SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999 or
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________________
Commission File Number: 0-29182
FIDELITY HOLDINGS, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
Nevada 11-3292094
---------------------------- -------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
80-02 Kew Gardens Road, Suite 5000
Kew Gardens, New York 11415
---------------------------
(Address of principal executive offices)
(718) 520-6500
--------------
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 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 |X| No |_|
<PAGE>
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: The number of shares of the
registrant's common stock outstanding as of August 13, 1999 was 13,670,174.
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDELITY HOLDINGS, INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS, June 30, 1999 (UNAUDITED)
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
1999 1998
ASSETS: Unaudited Audited
--------- -------
Current Assets:
Cash and cash equivalents $ 5,917,461 $ 820,832
Net investment in direct financing
leases, current 412,030 498,418
Accounts receivable 10,649,478 4,836,699
Inventories 19,931,032 18,999,822
Net assets held for sale 6,347,636 7,074,164
Other current assets 2,352,426 444,797
------------ ------------
Total current assets 45,610,063 32,674,732
Net investment in direct financing leases,
net of current portion 687,935 785,023
Property and equipment, net 5,248,447 4,782,794
Excess of costs over net assets acquired 11,873,150 10,306,950
Notes receivable - officer 168,400 799,819
Other assets 556,686 77,417
------------ ------------
Total assets $ 64,144,681 $ 49,426,735
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable - floor plan $ 21,325,317 $ 17,791,253
Notes payable - bank -- 450,000
Convertible debentures payable -- 600,000
Accounts payable 4,463,214 2,299,306
Accrued expenses 2,673,051 2,007,836
Current maturities of long-term debt 763,329 869,813
Customer deposits 1,276,816 697,087
------------ ------------
Total current liabilities 30,501,727 24,715,295
Long-term debt, less current maturities 7,682,280 8,008,073
Due to employees 99,851 249,851
Due to officer 1,018,581 --
------------ ------------
Total liabilities 39,302,439 32,973,219
------------ ------------
Commitments
Stockholders' equity
Preferred stock, $.01 par value;
2,000,000 shares authorized,
900,000 and 1,150,000 shares
issued and outstanding in 1999
and 1998 9,000 11,500
Common stock, $.01 par value
50,000,000 shares authorized,
14,446,093 and 12,054,771 shares
issued and outstanding in 1999
and 1998 144,461 120,548
Additional paid in capital 23,096,925 14,759,617
Cumulative translation adjustment (3,882) (4,977)
Retained earnings 1,726,929 1,566,828
Treasury stock, at cost; 46,854 shares
and 0 shares in 1999 and 1998,
respectively (131,191) --
------------ ------------
Total stockholders' equity 24,842,242 16,453,516
------------ ------------
Total liabilities and
stockholders' equity $ 64,144,681 $ 49,426,735
============ ============
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales $ 100,273,073 $ 26,487,239 $ 54,430,414 $ 26,322,087
Cost of sales 85,166,266 23,026,967 46,373,321 23,026,967
------------- ------------- ------------- -------------
Gross profit 15,106,807 3,460,272 8,057,093 3,295,120
Operating expenses 12,363,229 2,490,518 6,791,978 2,243,038
Interest expense 877,888 336,152 433,605 309,929
------------- ------------- ------------- -------------
Operating income
before income
tax expense 1,865,690 633,602 831,510 742,153
Income tax expense 362,000 190,000 172,000 211,000
------------- ------------- ------------- -------------
Income from continuing
operations 1,503,690 443,602 659,510 531,153
Income (loss) from
discontinued operations (1,343,589) 18,710 (615,097) (269)
------------- ------------- ------------- -------------
Net income $ 160,101 $ 462,312 $ 44,413 $ 530,884
============= ============= ============= =============
Per common share:
Net income from continuing
operations:
Basic $ 0.12 $ 0.04 $ 0.05 $ 0.05
Diluted 0.09 0.03 0.04 0.04
Net income (loss) from
discontinued operations:
Basic $ (0.11) $ -- $ (0.05) $ --
Diluted (0.08) -- (0.04) --
Net income:
Basic $ 0.01 $ 0.04 $ -- $ 0.05
Diluted 0.01 0.03 -- 0.04
Average number of shares
used in computation:
Basic 12,934,268 10,567,682 13,124,465 10,789,350
Diluted 16,133,143 14,017,682 16,378,036 14,239,350
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTHS THREE MONTHS
ENDED JUNE 30, 1999
-------------------
Cash flows from operating activities:
Net income (loss) $ 160,101 $ 44,413
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities:
Amortization of intangible assets 187,094 84,619
Depreciation 188,964 129,770
Deferred income taxes -- --
Noncash item-stock-based
compensation 392,284 196,142
(Increase) decrease in assets:
Net investment in direct financing
leases 183,476 45,950
Notes receivable -- --
Accounts receivable (5,812,779) 203,151
Inventories (931,210) 2,363,445
Other assets (832,210) (375,868)
Increase (decrease) in liabilities:
Accounts payable 2,163,908 (1,696,933)
Accrued expenses 665,215 152,870
Floor plan notes payable 3,534,064 (1,044,242)
Deferred revenue -- --
Customer deposits 579,729 260,604
----------- -----------
Net cash provided by (used in)
operating activities 478,636 363,921
----------- -----------
Cash flows used in investing activities:
Additions to property and equipment, (654,617) (491,138)
----------- -----------
Net cash used in investing
activities (654,617) (491,138)
----------- -----------
Cash flows from financing activities:
Repurchase of common stock (131,191) (65,595)
Line of credit (450,000) --
Net proceeds from stock issuance 5,765,999 5,765,999
Payments of long-term debt (325,793) (11,385)
Proceeds from convertible debentures 2,750,000 --
Payment of convertible debentures (2,337,500) (2,337,500)
----------- -----------
Net cash provided by (used in)
financing activities 5,271,515 3,351,519
----------- -----------
Effect of exchange rates on cash 1,095 (26)
----------- -----------
Net increase (decrease) in cash
and cash equivalents 5,096,629 3,224,276
Cash and cash equivalents,
beginning of period 820,832 2,693,185
----------- -----------
Cash and cash equivalents,
end of period $ 5,917,461 $ 5,917,461
=========== ===========
Supplemental Disclosures Of
Cash Flow Information:
Cash paid during the period for:
Interest $ 877,888 $ 433,605
Income taxes $ 781,500 $ 280,000
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Unaudited
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ------------------------ Additional Retained
Paid in Earnings
Shares Amount Shares Amount Capital (Deficit)
------- ------------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance
January 1, 1998 250,000 $ 2,500 6,895,700 $ 68,957 $ 5,414,293 $ 1,038,688
Issuance of preferred
Stock for acquisition of
Major Automotive Group 900,000 9,000 -- -- 5,991,000 --
Issuance of common stock
for services and equipment -- -- 1,140,814 11,408 3,394,507 --
Net income -- -- -- -- -- 528,140
Translation adjustment -- -- -- -- -- --
--------- ------------ ------------ ------------ ----------- ------------
Balance
December 31, 1998 1,150,000 11,500 8,036,514 80,365 14,799,600 1,566,828
Adjustment for 3 for 2
common stock dividend -- -- 4,018,257 40,183 (40,183) --
Issuance of common stock
for services and deposits -- -- 653,414 6,534 1,535,466 --
Conversion of 1996
PFD. Stock (250,000) (2,500) 985,222 9,852 (7,352) --
Proceeds from issuance
of common stock pursuant
to private placement, net -- -- 285,714 2,857 5,763,142 --
Convertible debentures
exchanged for common stock -- -- 466,972 4,670 1,046,052 --
Net income -- -- -- -- -- 160,101
Translation adjustment -- -- -- -- -- --
Repurchase of common
stock -- -- -- -- -- --
--------- ------------ ------------ ------------ ----------- ------------
Balance
June 30, 1999 900,000 $ 9,000 $ 14,446,093 $ 144,461 $23,096,925 $ 1,726,929
========= ============ ============ ============ =========== ============
<CAPTION>
Currency Treasury Stock Total
Translation at cost Stockholders'
Adjustment Shares Amount Equity
------------ ------ ------------ -------------
<S> <C> <C> <C>
Balance
January 1, 1998 $ 297 -- $ -- $ 6,524,735
Issuance of preferred
Stock for acquisition of
Major Automotive Group -- 6,000,000
Issuance of common stock
for services and equipment -- 3,405,915
Net income -- 528,140
Translation adjustment (5,274) (5,274)
------------ ------ ------------- ------------
Balance
December 31, 1998 (4,977) -- -- 16,453,516
Adjustment for 3 for 2
common stock dividend -- -- -- --
Issuance of common stock
for services and deposits -- -- -- 1,542,000
Conversion of 1996
PFD. Stock -- -- -- --
Proceeds from issuance
of common stock pursuant
to private placement, net -- -- -- 5,765,999
Convertible debentures
exchanged for common stock -- -- -- 1,050,722
Net income -- -- -- 160,101
Translation adjustment 1,095 -- -- 1,095
Repurchase of common
stock -- 46,854 (131,191) (131,191)
------------ ------ ------------- ------------
Balance
June 30, 1999 $ (3,882) 46,854 $ (131,191) $ 24,842,242
============ ====== ============= ============
</TABLE>
<PAGE>
FIDELITY HOLDINGS INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
JUNE 30, 1999
1. 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, 1998 consolidated financial
statements and related notes included in the Company's 10-KSB. The results of
operations for the six months and three months are not necessarily indicative of
the operating results for the full year.
Amounts for the six months and three months ended June 30, 1998 have been
reclassified to conform with the June 30, 1999 presentation.
2. Common Stock Dividend
On June 1, 1999, the Company paid a 3-for-2 common stock dividend. Common shares
and earnings per share computations for prior periods have been restated to
reflect the stock dividend.
<PAGE>
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the operations, financial condition, liquidity
and capital resources of Fidelity Holdings, Inc. and its subsidiaries (the
"Company") should be read in conjunction with the Company's unaudited
Consolidated Financial Statements and related notes thereto included elsewhere
herein.
This discussion contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements.
The Company
On May 14, 1998, the Company acquired, from a related party, the Major
Automotive Group of dealerships ("Major Auto") and related real estate. In
conformity with generally accepted accounting principles, the consolidated
results of operations of the Company include the results from Major Auto only
since the date of acquisition on May 14, 1998. Accordingly, while the results of
operations for the three and six month periods ended June 30, 1999 include the
results for Major Auto, there are no comparable results for the corresponding
three and six month periods in 1998.
Previously, as a holding company, Fidelity Holdings, Inc. was involved in
the acquisition and development of synergistic technological and
telecommunications businesses. The Company's Board of Directors has made the
decision to explore the divestiture of the Company's non-automotive operations
in order to maximize shareholders' value from those operations and to maintain
the Company's focus on the regional consolidation of retail automotive
dealerships. Accordingly, all non-automotive operations have been classified
collectively as "Discontinued Operations." Continuing operations are represented
by the Company's Major Auto subsidiary and the Company's automotive leasing
subsidiary, Major Fleet and Leasing, Inc. ("Major Fleet").
Results of Continuing Operations - Six-Month Periods Ended June 30, 1999 and
June 30, 1998
Revenues. Revenues for the six-month period ended June 30, 1999 increased
approximately $ 73.8 million over the prior comparable period. Such increase was
almost solely attributable to the revenues of Major Auto, which were $ 99.6
million for the 1999 period as compared with Major Auto's revenues of $ 26.1
million in the period May 14, 1998 to June 30, 1998. A comparison of the average
monthly revenue for Major Auto for the seven and one-half month period it was
owned by the Company in 1998 with the average monthly revenue generated by Major
Auto during the first six months of 1999 shows an approximate 28% increase in
1999. Management believes that this increase in average monthly sales is
primarily attributable to Major Auto's successful efforts in selling used
vehicles at its expansive facility in Long Island City, New York. Average
monthly used car sales revenues increased almost 40% in the 1999 period as more
than 400 used cars were sold during each of the months in the 1999 period with
more than 500 sold in June 1999. Major Auto's initiatives included extensive
Internet promotions, local advertising in all media and the branding of its used
car operation as "Major World." Additionally, the relatively mild winter in the
New York
<PAGE>
Metropolitan area contributed to increased sales during these months when
automotive sales, traditionally, decrease. The results of this period are not
necessarily indicative of the results for any future period or the full year of
1999.
Cost of Sales. The cost of sales of $85.0 million attributable to Major
Auto's operations for the six months ended June 30, 1999 is the significant
component of the total cost of sales of $85.2 million for the period. In the
comparable prior period. Major Auto's cost of sales aggregated 23.0 million from
its acquisition on May 14, 1998 to June 30, 1998.
Gross profit. Of the total gross profit of $15.1 million for the six
months ended June 30, 1999, Major Auto generated almost $14.9 million. Gross
profit as a percentage of sales for Major Auto during the 1999 period was 14.6%.
Although there was no comparable amount for the first quarter of 1998, the gross
profit percentage for Major Auto was 11.8% in the period May 14, 1998 to June
30, 1998 and 13.8% for the seven and one-half month period May 14, 1998 to
December 31, 1998. Management believes that the increase in gross profit
percentage is primarily attributable to the increased volume of used vehicle
sales as a percentage of total sales during the first six months of 1999, as
compared with each of the 1998 periods.
Operating expense. In the six months ended June 30, 1999, operating
expenses increased approximately $9.9 million to almost $12.4 million from $2.5
million. Substantially all of this increase resulted from the acquisition of
Major Auto. Operating expenses attributable to Major Auto increased
approximately $9.4 million to an aggregate of $11.2 million in the first half of
1999 from $1.8 million for the period May 14, 1998 to June 30, 1998.
Interest expense. Interest expense had a net increase of $542,000 to
$878,000 in the first six months of 1999 from interest expense of $336,000
incurred in the comparable prior period. This is primarily related to the floor
plan interest of $386,000 and interest incurred in financing the acquisition of
Major Auto amounting to $374,000 and, to a lesser extent, $118,000 of net
interest primarily accrued on redeemed and converted debentures.
Discontinued operations. The Company experienced a loss from discontinued
operations in the first half of 1999 of $(1,343,589) compared with a profit of
$18,710 in discontinued operations in the comparable prior period. This is
primarily the result of the Company's decision in the third quarter of 1997 to
acquire the territorial and other rights and equipment of its existing Master
Agents. Accordingly, the Company stopped selling to Master Agents during the
third quarter of 1997 and has had no revenue from this source since then.
Additionally, the Company has been seeking the appropriate economically viable
means to divest itself of its non-automotive operations, including its telephony
technology, IG-2 project and plastics operations. In order to do so at the
maximum potential valuation, the Company has incurred the costs necessary to
maintain and improve those facets of its business in order to enhance their
marketability. All such costs are included in discontinued operations.
Results of Continuing Operations - Three-Month Periods Ended June 30, 1999 and
June 30, 1998
Revenues. Revenues for the three-month period ended June 30, 1999
increased approximately $28.1 million over the prior comparable period to $54.4
million. Such increase was almost solely
<PAGE>
attributable to the revenues of Major Auto, which were $54.2 million for the
1999 quarter as compared with the Major Auto's revenues of $26.1 million in the
period May 14, 1998 to June 30, 1998.
Cost of Sales. The cost of sales of $46.2 million attributable to Major
Auto's operations for the three months ended June 30, 1999, is the significant
component of the total cost of sales of $46.4 million for the period. In the
comparable prior period, Major Auto's cost of sales aggregated $23.0 million
from its acquisition on May 14, 1998 to June 30, 1998.
Gross profit. Of the total gross profit of $8.1 million for the three
months ended June 30, 1999, Major Auto generated almost $8.0 million. Gross
profit as a percentage of sales for Major Auto during the 1999 period was 14.6%.
Although there was no comparable amount for the second quarter of 1998, the
gross profit percentage for Major Auto was 11.8% in the period May 14, 1998 to
June 30, 1998. Management believes that the increase in gross profit percentage
is primarily attributable to the increased volume of used vehicle sales as a
percentage of total sales during the 1999 period as compared with each of the
1998 period.
Operating expense. In the three months ended June 30, 1999, operating
expenses increased approximately $ 4.5 million to almost $6.8 million, from $2.3
million. Almost all of this increase resulted from the acquisition of Major
Auto. Operating expenses attributable to Major Auto aggregated $6.1 million in
the second quarter of 1999 as compared to $1.8 million for the period May 14,
1998 to June 30, 1998.
Interest expense. Interest expense had a net increase of $124,000 to
$434,000 in the second quarter of 1999 from interest expense of $310,000
incurred in the comparable prior period. This is primarily related to the
$106,000 increase incurred by Major Auto in its floor planning and acquisition
financing.
Discontinued operations. The Company experienced a loss from discontinued
operations in the second quarter of 1999 of $(615,000) compared with an
approximate break-even in discontinued operations in the comparable prior
period. This is primarily the result of the Company's decision in the third
quarter of 1997 to acquire the territorial and other rights and equipment of its
existing Master Agents. Accordingly, the Company stopped selling to Master
Agents during the third quarter of 1997 and has had no revenue from this source
since then. Additionally, the Company has been seeking the appropriate
economically viable means to divest itself of its non-automotive operations,
including its telephony technology, IG-2 project and plastics operations. In
order to do so at the maximum potential valuation, The costs incurred by the
Company to maintain and enhance those facets of such operations in order to make
them marketable are included in discontinued operations.
Assets, Liquidity and Capital Resources - June 30, 1999
At June 30, 1999, total assets of the Company were $64.1 million, an
increase of approximately $13.7 million from December 31, 1998. This increase is
primarily related to the increase in Major Auto's accounts receivable of
approximately $5.8 million, the increase in Major Auto's inventories of almost
$1.0 million and a net increase in cash of approximately $5.1 million. The
increase in accounts receivable and inventories is directly related to Major
Auto's increased sales levels during the first half of 1999. The increase in
cash is primarily attributable to the net
<PAGE>
proceeds from the private placement of the Company's common stock in June 1999.
The net proceeds, after cash expenditures for fees, expenses and redemption of
debentures, amounted to approximately $3.5 million. Additionally, Major Auto's
cash increased to almost $2.0 million at June 30, 1999 compared with
approximately $750,000 at December 31, 1998. Included in the Company's current
assets is $6.3 million of net assets held for sale. This amount represents the
total of assets less related liabilities from the Company's technology and
plastics operations which the Company is seeking to divest in an economically
productive manner.
The net increase in the Company's cash of $5,096,629 for the six months
ended June 30, 1999 was primarily attributable to $5,271,515 generated through
its financing activities. This was the net effect of the net proceeds of
$5,765,999 from a private placement of the Company's common stock in June 1999
and proceeds from the sale of $2,750,000 in 12% convertible debentures as offset
by repayment of $2,337,500 of the debentures, payments of an aggregate of
$775,793 of long-term and short-term debt and the purchase of treasury stock for
$131,191.
The Company believes that the cash generated from existing operations,
together with existing cash, available credit from its current lenders,
including banks and floor planning, will be sufficient to finance its current
operations, planned expansion and internal growth for at least the next
twenty-four months.
On May 3, 1999 the Company announced the declaration of a stock dividend
payable as one share of common stock for each two held. The dividend was paid on
June 1, 1999 to shareholders of record as of May 18, 1999.
Year 2000 Issue
The Year 2000 issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates are processed. In addition, similar problems may arise in
some systems that use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failures, which
could affect an entity's ability to conduct normal business operations.
The Company recognizes the need to ensure its operations will not be
adversely impacted by the inability of the Company's systems to process data
having dates that could be affected by the Year 2000 issue. The Company is
currently addressing the risk with respect to the availability and integrity of
its financial systems and operating systems. While the Company believes its
planning efforts are adequate to address the Year 2000 concerns, there can be no
assurance that the systems of other companies, including suppliers, customers
and others on which the Company's operations rely are, or will be made,
compliant on a timely basis and will not have a material effect on the Company.
However, all such significant systems are being evaluated for compliance. The
cost of the Company's Year 2000 compliance effort is not expected to be material
to the Company's results of operations or financial position.
<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
1. On June 24, 1999, Company entered into an agreement with three
investors, pursuant to which the Company will have the right or obligation to
sell, under certain circumstances, in a series of private placement
transactions, up to $20.0 million of the Company's common stock (the "Common
Stock") and warrants in three tranches. Pursuant to a Securities Purchase
Agreement (the "Agreement"), the first tranche closed on June 24, 1999 and the
Company sold an aggregate of 285,714 shares of common stock for an aggregate of
$6,000,000 or $21 per share.
Under the terms of the Agreement and the adjustable warrant issued in
connection with the Agreement, the purchasers will be entitled to acquire
additional shares exercisable at $.01 per share, pursuant to a "reset" formula
which takes into account the market price of the Common Stock at future dates,
commencing 40 trading days after the date on which the purchasers may resell the
shares pursuant to a registration statement (the "Effectiveness Date"). The
Company filed its Registration Statement on Form S-3 on August 2, 1999 (the
"Registration Statement"). There are three reset periods for the adjustable
warrant issued in connection with each tranche, covering 34%, 33% and 33%,
respectively of the number of shares issued on the applicable tranche closing
date. The first reset period is 40 trading days after the effective date of the
Registration Statement. The second reset period is the 40 trading days beginning
after the end of the first reset period. The third reset period is 40 trading
days beginning after the end of the second reset period. The number of shares to
be issued during each reset period is calculated by (a) multiplying the number
of shares subject to price adjustment by (b) an amount equal to 115% of the
applicable tranche purchase price less the reset price and dividing the result
by the reset price. For each reset period, the reset price is the average of the
lowest ten trading days' closing bid prices during the preceding 40 trading-day
period. In the event that the reset price for any reset period is less than
$14.00 per share (the "Floor Price") the adjustable warrant will vest with
respect to shares up to the floor price (the "Initial Shares") and with respect
to shares whose vesting would exceed the number of Initial Shares, the Company
will have the option of paying cash in lieu of issuing such Initial Shares at
the amount equal to the difference between the reset price and $14.00. The
adjustable warrants will cease to vest in the event that, after the
Effectiveness Date, the average market price of the Common Stock exceeds $31.50
over a specified period and under certain conditions.
In addition, the Company issued warrants to the purchasers enabling them
to purchase up to an aggregate of 285,714 shares of common stock at a purchase
price of $23 per share, exercisable for a five-year period.
The Company has agreed to pay certain expenses of the purchasers and an
advisor to the purchasers incurred in connection with the private placement, not
to exceed $65,000. A finder's fee of up to 5% of the purchase price, payable 2%
in cash and 3% in Common Stock, of which at least $84,000 is payable in cash, is
being paid to International Securities Corporation in connection with the
transaction. The sale was effected to the purchasers in reliance upon exemptions
provided under Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D and Rule 506 promulgated thereunder.
<PAGE>
2. In April, 1999 the Company issued 985,225 shares of Common Stock to
Harold and Bruce Bendell in exchange for their 250,000 shares of 1996 Major
Series of Convertible Preferred Stock.
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: August 13, 1999 /s/ Doron Cohen
----------------------------
Doron Cohen, President
<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
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND FOOTNOTES.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 5,917,461 5,917,461
<SECURITIES> 0 0
<RECEIVABLES> 10,649,478 10,649,478
<ALLOWANCES> 0 0
<INVENTORY> 19,931,032 19,931,032
<CURRENT-ASSETS> 45,610,063 45,610,063
<PP&E> 6,606,369 6,606,369
<DEPRECIATION> (1,357,922) (1,357,922)
<TOTAL-ASSETS> 64,144,681 64,144,681
<CURRENT-LIABILITIES> 30,501,727 30,501,727
<BONDS> 0 0
0 0
9,000 9,000
<COMMON> 144,461 144,461
<OTHER-SE> 24,688,781 24,688,781
<TOTAL-LIABILITY-AND-EQUITY> 64,144,681 64,144,681
<SALES> 100,273,073 54,430,414
<TOTAL-REVENUES> 100,273,073 54,430,414
<CGS> 85,166,286 46,373,321
<TOTAL-COSTS> 12,363,229 6,791,978
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 877,888 433,605
<INCOME-PRETAX> 1,865,690 831,510
<INCOME-TAX> 362,000 172,000
<INCOME-CONTINUING> 1,503,690 659,510
<DISCONTINUED> (1,343,589) (615,097)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 160,101 44,413
<EPS-BASIC> .01 .00
<EPS-DILUTED> .01 .00
</TABLE>
