SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(X) Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the quarterly period ended July 31, 1997
OR
( ) Transition Report pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number: 0-29182
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Fidelity Holdings, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Neveda 11-3292094
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(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
80-02 Kew Gardens Road, Ste 5000, Kew Gardens New York, 11415
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(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (718) 520-6500
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
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
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 16,466,771 shares of Common Stock,
par value $.0001 per share were outstanding as of July 31, 1997.
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INDEX
PAGE
PART I. FINANCIAL INFORMATION.......................
ITEM 1. FINANCIAL STATEMENTS..................... 1
Interim Consolidated Balance Sheet as of June
30, 1997 .................................... 2
Interim Consolidated Statement of Operations
as for the six months ended June 30, 1997
and 1996..................................... 3
Interim Consolidated Statement of Cash Flows
as for the six months June 30, 1997 and 1996 4
Interim Consolidated Statement of
Stockholders' Equity as for the six months
June 30, 1997 ............................... 5
Notes to Interim Consolidated Financial
Statements................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION........................ 7
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PART I
Item 1. Financial Statements
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1997 1996
UNAUDITED AUDITED
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Current Assets:
Cash and cash equivalents $ 672,728 $ 574,486
Net Investment in direct financing
leases, current 1,458,490 1,390,598
Notes receivable - officer and
shareholder 140,000 142,659
Accounts receivable 806,200 179,837
Inventories 152,449 1,494,020
Other current assets 81,482 45,349
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Total current assets 3,311,349 3,826,949
Net investment in direct financing leases,
net of current portion 857,324 1,059,287
Property and equipment 2,072,428 1,023,523
Excess of costs over net assets acquired 2,506,892 2,645,269
Other intangible assets 470,187 483,474
Other assets 285,574 278,362
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Total assets $9,503,754 $9,316,864
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 579,413 $ 419,052
Accrued expenses 60,387 522,026
Current maturities of long-term debt 1,087,721 643,976
Accrued income taxes 343,000 4,378
Deferred revenue 66,501 67,409
Deposits for exercise of warrants 653,750
Due to affiliates 145,173 1,404,079
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Total current liabilities 2,935,945 3,060,920
Long-term debt, less current maturities 387,087 515,609
Deferred income taxes 310,000 424,000
Other 75,725 72,122
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Total liabilities 3,708,757 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,
6,351,700 shares issued and
outstanding in 1997 and 6,279,200
in 1996 63,517 62,792
Additional paid in capital 4,550,383 4,509,108
Cumulative translation adjustment 310 264
Retained earnings 1,178,287 669,549
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Total stockholders' equity 5,794,997 5,244,213
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Total liabilities and
stockholders' equity $9,503,754 $9,316,864
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<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1997 1996
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Revenues:
Computer products and
telecommunications equipment $1,988,028 $ 626,096
Leasing income 489,628 --
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Total revenues 2,477,656 626,096
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Operating expenses:
Cost of products sold 426,779 249,183
Selling, general and
administrative expenses
Products 767,132 493,703
Leasing 364,576 --
Amortization of intangible assets 156,234 --
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1,714,721 742,886
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Operating income (loss) 762,935 (116,790)
Other income (expense)
Interest expense (73,724) (17,350)
Interest income 10,472 1,778
Income on joint venture 52,055 --
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Income (loss) before provision
for income taxes 751,738 (132,362)
Provision for income taxes 243,000 --
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Net income (loss) $ 508,738 $(132,362)
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Net income (loss) per common share $ .08 $ (.03)
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FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS ENDED JUNE 30
1997 1996
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Cash flows from operating activities:
Net income (loss) $508,738 $(132,362)
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities:
Amortization of intangible assets 156,234 52,075
Depreciation 264,758 41,752
Deferred income taxes (114,000) --
(Increase) decrease in asset
Net investment in direct financing
leases 134,071 --
Notes receivable 2,659 --
Accounts receivable (626,363) (70,235)
Inventories 941,571 (4,876)
Other assets (44,266) (28,045)
Increase (decrease) in liabilities:
Accounts payable 160,361 196,357
Accrued expenses (461,639) 13,002
Accrued income taxes 338,622 --
Deferred revenue (908) 337,551
Due to affiliates (1,258,906) --
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Net Cash provided (used) by
operating activities: 932 405,219
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Cash flows from investing activities:
Additions to property and equipment (413,663) (50,963)
Acquisition of 786710 Ontario Limited,
Net of Cash Acquired (738,636)
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Net Cash used in investing
activities (413,663) (789,599)
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Cash flows from financing activities:
Increase (payments) from long-term
debt-net (184,777) 441,988
Proceeds from issuance of common
stock and deposits for exercise
of warrants 695,750 183,800
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Net cash provided by financing
activities 510,973 625,788
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Net increase (decrease) in cash and cash
equivalents 98,242 241,408
Cash and cash equivalents, beginning
of period 574,486 39,063
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Cash and cash equivalents, end of period $ 672,728 $ 280,471
========== ========
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<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDING 6/30/97
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Additional Retained Currency Total
Preferred Stock Common Stock Paid-In Earnings Translation Stockholders'
Shares Amount Shares Amount Capital (Deficit) Adjustment Equity
--------- ------ ------ ------ ---------- ---------- ---------- ----------
Balance as of December
31, 1996 250,000 $2,500 6,279,200 $62,792 $4,509,108 $669,549 $264 $5,244,213
Effect of stock
compensation charge - - 72,500 725 41,275 - - 42,000
Net Income - - - - - 508,738 - 508,738
Translation Adjustment - - - - - - 46 46
--------- ------- --------- -------- --------- -------- --------- ----------
Balance as of June 30,
1997 250,000 $2,500 6,351,700 $63,517 $4,550,383 $1,178,287 $310 $5,794,997
========= ======= ========= ======== ========= ========== ===== ==========
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</TABLE>
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Fidelity Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 1997
1. Basis of Presentation:
The accompanying unaudited consolidated interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information. In the opinion of management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997. These financial statements
should be read in conjunction with the audited December 31, 1996 financial
statements and related notes included elsewhere herein.
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<PAGE>
Item 2. Management's Discussion And Analysis
Results of Operations -- Six-Month Period Ended June
30, 1997 and Six-Month Period Ended June 30, 1996
Revenues. Revenue for the six-month period in
1997 increased by $1,851,560 to $2,477,656. Revenue
for the comparable period in 1996 was $626,096. The
sources for such increase were:
Computer Telephony and Telecommunications $1,361,932
Leasing $ 489,628
The 1997 amounts reflect a full six months of operations for both
divisions, whereas in 1996 the Telecommunications division only began
operations during the second quarter and the Leasing division was not
acquired until the beginning of the fourth quarter.
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Cost of sales. Cost of sales for the six months ended June 30, 1997,
all of which relates to the Computer Telephony and Telecommunications
division, was $426,779 compared with $249,183 in the 1996 period. This is
an increase of $177,596 or 71.3% and is reflective of six full months of
operations in 1997 compared with operations which commenced in the second
quarter of 1996.
Gross profit. Gross profit for the Telecommunications division in the
1997 period was $1,561,249 which represented an increase of $1,184,336
over the prior comparable period's gross profit of $376,913. Additionally,
gross profit as a percentage of the related revenue increased to 78.5% in
the 1997 period over the 60.2% gross profit percentage in the comparable
1996 period. Both the dollar increase and the gross profit percentage of
revenues increases are reflective of the significantly larger volume of
sales and the concomitant reduction of costs as a percentage of sales
based on savings from economies of scale, volume discounts and
efficiencies.
Selling, general and administrative expense. Selling, general and
administrative expenses increased a total of $638,005 to $1,131,708 in
1997 from $493,703 in 1996. Of this increase $273,429 relates to the
Computer Telephony and Telecommunications division and $364,576 is from
the Leasing division. The telecommunications increase represents a 55.4%
increase to $493,703 incurred in the first half in 1996 compared with
$767,132 incurred in the first half on 1997. This increase is reflective
of a 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 six
months of activity in this division which was not acquired until the
fourth quarter of 1996.
Interest expense. Interest expense was $73,724 for the six months
ended June 30, 1997 compared with $17,350 for the comparable period in
1996. The increase of $56,374 relates primarily to the debt used to
finance the vehicles and equipment leased by the Company's leasing
division during the current period. There was no comparable amount in the
prior period.
Income on joint venture. Income from the Nissko Joint Venture was
$52,055 for the six months ended June 30, 1997. In the comparable prior
period operations of this joint venture had not yet commenced.
Liquidity and Capital Resources -- June 30, 1997
The Company
The Company's primary source of liquidity for the six months ended June
30, 1997 was net cash flows of $510,973 from its financing activities. This
amount was comprised of proceeds from issuance of Common Stock and deposits for
exercise of warrants aggregating $695,750, offset by net long-term debt
reductions of $184,777.
Net cash provided by operating activities during this period was $932 on
net income of $508,738 (net of non-cash charges of $306,992), reduced by a net
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decrease in working capital of $814,798. Such net decrease in working capital is
primarily attributable to (i) decrease in amounts due to affiliates of
$1,258,906 and (ii) increases in accounts receivable of $626,363, which were
primarily attributable to the Computer Telephony and Telecommunications division
as a result of increased sales by that division. Such increases were offset by
decreases in inventories amounting to $941,571, which were primarily
attributable to the Leasing division. These inventories consist of cars and
trucks which have come off lease and are being held for sale. The decrease
represents sales of such vehicles.
Net cash used in investing activities for the six months ended June 30,
1997 was $413,663 for the purchase of property and equipment, primarily cars and
trucks purchased for lease by the Leasing division.
The foregoing activities, i.e., financing, operating and investing,
resulted in a net cash increase of $98,242 for the six months ended June 30,
1997.
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