory note in the principal amount of $2,000,000 in consideration of a
$2,000,000 loan.


                                       75

<PAGE>   76
                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                      Fidelity Holdings, Inc.


Dated: April 17, 2001
                                      By: /s/ Bruce Bendell
                                      --------------------------------------
                                      Bruce Bendell, Chief Executive Officer


     In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
Signature                    Title                                              Date
---------                    -----                                              ----

<S>                          <C>                                                <C>
/s/ Bruce Bendell            Chief Executive Officer and Director               April 17, 2001
-------------------------
Bruce Bendell


/s/ James Wallick            President, Chief Operating Officer and Director    April 17, 2001
-------------------------
James Wallick


/s/ David Edelstein          Director                                           April 17, 2001
-------------------------
David Edelstein


/s/ Richard L. Feinstein     Senior VP, Finance and Chief Financial Officer     April 17, 2001
-------------------------
Richard L. Feinstein


/s/ Dennis Roth              Director                                           April 17, 2001
-------------------------
Dennis Roth


/s/ Jeffrey Weiner           Director                                           April 17, 2001
-------------------------
Jeffrey Weiner
</TABLE>


                                       76

<PAGE>   77
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



To the Board of Directors
Fidelity Holdings, Inc.

We have audited the consolidated balance sheets of Fidelity Holdings, Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fidelity Holdings,
Inc. and subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for inventory
pricing.





                                                                BDO Seidman, LLP



New York, New York

March 30, 2001


                                       F-1
<PAGE>   78
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                                     CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>



 December 31,                                                                            2000                   1999
-------------                                                                            ----             ----------
                                                                                                          (restated)
<S>                                                                              <C>                    <C>
 ASSETS
 CURRENT:
    Cash and cash equivalents                                                    $  2,786,312           $  6,625,454
    Net investment in direct financing leases, current                                289,010                411,444
    Accounts receivable, net of allowance for doubtful accounts of
       $200,000 and $385,000                                                        8,078,111              5,335,684
    Inventories                                                                    47,465,261             24,954,618
    Other current assets                                                            1,964,954              1,987,169
    Net assets held for sale                                                        1,000,000             13,075,711
                                                                                  -----------            -----------
       TOTAL CURRENT ASSETS                                                        61,583,648             52,390,080
 NET INVESTMENT IN DIRECT FINANCING LEASES, NET OF CURRENT PORTION                    205,992                508,084
 PROPERTY AND EQUIPMENT, NET                                                        8,754,983              5,413,363
 DEFERRED INCOME TAXES                                                                645,000                125,000
 EXCESS OF COSTS OVER NET ASSETS ACQUIRED                                          13,909,058              7,533,856
 DUE FROM OFFICER                                                                     347,765                      -
 OTHER ASSETS                                                                       1,334,951              2,348,948
                                                                                  -----------            -----------
                                                                                  $86,781,397            $68,319,331
                                                                                  ===========            ===========
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
    Notes payable - floor plan                                                    $45,214,444            $21,661,654
    Notes payable - other                                                           1,250,001                      -
    Line of credit                                                                    500,000                      -
    Accounts payable                                                                4,940,132              6,655,560
    Accrued expenses                                                                4,222,609              1,853,481
    Current maturities of long-term debt                                              866,120                758,150
    Customer deposits                                                                 701,963                600,362
    Other current liabilities                                                               -                239,508
                                                                                  -----------            -----------
         TOTAL CURRENT LIABILITIES                                                 57,695,269             31,768,715
 LONG-TERM DEBT, LESS CURRENT MATURITIES                                           10,411,443              7,416,784
 OBLIGATIONS UNDER CAPITAL LEASES                                                   3,011,821                      -
 DUE TO OFFICER                                                                             -                157,794
 OTHER                                                                                 62,894                 58,443
                                                                                  -----------            -----------
         TOTAL LIABILITIES                                                         71,181,427             39,401,736
                                                                                  -----------            -----------
 COMMITMENTS AND CONTINGENCIES
 STOCKHOLDERS' EQUITY:
    Preferred stock, $.01 par value - 2,000,000 shares authorized;
       500,000 shares issued and outstanding                                            5,000                  5,000
    Common stock, $.01 par value - 50,000,000 shares authorized;
       26,085,698 and 24,029,694 shares issued and outstanding in 2000
       and 1999, respectively                                                         260,859                160,198
    Unearned stock-based compensation                                                (284,391)                     -
    Additional paid-in capital                                                     39,210,271             30,593,905
    Cumulative currency translation adjustment                                              -                 (6,204)
    Treasury stock, at cost                                                          (894,970)              (263,580)
    Deficit                                                                       (22,696,799)            (1,571,724)
                                                                                  -----------            -----------
         TOTAL STOCKHOLDERS' EQUITY                                                15,599,970             28,917,595
                                                                                  -----------            -----------
                                                                                  $86,781,397            $68,319,331
                                                                                  ===========            ===========

</TABLE>

                    See accompanying notes to consolidated financial statements.

                                      F-2
<PAGE>   79
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


 Year ended December 31,                                                  2000               1999                1998
 -----------------------                                                  ----               ----                ----
                                                                                       (restated)          (restated)
<S>                                                               <C>                <C>                  <C>
 REVENUES:
    Sales                                                         $322,142,231       $209,531,993         $98,578,970
    Cost of sales                                                  272,246,635        176,121,370          84,070,267
                                                                  ------------       ------------         -----------
         GROSS PROFIT                                               49,895,596         33,410,623          14,508,703
 OPERATING EXPENSES                                                 44,548,711         29,957,748          11,681,617
 INTEREST EXPENSE, NET OF INTEREST INCOME                            2,660,638          1,746,920             754,189
                                                                  ------------       ------------         -----------
         INCOME BEFORE INCOME TAX EXPENSE  AND
            LOSS FROM DISCONTINUED OPERATIONS                        2,686,247          1,705,955           2,072,897
 INCOME TAX EXPENSE                                                  1,384,000            890,000           1,020,000
                                                                  ------------       ------------         -----------
               INCOME FROM CONTINUING OPERATIONS                     1,302,247            815,955           1,052,897
 LOSS FROM DISCONTINUED OPERATIONS (NET OF INCOME TAX
    BENEFIT)                                                       (22,427,322)        (4,006,103)           (473,161)
                                                                  ------------       ------------         -----------
 NET INCOME (LOSS)                                                $(21,125,075)       $(3,190,148)        $   579,736
                                                                  ============       ============         ===========
 Income per common share - continuing operations:
       Basic                                                             $0.05              $0.04               $0.06
       Diluted                                                           $0.04              $0.04               $0.05
                                                                  ============       ============         ===========
 Loss per common share - discontinued operations:
       Basic and diluted                                                $(0.87)            $(0.19)             $(0.03)
                                                                  ============       ============         ===========
 Net income (loss) per common share:
    Basic                                                               $(0.83)            $(0.15)              $0.04
    Diluted                                                             $(0.83)            $(0.15)              $0.03
                                                                  ============       ============         ===========
 Average number of shares used in computation:
       Basic                                                        25,509,144         21,054,183          16,507,786
       Diluted                                                      33,955,520         21,054,183          20,207,034
                                                                  ============       ============         ===========

</TABLE>

                    See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>   80
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>



 Years ended December 31, 2000, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------



                                                       Preferred stock                  Common stock             Treasury stock
                                                    ---------------------       ------------------------      --------------------
                                                     Shares        Amount           Shares        Amount      Shares        Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>            <C>             <C>           <C>           <C>           <C>
 BALANCE, JANUARY 1, 1998                         $ 250,000      $  2,500        6,895,700     $  68,957           -             -
 Comprehensive income (loss):
    Net income                                            -             -                -             -           -             -
    Other comprehensive loss:
       Translation adjustment                             -             -                -             -           -             -
 Comprehensive income for the year
 Issuance of preferred stock for acquisition
    of Major Automotive Group                       900,000         9,000                -             -           -             -
 Issuance of common stock for services and
    assets                                                -             -        1,140,814        11,408           -             -
-----------------------------------------------------------------------------------------------------------------------------------
 BALANCE, DECEMBER 31, 1998                       1,150,000        11,500        8,036,514        80,365           -             -
 Comprehensive income (loss):
    Net loss                                              -             -                -             -           -             -
    Other comprehensive loss:
       Translation adjustment                             -             -                -             -           -             -
 Comprehensive loss for the year
 Issuance of common stock for services and
    business combinations                                 -             -          247,587         2,476           -             -
 Effect of stock compensation charge                      -             -          180,486         1,805           -             -
 Purchase of treasury stock                               -             -                -             -      20,980      (263,580)
 Issuance of common stock in connection with
    private placements                                    -             -          533,066         5,331           -             -
 Conversion of preferred stock                     (650,000)       (6,500)       2,185,222        21,852           -             -
 Conversion of 10% and 12% debentures                     -             -          514,972         5,150           -             -
 Three-for-two stock split effected in the
    form of a 150% stock dividend                         -             -        4,321,949        43,219           -             -
 Original issue discount on 12% debentures
    (stock and warrants)                                  -             -                -             -           -             -
-----------------------------------------------------------------------------------------------------------------------------------
 BALANCE, DECEMBER 31, 1999 (CARRIED FORWARD)       500,000         5,000       16,019,796       160,198      20,980      (263,580)
===================================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
 Years ended December 31, 2000, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------



                                                                                 Cumulative
                                                  Additional       Retained       currency       Unearned         Total
                                                    paid-in        earnings      translation    stock-based    stockholders'
                                                    capital        (deficit)      adjustment    compensation      equity
-----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>               <C>            <C>         <C>
 BALANCE, JANUARY 1, 1998                         $  5,414,293     $ 1,090,284       $    297       $      -    $  6,576,331
 Comprehensive income (loss):                                                                              -
    Net income                                               -         528,140              -              -         528,140
    Other comprehensive loss:                                                                              -
       Translation adjustment                                -               -         (5,274)             -          (5,274)
                                                                                                                   ---------
 Comprehensive income for the year                                                                         -         522,866
                                                                                                                   ---------
 Issuance of preferred stock for acquisition
    of Major Automotive Group                        5,991,000               -              -              -       6,000,000
 Issuance of common stock for services and
    assets                                           3,394,507               -              -              -       3,405,915
-----------------------------------------------------------------------------------------------------------------------------
 BALANCE, DECEMBER 31, 1998                         14,799,800       1,618,424         (4,977)             -      16,505,112
 Comprehensive income (loss):
    Net loss                                                 -      (3,190,148)             -              -      (3,190,148)
    Other comprehensive loss:
       Translation adjustment                                -               -         (1,227)             -          (1,227)
                                                                                                                   ---------
 Comprehensive loss for the year                                                                           -      (3,191,375)
                                                                                                                   ---------
 Issuance of common stock for services and
    business combinations                            4,282,539               -              -              -       4,285,015
 Effect of stock compensation charge                   673,228               -              -              -         675,033
 Purchase of treasury stock                                  -               -              -              -        (263,580)
 Issuance of common stock in connection with
    private placements                               8,873,837               -              -              -       8,879,168
 Conversion of preferred stock                         (15,352)              -              -              -               -
 Conversion of 10% and 12% debentures                1,045,572               -              -              -       1,050,722
 Three-for-two stock split effected in the
    form of a 150% stock dividend                      (43,219)              -              -              -               -
 Original issue discount on 12% debentures
    (stock and warrants)                               977,500               -              -              -         977,500
-----------------------------------------------------------------------------------------------------------------------------
 BALANCE, DECEMBER 31, 1999 (CARRIED FORWARD)       30,593,905      (1,571,724)        (6,204)             -      28,917,595
=============================================================================================================================

</TABLE>


                    See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>   81
<TABLE>
<CAPTION>
                                                                                                      FIDELITY HOLDINGS, INC.
                                                                                                             AND SUBSIDIARIES

 Years ended December 31, 2000, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------






                                                      Preferred stock                  Common stock              Treasury stock
                                                    ---------------------       ------------------------      --------------------
                                                  Shares        Amount           Shares        Amount         Shares        Amount
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>          <C>             <C>           <C>            <C>         <C>
 BALANCE, DECEMBER 31, 1999 (BROUGHT FORWARD)       500,000      $  5,000        16,019,796     $160,198       20,980     $(263,580)
 Net loss                                                 -             -                 -            -            -             -
 Currency translation adjustment                          -             -                 -            -            -             -
 Issuance of common stock for:
    Services                                              -             -            21,770          218            -             -
    Business combinations                                 -             -           678,102        6,781            -             -
    Exercise of warrants                                  -             -           574,648        5,747            -             -
    Stock compensation, net of deferred
       amounts                                            -             -            71,230          712            -             -
 Issuance of common stock in connection with
    private placements                                    -             -           316,667        3,167            -             -
 Redemption of warrants in connection with
    private placements                                    -             -           393,587        3,936            -             -
 Purchase of treasury stock                               -             -                 -            -      130,947      (631,390)
 Original issue discount                                  -             -                 -            -            -             -
 Three-for-two stock split effected in the
    form of a 150% dividend                               -             -         8,009,898       80,100       10,490             -
------------------------------------------------------------------------------------------------------------------------------------
 BALANCE, DECEMBER 31, 2000                         500,000      $  5,000        26,085,698     $260,859      162,417     $(894,970)
====================================================================================================================================
</TABLE>




<TABLE>
<CAPTION>


 Years ended December 31, 2000, 1999 and 1998
-----------------------------------------------------------------------------------------------------------------------------

                                                                                 Cumulative
                                                  Additional       Retained       currency       Unearned         Total
                                                   paid-in         earnings     translation    stock-based    stockholders'
                                                   capital        (deficit)      adjustment    compensation      equity
----------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>           <C>                  <C>            <C>         <C>
 BALANCE, DECEMBER 31, 1999 (BROUGHT FORWARD)     $30,593,905   $  (1,571,724)       $(6,204) $            -    $28,917,595
 Net loss                                                   -     (21,125,075)             -              -     (21,125,075)
 Currency translation adjustment                            -               -          6,204              -           6,204
 Issuance of common stock for:
    Services                                          209,276               -              -              -         209,494
    Business combinations                           8,106,466               -              -              -       8,113,247
    Exercise of warrants                              739,342               -              -              -         745,089
    Stock compensation, net of deferred
       amounts                                        854,566               -              -       (284,391)        570,887
 Issuance of common stock in connection with
    private placements                              4,691,832               -              -              -       4,694,999
 Redemption of warrants in connection with
    private placements                             (6,000,016)              -              -              -      (5,996,080)
 Purchase of treasury stock                                 -               -              -              -        (631,390)
 Original issue discount                               95,000               -              -              -          95,000
 Three-for-two stock split effected in the
    form of a 150% dividend                           (80,100)              -              -              -               -
----------------------------------------------------------------------------------------------------------------------------
 BALANCE, DECEMBER 31, 2000                       $39,210,271    $(22,696,799)    $        -      $(284,391)    $15,599,970
============================================================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                      F-5



<PAGE>   82
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                         CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
Year ended December 31,                           2000                1999                1998
--------------------------------------------------------------------------------------------------
<S>                                           <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                           $(21,125,075)       $ (3,190,148)       $    579,736
  Adjustments to reconcile net income
    (loss) to net cash provided by
    (used in) operating activities:
      Amortization of intangible assets            655,000             518,417             477,504
      Depreciation                                 436,787             647,268             514,780
      Noncash financing costs                           --             977,500                  --
      Stock-based compensation                     570,887           2,100,770             739,434
      Discontinued operations                   19,217,915                  --                  --
      Stock issuance for services                  209,494                  --                  --
      (Increase) decrease in assets:
        Net investment in direct
         financing leases                          424,526             363,913            (622,294)
        Accounts receivable                     (2,742,427)         (1,062,700)           (767,119)
        Inventories                            (15,348,990)         (5,901,352)          1,646,580
        Customer deposits                          (98,099)           (130,256)             11,730
        Other assets                            (3,220,549)         (1,482,487)            414,668
      Increase (decrease) in
      liabilities:
        Accounts payable                        (1,709,224)          4,434,377             (94,339)
        Accrued expenses                         2,286,126          (1,303,941)            292,987
        Floor plan notes payable                16,643,439           3,870,401          (2,892,917)
        Deferred revenue                                --              38,937             (38,937)
        Due to affiliate                                --          (1,066,797)            802,859
--------------------------------------------------------------------------------------------------
         NET CASH PROVIDED BY (USED
           IN) OPERATING ACTIVITIES             (3,800,190)         (1,186,098)          1,064,672
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment             (305,230)           (918,485)            (61,694)
  Business combinations                         (1,393,411)         (1,022,753)         (1,018,432)
--------------------------------------------------------------------------------------------------
           NET CASH USED IN INVESTING
             ACTIVITIES                         (1,698,641)         (1,941,238)         (1,080,126)
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit                     500,000            (450,000)            300,000
  Proceeds from long-term debt                   2,000,000                  --             429,599
  Payments of long-term debt                      (397,371)           (628,192)                 --
  Proceeds from issuance of common
    stock and exercise of warrants,
    net of expenses                              5,440,088           9,284,168                  --
  Redemption of adjustable warrants             (4,746,079)                 --                  --
  Decrease in notes payable                             --                  --            (109,080)
  Proceeds from convertible debentures                  --             405,000             600,000
  Loans to officers                               (347,765)            147,451             249,851
  Purchase of treasury stock                      (631,390)           (263,580)                 --
  Increase (decrease) in due from
    shareholders                                  (157,794)            282,036            (689,699)
--------------------------------------------------------------------------------------------------
         NET CASH PROVIDED BY
           FINANCING ACTIVITIES                  1,659,689           8,776,883             780,671
--------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH                        --              (1,227)             (5,274)
--------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                              (3,839,142)          5,648,320             759,943
CASH AND CASH EQUIVALENTS, BEGINNING
  OF YEAR                                        6,625,454             977,134             217,191
--------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR        $  2,786,312        $  6,625,454        $    977,134
==================================================================================================
</TABLE>


                    See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>   83
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                         CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
Year ended December 31,                       2000              1999             1998
----------------------------------------------------------------------------------------
<S>                                         <C>              <C>              <C>
 SUPPLEMENTAL DISCLOSURES OF CASH
   FLOW INFORMATION:

Cash paid during the year for:
     Interest                               $2,660,638       $1,966,053       $  624,222
     Income taxes                                   --        1,250,329            2,846
   Noncash financing activities
     Notes issued for redemption of
       warrants                              1,250,000               --               --
     Common stock issued as stock
       compensation                            854,566          675,000               --
     Common stock issued for business
       combinations and services             8,322,000        4,285,000        3,405,000
     Debt issued in connection with
       business combinations                 1,500,000        7,500,000               --
     Capital lease obligations               3,000,000               --               --
     Preferred stock issued in
       connection with business
       combinations                                 --               --        6,000,000
     Debt conversions                               --               --        1,050,000
     Original issue discount                    95,000          977,000               --
========================================================================================
</TABLE>

                    See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>   84
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         (a)      Nature of Business

                  Fidelity Holdings, Inc. (the "Company" or "Fidelity") was
                  incorporated under the laws of the State of Nevada on November
                  7, 1995. The Company is structured as a holding company that
                  has an automotive division and had a technology division that
                  included computer telephony, telecommunication operations and
                  plastics and utility operations. On November 3, 2000, the
                  Board of Directors determined to divest the Company's
                  non-automotive division (see Note 16). As a result of treating
                  the divestiture as discontinued operations, the Company
                  operates in one segment.

         (b)      Principles of Consolidation

                  The accompanying consolidated financial statements include the
                  accounts of Fidelity Holdings, Inc. and its wholly-owned
                  subsidiaries. All significant intercompany accounts,
                  transactions and profits have been eliminated.

         (c)      Earnings (Loss) per Share

                  The Company has presented basic and diluted earnings (loss)
                  per share, where applicable. Basic earnings (loss) per share
                  excludes potential dilution and is calculated by dividing
                  income (loss) available to common stockholders by the weighted
                  average number of outstanding common shares. Diluted earnings
                  (loss) per share incorporates the potential dilutions from all
                  potential dilutive securities that would have reduced earnings
                  per share.

         (d)      Cash Equivalents

                  Cash equivalents consist of highly liquid investments,
                  principally money market account and contracts-in-transit,
                  with a maturity of three months or less at the time of
                  purchase. Cash equivalents are stated at cost which
                  approximates market value.


                                      F-8
<PAGE>   85
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         (e)      Inventories

                  New vehicle inventories are valued at the lower of cost or
                  market, with cost determined on a first-in, first-out basis.
                  Used vehicle and vehicles held for lease inventories are
                  valued at the lower of cost or market, with cost determined on
                  a specific identification basis. Parts and accessories
                  inventories are also valued at the lower of cost or market,
                  with cost determined on the first-in, first-out method.

                  The Company has changed the method of accounting for inventory
                  pricing from the last-in, first-out method to the first-in,
                  first-out method. The new method of accounting for inventory
                  pricing was adopted to be consistent with industry practice
                  and the financial statements of prior years have been restated
                  to apply the new method retroactively. For income tax
                  purposes, the last-in, first-out method has been continued.
                  The effect of the accounting change on income during the years
                  ended December 31, 2000, 1999 and 1998 is as follows:


<TABLE>
<CAPTION>
                                       2000            1999            1998
--------------------------------------------------------------------------------
<S>                                 <C>            <C>               <C>
Effect on:
 Income from continuing
  operations                        $322,144       $   350,218       $   51,596
 Net loss per common share:
  Basic                             $   0.01       $      0.02       $     0.01
  Diluted                           $   0.01       $      0.02               --
================================================================================
</TABLE>


                                      F-9
<PAGE>   86
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         (f)      Property and Equipment

                  Property and equipment are recorded at cost. Depreciation and
                  amortization of property and equipment are computed using the
                  straight-line method over the estimated useful lives of the
                  assets, ranging from three to forty years. Depreciation of
                  leased equipment is calculated on the cost of the equipment,
                  less an estimated residual value, on the straight-line method
                  over the term of the lease. Maintenance and repairs are
                  charged to operations as incurred. When property and equipment
                  are sold or otherwise disposed of, the asset cost and
                  accumulated depreciation are removed from the accounts, and
                  the resulting gain or loss, if any, is included in the results
                  of operations.

         (g)      Revenue Recognition

                  Revenues and costs are recognized upon delivery of the vehicle
                  to the customer. At time of delivery, all financing
                  arrangements between and among the parties have been
                  concluded. The Company records income from direct financing
                  leases based on a constant periodic rate of return on the net
                  investment in the lease. Income earned from operating lease
                  agreements is recorded evenly over the term of the lease.

         (h)      Foreign Currency Translation

                  The Company translates the assets and liabilities of its
                  foreign subsidiaries at the exchange rates in effect at
                  year-end. Revenues and expenses are translated using exchange
                  rates in effect during the year. Gains and losses from foreign
                  currency translation are credited or charged to cumulative
                  currency translation adjustment included in stockholders'
                  equity in the accompanying consolidated balance sheet.


                                      F-10
<PAGE>   87
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         (i)      Comprehensive Income (Loss)

                  Comprehensive income (loss) is defined to include all changes
                  in equity except those resulting from investments by owners
                  and distributions to owners. The Company's only item of other
                  comprehensive income (loss) is foreign currency translation
                  adjustments.

         (j)      Use of Estimates in Preparation of Financial Statements

                  The preparation of financial statements in conformity with
                  accounting principles generally accepted in the United States
                  of America requires management to make estimates and
                  assumptions that affect the reported amounts of assets and
                  liabilities and disclosures of contingent assets and
                  liabilities as of the date of the financial statements and the
                  reported amounts of income and expenses during the reporting
                  periods. Operating results in the future could vary from the
                  amounts derived from management's estimates and assumptions.

         (k)      Excess of Costs Over Net Assets Acquired

                  The excess of costs over fair value of net assets of
                  businesses acquired is amortized on a straight-line basis from
                  five to forty years. Amortization expense was $655,000,
                  $518,417 and $477,504 for the years ended 2000, 1999 and 1998,
                  respectively.

         (l)      Long-lived Assets

                  Long-lived assets, such as ongoing client relationships,
                  goodwill and property and equipment, are evaluated for
                  impairment when events or changes in circumstances indicate
                  that the carrying amount of the assets may not be recoverable
                  through the estimated undiscounted future cash flows resulting
                  from the use of these assets. When any such impairment exists,
                  the related assets will be written down to fair value. In
                  connection with the discontinued operations, the Company took
                  an impairment charge of approximately $13.6 million (see Note
                  16).


                                      F-11
<PAGE>   88
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         (m)      Fair Value Disclosures

                  The carrying amounts reported in the consolidated balance
                  sheet for cash and cash equivalents, notes and accounts
                  receivable, inventories, accounts payable, and due to
                  affiliates approximate fair value because of the immediate or
                  short-term maturity of these financial instruments.

                  The fair value of long-term debt, approximates book value,
                  estimated based on current rates offered to the Company for
                  similar debt.

         (n)      Income Taxes

                  The provision for income taxes is computed on the pretax
                  income (loss) based on the current tax law. Deferred income
                  taxes are recognized for the tax consequences in future years
                  of differences between the tax bases of assets and liabilities
                  and their financial reporting amounts at each year-end based
                  on enacted tax laws and statutory tax rates. Valuation
                  allowances are recorded when recoverability of the deferred
                  tax asset is in doubt.

         (o)      Stock-Based Compensation

                  The Company accounts for its stock option awards to employees
                  under the intrinsic value based method of accounting
                  prescribed by Accounting Principles Board Opinion No. 25,
                  "Accounting for Stock Issued to Employees." Under the
                  intrinsic value based method, compensation cost is the excess,
                  if any, of the quoted market price of the stock at grant date
                  or other measurement date over the amount an employee must pay
                  to acquire the stock. The Company makes pro forma disclosures
                  of net income and earnings per share as if the fair value
                  based method of accounting had been applied as required by
                  Statement of Financial Accounting Standards ("SFAS") No. 123,
                  "Accounting for Stock-Based Compensation."


                                      F-12
<PAGE>   89
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         (p)      Effect of Recently Issued Accounting Standards

                  During 1998, the Financial Accounting Standards Board ("FASB")
                  issued SFAS No. 133, "Accounting for Derivative Instruments
                  and Hedging Activities," as amended, becomes effective January
                  1, 2001. SFAS No. 133 requires that all derivative financial
                  instruments be recorded on the consolidated balance sheets at
                  their fair value. Changes in the fair value of derivatives
                  will be recorded each period in earnings or other
                  comprehensive earnings, depending on whether a derivative is
                  designated as part of a hedge transaction and, if it is the
                  type of hedge transaction. Gains and losses on derivative
                  instruments reported in other comprehensive earnings will be
                  reclassified as earnings in the periods in which earnings are
                  affected by the hedged item. The adoption of this statement is
                  not expected to have a significant impact on the Company's
                  results of operations, financial position or cash flows since
                  the Company does not enter into any derivative instruments.

                  In 1999, the Securities and Exchange Commission issued Staff
                  Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
                  Financial Statements," which became effective in the fourth
                  quarter of 2000. The adoption of SAB No. 101 did not have a
                  material effect on the Company's financial statements.


                                      F-13
<PAGE>   90
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         (q)      Stock Split

                  The Company's Board of Directors declared a three-for-two
                  stock split effected in the form of a 150% stock dividend
                  during the second quarter of 1999. The split resulted in the
                  issuance of 4,321,949 shares of common stock. The Company's
                  Board of Directors declared another three-for-two stock split
                  effected in the form of a 150% stock dividend during the first
                  quarter of 2000. The split resulted in the issuance of
                  8,003,898 shares of common stock. All references to average
                  number of shares outstanding and prices per share have been
                  restated retroactively to reflect the stock splits.


2. NOTE RECEIVABLE - OFFICER/ STOCKHOLDER


The Company held a note from one officer/stockholder in the amount of $517,783,
including accrued interest, at December 31, 1999. The note was repaid in 2000.


3. NET INVESTMENT IN DIRECT FINANCING LEASES


Components of the net investment in direct financing leases is as follows:

<TABLE>
<CAPTION>
December 31,                           2000             1999
--------------------------------------------------------------
<S>                                 <C>              <C>
Total minimum lease
  payments to be received           $ 433,692        $ 936,597
Estimated residual value of
  leased property                     102,755          100,569
Unearned income                       (41,445)        (117,638)
--------------------------------------------------------------
                                      495,002          919,528
Less:  Current portion               (289,010)        (411,444)
--------------------------------------------------------------
Net investment in direct
  financing leases, net of
  current portion                   $ 205,992        $ 508,084
==============================================================
</TABLE>


                                      F-14
<PAGE>   91
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Future minimum lease payments receivable at December 31, 2000 are as follows:


<TABLE>
<CAPTION>
Year ending December 31,         Amount
---------------------------------------
<S>                            <C>
2001                           $289,010
2002                            100,479
2003                             31,510
2004                             12,693
---------------------------------------
Total                          $433,692
=======================================
</TABLE>

4. INVENTORIES
   Inventories consist of the following:


<TABLE>
<CAPTION>
December 31,                         2000              1999
---------------------------------------------------------------
<S>                               <C>         <C>
New automobiles                   $17,784,121       $ 5,291,503
New trucks and vans                13,600,234         9,547,442
Used automobiles and trucks        14,207,376         9,253,161
Parts and accessories               1,768,694           805,976
Other                                 104,836            56,536
---------------------------------------------------------------
                                  $47,465,261       $24,954,618
===============================================================


  5.    PROPERTY AND EQUIPMENT
        Property and equipment consists of the following:

December 31,                                         2000             1999           Lives
---------------------------------------------------------------------------------------------
<S>                                               <C>              <C>              <C>
Land                                              $3,858,000       $2,400,000              --
Building                                           3,293,000        1,000,000        40 years
Leasehold improvements                             1,302,111        1,025,038        15 years
Furniture and fixtures                             1,224,039          894,866       3-7 years
Equipment                                          1,493,092        2,071,931       3-7 years
---------------------------------------------------------------------------------------------
                                                  11,170,242        7,391,835
Less:  Accumulated
        depreciation and
        amortization                                2,415,259        1,978,472
---------------------------------------------------------------------------------------------
                                                  $8,754,983       $5,413,363
=============================================================================================
</TABLE>



                                      F-15
<PAGE>   92
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


  6.    INCOME TAXES

                  The Company accounts for income taxes using the asset and
                  liability method whereby deferred assets and liabilities are
                  recorded for differences between the book and tax carrying
                  amounts of balance sheet items. Deferred liabilities or assets
                  at the end of each period are determined using the tax rate
                  expected to be in effect when the taxes are actually paid or
                  recovered. The measurement of deferred tax assets is reduced,
                  if necessary, by a valuation allowance for any tax benefits
                  that are not expected to be realized. The effects of changes
                  in tax rates and laws on deferred tax assets and liabilities
                  are reflected in net income in the period in which such
                  changes are enacted.

                  The provision (benefit) for taxes on income, including amounts
                  relating to the loss from discontinued operations of
                  $1,804,000, $1,082,000 and $506,000 in 2000, 1999 and 1998,
                  respectively, is as follows:

<TABLE>
<CAPTION>
                         Year ended December 31,       2000           1999           1998
-------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>             <C>
                         Federal:
                           Current                  $      --      $(134,000)      $302,000
                           Deferred                  (442,000)            --             --
                         State:
                           Current                    100,000         67,000        212,000
                           Deferred                  ( 78,000)      (125,000)            --
-------------------------------------------------------------------------------------------
                             Total                  $(420,000)     $(192,000)      $514,000
===========================================================================================
</TABLE>


                                      F-16
<PAGE>   93
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                  The reconciliation between the amount computed by applying the
                  Federal statutory rate to income (loss) from continuing and
                  discontinued operations before income taxes and the actual
                  income tax expense was as follows:


<TABLE>
<CAPTION>
                 Year ended December 31,         2000               1999               1998
                 -------------------------------------------------------------------------------
<S>                                            <C>                <C>                <C>
                 Amount using the
                   statutory Federal
                   tax rate                    $(7,325,000)       $(1,270,000)       $   348,000
                 Utilization of tax
                   loss carryforwards                   --                 --           (102,000)
                 Losses of discontinued
                   operations that can
                   not be utilized                 970,000                 --                 --
                 State and local income
                   taxes, net of
                   Federal tax benefit            (900,000)          (724,000)           140,000
                 Excess officers'
                   compensation                         --            534,000                 --
                 Original issue discount                --            522,000                 --
                 Goodwill amortization             310,000            277,000            155,000
                   discontinued operations
                   asset writedown               6,528,000                 --                 --
                 Other, net                         (3,000)           199,000            (27,000)
                 Bad debt accrual                                     200,000                 --
                 Foreign losses                                        70,000                 --
                 -------------------------------------------------------------------------------
                 Provision (benefit)
                   for taxes on income         $  (420,000)       $  (192,000)       $   514,000
                 ===============================================================================
</TABLE>


                  At December 31, 2000, the Company had available domestic net
                  operating loss carryforwards primarily related to continuing
                  operations of approximately $1.4 million which begin to expire
                  in the year 2011. The Company believes that valuation
                  allowances to offset portions of deferred tax assets are
                  unnecessary since the realization of such deferred tax assets
                  will be probable given the profitability of such continuing
                  operations. In addition, the Company does not expect to be
                  able to utilize the benefits from any of the operating loss
                  carryforwards resulting from the discontinued operations.


7. SECURED LINES OF CREDIT AND FLOOR PLAN NOTES PAYABLE

                  Secured Lines of Credit

                  The Company has two lines of credit ("Lines") with a bank for
                  a total of $1,500,000. The interest rate is a variable rate
                  based on the bank's prime rate of interest. Interest is
                  payable monthly.


                                      F-17
<PAGE>   94
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 The Lines are collateralized by a first
                                 security interest in and UCC filing on all
                                 assets of Fidelity Holdings, Inc. and the
                                 personal guarantees of two majority
                                 stockholders, each of whom will be limited to
                                 50% of the total obligation to the Bank.

                                 As of December 31, 2000 and 1999, the
                                 outstanding balance on the Lines were $500,000
                                 and $-0-, respectively.

                                 Floor Plan Notes Payable

                                 The Company finances the majority of its new
                                 and used inventory primarily through secured
                                 revolving floor plan financing arrangements
                                 with various lenders. The Company makes monthly
                                 interest payments on the amount financed, but
                                 is required to make loan principal repayments
                                 following the sale of the related new and used
                                 vehicles. Outstanding borrowings under floor
                                 plan financing arrangements amounted to
                                 $45,214,444 and $21,661,654 at December 31,
                                 2000 and 1999, respectively. The floor plan
                                 arrangements grant a security interest in the
                                 vehicles financed as well as the related sales
                                 proceeds. Interest rates on the floor plan
                                 agreements are variable and increase or
                                 decrease based on movement in LIBOR or prime
                                 borrowing rates. Floor plan interest for the
                                 years ended December 31, 2000, 1999 and 1998
                                 were $1,858,632, $796,810 and $194,888,
                                 respectively. Interest rates in effect in the
                                 year 2000 ranged between 8.0% and 9.5%. At
                                 December 31, 2000, committed capacity of the
                                 facilities was approximately $50 million.


   8.  CONVERTIBLE               During April 1998, the Company issued $600,000
       SUBORDINATED              of 10% convertible subordinated debentures, due
       DEBENTURES                June 1999 with interest payable semi-annually.
                                 During April 1999, the debentures were
                                 converted into 459,000 shares of common stock
                                 at a price of $1.96 per share.


                                      F-18
<PAGE>   95
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          In January 1999, the Company and its subsidiary,
                          Computer Business Sciences, Inc. ("CBS") entered into
                          a Securities Purchase Agreement with certain
                          purchasers named therein (the "Purchasers"), pursuant
                          to which the Company and CBS agreed to sell up to
                          2,750 units (the "Units"), each Unit consisting of (i)
                          a 12% Convertible Debenture of the Company in the
                          principal amount of $1,000, convertible on certain
                          terms and conditions into shares of the Company's
                          common stock, par value $0.01 per share (the "Common
                          Stock"), (ii) 81.8181 shares of Common Stock, (iii)
                          warrants (the "Warrants") to acquire 187.4985 shares
                          of Common Stock at $1.86 per share and (iv) warrants
                          (the "CBS Warrants") to acquire 25.4545 shares of
                          common stock at $0.001 per share, par value $0.01 per
                          share, of CBS (the "CBS Shares"). The Company closed
                          on $2.75 million and issued to Purchasers, in the
                          aggregate, Debentures in the face amount of $2.75
                          million, 225,000 shares of Common Stock, Warrants to
                          acquire 515,627 shares of Common Stock and CBS
                          Warrants to acquire 70,000 CBS Shares. The Debentures
                          resulted in an original issue discount of $977,000.
                          The Securities Purchase Agreement allows for two more
                          series of issuances with similar terms. In connection
                          with the placement of the Debentures, the Company paid
                          to Zanett Securities Corporation, the placement agent
                          for the transaction (the "Placement Agent"), a fee and
                          nonaccountable expense allowance of 6.9%, and the
                          Company also issued to the Placement Agent and its
                          assignees, 112,500 shares of the Company's Common
                          Stock, 30,000 shares of CBS Common Stock and Warrants
                          to purchase an aggregate of 257,811 shares of Common
                          Stock at an exercise price equal to $1.87 per share.

                          In 1999, eighty-five percent of the convertible
                          debentures were redeemed for cash, while the remaining
                          fifteen percent were converted into 241,458 shares of
                          common stock.

                          The Company recorded an extraordinary loss of $733,125
                          as a result of the early redemption of the $2.75
                          million debentures which is included in loss from
                          discontinued operations for the year ended December
                          31, 1999. The loss consisted of unamortized original
                          issue discount.

                                      F-19
<PAGE>   96
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   9.  LONG-TERM DEBT     Various lenders advance funds to the Company's leasing
                          subsidiary in the form of notes payable to finance
                          leased vehicles. Interest on each note is charged
                          depending on the prime rate in effect at the time the
                          vehicle is leased and remains constant over the term
                          of the lease. Applicable rates at December 31, 2000
                          ranged between 8% and 9.75%. Equal monthly
                          installments are paid over the term of the lease
                          (which can range from 12 to 60 months), together with
                          a final balloon payment, if applicable. These loans
                          are collateralized by the vehicles.

                          On May 14, 1998, the Company borrowed $7.5 million
                          from Falcon Financial, LLC (an unrelated party) to
                          finance the Major Auto Acquisition (see Note 10). The
                          term of the loan is for fifteen years with interest at
                          10.18%. Payments of principal and interest of $81,423
                          are due monthly.

                          On August 8, 2000, Doron Cohen, former President, CEO
                          and a Director of the Company, signed a Separation and
                          Release Agreement (the "Agreement"). Assuming
                          compliance with its provisions, the Agreement provides
                          for periodic payments to and a forgiveness of
                          indebtedness from Mr. Cohen in an aggregate amount of
                          $1,710,067. The total amount of the payments is
                          $662,000 and the potential forgiveness of Mr. Cohen's
                          indebtedness to the Company aggregates $1,048,067. The
                          payments are due to begin in August 2001. Based on the
                          report of an independent appraiser, the Company has
                          recorded a deferred charge of $840,000 (included in
                          other assets) as the value of the noncompete and other
                          provisions of the Agreement, which relates to
                          continuing operations of the Company. This amount is
                          being amortized over twenty-four months starting
                          August 2000. Accordingly, $175,000, representing five
                          months of amortization, has been charged in the year
                          ended December 31, 2000.

                                      F-20
<PAGE>   97
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          Additionally, the Company has accrued the liability
                          for the remaining payments due to Mr. Cohen and has
                          provided a valuation allowance for the difference
                          between the loan receivable from Mr. Cohen and the
                          aggregate amount of the deferred charge. Accordingly,
                          the Company has expensed a total of $829,096 in 2000,
                          representing the difference between the aggregate
                          potential of payments and forgiveness provided for in
                          the Agreement and the non-compete amount determined by
                          the independent appraiser. This expense is directly
                          attributable to the value of Mr. Cohen's noncompete
                          provisions related to the Company's technology
                          operations. As such, it has been included in the
                          estimated loss from discontinued operations.

                          On December 11, 2000, the Company issued to M&K
                          Equities, Ltd. ("M&K"), an affiliate of a Director of
                          the Company, a senior subordinated promissory note in
                          the principal amount of $2,000,000 in exchange for a
                          $2,000,000 loan from M&K. The terms of the note
                          require payment of the $2,000,000 principal on
                          December 11, 2002. The note requires monthly interest
                          payments at a rate of 10% per annum. In order to
                          induce M&K to make the loan, the Company granted to
                          them a lien on, and a security interest in, all of
                          their non-technology assets, subject to prior senior
                          liens. The Director also received options under the
                          1999 Employee Stock Option Plan to purchase 250,000
                          shares of the Company's common stock at an exercise
                          price of $0.47 per share. The fair value ascribed to
                          the options was approximately $95,000 based on the
                          Black-Scholes option-pricing model; such amount was
                          recorded as a deferred charge and as additional
                          paid-in capital of stockholders' equity. The amount of
                          the deferred charge will be amortized ratably over the
                          term of the note.


                                      F-21
<PAGE>   98
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                           Long-term debt consists of the following:

<TABLE>
<CAPTION>

                          December 31,                                          2000                1999
                          --------------------------------------------------------------------------------
<S>                                                                    <C>                    <C>
                          Leasing notes payable                        $     486,004          $1,019,484
                          Falcon loan payable                              6,894,860           7,155,450
                          Note payable to former president                   410,500                   -
                          M&K note payable                                 2,000,000                   -
                          World Omni note payable (see Note 10)            1,474,252                   -
                          Other                                               11,947                   -
                          --------------------------------------------------------------------------------
                                                                          11,277,563           8,174,934
                          Less:  Current portion                             866,120             758,150
                          --------------------------------------------------------------------------------
                                                                         $10,411,443          $7,416,784
                          ================================================================================
</TABLE>
                           Maturities are as follows:

<TABLE>
<CAPTION>
                          December 31, 2000
                          --------------------------------------------------------------------------------
<S>                                                                                        <C>
                          2001                                                             $     866,000
                          2002                                                                 2,682,000
                          2003                                                                   765,000
                          2004                                                                   743,000
                          2005                                                                   660,000
                          Thereafter                                                           5,562,000
                          --------------------------------------------------------------------------------
                                                                                             $11,278,000
                          ================================================================================
</TABLE>


                                      F-22
<PAGE>   99
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  BUSINESS
     COMBINATIONS         On April 21, 1997, the Company, through a wholly-owned
                          subsidiary, Major Acquisition Corp., entered into a
                          merger agreement with Major Automotive Group Inc.
                          ("Major Auto") and its sole stockholder, Bruce
                          Bendell, the Company's Chief Executive Officer and
                          Chairman. Pursuant to the Merger Agreement, Bruce
                          Bendell contributed to Major Auto all of his 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 the issued and outstanding
                          shares of common stock of Major Auto in exchange for
                          shares of a new class of the Company's preferred
                          stock. Major Acquisition Corp. purchased the remaining
                          50% of the issued and outstanding shares of common
                          stock of Major Dodge, Inc. 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. In addition, Major
                          Acquisition Corp. acquired two related real estate
                          components (the "Major Real Estate", defined
                          hereinafter) from Bruce Bendell and Harold Bendell
                          (collectively "the Bendells") for $3 million.

                          The preferred stock issued to Bruce Bendell is
                          designated as the "1997-MAJOR Series of Convertible
                          Preferred Stock." It has voting rights and is
                          convertible into the Company's common stock (the
                          "Common Stock"). The number of shares of Common Stock
                          into which the new class is convertible is 4.1 million
                          shares. The foregoing acquisitions from Major Auto and
                          Harold Bendell are collectively referred to herein as
                          the "Major Auto Acquisition".


                          To finance the 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 Acquisition Corp. borrowed $7.5
                          million from Falcon Financial, LLC pursuant to a loan
                          and security agreement dated May 14, 1998, for a
                          15-year term with interest equal to 10.18% (see Note
                          9). Prepayment is not permitted for the first five
                          years, after which prepayment may be made, in full
                          only, along with the payment of a premium.

                                      F-23
<PAGE>   100
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          The collateral securing the loan transaction includes
                          the Major Real Estate and, subject to the interests of
                          any current or prospective "floor plan or cap loan
                          lender," the assets of Major Acquisition Corp. Major
                          Acquisition Corp. is required to comply with certain
                          financial covenants related to net worth and cash
                          flow. In addition, the Company provided an
                          unconditional guarantee of the loan pursuant to a
                          guarantee agreement dated May 14, 1998. This
                          acquisition was treated as a purchase by Major
                          Acquisition Corp.

                          On April 23, 1999, the Company acquired certain assets
                          of Universal Kia for approximately $140,000 in cash.
                          The Company accounted for this acquisition as a
                          purchase, and the excess cost over the fair market
                          value of the tangible net assets acquired was $140,000
                          and was allocated to goodwill (Note 1). Results of
                          operations have been included in the Company's
                          consolidated financial statements since the purchase
                          date.

                          On September 9, 1999, the Company acquired all of the
                          issued and outstanding shares of common stock of
                          Compass Lincoln Mercury, Inc. and Compass Dodge, Inc.
                          for approximately $434,000 in cash and 68,617 shares
                          of the Company's restricted common stock having a fair
                          market value of approximately $715,000. The Company
                          accounted for this acquisition as a purchase, and the
                          excess cost over the fair market value of the net
                          tangible assets acquired was approximately $882,000
                          and was allocated to goodwill (Note 1). Results of
                          operations have been included as of September 9, 1999.
                          The Company waited for approval from the factory in
                          connection with the Compass Dodge purchase and has
                          included $300,000 of the purchase price in other
                          assets at December 31, 1999.


                                      F-24
<PAGE>   101

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          In March 1996, Computer Business Sciences, Inc.
                          ("CBS") formed a joint venture with Nissko Telecom,
                          L.P. (the "Nissko Group"). The joint venture is
                          between Nissko Telecom Associates ("Nissko") and Dr.
                          Nassim creating Nassim-Nissko Associates, a joint
                          venture ("Joint Venture"). CBS, now IG2, owns 45% of
                          the Joint Venture and Nissko owns 55%. Nissko L.P. is
                          a limited partnership, the general partner of which is
                          one of the Company's master agents, Nissko Telecom,
                          Ltd. (the "Agent"), and the limited partners of which
                          are four individuals, three of whom, including Yossi
                          Koren, a former director, are shareholders of the
                          Agent.

                          In November 1999, CBS, now IG2, a subsidiary, entered
                          an agreement (the "Nissko Agreement") with the
                          shareholders of the Agent (the Nissko Group") to
                          purchase Nissko L.P's share in NT Associates,
                          including all assets, licenses and proprietary
                          technology, and liabilities only relating to taxes to
                          which any Nissko Principal may become liable and
                          telephone bills related to services provided. For five
                          years the Nissko Group may not compete in the
                          communications business relating to telephony to and
                          from the United States. All members of the Nissko
                          Group provided a general release in favor of IG2 and
                          the Company.

                          As payment, CBS, now IG2, issued 670,000 shares (3% of
                          CBS) of the common stock of CBS (the "CBS Shares") to
                          the Nissko Group and forgave approximately $4.0
                          million of receivables. CBS has also placed 882,000
                          restricted shares of Fidelity Holdings, Inc. common
                          stock in escrow ("Fidelity Shares"). If, by May 30,
                          2001, the Company has not caused the common stock of
                          CBS to become publicly traded, the Nissko Group will
                          receive up to 882,000 shares of the Company (Fidelity
                          Shares) based on a maximum value of $2,500,000 of the
                          shares or 882,000 shares at the average closing price
                          for the 30 trading days prior to May 30, 2001, and
                          discounted at 35% if restricted. The Company accounted
                          for this acquisition as a purchase, and the excess
                          cost over the fair market value of the tangible net
                          assets acquired was approximately $8.1 million and was
                          allocated to goodwill.

                                      F-25
<PAGE>   102

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          The remaining Fidelity Shares are to remain in escrow
                          until November 30, 2001. In the event the Company has
                          caused the common stock of CBS to become publicly
                          traded prior to the 18 month anniversary of the Nissko
                          Agreement and the net proceeds of the sale of the CBS
                          Shares by the Nissko Group do not equal a total of
                          $2,500,000, or, if the CBS Shares have not been sold,
                          and the value of such CBS Shares does not equal at
                          least $2,500,000, then additional Fidelity Shares will
                          be released to the Nissko Group to cover any shortfall
                          in value, up to 882,000 shares.

                          In the event that at any time prior to November 30,
                          2001 CBS secures a bona fide third-party purchaser of
                          the CBS Shares for a cash purchase price of
                          $2,500,000, or a proportional amount of the CBS
                          Shares, and any member of the Nissko Group rejects
                          such offer, then no additional Fidelity Shares are to
                          be issued to such member on November 30, 2001.

                          The escrow agreement includes a provision that awards
                          an additional 300,000 restricted shares of Fidelity
                          Holdings, Inc. common stock to the Nissko Group as
                          penalty in the event that the Company has not caused
                          the common stock of CBS to become publicly traded by
                          May 30, 2001.

                          An additional 300,000 restricted shares of Fidelity
                          Holdings, Inc. common stock have been placed in escrow
                          under the agreement to cover personal guarantees of
                          the Nissko Group.

                          In December 1999, CBS, now IG2 , entered an agreement
                          where it agreed to purchase from the Joint Venture
                          long distance telephone service, internet service,
                          data and any and all other telephony services (the
                          "Telephony Business"), which includes all business in
                          the Venezuela, Brazil, Chile, Mexico, Argentina and
                          the United States, and all rights to any and all
                          equipment related to the Telephony Business in
                          exchange for 37,500 shares of Fidelity common stock,
                          to be issued in the name of Dr. Nassim and 60,000
                          shares of CBS, now IG2 to be issued in the name of
                          Roberto Nassim.



                                      F-26
<PAGE>   103

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          CBS, now IG2, guaranteed the value per share to be no
                          less than $500,000 thirteen months from December 1,
                          1999 ("Guaranteed Value"). If the closing price per
                          share of Fidelity common stock on the trading day
                          preceding January 1, 2001 is less than the Guaranteed
                          Value (the "Closing Price"), the difference between
                          the Closing Price per share multiplied by the
                          Guaranteed Value (the "Shortfall") will be paid, at
                          the option of IG2, either in cash or in shares of
                          Fidelity common stock whose approximate value is equal
                          to the Shortfall. IG2 shall not be released from its
                          obligations as provided in such agreement. Any
                          additional issuances of common stock will be recorded
                          at par value, since the purchase price originally
                          reflected the transaction value.

                          On February 23, 2000, in exchange for 575,862 shares
                          of its common stock valued at $6,975,480, the Company
                          acquired CarsTV.com. This company is a Richmond,
                          Virginia based regional, full-service Internet service
                          provider and digital subscriber line ("DSL") provider,
                          as well as a content supplier for the cable industry
                          focused on the automotive industry. The acquisition
                          was treated as a purchase and the excess cost over the
                          net assets acquired was approximately $7,108,000, and
                          was allocated to goodwill, of which the unamortized
                          balance has been charged to discontinued operations
                          (see Note 16). Accordingly, the results of operations
                          of CarsTV.com have been included as of February 23,
                          2000 and included in discontinued operations. Pursuant
                          to the Merger Agreement, if IG2 undergoes an initial
                          public offering ("IPO"), as defined in the agreement,
                          the selling shareholders of CarsTV.com have the option
                          to convert up to 287,931 common shares of the Company
                          into IPO common stock, at a conversion price as
                          defined in the agreement.

                          On August 9, 2000, the Company purchased assets of
                          Compass Dodge for approximately $402,000 of which
                          $385,000 was in cash and 12,500 shares of the
                          Company's common stock having a fair market value of
                          approximately $17,000. The Company accounted for this
                          acquisition as a purchase, and the excess cost over
                          the fair market value of the net tangible assets
                          acquired was approximately $299,000 and was allocated
                          to goodwill.

                                      F-27
<PAGE>   104
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          The acquisition was accounted for by the purchase
                          method of accounting for business combinations.
                          Results of operations have been included in the
                          Company's consolidated financial statements since the
                          purchase date.

                          On September 7, 2000, the Company acquired
                          substantially all of the assets of the Hempstead
                          Nissan automobile dealership, a full-service retail
                          new and used vehicle dealership based on Long Island
                          in New York, for approximately $6.9 million, which
                          included assumption of certain liabilities. The
                          purchase price was allocated to the assets acquired
                          based on their estimated fair values, of which $5.0
                          million was allocated to inventories and property and
                          equipment. The excess of the purchase price over the
                          fair value of net assets acquired (goodwill) was
                          approximately $1.8 million and is being amortized over
                          15 years. The acquisition was financed through
                          available cash and a note of $1.5 million issued to
                          World Omni. The acquisition was accounted for as a
                          purchase. Results of operations have been included in
                          the Company's consolidated financial statements since
                          the purchase date.

                          On April 12, 2000, the Company acquired substantially
                          all of the assets of the Hempstead Mazda automobile
                          dealership, a full-service retail new and used vehicle
                          dealership based on Long Island in New York, for
                          approximately $1,351,000 which included assumption of
                          certain liabilities. The Company paid $210,000 in cash
                          and 87,211 shares of its common stock valued at
                          $1,080,000. The purchase price was allocated to the
                          assets acquired based on their estimated fair values
                          of which $167,000 was allocated to inventories and
                          property and equipment. The excess of the purchase
                          price over the fair value of net assets acquired
                          (goodwill) was approximately $1,175,000 and is being
                          amortized over 15 years. The acquisition was accounted
                          for as a purchase. The agreement provided for a put
                          option that could be exercised by either party for
                          18,947 shares at $19 per share. On July 26, 2000, the
                          Company exercised the option and bought the 18,947
                          shares at $19 per share for $359,993. The agreement
                          also

                                      F-28
<PAGE>   105

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          calls for a make whole provision based upon a formula
                          determined by the fair value of the Company's stock on
                          the anniversary date of April 11, 2001. As of March
                          30, 2001, the Company would be required to issue
                          approximately 1,300,000 additional shares of common
                          stock. The issuance of these shares will be recorded
                          at par value since the purchase price originally
                          reflected the transaction value.

                          The pro forma unaudited consolidated results of
                          continuing operations assuming acquisitions accounted
                          for under the purchase method of accounting had
                          occurred at the beginning of each period are presented
                          as follows for the years ended December 31:

<TABLE>
<CAPTION>
                           December 31,                  2000               1999                1998
                           --------------------------------------------------------------------------------
<S>                                              <C>                <C>                  <C>
                           Revenues              $348,000,000       $ 217,000,000        $159,000,000
                           Income -
                             continuing
                             operations               671,000             808,000           1,154,000
                           Proforma earnings
                             per share -
                             continuing
                             operations - diluted         .02                 .04                 .06
                          ================================================================================
</TABLE>

 11.    GOVERNMENTAL      Substantially all of the Company's facilities are
        REGULATIONS       subject to Federal, state and local regulations
                          relating to the discharge of materials into the
                          environment. Compliance with these provisions has not
                          had, nor does the Company expect such compliance to
                          have, any material effect on the financial condition
                          or results of operations of the Company. Management
                          believes that its current practices and procedures for
                          the control and disposition of such wastes comply with
                          applicable Federal and state requirements.


 12.    COMMITMENTS AND   Operating Leases
        CONTINGENCIES

                          The Company leases real property under various
                          operating leases, most of which have terms from 1 to 6
                          years.

                                      F-29
<PAGE>   106

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          Future net minimum lease payments under noncancelable
                          operating lease agreements as of December 31, 2000 are
                          as follows:


<TABLE>
<CAPTION>
                         December 31,
                         -------------------------------------------------------
<S>                                                                 <C>
                         2001                                       $ 1,018,000
                         2002                                           668,000
                         2003                                           670,000
                         2004                                           397,000
                         2005                                           246,000
                         Thereafter                                   1,082,000
                         -------------------------------------------------------
                                                                     $4,081,000
                         =======================================================
</TABLE>

                          Rent expense was $1,841,000, $1,450,000 and $1,376,357
                          for the years ended December 31, 2000, 1999 and 1998,
                          respectively.

                          Capital Leases

                          In connection with the acquisition of Hempstead Nissan
                          (see Note 10), the Company was assigned a lease
                          agreement for facilities used for operations of the
                          dealership. The lease agreement provided for the
                          transfer of ownership at the option of the Company at
                          the end of the lease term for $3 million. The Company
                          also has capital equipment leases. The net book value
                          of all assets under capital leases at December 31,
                          2000 is approximately $3 million.

                          The future net minimum lease payments under capital
                          leases are as follows:


<TABLE>
<CAPTION>
                         Fiscal year ending December 31,
                         -------------------------------------------------------
<S>                                                                 <C>
                         2001                                       $   234,000
                         2002                                         3,129,000
                         -------------------------------------------------------
                                                                      3,363,000
                         Less:  Amount representing interest            351,000
                         -------------------------------------------------------
                         Present value of net minimum lease
                           payments                                  $3,012,000
                         =======================================================
</TABLE>


                                      F-30
<PAGE>   107
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          Legal Proceedings

                          On July 27, 1999, Mr. Daniel Tepper of Los Angeles,
                          California, filed a lawsuit against the Company and
                          three of its officers (Bruce Bendell, Doron Cohen, and
                          Richard Feinstein) in the Eighth Judicial District
                          Court in Clark County, Nevada. That original complaint
                          was not served on the Company or the named officers.
                          On August 16, 1999, Mr. Tepper filed an Amended
                          Complaint, which was subsequently served on the
                          Company. The Company and the individual defendants
                          removed the litigation to the United States District
                          Court in Las Vegas, Nevada. The Company and individual
                          defendants filed a motion to dismiss the claims
                          against the individuals on jurisdictional grounds, and
                          to transfer the remainder of the case to New York. Mr.
                          Tepper subsequently agreed to dismiss all claims
                          against the individuals, and the court declined to
                          transfer the case. Mr. Tepper contends in his lawsuit
                          that he is the rightful owner of 360,000 shares of
                          Company common stock. He contends that the Company has
                          wrongfully (i) refused to remove the "restricted"
                          legend from 240,000 of those shares, and (ii) withheld
                          the remaining 120,000 shares from him. The Company has
                          been informed by Progressive Polymerics International,
                          Inc. n/k/a InvestAmerica that it is the rightful owner
                          of the shares, and that Mr. Tepper acquired the shares
                          improperly. Because of these competing claims to
                          ownership of the shares, the Company has not released
                          full ownership of the shares to Mr. Tepper.
                          Subsequently, all shares were released in unrestricted
                          form to Mr. Tepper, and he has sold some of them. Mr.
                          Tepper has filed another Amended Complaint alleging,
                          among other things, that our officers manipulated the
                          price of the shares to the disadvantage of Mr. Tepper
                          and other shareholders. The Company has filed a Third
                          Party Complaint against InvestAmerica, alleging, among
                          other things, claims for indemnification and breach of
                          contract. The basis of this pleading is that if we are
                          liable to Mr. Tepper, it is due to InvestAmerica's
                          actions of: (1) improperly transferring the shares in
                          the first place; and (2) asserting a claim of
                          ownership in the shares. The court has now ruled that
                          Mr. Tepper is the proper present owner of the subject
                          shares, and that neither we nor InvestAmerica can
                          claim ownership of those shares going forward.
                          However, this ruling has not ended the litigation. Mr.
                          Tepper is still asserting damages against the Company
                          for our refusal to release the shares earlier. Our
                          third party claims against InvestAmerica are also
                          being litigated in that same lawsuit. The court has
                          scheduled the trial of this case to begin October 15,
                          2001.


                                      F-31
<PAGE>   108
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          By Summons and Complaint dated June 11, 1999, the
                          Company was named as the defendant in an action titled
                          Ronald Shapss Corporate Services, Inc. v. Fidelity
                          Holdings, Inc., brought in the Supreme Court of the
                          State of New York, Rockland County, Index No. 3248/99.
                          In this action, Ronald Shapss Corporate Services, Inc.
                          ("RSCS") has alleged that the Company breached a
                          purported consulting agreement with it and converted
                          shares of our common stock that RSCS claims should
                          have been provided to it pursuant to that purported
                          agreement. The plaintiff contended that the Company
                          wrongfully refused to allow the exercise of options
                          for 50,000 shares of our stock at $4.50 per share. The
                          plaintiff also alleged an anticipatory breach of
                          plaintiff's right to exercise an option to purchase
                          100,000 more shares for $4.50 per share. The plaintiff
                          alleged it sustained damages in the sum of $5,000,000
                          in punitive damages on the conversion claim.

                          The Company initially filed a motion to dismiss the
                          cause of action alleging conversion. At that time RSCS
                          cross-moved for partial summary judgment in its favor
                          on the claim for damages caused by our refusal to
                          recognize the exercise of the option to purchase the
                          first 50,000 shares. The court granted our motion and
                          dismissed the cause of action for conversion. The
                          court denied the plaintiff's motion for partial
                          summary judgment. The Company then filed an answer
                          denying the allegations of the complaint, asserting
                          affirmative defenses and asserting counterclaims
                          against the plaintiff and Ronald Shapss, the principal
                          of the plaintiff corporation. The plaintiff re-filed
                          its motion for partial summary judgment and the motion
                          was again denied. The plaintiff filed an appeal to the
                          Appellate Division of the Supreme Court, Second
                          Department. The Appellate Division affirmed the order
                          of the lower court. During the pendency of the appeal,
                          the Company filed a motion for partial summary
                          judgment declaring that the plaintiff was not entitled
                          to purchase the 100,000 shares for $1,000.00 and was
                          not entitled to receive or exercise the options for
                          100,000 shares at $4.50 per share. The court granted
                          that motion.

                          The parties are conducting discovery on the
                          plaintiff's remaining claim that it was damaged in the
                          sum of $1,375,000.00 for our failure to allow the
                          exercise of options for 50,000 shares. In addition,
                          the parties are conducting discovery on our
                          counterclaim to rescind the contract and cancel said
                          options as well as cancel 50,000 shares of stock
                          previously issued pursuant to that contract.

                          The plaintiff's motion for summary judgment was based
                          on its claim that the Company made various admissions
                          that plaintiff had fully performed its contract. The
                          courts agreed that we had offered sufficient factual
                          details to support our claim that plaintiff had not
                          fully performed and failed to explain the alleged
                          admissions.

                                      F-32
<PAGE>   109
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          A legal action has been commenced against the Company
                          by plaintiffs S&L Telecom, Inc., Jacob Steinmetz and
                          Joseph Luria in the Supreme Court of the State of New
                          York, County of New York, Index No. 605513/99.
                          Plaintiffs filed a complaint on December 7, 1999
                          against the Company alleging that the Company failed
                          to deliver shares of stock to plaintiffs pursuant to
                          terms of an agreement between the parties. Plaintiffs
                          are seeking delivery of the shares and damages. The
                          parties are currently awaiting a decision from the
                          Court on the Company's motion to dismiss the complaint
                          and plaintiffs' motion for summary judgment and
                          dismissal of the Company's counterclaim. Limited
                          discovery has begun and is continuing at this time.

                          The Company, Computer Business Sciences and 786710
                          Ontario, Ltd. are plaintiffs 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 plaintiffs filed a
                          complaint on December 23, 1996 against the defendants
                          alleging: (i) breach of a letter agreement between
                          the parties; (ii) tortuous interference with business
                          opportunities; and (iii) slander. Defendants filed an
                          answer with counterclaims. Both parties are currently
                          still engaged in ongoing discovery at this time.

                          On or about November 9, 2000, Realtech Systems
                          Corporation ("Realtech") served the Company as well as
                          IG2 a Demand for Arbitration before the Commercial
                          Arbitration tribunal of the American Arbitration
                          Association relating to work and services allegedly
                          provided by Realtech to IG2. The Demand asserted that
                          pursuant to a Master Agreement dated November 16, 1999
                          between Realtech and IG2, both parties agreed to
                          arbitration in the event of any potential disputes.
                          The Demand further asserts that Realtech has provided
                          work and services to the Company in the unpaid amount
                          of $198,000, and that the Company and IG2 further
                          breached the agreement by hiring John Honovich, a
                          former Realtech employee. Realtech seeks in excess of
                          $243,849 in damages. Realtech included the Company in
                          an arbitration based on the idea that IG2 is "our
                          wholly owned subsidiary" and not on the basis of the
                          agreement. On December 1, 2000, the Company served a
                          Notice of Petition and a Petition seeking a stay of
                          arbitration on our behalf on the grounds that IG2 is
                          not a signatory to any arbitration agreements between
                          Realtech and the Company. Realtech served reply papers
                          as well as a cross motion compelling the Company to
                          arbitrate on December 14, 2000. On January 12, 2001,
                          the Company filed an Order to Show Cause, to which
                          Realtech answered. On January 29, 2001, Justice Tolub
                          of the New York State Supreme Court ordered the
                          Arbitration stayed as to the Company, and denied
                          Realtech's arbitration claim.

                          With respect to IG2, there is a good possibility that
                          the claim will be dismissed since Realtech failed to
                          perform as per the Agreement.


                                      F-33
<PAGE>   110
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          On August 28, 2000, Schiano Bros. Inc. ("Schiano")
                          filed a third party lawsuit against Computer Business
                          Sciences Inc. ("CBS") in the Supreme Court of the
                          State of New York, Kings County. The suit alleged that
                          phone services provided to the Dominican Republic
                          through MCI International, Inc. ("MCI") were
                          wrongfully attributed to Schiano and should have been
                          attributed to CBS. In addition, an intentional tort
                          claim was also filed against CBS. The suit seeks
                          $150,000 in damages. The Company filed an Answer on
                          September 20, 2000, as well as a Demand for a Third
                          Party Bill of Particulars on the plaintiff MCI, and
                          Discovery and Inspection Demands on all parties.
                          Plaintiff responded only with a set of invoices, to
                          which the Company requested a more thorough inquiry.
                          On December 10, 2000, Schiano served a Bill of
                          Particular and Interrogatory Demands upon us, as well
                          as Notices for Discovery and Inspection. A Preliminary
                          Conference Order was scheduled for March 3, 2001.

                          There were no agreements made between the Company and
                          Schiano, or between the Company and MCI; the sole
                          basis for Schiano's claim is a verbal/oral agreement
                          upon facts that do not exist.

                          An action has been commenced by Waterview Resolution
                          Corp. ("Waterview") against Schiano, who third party
                          impleaded the Company in November 2000 in the Supreme
                          Court of the State of New York, New York County.
                          Schiano leased equipment from Waterview with the
                          expectation of entering into a business arrangement
                          with the Company. On January 23, 2001, Schiano served
                          upon the Company a lawsuit alleging an agreement with
                          the Company to sell telephone service to the
                          Philippines in which the Company (i) failed to
                          disclose the financial interest of Taylor Financial
                          Services Inc. to Schiano, (ii) failed to engage in a
                          joint venture or partnership with Schiano and (iii)
                          failed to disclose the substantial risk of termination
                          of the business by the Philippine government. No
                          written agreement has been produced to substantiate
                          the aforementioned claims. A Notice to take
                          Examination Before Trial was served on both the
                          defendant and plaintiff by the Company on March 6,
                          2001.

                          On June 6, 2000 plaintiffs filed a lawsuit against CBS
                          in the amount of $1,000,000 in the Northern District
                          of California, San Francisco division. Plaintiffs
                          allege that they were convinced to join the advisory
                          board of CBS in return for: (i) a seat on the
                          Technical Advisory Board; (ii) stock options; (iii) a
                          signing bonus; and (iv) a consulting agreement.
                          Plaintiffs further allege that CBS used their names to
                          further our image and received nothing in return.
                          Plaintiffs filed an amended complaint on October 16,
                          2000, and the Company subsequently filed a Motion to
                          Dismiss and Transfer Venue on November 6, 2000.
                          Plaintiffs opposed the motion to dismiss, to which the
                          Company replied on September 8, 2000. The Motion was
                          granted as to Rule 10-5b for failure to state a claim,
                          granted as to Lack of Personal Jurisdiction over Mr.
                          Cohen, Mr. Bendell and Ms. Peacock, and denied as to
                          all other claims. A case management conference was
                          re-set for April 6, 2001. A substitution of Attorney
                          Robert Rimberg for Brobeck, Phleger & Harrison was
                          entered March 30, 2001, and is pending.

                                      F-34
<PAGE>   111
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          On December 21, 2000, Russell Reynolds Associates,
                          Inc. ("Russell Reynolds") filed a complaint against
                          the Company in the Supreme Court of the State of New
                          York, New York County. The suit alleged that the
                          Company had not paid for employee search services
                          based upon an alleged agreement entered into by us
                          with Russell Reynolds. The suit further alleged an
                          amount outstanding of $108,688.09 for services
                          rendered in connection with executive search services.
                          The Company served an Answer on the plaintiff on
                          February 20, 2001 as well as a Notice to take
                          Deposition and a Notice to Produce.

                          As discovery has not yet commenced and all the facts
                          have not been disclosed, it is too early to render a
                          determination in this case.

                          An action entitled Stephen B. Wechsler, et al. v.
                          Fidelity Holdings, Inc. et al., CV 00 6488
                          (CPS)(E.D.N.Y.) (the "Wechsler Litigation") has been
                          commenced against Fidelity Holdings, Inc. The
                          Wechsler Litigation is an action pending in the
                          United States District Court for the Eastern District
                          of New York. The Wechsler Litigation is brought on
                          behalf of certain persons who acquired an unstated
                          number of shares of Fidelity common stock between
                          December 1999 and May 2000. Named as defendants are
                          Fidelity, Doron Cohen, Richard L. Feinstein and Bruce
                          Bendell (the "Defendants").

                          On December 26, 2000, plaintiffs filed a Second
                          Amended Complaint, which alleges, among other things,
                          that the plaintiffs sustained damages when they
                          acquired Fidelity common stock because the Defendants
                          allegedly issued materially false and misleading
                          statements and failed to disclose material information
                          which purportedly caused such stock to trade at
                          artificially inflated prices. The Second Amended
                          Complaint alleges violations of Section 10(b) and
                          20(a) of the Securities Exchange Act of 1934 (the
                          "Exchange Act") and Rule 10b-5 promulgated thereunder.
                          The allegedly misstated and omitted information
                          concerns Fidelity's reported income for the first
                          three quarters of 1999 and the prospects for its
                          technology business. The Second Amended Complaint
                          seeks, among other things, damages "in an amount, not
                          less than" one million dollars.

                                      F-35
<PAGE>   112
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          On February 16, 2001, Fidelity and Messrs. Bendell and
                          Feinstein filed a motion to dismiss the Second Amended
                          Complaint for failure to plead fraud with
                          particularity. (The Company understands Mr. Cohen has
                          not been served with process for this action.)

                          A class action has been commenced against Fidelity in
                          the following entitled action: In re: Fidelity
                          Holdings Securities Litigation, Master File No. 005078
                          (CPS) (E.D.N.Y.) (the "Class Action"). The Class
                          Action, also pending in the United States District
                          Court for the Eastern District of New York, consists
                          of twelve putative class actions that were originally
                          filed in the Southern District of New York and the
                          Eastern District of New York. The Class Action is
                          purportedly brought on behalf of all persons who
                          acquired shares of Fidelity common stock between June
                          24, 1999 and May 22, 2000. Named as defendants are
                          Fidelity, Doron Cohen, Richard L. Feinstein and Bruce
                          Bendell (the "Defendants").

                                      F-36
<PAGE>   113
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          The constituent actions were all commenced subsequent
                          to Fidelity's April 12, 2000 announcement of its
                          financial results for the fiscal year ended December
                          31, 1999. The complaints allege, among other things,
                          that the plaintiffs were damaged when they acquired
                          shares of Fidelity common stock because Defendants
                          allegedly issued materially false and misleading
                          statements and failed to disclose material information
                          during the class period, which purportedly caused such
                          stock to trade at artificially inflated prices during
                          the class period. The complaints allege violations of
                          Sections 10(b) and 20(a) of the Exchange Act, and Rule
                          10b-5 promulgated thereunder. The allegedly misstated
                          and omitted information concerns Fidelity's reported
                          income for the first three quarters of 1999 and the
                          prospects for its technology business. To date, no
                          consolidated complaint has been served and Fidelity's
                          time to answer each of the constituent complaints has
                          been served and Fidelity's time to answer each of the
                          constituent complaints has been adjourned
                          indefinitely. The complaints seek, among other things,
                          damages in unspecified amounts.

                          While the Company believes that it has substantial
                          defenses to the asserted claims discussed above and it
                          intends to vigorously defend these suits, a judgments
                          against it with respect to actions could have a
                          material adverse effect on the Company's financial
                          condition.

                          Various claims and lawsuits arising in the normal
                          course of business are pending against the Company.
                          The results of such litigation are not expected to
                          have a material or adverse effect on the Company's
                          combined financial position or results of operations.


 13.    RELATED PARTY     Amounts due affiliates are amounts owed by the
        TRANSACTIONS      Company's leasing subsidiary for advances made in the
                          ordinary course of business from various entities
                          which are wholly owned by the subsidiaries' former
                          stockholders. The advances are in the form of
                          noninterest-bearing obligations with no specified
                          maturity dates. At December 31, 2000 and 1999, amounts
                          due from affiliates and officers of $3,438,000 and
                          $1,335,642 are included in accounts receivable,
                          respectively.

                                      F-37
<PAGE>   114
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          Marcum & Kliegman LLP, an accounting firm of which a
                          director is a member, charged the Company
                          approximately $95,000, $104,000 and $48,000 in fees
                          for accounting services for the years ended December
                          31, 2000, 1999 and 1998, respectively. (See Note 9).

                          During 2000, the Company advanced $347,765 to an
                          officer of the Company. The advance is noninterest
                          bearing and due on demand.

                          All sales of used cars to affiliates were made at
                          wholesale cost plus related fees incurred by Major
                          Auto and therefore resulted in no profit to Major
                          Auto. Total sales revenue and unit counts were
                          estimated to be less than 5% of total sales for the
                          years ended December 31, 2000, 1999 and 1998.

 14.    WARRANTS AND      (a) Warrants
        OPTIONS

                          (i)       In March 1996, the Company issued to Nissko
                                    Telecom, Inc. and its investors warrants to
                                    purchase 2,250,000 shares of the Company's
                                    common stock at a price of $0.55 per share.
                                    In 1997, warrants to purchase 784,500 shares
                                    were exercised, leaving a balance of
                                    1,465,500 outstanding. Of this amount, Class
                                    B warrants for 1,125,000 shares, which were
                                    exercisable through March 19, 1998, were
                                    unexercised by that date and, therefore,
                                    lapsed and warrants to purchase 217,071
                                    shares of the Company's common stock were
                                    exercised in December 1998, leaving a
                                    balance of 185,143 outstanding as of
                                    December 31, 2000.

                          (ii)      In addition, the Company issued warrants in
                                    1996 for the purchase of 225,000 shares at a
                                    price of $0.55 per share, in connection with
                                    the management agreement entered into when
                                    the Company acquired Major Fleet & Leasing
                                    Corp. As of December 31, 2000, these
                                    warrants are still outstanding.


                                      F-38
<PAGE>   115
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                              (iii) In connection with the private placement of
                                    its common stock, as described in Note 15,
                                    in 2000 the Company issued warrants for
                                    581,375 shares of its common stock at an
                                    exercise price of $16.00. Such warrants have
                                    an exercise period of five years from date
                                    of grant.

                          (b) Stock Options

                               During November 1999; the Company adopted a Stock
                               Option Plan ("Plan") pursuant to which 1,800,000
                               shares of common stock are reserved for issuance
                               upon the exercise of options, designated as 1999
                               options. At the discretion of the Company's Board
                               of Directors (the "Board"), or members of any
                               committee the Board has designated, options may
                               be granted to consultants, non-employee members
                               of the Board, employees, officers or anyone who
                               performs services for the Company. The Plan will
                               terminate upon the date on which all shares of
                               the Plan have been exercised.

                               Options granted under the Plan expire not more
                               than 10 years from the date of grant. Generally,
                               options vest in 3 years beginning on the date of
                               grant.

                               Except as described below, all stock options have
                               been granted at exercise prices approximating 85%
                               of market value on the date of the grant.

                               In consideration for certain consulting services
                               related to the acquisition of the Major Auto
                               Group, the Company issued options to purchase
                               112,500 shares of the Company's common stock for
                               $2.00 per share (market price), exercisable until
                               May 2002.

                               During 1999, the Company granted employees and
                               directors options to purchase 274,500 shares of
                               the Company's common stock at an exercise price
                               of approximately 85% of the market price on the
                               date of the grant.


                                      F-39
<PAGE>   116

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               During August 1999, the Company granted
                               consultants options to purchase 3,750 shares of
                               the Company's common stock at an exercise price
                               of $7.33. The charge to the Company was
                               immaterial.

                               During 2000, the Company granted officers,
                               directors and employees options to purchase
                               shares of the Company's common stock at the
                               market price on the date of grant. Of these
                               options, an aggregate of 890,000 have an
                               exercise price of $.875 per share and 250,000
                               have an exercis price of $.047.

                               The Company applies APB Opinion 25, "Accounting
                               for Stock Issued to Employees" and related
                               Interpretations, in accounting for its stock
                               option plan by recording as compensation expense
                               the excess of the fair market value over the
                               exercise price per share as of the date of grant.

                               SFAS No. 123 requires the Company to provide pro
                               forma information regarding net loss and earnings
                               per share as if compensation cost of the
                               Company's stock option plan had been determined
                               in accordance with the fair value based method
                               prescribed in SFAS No. 123. The Company estimates
                               the fair value of each stock option at the grant
                               date by using the Black Scholes option-pricing
                               model with the following weighted average
                               assumptions used for grants during the years
                               ended December 31, 2000, 1999 and 1998.

<TABLE>
<CAPTION>

                                                       2000      1999      1998
                              --------------------------------------------------
<S>                                                 <C>      <C>       <C>
                              Dividend yield             0%        0%        0%
                              Risk free interest
                                rate                   5.7%        5%        5%
                              Expected lives        5 years  10 years  10 years
                              Volatility               104%       46%       46%
                              ==================================================
</TABLE>

                                      F-40
<PAGE>   117
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               Under the accounting provisions of FASB Statement
                               123, the Company's net loss and earnings per
                               share would have been adjusted to the pro forma
                               amounts indicated below:

<TABLE>
<CAPTION>
                      Year ended December 31,        2000         1999
                      ---------------------------------------------------------
<S>                                             <C>                 <C>
                      Net loss:
                        As reported             $(21,125,075)       $(3,190,148)
                        Pro forma                (21,739,075)        (4,110,143)
                      Pro forma net loss per
                        common share - basic
                        and diluted             $       (.85)       $      (.20)
                      =========================================================
</TABLE>


                               A summary of the status of the Company's stock
                               option plan as of December 31, 2000 and changes
                               during the period January 1, 1998 through
                               December 31, 2000 is presented below:

<TABLE>
<CAPTION>
                                                                                             Weighted
                                                                                              average
                                                             Number         Expiration        exercise
                                                           of shares            date           price
                               ------------------------------------------------------------------------
<S>                                                         <C>             <C>             <C>
                               Options outstanding at
                                 January 1, 1998                   --              --       $      --
                               Options granted                112,500            2002            2.00
                               ------------------------------------------------------------------------
                               Options outstanding at
                                 December 31, 1998            112,500            2002            2.00
                               Options granted                278,250            2009            8.52
                               ------------------------------------------------------------------------
                               Options outstanding at
                                 December 31,1999             390,750       2002-2009            6.64
                               Options granted              1,140,000            2005            0.79
                               ------------------------------------------------------------------------
                               Options outstanding at
                                 December 31, 2000          1,530,750       2002-2009       $    2.28
                               ========================================================================
</TABLE>
                                      F-41
<PAGE>   118
                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               Data summarizing year-end options exercisable and
                               weighted average fair value of options granted
                               during the year ended December 31, 2000 is shown
                               below:

<TABLE>
<CAPTION>
                              Options exercisable
                              --------------------------------------------------
<S>                                                                <C>
                              Options exercisable at year-end      1,470,750
                              Weighted average exercise price          $2.28
                              Weighted average fair value of
                                options granted during the year        $0.79
                              Weighted average remaining
                                contractual life                         5.2
                              ==================================================
</TABLE>



                               Weighted average fair value of options granted
                               during the years ended December 31, 1999 and 1998
                               was $5.70 and $2.00, respectively.

                                      F-42
<PAGE>   119

                                                         FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                          The following table summarizes information about stock
                          options outstanding at December 31, 2000.


<TABLE>
<CAPTION>
                                                        Options Outstanding               Options Exercisable
                                                        -------------------               -------------------
                                                  Number       Weighted                    Number
                                                Outstanding     Average     Weighted     Exercisable   Weighted
                                                    at         Remaining    Average          at        Average
                                                December 31,  Contractual   Exercise    December 31,   Exercise
                         Exercise Price Range      2000          Life        Price          2000       Price
                         --------------------------------------------------------------------------------------
<S>                      <C>                    <C>           <C>           <C>         <C>            <C>
                           $2.00                   112,500        1.3       $  2.00         90,000      $  2.00
                           $11.00-$12.75           165,750        7.8         12.57        165,750        12.57
                           $2.56                   112,500        9.0          2.56         75,000         2.56
                           $0.47-$0.88           1,140,000        4.8          0.79      1,140,000         0.79
                         ---------------------------------------------------------------------------------------
                                                 1,530,750        5.2       $  2.28      1,470,750      $  2.28
                         =======================================================================================
</TABLE>

                                      F-43
<PAGE>   120
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



 15.    STOCKHOLDERS'     On May 14, 1998, the Company designated 900,000
        EQUITY            shares as the 1997 - Major Series of Convertible
                          Preferred Stock (the "1997 Preferred Stock"). The
                          shares of the 1997 Preferred Stock have voting rights
                          and vote with the common stock and not as a separate
                          class. Each share entitles the holder to four and a
                          half votes per share reflecting the underlying
                          conversion rate. The shares of 1997 Preferred Stock
                          are convertible, with each share converting into four
                          and a half shares of common stock if the market value
                          is equal to or greater than $6,000,000 for the
                          4,050,000 shares of common stock. If the 4,050,000
                          shares of common stock has a market value of less than
                          $6,000,000, then additional shares of common stock
                          will be issued to equal a market value of $6,000,000.
                          In the event that a dividend is declared on the common
                          stock, a dividend of twice the per share dividend of
                          common stock will be paid on the 1997 Preferred Stock.
                          The 1997 Preferred Stock has a liquidation value of
                          $6,000,000. On the fifth anniversary, the 1997
                          Preferred Stock automatically converts into shares of
                          common stock. During October 1999, 400,000 shares were
                          converted into 1,800,000 shares of common stock (after
                          the three-for-two stock splits).

                          Common Stock

                          During 1998, the Company issued 1,711,221 shares of
                          common stock at estimated market prices for telephony
                          territories and equipment and services to unrelated
                          parties. An aggregate of 687,000 shares valued at
                          $1,494,140 was issued for telephony territories and
                          equipment, while an aggregate of 1,024,221 shares
                          valued at $1,911,775 was issued for services.

                          On June 24,1999, the Company entered into an agreement
                          with three unrelated investors, pursuant to which the
                          Company has the right or obligation to sell, under
                          certain circumstances, in a series of private
                          placement transactions, up to $20.0 million of the
                          Company's common stock (the "Common Stock"), and
                          warrants in three tranches. Pursuant to a series of
                          Securities Purchase Agreements (the "Agreements"), the
                          first tranche closed on June 24, 1999 and the Company
                          sold an aggregate of 428,571 shares of common stock
                          and warrants to purchase 428,571 shares of common
                          stock at a purchase price of $15.33 per share, for an

                                      F-44
<PAGE>   121

                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          aggregate of $6,000,000 or $14 per share. On December
                          8, 1999, a portion representing three-sevenths of the
                          second tranche closed and the Company sold an
                          aggregate of 264,708 shares of common stock and
                          warrants to purchase 264,708 shares of common stock at
                          a purchase price of $11.50 per share, for an aggregate
                          of $3,000,000 or $11.33 per share. Shares issued upon
                          closing of subsequent tranches, if any, will be priced
                          at 105% of the average closing bid price of the Common
                          Stock for the five trading days preceding the
                          applicable closing date and an adjustable warrant
                          which will allow the investors to purchase a maximum
                          of 310,715 shares at $0.01 based on a reset formula.

                          If specified closing conditions are satisfied, the
                          Company and the purchasers will be entitled upon
                          satisfaction of certain milestones to be established
                          with respect to tranche three, to effect three
                          investments during applicable periods ending 100
                          trading days after the expiration date for adjustable
                          warrants issued in the preceding tranche. The amount
                          of the investment in tranche three would be $7
                          million. The Company has entered into a Registration
                          Rights Agreement with the purchasers requiring the
                          Company to register shares purchased by the purchasers
                          pursuant to the Agreement under the Securities Act of
                          1933, as amended, as well as the shares issuable
                          pursuant to the exercise of the warrants issued to the
                          purchasers. The Registration Rights Agreement contains
                          provisions for the payment of certain liquidated
                          damages by the Company in the event of failure to
                          comply with certain of its terms. The Company has
                          agreed to pay legal expenses of the purchasers
                          incurred in connection with the private placement, not
                          to exceed $20,000 with respect to each bringdown. A
                          finder's fee of up to 5% of the purchase price,
                          payable 2.5% in cash and 2.5% in Common Stock, is
                          being paid to International Securities Corporation in
                          connection with the transaction. The sale was effected
                          to the purchasers in reliance upon exemptions provided
                          under Section 4(2) of the Securities Act of 1933, as
                          amended, and Regulation D and Rule 506 promulgated
                          thereunder. The Company has granted a right of first
                          refusal in favor of the purchasers with respect to
                          below-market, non-public issuances of

                                      F-45


<PAGE>   122

                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          its securities during the period which commenced on
                          December 8, 1999. Securities not subject to the right
                          of first refusal include securities issued under the
                          Company's stock option plans, shares issued upon
                          exercise of currently outstanding warrants and
                          securities issued in connection with strategic
                          transactions involving the Company or in connection
                          with certain commercial financings. The right of first
                          refusal shall expire with respect to any purchaser who
                          ceases to own at least 20% of the Common Stock issued
                          on December 8, 1999 and the Common Stock issuable upon
                          exercise of the warrants purchased by it. The Company
                          used the net proceeds from the Offering to redeem 85%
                          of its outstanding $2,750,000 principal amount of 12%
                          convertible subordinated term debentures issued in
                          January 1999 and used the balance for working capital
                          purposes of the Company and its subsidiaries.

                          On February 8, 2000, the balance of the second tranche
                          closed. This transaction resulted in the issuance of
                          an aggregate of 266,667 shares of common stock and
                          warrants to purchase 266,667 shares of common stock
                          for $15.00 per share, resulting in gross proceeds of
                          $4,000,000.

                          The terms of the purchase agreements called for
                          Adjustable Warrants to be issued to the investors in
                          each of the tranches in order to provide for a return
                          to the investors of 15% on their investment, based on
                          the average price of the Company's stock during
                          various periods prior to certain measurement dates.
                          If, based on the formula, the required return was not
                          achieved, the Company had the option of making up the
                          shortfall by issuing additional shares of stock for
                          the full amounts of the value of the shortfall or by
                          issuing a minimum number of shares for a portion of
                          the shortfall and paying the balance in cash.

                          In connection with the first tranche, in compliance
                          with the terms of the Adjustable Warrants, the Company
                          issued an aggregate of 273,495 shares; 64,860 shares
                          on November 16, 1999; 111,921 shares on January 11,
                          2000 and 64,284 shares on March 21, 2000 and received
                          aggregate proceeds of $1,832.42, or $.0067 per share.

                                      F-46
<PAGE>   123
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          The calculation of amounts due pursuant to the
                          Adjustable Warrants issued in the second tranche,
                          resulted in a potential liability to the Company for
                          approximately 4.7 million shares or the Company could
                          elect to issue only the minimum number of 393,587
                          shares plus a cash payment of $6,625,016. The Company
                          entered into a Redemption Agreement and Promissory
                          Note with the investors, whereby the Company would
                          issue the minimum number of shares and make cash
                          payments aggregating $6,000,000 to be paid in
                          installments of varying amounts over time.
                          Accordingly, the Company issued 393,587 shares of its
                          common stock on August 28, 2000 and made aggregate
                          cash payments of $4,750,000 through December 31, 2000
                          and owes a balance $1,250,000 at that date which is
                          included in "Notes payable - other". Pursuant to the
                          terms of the note, this balance is due to be paid in
                          aggregate installments of $250,000 in each of the five
                          months beginning in February 2001. If the required
                          payments are not made, the Company will be required to
                          pay the difference between the settlement amount and
                          the original amount as defined in the redemption
                          agreement and promissory note.

                          During 1999, the Company issued 371,381 shares of
                          Common Stock at estimated market prices of
                          approximately $4.2 million for equipment and services.


 16.    DISCONTINUED      On November 3, 2000, the Board of Directors
        OPERATIONS        determined to divest the Company's non-automotive
                          operations within the next twelve months. Continuing
                          operations are represented by the Company's automotive
                          dealership activities, including its automotive
                          leasing subsidiary, Major Fleet and Leasing, Inc.
                          Non-automotive operations are reported as discontinued
                          operations and the consolidated balance sheets have
                          been reclassified to segregate the net assets of these
                          businesses. Assets held for sale included on the
                          Company's consolidated balance sheets at December 31,
                          2000 and 1999 represent the estimated net realizable
                          value of the Company's discontinued operations.


                                      F-47
<PAGE>   124
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          A summary of net assets of non-automotive operations
                          as of December 31, 2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                        --------------------------------------------------------------------
<S>                                                                  <C>
                         Current assets                              $1,800,000  $ 2,600,000
                         Noncurrent assets                              800,000   11,100,000
                        --------------------------------------------------------------------
                               Total assets                           2,600,000   13,700,000
                        --------------------------------------------------------------------
                         Current liabilities                          1,300,000      400,000
                         Noncurrent liabilities                         300,000      200,000
                        --------------------------------------------------------------------
                               Total liabilities                      1,600,000      600,000
                        --------------------------------------------------------------------
                         Net assets                                  $1,000,000  $13,100,000
                        ====================================================================
</TABLE>
                          The loss from discontinued operations is comprised of
                          the following:

<TABLE>
<CAPTION>
                          Year ended December 31,                2000                1999           1998
                          --------------------------------------------------------------------------------
<S>                                                       <C>                  <C>              <C>
                          Loss from discontinued
                            operations                    $ 8,613,907          $5,088,103       $979,161
                          Loss from disposition
                            of discontinued
                            operations                     13,617,415(1)               --             --
                          Provision for estimated
                            operating losses during
                            period of disposition           2,000,000                  --             --
                          --------------------------------------------------------------------------------
                                                           24,231,322           5,088,103        979,161
                          Income tax benefit                1,804,000           1,082,000        506,000
                          --------------------------------------------------------------------------------
                                                          $22,427,322          $4,006,103       $473,161
                          ================================================================================
</TABLE>

                          (1)  The $13.6 million loss from disposition of
                               discontinued operations consists of write off of
                               goodwill charges of $13.5 million and $0.1
                               million of other property.

                          The Company intends to complete the sale of its
                          non-automotive assets during 2001 resulting in the
                          complete divestiture of all non-automotive operations.
                          Although the assets are being aggressively marketed to
                          both inside and outside sources, the disposition is
                          not expected to be complete until late 2001 (see Note
                          19).

                                      F-48
<PAGE>   125
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          The Company expects to realize the book value of the
                          non-automotive assets after write-downs taken in 2000.
                          The amounts the Company will ultimately realize could
                          differ materially from the amounts assumed arriving at
                          the loss on disposal of the discontinued operations
                          (see Note 18). Summary operating results of the
                          discontinued operations are as follows:

<TABLE>
<CAPTION>

                         Year ended December 31,         2000          1999        1998
                         ----------------------------------------------------------------
<S>                                                 <C>           <C>          <C>
                         Revenues                   $  1,940,000  $ 1,282,000  $1,089,000
                         Pretax loss from
                           discontinued operations     8,613,907    5,088,103     979,161
                         Pretax loss on disposition
                           of discontinued
                           operations                 13,617,415           --          --
                         Income tax benefit            1,804,000    1,082,000     506,000
                         Net loss                     22,427,000    4,006,000     473,000
                         ================================================================
</TABLE>


<TABLE>
<CAPTION>

 17.    QUARTERLY
        FINANCIAL DATA                                    First       Second         Third              Fourth
        (UNAUDITED)       2000                           quarter     quarter        quarter             quarter
                          ----------------------------------------------------------------------------------------
                                                          (In thousands except for per share data)
<S>                                                     <C>           <C>           <C>                <C>
                            Sales                       $67,668       $85,907       $ 90,241           $ 78,236
                          Gross profit                   10,968        13,658         12,899             12,370
                          Operating income (loss)
                            from continuing
                            operations                      870         1,672           (916)              (324)
                          Loss from discontinued
                            operations net of tax
                            benefits                       (736)       (1,164)       (14,472)            (6,055)
                          Net income (loss) --
                            restated                        134           508        (15,388)(1)         (6,379)(1)
                          LIFO adjustment                    80            80             80               (240)
                          Net income (loss) --
                            reported                         54           428        (15,468)            (6,139)
                          Income (loss) from
                            continuing operations
                            per share - diluted             .03           .06           (.04)              (.01)
                          Net income (loss) per
                            share - (diluted)               .00           .02           (.60)              (.19)
                          ========================================================================================
</TABLE>
                                      F-49
<PAGE>   126
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                            First        Second        Third       Fourth
                             1999                          quarter      quarter       quarter      quarter
                           ---------------------------------------------------------------------------------------
                                                              (in thousands except for per share data)
<S>                                                      <C>           <C>           <C>           <C>
                           Sales                         $45,843       $54,430       $51,015       $ 58,244
                           Gross profit                    7,138         8,144         8,409          9,720
                           Operating income (loss)
                             from continuing
                             operations                       32           746           810           (772)
                           Loss from discontinued
                             operations, net of
                             tax benefits                   (728)         (615)         (696)        (1,967)
                           Net income (loss) -
                             restated                        204           131           114         (3,639)(2)
                           LIFO adjustment                    88            87            88             87
                           Net income (loss) as
                             reported                         16            44            26         (3,726)
                           Income (loss) from
                             continuing operations
                             per share - diluted             .04           .03           .03           (.05)
                           Net income (loss) per
                             share diluted                   .01           .01           .00           (.22)
                           ========================================================================================================
</TABLE>
                          (1)  Third and fourth quarter losses reflect
                               write-down of discontinued operations (see Note
                               16).

                          (2)  Fourth quarter losses reflect a bonus of
                               $1,800,000, charges for early extinguishment of
                               debt of $733,125, accrual of bonuses of
                               approximately $500,000 and start-up and
                               integration expenses in connection with
                               acquisitions and planned acquisitions.


 18.    SUBSEQUENT EVENTS Sale of Internet Creations, Inc.

                          In February 2001, the Company completed an asset sale
                          of our Richmond, Virginia based Internet Creations,
                          Inc. (d/b/a Internet Connections) to Access
                          Technology, Inc. ("Access"). The sale price for 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 promissory note.

                                      F-50
<PAGE>   127
                                                       FIDELITY HOLDINGS, INC.
                                                                AND SUBSIDIARIES


                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          Sale of IG2, Inc. Interest

                          In March 2001, the Company sold its majority interest
                          in its IG2, Inc. subsidiary (f/k/a/ Computer Business
                          Sciences, Inc.), which, at the time of sale,
                          consisted solely of IG2, Inc., a Florida corporation,
                          incorporated as Reynard Service Bureau, Inc., through
                          a stock purchase to Global Communications of NY, Inc.
                          ("Global"). The purchase price consisted of a senior
                          subordinated secured promissory note (the
                          "Subordinated Note") in the amount of approximately
                          $1,800,000 and a certain number of Series A preferred
                          stock of Global, equal to 10% of the capital stock of
                          Global as of the closing date.



                                      F-51