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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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, 2000 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 No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: The number of shares of the
registrant's common stock outstanding as of August 15, 2000 was 25,755,111
shares.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIDELITY HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
ASSETS (unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,119,479 $ 6,985,878
Net investment in direct financing leases, current 294,787 411,444
Accounts receivable, net 13,943,332 6,855,547
Inventories 41,215,482 24,612,800
Other current assets 6,303,590 1,927,562
------------- -------------
Total current assets 68,876,670 40,793,231
Net investment in direct financing leases,
net of current portion 442,772 508,084
Property and equipment, net 5,161,513 5,723,590
Excess of costs over net assets acquired, net 27,250,538 19,210,352
Notes receivable - officer 1,348,886 517,783
Other assets 810,916 1,668,510
------------- -------------
Total assets $ 103,891,295 $ 68,421,550
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable - floor plan $ 40,192,312 $ 21,661,654
Accounts payable 8,076,413 7,018,566
Accrued expenses 3,220,485 1,866,197
Current maturities of long-term debt 402,918 758,150
Customer deposits 883,734 601,758
------------- -------------
Total current liabilities 52,775,862 31,906,325
Long-term debt, less current maturities 7,426,683 7,436,749
Due to employees -- 397,302
Minority interest 194,960 190,810
Other 755,606 127,683
------------- -------------
</TABLE>
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<TABLE>
<S> <C> <C>
Total liabilities 61,153,111 40,058,869
------------- -------------
Commitments
Stockholders' equity
Preferred stock, $.01 par value- 2,000,000 shares
authorized; 500,000 shares issued and outstanding 5,000 5,000
Common stock, $.01 par value- 50,000,000 shares
authorized ; 25,742,611 and 24,029,694 issued and
outstanding in 2000 and 1999 respectively 257,428 240,298
Unearned stock based compensation (1,619,773) (153,100)
Additional paid in capital 46,093,477 30,513,805
Cumulative translation adjustment (3,516) (6,204)
Accumulated deficit (1,490,923) (1,973,538)
Treasury stock, at cost; 123,470 and 31,470 shares in
2000 and 1999, respectively (503,509) (263,580)
------------- -------------
Total stockholders' equity 42,738,184 28,362,681
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Total liabilities and stockholders' equity $ 103,891,295 $ 68,421,550
============= =============
</TABLE>
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FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Automotive division $153,574,383 $100,273,073 $ 85,906,527 $ 54,430,414
Computer products and
telecommunications equipment 1,026,307 811,352 465,448 336,086
------------ ------------ ------------ ------------
Total revenues 154,600,690 101,084,425 86,371,975 54,766,500
Operating expenses
Cost of sales - automotive division 129,109,481 85,166,266 72,329,372 46,373,321
Cost of sales - computer products and
telecommunications equipment 517,835 664,999 254,043 305,280
Selling, general and development
expense 23,111,084 13,853,171 12,512,088 7,437,881
Interest expense 1,128,671 877,888 612,293 433,605
------------ ------------ ------------ ------------
Operating income before compensation
expense to former executive and income
tax expense
733,619 522,101 664,179 216,413
Compensation expense to former executive 251,000 -- 251,000 --
------------ ------------ ------------ ------------
Operating income before income tax expense
(benefit) 482,619 522,101 413,179 216,413
Income tax expense (benefit) -- 362,000 (15,136) 172,000
------------ ------------ ------------ ------------
Net income $ 482,619 $ 160,101 $ 428,315 $ 44,413
============ ============ ============ ============
Earnings per common share
Basic $ 0.02 $ 0.01 $ 0.02 $ 0.00
Diluted $ 0.02 $ 0.01 $ 0.02 $ 0.00
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Weighted average number of shares used in
computation
Basic 25,142,058 19,401,402 25,679,214 19,686,699
Diluted 27,527,717 24,199,715 28,047,838 24,567,054
</TABLE>
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FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 482,619 $ 160,101
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Amortization of intangible assets 305,887 187,094
Depreciation 260,099 188,964
Stock-based compensation 457,332 392,284
(Increase) decrease in assets:
Net investment in direct financing leases 181,969 183,476
Accounts receivable (7,087,785) (5,812,779)
Inventories (16,602,682) (931,210)
Other assets (4,215,552) (832,210)
Increase (decrease) in liabilities:
Accounts payable 1,537,246 2,163,908
Customer deposits 281,976 579,729
Accrued expenses 1,354,288 665,215
Floor plan notes payable 18,530,658 3,534,064
Other liabilities 234,771 --
------------ ------------
Net cash provided by(used in) operating activities (4,279,174) 478,636
------------ ------------
Cash flows from investing activities:
Additions to property and equipment (295,860) (654,617)
Business combinations (120,000) --
------------ ------------
Net cash used in investing activities (415,860) (654,617)
------------ ------------
Cash flows from financing activities:
Line of credit -- (450,000)
Proceeds from issuance of common stock and exercise of
warrants, net of expenses 5,431,174 5,765,999
Payment of convertible debentures -- (2,337,500)
Payments of long-term debt (365,298) (325,793)
Proceeds from convertible debentures -- 2,750,000
Purchase of treasury stock (239,929) (131,191)
------------ ------------
Net cash provided by financing activities 4,825,947 5,271,515
------------ ------------
Effect of exchange rates on cash 2,688 1,085
------------ ------------
Net increase in cash and cash equivalents 133,601 5,096,619
</TABLE>
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<TABLE>
<S> <C> <C>
Cash and cash equivalent, beginning of period 6,985,878 820,832
============ ============
Cash and cash equivalent, end of period $ 7,119,479 $ 5,917,451
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,128,671 $ 877,888
Income taxes -- 781,500
Non cash financing activities:
Common stock issued as stock based compensation 1,850,575 --
Common stock issued for services and deposits 209,494 1,542,000
</TABLE>
FIDELITY HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
June 30, 2000
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 disclosure 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, 1999 consolidated
financial statements and related notes included in the Company's Form 10-KSB for
the year ended December 31, 1999. The results of operations for the six-month
and three-month periods are not necessarily indicative of the operating results
for the full year.
2. Earnings per Share
Per-share data and numbers of shares for 1999 have been adjusted to
reflect 3-for-2 stock splits in June 1999 and January 2000.
3. Business Combination
On April 12, 2000 in exchange for 96,973 shares of its common stock
valued at $1,080,000 and $120,000 in cash, the Company acquired the Hempstead
Mazda automobile dealership. This company, based on Long Island in New York, is
a full-service retail new and used vehicle dealership. The acquisition was
treated as a purchase and, accordingly, the results of operations of Hempstead
Mazda have been included as of April 12, 2000. Hempstead Mazda's operations to
date have not been significant and therefore, pro forma financial information
has not been presented.
4. Separation Agreement With Former Executive
On August 8, 2000, Doron Cohen, former President, CEO and a Director of
Company signed a Separation and Release Agreement (the "Agreement"). The
financially significant provisions of the Agreement provide for periodic
payments to begin on August 15, 2000. Such cash payments consist of an
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initial payment of $250,000; monthly payments of $500 beginning July 1, 2000 and
ending June 1, 2002, aggregating $12,000; plus monthly payments of $20,833.33
beginning July 1, 2001 through June 1, 2002 and $4,166.66 per month beginning
July 1, 2002 and ending on June 1, 2005, the aggregate amount of which is
$650,000. The total of all cash payments to Mr. Cohen is $662,000. In order to
qualify for such future payments, Mr. Cohen must remain in compliance with
non-disparagement, non-solicitation, non-compete and voting restriction
provisions embodied in the Agreement. The Company has also agreed to continue
Mr. Cohen and his family on the Company's health plan and to provide him with an
automobile for two years.
Additionally, the Company has agreed to a periodic forgiveness of Mr.
Cohen's indebtedness to the Company in the aggregate amount of $1,048,067 to
begin, under certain circumstances, on August 8, 2003 and continue on the next
two anniversary dates, with one-third lapsing at each date. The requirements for
such forgiveness also include Mr. Cohen's compliance with the restrictive
provisions of the Agreement.
The Company is presently unable to estimate the value of the
restrictive covenants included in the Agreement and the remaining payments to
Mr. Cohen and is in the process of obtaining an independent appraisal to
determine such value. As of June 30, 2000, the Company has expensed $251,000
relating to the first payment made to Mr. Cohen on August 15, 2000. To the
extent that such appraisal reflects a value that is less than the recorded
amount of Mr. Cohen's loan the difference will be expensed in the third quarter
of 2000. The amount assigned to the restrictive covenant and the remaining
payments to Mr. Cohen will be amortized over the restrictive period.
5. Reclassification
Certain amounts included in the consolidated balance sheet related to
Unearned Stock Based Compensation have been reclassified to conform with the
current year's presentation.
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
("we" or "the Company") should be read in conjunction with our 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. Our actual
results could differ significantly from the results discussed in the
forward-looking statements.
The Company
On May 14, 1998, the Company, a holding company involved in the
acquisition and development of synergistic technological and telecommunications
businesses and the regional consolidation of the retail automotive industry,
acquired, from a related party, the Major Automotive Group of dealerships
("Major Auto") and related real property and leases. We operate in two
divisions: Automotive and Technology. Our Automotive division consists of retail
automotive dealerships, the Company's subsidiary Major Fleet and Leasing, Inc.
("Major Fleet") and related entities. Our Technology division is comprised of
all non-automotive operations including our subsidiaries Computer Business
Sciences, Inc. and IG2, Inc. In August 2000, Computer Business Sciences changed
its name to IG2, Inc.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2000 AND SIX MONTHS ENDED JUNE
30, 1999
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Revenues. Revenues for the six-month period ended June 30, 2000
increased to approximately $154.6 million, which is $53.5 million, or 52.9%,
over the prior comparable period's revenues of $101.1 million. Such increase was
almost solely attributable to the revenues of our Automotive division, which
were approximately $153.6 million for the 2000 first-half, an increase of $53.3
million, or 53.2%, over the prior year's comparable first-half's revenue of
$100.3 million. Of this increase, approximately $12.7 million relates to
revenues generated by Compass Lincoln Mercury, a dealership we acquired in
September 1999. The primary reasons for the significant growth in revenues were
both increased unit sales and increased average sales price per unit. New car
unit sales increased by 434 units, or 22% in the first half of 2000 from the
first half of 1999, while used car unit sales increased 3,174 units, or 90%, in
the 2000 first half over the prior year's comparable half. Management believes
that the increase in unit sales is primarily attributable to our Automotive
division's successful efforts in selling used vehicles at its expansive facility
in Long Island City, New York and to a lesser extent the development of its used
vehicle operation in Northern, New Jersey. An average of more than 1,000 used
vehicles, retail and wholesale, were sold during each of the months in the 2000
period. Our Automotive division's sales efforts included extensive Internet
promotions, local advertising in all media and the branding of its used car
operation as "Major World." Management believes that market acceptance of its
Major World brand was a strong contributor to the 2000 sales volume performance.
Additionally, the average sales price per vehicle for new vehicles increased by
approximately $1,900 per vehicle. The average price for used vehicles decreased
in the 2000 period compared with the 1999 period, while the significant increase
in sales volume generated a net increase in used vehicle sales dollars of
approximately 73%. This change in volume and average selling price in used
vehicles is reflective of our successful efforts in obtaining non-recourse
financing for prospective buyers who may have had difficulties obtaining
financing elsewhere.
Cost of sales. The cost of sales increase of almost $43.8 million, or
51.0%, to $129.6 million in the first half of 2000 from $85.8 million for the
six months ended June 30, 1999, is almost solely attributable to our Automotive
division's operations, which had a cost of sales of $129.1 million in the
current period, compared with $85.2 million in the 1999 period, an increase of
$43.9 million, or 51.6%. This percentage increase is less than the increased
sales volume percentage in terms of units and reflects an increase of almost
$2,000 in the average cost of new vehicles and a decrease of more than $1,100 in
the average unit cost of used vehicles.
Gross profit. Of the total gross profit of almost $25.0 million for the
six months ended June 30, 2000, our Automotive division generated approximately
$24.5 million, of which Compass Lincoln Mercury generated almost $2.1 million.
In the first half of 1999, gross profit for our Automotive division was
approximately $15.1 million. This increase of $9.4 million in our Automotive
division's gross profit was attributable to (i) the increase in units sold; (ii)
the increase in gross profit as a percentage of sales for our Automotive
division as a whole during the 2000 first half, which was 15.9%, compared with
15.1% in the comparable 1999 period; and (iii) the change in revenue percentage
mix. Revenues went from 45.8% of total revenues generated by new vehicle sales
and 49.2% generated by used vehicles sales in the first half of 1999 to 39.9% of
total revenues generated by new vehicle sales and 56.2% generated by used
vehicle sales in the first half of 2000.
Selling, general and development expenses. In the six months ended June
30, 2000, selling, general and development expenses ("S, G & D") increased
approximately $9.2 million to approximately $23.1 million, from $13.9 million in
the comparable 1999 period. Approximately $6.2 million of this increase is
attributable to our Automotive division, the S, G & D of which aggregated $18.6
million in the first half of 2000, compared with $12.4 million in the comparable
prior period, an increase of 50.0%. This increase is primarily attributable to
the costs associated with increased sales efforts and results, principally,
advertising and compensation. S, G & D attributable to our technology division
increased approximately $3.0 million to $4.5 million, or 200%, from $1.5 million
in the prior comparable six-month period, primarily as a result of IG2 Inc.'s
development activities.
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Interest expense. Interest expense had a net increase of approximately
$250,000 to $1.1 million in the first half of 2000 from interest expense of
$878,000 incurred in the comparable prior period. This is primarily related to
the increase in floor plan interest based on the higher levels of Auto
division's inventories and higher interest rates during the first half of 2000
as compared with the first half of 1999, partially offset by interest income of
almost $120,000 in the 2000 period.
Compensation expense to former executive. Pursuant to a separation and
release agreement with our former President and Chief Executive Officer, Doron
Cohen, we charged $251,000 to compensation expense in the second quarter. This
agreement provides for potential periodic payments and potential forgiveness of
indebtedness, which, under certain circumstances, could aggregate approximately
$1.7 million over five years. In order to receive such potential payments and
potential reduction of indebtedness, Mr. Cohen must comply with various
restrictions relating to, among other things, competition, solicitation and
voting. We are currently in the process of obtaining an independent valuation of
such restrictive covenants and we will adjust, in the third quarter of 2000, if
necessary, the carrying value of Mr. Cohen's note receivable in conformity with
such valuation. The current carrying value of the note receivable is
approximately $1.05 million. It is anticipated that the balance of the cash
amounts to be paid to Mr. Cohen will be charged ratably as earned over the
compliance period.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2000 AND THREE MONTHS ENDED
JUNE 30, 1999
Revenues. Revenues for the three-month period ended June 30, 2000
increased to approximately $86.4 million, which is $31.6 million, or 57.7%, over
the prior comparable period's revenues of $54.8 million. Such increase was
almost solely attributable to the revenues of our Automotive division, which
were approximately $85.9 million for the 2000 quarter, an increase of almost
$31.5 million, or 57.7%, over the prior year's comparable quarter's revenue of
$54.4 million. Of this increase, approximately $5.0 million relates to revenues
generated by Compass Lincoln Mercury, a dealership we acquired in September
1999. The primary reasons for the significant growth in revenues were both
increased unit sales and increased average sales price per unit. New car unit
sales increased by 344 units in the second quarter of 2000 from 1,108 units in
the second quarter of 1999, while used car unit sales increased 2,225 units in
the 2000 second quarter over 1,837 units, retail and wholesale, in the prior
year's comparable quarter. Management believes that the increase in unit sales
is primarily attributable to our Automotive division's successful efforts in
selling used vehicles at its expansive facility in Long Island City, New York
and, to a lesser extent, at its Compass location in Northern, New Jersey. An
average of more than 1,300 used vehicles, retail and wholesale, were sold during
each of the months in the 2000 period. Major Auto's sales efforts included
extensive Internet promotions, local advertising in all media and the branding
of its used car operation as "Major World." Management believes that market
acceptance of its Major World brand was a strong contributor to the 2000 sales
volume performance. Additionally, the average sales price per vehicle increased
by almost $1,500 for new vehicles sold and decreased for used vehicles increased
by $3,100 in the 2000 period compared with the 1999 period. This increase in
volume in used vehicles with lower average sales prices is reflective of our
successful efforts in obtaining non-recourse financing for potential buyers who
were having difficulty in obtaining financing elsewhere.
Cost of sales. The cost of sales increase of $25.9 million, or 55.5%,
to $72.6 million in the second quarter of 2000 from $46.7 million for the three
months ended June 30, 1999 is almost solely attributable to our Automotive
division's operations, which had a cost of sales of $72.3 million in the current
period, compared with $46.4 million in the 1999 period, an increase of $25.9
million, or 56.0%. This increase is consistent with the increased sales volume
in terms of units and also with the respective increases and decreases in the
average selling prices of new and used vehicles.
Gross profit. Of the total gross profit of almost $13.8 million for the
three months ended June 30,
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2000, our Automotive division generated approximately $13.6 million, of which
Compass Lincoln Mercury generated almost $1.2 million. In the second quarter of
1999, gross profit for our Automotive division was approximately $8.1 million.
This increase in gross profit was attributable to (i) the increase in units
sold; (ii) the increase in gross profit as a percentage of sales for our
Automotive division as a whole during the 2000 second quarter, which was 15.7%,
compared with 14.8% in the comparable 1999 period; and (iii) the change in
revenue percentage mix. Revenues went from 47.7% of total revenues generated by
new vehicle sales and 47.9% generated by used vehicles sales in the second
quarter of 1999 to 42.9% of total revenues generated by new vehicle sales and
53.4% generated by used vehicle sales in the second quarter of 2000.
Selling, general and development expenses. In the three months ended
June 30, 2000, S, G & D expenses increased approximately $5.1 million to
approximately $12.5 million, from $7.4 million. Approximately $3.0 million of
this increase is attributable to our Automotive division, the S, G & D of which
aggregated $9.9 million in the second quarter of 2000, compared with $6.8
million in the comparable prior period, an increase of 45.6%. This increase is
primarily attributable to the costs associated with increased sales efforts and
results, principally, advertising and compensation. S, G & D attributable to our
Technology division increased approximately $2.0 million to $2.6 million, or
285%, from almost $700,000 in the prior comparable quarter, primarily as a
result of IG2 Inc.'s development activities.
Interest expense. Net interest expense had a net increase of
approximately $178,000 to $612,000 in the second quarter of 2000 from interest
expense of $434,000 incurred in the comparable prior period. This is primarily
related to the increase in floor plan interest based on the higher levels of our
Automotive division's inventories and higher interest rates during the second
quarter of 2000, offset by approximately $119,000 in interest income, as
compared with the second quarter of 1999.
Compensation expense to former executive. Pursuant to a separation and
release agreement with our former President and Chief Executive Officer, Doron
Cohen, we charged $251,000 to compensation expense in the second quarter. This
agreement provides for potential periodic payments and potential forgiveness of
indebtedness, which, under certain circumstances, could aggregate approximately
$1.7 million over five years. In order to receive such potential payments and
potential reduction of indebtedness, Mr. Cohen must comply with various
restrictions relating to, among other things, competition, solicitation and
voting. We are currently in the process of obtaining an independent valuation of
such restrictive covenants and we will adjust, in the third quarter of 2000, if
necessary, the carrying value of Mr. Cohen's note receivable in conformity with
such valuation. The current carrying value of the note receivable is
approximately $1.05 million. It is anticipated that the balance of the cash
amounts to be paid to Mr. Cohen, will be charged ratably as earned over the
compliance period.
ASSETS, LIQUIDITY AND CAPITAL RESOURCES - JUNE 30, 2000
At June 30, 2000, our total assets were almost $104 million, an
increase of approximately $35 million from December 31, 1999. This aggregate
increase is primarily related to the increases in our accounts receivable of $7
million, inventories of $17 million, excess of costs over net assets acquired of
$8 million and other current assets of $4 million. The increases in accounts
receivable and inventories are directly attributable to the increased sales
volume in our Automotive division and the increase in goodwill relates to
acquisitions in the first half of 2000.
The Company's primary source of liquidity for the six months ended June
30, 2000 was $4,825,947 from its financing activities. This was the net effect
of $5,431,174 of net proceeds from the private placement and the exercise of
warrants for our common stock, as offset by purchases of treasury stock for
$239,929 and payments of outstanding debt of $365,298.
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Cash used in operating activities was $4,279,174. This was the result
of cash generated through our income of $1,505,937, comprised of our net income
of $482,619 and non-cash charges of $1,023,318, and total additions to
liabilities of $21,656,963 (primarily from increases in floor plan notes
payable, accounts payable and accrued expenses aggregating $18,530,658;
1,537,246 and $1,354,288, respectively) as more than offset an increase in total
assets of $27,442,074 (primarily from increases in accounts receivable of
$7,087,785, inventories of $16,602,682 and other assets of $4,215,552). The
increases in assets and liabilities were significantly attributable to the large
volume of sales in the first half of 2000.
The net use of cash from operating activities of $4,279,174 was further
increased by the cash used in investing activities of $415,860 for the net
additions to property and equipment.
The foregoing activities, i.e. financing, operating and investing, plus
an exchange rate cash effect increase of $2,688, resulted in a net cash increase
of $133,601 for the six months ended June 30, 2000.
We believe 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 our current operations and
internal growth for at least the next twenty-four months. Our Automotive
division will require additional financing in connection with future planned
acquisitions and our Technology division will require additional funding to
proceed with its development and implementation plans. There can be no assurance
that, for additional growth, such funding will be available. We are exploring
financing alternatives with respect to our projected cash requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
FOREIGN CURRENCY RISK
Although we develop technology products in the United States, Canada
and Israel, substantially all our revenues come from sales of vehicles in the
Unites States. Consequently, foreign sales constitute a minimal amount of our
revenues. Even so, our financial results could be affected by changes in foreign
currency exchange rates or weak economic conditions in foreign markets. Because
substantially all our revenues are currently denominated in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Due to the nature of our investments and operations, we believe that
there is not a material risk exposure.
INTEREST RATE RISK
Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since all of our investments are in short-term
instruments, including money market funds. Our interest rate expense is also
sensitive to changes in the general level of U.S. interest rates because the
interest rate charged varies with the prime rate. Due to the nature of our
operations, we believe that there is not a material risk exposure.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A class action under the federal securities laws was commenced on
Against 8, 2000 against us and certain of our present and former officers and
directors. The action is brought on behalf of a class consisting of all persons
who purchased our common stock in the open market between November 15, 1999 and
April 12, 2000 and have suffered damages thereby.
We believe that the allegations in the complaint are wholly without
merit and intend to vigorously defend against the action. We further believe
that this action is an outgrowth of the decline in valuations of certain
technology sectors since April of this year and various false and defamatory
messages concerning us that have appeared on Internet message boards during the
past several months.
Additionally, we are not engaged in any other significant litigation
other than as previously reported.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10.77 Separation and Release Agreement with Doron Cohen
Exhibit 27. Financial Data Schedule
13
<PAGE> 14
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 21, 2000 /s/ Bruce Bendell
-------------------------------------
Bruce Bendell
Chairman of the Board and Chief
Executive Officer
/s/ Richard L. Feinstein
-------------------------------------
Richard L. Feinstein
Senior Vice President-Finance and
Chief Financial Officer
14
