FIDELITY HOLDINGS INC, 10KSB, 1998-04-15

FIDELITY HOLDINGS INC
10KSB, 1998-04-15
RADIOTELEPHONE COMMUNICATIONS

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB
(Mark One)

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]

For the fiscal year ended December 31, 1997

[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

for the transition period from _________ to _________

Commission file number 0-29182

Fidelity Holdings, Inc.
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(Name of Small Business Issuer in Its Charter)

Nevada 11-3292094
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

80-02 Kew Gardens Road, Suite 5000
Kew Gardens, New York 11415
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(Address of Principal Executive Offices) (Zip Code)

Issuer's Telephone Number, Including Area Code (718) 520-6500

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

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

Common Stock, par value $.001 per share
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(Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes [X] No [_]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this Form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.

Issuer's revenues for its most recent fiscal year: $3,862,284.
<PAGE>

The approximate aggregate market value of the registrant's common stock
held by non-affiliates, computed by reference to the price at which the stock
was sold, or the average bid and asked prices of such stock, as of April 7 ,
1998 was $6,016,606. The number of shares outstanding of the registrant's common
stock on April 7, 1998, was 6,895,700 shares.
<PAGE>

PART I

Item 1. Description of Business.

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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 the
Company's expansion efforts, changes in telephony and communication
markets and technologies, government regulation, the nature of possible
supplier or customer arrangements which may become available to the
Company in the future, possible technological obsolescence, uncollectible
accounts receivable, slow moving inventory, lack of adequate financing,
increased competition and unfavorable general economic conditions. The
Company's actual results may differ materially from the results discussed
in any forward looking statement.
--------------------------------------------------------------------------

General

Fidelity Holdings, Inc. ("the Company") was incorporated in Nevada on
November 7, 1995. The Company is a holding company and, accordingly, derives its
revenues solely from its operating subsidiaries. The Company's first full year
of operations was 1996. The operating subsidiaries of the Company are grouped
into three divisions: (i) Computer Telephony and Telecommunications: (ii)
Leasing; and (iii) Plastics and Utility Products. The proposed Major Auto
Acquisition (see "Planned Acquisition", below), will add a fourth, Automotive
Sales. Unless otherwise indicated, all references to the Company include
reference to the subsidiaries of the Company.

One of the primary purposes of the holding company is the consolidation of
the retail automotive industry and the acquisition and development of
synergistic technological businesses to enhance its ability to sell automotive
products and exploit its technological capabilities through sales of
telecommunications products and services. Through its planned acquisition of
Major Auto, the Company will become one of the largest-volume retailers in New
York City of new and used vehicles.

Through its Computer Telephony and Telecommunications division, the
Company provides a broad range of telecommunications services. Included in its
telecommunications product lines are its (i) proprietary software which enables
consumers to place long-distance telephone calls at discounted rates and (ii) a
variety of sophisticated interactive voice response applications. This division
also developed, and presently markets and sells, a proprietary computer software
system that provides multi-lingual accounting and business management
applications.

The Company's Plastics and Utility Products division currently consists of
a development-stage company which was acquired in 1996. Its proprietary
prototypes include a line of spa and bath fixtures for use in whirlpool baths,
spas, tubs and swimming pools and a light-weight, structurally strong,
prefabricated conduit for underground electrical cables. As this division's
products are still under development, no commercial sales have as yet been made.

The operations of the Company's Leasing division consist of providing
leases and other financing. Such activities are directed primarily toward the
automotive vehicle market and are to be expanded to the purchasers of the
Company's telecommunications hardware products.
<PAGE>

Recent Developments

On October 23, 1997, the Company filed a registration statement on Form
SB-2 (the "Registration Statement") with respect to the proposed offering, by
Hobbs Melville Securities Corp., as underwriter, of 1,150,000 shares of the
Company's common stock ("Common Stock") at an offering price of $6.00 per share.
After the underwriter informed the Company that it could not complete the
offering, the Registration Statement was subsequently withdrawn by the Company
on March 18, 1998, without its having been declared effective by the Securities
and Exchange Commission (the "SEC").

Planned Acquisition

The Company and its wholly-owned subsidiary, Major Acquisition Corp., have
entered into a merger agreement with Major Automotive Group, Inc. ("Major Auto")
and its sole stockholder, Bruce Bendell, who is the Company's chairman and the
beneficial owner of approximately 39.6% of the Company's outstanding common
stock. Bruce Bendell owns all of the issued and outstanding shares of common
stock of Major Chevrolet, Inc. ("Major Chevrolet") and Major Subaru, Inc.
("Major Subaru") and 50% of the issued and outstanding shares of common stock of
Major Dodge, Inc. ("Major Dodge") and Major Chrysler, Plymouth, Jeep Eagle, Inc.
("Major Chrysler, Plymouth, Jeep Eagle"), which, collectively, operate five
franchised automobile dealerships (collectively, the "Major Auto Group").

Pursuant to the merger agreement, Bruce Bendell will contribute to Major
Auto all of his shares of common stock of Major Chevrolet, Major Subaru, Major
Dodge and Major Chrysler, Plymouth, Jeep Eagle. Major Acquisition Corp. will
then acquire 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. Harold Bendell, Bruce Bendell's brother, owns the
remaining 50% of the issued and outstanding shares of common stock of Major
Dodge and Major Chrysler, Plymouth, Jeep Eagle. Major Acquisition Corp. will
purchase Harold Bendell's shares for $4 million in cash under a stock purchase
agreement. In addition, Major Acquisition Corp. will acquire two related real
estate components (the "Major Real Estate", defined hereinafter) from Bruce
Bendell and Harold Bendell (collectively "the Bendells") for their aggregate
appraised value of $3 million.

The preferred stock to be issued to Bruce Bendell will be called the
"1997-MAJOR Series of Convertible Preferred Stock." It will have voting rights
and will be convertible into the Company's Common Stock. The number of shares of
Common Stock into which the new class will be convertible is the greater of (i)
1.8 million shares and (ii) that number of shares that have a market value of
$6,000,000. The market value per share for this purpose will be the mean between
the closing bid and ask prices for the Common Stock over the 20 trading days
immediately prior to the date of issuance of the preferred stock. See
"Description of Securities-Preferred Stock." The foregoing acquisitions from
Major Auto and Harold Bendell are collectively referred to herein as the "Major
Auto Acquisition."

The merger agreement allocates the value of the consideration payable to
Bruce Bendell as follows: (i) 61% to Major Chevrolet; (ii) 5.8% to Major Subaru;
(iii) 16.6% to Major Dodge; and (iv) 16.6% to Major Chrysler, Plymouth, Jeep
Eagle. The stock purchase agreement allocates the value of the consideration
payable to Harold Bendell 50% to each of Major Dodge and Major Chrysler,
Plymouth, Jeep Eagle. The Major Auto dealerships were valued for purposes of the
proposed merger at eight times adjusted earnings before interest and taxes for
their respective 1996 fiscal years. Adjusted earnings includes officers'
salaries, expenses not directly related to operations, non-recurring legal
expenses and LIFO adjustments. The Company believes that the eight times
earnings multiple is a relatively common pricing/valuation convention in the
automobile industry.

The closing of the Major Auto Acquisition is presently scheduled to
coincide with the closing of a loan with Falcon Financial, LLC ("Falcon") (see
below) which is anticipated to occur no later than April 30, 1998. The parties
have the right to agree to an earlier date. A condition to the closing is that
all manufacturers' approvals have been obtained. If this condition remains
unsatisfied on the scheduled closing date, the merger agreement and the stock
purchase agreement

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<PAGE>

provide three alternatives: (i) the Company can elect not to close; (ii) the
parties may agree to extend the closing date to provide additional time to
obtain such approvals; or (iii) the Company may elect to consummate the Major
Auto Acquisition with Major Auto owning, and Harold Bendell selling, only those
dealerships with respect to which the manufacturers' approvals have been
obtained. In the latter case, the number of shares issuable to Bruce Bendell and
the monetary amount payable to Harold Bendell will be reduced in accordance with
the value allocations described above, but the parties are obligated to use
their best efforts during the 90-day period following the closing to obtain the
missing approvals so that the non-included dealership subsidiaries can be
transferred to the Company at a later time. To date, Subaru Distributors Corp.
has consented to the change in ownership of the Subaru dealership and General
Motors Corporation ("General Motors") has consented to the change in ownership
of the Chevrolet dealership. The Company and Major Auto are still awaiting the
consent of Chrysler Corporation to the change in ownership of the Dodge and/or
its Chrysler, Plymouth, Jeep and Eagle franchises. In addition, as part of the
Major Auto Acquisition, it is planned that the Bendells will sell their
interests in the showroom and service facility ("Major Real Estate"), which
Major Dodge, Major Chrysler, Plymouth, Jeep Eagle and Major Subaru lease from
them, to Major Acquisition Corp. for its appraised value of $3 million.

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. will borrow $7.5 million from Falcon. Major
Auto Acquisition Corp. has received from Falcon a letter of commitment dated
March 16, 1998 which provides, inter alia, for a 15 year term loan with interest
equal to the yield on the ten-year U.S. Treasury bond rate at the time of
closing plus 450 basis points. Prepayment will not be permitted for the first
five years, after which prepayment may be made, in full only, along with the
payment of a "Yield Maintenance Amount."

The collateral securing this 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. will
be required to comply with certain financial covenants related to net worth and
cash flow. The loan is conditional, inter alia, upon the constituent companies
of the Major Auto Group being franchises of the respective manufacturers and
upon the consent of Chrysler Corporation to the acquisition by Major Acquisition
Corp. of the Major Dodge and Major Chrysler, Plymouth, Jeep, Eagle dealerships,
which transaction is required to be completed prior to closing. Furthermore, the
Company will provide an unconditional guarantee of this loan.

Potential Acquisition

In 1997, the Company signed a Letter of Intent (the "Original Lichtenberg
Letter of Intent") with the shareholders of Lichtenberg Robbins Buick, Inc.,
d/b/a Lichtenberg Buick, and Lichtenberg Motors, Inc. d/b/a Lichtenberg Mazda
(collectively, the "Lichtenberg Group"), in contemplation of the acquisition by
the Company or one of its wholly-owned subsidiaries of all of the issued and
outstanding common stock of Lichtenberg Group. The Original Lichtenberg Letter
of Intent contemplated that the parties would negotiate definitive documentation
that will provide for such acquisition for an aggregate purchase price equal
based on the pro forma after-tax earnings of Lichtenberg Group for the twelve
months ending December 31, 1996. A portion of the purchase price would be
payable in cash and the balance would be payable in Common Stock of the Company.
Either party will have the right to terminate the transactions contemplated by
the Original Lichtenberg Letter of Intent if, among other things,
lower-than-expected earnings result in a purchase price of less than $1.8
million. The definitive documentation is also expected to provide that Peter
Lichtenberg, who presently manages Lichtenberg Group, would continue to manage
such dealerships after such acquisition. The Company and the shareholders of
Lichtenberg Group, including Peter Lichtenberg, have been negotiating the terms
of a purchase contract relating to such acquisition. Since signing the Original
Lichtenberg Letter of Intent, the Lichtenberg Group has acquired two additional
franchised dealerships, Chrysler and Subaru. Accordingly, negotiations are
proceeding to revise and update the Original Lichtenberg Letter of Intent to
incorporate the acquisition by the Company of the additional dealerships and to
revise other provisions. Based upon preliminary financial and other information
in the Company's possession relating to the business and operations of
Lichtenberg Group, the Company does not believe that such acquisition, if
consummated, would have a material impact on the financial position of the

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<PAGE>

Company. In connection with the proposed Major Auto Acquisition, the Company has
been advised by General Motors that Major Auto does not currently meet General
Motors' criteria to allow acquisition of additional General Motors' dealerships
without seeking approval for each acquisition. The effect of this is that should
the Company determine to acquire Lichtenberg Group or other additional General
Motors' dealerships in the future, it will be required to obtain General Motors'
approval on a case-by-case basis.

The foregoing transaction is in the preliminary stages and is subject to
significant further negotiation and due diligence as part of the preparation and
execution of definitive agreements. There can be no assurance that this
transaction will occur.

Automotive Sales Division

General

Major Auto, which the Company proposes to acquire (see "Planned
Acquisition"), is one of the largest volume automobile retailers in New York
City. Major Auto owns and operates the following five franchised automobile
dealerships in the New York metropolitan area: (i) Chevrolet; (ii) Chrysler and
Plymouth; (iii) Dodge; (iv) Jeep and Eagle; and (v) Subaru. Major Auto also
distributes General Motors vehicles in Russia. Through its dealerships, Major
Auto sells new and used automobiles, provides related financing, sells
replacement parts and provides vehicle repair service and maintenance.

Major Auto's President, Bruce Bendell, has approximately 26 years
experience in the automobile industry. He 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, Major Auto has expanded from a single-franchise dealership having
approximately $10 million in revenues and 25 employees in 1985 to a
five-franchise dealership group having approximately $144 million in revenues
and 175 employees in 1997. (Note that the dollar amounts and statistics cited
for Major Auto for 1997 in this Annual Report, and all other dollar amounts and
statistics cited for Major Auto elsewhere herein are based on Major Auto's
preliminary financial statements and related data. Such information is subject
to independent audit which has not yet been completed. Audited Combined
Financial Statements and related notes thereto for Major Auto and pro forma
combining financial statements for Major Auto and the Company will be filed by
amendment to this Annual Report, as soon as practicable after they become
available to the Company.

Industry Background

Automobile manufacturers distribute their new vehicles through franchised
dealerships. According to industry data from the National Automobile Dealers
Association ("NADA data"), in 1997, total dollar sales, consisting of the sale
of all new and used vehicles and service and parts, of all franchised new-car
dealerships increased 4% to a record high of $509 billion. Franchised
dealerships located in the New York State had an estimated total dollar sales of
$17.9 million.

According to NADA data, on average, new vehicle sales constitute 58% of a
franchised dealership's total sales. Unit sales of new vehicles rose 0.7% in
1997 to a total of 15.1 million units sold. At an average retail selling price
of $22,400 per vehicle, new vehicle sales totaled approximately $338 billion in
1997. From 1992 to 1997 sales revenue from the sale of new vehicles increased
approximately 53%. The annual net profit of the typical United States franchised
dealer's new vehicle department is estimated to be $46,760 retailed.

According to NADA data, on average, used vehicle sales constitute 30% of a
franchised dealerships' total sales. In 1997, franchised new vehicle dealers
sold 12.0 million retail used vehicles. At an average selling price of $12,100
per vehicle, used vehicle sales totaled in approximately $145 billion in 1997.
From 1992 to 1997 sales revenue from the

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<PAGE>

retail sale of used vehicles increased approximately 88% and the combined sales
revenue from the retail and wholesale sale of used vehicles increased
approximately 81%. The annual net profit of the typical United States franchised
dealer's used vehicle department is estimated to be $147,525 including wholesale
and retail. The NADA data cites that for all United States dealerships, the net
profit from sales of used vehicles is approximately 2 1/2 times the net profit
from the sales of new vehicles. No assurance can be given that results of Major
Auto's operations will conform to NADA's industry data.

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>
1992 1993 1994 1995 1996 1997
(Units in millions; dollars in billions)
<S> <C> <C> <C> <C> <C> <C>
New vehicle unit sales 12.9 13.9 15.1 14.8 15.1 15.1
New vehicle sales revenue(1) $ 221.0 $ 253.0 $ 290.0 $ 303 $ 328.0 $ 338.2
Used vehicle unit sales - retail 9.3 9.9 10.9 11.4 11.9 12.0
Used vehicle retail sales revenue $ 77.3 $ 90.4 $ 111.0 $ 126.0 $ 137.0 $ 145.2
Used vehicle unit sales - wholesale 5.8 6.4 6.8 7.0 7.2 7.1
Used vehicle wholesale sales revenue $ 22.0 $ 24.0 $ 27.7 $ 30.3 $ 33.4 $ 34.6
</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 1998 (1997 data
preliminary and estimated)

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 4% in 1997 for franchised dealerships, a portion
of which is accounted for by the increase in the amount of used vehicle
reconditioning. Revenue from parts and services constitutes, on average,
approximately 12% of a franchised dealership's total sales and generates an
annual net profit of $149,000.

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 1997, total franchised dealership gross
profits were, on average, $2.8 million with an average net profit of $308,000.

To reduce the costs of owning a new vehicle, automobile manufacturers in
recent years 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 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

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<PAGE>

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 22,700 at the beginning of 1997.

Major Auto believes 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, management believes that General
Motors Corporation is implementing a strategy to reduce its franchised
dealerships by 1,500 from 8,400 by the year 2000. Major Auto believes that
dealership groups that have significant equity capital and experience in
acquiring and running dealerships will have an opportunity to acquire additional
franchised dealerships.

Operating Strategy

Major Auto's operating strategy is to increase customer satisfaction and
loyalty and to increase operating efficiencies. The Company intends to pursue
the same operating strategy as Major Auto after completion of the Major Auto
Acquisition. Key elements of this operating strategy are as follows:

Use of Technology. Major Auto believes that it has achieved a competitive
advantage through the use of technology. Major Auto was one of the first
dealership groups to provide its customers with a 1-800 telephone number and
price quotations via facsimile. During the past several years, Major Auto has
sold approximately 25-50 vehicles per month from leads provided by electronic
media, such as Bloomberg (since 1994) and the Internet (since 1995). Major Auto
presently enables its customers to obtain credit approvals over the telephone
via its proprietary Talkie-AutoCom, a customized application of the Company's
"Talkie" telephone interactive voice response system (see "Computer Telephony
and Telecommunications Division -- Talkie"), that operates 24 hours per day,
seven days per week and in nine different languages. Major Auto is presently
expanding its use of Talkie-AutoCom to permit 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. Major Auto is also intending to expand
its use of Talkie-AutoCom to call its customers automatically to notify them of
required maintenance, sales and promotions and to solicit customer satisfaction
information. In addition, Major Auto intends to explore new ways to use
technology to provide better customer service. Major Auto has developed and is
in the process of beta-testing an Internet-based marketing system called
MajorAuction.Com to provide electronically, visual and textual information
regarding vehicles sold by Major Auto and enable customers to: (i) purchase a
new or used vehicle on-line; (ii) participate in a real-time auction for a
specific vehicle; and (iii) arrange for the related financing. See "Computer
Telephony and Telecommunications Division-Talkie."

Leverage the Sale of International Calling Time. Major Auto will offer
customers pre-paid international telephone calling time in connection with the
purchase or lease of its automobiles. To accomplish this, Major Auto will
utilize the Company's proprietary Talkie technology, which is able to provide
users with international calling time at sharply discounted rates. Because Major
Auto will purchase telephone time from the Company or one its master agents at
below-market rates, the cost to Major Auto of implementing this program will be
minimal compared with the savings to be realized by its customers. Major Auto's
primary market, the New York metropolitan area, is home to many diverse ethnic
groups who have family and friends whom they call frequently in their native
countries. By offering pre-paid international telephone calling time with the
purchase or lease of a vehicle, Major Auto believes that it can add value to its
customers and thereby increase customer satisfaction and loyalty. See "Computer
Telephony and Telecommunications Division-Talkie."

Focus on Used Vehicle Sales. A key element of Major Auto's operating
strategy is to focus on the sale of used vehicles. In 1997, approximately 12.0
million used cars were sold retail by dealers, fifty percent more than the
number of such sales in 1980. Sales of used vehicles are generally more
profitable than sales of new vehicles. Management believes that the New York
metropolitan area is one of the largest markets for used car sales in the United
States and

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<PAGE>

that Major Auto sells more used cars in the New York metropolitan area than any
other automobile dealership or dealership group. Major Auto strives to attract
customers and enhance buyer satisfaction by offering multiple financing and
leasing options and competitive warranty products on every used vehicle it
sells. Major Auto believes that a well-managed used vehicle operation affords it
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,
Major Auto acquires used vehicles from trade-ins and a variety of sources
nationwide, including direct purchases from individuals and fleets, and
manufacturers' and independent auctions. Major Auto believes that the price at
which it acquires used vehicles is the most significant factor contributing to
the profitability of its used vehicle operations. Major Auto believes that,
because of the large volume of used vehicles that it sells each month and the
over 25 years of experience in the used vehicle business of its President, Bruce
Bendell, it is able to identify quality used vehicles, assess their value and
purchase them for a favorable price.

Emphasize Sales of Higher Margin Products and Services. Major Auto
generates substantial incremental revenue and achieves increased profitability
through the sale of certain ancillary products and services such as financing,
extended service contracts and vehicle maintenance. Major Auto provides its
employees with special training and compensates them, in part, with commissions
based on their sales of such products and services. Major Auto believes that
these ancillary products and services enhance the value of purchased or leased
vehicles and increase customer satisfaction.

Provide a Broad Range of Products and Services. Major Auto offers a broad
range of products and services, including a wide range of new and used cars and
light trucks, vehicle financing, replacement parts and service. At its four
locations, Major Auto offers, collectively, seven makes of new vehicles,
including Chevrolet, Chrysler, Plymouth, Dodge, Jeep, Eagle and Subaru. In
addition, Major Auto sells a wide variety of used vehicles at a wide range of
prices. Major Auto believes that offering numerous makes and models of vehicles,
both new and used, appeals to a wide variety of customers, minimizes dependence
on any one automobile manufacture and reduces its exposure to supply problems
and product cycles.

Operate Multiple Dealerships in Target Market. Major Auto intends to
become the leading automotive dealer in its target market by operating multiple
dealerships in that market. To accomplish this, Major Auto intends to acquire
new franchises in its existing market and to expand its existing franchises to
new markets. This should enable Major Auto to achieve economies of scale in
advertising, inventory management, management information systems and corporate
overhead.

Target Sales to Ethnic Groups. Because the New York metropolitan area,
Major Auto's primary market, is ethnically diverse, Major Auto targets its
selling efforts to a broad range of ethnic groups. In addition to offering
pre-paid international telephone calling time, Major Auto employs a
multi-lingual sales force and intends to expand its electronic media to
accommodate multiple languages.

Employ Professional Management Techniques. Major Auto employs professional
management techniques in all aspects of its operations, including information
technology, employee training, profit-based compensation and cash management.
Each of Major Auto's four dealership locations, its centralized used vehicle
operation, and its two 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. Major Auto compensates its
general managers based, in part, on the profitability of the operations they
control rather than on sales volume. Major Auto's senior management meets weekly
with its 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. Major Auto believes
that the application of its professional management techniques provides it with
a competitive advantage over other dealerships and dealership groups and enables
it to increase its profitability.

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<PAGE>

Growth Strategy

The Company intends to expand its business by acquiring additional
dealerships and improving their performance and profitability by implementing
its operating strategy. As part of its growth strategy, the Company intends to
focus its efforts on dealerships or dealer groups that, among other criteria,
possess either the sole franchise of a major automobile manufacturer or a
significant share of new vehicle sales in each targeted market and that it
believes are underperforming. In evaluating potential acquisition candidates,
the Company will 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 the Company will be able to acquire additional franchises in that market to
achieve larger market share. Major Auto believes that the most attractive
acquisition candidates can be found in the New York metropolitan area, but the
Company may consider acquisitions in other markets. The Company's financing of
such acquisitions may involve spending cash, incurring debt or issuing equity
securities, which could have a dilutive effect on the then outstanding capital
stock of the Company. The Company has been advised by General Motors that Major
Auto does not currently meet General Motors' criteria to allow acquisition of
additional General Motors' dealerships without seeking approval for each
acquisition. The effect of this is that should the Company determine to acquire
additional General Motors' dealerships in the future, including its potential
acquisition of Lichtenberg Group, it will be required to obtain General Motors'
approval on a case-by-case basis. See "Potential Acquisitions."

Upon completing an acquisition, the Company intends to implement its
operating strategy, which includes selling more new and used vehicles,
increasing finance revenues, enhancing employee training, lowering purchasing
costs for used car inventories, supplies and outside vendor expenses. The
Company also intends to install its management information system in acquired
dealerships as soon as possible after the acquisition, which will allow its
senior management to carefully monitor each aspect of the dealership's
operations and performance. Whenever possible, the Company intends to implement
its strategies and operation procedures prior to the closing of an acquisition
to enable it to accelerate the implementation of its operating strategy after
closing. See "Operating Strategy."

The Company believes that Major Auto's management team has considerable
experience in evaluating potential acquisition candidates, determining whether a
particular dealership can be successfully integrated into Major Auto's existing
operations and implementing its operating strategy to improve their performance
and profitability following the acquisition. For example, Bruce Bendell, Major
Auto's President, acquired a Nissan dealership in Oyster Bay, New York in
January 1997. The Nissan dealership is not owned or operated by Major Auto, but
is majority-owned by Mr. Bendell and minority-owned by another individual
otherwise unaffiliated with the Company or Mr. Bendell. Upon Mr. Bendell's
acquisition of the Nissan dealership, it was selling 90 new and 20 used vehicles
per month and was not generating any profits from such sales. Under Mr.
Bendell's leadership, the dealership has expanded its sales to over 200 new and
used vehicles per month. The Company also believes that an increasing number of
acquisition opportunities will become available to it. See "Industry
Background." The Company and Mr. Bendell are currently negotiating a letter of
intent concerning the Company's acquisition of Oyster Bay Nissan. The
acquisition would be subject to the completion of the Major Auto Acquisition.
There can be no assurance that the Company and Mr. Bendell will agree on
acceptable terms. Based upon preliminary financial and other information in the
Company's possession relating to the business and operations of Oyster Bay
Nissan, the Company does not believe that such acquisition, if consummated,
would have a material impact on the financial position of the Company. However,
if the purchase price for such acquisition were to have a significant cash
component, the Company would likely be required to raise additional capital,
either by incurring debt or issuing equity, to finance the consummation of such
acquisition.

With the exception of the Major Auto Acquisition, the negotiations with
respect to Oyster Bay Nissan described above and the transaction described under
"Potential Acquisition" above, the Company does not presently have any other
material plans, proposals, arrangements or understandings with respect to
potential acquisitions.

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Dealership Operations

Major Auto owns and operates five automobile dealerships at four locations
in Long Island City, New York. Major Auto conducts its parts and service
business and its used vehicle business from three additional locations in Long
Island City. Major Auto offers the following seven makes of new vehicles:
Chevrolet, Chrysler, Plymouth, Dodge, Jeep, Eagle and Subaru. Each location is
run by a separate general manager who is responsible for overseeing all aspects
of the business conducted at that location. Each of the parts and service
locations has two general managers, one for parts and one for service. Each
general manager meets with Major Auto's senior management, including Bruce and
Harold Bendell, on a weekly basis.

Following the acquisition of Major Auto by the Company, Bruce and Harold
Bendell will continue to be responsible for senior-level management of the
dealerships. The Bendell brothers and the Company expect that this prospective
continuity of senior management will facilitate obtaining the manufacturers'
consents to the transfer of the dealerships to the Company. The Bendell
brothers' management control will be accomplished through (i) their ownership of
100 shares of the Company's 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 commencing on January 7, 1998) which carries voting
rights allowing them to elect a majority of the Board of Directors of Major
Auto, and through (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 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 the Company (subject to approval by the
applicable manufacturers).

New Vehicle Sales. Major Auto sells the complete product line of cars,
sport utility vehicles, minivans and light trucks manufactured by Chevrolet,
Chrysler, Plymouth, Dodge, Jeep, Eagle and Subaru. In 1997, Major Auto's
dealerships sold 4,834 new vehicles generating total sales of approximately
$91,000,000, which constituted approximately 63% of Major Auto's total revenues.
Major Auto's gross profit margin on new vehicle sales in 1997 was approximately
8% which is higher than the industry average for 1997 of 7%. The relative
percentages of Major Auto's new vehicle sales among makes of vehicles in 1997
was as follows:

1997 Percentage of
Manufacturer New Vehicle Sales
------------ -----------------
Chevrolet 56%
Chrysler, Plymouth,
Jeep and Eagle 22%
Dodge 16%
Subaru 6%

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The following table sets forth, for the periods shown, information with
respect to Major Auto's new vehicle sales:

NEW VEHICLE SALES
(dollars in thousands)

1995 1996 1997

Unit sales 4,375 5,062 4,834
Sales revenue $ 90,000 $109,000 $ 91,000
Gross Profit $ 7,200 $ 8,000 $ 7,300
Gross Profit Margin 8.0% 7.3% 8.0%

Major Auto purchases substantially all of its 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, Major Auto posts 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 its dealership operations, Major Auto has a distributorship
agreement with General Motors pursuant to which Major Auto distributes in Russia
new vehicles manufactured by General Motors. Major Auto has realized revenues of
approximately $2,890,000, $9,400,000 and $8,005,000 during its 1995, 1996 and
1997 fiscal years, respectively, from its distribution of General Motors
vehicles in Russia. Major Auto's gross profits from such sales were
approximately $178,000, $572,000, and $552,700 for its 1995, 1996 and 1997
fiscal years, respectively. Under its distributorship arrangement, Major Auto
accepts orders from General Motors' automobile dealers in Russia for both
standard and custom General Motors vehicles. Major Auto generally receives a
deposit on the purchase price of the vehicle from the Russian dealer and
releases 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.
Major Auto intends to expand its distributorship operation in the future to
include the sale of used vehicles.

Approximately 29% of Major Auto's unit sales of new vehicles are fleet
sales, which are generally sales to commercial customers that register ten or
more vehicles in a given year, and include taxi cab companies, police
departments and small businesses. Major Auto has advised the Company that it
believes that its fleet sales, and its service of fleet vehicles, protect it
from some of the fluctuations in the retail automobile buying market, provide a
source of off-fleet vehicles for its used vehicle operations and enhance its
reputation and customer satisfaction. Fleet sales are generally awarded to a
dealership on the basis of a blind competitive bidding process.

Used Vehicle Sales. Major Auto offers a wide variety of makes and models
of used vehicles for sale. In 1997, Major Auto sold 3,127 used vehicles
generating total sales of approximately $40,800,000, which constituted
approximately 28% of Major Auto's total revenues. Major Auto's gross profit
margin on used vehicle sales in 1997 was approximately 14% as compared with the
industry average for 1997 of 11.4%. Major Auto is the largest seller of used
vehicles (based on unit sales and sales revenue) in the New York metropolitan
area.

Major Auto has consolidated its used vehicle operations for its various
dealerships at a single site. Major Auto acquires the used vehicles it sells
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.

Major Auto has advised the Company that it believes 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.

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The following table sets forth, for the periods shown, information with
respect to Major Auto's used vehicle sales:

USED VEHICLE SALES

(dollars in thousands)

1995 1996 1997
------- ------- -------
Unit sales 2,145 2,231 3,127
Sales revenue $17,520 $22,840 $40,800
Gross Profit $ 2,730 $ 3,300 $ 5,700
Gross Profit Margin 15.6% 14.4% 14%

Parts and Service. Major Auto provides parts and service primarily for the
makes of new vehicles that it sells, but also services other makes of vehicles.
In 1997, Major Auto's parts and service operations generated total revenues of
approximately $11,400,000, which constituted approximately 8% of Major Auto's
total revenues at a gross profit margin of approximately 33%.

The increased use of electronics and computers in vehicles has made it
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 there are longer warranty periods, Major Auto has advised the
Company that it believes that repair work will increasingly be performed at
dealerships, which have the sophisticated equipment and skilled personnel
necessary to perform the repairs.

Major Auto has advised the Company that it considers its parts and service
department to be an integral part of its customer service efforts and a valuable
opportunity to strengthen customer relations and deepen customer loyalty. Major
Auto attempts to notify owners of vehicles purchased at its dealerships when
their vehicles are due for periodic service, thereby encouraging preventative
maintenance rather than post-breakdown repairs.

Major Auto's parts and service business provides a stable, recurring
revenue stream to its dealerships. In addition, Major Auto has advised the
Company that it believes 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. Major Auto has advised
the Company that it believes that this helps mitigate the effects of a downturn
in the new-vehicle sales cycle.

Major Auto does not operate a body shop, but instead contracts with
third parties for body repair work.

The following table sets forth, for the periods shown, information with
respect to Major Auto's sales of parts and services:

SALES OF PARTS AND SERVICES

(dollars in thousands)

1995 1996 1997
------- ------- -------

Sales revenue .......................... $11,070 $12,150 $11,400

Gross Profit ........................... $ 3,450 $ 3,270 $ 3,750

Gross Profit Margin .................... 31.2% 26.9% 33%

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<PAGE>

Vehicle Financing. Major Auto provides a wide variety of financing and
leasing alternatives for its customers. Major Auto has advised the Company that
it believes that its customers' ability to obtain financing at its dealerships
significantly enhances Major Auto's ability to sell new and used vehicles. Major
Auto has advised the Company that it believes that its ability to provide its
customers with a variety of financing options provides Major Auto with a
competitive advantage over many of its competitors, particularly smaller
competitors that do not have sufficient sales volumes to attract the diversity
of financing sources available to Major Auto.

In most instances, Major Auto assigns its vehicle finance contracts and
leases to third parties, instead of directly financing vehicle sales or leases,
which minimizes the credit risk to which Major Auto is exposed. Major Auto
typically receives a finance fee or commission from the third party who provides
the financing. In certain limited instances in which Major Auto determines that
its credit risk is manageable, estimated by Major Auto to be approximately 5% of
its vehicles sales and leases, Major Auto directly finances the purchase or
lease of a vehicle. In such instances, Major Auto will bear the credit risk that
the customer will default, but will have the right to repossess the vehicle upon
default. Major Auto maintains relationships with a wide variety of financing
sources, including commercial banks, automobile finance companies, other
financial institutions and the Company's subsidiary Major Fleet. Major Fleet
purchases less than 10% of Major Auto's leases, and none of Major Auto's finance
contracts.

Sales and Marketing

Major Auto has advised the Company that it believes marketing and
advertising are significant to its operations. As is typical in its industry,
Major Auto receives a subsidy for a portion of its expenses from the automobile
manufacturers with whom Major Auto has franchise agreements. The automobile
manufacturers also assist Major Auto to develop its own advertising by providing
it with market research.

Major Auto's marketing effort is conducted over most forms of media
including television, newspaper, direct mail, billboards and the Internet. Major
Auto's advertising seeks to promote its image as a reputable dealer offering
quality products at affordable prices and with attractive financing options.
Each of Major Auto's dealerships periodically offer price discounts or other
promotions to attract additional customers. The individual dealerships'
promotions are coordinated by Major Auto and, because Major Auto owns and
operates several dealerships in the New York City market, it realizes cost
savings through volume discounts and other media concessions.

Major Auto's operations have been enhanced by its ability to achieve
economies of scale with respect to its marketing and advertising. Nationwide,
the average cost of marketing and advertising per new vehicle sold in 1997 was
approximately $347. Notwithstanding that advertising costs in the New York
metropolitan area are generally higher than the national average, Major Auto's
cost of marketing and advertising per vehicle sold have consistently been less
than the national average. These lower costs result from the fact that Major
Auto: (i) has favorable contracts with four major area daily newspapers; (ii)
advertises in lower-cost niche markets (such as local ethnic markets, employee
purchase programs, and discount buying services); and (iii) utilizes telephonic
marketing and electronic marketing via services such as the Internet and
Bloomberg.

Relationships with Manufacturers

Each of Major Auto's 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

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<PAGE>

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; (iii) the conviction
of the dealership or the dealership's general manager of certain crimes; (iv)
the dealer's failure to adequately operate the dealership or to maintain
wholesale financing arrangements; (v) the bankruptcy or insolvency of the
dealership; or (vi) 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 Major Auto's dealership agreement with
General Motors, with respect to its Chevrolet dealership, gives General Motors a
right of first refusal to purchase such dealership, which means that whenever
Major Auto proposes to sell its Chevrolet dealership, it must first offer
General Motors the opportunity to purchase that dealership.

The dealership agreement that the Company will enter into with General
Motors upon completion of the Major Auto Acquisition will impose several
additional restrictions on the Company. Following the completion of the Major
Auto Acquisition, the Company's Chevrolet franchise, and any other General
Motors' franchises that the Company may subsequently acquire, could be at risk
if: (i) any person or entity acquires more than 20% of the Company's voting
stock with the intention of acquiring additional shares or effecting a material
change in the Company's business or corporate structure; or (ii) if the Company
takes any corporate action that would result: (a) in any person or entity owning
more than 20% of the Company's 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 the Company's Board of Directors within a rolling one-year period; or (d) the
acquisition of more than 20% of the Company's voting stock by another automobile
dealer or such dealer's affiliates. If General Motors determines that any of the
actions described in the preceding sentence 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, the Company 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 the Company's voting
stock or that the actions in question will not occur.

In addition, the General Motors dealer agreement will require that the
Company comply with General Motors' Network 2000 Channel Strategy ("Project
2000"). Project 2000 includes a plan to eliminate 1,500 General Motors
dealerships by the year 2000, primarily through dealership buybacks and approval
by General Motors of inter-dealership acquisitions, and encourages dealers to
align General Motors divisions' brands as may be requested by General Motors,
The dealer agreement will require that the Company bring any General Motors
dealership into compliance with the Project 2000 plan within one year of the
acquisition. Failure to achieve such compliance may result in termination of the
dealer agreement and a buyback of the related dealership assets at book value by
General Motors. The Company believes that Major Auto's Chevrolet dealership
currently complies with the Project 2000 guidelines.

The Company has also agreed that its dealerships offering new vehicles
manufactured by General Motors will not attempt to 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.

Major Auto has solicited the consents of the relevant manufacturers to the
Major Auto Acquisition and the change of control of the respective dealerships
to result therefrom. To date, Major Auto has received the consent of Subaru
Distributors Corp., with respect to the Subaru dealership, and General Motors,
with respect to the Chevrolet dealership,

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<PAGE>

and is awaiting the consent of Chrysler Corporation, with respect to the
Chrysler, Plymouth, Dodge, Jeep and Eagle dealerships.

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,
Major Auto competes with other new automobile dealers that operate in the New
York metropolitan area. Some competing dealerships offer some of the same makes
as Major Auto's 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, Major Auto competes 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, Major Auto competes
with used car "superstores" that have inventories that are larger and more
varied than Major Auto's.

Major Auto has advised the Company that it believes 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. Major Auto
believes that its dealerships are competitive in all of these areas.

In addition, Major Auto, due to the size and number of automobile
dealerships it owns and operates, is larger than the independent operators with
which it competes. Major Auto's size has historically permitted it to attract
experienced and professional sales and service personnel and has provided it the
resources to compete effectively. However, as the Company enters other markets,
it may face competitors that are larger and that have access to greater
resources.

Major Auto has advised the Company that it believes that its 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.

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, Major Auto's financing activities are subject
to certain statutes governing credit reporting and debt collection.

The imported automobiles purchased by Major Auto are subject to United
States custom duties and, in the ordinary course of its business, Major Auto may
from time to time be subject to claims for duties, penalties, liquidated damages
or other charges. Currently, United States customs duties are generally assessed
at 2.5% of the customs value of the automobiles imported, as classified pursuant
to the Harmonized Tariff Schedule of the United States.

As with automobile dealerships generally, and parts and service operations
in particular, Major Auto's 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, Major Auto is subject to Federal, state and local environmental
laws governing health, environmental quality, and remediation of contamination
at facilities it operates or to which it sends hazardous or toxic substances or
wastes for treatment, recycling or disposal. Major Auto has advised the Company
that it believes that it is in material compliance

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<PAGE>

with all environmental laws and that such compliance will not have a material
adverse effect on its business, financial condition or results of operations.

Computer Telephony and Telecommunications Division

The Company, through Computer Business Sciences, Inc., a New York
corporation ("Computer Business Sciences"), 786710 Ontario Limited, an Ontario
corporation doing business as Info Systems, Inc. ("Info Systems"), C.B.S.
Computer Business Sciences Ltd., an Israeli corporation ("Computer Business
Sciences (Israel)"), and Reynard Service Bureau, Inc., a Florida corporation
("Reynard"), the four wholly-owned subsidiaries comprising its Computer
Telephony and Telecommunications division, currently develops, manufactures,
markets, sells and services two product lines. The first product line utilizes
"Talkie" technology, which consists of proprietary computer software and
hardware that (i) permits end users of the technology to place long-distance
international telephone calls at discounted rates and (ii) offers end users a
broad range of interactive voice response applications such as voice-mail,
automatic receptionist, automated order entry, conference calling and faxing.
The second product line, "Business Control Software," is a proprietary computer
software system that provides multi-lingual general accounting and business
management applications.

The Company is planning to exploit its technological capabilities in
telephony by emphasizing high speed, broadband, multimedia transmission over
telephone, including voice, data, video conferencing and other areas.
Additionally, the Company is in the preliminary process of developing a
commercial mobile satellite technology in connection with the Israel Aircraft
Industry's ELTA division which is expected to allow passengers on automobiles,
trains and buses to receive high quality broadcast television and interactive
broadband multimedia internet service (see "Computer Telephony and
Telecommunications Division -- Planned Activities").

The Company originally acquired the technology for its telecommunications
products (see Talkie" below) in April 1996 through its acquisition from Dr. Zvi
Barak and Sarah Barak of all of the issued and outstanding stock of Info
Systems. A portion of the purchase price for such stock consists of twenty
monthly installment payments of $15,000 from the Company to the Baraks. In order
to secure such installment payments, the Company has granted a security interest
to the Baraks in the stock of Info Systems and the other assets purchased by the
Company from the Baraks. The monthly installment payments commenced in September
1996 and are scheduled to continue through June 1998. To date, the Company has
withheld $85,000 of such installment payments as collateral for the Baraks'
obligation to make certain indemnification payments to the Company. The Company
has agreed to pay the Baraks the $85,000 by July 1998.

Talkie

"Talkie" is the trademark for, and the name used by the Company to
describe, the technology relating to the Company's telephonic and interactive
voice response software applications. The Company has three products that use
Talkie technology. The first product, the "Talkie Power Web Line Machine," is a
computer based telephone "switch" that enables small or start-up telephone
companies to purchase blocks of international telephone calling time from
suppliers such as AT&T and MCI and resell the time in smaller units to callers
at discounted rates. The second product is a group of related telephonic and
interactive voice response software programs, such as voice-mail, automatic
receptionist, automated order entry, conference calling and faxing. The third
product, called "Talkie-Globe," is an international call-back, debit card and
long-distance reselling system.

The Talkie Power Web Line Machine is a programmable electronic telephone
switch based on personal computer technology. It consists of a proprietary
software program, and hardware components most of which are available from a
number of different sources. The machine currently contains 96 channels, but may
be expanded to carry up to 120 channels. Each channel provides 43,200 available
minutes of telephone time per 30-day month that may be sold. As is typical of
industry utilization of available telephone time, approximately 30%-40% of these
available minutes are actually sold. Of the 43,200 available minutes,
approximately 10,560 are considered peak time (defined to be the 480 minutes
comprising the typical eight-hour work day in the destination country and
assuming 22 work days in the typical

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<PAGE>

30-day month) and the balance are considered off-peak time, however the
determination of actual peak minutes in a destination country is based upon
demand for calling time, which in turn is based upon such factors as calling
patterns and the differences in time zones between the country from which a call
is placed and the destination county. Peak minutes are generally able to be sold
at higher rates than off-peak minutes.

The Talkie Power Web Line Machine includes an integrated programmable
telephone call switching system known as the Talkie Web Smart Switch. The
programmability of this switching system allows the machine to handle a variety
of international telephone-based services including resale of long-distance
telephone time the Company purchases in bulk, international call-back services
(described below), telemarketing, Internet access and facsimile transmission.

Historically, the Company, through its subsidiary Computer Business
Sciences, sold the Talkie Power Web Line Machines to various service providers
(known as "master agents"). A master agent then established a telephone
connection between a foreign country and the Talkie Power Web Line Machine,
which is located at the Company's offices in Kew Gardens, New York. This
connection is typically a dedicated telephone line that runs from the Talkie
Power Web Line Machine to certain equipment located in the foreign country that
is used to connect the dedicated line to the local telephone lines. The master
agent typically leased the dedicated telephone line, which has a specific
capacity for simultaneous calls, from MCI Communications Corp. or Sprint
Corporation for a fixed monthly fee. Callers in the foreign country place a
local call to connect to the dedicated telephone line and are provided a United
States dial tone by the Talkie Power Web Line Machine. The caller then dials the
number for the desired destination and the call is carried over the dedicated
telephone line to the Talkie Power Web Line Machine and then redirected to the
desired destination. Because the Talkie Power Web Line Machine's software
program is able to process both voice and data, callers may place international
telephone calls and send facsimiles to the desired destination and may also
connect to the Internet.

The master agent generated revenues by selling the available telephone
time generated by the Talkie Power Web Line Machine to callers in the foreign
country. There were two elements to the master agent's cost of carrying a call
from the foreign country to the desired destination: the cost of the dedicated
telephone line from the Talkie Power Web Line Machine to the foreign country
(which is typically a fixed monthly cost) and the cost of the call directed from
the Talkie Power Web Line Machine to the desired destination (which is based
upon United States calling rates). The master agent charged the caller in the
foreign country a markup over the cost of the call to the desired destination.
The cost to the caller is considerably lower than the alternative of placing the
same call through the caller's own local telephone system which, in many cases,
is a state-owned monopoly. The experience of the Company's master agents,
generally, was a very substantial reduction in per minute call costs. The
Company's billing records indicate that the reduction in most cases is a factor
of 15, that is, the country-to-country portion of an international call normally
costing $0.75 per minute, costs $0.05 per minute when placed through the Talkie
Power Web Line Machine. Once the master agent arranged for a certain monthly
volume of calls from a given foreign country, the master agent recouped the cost
of the dedicated telephone line to that foreign country and thereafter generated
profits.

In the third quarter of 1997, the Company decided to acquire from all of
its master agents their rights to their respective territories and the Talkie
Power Line Web Machines previously sold to them. The Company believes that it
can maximize its profitability by selling for itself the telephone minutes to
the existing and additional territories. Negotiations are currently underway
with each of the Company's master agents to finalize the memoranda of
understanding with respect to these acquisitions. See also "Arrangements with
Nissko" below.

The Company and Summa Four, Inc., a publicly owned communications
equipment manufacturer located in New Hampshire, have entered into a value-added
reseller agreement. Under the agreement, the parties will jointly develop an
improved version of the Talkie Power Web Line Machine and associated software,
which the Company will then purchase from Summa Four, Inc.

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Arrangements with Nissko

In March 1996, the Company's subsidiary Computer Business Sciences formed
a joint venture with Nissko Telecom, L.P. ("Nissko"). The joint venture is a
general partnership named Nissko Telecom Associates ("Associates"). Computer
Business Sciences owns 45% of the joint venture and Nissko owns 55%. Nissko 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, one of the Company's
directors, are shareholders of the Agent (such three individuals being
collectively referred to herein as the "Nissko Principals"). Pursuant to an
informal agreement, the Agent has granted to Associates the right to market and
sell the available telephone time generated by the Talkie Power Web Line
Machines that the Agent purchases as a master agent, in exchange for a 55%
Agent's interest in the joint venture through its general partnership interest
in Nissko. Through its interest in Associates, Computer Business Sciences
realizes 45% of the revenues generated from Associates' sale of such telephone
minutes. Since the inception of Associates, the Company has had $169,888 in net
losses from Computer Business Science's participation in Associates.

Under its master agent agreement, dated March 1996, with Computer Business
Sciences, the Agent is obligated to purchase 15 Talkie Power Web Line Machines
from Computer Business Sciences and has the right to acquire 15 additional
machines, each for $125,800, and 30 machine upgrades, each for $60,000. Each
upgrade consists of an attachment module which increases the channel capacity of
the machines and the related software. The Agent has a right of first refusal to
sell the telephone time generated by the machines that it has purchased in all
geographical locations in the world. Accordingly, whenever a master agent other
than the Agent proposes to resell telephone time in a country the other master
agent has not previously served, Computer Business Sciences must first offer the
Agent the opportunity to service that country.

Under the terms of its master agent agreement, the Agent (i) paid Computer
Business Sciences a deposit of $629,000 at the time the agreement was executed
toward the purchase of the 15 machines that the Agent is obligated to purchase
and (ii) issued to Computer Business Sciences 45% of its then issued and
outstanding common stock. In return, (i) the Company issued to the Nissko
Principals, including Yossi Koren, who subsequently became a director of the
Company, (a) warrants, exercisable through the date that is 60 days after the
effectiveness of any public offering of the Company's securities, to acquire an
aggregate of 750,000 shares of the Company's Common Stock at an exercise price
of $1.25 per share (the "Class A Warrants") and (b) warrants, exercisable
through March 19, 1998 (which have since expired by their terms), to acquire an
aggregate of 750,000 shares of the Company's Common Stock at an exercise price
of $1.25 per share (the "Class B Warrants") and (ii) Computer Business Sciences
agreed to make a $10,000 contribution to the capital of the Agent upon its
purchase of each of the first 15 machines. Certificates evidencing the Class A
Warrants and the Class B Warrants have not yet been issued. (See "Restructuring
of Nissko Arrangements" below.)

To secure certain payments under the master agent agreement with the
Agent, Bruce Bendell, the Company's Chairman, and Doron Cohen, the Company's
Chief Executive Officer, President and Treasurer, have each pledged to the Agent
500,000 shares of the Company's Common Stock. In the event that certain
financial covenants are not met or superseded by definitive documentation
resulting from the MOU (as hereinafter defined), the Nissko Principals will have
the right to foreclose on the pledged Common Stock.

If the proceeds of liquidating the pledged shares are sufficient to cover
the deficit, the Nissko Principals will be required to transfer to Mr. Bendell
and Mr. Cohen in equal shares the remaining 55% of the Agent's issued and
outstanding common stock. Messrs. Bendell and Cohen have agreed that upon
receipt of that stock, they will transfer it to the Company in exchange for
reimbursement by the Company for the market value of their shares of the
Company's Common Stock foreclosed upon by the Nissko Principals.

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Restructuring of Nissko Arrangements

The Company has entered into a Memorandum of Understanding (the "MOU")
with the Agent, the Nissko Principals, and with the remaining limited partner of
Nissko, Robert L. Rimberg. The transactions contemplated by the MOU are
conditioned on the consummation of the Major Auto Acquisition. The MOU provides
that: (i) Nissko will transfer to the Agent, and the Agent will assume, all of
the assets and liabilities of Nissko; and (ii) Computer Business Sciences will
acquire all of the issued and outstanding shares of common stock of the Agent in
a tax-free reorganization. Upon execution of the MOU, an aggregate $653,750
deposit that the Nissko Principals and Mr. Rimberg had previously paid towards
the full exercise price of the Class A Warrants was converted to a partial
exercise of the Class A Warrants. Upon such conversion, the Company issued an
aggregate of 523,000 shares of its Common Stock to the Nissko Principals and Mr.
Rimberg, 173,583 of which were issued to Yossi Koren, a director of the Company.
Permitted resales will be expressly subject to the voting rights of Bruce
Bendell who holds a proxy to vote 500,000 of these shares during the two-year
restriction period. Subsequently, the parties agreed to remove the contractual
two-year restriction on sales of these shares to make such restriction
consistent with current restrictions under the Securities Act of 1933.

The MOU provides that upon execution of definitive documentation
containing the terms and conditions outlined in the MOU, (i) each of the Nissko
Principals will receive 257,500 shares of the Company's Common Stock and Mr.
Rimberg will receive 27,500 shares of the Company's Common Stock, resales of all
of which shares will be subject to restrictions on transfer and voting that are
identical to those described immediately above, and (ii) each of the Nissko
Principals will receive warrants to acquire up to 68,917 shares of the Company's
Common Stock and Mr. Rimberg will receive warrants to acquire up to 20,250
shares of the Company's Common Stock, in each case for $1.25 per share. Such
warrants represent the unexercised balance of the Class A Warrants remaining
after the conversion of the $653,750 partial payment into a partial exercise as
described above.

Nissko Jewelry Trading, Inc. ("NJT"), a company 33-1/3% owned by Mr.
Koren, has entered into agreements for the Agent's benefit with MCI, Sprint and
Bell Atlantic (formerly NYNEX). These agreements provide for the purchase by NJT
on behalf of the Agent of telephone time or transmission lines. The MOU provides
that the Company will indemnify NJT against any liability it may incur under
these agreements and will place 200,000 shares of its Common Stock into an
escrow account to secure this indemnification obligation.

Upon the effectiveness of the definitive documentation relating to the
transactions contemplated by the MOU the Agent's master agent agreement will
terminate and the pledge by each of Mr. Bendell and Mr. Cohen of 500,000 shares
of the Company's Common Stock, referred to above, will be released.

It is the Company's intention to reacquire the territorial rights and
Talkie Power Line Web Machines from its other master agents in exchange for
shares of Common Stock at fair value. The Company has reached tentative
agreement with each such agent and is presently negotiating definitive memoranda
of understanding.

Interactive Voice Response Software Programs

The second product group, interactive voice response software programs,
consists of the following applications:

Talkie-Ad: permits callers to browse through pre-recorded messages based
on their search criteria, similar to a talking classified ad.

Talkie-Attendant: automated receptionist features, including dial "0" for
operator, name directories, call blocking, call screening, music or company
messages while on hold, paging, personalized menus, call queuing and
conversation recording.

Talkie-Audio: delivers pre-recorded information in response to telephone
inquiries and can serve as a talking bulletin board.

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Talkie-Conference: permits the user to schedule a conference call and
then, when the conference call is to occur, either calls the participants or
permits them to dial in, and provides the chairperson with various options
during the call.

Talkie-Dial: places a telephone call, using a user-supplied list of
telephone numbers and delivers voice information with the capability of asking
questions, accepting answers and updating the system to reflect the answers.

Talkie-Fax: permits the user to program a facsimile into the system and
transmit it to a user-supplied list of numbers and permits users to transmit to
callers upon their request written information programmed into the system such
as directions, product information, price lists or news releases.

Talkie-Form: permits the user to set up a questionnaire and collect
answers to pre-recorded questions.

Talkie-Mail: permits the user to record, send, receive and retrieve voice
messages from personal mailboxes.

Talkie-Query: responds to callers' inquiries using information stored in
the system database.

Talkie-Trans: accepts orders, issues orders (including delivery
instructions) and faxes order confirmations.

Users of the Talkie interactive voice response system can also customize
the foregoing applications to create new applications using Talkie-Gen, which is
an application generator that uses a simple programming language.

In addition to the applications listed above, users may also purchase any
of the following off-the-shelf applications:

Talkie-Dating: permits the user to supply a dating service that will
permit the user's customers to place and browse through personal ads, register
for service and record and listen to messages.

Talkie-Follow-Me: permits the user to supply a telephone tracking service
that enables the user's customers to obtain a single telephone number that will
continually forward incoming calls to a user-defined series of telephone numbers
(such as work, cellular, home, pager and voice-mail).

Talkie-Wake-Up/Reminder: permits the user to supply a wake-up or reminder
service that will call a user supplied number with a user-supplied message at a
specified time.

All of the Talkie interactive voice response applications operate in up to
nine languages.

Info Systems also provides customers with industry-specific and customized
applications of its interactive voice response technology. For example, Info
Systems has developed a product called Talkie AutoCom for use by automobile
dealers. See "Automotive Sales Division-Operating Strategy."

The Talkie interactive voice response software package is sold by the
Company through Info Systems, its wholly-owned Canadian subsidiary.

Talkie-Globe, the trademark for, and the name used by the Company to
describe, its third telecommunications product, is a software-based integrated
call-back, debit-card and long-distance reselling system and includes all of the
Talkie interactive voice response software programs. Typically, international
callers based in countries where the telephone system is a state-owned monopoly
must pay high per-minute rates fixed by the state-owned company. One method of
securing a lower rate is the "call-back" system offered by Info Systems'
Talkie-Globe. Using Talkie-Globe, the foreign caller first places a telephone
call from the foreign country to the United States or Canadian telephone number
where the Talkie-Globe system is located and hangs up without the call being
connected so that no charge is assessed for the call. Talkie-Globe recognizes
the telephone number from which the foreign call was placed and then places a
call to that

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telephone number from the location in the United States or Canada where the
Talkie-Globe system is located to the foreign caller and provides the foreign
caller with a dial tone. The foreign caller then places a telephone call through
the United States or Canada to the desired destination. The foreign caller thus
pays for two calls: (i) the call back from the Talkie-Globe system located in
the United States or Canada to the caller in the foreign market and (ii) the
call that the caller places through the United States or Canada to the desired
destination. The sum of the costs of the two calls placed from the Talkie-Globe
system located in the United States or Canada will be lower than the cost of a
single call placed directly from the applicable foreign market to the desired
destination. The Talkie-Globe system also has a debit card feature, which
permits a caller to purchase a stated value of calling time, and debits that
value as the caller uses the prepaid calling time.

Talkie-Globe is sold by the Company through Info Systems, its wholly-owned
Canadian subsidiary.

Business Control Software

The Company's business control software is an interconnected series of
accounting and business management software applications that includes the
following systems: general ledger, accounts receivable, accounts payable, sales
order, purchase order, inventory control, bills of materials, job costing and
production control. The business control software can assist users, among other
things, to define market trends, analyze sales force effectiveness, determine
the profitability of a job, department or company, or determine a geographical
sales spread. One of the software's principal features is its ability to process
information in multiple currencies. For example, a Japanese distributor
transacting business in France and Italy can use the software to maintain data
relating to sales, purchases and costs in French francs and Italian lira and to
generate reports in Japanese yen (or in several multiple currencies
simultaneously) while automatically posting currency exchange rates. In
addition, the business control software is a multi-lingual system of software
applications that permits multiple users, each selecting a different language,
to access simultaneously a common database.

The business control software sold by the Company is sold through Info
Systems, its wholly-owned Canadian subsidiary.

Marketing and Sales

From inception through December 31, 1997, the Company sold 21 Talkie Power
Web Line Machines to six master agents. The aggregate amount of gross revenues
resulting from these sales is $4,865,493, which accounts for approximately 66.7%
of the Company's total revenues since its inception. The Company's gross profit
margin on sales of the Talkie Power Web Line Machines since its inception is
75.5%. Each master agent had been required to purchase a minimum annual volume
of machines. The minimum purchase requirement had been ten machines or machines
having an aggregate sales price of $1.8 million, whichever is less. "Master
agents" were smaller companies wishing to enter the international telephone time
resale market without incurring the high cost of purchasing, installing and
maintaining traditional telephone switching equipment. Although the master
agents purchased the machines, the purchase terms required that the machines be
located at the Company's premises and that all maintenance be performed by the
Company (as described below). An added benefit to master agents of housing the
machines at the Company's premises is that a Bell Atlantic Switch is located
there and the physical connection between the machines and such switch is short.
Because of this, the Company pays a relatively inexpensive charge (a component
of which is based upon the length of the connection from such switch) to connect
to such switch and experiences no connection delays resulting from the length of
the connection.

Historically, the Company's strategy with respect to the Talkie Power Web
Line Machine has been threefold. First, it sold additional machines through its
existing master agents as they expanded their businesses by providing telephone
service to additional foreign markets. Second, as demand for the machines
increased, it intended to add additional master agents and/or replace any
existing master agents who were not complying with their master agent agreements
and to enter into strategic partnerships with such new and replacement master
agents that would permit the Company

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to share in the revenue generated by the master agents' sale of telephone time.
Third, it intended continually to adapt advancing computer and
telecommunications technology to improve and customize the performance of the
machines. Currently, the Company is in the process of buying out its master
agents and intends to operate its Talkie Power Web Line Machines on its own
behalf.

The Company installs, maintains and services all Talkie Power Web Line
Machines at the Company's offices in Kew Gardens, New York, where the machines
are housed. Historically, for these services, the Company received both a fixed
fee and a volume-based fee. To date, billing arrangements have been informal,
and the cost to each master agent has been calculated by determining the
aggregate maintenance and service costs for all the machines, adding a
percentage markup and charging each master agent its ratable portion based upon
the number of machines it has purchased. The Company also customized the
performance of the machines for the respective master agents and for use in
particular countries, for which it has received a fee that is negotiated by the
Company and the applicable master agent based upon the complexity of the
customization. As noted above, all master agents have been required by contract
with the Company to locate their purchased Talkie Power Web Line Machines at the
Company's principal office and to have all required installation, service and
maintenance performed by the Company. In addition to the services it provides
with respect to the Talkie Power Web Line Machines, the Company also has
provided services for the various other Talkie products and for the Business
Control Software, if requested by the users.

The Company typically sells its interactive voice response software
programs to entrepreneurs who wish to operate a telephone-based service business
with low overhead and fixed costs. The typical interactive voice response
software package requires only a personal computer and voice card for use and
costs $715. Each of the off-the-shelf applications costs an additional $795. The
Company intends to focus its efforts with respect to its Talkie interactive
voice response software programs on the market for industry-specific and
customized applications in which it generally realizes higher profit margins. As
the Company targets a given industry, it expects to hire sales personnel
familiar with that industry and to attend trade shows to market its product. In
addition, the Company intends to expand sales of its interactive voice response
system into Europe and South America.

The Company typically sells four to five of its Talkie-Globe systems per
month to entrepreneurs who wish to provide a telephone business with low
overhead and fixed costs and to small foreign telephone companies. Users of
Talkie-Globe purchase international calling time from long-distance telephone
companies such as MCI Communications Corp. and resell such time at a mark-up.
The typical Talkie-Globe system consists of three personal computers,
proprietary software and a voice card and costs approximately $25,000.

The Company realized gross revenues of $537,655 during 1996, and $679,890
during 1997, from the sale of its Talkie interactive voice response software
programs and of Talkie-Globe (excluding intercompany sales), which constituted
approximately 15.7% and 17.6% of the Company's gross revenues for such years,
respectively. The Company's gross profit margin on sales of its Talkie
interactive voice response software programs was approximately 54.3% for 1996
and approximately 66.7% for 1997.

The Company advertises its Talkie interactive voice response software
programs and Talkie-Globe in telephone and telecommunications industry trade
publications. In addition, Info Systems attends telephone and telecommunications
industry trade shows, which has resulted in reviews of these products in trade
publications.

The Company is not currently allocating resources to market its Business
Control Software, but performs software service contracts and provides annual
program updates to the program's users.

Planned Activities

The Company is seeking to expand its operations in the area of telephony
by building a multimedia, carrier class, broadband network that will be carried
over currently deployed, twist pair copper facilities which support most
existing home and business telephone functions. The initial trial rollout, Phase
I, presently projected for the third quarter of

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1998, targets twenty-two cities and expands to sixty-three cities by the end of
that year.

Phase I, using an asynchronous transport mode ("ATM") technology, is
expected to offer guaranteed quality of service, carrier class-level voice over
internet ("Voice/IP") long distance service at aggressively competitive rates.
Phases II and III of this enterprise, utilizing state-of-the-art digital
subscriber line ("DSL") equipment, are expected to provide a wide array of
Voice/IP services including local dial tone, call-back, dial-around, traditional
long distance and high speed internet access. Additionally, because this
technology permits broadband service over existing copper wires, the Company is
planning to offer, at very competitive prices, additional services such as
virtual private networks ("VPN"), movies on demand and pay TV, home shopping,
banking, telemarketing, tele-medicine, video conferencing and distance learning.

Additionally, in April 1998, the Company signed a memorandum of
understanding with ELTA Electronics Industries Ltd. ("ELTA"), a division of
Israel Aircraft Industries, to form a joint venture to develop a commercial
Mobile Interactive Satellite Receiving Terminal (MIST) system for use onboard
public, private and commercial transportation, including automobiles, trains and
buses, among others. As part of the agreement, the Company will retain a 50
percent stake in the joint venture.

Once complete, the MIST system is expected to allow passengers to receive
high quality broadcast television and interactive broadband multimedia internet
service through the use of Direct Broadcast Satellites. The information will
then be routed through a video Integrated Receiver and Decoder which will
decompress video signals once received and transmit them to a TV monitor or PC.
Passengers would then use a control panel to select from a variety of viewing
options.

Each system is expected to also include a cellular and/or commercial
satellite telephone system utilizing the Company's proprietary routing and
switching technology. Passengers would then use multi-purpose communications
terminals located on the vehicle to receive over 150 television channels,
internet and cellular service at affordable prices.

No assurance can be given that the Company will be successful in
developing the foregoing products or services, or that if successfully
developed, such products or services will result in revenues to the Company.

Research and Development

The Company's wholly-owned subsidiary Computer Business Sciences (Israel)
engages in research and development (i) to improve its existing
telecommunications software, and to adapt the software to changing personal
computer environments, (ii) to expand the software to new uses and (iii) to
develop new software, products and applications. Computer Business Sciences
(Israel) is headed by Dr. Zvi Barak, who was responsible for the development of
the Talkie technology and related Talkie products and of the business control
software.

The Company spent no money on research and development in 1995 with
respect to its Computer Telephony and Telecommunications division and spent
approximately $332,000 and $207,000 on research and development in 1996 and
1997, respectively, with respect to such division.

Intellectual Property

The Company has registered the name "Talkie" as a trade-mark in Canada.
The Company has filed applications with the United States Patent and Trademark
Office to register the names "Talkie" and "Talkie-Globe" and "BCS Software" as
trademarks in the United States. As an additional method of protecting its
proprietary technology, the Company requires that all of the Talkie Power Web
Line Machines that it sells remain at the Company's offices in Kew Gardens, New
York and that all installation, service and maintenance of the machines be
performed solely by the Company. The Company also relies on trade secret
protection, confidentiality agreements and other laws to protect its technology,
but believes that these rights may not necessarily prevent third parties from
developing or using similar or related

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technology to compete against the Computer Telephony and Telecommunications
division's products.

Competition

The Company knows of no person or company that offers a product that is a
feature-for-feature competitor to the Talkie Power Web Line Machine. While other
companies manufacture and sell traditional telephone switching equipment, such
equipment is expensive to purchase and maintain as compared to the Talkie Power
Web Line Machine. Moreover, the proprietary nature of the Talkie Power Web Line
Machine's software program provides the Company a significant head start over a
potential competitor who wishes to develop a competing product.

Associates competes, and the Company will compete, with other providers of
international telephone service. The market for international telephone service
is highly competitive. In additional to the major service providers such as
AT&T, MCI and Sprint, there are numerous smaller service providers as well as
resellers, who do not own and operate equipment but purchase telephone time from
service providers at a discount and resell that time to the public. The Company
believes that a primary competitive factor in the industry is pricing. Because
Associates uses the Talkie Power Web Line Machine, which is less costly to
purchase and maintain than traditional switching equipment, Associates is able
to offer telephone calling time at lower rates than competitors whose rate
structure must account for the higher cost of such traditional switching
equipment. In addition, because the Talkie Power Web Line Machine is able to
process both data as well as voice, Associates is able to offer Internet access,
which relatively few of its competitors offer. However, Associates and the other
master agents presently face, and the Company may face, increasing competition
as a result of deregulation in foreign countries, which could result in
competition from other service providers with large, established customer bases
and close ties to governmental authorities in their home countries and decreased
prices for direct-dialed international calls. Master agents' customers may no
longer be willing to use the master agents' or the Company's services, which
would adversely affect the Company's ability to sell the Talkie Power Web Line
Machine and/or limit the Company's gross margins on phone services sold for its
own account and, thereby, reduce the Company's income.

The Company's Talkie interactive voice response software programs compete
with products sold by approximately two dozen entities in North America,
including AT&T, Northern Telecom and others. However, in the more limited market
for industry-specific and custom interactive voice response applications, the
Company knows of only one direct competitor. The Company's Talkie-Globe system
competes with telephone callback products sold by approximately 6 other
entities.

As a result of its reliance on the Company's proprietary software rather
than hardware components to operate, the purchase price and maintenance costs of
the Company's Talkie interactive voice response software programs and
Talkie-Globe are believed to be generally lower than those of competing
products. In addition, because software is easier to alter than hardware
components, the Company is able to customize its products or modify its products
to incorporate changing technology more quickly and at a lower cost than its
competitors.

Notwithstanding the Company's competitive advantages however, many of the
producers of products competitive with the Company's, and companies wishing to
enter the market in which the Company's products compete, have well established
reputations, customer relationships and marketing and distribution networks.
Many also have greater financial, technical, manufacturing, management and
research and development resources than those of the Company, may be more
successful than the Company in manufacturing and marketing their products and
may be able to use their greater resources and to leverage existing
relationships to obtain a competitive advantage over the Company.

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Leasing Division

In October 1996, the Company acquired all of the issued and outstanding
shares of stock of Major Fleet & Leasing Corp. ("Major Fleet"). Major Fleet has
historically provided lease financing solely for motor vehicles. The Company
intends to expand the operations of Major Fleet to provide lease financing to
purchasers of the Talkie Power Web Line Machine.

Major Fleet typically arranges for 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 Major Auto's dealerships, in almost
all cases, Major Fleet will acquire the vehicle from Major Auto 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 Major Auto.

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 the credit risk to which Major Auto is exposed.
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.

Plastics and Utility Products Division

The Company, through its subsidiary Premo-Plast, Inc. ("Premo-Plast"),
presently the only company in its Plastics and Utility Products division, is
currently conducting research and development with respect to two products
lines: (i) a line of spa and bath fixtures for use in whirlpool baths, spas,
tubs and swimming pools and (ii) an armored conduit system for use by utility
companies.

Spa Fixtures

Premo-Plast has been engaged in research and development related to a line
of fixtures to be placed through the walls of water containers such as spa tubs.
To date, the Company has focused its research on fixtures such as the jets used
to introduce water mixed with air bubbles into a whirlpool bath, spa or tub and
has designed and developed prototypes of such fixtures.

The construction of a whirlpool bath, spa or tub is typically a large
thin-walled shell (most often fiberglass coated plastic), through which protrude
a number of fixtures such as air and water jets. Inserting these fixtures
requires two workers. First, the "inside" worker drills a pilot hole where the
fixture is to be inserted. Then, the "outside" worker drills a much larger hole
to clear the mounting thread on the fixture, and at the same time smooths an
area on the rough outside wall of the spa around the hole in order to allow a
tight seal to the washer that will surround the hole when the fixture is
installed. Next, the inside worker places a sealing washer on the shaft of the
fixture and inserts the shaft through the drilled hole. The outside worker
places a second washer on the outside end of the fixture and applies silicone
sealant (or, in some cases, applies silicone sealant without a second washer),
and adds a retaining nut to secure the assembly. The inside worker must steady
the fixture from the inside of the spa, while the outside worker tightens the
nut from the outside. The degree of tightness is critical, as too much
tightening will squeeze out the silicone sealant, and too little will result in
a weak seal. Either condition will cause a leak. Once the nut is tightened, the
fixture must set in place, undisturbed, for several hours to permit the silicone
to harden and form a water-tight seal.

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The Company has acquired the rights to a proprietary plumbing fixture
installation method and has designed and developed a line of fixtures that
enable installation in a whirlpool bath, spa or tub in significantly less time
than is normally required to install such fixtures. One person, working from
inside the whirlpool bath, spa or tub, drills the pilot hole and final-size
hole. Next, a rubber grommet is placed in the hole. A grommet resembles a small
donut with flanges around the inside and outside; the flanges on the grommet are
placed into contact with the drilled hole. Next, the worker presses the fixture
into the grommeted hole, which can be done from either the inside or the outside
of the whirlpool bath, spa or tub. The barrel of the fixture expands the sides
of the grommet against the sides of the hole, sealing the hole (by contrast to
the traditional fixture, the seal takes place at the sides, not the front and
back, so no sealant is required). The barrel is ribbed to prevent the fixture
from being pushed back inside the whirlpool bath, spa or tub. Because there are
relatively few steps involved in the Company's installation method, there is
less risk of error. In addition, because no silicone sealant is used, the
fixture does not need to set in place, which permits immediate use and minimizes
the risk of leaks.

The Company acquired the technology for the proprietary fixture
installation method through its acquisition from John Pinciaro of all of his
right, title and interest therein and two United States patent applications
related thereto. The Company and Mr. Pinciaro will participate jointly in
exploitation of the fixture installation method. In October 1997, the Company
formed a new subsidiary, whose shares are owned 80% by the Company's existing
subsidiary Premo-Plast and 20% by Mr. Pinciaro.

Status of Development of Spa Fixtures

Since its acquisition of the technology relating to the fixture
installation method, the Company has further developed that technology and has
designed and produced working prototypes of the various fixtures for use in
connection with such method. The Company is currently testing the prototype
fixtures and installation method. In addition, the Company has finalized a
limited number of components and beta testing has been completed. The Company's
management expects that, given availability of the funding, the Company will
begin production tooling in the second quarter of 1998 and will commence
commercial sales of its spa and bath fixtures by the third quarter of 1998.

Company's Strategy with respect to Spa and Bath Fixture Technology

According to industry data, approximately 250,000 whirlpool baths and spas
and approximately 600,000 tubs are sold annually. Management of Premo-Plast
estimates that each whirlpool bath requires approximately 35-45 fixtures and
that each tub requires approximately 4-6 fixtures.

The Company's strategy with respect to the fixture technology is to
establish its proprietary installation method and its fixtures as the industry
standard for whirlpool baths, spas and tubs. The company has a threefold plan to
implement this strategy upon its commencement of commercial production of the
fixtures. First, the Company intends to expand its workforce by hiring
employees, most of whom have already been identified and approached by the
Company, experienced in the areas of design, production and marketing.

Second, the Company intends initially to sell its fixtures and license the
right to use its installation method to several designated regional
manufacturers and producers of whirlpool baths, spas and tubs. All of these
manufacturers and producers were consulted by John Pinciaro, from whom the
Company acquired the rights to the proprietary fixture installation method and
presently an employee of Premo-Plast, prior to and during the period of
development of such method. All of these manufacturers and producers expressed
in writing their interest in the installation method and a desire to utilize
that method and the Company's fixtures once commercially available, although
none are required to do so. Among these producers is ThermoSpas, Inc., a company
wholly-owned and operated by Mr. Pinciaro.

Third, the Company intends to publicize its installation method and
fixtures generally to the whirlpool bath, spa and tub industry and to attend
major trade shows.

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Armored Conduit

In November 1995, shortly after its formation, the Company acquired from
Progressive Polymerics, Inc. two United States patents and a Canadian patent
application covering an armored conduit product. The Company is presently
involved in litigation relating to the purchase price for such patents and
patent application. See "Legal Proceedings." The primary application for the
armored conduit is protection for underground electrical distribution lines. In
many major cities electric utility companies deliver service via lines that are
run through underground conduits. The underground conduit method of distribution
is becoming increasingly common in other cities as the preferred method for
delivering electric service to newly constructed subdivisions, replacing
above-ground lines mounted on wood or metal poles.

Originally, underground conduit was made from hollow creosoted wood or
transite pipe made from a mixture of asbestos and concrete. Currently, conduit
is typically made from either (i) PVC duct encased in concrete, (ii) cement or
concrete tubing or (iii) fiberglass tubing. Each of these types of conduit has
distinct disadvantages. PVC duct becomes brittle and inflexible in cold weather,
and melts and bonds to the electric wire if there is excess heat from an
overload condition. Cement or concrete cracks easily during transportation and
installation as a result of above-ground vibrations and stresses, and, unless
installed at the proper depth, if there is a problem with a portion of a conduit
system (whether PVC duct, cement, concrete or fiberglass) once installed, the
entire system must be removed and replaced.

The product covered by the Company's armored conduit patents is assembled
underground from prefabricated pieces that are typically two to four feet in
length. Each piece consists of a pre-formed plastic shell that is filled with
pourable cement, Each pre-formed shell has a rectangular cross-section, with a
linear ribbed exterior and tubular interior. Each end of the pre-formed shell
has an extension that can be coupled to the next section in end-to-end fashion.

Potentially, the design of the armored conduit offers several advantages
over other types of conduit. First, because the armored conduit system is
assembled from pre-fabricated pieces, if there is a problem with a single piece,
only that piece, rather than the entire conduit system, needs to be replaced.
The problem piece will be replaced with a replacement piece that has a top and
bottom half. The bottom half of the replacement piece will first be put in place
and coupled to the pieces on either side. The wires will then be placed in the
bottom half of the interior tube. The top half of the replacement piece will
then cover the wires and be coupled to the pieces on either side. Second, the
linear ribs on the exterior of the pre-formed shells increase the structural
strength of the shells and permit them to be interlocked when stacked for
storage or shipment, thereby reducing the risk of damage. Third, the outer
plastic shell of the armored conduit system protects it from water, chemicals
and other elements to which underground conduit systems are exposed. As a result
of all of these advantages, the armored conduit system can be expected to be
more durable than existing types of conduit.

The Company has been engaged in limited research and development
activities relating to the armored conduit, and expects, given the availability
of funding, to pursue further research and development.

Research and Development

Research and development with respect to the armored conduit technology
and the spa and bath fixture technology is conducted by the Company through its
wholly-owned subsidiary Premo-Plast.

The Company spent no money on research and development in 1995 with
respect to its Plastics and Utility Products division and estimates that it
spent approximately $3,650 and $33,750, respectively, in 1996 and 1997 on
research and development with respect to such division. Such division currently
has no customers.

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Intellectual Property

The Company owns two United States patents, issued in June 1993 and May
1994, respectively, relating to the armored conduit technology and also owns a
Canadian patent application relating to such technology. In addition, the
Company has filed two applications for a United States patent relating to the
spa and bath fixtures and related installation method. The Company is presently
pursuing such applications with the United States Patent and Trademark Office.
The Company has also filed two applications relating to the spa and bath
fixtures and related installation method under the Patent Cooperation Treaty
designating Australia, Canada, China, Japan and the European Patent Office (up
to 18 countries) as recipient countries. Under such treaty, the Company will
have the option to individually file separate applications in the designated
countries at an appropriate future date. In addition, the Company relies on
confidentiality agreements and other laws to protect its technology. The Company
believes that it may be possible for third parties to develop technology that
provides the same features as the Company's plastic products without infringing
the Company's rights or making use of its proprietary technology.

Competition

If the Company's armored conduit is developed into a commercially viable
product, it will compete with PVC duct encased in concrete, cement or concrete
tubing and metal tubing, all of which are established methods. The Company's spa
and bath fixtures will compete with existing types of such fixture. Because the
Company's fixtures and installation method permit single-person assembly rather
than the two-person assembly required by existing products and installation
methods, the Company believes that use of its fixtures will result in
significantly reduced assembly time and costs.

Many of the producers and distributors of products competitive with the
Company's spa and bath fixtures and armored conduit may have well established
reputations, customer relationships and marketing and distribution networks.
They may also have greater financial, technical, manufacturing, management and
research and development resources than those of the Company. While the Company
believes that its spa and bath fixtures and installation method and its armored
conduit will have significant advantages over existing products, the Company's
competitors may be more successful than the Company in manufacturing and
marketing their products and may be able to leverage existing relationships to
obtain a competitive advantage over the Company.

Item 2. Description of Property.

Neither the Company nor any of its subsidiaries owns any real estate or
plants. All of the operations of the Company and its subsidiaries are conducted
from locations leased from unaffiliated third parties. Following the Major Auto
Acquisition, the Company will own the Major Real Estate.

The Company leases approximately 6,800 square feet on two floors in Kew
Gardens, New York. The lease for the floor that the Company currently uses for
executive offices and to house the Talkie Power Web Line Machines consists of
approximately 2,800 square feet and expires on March 31, 2001, but the Company
has the option to extend the lease for one additional five-year term. 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 the Company elects
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.

The lease for the other floor in Kew Gardens, New York consists of
approximately 4,000 square feet and is occupied pursuant to the terms of a
sublease between Major Fleet, as lessee, and an unrelated third party, as
lessor. The lease expires on January 14, 2000 and contains no renewal
provisions. The current annual rent under such lease is $73,992. Pursuant to an
informal arrangement, (i) Computer Business Sciences pays such rent on behalf of
Major Fleet, (ii) a portion of the leased space is used by Computer Business
Sciences for additional office space and (iii) a portion of the leased space is
used by Associates to operate the customer service division of its reselling
operations.

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<PAGE>

The Company believes that its current facilities are suitable and adequate
for its current needs, but expects to require additional facilities to
accommodate its anticipated expansion.

Computer Business Sciences (Israel) leases from an unrelated third party
approximately 1,517 square feet of office space in Raanana, Israel. The lease
expires on September 1, 1999, but Computer Business Sciences (Israel) has an
option to renew the lease for an additional two-year period. The current annual
rent under such lease is $22,620 and will increase by 6% on July 1, 1999.

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

Major Subaru 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 January 31, 1999 and contains no renewal provisions. The
current annual rent under such lease is $69,457.56. Pursuant to an informal
arrangement between Major Subaru and Major Fleet, Major Fleet occupies the space
and pays the rental payments.

In addition, upon the consummation of the Major Auto Acquisition, the
Company will have an interest in the following leases, under which Major Auto
presently pays aggregate annual rental payments of $638,000:

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. 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 Dodge leases from Bruce Bendell and Harold Bendell approximately
12,000 square feet of office and automobile showroom space in Long Island City,
New York. The lease expires on December 31, 1998 and contains no renewal
provisions.

Major Chrysler, Plymouth, Jeep Eagle, Major Dodge and Major Subaru lease
from Bendell Realty L.L.C., a company wholly owned by Bruce Bendell and Harold
Bendell, approximately 40,000 square feet in Long Island City, New York which is
used as a service facility. The lease expires on December 31, 1998 and contains
no renewal provisions.

The above properties that are leased from the Bendells will be acquired by
Major Acquisition Corp. in connection with the Major Auto Acquisition; see
"Planned Acquisition" above.

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
$30,300. 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.

Major Chevrolet leases from an unrelated third party 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.

Item 3. Legal Proceedings.

On November 22, 1996, the Company and its wholly-owned subsidiaries
Computer Business Sciences and Info Systems filed an action in the New York
Supreme Court, Queens County against Michael Marom ("Marom") and M.M. Telecom,
Corp. ("MMT"). The Company and its subsidiaries are seeking damages of
$5,000,000 for breach of contract, libel, slander, disparagement, violation of
copyright laws, fraud and misrepresentation. The Company and its

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<PAGE>

subsidiaries allege in their complaint that Marom and MMT have violated the
terms of a License and Exclusivity Agreement pursuant to which MMT guaranteed
the purchase of a certain amount of Talkie-Globe Software products and was
granted an exclusive license to advertise the Talkie-Globe product, to train
customers and to provide technical support. On February 4, 1997, the defendants
filed a counterclaim against the Company and its subsidiaries seeking damages of
$50,000,000 for breach of contract and violation of the Lanham Act. The
defendants allege in their counterclaim that Computer Business Sciences
misappropriated and altered software developed by Marom in order to prevent
competition with the Company's Talkie-Globe. Both parties to the litigation have
filed responses to the counterclaims. The litigation is proceeding and the
parties are currently in the process of discovery.

On May 7, 1997, the Company and its wholly-owned subsidiary Computer
Business Sciences filed an action in the New York Supreme Court, New York
County, against Network America, Inc. ("Network"). The Company and its
subsidiary are seeking damages of $1,000,000 for breach of contract,
misrepresentation, fraud and tortious interference with the Company's business
and operations. The Company and its subsidiary allege in their complaint that
the information and representations provided to the Company by Network, on the
basis of which the Company entered into a Letter of Intent to acquire Network,
were intentionally fraudulent and misleading. On August 18, 1997, Network filed
an answer which denied the allegations and a counterclaim seeking damages of
$2,000,000 for the Company's alleged misappropriation of proprietary information
and violation of a NonCompetition Agreement entered into by the parties to the
litigation. The litigation is proceeding and the parties are currently in the
process of discovery.

The Company believes that its asserted claims have merit and that there is
no basis to the asserted counterclaims, and that a judgment against the Company
and its subsidiaries with respect to either action would not have a material
adverse effect on the Company's financial condition.

The Company has received notice of a claim by Mr. Daniel Tepper, of Los
Angeles, California. Mr. Tepper had contacted the Company claiming to have
acquired, through foreclosure of a security interest, 12,000 shares of its
Common Stock originally issued to Progressive Polymerics International, Inc.
("PPYM") in a private placement. He requested that the Company issue
certificates representing the shares in question that did not bear a legend
restricting their transfer, on the basis that the shares had been held by his
predecessor in interest for a length of time sufficient to allow their
unrestricted resale in accordance with Rule 144 promulgated under the Securities
Act. The Company was advised by counsel that it should not issue the unlegended
share certificates requested by Mr. Tepper unless he showed that he acquired the
relevant shares in a transaction allowing him to take advantage of his
predecessor's holding period for the shares in question.

The Company's legal counsel contacted Mr. Tepper in November 1997, seeking
to verify details of the claimed foreclosure in order to verify Mr. Tepper's
eligibility to take advantage of his predecessor's holding period for the shares
in question. Mr. Tepper never responded to that inquiry. Instead, on December
23, 1997, Mr. Tepper, acting through counsel, asserted a number of claims
against the Company, including claims arising out of transactions dating back to
the 1995 acquisition by the Company of the armored conduit patents. See
"Description of Business-Plastics and Utility Products Division-Armored
Conduit."

The Company has been advised by counsel that Mr. Tepper's claims are
without merit. However, one of the allegations made by Mr. Tepper prompted an
inquiry by the Company into one of the circumstances of that transaction.

On October 15, 1996 the Company, Progressive Polymerics, Inc.
("Progressive") and PPYM signed a First Amendment to the Patent Sale and
Purchase Agreement (the "First Amendment") between them dated November 14, 1995.
The First Amendment, which was dated September 30, 1996, settled a claim by the
Company against Progressive and PPYM related to undisclosed additional
development costs related to the armored conduit patents. The Company commenced
litigation against Progressive and PPYM in which it sought a reduction in the
purchase price for the armored conduit patents. The First Amendment changed the
purchase price from $500,000 in cash to the sum of (i) $100,000 in cash, (ii)
160,000 shares of the Company's Common Stock and (iii) warrants to purchase a
further 160,000 shares of the Company's Common Stock.

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<PAGE>

The Company was advised by the President of PPYM, Terrence Davis, prior to
signing the First Amendment, that the First Amendment had been approved by a
majority of the shareholders of PPYM. However, Mr. Tepper's claim included an
assertion that the version of the First Amendment that PPYM's shareholders
approved failed to include a provision, added just prior to signing, giving the
Company the right to repurchase 80,000 of the 160,000 shares issued to PPYM.

Upon receipt of Mr. Tepper's claim, the Company contacted Mr. Davis, who
confirmed on January 5, 1998 that the version of the First Amendment approved by
PPYM's shareholders did not include the repurchase provision. The reason given
by Mr. Davis was that, as President of PPYM, he believed he had the authority to
agree to the repurchase provision on PPYM's behalf without shareholder approval.

The Company has accordingly revived its legal action that was pending
against PPYM and Progressive at the time of the First Amendment, in which it
sought modification of the purchase price due pursuant to the Patent Sale and
Purchase Agreement with PPYM. The Company has obtained an order to show cause
seeking return of the $100,000 paid at the time the First Amendment was signed
and return of the 160,000 shares, which will effectively terminate the First
Amendment.

The Company, assuming it is successful in the prosecution of the
litigation as just described, will then seek to recover damages from and
Progressive related to the misrepresentations concerning additional development
expenditures required in connection with the patents covered by the Patent Sale
and Purchase Agreement. These misrepresentations were the subject of the legal
action referred to in the preceding paragraph.

Item 4. Submission of Matters to a Vote of Security-Holders.

None.

PART II

Item 5. Market For Common Equity and Related Stockholder Matters.

Market Information

On April 2, 1996, the Company's Common Stock was approved for trading on
the NASDAQ OTC Bulletin Board. From the time of the listing through March 31,
1998, the high bid price was $6.375 and the low bid price was $3.50; quarter-end
high and low bids were (as reported by Nasdaq Trading & Market Services) which
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not reflect actual transactions:

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<PAGE>

Quarter Ended High Bid Low Bid
------------- -------- -------
March 31, 1998 $4.625 $4.00

December 31, 1997 $5.375 $4.00
September 30, 1997 $4.375 $3.50
June 30, 1997 $5.50 $4.00
March 31, 1997 $6.375 $3.625

December 31, 1996 $4.875 $3.75
September 30, 1996 $4.75 $3.50
June 30, 1996 $5.00 $4.00

Shareholders

As of April 7, 1998 there were 261 holders of record of the Company's
Common Stock.

Dividends

The Company has never declared dividends on any class of `its securities
and has no present intention to declare any dividends on any class of its
securities in the future.

Recent Sales of Unregistered Securities

The securities described below of the Company were sold by the Company
during 1997 without being registered under the Securities Act. All such sales
made in reliance on Section 4(2) of the Securities Act were, to the best of the
Company's 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.

1. In January 1997, in connection with an informal consulting agreement
between the Company and Ronald Premo, the Company issued to Mr. Premo 7,500
shares of Common Stock. The consulting services included analyzing the Company
armored conduit plastics products, identifying business opportunities for the
Company's Plastics and Utilities Products division and introducing the Company
to manufacturers, distributors and others in the plastics industry. Such Common
Stock was issued in reliance upon the exemption from registration contained in
Section 4(2) of the Securities Act. In March 1997, in connection with an
Employment Agreement between the Company and Ronald Premo, the Company issued to
Mr. Premo, 30,000 shares of Common Stock, 10,000 of which shares will vest upon
the completion of each of his first three years of employment with the Company.
Such Common Stock was issued in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act.

2. In February 1997, in connection with the agreement of Ronald Shapss to
perform certain consulting services for the Company, the Company issued to Mr.
Shapss 50,000 shares of Common Stock for an aggregate purchase price of $500.
Such services included assisting the Company in obtaining financing and in
identifying and consummating potential acquisitions. Such Common Stock was
issued in reliance upon the exemption from registration contained in Section
4(2) of the Securities Act.

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<PAGE>

Effective May 1997, pursuant to such agreement, the Company granted to Mr.
Shapss, at no cost, options to acquire up to 50,000 shares of Common Stock at an
exercise price of $4.50 per share, the fair market value of the Common Stock on
February 18, 1997, the date of such agreement. Such options are exercisable for
five years from the date of grant. Such options were issued in reliance upon the
exemption from registration contained in Section 4(2) of the Securities Act.

3. In July 1997, the Company issued to Lewis Glogower, as part of the
termination of Mr. Glogower's employment with the Company, 3,000 shares of
Common Stock. Such Common Stock was issued in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act.

4. In September 1997, in connection with the execution of the MOU relating
to Computer Business Sciences' acquisition of the Agent and an aggregate
$653,750 deposit that the Nissko Principals and Robert L. Rimberg had previously
paid towards the full exercise price of the Class A Warrants was converted to a
partial exercise of the Class A Warrants. Upon such conversion, the Company
issued an aggregate of 523,000 shares of its Common Stock to the Nissko
Principals and Mr. Rimberg. All of such Common Stock was issued in reliance upon
the exemption from registration contained in Section 4(2) of the Securities Act.

5. In November 1997, in connection a Consulting Agreement between Computer
Business Sciences and Bruce A. Hall, the Company issued to Mr. Hall 10,000
shares of Common Stock, 3,334 of which shares will vest after the completion of
Mr. Hall's first year of consulting and 3,333 of which shares will vest after
completion of each of Mr. Hall's second and third years of consulting. Such
Common Stock was issued in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act and Regulation S under the
Securities Act.

6. In April 1998, the Company issued $600,000 principal amount of its 10%
Convertible Subordinated Debentures due 1999 (the "Debentures") to one
institutional investor and two accredited investors, for aggregate proceeds to
the Company of $600,000. Such Debentures were issued in reliance upon the
exemption from registration contained in Section 4(2) of the Securities Act.

Item 6. Management's Discussion and Analysis of Financial Condition.

The following discussion of the operations, financial condition, liquidity
and capital resources of the Company and its subsidiaries should be read in
conjunction with the Company's audited Consolidated Financial Statements and
related notes thereto included elsewhere herein. The discussion of the
operations, financial condition, liquidity and capital resources of Major Auto
as well as audited Combined Financial Statements and related notes thereto for
Major Auto and pro forma combining financial statements for Major Auto and the
Company will be filed by amendment to this Annual Report, as soon as practicable
after they become available to the Company.

This Annual Report also contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements.

Results of Operations - Year Ended December 31, 1997 and
Year Ended December 31, 1996

Revenues. Revenue for the year 1997 resulted in a net increase of
$427,809 or 12.5% to $3,862,284. Revenue for the year 1996 was $3,434,475.
The sources for such increase (decrease) were:

Computer Telephony and Telecommunications ............. $(266,277)
Leasing ............................................... $ 694,086

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The 1997 amounts reflect a full year of operations for both divisions,
whereas in 1996 the Computer Telephony and Telecommunications division
only began operations during the second quarter and the Leasing division
was not acquired until the beginning of the fourth quarter. Also, it
should be noted that, during the third quarter, as a result of a decision
to operate Talkie Power Web Line machines for itself, the Company stopped
the sale of such machines to master agents.

Cost of sales. Cost of sales for 1997, all of which relates to the
Computer Telephony and Telecommunications division, was $823,397 compared
with $965,792 in the 1996 period. This is a decrease of $(142,395) or
14.7% and is consistent with the change in operational direction of this
division.

Gross profit. Gross profit for the Computer Telephony and
Telecommunications division in 1997 was $2,085,854 which represented a
decrease of $123,882, or 6% from the prior year's gross profit of
$2,209,736. Additionally, gross profit as a percentage of the related
revenue increased to 71.7% in 1997 over the 69.6% gross profit percentage
in 1996. Both the dollar decrease and the gross profit percentage of
revenues increases are consistent with the decreased sales and increased
operating efficiencies.

Selling, general and administrative expense. Selling, general and
administrative expenses ("SG&A") increased a total of $790,023 to
$1,916,924 in 1997 from $1,126,901 in 1996. Of this increase $165,035
relates to the Computer Telephony and Telecommunications division and
$624,988 is from the Leasing division. SG&A for the Computer Telephony and
Telecommunications division increased from $935,529 for 1996 (this
division commenced operations in the second quarter of 1996) to $1,100,564
for 1997, a 17.6% increase. This increase is reflective of an almost full
level of normal activity in 1997 compared with the start-up activities in
1996. The increase in selling, general and administrative expense for the
Leasing division in 1997 is the result of a full year of activity in this
division which was not acquired until the fourth quarter of 1996.

Interest expense. Interest expense was $121,092 for the year ended
December 31, 1997 compared with $24,132 for 1996. The increase of $96,960
relates primarily to the debt incurred to finance the vehicles and
equipment leased by the Company's Leasing division during the current
year. There was no comparable amount in the prior year.

Loss from joint venture. The loss from the Nissko Joint Venture was
$137,475 in 1997. In the comparable prior period, operations of this joint
venture had just commenced and resulted in a loss of $32,410.

Results of Operations - Fiscal Year Ended December 31, 1996 and
Fiscal Year Ended December 31, 1995

Revenues. Inasmuch as 1996 was the first full year of operations for
the Company, all revenue increases resulted from the commencement of
previously planned activities and from companies acquired during that
year. Revenues from operating divisions were as follows:

Computer Telephony and Telecommunications .............. $3,175,528
Leasing ................................................ $ 258,947

Included in the Computer Telephony and Telecommunications division's sales
were $2,637,873 from the sale of hardware and $537,635 from the sale of
software.

Cost of sales. Cost of sales, aggregating $965,792 for the year
ended December 31, 1996 includes the direct costs of materials, labor and
overhead included in the Company's products sold through its Computer
Telephony

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<PAGE>

and Telecommunications division.

Gross profit. The year 1996 was the first full year of operations
for the Company's Computer Telephony and Telecommunications division.
Gross profit for that division for the year ended December 31, 1996
aggregated $2,209,736 or 70.0% of sales. The Company anticipates that,
over time, annual sales will increase and greater operating efficiencies
will be achieved through experience, training and economies of scale.
Management believes that as a result, gross profit for the Company's
Computer Telephone and Telecommunications division will increase in terms
of both dollars and percentage of sales.

Selling, general and administrative expense. Selling, general and
administrative expenses, which amounted to $1,126,901 in 1996 ($2,042 in
1995), include payroll and related expense attributable to senior
management (although Mr. Bendell, Chairman, and Mr. Cohen, Chief Executive
Officer, President and Treasurer of Company waived compensation from the
Company in 1996), finance, systems, sales, marketing and office
administration, personnel, facilities costs and general office expenses
pertaining to these functions, as well as outside professional fees. The
increase in such expenses between 1996 and 1995, which were $933,487 for
the Computer Telephony and Telecommunications division and $191,372 for
the Leasing division are attributable to the commencement of planned
activities for the former and the acquisition in October 1996 of the
latter.

Interest expense. The increase in interest expense of $19,757 to
$24,132 in 1996 from $4,375 in 1995 relates primarily to the debt used to
finance the vehicles and equipment leased by the Company's Leasing
division which was acquired in October 1996 and, to a lesser extent, to
interest on debt due from the acquisition of the Company's Computer
Telephony and Telecommunications division in April 1996.

Loss on joint venture. In March 1996, the Company's Computer
Telephony and Telecommunications division formed a joint venture (the
"Nissko Joint Venture") named Nissko Telecom, L.P., a limited partnership.
The general partner of Nissko Telecom, L.P. is one of the Company's master
agents. The Company has a 45% interest in the Nissko Joint Venture, whose
purpose is to market and sell the available telephone time generated by
the Company's Talkie Power Web Line Machines purchased by this master
agent. Because 1996 was the start-up year, the Nissko Joint Venture
incurred expenses disproportionate to its revenue generation and suffered
from start-up inefficiencies. This resulted in a loss to the Company of
$32,410.

Liquidity and Capital Resources - December 31, 1997

The Company's primary source of liquidity for the year ended December 31,
1997 was $1,624,601 from its net income of $369,139, as adjusted by net non-cash
charges, which aggregated $1,255,462. This net increase in cash was more than
offset by (a) the net increase in assets of $1,730,584 (resulting primarily from
an increase in accounts receivable of $1,471,082, primarily attributable to the
Computer Telephony and Telecommunications division as a result of the strategic
decision to acquire the master agents' territories and equipment. The
receivables are expected to be collected as part of the acquisition.) and (b) a
net decrease in liabilities amounting to $189,974 (primarily attributable to
decreases in due to affiliates of $102,097 and accrued expenses of $121,349,
partially offset by an increase in accounts payable of $32,689). The net result
was a use of cash in operating activities of $295,957

The Company's investing activities, i.e., additions to property and
equipment, primarily cars and trucks purchased for the Leasing division, used
cash of $708,108 which was significantly offset by $646,737 provided by the
Company's financing activities, of which $653,750 resulted from the proceeds
from the exercise of warrants to purchase common stock. Cash from lines of
credit and long-term debt were substantially offset by payments of long-term
debt.

The foregoing activities, i.e., operating, investing and financing,
resulted in a net cash decrease of $357,295 for the year ended December 31,
1997.

The Company believes that the funds generated through existing and planned
operations, together with existing cash,

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<PAGE>

available credit from banks and other lenders, future equity offerings and the
consummation of the Major Auto Acquisition will be sufficient to finance its
current operations, planned expansion and internal growth for at least the next
24 months.

Liquidity and Capital Resources - December 31, 1996

After its initial investor financing during the first quarter of 1996, the
Company's primary source of liquidity was its cash flow from operations. Net
cash provided by operating activities in 1996 was $147,942 on net income of
$675,966 (net of non-cash charges of $735,934), offset by changes in working
capital of $1,263,958. Such changes in working capital are principally
attributable to (i) increases, by the Leasing division, in net financing leases
of $1,612,675 and (ii) increases, by the Computer Telephony and
Telecommunications division, in inventories, amounting to $15,026. These
increases were offset, in part, by the increase in amounts due to affiliates of
$26,121.

Net cash used in investing activities in 1996 was $815,962 and related,
primarily, to the acquisition of the Company's computer Telephony and
Telecommunications division.

Cash flow generated from financing activities in 1996 aggregated
$1,203,179. The net proceeds from the issuance of common stock and the exercise
of warrants accounted for $973,500 of this amount.

The Company, through its Leasing division, has arrangements with various
banks and automotive lenders to finance leased vehicles and equipment.

Item 7. Financial Statements

The Financial Statements are filed as a part of this Annual Report as
pages F-1 through F-17 following Part IV.

The Combined Financial Statements and related notes thereto for Major Auto
and pro forma combining financial statements for Major Auto and the Company will
be filed by amendment to this Annual Report, as soon as practicable after they
become available to the Company.

Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.

None.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.

The names, ages and principal occupations of the Directors and
Executive Officers of the Company are as follows:

Name Age Position, Term In Office
- - ---- --- ------------------------
Bruce Bendell 43 Chairman of the Board
President, Chief Executive Officer,
Doron Cohen 41 Treasurer and a Director
Richard L. Feinstein 54 Chief Financial Officer
Glenn H. Bank 46 Secretary
Yossi Koren 48 Director

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<PAGE>

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

Bruce Bendell. Mr. Bendell has served as the Company's Chairman of the
Board since its incorporation in November 1995. Mr. Bendell has served as the
President and a director of Major Chevrolet and its affiliates since December
1985.

Doron Cohen. Mr. Cohen has served as the President, Chief Executive
Officer, Treasurer and a director of the Company since its incorporation in
November 1995. From 1991 to 1995, Mr. Cohen served as President and Chief
Executive Officer of Holtman Enterprises, a construction and interior design
company.

Richard L. Feinstein. Mr. Feinstein has served as the Company's 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.

Glenn H. Bank. Mr. Bank has served as the Secretary of the Company since
June 1997. Mr. Bank has been a practicing attorney since 1979. Mr. Bank is a
sole practitioner with an office in New York City.

Yossi Koren. Mr. Koren has served as a director of the Company since April
1996. Mr. Koren founded Nissko Jewelry Trading, Inc., a jewelry manufacturer
based in New York City, in 1983 and has served as its Chief Executive Officer
since that time.

The following persons, although not executive officers of the Company, are
regarded by management as key personnel:

Zvi Barak. Mr. Barak, age 45, has served as the Director of Research and
Development of the Company's Computer Telephony and Telecommunications division
since April, 1996. From 1992 to August 1996, Mr. Barak served as President of
Info Systems.

Moise Benedid. Mr. Benedid, age 48, has served as the President of the
Company's Canadian subsidiary Info Systems since August 1996. From November 1994
through July 1996, Mr. Benedid served as Vice President in charge of marketing
and technical support for TelePower International, Inc., where he was
responsible for the sale in Canada of franchises based on the "Talkie"
technology. From December 1992 to November 1994, Mr. Benedid served as President
of Powerpoint Microsystems, Inc., and from August 1989 to December 1992, he
served as President of Computer Junction, a Toronto-based computer retail store.

Bruce Hall. Mr. Hall, age 52, has served as Vice President of Operations
of the Company since March 1998. From November 1997 to March 1998, Mr. Hall was
a consultant to the Company. For the thirty years prior to that time, he was
with Bell Atlantic (NYNEX), most recently as their Director of Operations for
the Borough of Queens, New York.

Michael S. Lukin. Mr. Lukin, age 50, has served as the President of the
Company's subsidiary Computer Business Sciences (Israel) since October 1996.
From January 1996 to October 1996, Mr. Lukin served as a securities broker for
Weiner, Abrahms, and from 1990 to January 1996 he served as a securities broker
for Kern Suslow Securities.

John Pinciaro. Mr. Pinciaro, age 48, serves as Vice-President of the
Company's subsidiary Premo-Plast since January 1, 1997 and will serve as the
President of the subsidiary of the Company formed in October 1997 to exploit the
Company's spa fixture technology. Mr. Pinciaro has served as the Chief Executive
Officer of ThermoSpas, Inc., a manufacturer and distributor of spas, since it
inception in 1983.

Ronald K. Premo. Mr. Premo, age 59, has served as the President of the
Company's subsidiary Premo-Plast since January 1997. In 1993, Mr. Premo founded
and has since operated R.K. Premo & Associates, a manufacturer's

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<PAGE>

representative agency for the plastics industry. From 1987 to 1993, Mr. Premo
was a Manufacturer's Representative for R.W. Mitscher, Inc.

Paul Vesel. Mr. Vesel, age 38, has served as the Executive Vice President
for Sales & Marketing of the Company's subsidiary Computer Business Sciences
since November 1996. From May 1995 to November 1996, Mr. Vesel was employed by
MTC Netsource, a telecommunications company, where he was responsible for
product development and from 1993 to 1995, he served as Director of European
Sales and Marketing for ATC Distributing. From November 1989 to 1993, Mr. Vesel
was a Managing Partner of Focus International, an international trade and
marketing consulting company.

The term of office of each person elected as a Director will continue
until the Company's next Annual Meeting of Shareholders or until his successor
has been elected.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's 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 the Company with copies of all Section
16(a) forms they file.

Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during Fiscal 1997, its officers, directors, and greater than ten-percent
beneficial owners have not complied with all applicable Section 16(a) filing
requirements. The process of bringing such persons in compliance with all
applicable Section 16(a) filing requirements is currently being undertaken.

Item 10. Executive Compensation.

Summary Compensation Table

The following table sets forth information for each of the Company's
fiscal years ended December 31, 1997 and 1996 concerning compensation of (i) all
individuals serving as the Company's Chief Executive Officer during the fiscal
year ended December 31, 1997 and (ii) each other executive officer of the
Company whose total annual salary and bonus equaled or exceeded $100,000 in the
fiscal year ended December 31, 1997:

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<PAGE>

<TABLE>
<CAPTION>
Annual Compensation
-------------------
All
Other Other
Name and Principal Position Year Salary($) Bonus($) ($)Annual Compensation($)
<S> <C> <C> <C> <C> <C>
Doron Cohen 1997 206,500(l) 0 0 0
President, Chief Executive Officer and 1996 200,000 0 0 0
Treasurer (since November 7, 1995)
Bruce Bendell 1997 178,080(2) 0 0 0
Chairman (since November 7, 1995) 1996 158,640(2) 0 0 162,500(3)
Zvi Barak 1997 150,000 0 23,000(4) 0
Director of Research and Development 1996 105,000 0 23,000(4) 0
(Since April 18, 1996)
</TABLE>

(1) Mr. Cohen waived his salary from the Company for the years ended December
31, 1997 and 1996. This salary will not accrue. Mr. Cohen was paid a salary in
1997 and 1996 of $56,500 and $50,000, respectively, from Computer Business
Sciences.

(2) Mr. Bendell waived his consultant's fee from the Company for the years ended
December 31, 1997 and 1996. This fee will not accrue. Mr. Bendell received
$28,080 and $8,640 as management fees from Major Fleet for management services
performed in 1997 and during the fourth quarter of 1996, respectively.

(3) Represents warrants to acquire 50,000 shares of Common Stock issued to Mr.
Bendell on October 2, 1996 as a signing bonus under a management agreement with
the Company to manage the operations of Major Fleet. These warrants are valued
based upon the difference between the exercise price of $1.25 per share and the
closing bid price on the OTC Bulletin Board of $4.50 per share on the date of
issuance.

(4) Includes $5,000 for life and disability insurance premiums and $18,000
annual automobile allowance.

Option Grants Table

No individual grants of stock options were made during the fiscal year ended
December 31, 1997 to any of the executive officers of the Company named in the
Summary Compensation Table.

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<PAGE>

Aggregated Option Exercises and Fiscal Year-End Option Value Table

No stock options were exercised during the fiscal year ended December 31, 1997
by any of the executive officers named in the Summary Compensation Table. The
value of unexercised options held by any such persons as of December 31, 1997
was as follows for Bruce Bendell (the only such option holder):

Total number of shares underlying unexercised options 50,000
Exercisable options 50,000
Unexercisable options -0-
Value of in-the-money options $162,500(1)

- - ----------
(1) Represents warrants to acquire 50,000 shares of Common Stock issued to Mr.
Bendell on October 2, 1996 as a signing bonus under a management agreement with
the Company to manage the operations of Major Fleet.

Compensation of Directors

Directors of the Company are not compensated for their services. The
Company reimburses directors for their expenses of attending meetings of the
Board of Directors.

As of November 7, 1995, the Company's date of incorporation, the Company
entered into a Consulting Agreement with Bruce Bendell, its Chairman, pursuant
to which he serves as a business, management and financial consultant to the
Company for a period ending on December 31, 1998, subject to successive one-year
extensions at the option of the Company. Mr. Bendell receives an annual
consulting fee as determined by the Company's 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 the
Company's 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 the Company's 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 the Company's Board of Directors. Mr. Bendell
has agreed not to disclose confidential information relating to the Company and
has agreed not to compete with, or solicit employees or customers of, the
Company during specified periods following the breach or termination of his
agreement to serve as a consultant to the Company.

Employment Contracts and Termination of Employment, and Change in Control
Arrangements

Doron Cohen. As of November 7, 1995, the Company's date of incorporation,
the Company entered into an Employment Agreement with Doron Cohen, pursuant to
which he serves as the Company's President, Chief Executive Officer and
Treasurer for a period ending on December 31, 1998, subject to successive
one-year extensions at the option of the Company. Mr. Cohen receives an annual
base salary as determined by the Company's Board of Directors from time to time,
but not less than $150,000. The annual salary is subject to a yearly
cost-of-living adjustment and may also be retroactively increased based upon the
Company's profits per outstanding share of Common Stock for the applicable year.
The available percentage increase in salary as a result of profits ranges from
5% for break-even results to 150% for earnings per share in excess of $1.00 per
share. Mr. Cohen is also entitled to a bonus in such amounts and at such times
as determined by the Company's Board of Directors. In addition, the agreement
provides that Mr. Cohen is entitled to various fringe benefits under the
agreement and is entitled to participate in any incentive, stock option,
deferred compensation or pension plans established by the Company's Board of
Directors. Mr. Cohen has agreed not to disclose confidential information
relating to the Company and has agreed not to compete with, or solicit employees
or customers of, the Company during specified periods following discontinuance
of his employment for any reason other than a

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<PAGE>

termination for cause.

Zvi Barak. As of April 18, 1996, the Company entered into an Employment
Agreement with Zvi Barak, pursuant to which he serves as the Company's Director
of Research & Development for a period ending on April 30, 2001, subject to a
one-year extension at the option of the Company. Mr. Barak receives an annual
base salary as determined by the Company's Board of Directors from time to time,
but not less than $150,000. The annual salary is subject to a yearly
cost-of-living adjustment and may also be retroactively increased based upon the
Company's profits per outstanding share of Common Stock for the applicable year.
The available percentage increase in salary as a result of profits ranges from
5% for break-even results to 150% for earnings per share in excess of $1.00 per
share. Mr. Barak is also entitled to a bonus in such amounts and at such times
as determined by the Company's Board of Directors and to an annual royalty
incentive in an amount equal to 2% of gross revenues received from sales of new
products developed under his direction. In addition, the agreement provides that
Mr. Barak is entitled to various fringe benefits under the agreement, including
an annual allowance of $5,000 for disability insurance and $18,000 for the
purchase or lease of an automobile, and is entitled to participate in any
incentive, stock option, deferred compensation or pension plans established by
the Company's Board of Directors. Pursuant to the agreement, the Company
established a research and development facility in Israel and, in the event that
Mr. Barak elects to establish residence outside of Israel, the Company has
agreed to establish another research and development facility in the location
where Mr. Barak establishes his residence. The Company spent approximately
$25,000 to open the research and development facility in Israel and spends
approximately $27,600 per month to operate such facility. Mr. Barak is obligated
to pay the expenses of relocating himself to Israel and to any subsequent
residence. Mr. Barak has agreed not to disclose confidential information
relating to the Company's business and has agreed not to compete with, or
solicit employees or customers of, the Company during specified periods if he
resigns, is terminated for cause or if his employment agreement expires without
being renewed.

Indemnification of Directors and Officers

Under the Nevada General Corporation Law, 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.

The Company is obligated under its Articles of Incorporation to indemnify
any of its present or former directors who served at the Company's 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,
the best interests of the Company 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 the Company, unless
otherwise ordered by the relevant court. The Company's Articles of Incorporation
also permit it to indemnify other persons except against gross negligence or
willful misconduct.

The Company is obligated under its bylaws to indemnify its directors,
officers and other persons who have acted as representatives of the Company at
its 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 the Company has
received an opinion from independent counsel that such person was not so
derelict.

In addition, pursuant to indemnification agreements that the Company has
entered into with each of its directors, the Company is obligated to indemnify
its directors to the fullest extent permitted by applicable corporate law and
its Articles of Incorporation. The indemnification agreements also provide that,
upon the request of a director and provided that director undertakes to repay
amounts that turn out not to be reimbursable, that director is entitled to
reimbursement

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<PAGE>

of litigation expenses in advance of the final disposition of the legal
proceeding.

The Company's indemnification obligations are broad enough to permit
indemnification with respect to liabilities arising under the Securities Act.
Insofar as the Company may otherwise be permitted to indemnify its directors,
officers and controlling persons against liabilities arising under the
Securities Act or otherwise, the Company has 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 General Corporation Law, 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. The Company's Articles of Incorporation limit director
liability to the maximum extent permitted by The Nevada General Corporation Law,
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 stockholders. As a result of the
inclusion in the Company's Articles of Incorporation of this provision, the
Company's stockholders may be unable to recover monetary damages against
directors as a result of their breach of their fiduciary duty to the Company and
its 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.

The Company does not maintain any liability insurance for the benefit of
its officers or directors and has no present plans to obtain such insurance.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following tables sets forth information with respect to the beneficial
ownership of each class of the Company's securities as of December 31, 1997,
respectively, by (i) each director of the Company, (ii) each executive officer
of the Company, (iii) all directors and executive officers of the Company as a
group and (iv) each person known to the Company to own more than 5% of any class
of it securities:

1996 Major Series of
Convertible Preferred
Common Stock Stock(2)
Name and Address(3) Number Percent Number Percent

Bruce Bendell 2,850,010(4) 39.6% 125,000(5) 50%
Doron Cohen 2,500,000(6) 36.3%
Glenn H. Bank 1,400 *
Yossi Koren 504,108(7) 7.0%
Zvi Barak 250,000(8) 3.6%
Richard L. Feinstein *
All directors and execu-
tive officers as a group 6,105,518(9) 79.8%
Avraham Nissanian 504,319(10) 7.0%
Chmuel Livian 502,759(11) 7.0%
Harold Bendell 350,000(12) 4.9% 125,000(13) 50%

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

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<PAGE>

(1) Based on 6,895,700 shares of Common Stock outstanding on December 31,
1997.

(2) Based on 250,000 shares of the 1996-MAJOR Series of Convertible Preferred
Stock outstanding on December 31, 1997.

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

(4) Includes (i) 10 shares of Common Stock owned by Bruce Bendell's wife and
the following shares of Common Stock which Bruce Bendell has the right to
acquire within 60 days: (a) 250,000 shares of Common Stock, the minimum
number of shares of Common Stock into which the 125,000 shares of the
1996-MAJOR Series of Convertible Preferred Stock beneficially owned by
Bruce Bendell are convertible and (b) 50,000 shares of Common Stock which
Bruce Bendell has the right to acquire upon the exercise of warrants. Does
not reflect a proxy giving Mr. Bendell the sole right to vote an
additional 500,000 shares of Common Stock issued pursuant to the MOU for a
period of two years. See "Description of BusinessComputer Telephony and
Telecommunications Division-Talkie-Restructuring of Nissko Arrangements."
Does not reflect Mr. Cohen's agreement to give Bruce Bendell a proxy to
vote 750,000 of Mr. Cohen's shares during the two-year period commencing
on October 14, 1997.

(5) All of such shares of the 1996-MAJOR Series of Convertible Preferred Stock
are held in a trust created under the law of Gibraltar. Bruce Bendell is
the principal beneficiary of such trust.

(6) Does not reflect Mr. Cohen's agreement to give Bruce Bendell a proxy to
vote 750,000 of Mr. Cohen's shares during the two-year period commencing
on October 14, 1997.

(7) Includes (i) 1,350 shares of Common Stock owned by members of Mr. Koren's
immediate family, (ii) 3,508 shares of Common Stock representing one-third
of the 10,526 shares of Common Stock owned by Nissko Jewelry Trading,
Inc., a company 33-1/3% owned by Mr. Koren, and (iii) 325,667 shares of
Common Stock representing approximately one-third of the 977,000 shares of
Common Stock that the Nissko Principals have the right to acquire within
60 days upon the exercise of the Class A and Class B Warrants. The MOU
provides that upon execution of the definitive documentation, Mr. Koren
will receive (i) 257,500 shares of the Company's Common Stock, transfer of
which will be restricted for two years as described under "Description of
Business--Computer Telephony and Telecommunications
Division-Talkie-Restructuring of Nissko Arrangements," and (ii) warrants
to acquire up to 68,917 shares of Common Stock which will be exercisable
within 60 days. Such warrants represent a portion of the unexercised
balance of the Class A Warrants. The Class B Warrants (exercisable for
750,000 shares of Common Stock in the aggregate) have expired by their
terms. See "Description of Business--Computer Telephony and
Telecommunications Division-Talkie-Restructuring of Nissko Arrangements."

(8) Includes 125,000 shares of Common Stock owned by Mr. Barak's wife.

(9) Includes (i) 126,360 shares of Common Stock owned by immediate family
members of directors and executive officers as a group, (ii) 3,508 shares
of Common Stock representing one-third of the 10,526 shares of Common
Stock owned by Nissko Jewelry Trading, Inc., a company 33-1/3% owned by
Mr. Koren, and (iii) 625,667 shares of Common Stock that the directors and
executive officers as a group have the right to acquire within 60 days.

(10) Includes (i) 3,360 shares of Common Stock owned by members of Mr.
Nissanian's immediate family, (ii) 3,508 shares of Common Stock
representing one-third of the 10,526 shares of Common Stock owned by
Nissko Jewelry Trading, Inc., a company 33-1/3% owned by Mr. Nissanian,
and (iii) 325,667 shares of Common Stock representing approximately
one-third of the 977,000 shares of Common Stock that the Nissko Principals
have the right to acquire within 60 days upon the exercise of the Class A
and Class B Warrants. The Class B Warrants have expired by their terms.
The MOU provides that upon execution of the definitive documentation, Mr.
Nissanian will receive (i)

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<PAGE>

257,500 shares of the Company's Common Stock, transfer of which will be
restricted for two years as described under "Description of
Business-Computer Telephony and Telecommunications
DivisionTalkie-Restructuring of Nissko Arrangements," and (ii) warrants to
acquire up to 68,917 shares of Common Stock which will be exercisable
within 60 days. Such warrants represent a portion of the unexercised
balance of the Class A Warrants. The Class B Warrants (exercisable for
750,000 shares of Common Stock in the aggregate) have expired by their
terms. See "Description of Business-Computer Telephony and
Telecommunications Division-Talkie-Restructuring of Nissko Arrangements."

(11) Includes (i) 3,508 shares of Common Stock representing one-third of the
10,526 shares of Common Stock owned by Nissko Jewelry Trading, Inc., a
company 33-1/3% owned by Mr. Livian, and (ii) 325,667 shares of Common
Stock representing approximately one-third of the 977,000 shares of Common
Stock that the Nissko Principals have the right to acquire within 60 days
upon the exercise of the Class A and Class B Warrants. The MOU provides
that upon execution of the definitive documentation, Mr. Livian will
receive (i) 257,500 shares of the Company's Common Stock, transfer of
which will be restricted for two years as described under "Description of
Business-Computer Telephony and Telecommunications
DivisionTalkie-Restructuring of Nissko Arrangements," and (ii) warrants to
acquire up to 68,917 shares of Common Stock which will be exercisable
within 60 days. Such warrants represent a portion of the unexercised
balance of the Class A Warrants. The Class B Warrants (exercisable for
750,000 shares of Common Stock in the aggregate) have expired by their
terms. See "Description of Business-Computer Telephony and
Telecommunications Division-Talkie-Restructuring of Nissko Arrangements."

(12) Includes the following shares of Common Stock which Harold Bendell has the
right to acquire within 60 days: (i) 250,000 shares of Common Stock, the
minimum number of shares of Common Stock into which the 125,000 shares of
the 1996-MAJOR Series of Convertible Preferred Stock beneficially owned by
Harold Bendell are convertible and (ii) 50,000 shares of Common Stock
which Harold Bendell has the right to acquire upon the exercise of
warrants,

(13) All of such shares of the 1996-MAJOR Series of Convertible Preferred Stock
are held in a trust created under the law of Gibraltar. Harold Bendell is
the principal beneficiary of such trust.

Item 12. Certain Relationships and Related Transactions.

See "Executive Compensation-Employment Contracts and Termination of
Employment, and Change in Control Arrangements" for a description of (i) the
Employment Agreement between the Company and Doron Cohen, its President, Chief
Executive Officer and Treasurer and one of its directors, and (ii) the
Employment Agreement between the Company and Zvi Barak, its Director of Research
and Development.

See "Executive Compensation-Compensation of Directors" for a description
of the Consulting Agreement between the Company and Bruce Bendell, its Chairman.

See "Executive Compensation-Indemnification of Directors and Officers" for
a description of indemnification agreements between the Company and each of its
directors.

In October 1996, the Company acquired from Bruce Bendell, the Company's
Chairman, and his brother Harold Bendell all of the issued and outstanding stock
of Major Fleet. In exchange for their shares of the common stock of Major Fleet,
each of the Bendells received (i) 125,000 shares of the Company's 1996-MAJOR
Series of Convertible Preferred Stock and (ii) as a result of Major Fleet's
financial performance prior to the closing of the exchange, 50,000 shares of the
Company's Common Stock. See "Description of Securities-Preferred Stock."

In connection with the Company's acquisition of Major Fleet, the Bendells
and the Company entered into a management agreement pursuant to which the
Bendells have the exclusive right and obligation to manage the motor

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<PAGE>

vehicle leasing activities of Major Fleet. The management agreement is for a
term ending on December 31, 2001. In connection with the management agreement,
the Company issued to each of the Bendells warrants to purchase 50,000 shares of
the Company's Common Stock for $1.25 per share. The management agreement also
provides that the Bendells will receive a management fee annually in an amount
equal to the balance remaining after deducting from the annual gross revenues of
the motor vehicle leasing activities of Major Fleet the following: (i) Major
Fleet's costs of financing and operating its vehicle leasing activities, (ii) a
corporate management fee in an amount equal to 15% of Major Fleet's net income
to cover overhead costs of the Company allocable to Major Fleet and (iii) income
derived from the leases to which Major Fleet was a party on the date of closing
of the Company's acquisition of Major Fleet.

Following the planned acquisition of Major Auto by the Company, Bruce and
Harold Bendell will continue to be responsible for senior-level management of
the dealerships. The Bendell brothers and the Company expect that this
continuity of senior management will facilitate obtaining the manufacturers'
consents to the transfer of the dealerships to the Company. The Bendell
brothers' management control will be accomplished through (i) their ownership of
100 shares of the Company's 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 commencing on January 7, 1998) which carries voting
rights allowing them to elect a majority of the Board of Directors of Major
Auto, and through (ii) a related management agreement, discussed immediately
below, See "Description of Securities-Preferred Stock- I 997A-MAJOR AUTOMOTIVE
GROUP Series of Preferred Stock" below.

To further facilitate obtaining the required manufacturers' consents, the
Bendells and the Company have entered into a management agreement pursuant to
which the Bendells will have the exclusive right and obligation to manage the
automobile dealerships acquired by the Company in connection with the Major Auto
Acquisition and any additional automobile dealerships that the Company may
acquire in the future. The management agreement is for a term ending on December
31, 2002 and may not be earlier terminated unilaterally by the Company. If the
Company continues to own automobile dealerships at the end of the term, the
management agreement may be unilaterally extended by the Bendell brothers in
order to maintain the level of management control that will avoid the need to
seek further manufacturer consents. 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 the Company (subject to approval by the
applicable manufacturers). As noted in the prior paragraph, Bruce and Harold
Bendell will retain the right to elect a majority of the directors of Major Auto
(and possibly other affiliates in the future) in order to facilitate obtaining
the required manufacturers' consents. Should the Boards of Directors of Major
Auto and the Company disagree as to a particular course of action, Major Auto
would nonetheless be able to take the action in question, except that the
management agreement prohibits certain actions without the prior approval by the
Company's Board of Directors. Those actions are (i) disposing of any of the
Major Auto dealerships, (ii) acquiring new dealerships, and (iii) the Company
incurring liability for Major Auto indebtedness.

As compensation for their performance under the management agreement, the
management agreement provides that the Bendells are entitled to receive
initially the same compensation that they theretofore received from the
dealerships to be acquired as part of the Major Auto Acquisition. As
compensation from such dealerships in 1996, Bruce Bendell received a salary of
$104,000 and a bonus of $300,000, and Harold Bendell received a salary of
$104,000 and a bonus of $180,000. Such compensation will be increased in a
manner to be negotiated upon expansion of the operations of those dealerships or
the Company's acquisition of new dealerships. The compensation that Bruce
Bendell is entitled to receive under the management agreement is in addition to
any other compensation that he is entitled to receive as Chairman of the
Company. In connection with the execution of the Management Agreement in March
1997, the

-44-
<PAGE>

Company is required to issue to the Bendells 100 shares of the 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 commencing on
January 7, 1998).

See "Planned Acquisition" for a description of the proposed Major
Auto Acquisition.

In April 1996, the Company acquired from Zvi Barak, then a director of the
Company, and Sarah Barak, his wife, all of the issued and outstanding stock of
Info Systems. Mr. Barak resigned his directorship on July 7, 1997. Pursuant to
the agreement between the Company and the Baraks, the Company acquired all of
the issued and outstanding shares of common stock of Info Systems. In exchange,
the agreement provides that the Baraks will receive $750,000, $300,000 of which
consists of twenty monthly installment payments of $15,000 from the Company to
the Baraks. The monthly installment payments commenced in September 1996 and are
scheduled to continue through June 1998. In order to secure such installment
payments, the Company has granted a security interest to the Baraks in the stock
of Info Systems and the other assets owned by Info Systems. To date, the Company
has withheld $85,000 of such installment payments as collateral for the Baraks'
obligation to make certain indemnification payments to the Company. The Company
has agreed to pay the Baraks the $85,000 by July 1998. In addition to monetary
compensation, each of the Baraks were issued 125,000 shares of the Company's
Common Stock, which vest (i) in the case of Sarah Barak, 25,000 shares vested on
December 31, 1997, 50,000 shares vest on each of December 31, 1998 and 1999 and
(ii) in the case of Zvi Barak, 25,000 shares per year on the last day of
February which commenced on February 28, 1997 and continues through February 28,
2002.

In March 1996, the Company's subsidiary Computer Business Sciences formed
a joint venture with Nissko Telecom, L.P., of which Yossi Koren, a director of
the Company is a limited partner. Mr. Koren is also a shareholder in Nissko
Telecom, Ltd. Nissko Telecom, Ltd. is the general partner of Nissko Telecom,
L.P. and also one of the Company's master agents. The joint venture arrangement
and the master agent arrangement are described above under "Description of
Business-Computer Telephony and Telecommunications Division-TalkieArrangements
with Nissko."

The Company has entered into a MOU with the Agent, the Nissko Principals,
and with the remaining limited partner of Nissko, Robert L. Rimberg. The MOU
looks toward restructuring the Nissko arrangements as described above under
"Description of Business--Computer Telephony and Telecommunications
Division-Talkie-Restructuring of Nissko Arrangements."

The Company has made a loan to its President and Chief Executive Officer,
Doron Cohen, in the principal amount of $140,000, bearing interest at 5.77% per
annum, uncompounded. The loan is evidenced by a promissory note dated December
31, 1996. The promissory note provides that the full principal amount of, and
all accrued interest on, the loan is due and payable in a single installment on
December 31, 1998.

Nissko Telecom Associates, the joint venture between Computer Business
Sciences and Nissko Telecom, L.P., of which Yossi Koren, one of the Company's
directors is a limited partner, occupies space free of charge at the Company's
principal office in Kew Gardens, New York, pursuant to an informal arrangement.

Bruce Bendell, and Major Chevrolet, Major Dodge and Major Chrysler
Plymouth Jeep Eagle, all of which are wholly-owned by Bruce Bendell and/or his
brother Harold Bendell, have guaranteed the obligations of Major Fleet under a
$5,000,000 line of credit with Marine Midland Bank. In addition, Bruce Bendell
and Major Fleet have guaranteed the obligations of Major Auto's subsidiaries
under certain of their agreements with various financial institutions pursuant
to which such subsidiaries sell their vehicle finance contracts and leases.
Major Fleet has pledged its assets to such financial institutions to secure its
guarantee. In addition, such subsidiaries have cross-guaranteed and
cross-collateralized their respective agreements with such financial
institutions. See "Description of Business-Automotive Sales Division-Dealership
Operations-Vehicle Financing" and "-Leasing Division" for a description of
certain transactions between Major Auto and Major Fleet.

-45-
<PAGE>

Major Subaru subleases from an unrelated third party approximately 2,500
square feet of office and automobile showroom space in Woodside, New York. This
lease expired on January 31, 1998 and contains no renewal provisions. The
property is currently being leased on a month-to-month basis. The annual rent
under such lease was $69,457.56. Pursuant to an informal arrangement between
Major Subaru and Major Fleet, Major Fleet occupies the space and pays the rental
payments.

Major Chrysler, Plymouth, Jeep Eagle, Major Dodge and Major Subaru lease
from Bendell Realty L.L.C., a company wholly owned by Bruce Bendell and Harold
Bendell, approximately 40,000 square feet in Long Island City, New York which is
used as a service facility. The lease expired on December 31, 1997 and contains
no renewal provisions. The property is currently being leased on a
month-to-month basis. The annual rent under such lease was $132,000.

The above properties which are leased from the Bendells will be acquired
by the Company in connection with the Major Auto Acquisition.

Major Fleet is a guarantor of a mortgage held by Chrysler Realty on the
property owned by Bendell Realty L.L.C., located in Long Island City which Major
Auto operates as a service center for Major Dodge, Major Subaru, and Major
Chrysler, Plymouth, Jeep Eagle. As of December 31, 1997 the outstanding mortgage
balance was approximately $800,000.

The promoters of the Company are Bruce Bendell and Doron Cohen. In
addition to the other transactions with Mr. Bendell and Mr. Cohen described or
referred to above under the heading "Certain Relationships and Related
Transactions," each of Mr. Bendell and Mr. Cohen received 2,500,000 shares of
the Company's Common Stock upon its incorporation in exchange for $25,000 or
$.01 per share.

-46-
<PAGE>

PART IV

Item 13. Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit
Number Description Page
- - ------ ----------- ----

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 7, 1997. N/A

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 of Company's Registration Statement on
Form 10-SB, as amended, filed with the Securities and
Exchange Commission on March 7, 1997. N/A

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<PAGE>

Exhibit Description Page
- - ------- ----------- ----

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 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. --

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. --

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

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

4.7 Form of Registration Rights Agreement between the
Company and Bruce Bendell. --

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. --

4.9 Form of Registration Rights Agreement between the
Company, Castle Trust and Management Services Limited
and Bruce Bendell. --

4.10 Form of the Company's 10% Convertible Subordinated
Debenture due 1999. --

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<PAGE>

Exhibit Description Page
- - ------- ----------- ----

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. --

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. --

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 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. --

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

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<PAGE>

Exhibit Description Page
- - ------- ----------- ----

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-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

-50-
<PAGE>

Exhibit Description Page
- - ------- ----------- ----

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, Inc., Major Acquisition Corp.
and Bruce Bendell. --

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. --

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. --

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. --

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. --

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

10.25 Letter of Intent, dated September 1997, between the
Company, Lichtenberg Robbins Buick, Inc. and
Lichtenberg Motors Inc. --

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<PAGE>

Exhibit Description Page
- - ------- ----------- ----

10.26 Consulting Agreement, dated February 18, 1997, with
Ronald Shapss Corporate Services, Inc. --

10.27 Value Added Reseller Agreement between Summa Four,
Inc. and Computer Business Sciences, Inc., as
Reseller. --

10.28 Lease Agreement, dated March 1996, between 80-02
Leasehold Company, as Owners and the Company, as
Tenant. --

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

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

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

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

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

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

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. --

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.

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

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. --

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. --

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<PAGE>

Exhibit Description Page
- - ------- ----------- ----

10.36 Lease Agreement, dated February 1996, between Prajs
Drimmer Associates, as Landlord, and Barak Technology
Inc., as Tenant. --

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

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

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

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. --

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

10.41 Chrysler Leasing System License Agreement between
Chrysler Motors Corporation, as Licensor, and Major
Fleet & Leasing Corp., as Licensee. --

10.42 GMAC Retail Plan Agreement between General Motors
Acceptance Corp. and Major Fleet & Leasing Corp., as
Dealer. --

10.43 Fidelity Holdings, Inc. 1996 Employees' Performance
Recognition Plan. --

10.44 Secured Promissory Note, dated December 31, 1996,
between Doron Cohen, as Maker, and Fidelity Holdings,
Inc., as 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. --

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. --

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. --

10.48 Dealer Master Agent Agreement and License, dated
February 1996, between Computer Business Sciences,
Inc. and Korean Telecom, as Master Agent. --

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<PAGE>

Exhibit Description Page
- - ------- ----------- ----

10.49 Dealer Master Agent Agreement and License, dated
February 1996, between Computer Business Sciences,
Inc. and Philcom Telecommunications, as Master Agent. --

10.50 Management Agreement, dated August 23, 1996, between
Major Fleet, Bruce Bendell and Harold Bendell. --

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

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

10.52 Direct Leasing Plan Dealer Agreement, dated July 24,
1986, between GMAC and Major Fleet. --

10.53 Retail Lease Service Plan Agreement, dated April 3,
1987, between GMAC and Major Fleet. --

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

10.55 Letter of Commitment dated March 16, 1998 from Falcon
Financial, LLC to Major Auto Acquisition, Inc. --

21.1* List of Subsidiaries of the Company, incorporated
by reference to Exhibit 22.1 of Company's
Registration Statement on Form 10-SB, as amended,
filed with the Securities and Exchange Commission on
March 7, 1997. --

27.1 Financial Data Schedule.

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

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

(b) Reports on Form 8-K

During the last quarter of Fiscal 1997, the Company did not file any
Reports on Form 8-K.

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<PAGE>

FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
December 31,
1997 1996
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 217,191 $ 574,486
Net Investment in direct financing leases, current 1,644,575 1,390,598
Notes receivable - officer shareholder 148,400 142,659
Accounts receivable 1,650,919 179,837
Inventories 164,661 1,212,062
Other current assets 375,172 45,349
------------ -----------
Total current assets 4,200,918 3,544,991
Net investment in direct financing leases,
net of current portion 687,106 1,059,287
Property and equipment, net 1,236,513 1,023,523
Excess of costs over net assets acquired 2,738,911 3,042,144
Other intangible assets 428,571 483,474
Other assets 109,324 163,445
------------ -----------
Total assets $ 9,401,343 $ 9,316,864
============ ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Notes payable bank $ 150,000 $ -
Accounts payable 438,630 419,052
Accrued expenses 400,677 522,026
Current maturities of long-term debt 575,185 643,976
Accrued income taxes - 4,378
Deferred revenue 72,570 67,409
Due to affiliates 143,926 1,404,079
------------ -----------
Total current liabilities 1,780,988 3,060,920
Long-term debt, less current maturities 427,387 515,609
Income taxes, deferred 583,000 424,000
Other 85,233 72,122
------------ -----------
Total liabilities 2,876,608 4,072,651
Commitments
Stockholders' equity
Preferred stock, .01 par value;
2,000,000 shares authorized,
250,000 shares issued and outstanding
in 1997 and 1996 2,500 2,500
Common stock, .01 par value
50,000,000 shares authorized,
6,895,700 shares issued and
outstanding in 1997 and
6,279,200 shares issued and
outstanding in 1996 68,957 62,792
Additional paid in capital 5,414,293 4,509,108
Cumulative translation adjustment 297 264
Retained earnings 1,038,688 669,549
------------ -----------
Total stockholders' equity 6,524,735 5,244,213
------------ -----------
Total liabilities and stockholders' equity $ 9,401,343 $ 9,316,864
============ ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

-2-
<PAGE>

FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Revenues:
Computer products and
telecommunications equipment $ 2,909,251 $ 3,175,528
Leasing income 953,033 258,947
-------------- ----------------
Total revenues 3,862,284 3,434,475
-------------- ----------------
Operating expenses:
Cost of products sold 823,397 965,792
Selling, general and
administrative expenses
Products 1,100,564 935,529
Leasing 816,360 191,372
Amortization of intangible assets 343,744 178,104
-------------- ----------------
3,084,065 2,270,797
-------------- ----------------
Operating income 778,219 1,163,678

Other income (expense)
Interest expense (121,092) (24,132)
Interest income 8,487 9,830
Loss on joint venture (137,475) (32,410)
-------------- ----------------
Income before provision for income taxes 528,139 1,116,966

Provision for income taxes 159,000 441,000
-------------- ----------------
Net income $ 369,139 $ 675,966
============== ================
Earnings per share
Basic $ .06 $ 0.12
Diluted $ .05 $ 0.11

Shares used in computing earnings per share
Basic 6,454,350 5,623,739
Diluted 7,550,546 6,315,489
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

-3-
<PAGE>

FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Currency Total
----------------- --------------------- Paid-In Earnings Translation Stockholders'
Shares Amount Shares Amount Capital (Deficit) Adjustment Equity
------ ------ ------- ------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
Common Stock -- $ -- 5,000,000 $50,000 $ -- $ -- $ -- $50,000

Net Loss -- -- -- -- -- (6,417) -- (6,417)

Balance --------------------------------------------------------------------------------------------------
December 31, 1995 -- -- 5,000,000 50,000 -- (6,417) -- 43,583

Issuance of Common
Stock and exercise of
warrants net of
expenses -- -- 990,000 9,900 979,000 988,900

Issuance of Common
Stock as payment for
long-term debt -- -- 160,000 1,600 398,400 -- -- 400,000

Issuance of common
Stock for the acquisition of
786710 Ontario Ltd. -- -- 125,000 1,250 623,750 -- -- 625,000

Issuance of Preferred
stock for the acquisition
of Major Fleet &
Leasing Corp. 250,000 2,500 -- -- 2,497,500 -- -- 2,500,000

Net income -- -- -- -- -- 675,966 -- 675,966

Effect of stock compensation
charge -- -- 4,200 42 10,458 -- -- 10,500

Translation
adjustment -- -- -- -- -- -- 264 264

Balance
December -------------------------------------------------------------------------------------------------
31, 1996 250,000 2,500 6,279,200 62,792 4,509,108 669,549 264 5,244,213

Issuance of Common
Stock pursuant to exercise
of warrants -- -- 523,000 5,230 648,520 -- -- 653,750

Effect of stock compensation
charge -- -- 93,500 935 256,665 -- -- 257,600

Net income -- -- -- -- -- 369,139 -- 369,139

Translation adjustment -- -- -- -- -- -- 33 33

Balance -------------------------------------------------------------------------------------------------
December 31, 1997 250,000 $2,500 6,895,700 $68,957 $5,414,293 $1,038,688 $297 $6,524,735
=================================================================================================
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

-4-
<PAGE>

FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended Year Ended
December 31, December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 369,139 $ 675,966
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Amortization of intangible assets 343,744 178,104
Depreciation 495,118 123,330
Deferred income taxes 159,000 424,000
Non cash items - stock based compensation 257,600 10,500
(Increase) decrease in assets:
Net investment in direct financing leases 118,204 (1,612,675)
Notes receivable (5,741) (142,659)
Accounts receivable (1,471,082) (20,229)
Inventories (110,655) (15,026)
Other assets (261,310) (31,304)
Increase (decrease) in liabilities:
Accounts payable 32,689 108,079
Accrued expenses (121,349) 416,282
Accrued income taxes (4,378) 4,378
Deferred revenue 5,161 3,075
Due to affiliates (102,097) 26,121
-------------- -------------
Net Cash (used in)provided by
operating activities (295,957) 147,942
-------------- -------------
Cash flows from investing activities:
Additions to property and equipment (708,108) (77,326)
Acquisition of 786710 Ontario Limited,
net of cash acquired -- (738,636)
-------------- -------------
Net cash used in investing activities (708,108) (815,962)
-------------- -------------
Cash flows from financing activities:
Line of credit 150,000 --
Proceeds from long-term debt 416,431 400,000
Payments of long-term debt (573,444) (170,321)
Proceeds from issuance of common
stock and exercise of warrants net of expenses 653,750 973,500
-------------- -------------
Net cash provided by financing activities 646,737 1,203,179
-------------- -------------
Effect of exchange rates on cash 33 264
-------------- -------------

Net increase (decrease) in cash and cash equivalents (357,295) 535,423
Cash and cash equivalents, beginning of year 574,486 39,063
-------------- -------------
Cash and cash equivalents, end of year $ 217,191 $ 574,486
============== =============

Supplemental Disclosures Of Cash Flow Information:
Cash paid during the year for:
Interest $ 121,092 24,132
Income taxes $ 16,809 --

</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

-5-
<PAGE>

FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1) Summary of Significant Accounting Policies:

a) Nature of the Business:

Fidelity Holdings, Inc. (The Company) was incorporated under the laws of the
State of Nevada on November 7, 1995. The Company is structured as a holding
Company that has two divisions, a Computer Telephony and Telecommunication
Division and a Plastics and Utility Division. The plastics and utility division
is considered to be in its development stage. In addition, through its October
1, 1996 acquisition of Major Fleet & Leasing Corp., the Company is in the
business of leasing automobiles, trucks and telephone equipment under direct
financing and operating leases.

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 per Share:

In February 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share",
applicable for financial statements issued for periods ending after December 15,
1997. As required, the Company adopted "SFAS" No. 128 for the year ended
December 31, 1997 and restated all prior period earnings per share figures. The
Company has presented basic and diluted earnings per share. Basic earnings per
share excludes potential dilution and is calculated by dividing income available
to common stockholders by the weighted average number of outstanding common
shares. Diluted earnings 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
accounts, with a maturity of three months or less at the time of purchase. Cash
equivalents are stated at cost which approximates market value.

e) Inventories:

Inventories are stated at the lower of cost (first-in, first-out) or market.
Automobiles and trucks held for sale or lease are valued at the lower of cost
(specific identification) or market.

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 ten 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:

The Company recognizes revenue from the sale of telecommunications and computer
products at the date of product shipment. Any additional costs related to the
product sold are provided for at the time of the sale. 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.

-6-
<PAGE>

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 translation
adjustment included in stockholders' equity in the accompanying consolidated
balance sheets.

i) Use of Estimates In Preparation of Financial Statements:

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amount 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.

j) Excess of Costs over Net Assets Acquired:

The excess of cost over fair value of net assets of businesses acquired is
amortized on a straight-line basis from five to fifteen years. Amortization
recorded in 1997 was $303,233 and in 1996 was $137,593.

k) Impairment of Long-Lived Assets

Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be disposed of. SFAS No. 121 requires the Company to
review the recoverability of the carrying amount of its long-lived assets
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable.

In the event that facts and circumstances indicate that the carrying amount of
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the assets' carrying amount
to determine if a write-down to fair value is required. Fair value may be
determined by reference to discounted future cash flows over the remaining
useful life of the related asset. Such adoption did not have a material effect
on the Company's consolidated financial position or results of operations.

l) Fair Value Disclosures

The carrying amounts reported in the Consolidated Balance Sheets for cash and
cash equivalents, notes and accounts receivable, accounts payable, accrued
expenses, 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, including the current portion, is estimated
based on current rates offered to the Company for debt of the same remaining
maturities.

m) Stock Options

The Company accounts for its stock options in accordance with the provisions of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted the
disclosure requirements of Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. Had the Company determined
Compensation Cost based on fair value at the grant date for stock options under
SFAS No. 123 the effect would have been immaterial.

n) New Accounting Pronouncements

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information". "SFAS" No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company will be required to comply with the
requirements of SFAS

-7-
<PAGE>

No. 130 for the year ending December 31, 1998. SFAS No. 131 establishes revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. The Company will be required to comply
with the requirements of SFAS No. 131 in the year ending December 31, 1998. The
Company believes that the implementation of these statements will not have a
significant impact on the nature of information disclosed in the Company's
consolidated financial statements.

2) Accounts Receivable:

The Company evaluates its accounts receivable on a customer by customer basis
and has determined that no allowance for doubtful accounts was necessary at
December 31, 1997 and 1996.

3) Notes Receivable - Officer Shareholder:

The Company holds a note in the principal amount of $140,000 plus accrued
interest of $8,400 in 1997 and $2,659 in 1996. Interest rate is 5 7/8 % per
annum.

4) Net Investment in Direct Financing Leases:

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

December 31,
------------
1997 1996
---- ----

Total minimum lease payments to be received $2,448,089 $2,705,711
Estimated residual value of leased property 260,129 200,315
Unearned income (315,641) (456,141)
---------- ----------
2,392,577 2,449,885
Less lease income receivable (60,896) -0-
---------- ----------
Net investment $2,331,681 $2,449,885
---------- ----------

Future minimum lease payments receivable at December 31, 1997 is as follows:

Year Ending
December 31, Amount
------------ ------
1998 $1,776,015
1999 601,621
2000 39,896
2001 21,017
2002 9,540
----------
Total $2,448,089
----------

5) Inventories:

Inventories consisted of the following:

December 31,
-----------
1997 1996
---- ----
Telecommunication parts $ 40,306 $ 36,395
Automobiles and trucks
held for sale or lease 124,355 1,175,667
----------- -----------
$ 164,661 $ 1,212,062
----------- -----------

6) Property and Equipment:

Property and equipment consisted of the following:

December 31,
-----------
1997 1996
---- ----
Leasehold improvements $ 12,159 $ 22,096

-8-
<PAGE>

Furniture and fixtures 84,033 10,314
Computer equipment and software 983,285 804,639
Leased equipment 624,254 309,803
----------- -----------
1,703,731 1,146,852
Less accumulated depreciation
and amortization 467,218 123,329
----------- -----------
$ 1,236,513 $ 1,023,523
----------- -----------

7) 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 for taxes on income is as follows:

Year Ended December 31,
-----------------------
1997 1996
---- ----
Federal:
Current $ -0- $ 13,000
Deferred 127,000 319,000

State:
Current -0- 4,000
Deferred 32,000 105,000
----------- -----------
Total $159,000 $441,000
----------- -----------

The reconciliation between the amount computed by applying the federal statutory
rate to income before income taxes and the actual income tax expense were as
follows:

Year Ended December 31,
-----------------------
1997 1996
---- ----
Amount using the statutory Federal
tax rate $ 180,000 $ 380,000
State income tax, net of federal
tax benefit 21,000 69,000
Other, Net (42,000) (8,000)
----------- -----------
Provision for taxes on income $ 159,000 $ 441,000
----------- -----------

The tax effect of temporary differences resulted in deferred tax liabilities as
follows:

December 31,
-----------
1997 1996
---- ----
Temporary Differences

Revenue and expenses of consolidated subsidiary
recognized on the cash basis for tax purposes,
resulting in a timing difference $ 112,974 $ 399,427

Depreciation 42,015 17,310

-9-
<PAGE>

Other 4,011 7,263
--------- ---------
Total $ 159,000 $ 424,000
--------- ---------

8) Secured Line of Credit:

In November 1997, the Company entered into a "Line of Credit Agreement: with
Marine Midland Bank for $250,000. The interest rate is a variable rate based on
the bank's prime rate of interest. Interest will be payable monthly.

The "Line" is collateralized by a first security interest in and UCC filing on
all assets of Fidelity Holdings, Inc., and the personal guarantees of the
majority shareholders, Bruce Bendell and Doran Cohen, each of whom will be
limited to 50% of the total obligation to the Bank.

As of December 31, 1997, the Company owes $150,000 against the line.

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,
1997 ranged between 8% and 8.5%. 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.

Maturities are as follows:

Year Ending December 31,
------------------------
1997 1996
---- ----
1997 $ -0- $463,976
1998 483,852 230,851
1999 293,150 70,437
2000 76,015 6,594
2001 40,045 -0-
2002 18,177 -0-
-------- --------
Total $911,239 $771,858
-------- --------

In addition long-term debt includes amounts due from the acquisition of 786710
Ontario Limited.

Maturities are as follows:

Year Ending December 31,
------------------------
1997 1996
---- ----

1997 $ -0- $180,000
1998 91,333 207,727
-------- --------
Total $91,333 $387,727
-------- --------

10) Business Combinations

a) Acquisition of 786710 Ontario Limited

On April 18, 1996, the Company acquired 786710 Ontario Limited, doing business
as "Info Systems". Info Systems developed both the complex of telecommunications
and interactive voice response modules known as "Talkie", including
"Talkie-Globe" for international calling and the talkie power web line machine
system and "BCS" - "Business Control Software", an integrated group of modules
for accounting functions capable of real time use in various languages and
currencies.

-10-
<PAGE>

Talkie is a trademarked name for an interrelated group of module's and
applications of telephonic and interactive voice processing software which Info
Systems had marketed for several years.

The transaction was accounted for under the purchase method of accounting and
the total cost for the acquisition was $1,413,977. The results of operations for
786710 are included in the Company's "Consolidated Statements of Operations"
from April 18, 1996, the date of acquisition.

The Company issued 125,000 of its shares valued at $625,000 for the acquisition.
These shares shall vest at the rate of 25,000 shares per year over a five year
period.

The Company independently reviewed their investment in this technology to ensure
proper valuation on the financial statements.

The cost of $1,413,977 was allocated as follows:

Fair value of net assets acquired at April 18, 1996,
mainly computer software and equipment $ 729,603

Intangible asset-excess of costs over net assets acquired 684,374
----------
Total $1,413,977
----------

The excess of costs over net assets acquired amounting to $684,374 is being
amortized over a five-year period.

b) Acquisition of Major Fleet & Leasing Corp.

On October 1, 1996 the Company acquired from Bruce Bendell (Chairman of the
Board of the Company) and his brother, Harold Bendell (together "the Bendells)
Major Fleet & Leasing Corp., organized in 1985 and engaged in the leasing and
financing of motor vehicles, primarily in the New York City metropolitan area.
Since becoming a wholly-owned subsidiary of the Company, it has expanded its
operations to include the leasing of telephone equipment.

The transaction was accounted for under the purchase method of accounting and
the total cost for the acquisition was $2,500,000. The results of operations for
Major Fleet & Leasing Corp. are included in the Company's "Consolidated
Statements of Operations" from October 1, 1996, the date of acquisition.

The Company issued 250,000 shares of Convertible Preferred Stock (The 1996 -
Major Series), convertible into 500,000 shares of the Company's Common Stock. In
addition, as a bonus for the attainment of certain goals prior to closing, the
Bendells were issued 100,000 shares of Common Stock. In addition the Bendells
were issued warrants for the purchase of 100,000 shares of the Company's Common
Stock at a price of $1.25 per share.

The cost of $2,500,000 was allocated as follows:

Fair value of net assets acquired at October 1, 1996 $ 4,637

Intangible asset-excess of costs over net assets acquired 2,495,363
---------

Total 2,500,000
---------

The excess of costs over net assets acquired amounting to $2,495,363 is
being amortized over a fifteen-year period.

-11-
<PAGE>

Separate results for the periods prior to the acquisition were as follows:

Nine month Year ended
period ended December 31, 1995
9/30/96
------------ -----------------

Revenues $ 692,314 $1,105,434
--------- ----------
Net income $ 158,383 $ 310,051
--------- ----------

The results of operations for the year ended December 31,1996, combining the
acquisition of Major Fleet & Leasing Corp. and 786710Ontario Limited as though
they were both acquired by the Company as of January 1, 1996, are as follows:

Revenues $ 4,385,884
Net income 609,430

11) Other intangible Assets consist of:

Patents

The Company has purchased two patents to be used in the manufacture of armored
conduit. The patents, which were valued at their cost to the seller, will be
amortized over the remaining useful life of 14 years on the straight line basis.

The Company has an agreement with the seller of the patents to pay royalty
payments. The payments will be calculated at the greater of 5% of the
manufactured cost of the armored conduit or 2% of the net sales.

The Company has reclassified "Licenses" appearing on the December 31, 1996
balance sheet to excess of cost over net assets acquired. There was no effect on
1996 income.

12) Commitments:

Compensation Agreements:

Mr. Bruce Bendell, Chairman of the Board of the Company, entered into a
Consulting Agreement effective January 1, 1996. The Consulting Agreement
provides for base annual compensation of $150,000 and provides for increases in
such base compensation and for performance-based and discretionary bonuses.

Mr. Doron Cohen, President and Treasurer of the Company, entered into an
Employment Agreement effective January 1, 1996. The Agreement provides for base
annual compensation of $150,000 and provides for increases in such base
compensation and for both performance-based and discretionary bonuses.

Both Mr. Bendell and Mr. Cohen waived their compensation for 1996: there is no
accrual. However, there was compensation paid to Mr. Cohen by the Company's
Telecommunication subsidiary in the amount of $50,000 in 1996. In 1997
compensation paid and accrued to Mr. Cohen amounted to $150,000. Mr. Bendell
waved his compensation in 1997. Neither Mr. Bendell nor Mr. Cohen has any stock
options, stock appreciation rights ("SAR") or deferred compensation.

Sales of Customer Installment Contracts:

The Company's leasing subsidiary has sold customer installment contracts to some
financing institutions with no recourse and to others with full recourse. In the
event of default on recourse loans, the Company would pay the financing
institution a predetermined amount and would repossess and sell the vehicle. No
accrual has been made for possible losses since, in management's opinion on an
aggregate basis, the

-12-
<PAGE>

Company could sell the repossessed automobiles for amounts in excess of
outstanding liabilities. The "pre-determined" amount that must be paid by the
Company in the event of default is $20,460.

Guarantor of Third Party Obligations:

Under the terms of a cross-guarantee, cross-default, cross-collateralization
agreement, the Company's leasing subsidiary is the guarantor of debt incurred by
affiliated companies. In addition, the subsidiary is a guarantor on a mortgage
of an entity which is wholly owned by officer-shareholders of the Company. The
outstanding balance of the mortgage on December 31, 1997 is $844,737.

In addition, an officer shareholder has personally guaranteed leases purchased
by the subsidiary from European American Bank. The balance due to European
American Bank at December 31, 1997 is approximately $237,000.

Legal Proceedings

On November 22, 1996, the Company and two subsidiaries filed an action in the
New York Supreme Court in Queens County indexed at 25678-96 and captioned
"Fidelity Holdings, Inc., Computer Business Sciences, Inc. and 786710 (Ontario)
Limited, Plaintiffs, versus Michael Marom and M. M. Telecom, Corp. "claiming
damages of $5,000,000 for breach of contract, libel, slander, disparagement,
violation of copyright laws, fraud and misrepresentation. On February 4, 1997
the Defendants filed an amended Answer, and a Counterclaim seeking damages of
$50,000,000 for breach of contract and violation of the Lanham Act. The
Plaintiffs have filed an Answer to the Counterclaim. Discovery has not yet
commenced.

On September 18, 1996, the Company's subsidiary, 786710 (Ontario) Limited, the
Company as owner of 786710, and the Baraks as the original principals of 786710,
were sued in the Ontario Court (General Division) by Touch Tone Connections,
indexed at 96-CU-111059. Touch Tone Connections seeks damages of CN$200,000 in
connection with the installation, in 1995, of certain hardware and software
claimed to have been faulty and not meeting the sales representation. All of the
events occurred prior to the Company's acquisition of 786710 and the Baraks
indemnified the Company against any such action.

The Company filed an action in the Supreme Court of the State of New York
seeking a return of $100,000 paid and 160,000 shares of common stock issued to
the sellers of the two patents referred to in Note 11. Such amounts were paid
pursuant to a First Amendment to the Patent Sale and Purchase Agreement dated
September 30, 1996 ("Patent Agreement Amendment"). The Patent Agreement
Amendment was entered into in settlement of litigation brought by the Company
against the sellers of the patents. Such litigation was for damages related to
misrepresentations concerning additional development expenditures required in
connection with the subject patents. The Company intends to reinstate its
litigation to modify the purchase price of the relevant patents. Management
believes that, whatever the outcome of any or all of the foregoing actions,
there will be no material impact on the Company's assets, earnings or net worth.

In a related matter, the Company received notice from an individual claiming to
have acquired, through foreclosure of a security interest, 12,000 shares of the
Company's common stock originally issued to the sellers of the patents as
discussed in the preceding paragraph. Such individual requested the Company to
exchange his restricted certif icates for ones without restriction. Upon advice
of counsel, the Company will not accede to this request until such time as the
holder demonstrates compliance with the rules of the Securities Act of 1933
relating to the lifting of restrictions after the passage of time for the
appropriate holder. This individual has also asserted a number of claims against
the Company, including some related to the patent acquisition discussed in the
preceding paragraph. The Company has been advised by counsel that such claims
are without merit.

While it is not possible to determine the ultimate disposition of these
proceedings, the Company believes that the outcome of such proceedings will not
have a material adverse effect on the financial position or results of
operations of the Company.

-13-
<PAGE>

13) Related Party Transactions:

Approximately 13% in 1997 and 55% in 1996 of the Company's revenues derived from
the sale of computer products and telecommunications equipment was from Nissko,
a partner with the Company on a joint venture in which the Company owns 45%. The
Company will receive 45% of the net revenues generated by the joint venture. The
investment in the Joint Venture is recorded under the Equity Method of
Accounting.

Amounts due affiliates are amounts owed by the 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 non-interest-bearing obligations with no specified maturity dates. The
subsidiary also, purchased a substantial portion of its leased vehicles from
affiliates.

The Company has a note receivable from an officer shareholder in the amount of
$140,000 plus accrued interest of $8,400.

14) Warrants and Options:

a) Warrants

In October 1996 the Company revised the Patent Purchase Agreement. Under the
amendment the purchase price was changed form $500,000 in cash to a combination
of $100,000 in cash and the balance in 80,000 unregistered units of the
Company's securities. Each unit consisted of 2 shares of Common Stock and 2
warrants, each warrant being for the purchase of 1 share of the Company's common
stock at an exercise price of $3.125 per share exercisable for one year which
expired in October 1997.

In March 1996, the Company issued to Nissko Telecom, Inc. and its investors,
warrants to purchase 1,500,000 shares of the Company's Common Stock at a price
of $1.25 per share. In 1997 warrants to purchase 523,000 shares were exercised,
leaving a balance of 977,000 outstanding. Of this amount, class B Warrants for
750,000 shares, which were exercisable thru March 19, 1998, were unexercised by
that date, and, therefore, lapsed. In addition the Company issued warrants for
the purchase of 100,000 shares, in connection with the Management agreement
entered into when the Company acquired Major Fleet & Leasing Corp. The total
number of warrants outstanding at December 31, 1997 was 1,077,000 exercisable at
$1.25 per share.

b) Options

As required by FASB 123, the Company has determined the pro-forma information as
if the Company had accounted for stock options granted since January 1,1996,
under the fair value method of FASB 123. An option pricing model similar to the
Black-Scholes was used with the following weighted average assumptions used for
grants in the years 1997 and 1996, respectively; expected volatility of 80
percent; risk free interest rate of 6% and 5.5% respectively and expected lives
of 5 years. The pro-forma effect of these options on net earnings was not
material.

In consideration for certain financial services related to the planned
acquisition of the Major Auto Group, the Company has issued options to purchase
50,000 shares of the Company's common stock for $4.50 per share, exercisable
until May, 2002. These are the only options outstanding at December 31, 1997.

15) Preferred Stock:

Of the 2,000,000 shares of undesignated Preferred Stock authorized, to date the
Company has designated 250,000 shares as the 1996-Major Series. The shares of
the 1996-Major Series are voting, vote with the Common Stock and not as a
separate class and each share has two votes per share reflecting the underlying
conversion rate. The shares of the 1996 Major Series are convertible, with each
share converting into two shares of Common Stock. In the event that a dividend
is declared on the Common Stock, a dividend of twice the per share dividend on
the Common Stock must be declared on the 1996-Major Series, again reflecting the
underlying conversion rate. The shares are redeemable after December

-14-
<PAGE>

31, 2001 at a price of $15.87 per share. The liquidation preference is ten
dollars per share or a total of $2,500,000. Pursuant to an agreement between the
Company and the preferred stockholders, the right of rescission (under certain
circumstances), which was a part of the original agreement, has been rescinded.

Common Stock

In 1996 the Company issued at no cost to various employees, in recognition of
their services in 1996, 4,200 shares of common stock. The value assigned to each
of the relevant issues was $2.50 per share based on a discount determined by
management to reflect the lack of marketability due to the fact that the shares
are restricted securities.

The fair values of additional shares issued in connection with employment
agreements will be charged as compensation expense (and capital in excess of par
credited) ratably during each month of employment over which the shares will be
earned, i.e. vest. Vesting periods are from three to five years from date of
employment. Such common stock was issued in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act.

Pursuant to oral agreements entered into in January 1996, in connection with
investment banking marketing services rendered to the Company, the Company in
October 1996, upon the completion of these services issued 200,000 shares of its
stock at its par value of $.01 per share. The gross proceeds to the Company from
such sales were $2,000.00, which was considered to be the fair value in January
1996. Such common stock was issued and sold in reliance upon the exemption from
registration contained in Section 4(2) of the Securities Act.

The warrants issued in connection with the management agreement referred to in
Note 14 are convertible into restricted shares at $1.25 per share, was separate
and distinct from the Major Fleet acquisition and was performance based with no
registration rights and could have been terminated. Therefore, a lower value was
assigned to reflect a discount for marketability and risk.

In 1997, the Company issued 67,000 shares valued at $2.80 per share which was
considered to be the fair value in connection with legal and financial services
rendered in connection with the proposed acquisition of the Major Auto Group.
The $187,600 value of the shares issued has been deferred and included in other
assets which amount will be charged as part of the cost of acquisition at
closing.

16) Business Segments

The Company currently operates in two industry segments:

Computer and telephony products and leasing;

It also has a plastics division currently in the development stage.
The Company's operation by industry segment for the year ended December
31, 1997 is as follows:

Industry
--------
Computer Leasing Other Consolidated
Products Income
----------- ----------- ----------- -----------

Revenues $2,909,251 $953,033 -- $3,862,284
----------- ----------- ----------- -----------
Operating income 641,546 136,673 -- 778,219
----------- ----------- ----------- -----------
Interest expense -- 121,092 -- 121,092
----------- ----------- ----------- -----------
Interest income 8,400 87 -- 8,487
----------- ----------- ----------- -----------
Loss on joint venture -- -- 137,475 137,475
----------- ----------- ----------- -----------
Income before income taxes $528,139
-----------

-15-
<PAGE>

Capital expenditures 268,761 439,347 -- 708,108
----------- ----------- ----------- -----------
Depreciation and
amortization of property
and equipment 203,193 291,925 -- 495,118
----------- ----------- ----------- -----------
Amortization of
other assets -- -- 343,744 343,744
----------- ----------- ----------- -----------
Identifiable assets 4,039,589 5,361,754 -- 9,401,343
----------- ----------- ----------- -----------

The Company's operation by industry segment for the year ended December 31, 1996
is as follows:

Industry
--------
Computer Leasing Other Consolidated
Products Income
---------- ----------- ----------- -----------

Revenues $3,175,528 $ 258,947 -- $ 3,434,475
---------- ----------- ----------- -----------
Operating income 1,034,143 129,535 -- 1,163,678
---------- ----------- ----------- -----------
Interest expense -- (24,132) -- (24,132)
---------- ----------- ----------- -----------
Interest income 2,920 6,910 -- 9,830
---------- ----------- ----------- -----------
Loss on joint venture (32,410) (32,410)
---------- ----------- ----------- -----------
Income before income taxes $ 1,116,966
-----------
Capital expenditures 837,040 309,812 -- 1,146,852
---------- ----------- ----------- -----------
Depreciation and
amortization of property
and equipment 63,980 59,349 -- 123,329
---------- ----------- ----------- -----------
Amortization of
other assets -- -- 178,104 178,104
---------- ----------- ----------- -----------
Identifiable assets 2,677,219 6,639,645 -- 9,316,864
---------- ----------- ----------- -----------

17) Planned Acquisitions:

The Company has entered into a letter of intent with Mr. Bruce Bendell, Chairman
of the Board to acquire for stock and cash certain automobile dealerships, real
estate and facilities subject to certain conditions.

In the third quarter of 1997, the Company made the decision to acquire from all
of its master agents their rights to their respective territories and the Talkie
Power Line Web Machines previously sold to them. The company believes that it
can maximize its profitability by selling for itself the telephone minutes to
the existing and additional territories. Negotiations are currently underway
with each of the Company's master agents to finalize the memorandum of
understanding with respect to these acquisitions.

-16-
<PAGE>

18) Subsequent Events:

To finance the cash portion of the acquisition of dealerships and related
properties, the Company has secured a loan commitment of 7.5 million from a
third party lender. The loan will be secured by the assets acquired in the
transaction and the borrower will be required to maintain certain financial
covenants related to net worth and cash flow.

Also, to provide additional working capital, the Company is offering privately
to a small number of accredited investors convertible debentures paying 10%
interest and due in fourteen months. The minimum amount to be sold is $.5
million to a maximum of $1.5 million.

-17-
<PAGE>

REPORT OF INDEPENDENT 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, 1997 and 1996 and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. 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 did not examine the financial statements of
Major Fleet & Leasing Corp. and 786710 Ontario Limited, both wholly-owned
subsidiaries, which statements, after intercompany eliminations, reflect total
assets of $3,270,885 as of December 31, 1997 and $4,299,354. as of December 31,
1996 and total revenue of $1,797,394 in 1997 and $796,602 in 1996. Those
statements were audited by other auditors whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for Major
Fleet & Leasing Corp. and 786710 Ontario Limited is based solely on the report
of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. 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 audit and the reports of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audit and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Fidelity Holdings, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

/s/ PETER C. COSMAS CO., CPA'S

PETER C. COSMAS CO., CPA'S
New York, New York
March 31, 1998

F - 1
<PAGE>

Signatures

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

Fidelity Holdings, Inc.

Dated: April 8, 1998 By:/s/ Doron Cohen
---------------
Doron Cohen, President

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

Signature Title Date
--------- ----- ----
/s/ Doron Cohen Chief Executive Officer, President, April 9, 1998
- - ------------------------- Treasure and Director
Doron Cohen

/s/ Bruce Bendell Chairman of the Board April 9, 1998
- - ------------------------
Bruce Bendell

/s/ Yossi Koren Director April 9, 1998
- - ------------------------
Yossi Koren

/s/ Glenn H. Bank Secretary April 9, 1998
- - ------------------------
Glenn H. Bank

/s/ Richard L. Feinstein Chief Financial Officer April 9, 1998
- - ------------------------
Richard L. Feinstein

-55-

Exhibit 11

Statement re: Computation of Per Share Earnings

FIDELITY HOLDINGS, INC.

COMPUTATION OF EARNINGS PER COMMON SHARE

Number of shares outstanding January 1, 1997 6,279,200

Common stock issued during the year:

Weighted
Average
Date Days Number of Number of
Issued Outstanding Shares Shares

March 20,1997 286 26,500 20,764
August 8, 1997 145 50,000 19,863
September 30, 1997 92 523,000 131,822
November 3, 1997 58 17,000 2,701
-----

Weighted average number of shares issued during 1997 175,150
-------

Number of shares used in computing basic earnings per share 6,454,350(A)

Dilution:
250,000 shares of Preferred Stock, each share
convertible into 2 shares of common stock 500,000
Warrants representing 1,077,000 shares, exercisable
at $1.25 per share, with the average market value
approximately $2.80 per share 596,196
-------

Number of shares used in computing diluted earnings per share 7,550,546(B)
---------

Earnings Per Share:

Net Income $ 369,139(C)

Earnings per share - basic [(C)/(A)] $ 0.06

Earnings per share - diluted [(C)/(B)] $ 0.05

-56-

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
RELATED FOOTNOTES OF FIDELITY HOLDINGS, INC. AND SUBSIDIARIES AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
FOOTNOTES.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 217,191 574,486
<SECURITIES> 0 0
<RECEIVABLES> 1,650,919 179,837
<ALLOWANCES> 0 0
<INVENTORY> 164,661 1,212,062
<CURRENT-ASSETS> 4,200,918 3,544,991
<PP&E> 1,703,731 1,146,852
<DEPRECIATION> (467,218) (123,329)
<TOTAL-ASSETS> 9,401,343 9,316,864
<CURRENT-LIABILITIES> 1,780,988 3,060,920
<BONDS> 1,002,572 1,159,585
0 0
2,500 2,500
<COMMON> 68,957 62,792
<OTHER-SE> 6,453,278 5,178,921
<TOTAL-LIABILITY-AND-EQUITY> 9,401,343 9,316,864
<SALES> 2,909,251 3,175,528
<TOTAL-REVENUES> 3,862,284 3,434,475
<CGS> 823,397 965,792
<TOTAL-COSTS> 3,084,065 2,270,797
<OTHER-EXPENSES> 137,475 32,410
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 121,092 24,132
<INCOME-PRETAX> 528,139 1,116,966
<INCOME-TAX> 159,000 441,000
<INCOME-CONTINUING> 369,139 675,966
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 369,139 675,966
<EPS-PRIMARY> .06 0.12
<EPS-DILUTED> .05 0.11

</TABLE>