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 March 31, 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 May 12, 1999 was 8,522,121.
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FIDELITY HOLDINGS, INC AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS, March 31, 1999 (UNAUDITED)
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
Unaudited Audited
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 2,693,185 $ 820,832
Net investment in direct financing leases, current 421,488 498,418
Accounts receivable 10,852,629 4,836,699
Inventories 22,294,477 18,999,822
Net assets held for sale 6,369,927 7,074,164
Other current assets 2,373,524 444,797
------------ ------------
Total current assets 45,005,230 32,674,732
Net investment in direct financing leases,
net of current portion 724,427 785,023
Property and equipment, net 4,887,079 4,782,794
Excess of costs over net assets acquired 10,204,475 10,306,950
Notes receivable - officer 949,819 799,819
Other assets 229,944 77,417
------------ ------------
Total assets $ 62,000,974 $ 49,426,735
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Notes payable - floor plan $ 22,369,559 $ 17,791,253
Notes payable - bank -- 450,000
Convertible debentures payable 2,750,000 600,000
Accounts payable 6,160,147 2,299,306
Accrued expenses 2,264,181 2,007,836
Current maturities of long-term debt 841,664 869,813
Customer deposits 1,016,212 697,087
------------ ------------
Total current liabilities 35,401,763 24,715,295
Long-term debt, less current maturities 7,833,654 7,953,278
Due to employees 249,851 249,851
Other 38,160 54,795
------------ ------------
Total liabilities 43,523,428 32,973,219
------------ ------------
Commitments
Stockholders' equity
Preferred stock, $.01 par value;
2,000,000 shares authorized,
1,150,000 shares issued and outstanding 11,500 11,500
Common stock, $.01 par value
50,000,000 shares authorized, 8,643,898
and 8,036,514 shares issued and
outstanding in 1999 and 1998 86,439 80,365
Additional paid in capital 16,766,543 14,799,800
Cumulative translation adjustment (3,856) (4,977)
Retained earnings 1,682,516 1,566,828
Treasury stock, at cost; 15,618 shares
and 0 shares in 1999 and 1998, respectively (65,596) --
------------ ------------
Total stockholders' equity 18,477,546 16,453,516
------------ ------------
Total liabilities and stockholders' equity $ 62,000,974 $ 49,426,735
============ ============
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Revenues:
Sales $ 45,842,659 $ 165,152
Cost of sales 38,792,945 --
------------ ------------
Gross profit 7,049,714 165,152
Operating expenses 5,571,251 247,480
Interest expense 444,283 26,223
------------ ------------
Operating income (loss) before income
tax expense (credit) 1,034,180 (108,551)
Income tax expense (credit) 190,000 (21,000)
------------ ------------
Income (loss) from continuing operations 844,180 (87,551)
Income (loss) from discontinued operations (728,492) 18,979
------------ ------------
Net income (loss) $ 115,688 $ (68,572)
============ ============
Per common share:
Net income (loss) from continuing operations:
Basic $ 0.10 $ (0.01)
Diluted 0.08 (0.01)
Net income (loss) from discontinued operations:
Basic $ (0.09) $ --
Diluted (0.07) --
Net income:
Basic $ 0.01 $ (0.01)
Diluted 0.01 (0.01)
Average number of shares used in computation:
Basic 8,494,642 6,895,700
Diluted 11,469,404 7,395,700
</TABLE>
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Unaudited
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Retained Currency
---------------------- ---------------------- Paid in Earnings Translation
Shares Amount Shares Amount Capital (Deficit) Adjustment
--------- -------- ---------- -------- ---------- --------- ------------
<S> <C> <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 $ 297
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 -- -- -- -- -- -- (5,274)
Balance
-------------------------------------------------------------------------------------------------------
December 31, 1998 1,150,000 11,500 8,036,514 80,365 14,799,800 1,566,828 (4,977)
Issuance of common stock
for services and deposits -- -- 607,384 6,074 1,966,743 -- --
Net income -- -- -- -- -- 115,688 --
Translation adjustment -- -- -- -- -- -- 1,121
Repurchase of common
stock -- -- -- -- -- -- --
-------------------------------------------------------------------------------------------------------
1,150,000 $ 11,500 8,643,898 $ 86,439 $ 16,766,543 $ 1,682,516 $ (3,856)
=======================================================================================================
</TABLE>
Treasury Stock Total
at cost Stockholders'
Shares Amount Equity
-------- --------- --------------
Balance
January 1, 1998 -- $ -- $ 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)
Balance
December 31, 1998 -- -- 16,453,516
---------------------------------------------
Issuance of common stock
for services and deposits -- -- 1,972,817
Net income -- -- 115,688
Translation adjustment -- -- 1,121
Repurchase of common
stock 15,618 (65,596) (65,596)
---------------------------------------------
15,618 $ (65,596) $ 18,477,546
=============================================
<PAGE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 115,688 $ (68,572)
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Amortization of intangible assets 102,475 84,738
Depreciation 59,194 100,311
Deferred income taxes -- (21,000)
Noncash item-stock-based compensation 196,142 --
(Increase) decrease in assets:
Net investment in direct financing leases 137,526 (33,380)
Notes receivable -- (2,100)
Accounts receivable (6,015,930) (156,118)
Inventories (3,294,655) 45,883
Other assets (456,342) (27,540)
Increase (decrease) in liabilities:
Accounts payable 3,860,841 216,888
Accrued expenses 512,345 (227,960)
Floor plan notes payable 4,578,306 --
Deferred revenue -- (24,457)
Customer deposits 319,125 (44,584)
----------- -----------
Net cash provided by (used in)
operating activities 114,715 (157,891)
----------- -----------
Cash flows used in investing activities:
Additions to property and equipment, (163,479) (18,254)
----------- -----------
Net cash used in investing activities (163,479) (18,254)
----------- -----------
Cash flows from financing activities:
Repurchase of common stock (65,596) --
Line of credit (450,000) 100,000
Proceeds from long-term debt -- 204,760
Payments of long-term debt (164,408) (192,461)
Proceeds from convertible debentures 2,750,000 --
Increase in due from shareholders (150,000) --
----------- -----------
Net cash provided by (used in)
financing activities 1,919,996 112,299
----------- -----------
Effect of exchange rates on cash 1,121 70
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,872,353 (63,776)
Cash and cash equivalents, beginning of period 820,832 217,191
----------- -----------
Cash and cash equivalents, end of period $ 2,693,185 $ 153,415
=========== ===========
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for:
Interest $ 444,283 $ 26,223
Income taxes $ 501,500 $ --
</TABLE>
<PAGE>
FIDELITY HOLDINGS INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
MARCH 31, 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 Form 10KSB for the year
ended December 31, 1998. The results of operations for the three months are not
necessarily indicative of the operating results for the full year.
Amounts for the three months ended March 31, 1998 have been reclassified to
conform with the March 31, 1999 presentation.
<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 note 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 property and
leases. 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 months ended March 31, 1999 include the
results for Major Auto, there are no comparable results for the first quarter of
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 determined
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 - Three Months Ended March 31, 1999 and Three
Months Ended March 31, 1998
Revenues. Revenues for the three-month period ended March 31, 1999
increased approximately $45.7 million over the prior comparable period. Such
increase was almost solely attributable to the revenues of Major Auto, which
were $45,672,235 for the 1999 quarter. There was no comparable amount in the
corresponding period in 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 three months of 1999 shows an approximate 17% increase. 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. More than 400 used cars were sold during
each of the months in the 1999 period. 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 Metropolitan area contributed to increased
<PAGE>
sales during these months when automotive sales, traditionally, decrease. The
results of this quarter 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 $38.8 million for the three months
ended March 31, 1999 is solely attributable to Major Auto's operations. There is
no comparable amount for the prior year.
Gross profit. Of the total gross profit of almost $7.1 million for the
three months ended March 31, 1999, Major Auto generated $6.9 million. Gross
profit as a percentage of sales for Major Auto during the 1999 first quarter was
15.1%. Although there was no comparable amount for the first quarter of 1998,
the gross profit percentage for Major Auto in 1998 during the seven and one-half
months since its acquisition on May 14, 1998 was 13.8%. 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 quarter of 1999, as compared with the seven and one-half month 1998
period.
Operating expense. In the three months ended March 31, 1999, operating
expenses increased approximately $5.3 million to almost $5.6 million, from
$247,000. Substantially all of this increase resulted from the acquisition of
Major Auto. Operating expenses attributable to Major Auto aggregated $5.1
million in the first quarter of 1999.
Interest expense. Interest expense had a net increase of $418,000 to
$444,000 in the first quarter of 1999 from interest expense of $26,000 incurred
in the comparable prior period. This is primarily related to the floor plan
interest of $178,000 and interest incurred in financing the acquisition of Major
Auto amounting to $188,000 and, to a lesser extent, $50,000 of interest accrued
on outstanding convertible debentures.
Discontinued operations. The Company experienced a loss from discontinued
operations in the first quarter of 1999 of $(728,492) compared with a profit of
$18,979 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 ceased 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 enhance those facets of its business in order to make them
marketable. All such costs are included in discontinued operations.
Assets, Liquidity and Capital Resources - March 31, 1999
At March 31, 1999, total assets of the Company were $62 million, an
increase of approximately $12.5 million from December 31, 1998. This increase is
primarily related to the increase in Major Auto's accounts receivable of
approximately $5.0 million, the increase in Major Auto's inventories of
approximately $3.3 million and a net increase in cash of approximately $2.0
million. The increase in accounts receivable and inventories is directly related
to Major Auto's increased sales levels during the first quarter of 1999. The
increase in cash is primarily attributable
<PAGE>
to the proceeds from the sale of $2.75 million of 12% convertible debentures
during the period. Included in the Company's current assets is $6,369,927 of net
assets held for sale. This amount represents the total of assets less related
liabilities from the Company's former Technology and Plastics Divisions, the
operations of which the Company is seeking to divest in an economically
productive manner.
The Company's primary source of liquidity for the three months ended March
31, 1999 was $1,919,966 from its financing activities. This was the net effect
of the proceeds from the sale of $2,750,000 in 12% convertible debentures as
offset by payments of outstanding debt of $614,408, an increase in due from
shareholders of $150,000 and the purchase of treasury stock for $65,596.
Additional net cash of $114,715 was generated from operating activities
comprised of:
(a) Cash from income of $473,499, resulting from net income of $115,688,
as adjusted by non-cash charges of $357,811; and
(b) An increase in liabilities of $9,270,617, primarily from the
increase in notes payable, accounts payable and accrued expenses
aggregating $8,951,492; less
(c) A net increase in operating assets of $9,629,401, primarily from
increases of $6,015,930 in accounts receivable and $3,294,655 in
inventories.
The changes in accounts receivable, inventories and payables cited in (b)
and (c) above, are substantially attributable to the higher level of activities
associated with Major Auto's increased sales during the first quarter of 1999.
The net increase in cash from operating activities was more than offset by
the cash used in investing activities of $163,479 for the net additions to
property, plant and equipment.
The foregoing activities, i.e. financing, operating and investing,
resulted in a net cash increase of $1,872,353 for the three months ended March
31, 1999.
The Company believes that the cash generated from existing operations,
together with cash on hand, 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 shares held of record. The
dividend is payable 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
<PAGE>
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
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
The Company filed a report on Form 8-K on February 3, 1999 in connection
with the private placement of its securities with certain independent investors.
The Form 8-K and the exhibits attached thereto are incorporated herein by
reference.
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 14, 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 THREE MONTHS ENDED MARCH 31, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,693,185
<SECURITIES> 0
<RECEIVABLES> 10,852,629
<ALLOWANCES> 0
<INVENTORY> 22,294,477
<CURRENT-ASSETS> 45,005,230
<PP&E> 6,115,231
<DEPRECIATION> (1,228,152)
<TOTAL-ASSETS> 62,000,974
<CURRENT-LIABILITIES> 35,401,763
<BONDS> 11,425,318
0
11,500
<COMMON> 86,439
<OTHER-SE> 18,379,607
<TOTAL-LIABILITY-AND-EQUITY> 62,000,974
<SALES> 45,842,659
<TOTAL-REVENUES> 45,842,659
<CGS> 38,972,945
<TOTAL-COSTS> 5,571,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 444,283
<INCOME-PRETAX> 1,034,180
<INCOME-TAX> 190,000
<INCOME-CONTINUING> 844,180
<DISCONTINUED> (728,492)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,688
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
