<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[XX] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997 or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-29182
FIDELITY HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 11-3292094
- - --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of 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)
(718) 520-6500
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Issuer's telephone number
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 __XX__ No ______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by
court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: The number of shares of the
registrant's common stock outstanding as of August 13, 1997 was 6,354,700.
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ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
BUSINESS OPERATIONS:
During the second quarter, Fidelity Holdings, Inc. (the "Company") and its
subsidiaries continued with their business plans, as outlined in Form 10-SB.
The Company
The Company proceeded with the development of the proposed new Division for
Automobile Sales (Dealerships) by making applications to the manufacturers of
automobiles sold by the dealerships owned by Major Automotive Group for the
transfer to the Company of rights and obligations under existing dealership
agreements.
Computer Telephony and Telecommunications Division
Computer Business Sciences, Inc. ("CBS") sold two (2) Talkie Power Web Line
Machines to America's New Beginning, Inc.
Reynard Service Bureau, Inc. is still commencing its operations and all services
were billed by CBS without any inter-company adjustments for the second quarter.
CBS Israel continued its R&D projects, including certain projects proposed to
make that subsidiary a profit center in addition to providing R&D and high level
product support for both CBS and 786710 (Ontario) Limited, doing business as
Info Systems ("Info Systems").
Info Systems continued its sales of software products. However, during the
quarter it also continued development of a marketing plan for the use of a
leasing program to be backed by Major Fleet & Leasing Corp.
Major Fleet and Leasing Corp. expanded its business of leasing motor vehicles
during the quarter. In June 1997, the Company began collection on the first of
four (4) leases to Nissko Telecom for the purchase of Talkie Power Web Machines.
Plastics and Utility Products Division
Hydrotherapy Fixtures - During the second quarter, Premo Plast, Inc. completed
approximately 70% of the initial phase of design and prototype construction.
Premo Plast, Inc. is now in the testing and re-design phase of the medium-size
range of products, and expects to finalize the designs, document all of its
efforts to date, identify tooling sources, and begin the production tooling
phase of this product size in the near future with a target completion date of
the first quarter of 1998. Upon completion of the medium-size product, Premo
Plast, Inc. will develop a larger size, designed with minor modifications to the
data base information.
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Premo Plast, Inc. estimates that a marketing staff will be in place and
shipments of product will begin late in first quarter of 1998.
The remainder of the initial product line mix will be designed, prototyped,
tested and tooled, ready for production during the first quarter of 1998.
Armored Conduit - Premo Plast, Inc. has identified new sources for production of
the components as well as an assembly and distribution location. The re-design
and engineering is ongoing with completion scheduled later this year with mold
modifications and new tooling additions to be completed in the second quarter of
1998.
LIQUIDITY AND CAPITAL RESOURCES:
During the second quarter, the Company expended cash in the payment of Accounts
Payable and in completion of the production of the Talkie Power Web Line
Machines sold during the first quarter of 1997. This resulted in a reduction of
Accounts Payable and a reduction in Accrued Expenses. Additional cash totaling
$560,000 was received as an additional deposit toward exercising the 1996-A
Nissko Warrants. The net effect of these transactions was an increase in cash
from $185,317 at March 31, 1997 to $672,728 at the end of the second quarter.
During the second quarter, as forecasted, sales of Talkie Power Web Line
Machines continues and as the result of deposits on additional machines the
Company, as of August 13,1997 had in excess of $300,000 in available cash.
Management continues to believe that such cash, taken together with collection
of accounts receivable and continuing operations, along with the exercise of
warrants is sufficient for 1997.
However, the Company's purchase from Harold Bendell of his interest in certain
automobile dealerships for cash of $4,000,000 requires additional capital for
completion. The Company is planning to seek financing for that purchase as well
as seek additional capital for development of other operations, including those
of the Plastics and Utilities Division from a public offering of its securities.
The Company does not anticipate an increase in the number of employees, nor does
it anticipate any expected purchase or sale of plant and/or significant
equipment.
RESULTS OF OPERATIONS:
During the second quarter, the Company had revenues from four sources:
1. sales, by CBS, of Talkie Power Web Line Machines;
2. sales, by Info Systems, of software; and
3. participating net revenues from the Nissko Joint Venture;
and
4. leasing revenues from Major Fleet & Leasing Corp.
CBS sold two (2) Talkie Power Web Line Machines for $757,490 of
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which $250,000 was paid during the quarter. These sales accounted for
approximately 75% to 80% of the Company's income for the second quarter.
786710 (Ontario) Limited, called Info Systems, had revenues (after elimination
of inter-company transactions) translated into U.S. Dollars of $272,674. In
addition, Info Systems received various deposits, reported as Deferred Revenues.
The Nissko Joint Venture contributed $30,968 which does not include expenses
paid to CBS. Approximately $268,000 was accrued during the second quarter and is
expected to be paid during the third quarter. Such receipts are applied against
the expenses incurred in providing those services to the Joint Venture and
accordingly is not recorded as revenue.
Major Fleet & Leasing Corp. had gross revenues during the second
quarter of $230,470, all of which was from the leasing of motor
vehicles, and had a pre-tax net profit of $39,389.
SUMMARY:
The Company and its subsidiaries continue their business plans and their
development as reported in Form 10-SB. Those subsidiaries currently in operation
and creating revenues are Computer Business Sciences, Inc. ($757,490), 786710
(Ontario) Limited (US$272,674 after elimination of inter-company transactions),
Major Fleet & Leasing Corp. ($230,470) for total revenues of $1,260,634 for the
second quarter. Net income before tax contributed by Major Fleet & Leasing Corp.
was $39,389. Of the total net income after a provision for income taxes of
$339,069 approximately 75% to 80% was due to the sales of Talkie Power Web Line
Machines by CBS. Management believes that its cash position, taken with the
anticipated revenues from on-going operations and the collection of Accounts
Receivable will be sufficient to maintain the Company's liquidity for 1997. In
addition, the Company anticipates receiving additional funds from the completion
and exercising of the 1996-A Nissko Warrants.
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FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
UNAUDITED AUDITED
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<S> <C> <C>
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 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
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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
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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</TABLE>
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FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenues:
Computer products and
telecommunications equipment $ 1,988,028 $ 626,096 $ 1,030,164 $ 626,096
Leasing income 489,628 -- 230,470 --
----------- ----------- ----------- -----------
Total revenues 2,477,656 626,096 1,260,634 626,096
----------- ----------- ----------- -----------
Operating expenses:
Cost of products sold 426,779 249,183 221,402 249,183
Selling, general and
administrative expenses
Products 767,132 493,703 318,140 347,148
Leasing 364,576 -- 168,891 --
Amortization of intangible assets 156,234 -- 78,117 --
----------- ----------- ----------- -----------
1,714,721 742,886 786,550 596,331
----------- ----------- ----------- -----------
Operating income (loss) 762,935 (116,790) 474,084 29,765
Other income (expense)
Interest expense (73,724) (17,350) (30,496) (8,600)
Interest income 10,472 1,778 9,513 1,778
Income on joint venture 52,055 -- 30,968 --
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes 751,738 (132,362) 484,069 22,943
Provision for income taxes 243,000 -- 145,000 --
----------- ----------- ----------- -----------
Net income (loss) $ 508,738 $ (132,362) $ 339,069 $ 22,943
=========== =========== =========== ===========
Net income (loss) per common share $ .08 $ (.03) $ .05 $
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</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED JUNE 30, 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 508,738 $ 339,069
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Amortization of intangible assets 156,234 78,117
Depreciation 264,758 162,897
Deferred income taxes (114,000) (178,000)
(Increase) decrease in assets:
Net investment in direct financing leases 134,071 106,080
Notes receivable 2,659 3,206
Accounts receivable (626,363) (207,497)
Inventories 1,341,571 1,062,921
Other assets (44,266) 94,803
Increase (decrease) in liabilities:
Accounts payable 160,361 227,283
Accrued expenses (461,639) (82,069)
Accrued income taxes 338,622 309,000
Deferred revenue (908) (74,751)
Due to affiliates (1,258,906) (1,148,774)
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Net Cash provided (used) by operating activities 400,932 692,285
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Cash flows from investing activities:
Additions to property and equipment 1,313,663 1,170,338
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Net cash used in investing activities 1,313,663 1,170,338
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Cash flows from financing activities:
Proceeds from long-term debt-net 315,223 270,089
Proceeds from issuance of common
stock and deposits for exercise of warrants 695,750 695,375
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Net cash provided by financing activities 1,010,973 965,464
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Net increase (decrease) in cash and cash equivalents 98,242 487,411
Cash and cash equivalents, beginning of period 574,486 185,317
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Cash and cash equivalents, end of period $ 672,728 $ 672,728
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</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER EQUITY
FOR THE YEAR ENDING 12/31/96 AND SIX MONTHS ENDING 6/30/97
<TABLE>
<CAPTION>
Preferred Stock Common Stock
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Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Issuance of
Common Stock -- $ -- 5,000,000 $ 50,000
Net Loss
--------- --------- --------- ---------
Balance
December 31, 1995 -- -- 5,000,000 50,000
Issuance of Common
Stock and exercise of
warrants net of
expenses -- -- 865,000 8,650
Issuance of Common
Stock as payment for
long-term debt -- -- 160,000 1,600
Issuance of common
Stock for the acquistion of
786710 Ontario Ltd. -- -- 250,000 2,500
Issuance of Preferred
stock for the acquisition
of Major Fleet &
Leasing Corp. 250,000 2,500 -- --
Net income -- -- -- --
Effect of stock compensation
charge -- -- 4,200 42
Translation
adjustment -- -- -- --
Balance December 31, 1996 250,000 2,500 6,279,200 62,792
--------- --------- --------- ---------
Effect of stock compensaiton -- -- 72,500 725
change
Net income -- -- -- --
Translation adjustment -- -- -- --
--------- --------- --------- ---------
Balance June 30, 1997 250,000 2,500 6,351,700 63,517
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</TABLE>
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[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
Additional Retained Currency Total
Paid-In Earnings Translation Stockholders'
Capital (Deficit) Adjustment Equity
------- --------- ---------- ------
<S> <C> <C> <C> <C>
Issuance of
Common Stock $ -- $ -- $ -- $ 50,000
Net Loss
-- (6,417) -- (6,417)
----------- ----------- ----------- -----------
Balance
December 31, 1995 -- (6,417) -- 43,583
Issuance of Common
Stock and exercise of
warrants net of
expenses 980,250 988,900
Issuance of Common
Stock as payment for
long-term debt 398,400 -- -- 400,000
Issuance of common
Stock for the acquistion of
786710 Ontario Ltd. 622,500 -- -- 625,000
Issuance of Preferred
stock for the acquisition
of Major Fleet &
Leasing Corp. 2,497,500 -- -- 2,500,000
Net income -- 675,966 -- 675,966
Effect of stock compensation
charge 10,458 -- -- 10,500
Translation
adjustment -- -- 264 264
Balance December 31, 1996 4,509,108 669,549 264 5,244,213
----------- ----------- ----------- -----------
Effect of stock compensaiton 41,275 -- -- 42,000
change
Net income -- 508,738 -- 508,738
Translation adjustment -- -- 46 46
----------- ----------- ----------- -----------
Balance June 30, 1997 4,550,383 1,178,287 310 5,794,997
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</TABLE>
