SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|XX| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1998 or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 0-29182
FIDELITY HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 11-3292094
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
80-02 Kew Gardens Road, Suite 5000
Kew Gardens, New York 11415
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(Address of principal executive offices)
(718) 520-6500
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Issuer's telephone number
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
<PAGE>
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by court. Yes |_| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: The number of shares of the
registrant's common stock outstanding as of May 19, 1998 was 7,245,700.
<PAGE>
FIDELITY HOLDINGS, INC AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
UNAUDITED
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1998 1997
Unaudited Audited
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<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 153,415 $ 217,191
Net Investment in direct financing leases, current 1,758,429 1,644,575
Notes receivable - officer shareholder 150,500 148,400
Accounts receivable 1,807,037 1,650,919
Inventories 118,778 164,661
Other current assets 420,975 375,172
---------- ----------
Total current assets 4,409,134 4,200,918
Net investment in direct financing leases,
net of current portion 606,632 687,106
Property and equipment, net 1,154,456 1,236,513
Excess of costs over net assets acquired 2,663,102 2,738,911
Other intangible assets 419,642 428,571
Other assets 91,061 109,324
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Total assets $9,344,027 $9,401,343
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable bank $ 250,000 $ 150,000
Accounts payable 649,943 438,630
Accrued expenses 172,717 400,677
Current maturities of long-term debt 496,350 575,185
Deferred revenue 48,113 72,570
Due to affiliates 99,342 143,926
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Total current liabilities 1,716,465 1,780,988
Long-term debt, less current maturities 518,521 427,387
Income taxes, deferred 562,000 583,000
Other 90,808 85,233
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Total liabilities 2,887,794 2,876,608
Commitments
Stockholders' equity
Preferred stock, .01 par value;
2,000,000 shares authorized,
250,000 shares issued and outstanding
in 1998 and 1997 2,500 2,500
Common stock, .01 par value
50,000,000 shares authorized,
6,895,700 shares issued and
outstanding in 1998 and 1997 68,957 68,957
Additional paid in capital 5,414,293 5,414,293
Cumulative translation adjustment 367 297
Retained earnings 970,116 1,038,688
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Total stockholders' equity 6,456,233 6,524,735
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Total liabilities and stockholders' equity $9,344,027 $9,401,343
========== ==========
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
Three Months Ended March 31,
1998 1997
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Revenues:
Computer products and
telecommunications equipment $ 331,128 $ 957,864
Leasing income 165,152 259,158
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Total revenues 496,280 1,217,022
--------- -----------
Operating expenses:
Cost of products sold 116,698 205,377
Selling, general and
administrative expenses
Products 219,803 467,609
Leasing 140,490 195,685
Amortization of intangible assets 84,738 59,500
--------- -----------
561,729 928,171
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Operating income (loss) (65,449) 288,851
Other income (expense)
Interest expense (26,223) (43,228)
Interest income 2,100 959
Loss on joint venture -- 21,087
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Income (loss) before provision (credit)
for income taxes (89,572) 267,669
Provision (credit) for income taxes (21,000) 98,000
--------- -----------
Net income (loss) $ (68,572) $ 169,669
========= ===========
Earnings (loss) per share
Basic $ (0.01) $ 0.03
Diluted $ (0.01) $ 0.03
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (68,572) $ 169,669
Adjustments to reconcile net income
to net cash (used in) provided by
operating activities:
Amortization of intangible assets 84,738 59,500
Depreciation 100,311 101,861
Deferred income taxes (21,000) 64,000
(Increase) decrease in assets:
Net investment in direct financing leases (33,380) 27,991
Notes receivable (2,100) (547)
Accounts receivable (156,118) (418,866)
Inventories 45,883 278,650
Other assets (27,540) (139,069)
Increase (decrease) in liabilities:
Accounts payable 216,888 (51,751)
Accrued expenses (227,960) (361,745)
Accrued income taxes -- 29,622
Deferred revenue (24,457) 73,663
Due to affiliates (44,584) (110,132)
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Net Cash (used in)
operating activities (157,891) (277,154)
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Cash flows from investing activities:
Additions to property and equipment (18,254) (143,325)
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Net cash used in investing activities (18,254) (143,325)
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Cash flows from financing activities:
Line of credit 100,000 --
Proceeds from long-term debt 204,760 75,935
Payments of long-term debt (192,461) (45,000)
Proceeds from issuance of common
stock and exercise of warrants net of expenses -- 375
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Net cash provided by financing activities 112,299 31,310
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Effect of exchange rates on cash 70 --
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Net (decrease) in cash and cash equivalents (63,776) (389,169)
Cash and cash equivalents, beginning of period 217,191 574,486
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Cash and cash equivalents, end of period $ 153,415 $ 185,317
========= =========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 26,223 43,228
Income taxes $ -- --
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Currency Total
--------------- ----------------- Paid in Earnings Translation Stockholders'
Shares Amount Shares Amount Capital (Deficit) Adjustment Equity
------ ------ ------ ------ ------- --------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1996 250,000 $2,500 6,279,200 $62,792 $4,509,108 $ 669,549 $264 $ 5,244,213
Issuance of Common
Stock pursuant to exercise
of warrants -- -- 523,000 5,230 648,520 -- -- 653,750
Effect of stock compensation
charge -- -- 93,500 935 256,665 -- -- 257,600
Net income -- -- -- -- -- 369,139 -- 369,139
Translation adjustment -- -- -- -- -- -- 33 33
Balance
------- ------ --------- ------- ---------- ----------- ---- -----------
December 31, 1997 250,000 2,500 6,895,700 68,957 5,414,293 1,038,688 297 6,524,735
Net loss -- -- -- -- -- (68,572) -- (68,572)
Translation adjustment -- -- -- -- -- -- 70 70
Balance
------- ------ --------- ------- ---------- ----------- ---- -----------
March 31, 1998 250,000 $2,500 6,895,700 $68,957 $5,414,293 $ 970,116 $367 $ 6,456,233
======= ====== ========= ======= ========== =========== ==== ===========
</TABLE>
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
March 31, 1998
Basis of Presentation
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to fairly present the Company's financial position and
its results of operations and cash flows as of the dates and for the periods
indicated.
Certain information and footnote disclosures normally contained in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These condensed consolidated financial statements should be
read in conjunction with the audited December 31, 1997 financial statements and
related notes included in the Company's Annual Report on Form 10-KSB. The
results of operations for the three months are not necessarily indicative of the
operating results for the full year.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - Three-Month Period Ended March 31, 1998 and 1997
Revenues. Revenues for the three-month period in 1998 decreased $(720,742)
or (59.2%) to $496,280. Revenue for the comparable period in 1997 was
$1,217,022. The primary source of the decrease in revenues was the Computer
Telephony and Telecommunications division. The revenues of this division
decreased $(626,736) or (65.4%). This is a result of the Company's business
plan, which is to discontinue sales to Master Agents and acquire the territorial
rights and equipment of its existing Master Agents. Accordingly, the Company
stopped selling to Master Agents during the third quarter of 1997 and has
reached general agreement pursuant to memoranda of understanding with its
existing Master Agents and is in the process of concluding definitive
contractual arrangements.
Cost of Sales. Cost of sales for the three months ended March 31, 1998,
all of which relates to the Computer Telephony and Telecommunications division,
was $116,698 compared with $205,377 in the comparable 1997 period. This decrease
of $(88,679), or (43.2%), is consistent with the decrease in revenues related to
the higher margin products sold by this division.
Gross profit. Gross profit for the Computer Telephony and
Telecommunications division in the 1998 period was $214,430, which represented a
decrease of $(538,057), or (71.5%), from the prior comparable period's gross
profit of $752,487. Additionally, gross profit as a percentage of sales in this
division decreased to 64.8% in the 1998 first quarter compared with gross profit
of 78.6% in the comparable prior quarter. This, again, is the result of the
curtailment of higher gross profit sales to Master Agents that was begun in the
third quarter of 1997.
Selling, general and administrative expense. Selling, general and
administrative expenses ("SG&A") decreased a total of $(303,001) to $360,293 in
the 1998 period from $663,294 for the first three months of 1997. Of this
decrease, $(247,806) relates to the Computer Telephony and Telecommunications
division and $(55,195) is from the Leasing division. SG&A for the Computer
Telephony and Telecommunications division decreased from $467,609 for the first
three month of 1997 to $219,803 for the first three months of 1998, a decrease
of (53.0%). This decrease is reflective of the reduced level of activity
associated with the Company's Master Agents in the first quarter of 1998. The
decrease of $(55,195), or (28.2%) in SG&A to $140,490 for the Leasing division
in the first quarter of 1998 from $195,685 in the comparable prior period is
reflective of both operating efficiencies and a reduced level of activities.
Interest expense. Interest expense decreased by $(17,005) to $26,223 in
the 1998 first quarter, compared with interest expense of $43,228 incurred in
the first quarter of 1997. This is reflective of the decreased activity in the
Leasing division.
<PAGE>
Income on joint venture. The joint venture with Nissko Telecom showed no
gain or loss during the 1998 period, compared with income of $21,087 in the
comparable prior period.
Liquidity and Capital Resources - March 31, 1998
The Company's primary source of liquidity for the three months ended March
31, 1998 was $95,477 from its net loss of $(68,572), as offset and adjusted by
non-cash charges which aggregated $164,049. This net increase in cash was more
than offset by (a) the net increase of assets of $173,255 (primarily from the
increase in accounts receivable of $156,118) and (b) a net decrease in
liabilities amounting to $80,113, resulting primarily from decreases in deferred
revenues of $24,457 and due to affiliates of $44,584. The net result was a use
of cash in operating activities of $157,891.
The Company's investing activities, i.e., additions to property and
equipment, used cash of $18,254, which was more than offset by net cash provided
by financing activities, which aggregated $112,299. Of the net cash provided by
financing activities, $100,000 was provided by the Company's bank line of
credit.
The foregoing activities, i.e. operating, investing and financing,
together with a $70 exchange rate effect, resulted in a net cash decrease of
$63,776 for the three months ended March 31, 1998.
In April, 1998, the Company began offering, to a limited number of
accredited investors, convertible, subordinated debentures in the aggregate
principal amount of $1.5 million. Through May 15, 1998, $600,000 of such
debentures had been sold.
On May 14, 1998, the Company completed its planned acquisition of the
Major Auto Group, Inc. ("Major Auto") and related real estate for approximately
$14.7 million in cash and equity, including closing and due diligence costs.
Financing for the cash portion of the acquisition was obtained from Falcon
Financial LLC, a third-party lender, with a loan in the amount of $7.5 million,
payable over fifteen years.
The Company believes that the cash generated from existing operations and
its new automotive division, together with existing cash, available credit from
its current lenders, including banks and floor planning, and the completion of
its debenture offering, as well as future securities offerings will be
sufficient to finance its current operations, planned expansion and internal
growth for at least the next twenty-four months.
The Combined Financial Statements and related notes thereto for Major Auto
and pro forma combining financial statements for Major Auto and the Company will
be filed by amendment to this Quarterly Report, as soon as practicable after
they become available to the Company.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not engaged in any litigation other than as previously
reported.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial Data Schedule
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FIDELITY HOLDINGS, INC.
Date: May 19, 1998 /s/ Bruce Bendell
----------------------------
Bruce Bendell, President/CEO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND
RELATED FOOTNOTES OF FIDELITY HOLDINGS, INC. AND SUBSIDIARIES AS OF AND FOR THE
THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND FOOTNOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 153,415
<SECURITIES> 0
<RECEIVABLES> 1,807,037
<ALLOWANCES> 0
<INVENTORY> 118,778
<CURRENT-ASSETS> 4,409,134
<PP&E> 1,721,985
<DEPRECIATION> (567,529)
<TOTAL-ASSETS> 9,334,027
<CURRENT-LIABILITIES> 1,716,465
<BONDS> 1,014,871
0
2,500
<COMMON> 68,957
<OTHER-SE> 6,384,776
<TOTAL-LIABILITY-AND-EQUITY> 9,344,027
<SALES> 331,128
<TOTAL-REVENUES> 496,280
<CGS> 116,698
<TOTAL-COSTS> 561,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,223
<INCOME-PRETAX> (89,572)
<INCOME-TAX> (21,000)
<INCOME-CONTINUING> (68,572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,572)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
