<PAGE>
SECURITIES EXCHANGE ACT OF 1934
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
FIDELITY HOLDINGS, INC.
- --------------------------------------------------------------------------------
(Exact name of the registrant as specified in its charter)
NEVADA 11-3292094
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
80-02 KEW GARDENS ROAD, STE 5000 KEW GARDENS, NEW YORK 11415
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, 718-520-6500
------------------------------------------------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
- -------------------------------- --------------------------------------
- -------------------------------- --------------------------------------
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
- --------------------------------------------------------------------------------
(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
<PAGE>
TABLE OF CONTENTS
PART I
NO CHANGES SINCE PREVIOUS AMENDMENT NO. 1
PART II
NO CHANGES SINCE PREVIOUS AMENDMENT NO. 1
Financial Statements
See attached amended Financials
2
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 1996
-----------------
<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, 1996 and 1995 and the related consolidated
statements of income (loss), stockholders equity, and cash flows for the periods
then ended. These financial statements are the responsibility of the Company's
management. Our reponsibility 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 reflect total assets of $4,299,354, as of
December 31, 1996 and total revenue of $796,602. Those statements were audited
by other auditors whose report has 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, 1996 and 1995, and the results of its operations
and its cash flows for the periods 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
February 27, 1997
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 574,486 $ 39,063
Net Investment in direct financing leases, current 1,390,598 -
Notes receivable - officer shareholder 142,659 -
Accounts receivable 179,837 -
Inventories 1,494,020 -
Other current assets 45,349 10,000
---------- ----------
Total current assets 3,826,949 49,063
Net investment in direct financing leases,
net of current portion 1,059,287 -
Property and equipment 1,023,523 -
Excess of costs over net assets acquired 1,475,269 -
Other intangible assets 1,653,474 500,000
Other assets 278,362 -
---------- -----------
Total assets $9,316,864 $ 549,063
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 419,052 $ -
Accrued expenses 522,026 5,480
Current maturities of long-term debt 643,976 35,714
Accrued income taxes 4,378 -
Deferred revenue 67,409 -
Due to affiliates 1,404,079 -
---------- -----------
Total current liabilities 3,060,920 41,194
Long-term debt, less current maturities 515,609 464,286
Income taxes 424,000 -
Other 72,122 -
---------- -----------
Total liabilities 4,072,651 505,480
Commitments
Stockholders' equity
Preferred stock, .01 par value;
2,000,000 shares authorized,
250,000 shares issued and outstanding
in 1996 and none in 1995 2,500 -
Common stock, .01 par value
50,000,000 shares authorized,
6,279,200 shares issued and
outstanding in 1996 and
5,000,000 in 1995 62,792 50,000
Additional paid in capital 4,509,108 -
Cumulative translation adjustment 264 -
Retained earnings (deficit) 669,549 (6,417)
---------- -----------
Total stockholders' equity 5,244,213 43,583
---------- -----------
Total liabilities and
stockholders' equity $9,316,864 $ 549,063
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended November 7, 1995
December 31, (Inception date) to
1996 December 31, 1995
---- -----------------
Revenues:
Computer products and
telecommunications equipment $ 3,175,528 $ -
Leasing income 258,947 -
------------- ----------
Total revenues 3,434,475 -
------------- ----------
Operating expenses:
Cost of products sold 965,792 -
Selling, general and
administrative expenses
Products 935,529 2,042
Leasing 191,372 -
Amortization of intangible assets 178,104 -
------------- ----------
2,270,797 2,042
------------- ----------
Operating income (loss) 1,163,678 (2,042)
Other income (expense)
Interest expense (24,132) (4,375)
Interest income 9,830 -
Loss on joint venture (32,410) -
------------- ----------
Income (loss) before provision
for income taxes 1,116,966 (6,417)
Provision for income taxes 441,000 -
------------- ----------
Net income (loss) $ 675,966 $ (6,417)
============= ==========
Earnings (loss) per share
Primary $ 0.12 $ (0.02)
Fully diluted 0.12 -
Weighted average common and common
equivalent shares outstanding:
Primary 5,522,862 5,000,000
Fully diluted 5,522,862 5,000,000
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Cumulative 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)
------- ------ --------- ------- ---------- -------- ---- ----------
-- -- -- -- -- (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
======= ====== ========= ======= ========== ======== ==== ==========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended November 7, 1995
December 31, (inception date) to
1996 December 31, 1995
---- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 675,967 $ (6,417)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Amortization of intangible assets 178,104 -
Depreciation 123,329 -
Deferred income taxes 424,000 -
(Increase) decrease in assets:
Net investment in direct financing leases (1,612,675) -
Notes receivable (142,659) -
Accounts receivable (20,229) -
Inventories (1,173,082) -
Other assets (31,304) (10,000)
Increase (decrease) in liabilities:
Accounts payable 108,079 -
Accrued expenses 416,282 5,480
Accrued income taxes 4,378 -
Deferred revenue 3,075 -
Due to affiliates 1,184,177 -
----------- ----------
Net Cash provided by
operating activities 137,442 (10,937)
Cash flows from investing activities: ----------- ----------
Additions to property and equipment 77,326 -
Acquisition of 786710 Ontario Limited, -
net of cash acquired 738,636 -
----------- ----------
Net cash used in investing
activities (815,962) -
Cash flows from financing activities: ----------- ----------
Proceeds from long-term debt 400,000 -
Payments of long-term debt (170,321) -
Proceeds from issuance of common
stock and exercise of warrants
net of expenses 984,000 50,000
----------- ----------
Net cash provided by
financing activities 1,213,679 50,000
----------- ----------
Effect of exchange rates on cash 264 -
----------- ----------
Net increase in cash and cash equivalents 535,423 39,063
Cash and cash equivalents, beginning of period 39,063 -
----------- ----------
Cash and cash equivalents, end of period $ 574,486 $ 39,063
=========== ==========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 24,132 -
Income taxes $ - -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-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 Telephone and Telecommunication
Division and a Plastic and Utilities Division. The plastic and utilities
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:
Earnings (loss) per share are based on the weighted average common and common
equivalent shares, outstanding each year. Common equivalent shares consist of
shares issuable upon the exercise of stock options and warrants, except where
anti-dilutive.
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 approximate 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.
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.
<PAGE>
i) Use of Estimates In Preparation of Financial Statements:
The preparation of 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 1996 was $107,593.
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.
2) Accounts Receivable:
The Company evaluates its accounts receivable on a customer by customer basis
and has determined that no allowance for doubtful accounts is necessary at
December 31, 1996.
3) Notes receivable - officer shareholder:
Note in the principal amount of $140,000 plus accrued interest of $2,659.
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:
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Total minimum lease payments to be received $2,705,711 $ -0-
Estimated residual value of leased property 200,315 -0-
Unearned income (456,141) -0-
------------ -------
Net investment $2,449,885 $ -0-
------------ -------
</TABLE>
Future minimum lease payments receivable at December 31, 1996 is as follows:
Year Ending
December 31, Amount
------------ ------
1997 $1,512,465
1998 1,108,499
1999 77,493
2000 7,254
----------
Total $2,705,711
----------
5)Inventories:
Inventories consisted of the following:
December 31,
1996 1995
---- ----
Telecommunication Parts $ 36,395 $ -0-
Automobiles and trucks
held for sale or lease 1,457,625 -0-
---------- -------
$1,494,020 $ -0-
---------- -------
6) Property and Equipment:
Property and equipment consisted of the following:
December 31,
1996 1995
---- ----
Leasehold Improvements $ 22,096 $ -0-
Furniture and fixtures 10,314 -0-
Computer equipment and
software 804,639 -0-
Leased Equipment 309,803 -0-
---------- ----
1,146,852 -0-
Less accumulated depreciation
and amortization 123,329 -0-
---------- ----
$1,023,523 $ -0-
---------- ----
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.
<PAGE>
The provision for taxes on income is as follows:
Year Ended December 31,
-----------------------
1996 1995
---- ----
Federal:
Current $ 13,000 $ -0-
Deferred 319,000 -0-
State:
Current 4,000 -0-
Deferred 105,000 -0-
-------- ----
Total $441,000 $ -0-
-------- ----
The reconciliation between the amount computed by applying the federal statutory
rate to income (loss) before income taxes and the actual income tax expense were
as follows:
Year Ended December 31,
1996 1995
---- ----
Amount using the statutory Federal
tax rate $ 380,000 $ -0-
State income tax, net of federal
tax benefit 69,000 -0-
Other, Net (8,000) -0-
---------- ---
Provision for taxes on income $ 441,000 $ -0-
---------- ------
The tax effect of temporary differences resulted in deferred tax liabilities as
follows:
December 31,
Temporary Differences 1996 1995
--------------------- ---- ----
Revenue and expenses of consolidated subsidiary $ - $ -
recognized on the cash basis for tax purposes,
resulting in a timing difference 399,427 -
Depreciation 17,310 -
Other 7,263 -
----------- -------
Total $ 424,000 $
---------- -------
8) 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,
1996 ranged between 7% and 9.5%. 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.
<PAGE>
Maturities are as follows:
Year Ending December 31,
------------------------
1996 1995
---- ----
1997 $463,976 $ -0-
1998 230,851 -0-
1999 70,437 -0-
2000 6,594 -0-
--------- ---------
Total $771,858 $ -0-
--------- ---------
In addition long-term debt includes $387,727 still due from the acquisition of
786710 Ontario Limited.
Maturities are as follows:
Year Ended December 31,
1996 1995
---- ----
1997 $180,000 $ -0-
1998 207,727 -0-
--------- --------
Total $387,727 $ -0-
--------- --------
9) Business Combinations
a) Acquisition of 786710 Ontario Limited
On April 18, 1996, the Company acquired 786710 Ontario Limited, doing business
as "Info Systems". 786710 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.
Talkie is a trademarked name for an interrelated group of module's and
applications of telephonic and interactive voice processing software which
786710 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.
<PAGE>
b) Acquisition of Major Fleet & Leasing Corp.
On October 1, 1996 the Company acquired 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
Bendell's were issued 100,000 shares of Common Stock. In addition the Bendell's
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 $ 401,512
Licenses 1,200,000
Intangible asset-excess of costs over net assets acquired 898,488
-------------
Total $ 2,500,000
-------------
The excess of costs over net assets acquired amounting to $898,488 is
being amortized over a fifteen-year period.
Separate results for the periods prior to the acquisition were as follows:
Nine month
period ended Year ended
9/30/96 December 31, 1995
------------ -----------------
Revenues $ 692,314 $ 1,105,434
--------- ------------
Net income $ 158,383 $ 310,051
--------- ------------
10) Other intangible Assets consist of :
Patents
The Company has purchased two patents to be used in the manufacture of
armored conduit. The patents 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.
Licenses
The $1,200,000 value attributed to the licenses acquired as part of the Major
Fleet & Leasing Corp. acquisition is being amortized on a straight-line basis
over a twelve to seventeen year period.
11) 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.
<PAGE>
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. 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 Company could sell the repossessed automobiles for amounts
in excess of outstanding liabilities.
Customer installment contracts sold with recourse are as follows:
a) GMAC - retail sales program $ 34,509
b) European American Bank 158,216
---------
Total $ 192,725
---------
The "pre-determined" amount that must be paid by the Company in the event of
default is as follows:
a) GMAC - retail sales program $ 9,026
b) European American Bank 59,072
---------
Total $ 68,098
---------
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, 1996 is $877,212.
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.
<PAGE>
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.
12) Related Party Transactions:
Approximately 55% of the Company's revenues derived from the sale of computer
products and telecommunications equipment was to Nissko Telecom, 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 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.
13) 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.
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 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 are 1,760,000 at exercise prices of $1.25 to $3.125. .
14) 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 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 31, 2001 at
a price of $15.87 per share. The holders of the 1996-Major Series have a right
of rescission (put) in the event of the happening of certain events.
The specific events that would allow the right of rescission are:
a) Any determination by the Internal Revenue Service that the
stock-for-stock exchange does not qualify as a tax-free reorganization.
b) Any breach by the Company of the Reorganization Agreement; or
c) Any failure by the Company to establish, fully fund, properly maintain
and apply, and/or safeguard the Sinking Fund; or
d) Any breach by the Company of the terms of 1996-Major Series of
convertible Preferred Stock or;
e) Admission by the Company of insolvency, adjudication of the Company as
insolvent, and/or an inability or failure of the Company to pay its
debts and liabilities in the normal course of business; or
f) Any proceeding shall be commenced by or against the Company relating to
the Company under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, receivership, dissolution, or
liquidation law or statute of any jurisdiction, whether now or hereafter
in effect, and any such proceeding shall remain undismissed for a period
of ninety (90) days or the Company by any act indicates its consent to,
approval of, or acquiescence in, any such proceeding; or
<PAGE>
g) A receiver or trustee is appointed for the Company or for all or a
substantial part of the property of the Company and any such
receivership or trusteeship shall remain undischarged for a period of
sixty (60) days; or
h) Any change in any of the top three executives of the Company (Chairman
of the Board, President, CEO), provided that this basis for rescission
must be utilized within ninety (90) days of the change or it shall be
deemed waived.
There is a sinking fund to support both the possible rescission and the
possible redemption of the 1996-Major Series. The sinking fund is based upon the
earnings of Major Fleet & Leasing Corp. from the business and assets purchased
by the Company.
15) 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, 1996 is as follows:
Industry
Computer Leasing
Products Income Other Consolidated
-------- ------- ----- ------------
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
----------
16) Subsequent Event:
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
subject to certain conditions.
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
The following pro forma combining statements of operations and balance
sheets are based on the historical financial statements of Fidelity Holdings,
Inc. and Subsidiaries (the "Company") and on the combined financial statements
of the Major Automotive Group ("Major") included elsewhere in this form 10-SB
adjusted to give effect to the combination as if it had occurred on January 1,
1996. The pro forma statements are based on available information and certain
assumptions that management believes are reasonable. The pro forma combined
statement of operations is not necessarily indicative of future operations or
what the Company's results of operations would actually have been had the
combination occurred on January 1, 1996 and, therefore, should not be construed
as being representative of future operating results. The Pro Forma Combined
Statements of Operations and Balance Sheets should be read in conjunction with
the historical financial statements of the Company and Major Auto Group included
elsewhere in this form 10-SB.
<TABLE>
<CAPTION>
Fidelity Major Pro Forma PRO FORMA
Holdings Auto Group Adjustments Combined
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Computer products and
telecommunications equipment $ 3,175,528 $ $ 3,175,528
Automobile division 144,081,578 144,081,578
Leasing income 258,947 258,947
------------- ------------ -------------
Total revenues 3,434,475 144,081,578 147,516,053
------------- ------------ -------------
Operating expenses:
Cost of products sold 965,792 129,376,852 130,342,644
Selling, general and
administrative expenses
Products 935,529 935,529
Leasing 191,372 191,372
Automobile division 12,726,818 12,726,818
Amortization of intangible assets 178,104 219,254 397,358
------------- ------------ ---------- -------------
2,270,797 142,103,670 219,254 144,593,721
------------- ------------ ---------- -------------
Operating income(loss) 1,163,678 1,977,908 (219,254) 2,922,332
Other income (expense)
Interest expense (24,132) (1,675,202) (1,699,334)
Interest income 9,830 -- 9,830
Other - 118,940 118,940
Income on joint venture (32,410) (32,410)
------------- ------------ ---------- -------------
Income before provision for taxes 1,116,966 421,646 (219,254) 1,319,358
Income taxes 441,000 105,973 50,000 596,973
------------- ------------ ---------- -------------
Net income $ 675,966 $ 315,673 $ (269,254) $ 722,385
============= ============ ========== =============
Net income per common share $ 0.09
=============
Weighted average number of
common shares outstanding 8,322,862
-------------
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
FIDELITY MAJOR PRO FORMA PRO FORMA
HOLDINGS AUTO GROUP ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 574,486 $ 350,237 $ 1,600,000 $ 2,524,723
Certificates of deposit 784,612 784,612
Net investment in direct financing lease 1,390,598 - 1,390,598
Notes receivable - officer shareholder 142,659 - 142,659
Accounts receivable 179,837 5,227,776 (1,404,079) 4,003,534
Inventories 1,494,020 28,882,771 30,376,791
Notes receivable 637,166 637,166
Other current assets 45,349 70,020 115,369
----------- ----------- ----------- -----------
Total current assets 3,826,949 35,952,582 195,921 39,975,452
Net investment in direct financing leases,
net of current portion 1,059,287 - 1,059,287
Property and equipment net 1,023,523 704,782 1,728,305
Excess of costs over net assets acquired 1,475,269 3,069,551 4,544,820
Other intangible assets 1,653,474 - 1,653,474
Other assets 278,362 13,945 292,307
----------- ----------- ------------ -----------
Total assets $ 9,316,864 $36,671,309 3,265,472 $49,253,645
=========== =========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Customer deposits $ $ 1,263,379 - $1,263,379
Accounts payable 419,052 1,964,487 2,383,539
Accrued expenses 522,026 749,034 1,271,060
Due to affiliates
Current maturities of long-term debt 643,976 643,976
Accrued income taxes 4,378 50,000 54,378
Deferred revenue 67,409 67,409
Other payables 1,404,079 (1,404,079) -
Notes payable on vehicle floor plan 31,298,202 31,298,202
----------- ----------- ----------- -----------
Total current liabilities 3,060,920 35,275,102 (1,354,079) 36,981,943
-
Long-term debt, less current maturities 515,609 515,609
Income taxes 424,000 424,000
Other 72,122 20,952 93,074
Loans payable to stockholders 664,060 664,060
----------- ----------- ----------- -----------
Total liabilities 4,072,651 35,960,114 (1,354,079) 38,678,686
Stockholders' equity
Preferred stock, .01 par value:
2,000,000 shares authorized
850,000 shares issued and outstanding 2,500 6,000 8,500
Common stock, .01 par value
50,000,000 shares authorized
7,279,200 shares issued and
outstanding 62,792 739,000 (729,000) 72,792
Additional paid in capital 4,509,108 176,700 5,407,300 10,093,108
Cumulative translation adjustment 264 264
Retained earnings 669,549 (204,505) (64,749) 400,295
----------- ----------- ----------- -----------
Total stockholders' equity 5,244,213 711,195 4,619,551 10,574,959
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity $ 9,316,864 $36,671,309 $ 3,265,472 $49,253,645
=========== =========== =========== ===========
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINING STATEMENTS
YEAR ENDED DECEMBER 31, 1996
Assumptions Used and Adjustments Made
A. The merger of Fidelity Holdings, Inc. (the "Company") and the Major
Automotive Group (Major) is accounted for as being effective as of January
1, 1996.
B. The merger transaction was accomplished by payment of $4,000,000 in cash and
the issuance of 600,000 shares of the Company's Convertible Preferred Stock.
Such shares are convertible, based on their terms, into 1,800,000 shares of
the Company's Common Stock.
C. The Company sold 1,000,000 shares of its Common Stock at a price, net of
underwriting commissions, of $6.00 per share. The gross proceeds were
reduced by $400,000 of underwriting and other offering expenses, resulting
in net proceeds to the Company of $5,600,000.
D. The excess of cost over net assets acquired ($3,288,805) is being amortized
over fifteen years. The statement of operations reflects a full years
amortization.
E. Earnings per share has been calculated based on the weighted average number
of shares outstanding and assumes the conversion of the Preferred shares as
of January 1, 1996.
F. Although The Major Group was treated as a Subchapter S Corporation for
federal and state income taxes, income taxes have been provided as though it
was a "C" Corporation.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Financial Statements
Years Ended December 31, 1996, 1995 and 1994
<PAGE>
Major Chevrolet, Inc.
Contents
- --------------------------------------------------------------------------------
Independent auditors' report 3
Financial statements:
Balance sheets 4
Statements of operations and retained earnings (deficit) 5
Statements of cash flows 6
Summary of accounting policies 7-8
Notes to financial statements 9-12
2
<PAGE>
Independent Auditors' Report
Major Chevrolet, Inc.
Long Island City, New York
We have audited the accompanying balance sheets of Major Chevrolet, Inc. as of
December 31, 1996 and 1995, and the related statements of operations and
retained earnings (deficit), and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Major Chevrolet, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
August 14, 1997
3
<PAGE>
Major Chevrolet, Inc.
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 107,172 $ 201,468
Trade receivables 2,361,280 6,687,627
Inventories 13,723,359 19,170,809
Notes receivable 637,166 601,000
Prepaid expenses and other current assets - 3,183
Mortgage interest receivable - 36,488
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 16,828,977 26,700,575
Property, plant and equipment, less accumulated depreciation and
amortization 57,561 76,948
Other assets:
Security deposits 7,815 3,486
Mortgage receivable - 364,882
Due from affiliates 1,450,191 935,408
- ------------------------------------------------------------------------------------------------------------------------------------
$18,344,544 $28,081,299
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current:
Customer deposits $ 1,124,608 $ 318,331
Accounts payable 1,519,508 592,776
Accrued expenses 414,171 798,856
Notes payable on vehicle floor plan 14,318,893 25,053,692
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,377,180 26,763,655
Loans payable to stockholders 425,000 475,000
Note payable - long-term - 450,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 17,802,180 27,688,655
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' equity:
Common stock:
Class A, $100 par - shares authorized 950; issued and
outstanding - none - -
Class B, $100 par - shares authorized 1,700; issued 890 and
outstanding 801 and 890, respectively 80,100 80,100
Additional paid-in capital 176,700 176,700
Retained earnings 285,564 135,844
- ------------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 542,364 392,644
- ------------------------------------------------------------------------------------------------------------------------------------
$18,344,544 $28,081,299
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Statements of Operations and Retained Earnings (Deficit)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales revenues $ 83,366,616 $ 72,802,080 $ 76,314,349
Cost of sales 74,330,311 64,267,785 67,704,374
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 9,036,305 8,534,295 8,609,975
Operating expenses 7,656,493 6,872,998 7,145,651
Interest expense 1,219,078 1,231,779 884,474
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 160,734 429,518 579,850
Other income 43,033 70,425 16,545
- ------------------------------------------------------------------------------------------------------------------------------------
Net income before income taxes 203,767 499,943 596,395
Income taxes 54,047 11,218 6,636
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 149,720 488,725 589,759
Retained earnings (deficit), beginning of year 135,844 (352,881) (942,640)
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year $ 285,564 $ 135,844 $ (352,881)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
- -------------------------------------------------------------------------------
Major Chevrolet, Inc.
Statements of Cash Flows
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 149,720 $ 488,725 $ 589,759
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 21,719 39,867 53,069
Changes in assets - (increase) decrease in:
Trade receivables 4,326,347 795,651 (5,093,496)
Inventories 5,447,450 (10,873,108) (1,574,689)
Prepaid expenses and other current assets 3,183 28,319 (20,824)
Security deposits (4,329) - (2,308)
Changes in liabilities - increase (decrease) in:
Customer deposits 806,277 79,329 63,935
Accounts payable 926,732 (447,966) (247,870)
Accrued expenses (384,685) (202,970) 488,563
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 11,142,694 (10,580,878) (6,333,620)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 11,292,414 (10,092,153) (5,743,861)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (2,332) - (57,833)
Notes receivable (36,166) (601,000) -
Mortgage receivable 364,882 - (364,882)
Mortgage interest receivable 36,488 (36,488) -
Certificate of deposit - 67,177 (67,177)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 362,872 (570,311) (489,892)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in stockholder loans (50,000) 250,214 (425,214)
Increase (decrease) in long-term debt (450,000) 450,000 (9,315)
Increase (decrease) in floor plan notes payable (10,734,799) 10,908,046 6,812,640
(Advances to) receipts from affiliates (514,783) (209,160) 353,385
Decrease in additional paid-in capital - (1,041,100) -
Treasury stock repurchase - (8,900) -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (11,749,582) 10,349,100 6,731,496
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (94,296) (313,364) 497,743
Cash and cash equivalents, beginning of year 201,468 514,832 17,089
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 107,172 $ 201,468 $ 514,832
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information: Cash paid during the year
for:
Interest $ 1,328,937 $ 1,160,915 $ 804,036
Taxes 13,856 16,366 4,709
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Summary of Accounting Policies
Business Major Chevrolet, Inc. (the "Company") is a retailer of new
and used automobiles, trucks, parts and accessories.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Credit Risk Financial instruments which potentially subject the
Company to concentration of credit risk consist principally
of cash and cash equivalents. The Company places its cash
and cash equivalents in quality financial institutions and,
by policy, limits the amount of credit exposure in any one
financial vehicle.
Financial Instruments The fair value of cash and cash equivalents
approximates their carrying value due to their short-term
maturities.
Revenue and Cost Revenue and cost are recognized upon delivery of the vehicle
Recognition to the customer. At time of delivery, all financing
arrangements between and among the parties have been
concluded.
Inventories New vehicle inventories are valued at the lower of cost or
market, with cost determined on a last-in, first-out basis.
Used vehicle inventories are valued at the lower of cost or
market, with cost determined on a specific identification
basis. Parts and accessories inventories are also valued at
the lower of cost or market with cost determined on the
first-in, first-out method.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Summary of Accounting Policies
Property, Plant Property, plant and equipment are stated at cost.
and Equipment Depreciation is calculated using the straight-line method
over the estimated useful lives of the assets (ranging from
3 to 10 years).
Income Taxes The Company elected, with the consent of its stockholders,
to be taxed as an S corporation under the provisions of the
Internal Revenue Code (Sec. 1361) and New York State
Franchise Tax Law. The stockholders are required to report
the Company's taxable income or loss in their personal
income tax returns; accordingly, such income taxes are not
reflected in the financial statements. In addition, New York
State imposes a corporate level tax, based upon the
differential between corporate and individual tax rates,
which has been provided for. The financial statements
include a provision for the New York State tax and New York
City income taxes since New York City does not recognize S
corporation status.
Supplemental The Company considers all short-term, highly liquid
Cash Flow instruments Information purchased with an original maturity
of three months or less to be cash equivalents. The
Company's cash and cash equivalents are carried at cost,
which approximates market value and consists primarily of
Eurodollars and time deposits.
Long-Lived Assets The Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
of" in 1996. The Company reviews certain long-lived assets
and identifiable intangibles for impairment whenever events
or changes in circumstances indicate that the carrying
amount may not be recoverable. In that regard, the Company
assesses the recoverability of such assets based upon
estimated nondiscounted cash flow forecasts.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Notes to Financial Statements
1. Trade Receivables Trade receivables at December 31, 1996
and 1995 included approximately $.5
million and $4.7 million, respectively,
in delayed payments which are approved
by the manufacturer and financial
institution.
2. Inventories Inventories consist of the following:
December 31, 1996 1995
- ----------------------------------------------------------------------------
New automobiles $13,526,517 $ 8,326,589
New trucks and vans 4,067,931 5,578,276
Used cars and trucks 3,386,521 2,139,130
Parts and accessories 391,933 690,468
Other 17,350 -
- ----------------------------------------------------------------------------
16,190,324 21,934,391
Less: LIFO reserve 2,466,965 2,763,582
- ----------------------------------------------------------------------------
$13,723,359 $19,170,809
- ----------------------------------------------------------------------------
3. Property, Plant and Major classes of property, plant and
Equipment equipment consist of the following:
Estimated
useful lives
December 31, 1996 1995
- -------------------------------------------------------------------------------
Furniture and fixtures $371,128 $368,796 7-10 years
Service equipment 108,233 108,233 5-7 years
Automobiles 18,138 18,138 3 years
- -------------------------------------------------------------------------------
497,499 495,167
Less: Accumulated
depreciation and
amortization 439,938 418,219
- -------------------------------------------------------------------------------
$ 57,561 $ 76,948
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Notes to Financial Statements
4. Mortgage Receivable During fiscal 1994, the Company
purchased a mortgage note from a
financial institution for $364,882. The
borrower issuing the note is a former
stockholder of the Company. The note
bears interest at a rate of 10% per
annum payable on the first day of each
month. The note matures on February 24,
1998. During 1996, an agreement was made
to offset the mortgage receivable and
all accrued interest against a
Company-issued note payable of $450,000
to the former stockholder. The remaining
portion of approximately $19,000 is
included in accounts receivable.
5. Due from Affiliates Major Chevrolet, Inc., Major Chrysler
Plymouth Jeep Eagle, Inc., Major Subaru,
Inc. and Major Dodge, Inc. are
affiliates under common ownership.
Amounts due to and from affiliates
represent cash advances and other
general and administrative services
provided by and for Major Dodge, Inc.
and Major Chrysler Plymouth Jeep Eagle,
Inc. At December 31, 1995, approximately
$788,000, $14,000 and $95,000 were due
from Major Dodge, Inc., Major Chrysler
Plymouth Jeep Eagle and Major Subaru,
Inc., respectively. At December 31,
1996, approximately $683,000, $304,000
and $156,000 were due from Major Dodge,
Inc., Major Chrysler Plymouth Jeep
Eagle, Inc. and Major Subaru, Inc.,
respectively. In addition, at December
31, 1996, approximately $127,000 and
$180,000 were due from Major Motor
Pennsylvania, Inc. and Major Fleet and
Leasing, Inc., respectively.
6. Notes Payable - Notes payable on the vehicle floor plan
are due to Chrysler Credit Vehicle Floor
Plan Corp. and bear interest ranging
from 8% to 10% during the year ended
December 31, 1996. These notes are
secured by the new vehicles inventory
and will be repaid at the time the
vehicles are sold or by certain delayed
payments included in trade receivables
as described in Note 1.
7. Loans Payable To Amounts due to stockholders represent
cash advances made to the Stockholders
Company for cash flow purposes. The
stockholders agreed not to demand
payment of these loans in the next
fiscal year. Accordingly, the loans have
been classified as noncurrent. The loans
do not bear interest.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Notes to Financial Statements
8. Stock Repurchase On December 31, 1995, the Company
repurchased 89 shares of its Class B
common stock, representing 10% of the
shares then outstanding, from a
stockholder. The purchase price was
$1.05 million, which was comprised of a
$32,124 cash payment, a $450,000 note
payable issued to the stockholder (see
Note 4) and an immediate cancellation of
certain promissory notes.
9. Related Party In addition to certain trade receivables
as discussed in Note 1(a), on
Transaction October 16, 1995, the
Company entered into an agreement with
BHB Realty, LLP, a related party with
similar ownership, purchasing a note
receivable for $601,000. The note
receivable bears interest at 6% per
annum payable annually on the
anniversary of the note. The note is due
on demand, but not earlier than October
15, 1996.
During 1996, the Company rented space
for a used car lot from BHB Realty, LLP.
The agreement was on a month-to-month
basis. Rent expense relating to this
agreement amounted to $240,000 in 1996.
10. Commitments At December 31, 1996, the Company is
committed to make minimum annual lease
payments as follows:
- ----------------------------------------------------------------------------
1997 $300,000
1998 300,000
1999 300,000
2000 300,000
2001 300,000
Thereafter 625,000
- ----------------------------------------------------------------------------
Rent expense under real property
operating leases approximated $545,000
and $312,500 for the years ended
December 31, 1996 and 1995,
respectively.
<PAGE>
- --------------------------------------------------------------------------------
Major Chevrolet, Inc.
Notes to Financial Statements
The Company has a line of credit
totaling $1,500,000 with Chrysler Credit
Corporation. The credit facility is used
to secure vehicles exported overseas by
General Motors on behalf of the Company.
None of the line of credit has been used
as of December 31, 1996.
11. Governmental Substantially all of the Company's
facilities are subject to Federal, state
Regulations and local regulations
relating to the discharge of materials
into the environment. Compliance with
these provisions has not had, nor does
the Company expect such compliance to
have, any material effect on the
financial condition or results of
operations of the Company. Management
believes that its current practices and
procedures for the control and
disposition of such wastes comply with
applicable Federal and state
requirements.
12. Litigation Various claims and lawsuits arising in
the normal course of business are
pending against the Company. The results
of such litigation are not expected to
have a material or adverse effect on the
Company's financial position or results
of operations.
13. Subsequent Events The Company has entered into a joint
venture subsequent to the year-end. The
venture is with an out-of-state Ford
dealership, the purpose of which is to
purchase Ford fleet vehicles for resale.
<PAGE>
Major Chevrolet, Inc.
and Affiliates
Combined Financial Statements
and Supplemental Material
Years Ended December 31, 1996, 1995 and 1994
<PAGE>
Major Chevrolet, Inc. and Affiliates
Contents
- --------------------------------------------------------------------------------
Independent auditors' report 3
Combined financial statements:
Balance sheets 4
Statements of income and deficit 5
Statements of cash flows 6
Summary of accounting policies 7-9
Notes to combined financial statements 10-15
Independent auditors' report on
supplemental material 16
Supplemental material:
Combining financial statements:
Balance sheet 17-18
Statements of operations and retained earnings (deficit) 19
2
<PAGE>
Independent Auditors' Report
Major Chevrolet, Inc. and Affiliates
Long Island City, New York
We have audited the accompanying combined balance sheets of Major Chevrolet,
Inc. and Affiliates as of December 31, 1996 and 1995, and the related combined
statements of income and deficit, and cash flows for each of the three years in
the period ended December 31, 1996. These combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
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 test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Major Chevrolet,
Inc. and Affiliates at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
August 14, 1997
3
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combined Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current:
Cash and cash equivalents $ 350,237 $ 666,124
Certificates of deposit 784,612 764,784
Trade receivables 5,227,776 8,197,729
Inventories 28,882,771 36,050,525
Notes receivable 637,166 601,000
Prepaid expenses and other current assets 70,020 150,086
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 35,952,582 46,430,248
Property, plant and equipment, less accumulated depreciation and
amortization 704,782 659,047
Other assets:
Security deposits 13,945 9,806
Mortgage receivable - 364,882
- --------------------------------------------------------------------------------------------------------------------------------
$36,671,309 $47,463,983
================================================================================================================================
Liabilities and Stockholders' Equity
Current:
Customer deposits $ 1,263,379 $ 184,428
Accounts payable 1,964,487 1,721,284
Accrued expenses 749,034 1,123,205
Notes payable on vehicle floor plan 31,298,202 42,680,638
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 35,275,102 45,709,555
Loans payable to stockholders 664,060 650,000
Notes payable - other - noncurrent 20,952 478,058
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 35,960,114 46,837,613
- --------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock 730,100 580,100
Additional paid-in capital 176,700 176,700
Deficit (195,605) (130,430)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 711,195 626,370
- --------------------------------------------------------------------------------------------------------------------------------
$36,671,309 $47,463,983
================================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to combined financial statements.
4
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combined Statements of Income and Deficit
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $144,081,578 $118,039,902 $120,311,688
Cost of sales 129,376,852 104,728,435 106,973,218
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 14,704,726 13,311,467 13,338,470
Operating expenses 12,726,818 11,003,694 11,452,493
Interest expense 1,675,202 1,899,821 1,097,934
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 302,706 407,952 788,043
Other income 118,940 109,072 41,091
- --------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 421,646 517,024 829,134
Income taxes 105,973 26,158 16,886
- --------------------------------------------------------------------------------------------------------------------------------
Net income 315,673 490,866 812,248
Deficit, beginning of year (311,278) (621,296) (1,433,544)
S corporation distributions (200,000) - -
- --------------------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (195,605) $ (130,430) $ (621,296)
================================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to combined financial statements.
5
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combined Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 315,673 $ 490,866 $ 812,248
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 69,895 86,762 91,934
Changes in assets - (increase) decrease in:
Trade receivables 2,969,953 390,502 (5,470,431)
Inventories 7,167,754 (15,517,109) (5,311,723)
Prepaid expenses and other current assets 80,066 (89,263) (1,599)
Security deposits (4,139) (1,024) (1,650)
Changes in liabilities - increase (decrease) in:
Customer deposits 1,078,951 (90,715) 97,031
Accounts payable 243,203 147,915 (451,469)
Accrued expenses (374,171) (296,425) 687,240
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 11,231,512 (15,369,357) (10,360,667)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 11,547,185 (14,878,491) (9,548,419)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (118,358) (150,297) (117,470)
Note receivable (36,166) (601,000) -
Mortgage receivable 364,882 - (364,882)
Certificate of deposit (19,828) 46,008 (80,042)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 190,530 (705,289) (562,394)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in (payment of) stockholder loans (14,060) 214 (425,214)
Increase (decrease) in long-term debt (457,106) 453,140 (39,315)
Increase (decrease) in floor plan notes payable (11,382,436) 15,989,182 11,001,524
Decrease in additional paid-in capital - (1,041,100) -
Treasury stock repurchase - (8,900) -
S corporation distributions (200,000) - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (12,053,602) 15,392,536 10,536,995
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (315,887) (191,244) 426,182
Cash and cash equivalents, beginning of year 666,124 857,368 431,186
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 350,237 $ 666,124 $ 857,368
==================================================================================================================================
Cash paid during the year for:
Interest $ 1,812,010 $ 1,777,023 $ 963,612
Income taxes 79,266 35,618 5,959
==================================================================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to combined financial statements.
6
<PAGE>
Major Chevrolet, Inc. and Affiliates
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Business and Principles of Major Chevrolet, Inc. and Affiliates
Combination and Reporting (the "Company") is a retailer of new and
used vehicles, trucks, parts and
accessories.
The financial statements consist of the
combined operations of Major Chevrolet,
Inc., Major Dodge, Inc., and Major
Chrysler Plymouth Jeep Eagle, Inc., all
of which are under common control. All
significant intercompany balances and
transactions have been eliminated.
Use of Estimates The preparation of financial statements
in conformity with generally accepted
accounting principles requires
management to make estimates and
assumptions that affect the reported
amounts of assets and liabilities and
disclosure of contingent assets and
liabilities at the date of the financial
statements and the reported amounts of
revenues and expenses during the
reporting period. Actual results could
differ from those estimates.
Credit Risk Financial instruments which
potentially subject the Company to
concentration of credit risk consist
principally of cash and cash
equivalents. The Company places its cash
and cash equivalents in quality
financial institutions and, by policy,
limits the amount of credit exposure in
any one financial vehicle.
Financial Instruments The fair value of cash and
cash equivalents approximates their
carrying value due to their short-term
maturities.
Revenue and Cost Revenues and cost are recognized upon
Recognition delivery of the vehicle to the customer.
At time of delivery, all financing
arrangements between and among the
parties have been concluded.
7
<PAGE>
Major Chevrolet, Inc. and Affiliates
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Inventories New vehicle inventories are valued at
the lower of cost or market, with cost
determined on a last-in, first-out
basis. Used vehicle inventories are
valued at the lower of cost or market,
with cost determined on a specific
identification basis. Parts and
accessories inventories are also valued
at the lower of cost or market, with
cost determined on the first-in,
first-out method.
Property, Plant and Property, plant and equipment are stated
Equipment at cost. Depreciation is calculated
using the straight-line method over the
estimated useful lives of the assets
(ranging from 5 to 10 years). Leasehold
improvements are depreciated using the
straight-line method over their
estimated useful lives, not to exceed
the life of the lease.
Income Taxes The Company elected, with the consent of
its stockholders, to be taxed as an S
corporation under the provisions of the
Internal Revenue Code (Sec. 1361) and
New York State Franchise Tax Law. The
stockholders are required to report the
Company's taxable income or loss in
their personal income tax returns;
accordingly, such income taxes are not
reflected in the combined financial
statements. In addition, New York State
imposes a corporate level tax, based
upon the differential between corporate
and individual tax rates, which has been
provided for. The combined financial
statements include a provision for the
New York State tax and New York City
income taxes since New York City does
not recognize S corporation status.
Supplemental Cash Flow The Company considers all short-term,
Information highly liquid instruments purchased with
an original maturity of three months or
less to be cash equivalents. The
Company's cash and cash equivalents are
carried at cost, which approximates
market value and consists primarily of
Eurodollars and time deposits.
Certificates of Deposit The Company has two certificates of
deposit with a financial institution
which have initial maturities of one
year and six months, respectively, that
automatically renew on such maturity
dates.
8
<PAGE>
Major Chevrolet, Inc. and Affiliates
Summary of Accounting Policies
- --------------------------------------------------------------------------------
Long-Lived Assets The Company adopted Statement of
Financial Accounting Standards No. 121
"Accounting for the Impairment of
Long-Lived Assets and for Long-Lived
Assets to Be Disposed of" in 1996. The
Company reviews certain long-lived
assets and identifiable intangibles for
impairment whenever events or changes in
circumstances indicate that the carrying
amount may not be recoverable. In that
regard, the Company assesses the
recoverability of such assets based upon
estimated nondiscounted cash flow
forecasts.
9
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
1. Trade Receivables (a) The Company's trade receivables include
amounts due from related parties as follows:
December 31, 1996 1995
- ---------------------------------------------------------------------------
Major Subaru, Inc. $ - $286,000
Major Fleet and
Leasing, Inc. 1,338,825 16,000
Major Pennsylvania, Inc. 174,761 31,000
- ---------------------------------------------------------------------------
$1,513,586 $333,000
===========================================================================
These related parties have
substantially the same ownership
and management as the Company.
(b) Trade receivables, at December 31, 1996 and
1995, included approximately $.5 million and
$4.7 million, respectively, in delayed
payments which are approved by the vehicle
manufacturer and its financial institution.
2. Inventories Inventories consist of the following:
December 31, 1996 1995
- -----------------------------------------------------------------------------
New automobiles $11,619,105 $19,201,549
New trucks and vans 10,207,147 11,686,852
Used cars and trucks 9,591,636 7,427,434
Parts and accessories 664,138 935,553
Other 18,047 35,076
- -----------------------------------------------------------------------------
32,100,073 39,286,464
Less: LIFO reserve 3,217,302 3,235,939
- -----------------------------------------------------------------------------
$28,882,771 $36,050,525
=============================================================================
10
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
Included in used automobile inventory for the
years ended December 31, 1996 and 1995 is
approximately $3,500,000 and $4,300,000,
respectively, of vehicles out on consignment.
These vehicles are used by an unrelated third
party as rental vehicles through agreements
providing for daily, weekly or monthly terms. The
Company is reimbursed for the carrying charges
paid on these vehicles.
3. Property, Plant Major classes of property, plant and equipment
and Equipment consist of the following:
Estimated
December 31, 1996 1995 useful lives
- -------------------------------------------------------------------------------
Furniture and fixtures $ 493,079 $ 481,175 7-10 years
Service equipment 180,748 175,043 5-7 years
Automobiles 18,138 18,138 3 years
Leasehold improvements 596,571 498,550 Life of lease
- -------------------------------------------------------------------------------
1,288,536 1,172,906
Less: Accumulated
depreciation and
amortization 583,754 513,859
- -------------------------------------------------------------------------------
$ 704,782 $ 659,047
- -------------------------------------------------------------------------------
4. Mortgage Receivable During fiscal 1994, the Company
purchased a mortgage note from a
financial institution for $364,882. The
borrower issuing the note is a former
shareholder of the Company. The note
bears interest at a rate of 10% per
annum payable on the first day of each
month. The note matures on February 24,
1998. During 1996, an agreement was made
to offset the mortgage receivable and
all accrued interest against a
Company-issued note payable of $450,000
to the former stockholder. The remaining
portion of approximately $19,000 is
included in accounts receivable.
11
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
5. Notes Payable - Notes payable on the vehicle floor plan
Vehicle Floor Plan are due to Chrysler Credit Corp. and
bear interest ranging from 8.7% to 10%
during the year ended December 31, 1996.
These notes are secured by the new
vehicles inventory and will be repaid at
the time the vehicles are sold or by
certain delayed payments included in
trade receivables as described in
Note 1.
6. Notes Payable On November 15, 1995, Major CPJE, Inc.
issued a note payable to Chrysler Credit
Corporation in order to purchase
equipment for the service department.
Because Major CPJE, Inc. and Major
Dodge, Inc. equally share the service
department, an equal share was allocated
to Major Dodge, Inc. amounting to
$14,029.
7. Stock Repurchase On December 31, 1995, Major Chevrolet,
Inc. repurchased 89 shares of its Class
B common stock, representing 10% of the
shares then outstanding from a
stockholder. The purchase price was
$1.05 million, which was comprised of a
$32,124 cash payment, a $450,000 note
payable issued to the stockholder (see
Note 4), and an immediate cancellation
of certain promissory notes.
8. Loans Payable To Amounts due to stockholders represent
Stockholders cash advances made to the Company for
cash flow purposes. The stockholders
agreed not to demand payment of these
loans in the next fiscal year.
Accordingly, the loans have been
classified as noncurrent. The loans do
not bear interest.
9. Related Party In addition to certain trade receivables
Transaction as discussed in Note 1(a), on October
16, 1995, the Company entered into an
agreement with BHB Realty, LLP, a
related party with similar ownership as
the Company, purchasing a note
receivable for $601,000. The note
receivable bears interest at 6% per
annum and is payable annually on the
anniversary of the note. The note is due
on demand, but not earlier than October
15, 1996.
12
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
The Company rents its Dodge showroom
premises from its stockholders. The
agreement is on a month-to-month basis.
Rent expense relating to the this
agreement amounted to $96,000 for the
years ended December 31, 1996 and 1995,
respectively.
During 1996, the Company rented space
for a used car lot from BHB Realty, LLP.
The agreement was on a month-to-month
basis. Rent expense relating to this
agreement amounted to $240,000 in 1996.
10. Common Stock Common stock consists of the following:
December 31, 1996 1995
- -----------------------------------------------------------------------------
Major Chevrolet, Inc. - common stock:
Class A, $100 par - shares authorized $ - $ -
950; none issued and outstanding
Class B, $100 par - shares authorized
1,700; issued and outstanding 890 89,000 89,000
Treasury stock, $100 par - 89 shares (8,900) (8,900)
Major Dodge, Inc. - no par value; shares
authorized 200; issued and outstanding
20 250,000 250,000
Major Chrysler Eagle Jeep, Inc. - no par
value; shares authorized 200; issued and
outstanding 100 250,000 250,000
Major Subaru, Inc. - no par value; shares
authorized 200; issued and outstanding
10 150,000 -
- -----------------------------------------------------------------------------
$730,100 $580,100
=============================================================================
13
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
11. Commitments At December 31, 1996, the Company is
committed to make minimum annual lease
payments as follows:
----------------------------------------
1997 $ 692,000
1998 614,000
1999 608,000
2000 608,000
2001 608,000
Thereafter 2,934,000
========================================
Rent expense under real property
operating leases approximated $961,000
and $751,000 for the years ended
December 31, 1996 and 1995,
respectively.
The Company has a line of credit
totaling $1,500,000 with Chrysler Credit
Corporation. The credit facility is used
to secure vehicles exported overseas by
General Motors on behalf of the Company.
None of the line of credit has been used
as of December 31, 1996.
12. Governmental Substantially all of the Company's
Regulations facilities are subject to Federal, state
and local regulations relating to the
discharge of materials into the
environment. Compliance with these
provisions has not had, nor does the
Company expect such compliance to have,
any material effect on the financial
condition or results of operations of
the Company. Management believes that
its current practices and procedures for
the control and disposition of such
wastes comply with applicable Federal
and state requirements.
13. Litigation Various claims and lawsuits arising in
the normal course of business are
pending against the Company. The results
of such litigation are not expected to
have a material or adverse effect on the
Company's combined financial position or
results of operations.
14
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
14. Subsequent Events The Company has entered into a joint
venture subsequent to the year-end. The
venture is with an out-of-state Ford
dealership, the purpose of which is to
purchase Ford fleet vehicles for resale.
15
<PAGE>
Independent Auditors' Report
on Supplemental Material
Our audits of the basic combined financial statements included in the preceding
section of this report were performed for the purpose of forming an opinion on
those statements taken as a whole. The supplemental material in the following
section of this report is presented for purposes of additional analysis and is
not a required part of the basic combined financial statements. Such information
has been subjected to the auditing procedures applied in the audits of the basic
combined financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic combined financial statements taken
as a whole.
Certified Public Accountants
New York, New York
August 14, 1997
16
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combining Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------
Major Major Subaru, Major Dodge,
Chevrolet, Inc. Inc. Inc.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current:
Cash and cash equivalents $ 107,172 $ 27,931 $ 72,775
Certificates of deposit - - 350,000
Trade receivables 2,361,280 75,378 552,027
Inventories 13,723,359 702,241 9,283,682
Notes receivable 637,166 - -
Prepaid expenses and other current assets - - 40,308
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 16,828,977 805,550 10,298,792
Property, plant and equipment, less
accumulated depreciation and
amortization 57,561 77,123 225,707
Other assets:
Security deposits 7,815 3,050 2,055
Due from affiliates 1,450,191 59,641 134,102
- ------------------------------------------------------------------------------------------------------------------------------
$18,344,544 $945,364 $10,660,656
==============================================================================================================================
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
Eliminations Major
Major CPJE, decrease Chevrolet, Inc.
Inc. (increase) and Affiliates
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current:
Cash and cash equivalents $ 142,359 $ - $ 350,237
Certificates of deposit 434,612 - 784,612
Trade receivables 725,505 1,513,586 5,227,776
Inventories 5,173,489 - 28,882,771
Notes receivable - - 637,166
Prepaid expenses and other current assets 29,712 - 70,020
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 6,505,677 1,513,586 35,952,582
Property, plant and equipment, less
accumulated depreciation and
amortization 344,391 - 704,782
Other assets:
Security deposits 1,025 - 13,945
Due from affiliates 1,148,218 (2,792,152) -
- --------------------------------------------------------------------------------------------------------------------------
$7,999,311 $(1,278,566) $36,671,309
==========================================================================================================================
</TABLE>
17
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combining Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Major Major Subaru, Major Dodge,
Chevrolet, Inc. Inc. Inc.
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholders' Equity
(Capital Deficit)
Current:
Customer deposits $ 1,124,611 $ - $ 138,768
Accounts payable 1,519,508 124,982 242,704
Accrued expenses 414,168 29,758 165,709
Due to affiliates - 213,213 700,609
Notes payable on vehicle floor plan 14,318,893 563,901 9,650,933
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 17,377,180 931,854 10,898,723
Loans payable to stockholders 425,000 50,000 89,060
Notes payable - other - noncurrent - - 10,476
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 17,802,180 981,854 10,998,259
- --------------------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' equity (capital deficit):
Common stock 89,000 150,000 250,000
Additional paid-in capital 176,700 - -
Retained earnings (deficit) 285,564 (186,490) (587,603)
- --------------------------------------------------------------------------------------------------------------------------------
551,264 (36,490) (337,603)
Less: Treasury stock - 89 shares; Class B,
$100 par (8,900) - -
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity
(capital deficit) 542,364 (36,490) (337,603)
- --------------------------------------------------------------------------------------------------------------------------------
$18,344,544 $ 945,364 $10,660,656
================================================================================================================================
</TABLE>
[RESTUBBED FROM TABLE ABOVE]
<TABLE>
<CAPTION>
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
Eliminations Major
Major CPJE, decrease Chevrolet, Inc.
Inc. (increase) and Affiliates
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities and Stockholders' Equity
(Capital Deficit)
Current:
Customer deposits $ - $ - $ 1,263,379
Accounts payable 77,293 - 1,964,487
Accrued expenses 139,399 - 749,034
Due to affiliates 364,744 (1,278,566) -
Notes payable on vehicle floor plan 6,764,475 - 31,298,202
- ----------------------------------------------------------------------------------------------------------------------------
Total current liabilities 7,345,911 (1,278,566) 35,275,102
Loans payable to stockholders 100,000 - 664,060
Notes payable - other - noncurrent 10,476 - 20,952
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 7,456,387 (1,278,566) 35,960,114
- ----------------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' equity (capital deficit):
Common stock 250,000 - 739,000
Additional paid-in capital - - 176,700
Retained earnings (deficit) 292,924 - (195,605)
- ----------------------------------------------------------------------------------------------------------------------------
542,924 - 720,095
Less: Treasury stock - 89 shares; Class B,
$100 par - - (8,900)
- ----------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity
(capital deficit) 542,924 - 711,195
- ----------------------------------------------------------------------------------------------------------------------------
$7,999,311 $(1,278,566) $36,671,309
============================================================================================================================
</TABLE>
18
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combining Statement of Operations and Retained Earnings (Deficit)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Major
Major Major Subaru, Major Dodge, Major CPJE, Chevrolet, Inc.
Chevrolet, Inc. Inc. Inc. Inc. and Affiliates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales $83,366,616 $5,593,199 $24,588,384 $30,533,379 $144,081,578
Cost of sales 74,330,311 5,208,053 22,101,872 27,736,616 129,376,852
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 9,036,305 385,146 2,486,512 2,796,763 14,704,726
Operating expenses 7,656,493 402,805 2,286,566 2,380,954 12,726,818
Interest expense 1,219,078 37,462 234,499 184,163 1,675,202
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 160,734 (55,121) (34,553) 231,646 302,706
Other income (loss) 43,033 50,104 (4,134) 29,937 118,940
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 203,767 (5,017) (38,687) 261,583 421,646
Income taxes 54,047 625 1,350 49,951 105,973
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 149,720 (5,642) (40,037) 211,632 315,673
Retained earnings (deficit), beginning of year 135,844 (180,849) (447,566) 181,293 (311,278)
S corporation distributions - - (100,000) (100,000) (200,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year $ 285,564 $(186,491) $ (587,603) $ 292,925 $ (195,605)
====================================================================================================================================
</TABLE>
19
