SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
May 14, 1998
Date of Report (Date of earliest event reported)
FIDELITY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 00029182 11-3292094
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
80-02 Kew Gardens Road, Kew Gardens, NY 11415
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 718/520-65005
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
1. Combined balance sheets of Major Chevrolet, Inc. and affiliates
as of December 31, 1997 and 1996 and combined statements of income and
retained earnings (deficit) and cash flows for the years ended December
31, 1997, 1996, and 1995.
2. The balance of the required financial information will be filed
on a timely basis by amendment to this Form 8-K.
(b) Pro Forma Financial Information.
1. Unuadited pro forma condensed combined balance sheet as of
December 31, 1997, and unaudited pro forma condensed combined statement of
operations for the year ended December 31, 1997.
2. The balance of the required pro forma financial information will
be filed on a timely basis by amendment to this Form 8-K.
-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, 1997 and 1996, and the related combined
statements of income and retained earnings (deficit), and cash flows for each of
the three years in the period ended December 31, 1997. 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 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 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
March 27, 1998, except for Note 15,
as to which the date is May 28, 1998
/s/ BDO Seidman, LLP
3
<PAGE>
Major Chevrolet, Inc. and Affiliates
Combined Balance Sheets
================================================================================
December 31, 1997 1996
- --------------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $ 1,424,915 $ 350,237
Certificates of deposit 699,935 784,612
Trade receivables 5,696,297 5,227,776
Inventories 14,869,556 25,332,146
Notes receivable 675,396 637,166
Prepaid expenses and other current assets 154,964 70,020
- --------------------------------------------------------------------------------
Total current assets 23,521,063 32,401,957
Property, plant and equipment, less accumulated
depreciation and amortization 693,928 704,782
Lease and rental vehicles 45,109 3,550,625
Other assets:
Security deposits 8,938 13,945
- --------------------------------------------------------------------------------
$ 24,269,038 $ 36,671,309
================================================================================
Liabilities and Stockholders' Equity
Current:
Customer deposits $ 377,465 $ 1,263,379
Accounts payable 2,577,742 1,964,487
Accrued expenses 2,260,291 749,034
Notes payable on vehicle floor plan 16,949,869 31,298,202
- --------------------------------------------------------------------------------
Total current liabilities 22,165,367 35,275,102
Loans payable to stockholders 828,737 664,060
Notes payable - other - noncurrent 38,930 20,952
- --------------------------------------------------------------------------------
Total liabilities 23,033,034 35,960,114
- --------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Common stock 730,100 730,100
Additional paid-in capital 176,700 176,700
Retained earnings (deficit) 329,204 (195,605)
- --------------------------------------------------------------------------------
Total stockholders' equity 1,236,004 711,195
- --------------------------------------------------------------------------------
$ 24,269,038 $ 36,671,309
================================================================================
See accompanying summary of accounting policies
and notes to combined financial statements.
4
<PAGE>
Major Chevrolet, Inc. and Affiliates
<TABLE>
<CAPTION>
Combined Statements of Income and
Retained Earnings (Deficit)
============================================================================================
Year ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $ 144,499,231 $ 144,692,083 $ 118,476,189
Cost of sales 126,855,734 129,376,852 104,728,435
- --------------------------------------------------------------------------------------------
Gross profit 17,643,497 15,315,231 13,747,754
Operating expenses 15,510,591 13,337,323 11,439,981
Interest expense 1,283,420 1,675,202 1,899,821
- --------------------------------------------------------------------------------------------
Operating income 849,486 302,706 407,952
Other income 255,918 118,940 109,072
- --------------------------------------------------------------------------------------------
Income before income taxes 1,105,404 421,646 517,024
Income taxes 169,813 105,973 26,158
- --------------------------------------------------------------------------------------------
Net income 935,591 315,673 490,866
Deficit, beginning of year (195,605) (130,430) (621,296)
Deficit, beginning of year - Subaru -- (180,848) --
S corporation distributions (410,782) (200,000) --
- --------------------------------------------------------------------------------------------
Retained earnings (deficit), end of year $ 329,204 $ (195,605) $ (130,430)
============================================================================================
</TABLE>
See accompanying summary of accounting policies
and notes to combined financial statements.
5
<PAGE>
Major Chevrolet, Inc. and Affiliates
<TABLE>
<CAPTION>
Combined Statements of Income and
Retained Earnings (Deficit)
===============================================================================================================
Year ended December 31, 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 935,591 $ 315,673 $ 490,866
- ---------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by (used in)operating activities:
Depreciation and amortization 64,470 680,400 523,049
Other - net -- (30,848) --
Changes in assets - (increase) decrease in:
Trade receivables (468,521) 2,969,953 390,502
Inventories 10,462,590 6,224,583 (16,417,109)
Prepaid expenses and other current assets (84,944) 80,066 (89,263)
Security deposits 5,007 (4,139) (1,024)
Changes in liabilities - increase (decrease) in:
Customer deposits (885,914) 1,078,951 (90,715)
Accounts payable 613,255 243,203 147,915
Accrued expenses 1,511,257 (374,171) (296,425)
- ---------------------------------------------------------------------------------------------------------------
Total adjustments 11,217,200 10,867,998 (15,833,070)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 12,152,791 11,183,671 (15,342,204)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (53,616) (115,630) (150,297)
Note receivable (38,230) (36,166) (601,000)
Proceeds from sale of lease and rental vehicles 3,505,516 332,666 463,713
Certificate of deposit 84,677 (19,828) 46,008
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 3,498,347 161,042 (241,576)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in (payment of) stockholder loans 164,677 14,060 214
Increase (decrease) in long-term debt 17,978 (92,224) 453,140
Increase (decrease) in floor plan notes payable (14,348,333) (11,382,436) 15,989,182
Decrease in additional paid-in capital -- -- (1,041,100)
Treasury stock repurchase -- -- (8,900)
S corporation distributions (410,782) (200,000) --
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (14,576,460) (11,660,600) 15,392,536
- ---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,074,678 (315,887) (191,244)
Cash and cash equivalents, beginning of year 350,237 666,124 857,368
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 1,424,915 $ 350,237 $ 666,124
===============================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $1,323,866 $1,812,010 $1,777,023
Income taxes 89,732 79,266 35,618
Supplemental disclosures of non-cash activities:
On December 31, 1995, Major Chevrolet, Inc. repurchased Class B common stock from a stockholder for $1.05 million.
In addition to cash payments of $32,724 the Company issued a note payable of $450,000 and cancelled certain promissory
notes of $517,876 to the shareholder.
===============================================================================================================
</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 Combination and Reporting
Major Chevrolet, Inc. and Affiliates (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., Major Chrysler Plymouth Jeep Eagle, Inc. ("Major
CPJE"), and Major Subaru, Inc. (effective January 1, 1996), 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 Use of Estimates 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 values of the financial instruments, including cash, cash equivalents,
trade receivables, inventories, accounts payable, accrued expenses and notes
payable on vehicle floor plan, approximate their carrying value because of the
current nature of these instruments. It is not practical to determine the fair
value of loans payable to stockholders because the repayment terms are subject
to management's discretion.
Revenue and Cost Recognition
Revenues and cost are recognized upon 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.
During 1997, total inventory quantities were reduced, resulting in a LIFO
liquidation. The net income realized as a result of the inventory liquidation
amounted to approximately $1,400,000.
Property, Plant and Equipment
Property, plant and equipment are stated 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.
Deferred income taxes reflect the impact of temporary differences between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. There are no significant temporary differences;
accordingly, no deferred tax calculation has been made.
8
<PAGE>
Major Chevrolet, Inc. and Affiliates
Summary of Accounting Policies
================================================================================
Cash Equivalents
The Company considers all short-term, 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 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. The fair value of the certificates
of deposit approximate their carrying value due to their short-term maturities.
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.
Reclassifications
Certain amounts in the 1995 and 1996 financial statements have been reclassified
to conform with the 1997 presentation.
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, 1997 1996
- -------------------------------------------------------
Major Fleet and Leasing, Inc. $ 359,846 $1,338,825
Major Pennsylvania, Inc. 408,534 174,761
Major Statewide 1,042,903 --
Major Auto Rentals 10,430 --
Oyster Bay Nissan 38,581 --
- -------------------------------------------------------
$1,860,294 $1,513,586
========================================================
These related parties have substantially the same ownership and management
as the Company.
b) Trade receivables, at December 31, 1997 and 1996, included approximately
$17,000 and $500,000, respectively, in delayed payments which are approved
by the vehicle manufacturer and its financial institution.
2. Inventories
Inventories consist of the following:
December 31, 1997 1996
- -------------------------------------------------------
New automobiles $ 4,702,445 $11,619,105
New trucks and vans 6,521,687 10,207,147
Used automobiles and trucks 5,338,923 6,041,011
Parts and accessories 645,645 664,138
Other 7,388 18,047
- -------------------------------------------------------
17,216,088 28,549,448
Less: LIFO reserve 2,346,532 3,217,302
- -------------------------------------------------------
$14,869,556 $25,332,146
=======================================================
10
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
================================================================================
3. Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
Estimated
December 31, 1997 1996 useful lives
- ----------------------------------------------------------------------------
Furniture and fixtures $ 502,411 $ 493,079 7-10 years
Service equipment 225,032 180,748 5-7 years
Automobiles 18,138 18,138 3 years
Leasehold improvements 596,571 596,571 Life of lease
- ----------------------------------------------------------------------------
1,342,152 1,288,536
Less: Accumulated 648,224 583,754
depreciation and
amortization
- ----------------------------------------------------------------------------
$ 693,928 $ 704,782
============================================================================
4. Lease and Rental Vehicles
The Company leases vehicles to an unrelated third party under operating lease
arrangements. These vehicles are used as rental vehicles through agreements
providing for daily, weekly or monthly terms. The Company holds title to the
vehicles and is reimbursed for the carrying charges paid on these vehicles.
During 1997, the Company decided to leave the leased rental vehicle business and
has sold most of these vehicles. The Company expects to completely sell all
leased rental vehicles in 1998.
The following is an analysis of the carrying amount of the leased vehicles:
December 31, 1997 1996
- ---------------------------------------------------------
Cost $49,957 $4,161,130
Less: Accumulated depreciation 4,848 610,505
- ---------------------------------------------------------
$45,109 $3,550,625
=========================================================
11
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
================================================================================
5. 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.
6. Notes Payable - Vehicle Floor Plan
Notes payable on the vehicle floor plan are due to Chrysler Credit Corp. and
General Motors Overseas Distribution Corp. and bear interest at approximately 9%
for the year ended December 31, 1997. 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 F trade receivables as described in Note 1.
7. 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.
8. Stock Repurchase
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 5), and an immediate cancellation of certain promissory notes.
12
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
================================================================================
9. Loans Payable To Stockholders
Amounts due to stockholders represent 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 S not bear interest.
10. Related Party Transaction
In addition to certain trade receivables 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.
The Company rents its Dodge showroom premises from its stockholders. The
agreement is on a month-to-month basis. Rent expense relating to this agreement
amounted to $96,000, $96,000 and $96,000 for the years ended December 31, 1997,
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 and $240,000 for the years ended December 31,
1997 and 1996, respectively.
The Company rents its Dodge and CPJE service centers from Bendell Realty, L.L.C.
Bendell Realty, L.L.C. is owned by the stockholder of the Company. The rent
expense amounted to approximately $120,000, $120,000 and $120,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
13
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
================================================================================
11. Common Stock
Common stock consists of the following:
December 31, 1997 1996
- --------------------------------------------------------------------------------
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 10 150,000 150,000
- --------------------------------------------------------------------------------
$ 730,100 $ 730,100
================================================================================
12. Commitments
At December 31, 1997, the Company is committed to make minimum annual lease
payments 12.C under real property operating leases as follows:
- --------------------------------------------------
1998 $846,000
1999 726,000
2000 701,000
2001 491,000
2002 431,000
Thereafter 718,000
==================================================
14
<PAGE>
Major Chevrolet, Inc. and Affiliates
Notes to Combined Financial Statements
================================================================================
Rent expense under real property operating leases approximated $812,000,
$961,000 and $751,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company guarantees the obligations of Major Fleet and Leasing, Inc. under a
$5 million line of credit with a financial institution. Major Fleet and Leasing,
Inc. was formerly owned by the shareholders of the Company.
13. Govermental Regulations
Substantially all of the Company's 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.
14. 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.
15. Subsequent Events
On May 14, 1998, the Company was merged into Major Acquisition Corp., a
wholly-owned subsidiary of Fidelity Holdings, Inc. ("Fidelity"). Pursuant to the
merger agreement, Major Acquisition Corp. acquired all of the Company's shares
of stock for $4 million in cash, the incurrence of $500,000 in merger-related
expenses and the issuance of 900,000 shares of Fidelity's Convertible Preferred
Stock. Such shares are convertible, by their terms, into 1,800,000 shares of
Fidelity's Common Stock.
15
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma combined statements of operations and
balance sheets are based on the audited historical financial statements of
Fidelity Holdings, Inc. and Subsidiaries (the "Company" or "Fidelity"), and on
the audited combined historical financial statements of the Major Automotive
Group ("Major" and "Major Chevrolet, Inc. and Affiliates"). The unaudited
combined pro forma balance sheet at December 31, 1997 has been adjusted to give
effect to the merger as if it had occurred on that date. The unaudited combined
pro forma statement of operations for the year ended December 31, 1997 has been
adjusted to give effect to the merger as if it had occurred on January 1, 1997.
These statements are based on available information and certain
assumptions which management believes are reasonable. The pro forma combined
statement of operations is not necessarily indicative of future operating
results or what the Company's results of operations would have been had the
combination occurred on January 1, 1997 and, therefore, should not be construed
as being representative of future operating results. The pro forma combined
statement of operations and balance sheet should be read in conjunction with the
audited historical financial statements of the Company and of Major.
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Fidelity Major Adjustments Combined
-------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
Computer products and
telecommunications equipment $ 2,909,251 $ 2,909,251
Automobile dealers 144,499,231 144,499,231
Leasing income 953,033 953,033
------------- ------------- ------------- -------------
Total revenues 3,862,284 144,499,231 148,361,515
------------- ------------- ------------- -------------
Operating expenses:
Cost of products sold 823,397 126,855,734 127,679,131
Selling, general and
administrative expenses
Products 1,100,564 1,100,564
Leasing 816,360 816,360
Automobile dealers 15,510,591 37,500 (a) 15,548,091
Amortization of intangible assets 343,744 370,560 (b) 714,304
------------- ------------- ------------- -------------
3,084,065 142,366,325 408,060 145,858,450
------------- ------------- ------------- -------------
Operating income(loss) 778,219 2,132,906 (408,060) 2,503,065
Other income (expense)
Interest expense (121,092) (1,283,420) (738,050)(c) (2,142,562)
Interest income 8,487 -- 8,487
Other 255,918 255,918
Income on joint venture (137,475) (137,475)
------------- ------------- ------------- -------------
Income before provision for taxes 528,139 1,105,404 (1,146,110) 487,433
Provision for taxes 159,000 169,813 (160,000)(d) 168,813
------------- ------------- ------------- -------------
Net income $ 369,139 $ 935,591 $ (986,110) $ 318,620
============= ============= ============= =============
Net income per common share
Basic $ 0.06 $ 0.04
============= =============
Diluted $ 0.05 $ 0.03
============= =============
Weighted average number of shares used
in computing earnings per share
Basic 6,454,350 1,800,000 (e) 8,254,350
============= ============= =============
Diluted 7,550,546 1,800,000 (e) 9,350,546
============= ============= =============
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Fidelity Major Adjustments Combined
-------- ----- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 217,191 $ 2,124,850 $ 7,500,000 (c) $ 2,342,041
(7,5(a)000)
Net investment in direct financing leases, current 1,644,575 1,644,575
Notes receivable - officer shareholder 148,400 675,396 823,796
Accounts receivable 1,650,919 5,696,297 7,347,216
Inventories 164,661 14,869,556 15,034,217
Other current assets 375,172 154,964 530,136
--------------------- ---------------- ----------------- -----------------
Total current assets 4,200,918 23,521,063 27,721,981
Net investment in direct financing leases,
net of current portion 687,106 687,106
Property and equipment, net 1,236,513 693,928 3,000,000 (a) 4,930,441
Leased and rental vehicles 45,109 45,109
Excess of costs over net assets acquired 2,738,911 9,263,996 (b) 12,002,907
Other intangible assets 428,571 428,571
Other assets 109,324 8,938 118,262
--------------------- ---------------- ----------------- -----------------
Total assets $ 9,401,343 $ 24,269,038 $ 12,263,996 $ 45,934,377
===================== ================ ================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and customer deposits $ 438,630 $ 2,955,207 $ $ 3,393,837
Accrued expenses 400,677 2,260,291 2,660,968
Current maturities of long-term debt 575,185 500,000 (c) 1,075,185
Accrued income taxes - -
Deferred revenue 72,570 72,570
Due to affiliates 143,926 143,926
Notes payable to bank and floor plan liability 150,000 16,928,757 17,078,757
Other current liabilities 21,112 21,112
--------------------- ---------------- ----------------- -----------------
Total current liabilities 1,780,988 22,165,367 500,000 24,446,355
Long-term debt, less current maturities 427,387 7,000,000 (c) 7,427,387
Income taxes - deferred 583,000 583,000
Other 85,233 867,667 952,900
Lease/rental vehicles -
--------------------- ---------------- ----------------- -----------------
Total liabilities 2,876,608 23,033,034 7,500,000 33,409,642
Stockholders' equity
Preferred stock, $.01 par value:
2,000,000 shares authorized
250,000 shares issued and outstanding 2,500 2,500
Preferred stock - 1997-MAJOR, $.01 par value: 9,000 (a) 9,000
Common stock, $.01 par value
50,000,000 shares authorized
6,895,700 shares issued and outstanding 68,957 68,957
Common stock - Major, net 730,100 (730,100)(a)
Additional paid in capital 5,414,293 176,700 (176,700)(a) 11,405,293
5,991,000 (a)
Cumulative translation adjustment 297 297
Retained earnings 1,038,688 329,204 (329,204)(a) 1,038,688
--------------------- ---------------- ----------------- -----------------
Total stockholders' equity 6,524,735 1,236,004 4,763,996 12,524,735
--------------------- ---------------- ----------------- -----------------
Total liabilities and stockholders' equity $ 9,401,343 $ 24,269,038 $ 12,263,996 $ 45,934,377
===================== ================ ================= =================
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS
Assumptions Used and Adjustments Made
(a) The merger transaction, which was accounted for as a purchase pursuant to
Accounting Principles Board Opinion Number 16, was accomplished by payment
of $7,000,000 in cash, the incurrence of $500,000 in merger-related
expenses and the issuance of 900,000 shares of the Company's Convertible
Preferred Stock ("1997-MAJOR Preferred"). Such shares are convertible, by
their terms, into 1,800,000 shares of the Company's Common Stock. Such
common shares were valued at $3.33 per share at the time the transaction
was agreed to. The valuation was based on fair market value of the
Company's freely trading shares and considered such factors as
restrictions and blockage. The number of shares was determined, in
accordance with the acquisition agreement, as the greater of (i) 1,800,000
shares and (ii) that number of shares of Common Stock that had a market
value of $6,000,000. Together, the cash payment plus the 1997-MAJOR
Preferred stock and the $500,000 of merger-related expenses, represent a
purchase price of $13.5 million. The assets and liabilities of Major were
recorded at their historical book value. Since the preponderance of such
assets and liabilities are current, primarily cash, receivables,
inventories and related liabilities, management believes such book value
($1,236,004 at December 31, 1997) approximates fair market value. The real
property, acquired from the principals of Major as part of the
transaction, was recorded at its actual cash cost of $3 million. The pro
forma statements reflect an assumption that land comprises half of the
acquired property and the buildings are being depreciated over their
estimated useful lives of forty years.
(b) The excess of cost over net assets acquired of $9,263,996 is being
amortized over twenty-five years on a pro forma basis. A professional
appraisal will be made and, based thereon, the excess of cost over net
assets acquired will be allocated to tangible and intangible assets, if
any, and they will be appropriately depreciated and amortized over their
estimated useful lives.
(c) The transaction has been financed by Falcon Financial LLC through a loan
payable over fifteen years with an interest rate (10.18%) fixed at
closing. The pro forma financial statements assume that twelve monthly
payments of principal and interest have been made through December 31,
1997.
(d) Taxes have been provided for the Company at historic rates. Major has
historically operated as a Subchapter S Corporation under the provisions
of the Internal Revenue Code, wherein the stockholders are required to
report taxable income or loss on their personal tax returns and no such
taxes are reflected on Major's financial statements. Pro forma taxes have
been provided for Major at an estimated effective rate of approximately
35%.
(e) Earnings per share has been calculated based on the weighted average
numbers of shares used to calculate Fidelity's historical earnings per
share as adjusted for the assumed conversion of the 900,000 shares of
1997-MAJOR Preferred Stock into 1,800,000 shares of Fidelity's Common
Stock as of January 1, 1997.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIDELITY HOLDINGS, INC.
Registrant)
/s/ Bruce Bendell
-----------------------------
Bruce Bendell, President
Dated: June 8, 1998
