SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB\A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-27944
PRIDE AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 98-0157860
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
Pride House, Watford Metro Centre, Tolpits Lane, Watford, Hertfordshire,
WD1 8SB England
(Address of principal executive offices)
(800) 698-6590
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, $.001 par value
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ].
The aggregate market value of the voting stock on February 12, 1997 (consisting
of Common Stock, $.001 par value per share) held by non-affiliates was
approximately $2,443,632.80, based upon the average bid and asked prices for
such Common Stock on said date ($1.89), as reported by a market maker. The
issuer's and its subsidiaries had on a consolidated basis, revenues of
$12,884,018 for its fiscal year ended November 30, 1996. On February 18, 1997,
there were 2,792,500 shares of Registrant's Common Stock outstanding.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant factors
which have affected the Company's financial position and operations during the
years ended November 30, 1996 and 1995.
Pride Automotive Group, Inc. (the "Company") was incorporated in the State of
Delaware in March 1995. Pursuant to the terms and conditions of a reorganization
agreement entered into in March 1995, the Company issued 1,500,000 shares of its
Common Stock to Pride, Inc. (an entity incorporated in the State of Delaware),
in exchange for all the issued and outstanding shares of PMS, thereby making the
Company a majority owned subsidiary of Pride and PMS a wholly-owned subsidiary
of the Company. PMS is the holding company for six wholly-owned subsidiaries,
operating as one unit, located in the United Kingdom. The consolidated financial
statements are based on the assumption that the Company and PMS were combined
for all periods presented, in a manner similar to the pooling of interests
method of accounting. PMS and its wholly-owned subsidiaries are located in the
United Kingdom and follow generally accepted accounting principles in the United
Kingdom. For purposes of the consolidated financial statements of the Company,
the statements have been converted to the generally accepted accounting
principles in the United States.
Pride, the Company's parent, is an entity reporting under the Exchange Act, and
its reports may be obtained and reviewed by either contacting the Company or the
Securities and Exchange Commission. Pride, Inc., on its own has virtually no
operations. As such, its financial viability is represented by the financial
statements of the Company. Pride was incorporated as L.H.M. Corp. in the State
of Delaware on May 10, 1988 as a "blank check" company, for the purpose of
seeking potential business ventures through acquisition or merger. In April
1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization with
International Sportsfest, Inc. ("ISI"), a company formed to engage in and
establish sports expositions in sports merchandise such as clothing and
equipment. ISI never engaged in any business operations. In January 1994, ISI
entered into an Agreement and Plan of Reorganization with PMS, whereby PMS
became a wholly-owned subsidiary of ISI and ISI changed its name to Pride, Inc.
Pride also owns 100% of the capital stock of Watford Investments, a South
African company with minimal operations. This Company was formed in March 1995.
The six wholly-owned subsidiaries of PMS are Pride Vehicle Contracts Limited,
Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK) Limited, Pride
Leasing Limited, Pride Vehicle Management Limited and Pride Vehicle Deliveries
Limited, which comprise the operations of the Company. Unless the context
otherwise requires, all references to the "Company" include its wholly-owned
subsidiary, PMS, and PMS's wholly-owned subsidiaries. These companies jointly
engage in the business of leasing new automobiles to businesses, servicing such
automobiles during the lease term and remarketing the automobiles upon the
expiration of the lease term, which arrangement is described as a "contract
hire." The Company purchases each vehicle pursuant to its clients'
specifications, finances its purchase and pays for all the maintenance on the
vehicle during the lease term.
The Company has servicing agreements with automobile dealers and service
centers, which specify pricing schedules for maintenance and repair work to be
performed, all of which require the prior consent of the Company. Typically, the
term of the loan corresponds with the term of the lease, whereby, upon the
completion of the lease term, the automobiles are fully paid and owned by the
Company. Upon the expiration of the lease, the Company remarkets the automobiles
through various distribution channels including, but not limited to, used car
wholesalers or used car retailers. Each client's monthly lease payment is
determined by a computer program which takes into account estimated service
costs, new vehicle pricing, manufacturer bonuses, rebates and options, potential
residual value at lease end, as well as
<PAGE>
other variable information including interest rates and other current and
anticipated future economic variables. The monthly lease payments are usually
sufficient to pay the financing and servicing on the vehicles during the lease
term, with the bulk of the profits, if any, coming on the resale of the
automobile.
The Company's principal operations are conducted by PMS which reflects its
financial statements in British pounds. As a result, most assets and liabilities
of the foreign operations are translated into U.S. dollars using current
exchange rates in effect at the balance sheet date. Fixed assets and intangible
assets are translated at historical exchange rates. Revenue and expense accounts
are translated using an average exchange rate during the period except for those
expenses related to assets and liabilities which are translated at historical
exchange rates. These expenses include depreciation and amortization which are
translated at the rates existing at the time the asset was acquired. Any
resulting gains or losses due to the translation are reflected as a separate
item of stockholders' equity.
On November 29, 1996, the Company, through its newly formed majority owned
subsidiary AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car
Group Limited (registered in the United Kingdom), acquired certain of the assets
of AC Cars Limited and Autokraft Limited. These two companies were engaged in
the manufacture and sale of specialty automobiles. The purchase price of
approximately $6,000,000 was financed by the sale of common stock and by loans.
The acquisition involved the purchase of plant and equipment, the brand name,
inventories and an aircraft and has been recorded using the purchase method of
accounting (see also Note 19c - notes to financial statements).
Results of Operations - Years Ended November 30, 1996 and November 30, 1995:
Revenues for the year ended November 30, 1996 were approximately $12,884,000
compared to approximately $9,723,000 for the year ended November 30, 1995, an
increase of $3,161,000 or 32.5%. The primary reason for this increase was an
increase in revenues from contract hire income and from the sales of vehicles at
lease maturity, and an overall increase in the contract hire fleet size. There
was also an increase in the fleet management division.
The Company's cost of sales increased both in actual dollars and as a percent of
sales, when comparing the years ended November 30, 1996 and 1995. These costs
increased by approximately $2,945,000 or 40.3%. As a percent of sales, costs of
sales for 1996 were 79.5% versus 75.1% for 1995. Management believes that the
increase was primarily due to the continuation of the more prudent
(conservative) approach to estimating the residual values of vehicles thereby
increasing depreciation expense and costs of sales and reducing residual value
risk. This more conservative approach reduces the residual value of an auto
thereby increasing the amount of the auto to be depreciated. This approach will
therefore increase depreciation expense, which costs will reduce the income from
contract leasing. Since the residual value is now lower, the income from the
ultimate sale of the vehicle is now higher.
General and administrative expenses decreased from $2,036,000 for 1995 to
$1,802,000 for 1996 a decrease of $234,000 or 11.5%. As a percent of sales these
expenses represented 14.0% of sales for 1996 and 20.9% for 1995. Management
believes that the decrease in overhead costs relate to an aggressive costs
reduction program instituted by management during 1996 and 1995.
Interest expense increased when comparing the year ended November 30, 1996 to
1995 from $630,000 to $860,000, an increase of $230,000 or 36.5%. Management
attributes this increase to a higher volume of borrowings on hire purchase
contracts. The Company is continuously negotiating with various banking
institutions to obtain credit lines, all of which are secured by the vehicles
purchased.
<PAGE>
(Loss) before taxes and minority interests for the years ended November 30, 1996
and 1995, prior to amortization of goodwill for the period ($635,000 and
$631,000, respectively) aggregated $20,000 and $239,000, respectively. This
decrease in the loss was primarily due to the increased revenues as described
above. For the year ended November 30, 1996, the Company reflected a net loss
(after minority interests in the net loss of subsidiaries) of $600,622 or $.25
per share. For the year ended November 30, 1995, the Company reported a net loss
of $870,145 or $.42 per share.
Liquidity and Capital Resources
Due to the nature of the Company's business, namely contract leasing of motor
vehicles which are fixed long-term assets, the balance sheet has been prepared
on an unclassified basis. Accordingly, there is no classification of current
assets and current liabilities. At November 30, 1996 and 1995, the Company's
balance sheet reflected cash of $251,000 and $3,000, respectively, accounts
receivable of $2,022,000 and $1,241,000, respectively, and total assets of
$33,690,000 and $21,600,000, respectively. The principal reasons for the
increase in total assets are the acquisition described above, an increase in
contract hire vehicles available for lease and the proceeds from the Company's
initial public offering.
In December 1995, the Company completed a private placement offering selling 20
units, each unit consisting of 25,000 shares of Common Stock, at $6,000 per unit
for aggregate gross proceeds of $120,000 ($.24 per share).
In April 1996 the Company successfully completed an initial public offering of
its common stock, which yielded net proceeds to the Company of $2,166,000.
The Company's total assets as of November 30, 1996 and 1995 include intangible
assets of approximately $9,700,000 and $10,300,000, respectively. These
intangible assets consist of the unamortized portion of the costs over net
assets acquired in acquisitions, which are being amortized over periods ranging
from 10 to 20 years. When adjusted for these intangible assets, the net tangible
book value of the Company at November 30, 1996 and 1995 would be approximately
$2,200,000 and $1,210,000, respectively.
The Company had reflected convertible debt of $562,292 as of November 30, 1994.
These loans were to bear interest of 6% and were repayable five years from the
date of issue. The original debt, which was not convertible, arose at the time
PMS acquired one of its subsidiaries in 1992. The Company acquired this
subsidiary for $1 and assumed approximately $11,500,000 of net liabilities. The
acquisition resulted in goodwill of approximately $11,500,000. The ultimate
holder of the debt in 1994, was given the option of converting such loans into
shares of Pride, Inc.'s (the Company's parent) common stock at the end of such
period based upon their guarantee of the ultimate sales values of the related
revenue producing vehicles. This debtholder was the controlling shareholder of
the Company's parent at the time of this transaction.
During the year ended November 30, 1995, the Company determined with the
agreement of the debtholder, that the estimated ultimate sales values of the
vehicles were less than expected and it was agreed that the debt would be
written off against the debtholder guarantee. The balance of the debt, $562,292,
was therefore treated as an early extinguishment of debt. At the time of the
extinguishment, the debt outstanding was owed to a related party. In accordance
with APB No. 26, extinguishment transactions between related entities should be
treated as capital transactions. Accordingly, the gain on the extinguishment was
added to additional paid-in capital.
<PAGE>
During the year ended November 30, 1995, the Company generated cash flows from
operating activities aggregating approximately $1,550,000. During the year ended
November 30, 1996, the Company generated $508,000 of cash flows from operations.
Investing activities reflect uses of cash for the years ended November 30, 1996
and 1995 of $8,759,000 and $2,526,000, respectively. These uses of cash are the
result of the purchases of fixed assets (primarily revenue producing vehicles)
net of the proceeds received from the sale of vehicles at lease expiration dates
and the acquisition described above.
In order to replenish its fleet of revenue producing vehicles, annually, the
Company is required to purchase from 300 to 400 new vehicles at an average cost
of approximately $25,000 each. At the time of purchase, the Company typically
makes a cash deposit of approximately 10% and finances the balance. The Company
has funding lines with several financing institutions for this purpose which
aggregate approximately $18,200,000 at November 30, 1996. At November 30, 1996,
there was approximately $11,000,000 outstanding under these lines. These lines
are typically open for between 24 and 60 months depending on the terms, the most
important term being the interest rate. Therefore, the principal amount of the
Company's current credit lines is constantly changing. Since the Company's
funding lines are asset based (secured by the vehicles purchased), there is
generally no difficulty obtaining funding lines, however, the Company is
continuously seeking to find the best terms and rates. Typically financing
institutions authorize credit lines with a fixed interest rate, which line is to
be open for a certain period of time. During the term of the line, the Company
may draw down on such line in order to finance the purchase of vehicles to
lease. When the time for drawing down on the line expires, the Company can no
longer draw down on such line to finance additional vehicles, however, the
amount drawn is repaid pursuant to the terms of such line.
For the year ended November 30, 1996, the Company provided cash from financing
activities of approximately $9,240,000 primarily as a result of an IPO
($2,200,000) and the financing needed to acquire new vehicles ($11,500,000) net
of the amounts utilized to pay hire purchase contract financing ($6,100,000).
For fiscal 1995, the Company provided cash for financing activities ($759,000)
primarily due to financing provided by bank lines of credit plus the increases
in financing of new vehicles ($3,262,000) net of the amounts needed to reduce
hire purchase contract financing ($3,496,000).
Other than the annual acquisitions of revenue producing vehicles as mentioned
above, there are no material planned capital expenditures at the present time.
The Company believes that its cash flow from operations, and its available
funding lines for the acquisition of revenue producing vehicles will be
sufficient for at least the ensuing 12 month period.
This report contains forward-looking statements and information that is based on
management's beliefs and assumptions, as well as information currently available
to management. When used in this document, the words "anticipate, " "estimate,"
"expect," "intend," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Nos
<S> <C>
Independent Auditors' Report ........................................................... F - 2
Financial Statements:
Consolidated Balance Sheets as of November 30, 1996 and 1995 ....................... F - 3
Consolidated Statements of Operations for the Years Ended November 30, 1996 and 1995 F - 4
Consolidated Statement of Changes in Shareholders' Equity for the Two Years in the
Period Ended November 30, 1996 ..................................................... F - 5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1996 and 1995 F - 6
Notes to Consolidated Financial Statements ............................................. F - 7
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pride Automotive
Group, Inc. and subsidiaries as of November 30, 1996 and 1995 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended November 30, 1996. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. 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 above mentioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Corporation as of November 30, 1996 and 1995 and the results of their operations
for the two years in the period ended November 30, 1996 in conformity with
accounting principles generally accepted in the United States of America.
Our audits also include the translation of British pounds into United States
dollars for amounts included in the consolidated financial statements. In our
opinion, such translation has been made in conformity with the basis stated in
Note 2(h) of the notes to the consolidated financial statements.
MARBEL ARCH HOUSE FEBRUARY 14, 1997 EXCEPT
66-68 SEYMOUR STREET AS TO NOTES 18 AND 19(c)
LONDON W1H 5AH WHICH ARE DATED CIVVALS
UNITED KINGDOM JUNE 26, 1997 CHARTERED ACCOUNTANTS
F - 2
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (Note 6(a) -
<TABLE>
<CAPTION>
November 30,
1996 1995
---------------- -----------
ASSETS:
<S> <C> <C>
Cash and cash equivalents .................................................. $ 250,699 $ 3,377
Accounts receivable (Notes 2c and 3) ....................................... 2,022,011 1,241,167
Inventories (Note 2d) ...................................................... 1,022,655 31,137
Property, revenue producing vehicles and equipment - net
(Notes 2e, 4, 6, 7 and 19c) .............................................. 20,671,854 9,924,318
Intangible assets - net (Notes 2f and 19c) ................................. 9,722,363 10,340,396
Deferred offering costs .................................................... -- 59,940
------------ ------------
TOTAL ASSETS ................................................................. $ 33,689,582 $ 21,600,335
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 6a) .............................................. $ 2,964,465 $ 1,093,680
Accounts payable ........................................................... 624,953 1,291,368
Accrued liabilities and expenses (Note 5) .................................. 490,915 358,892
Bank debt (Note 6b) ........................................................ 1,002,571 1,070,492
Obligations under hire purchase contracts (Note 7) ......................... 11,034,951 5,578,565
Loans payable - directors (Note 9) ......................................... -- 123,668
Other liabilities (Note 8) ................................................. 33,560 532,804
Acquisition debt payable (Note 10) ......................................... 5,098,470 --
------------
TOTAL LIABILITIES ............................................................ 21,249,885 10,049,469
------------ ------------
MINORITY INTEREST IN SUBSIDIARY (Note 18) .................................... 482,486 --
------------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 17)
SHAREHOLDERS' EQUITY (Notes 11, 12 and 19):
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued
or outstanding ........................................................... -- --
Common stock, $.001 par value, 10,000,000 shares authorized 2,652,500
and 1,560,000 shares issued and outstanding in 1996 and 1995, respectively 2,653 1,560
Additional paid-in capital ................................................. 13,487,388 11,741,922
Retained earnings (deficit) ................................................ (1,402,587) (801,965)
Foreign currency translation (Note 2h) ..................................... (130,243) 609,349
------------ ------------
TOTAL SHAREHOLDERS' EQUITY ................................................... 11,957,211 11,550,866
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................... $ 33,689,582 $ 21,600,335
============ ============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
November 30,
1996 1995
---------------- -----------
REVENUES (Notes 2i and 14):
<S> <C> <C>
Contract hire income ............................................... $ 6,286,677 $ 4,723,539
Sale of vehicles ................................................... 5,839,080 4,629,860
Fleet management and other income .................................. 758,261 369,657
------------ ------------
TOTAL REVENUE ........................................................ 12,884,018 9,723,056
------------ ------------
COSTS AND EXPENSES:
Cost of sales ...................................................... 10,241,850 7,297,331
General and administrative expenses ................................ 1,802,111 2,035,529
Amortization of goodwill ........................................... 634,813 630,718
Interest and other ................................................. 860,242 629,623
------------ ------------
13,539,016 10,593,201
LOSS BEFORE MINORITY INTERESTS ....................................... (654,998) (870,145)
Minority interest in net loss of consolidated subsidiaries (Note 18) 54,376 --
------------
LOSS BEFORE PROVISION FOR INCOME TAXES ............................... (600,622) (870,145)
Provision for income taxes (Notes 2g and 13) ....................... -- --
------------
NET LOSS ............................................................. $ (600,622) $ (870,145)
============ ============
LOSS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE (NOTE 2j):
Net loss before minority interests ............................... $ (.27) $ (.42)
Minority interest in net loss of subsidiaries .................... .02 --
------------ ------------
NET LOSS PER SHARE ................................................... $ (.25) $ (.42)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 2j) ............................ 2,405,760 2,060,000
============ ============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares Additional Retained Foreign Total
(As Restated Common Paid-in Earnings Currency Shareholders'
- See Note 1) Stock Capital (Deficit) Translation Equity
-------------- ------------ --------------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1994 ..... 1,500,000 $ 1,500 $ 11,119,690 $ 68,180 $ 407,768 $ 11,597,138
Compensatory stock (Note 11) .... 60,000 60 59,940 -- -- 60,000
Early extinguishment of debt
with related party (Note 16) .... -- -- 562,292 -- -- 562,292
Foreign currency translation
adjustment ...................... -- -- -- -- 201,581 201,581
Net loss for the year ended
November 30, 1995 ............... -- -- -- (870,145) -- (870,145)
------------ ------------ ------------ ------------ ------------
Balance at November 30, 1995 .... 1,560,000 1,560 11,741,922 (801,965) 609,349 11,550,866
Private offering of common stock
(Note 11) ....................... 500,000 500 119,500 -- -- 120,000
Shares and warrants sold in
initial public offering (Note 11) 592,500 593 2,165,336 -- -- 2,165,929
Adjustment for minority interest
(Note 18) ....................... -- -- (539,370) -- -- (539,370)
Foreign currency translation
adjustment ...................... -- -- -- -- (739,592) (739,592)
Net loss for the year ended
November 30, 1996 ............... -- -- -- (600,622) -- (600,622)
------------ ------------ ------------ ------------
BALANCE AT
NOVEMBER 30, 1996 ............... 2,652,500 $ 2,653 $ 13,487,388 $ (1,402,587) $ (130,243) $ 11,957,211
============ ============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 30,
1996 1995
---------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) .................................................................... $ (600,622) $ (870,145)
Adjustments to reconcile net (loss) to net cash (utilized) provided by
operating activities:
Minority interest in net loss of subsidiary ............................ (54,376) --
Depreciation and amortization .......................................... 2,354,942 1,852,825
Amortization of goodwill ............................................... 594,735 630,718
Extinguishment of debt with related party .............................. -- 562,292
(Gain) loss on disposal of fixed assets ................................ (119,030) 229,563
Compensatory stock ..................................................... -- 60
Provision for maintenance costs ........................................ (18,524) (176,302)
Changes in assets and liabilities:
(Increase) in accounts receivable .......................................... (599,753) (236,681)
(Increase) decrease in inventories ......................................... (93,794) 111,382
(Decrease) increase in accounts payable, accrued expenses and bank overdraft (955,172) (553,388)
------------ ------------
Net cash provided from operating activities ................................ 508,406 1,550,324
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ................................................... (9,858,724) (3,433,132)
Acquisition of assets in new subsidiary .................................... (969,279) --
Proceeds from sale of fixed assets ......................................... 2,068,601 906,727
------------ ------------
Net cash (utilized) by investing activities ................................ (8,759,402) (2,526,405)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit ....................................................... 1,870,785 1,093,680
Funds received from sale of common stock ................................... 2,285,929 --
Loans received from officers ............................................... -- 232,500
Loans repaid to officers ................................................... (304,759) (108,832)
Loans repaid to affiliate .................................................. -- (132,147)
Principal payments of long term debt ....................................... (67,921) (92,375)
Proceeds from hire purchase contract funding ............................... 11,530,175 3,262,390
Principal repayments of hire purchase contract funding ..................... (6,073,790) (3,495,819)
------------ ------------
Net cash provided from financing activities ................................ 9,240,419 759,397
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ......................................... (742,101) 201,581
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................ 247,322 (15,103)
Cash and cash equivalents, beginning of year .................................. 3,377 18,480
------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR .......................................... $ 250,699 $ 3,377
============ ============
</TABLE>
SUPPLEMENTAL INFORMATION:
(i) In November 1996, the Company acquired certain of the assets of AC Cars
Limited aggregating $6,067,749 and incurred debt obligations
aggregating $5,098,470.
(ii) The loss on the disposal of fixed assets resulted from the sale of
certain non-revenue producing assets whereby the proceeds were less
than the carrying value.
See notes to consolidated financial statements.
F - 6
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 1 - DESCRIPTION OF COMPANY:
Pride Automotive Group, Inc. (the "Company") was incorporated in
the State of Delaware in March 1995. Pursuant to the terms and
conditions of a reorganization in March 1995, the Company issued
1,500,000 shares of its common stock to Pride, Inc. (an entity
incorporated in the State of Delaware), thereby making the
Company a majority owned subsidiary of Pride Inc., in exchange
for all of the issued and outstanding shares held by Pride, Inc.,
of Pride Management Services Plc (PMS), a consolidated group of
operating companies located in the United Kingdom which are
engaged in the leasing of motor vehicles primarily on contract
hire to local authorities and selected corporate customers
throughout the United Kingdom. This exchange of stock resulted in
PMS becoming a wholly owned subsidiary of the Company. The
Company, its subsidiary PMS and PMS's subsidiaries are referred
to as the "Company" unless the context otherwise requires. The
accompanying consolidated financial statements are based on the
assumption that the Company and PMS were combined for all periods
presented, in a manner similar to the pooling of interests method
of accounting.
On November 29, 1996, the Company, through its newly formed
majority owned subsidiary, AC Automotive Group Inc. and its
wholly owned subsidiary AC Car Group Limited (registered in the
United Kingdom), completed the acquisition of certain assets of
AC Cars Limited and Autokraft Limited. These two companies were
engaged in the manufacture and sale of specialty automobiles. The
purchase price of approximately $6,067,000 is being financed with
the proceeds of a private offering of the Company's common stock,
(see Note 19a) and by loans (see Note 10). The acquisition has
been recorded using the purchase method of accounting. (See also
Notes 2f and 19c).
The following unaudited pro-forma results of operations assume
the acquisition occurred as of March 1, 1996 (amounts in millions
except per share data):
Revenues ................ $ 14.2
Net loss ................ (1.8)
Earnings per common share $ (.75)
The pro-forma financial information, which is only available
beginning March 1, 1996, is not necessarily indicative of the
operating results that would have occurred had the acquisition
been consummated as of March 1, 1996, nor are they necessarily
indicative of future operating results. This is because AC Cars
Limited and Autokraft Limited were in administrative receivership
in the United Kingdom and this severely restricted the ability of
the companies to manufacture and market their products. The
Company has made the United States Securities and Exchange
Commission aware of the fact that financial information is not
available for prior periods.
F - 7
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PMS, the operating group of companies, which is located in the
United Kingdom, follows generally accepted accounting principles
in the United Kingdom. For purposes of these consolidated
financial statements, the Company has converted to the generally
accepted accounting principles of the United States.
(a) Basis of Consolidation and Presentation:
The consolidated financial statements include the accounts of the
Company (Pride Automotive Group, Inc.), its' wholly owned
subsidiary Pride Management Services Plc and its' wholly owned
subsidiaries, and its' majority owned subsidiary AC Automotive
Group, Inc. and its' wholly owned subsidiary. All material
intercompany balances and transactions have been eliminated.
Due to the nature of the Company's business, contract leasing of
motor vehicles (revenue producing assets) which are treated as
non-current fixed assets, the balance sheet is reflected on an
unclassified basis. Accordingly, current assets and current
liabilities are not reflected separately on the face of the
balance sheet.
(b) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results could
differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
(c) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk in accordance with SFAS No 105
consist principally of accounts receivable. The Company believes
however, that risks associated with accounts receivable are
limited due to its large customer base and the fact that it
leases vehicles to companies in many industries.
The carrying amounts of cash and cash equivalents, trade
receivables, other assets, accounts payable and debt obligations
approximate fair value.
F - 8
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Inventories:
Inventories include vehicles which are no longer being leased to
customers and which are temporarily being held for resale at cost
less accumulated depreciation, which approximates net realizable
value. The inventories of AC Automotive Group, Inc. and its
subsidiary consist of finished goods, work in progress and spare
parts of specialty automobiles and are stated at the lower of
cost, (first-in, first-out method) or market. Market is
considered as net realizable value.
As of November 30, 1996 and 1995 inventories consisted of the
following:
1996 1995
Cars held for resale $ 124,932 $ 31,137
Finished goods ..... 75,510 --
Work-in-progress ... 684,305 --
Spare parts ........ 137,908 --
---------- ----------
$1,022,655 $ 31,137
========== ==========
(e) Fixed Assets and Depreciation:
Fixed assets are stated at cost less depreciation. Depreciation
is provided on all assets at rates calculated to write off the
cost of each asset over its estimated useful life, as follows:
Building and improvements 50 years straight-line
basis Revenue producing vehicles 3-6 years
straight-line basis Furniture and fixtures 4
years double declining basis Machinery and
equipment 4 years double declining basis Aircraft
4 years double declining basis
Maintenance and repairs are charged to operations and major
improvements are capitalized. Upon retirement, sale of other
disposal, the associated cost and accumulated depreciation of the
asset are eliminated from the accounts and any resulting gain or
loss is included in operations.
F - 9
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Intangible Assets:
Intangible assets consist primarily of goodwill which arose in
connection with the acquisition of certain subsidiaries of PMS.
Goodwill is being amortized over a period of 10-20 years on a
straight-line basis. Accumulated amortization as of November 30,
1996 and 1995 aggregated $2,990,626 and $2,355,813, respectively.
In November 1996, the Company acquired certain of the assets of
AC Cars Limited and Autokraft Limited (see Note 1 above). The
purchase price exceeded the tangible net assets acquired by
$16,780. This amount was assigned to the brand name and is to be
amortized over 20 years on a straight-line basis (see also Note
19c).
The Company periodically reviews the valuation and amortization
of goodwill and other intangibles to determine possible
impairment by evaluating events and circumstances that might
indicate an inability to recover the carrying amount. Such
evaluation is based on analysis, including profitability,
projections and cash flows that incorporate the impact on
existing Company business.
(g) Income Taxes:
The Company conducts all of its operating activities in the
United Kingdom (UK). As such, they are subject to taxation in the
UK based upon that country's tax statutes. Under UK taxation
rules, provision is made for taxation deferred as a result of
material timing differences between the incidence of income and
expenditures for taxation and accounting purposes, using the
liability method, only to the extent that there is reasonable
probability that a liability or asset will crystallize in the
near future. See also Note 13 regarding SFAS No 109 - Accounting
for Income Taxes.
(h) Foreign Currency Translation:
The Company's principal operations are conducted by PMS which
reflects its financial statements in British pounds. As a result,
most assets and liabilities of the foreign operations are
translated into US dollars using current exchange rates in effect
at the balance sheet date. Fixed assets and intangible assets are
translated at historical exchange rates. Revenue and expense
accounts are translated using an average exchange rate during the
period except for those expenses related to assets and
liabilities which are translated at historical exchange rates.
These include depreciation and amortization which are translated
at the rates existing at the time the asset was acquired. Any
resulting gains or losses due to the translations are reflected
as a separate item of shareholders' equity.
F - 10
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(i) Income Recognition:
Contract hire income of leased vehicles is recognized as
operating leases over the period of the contract in accordance
with SFAS No 13 - Accounting for Leases and the related
amendments and interpretations. Income from the sale of
previously leased vehicles, is reflected at the time of sale of
the vehicle. Fleet management revenues and miscellaneous income
are reflected on the accrual basis over the term that the
services are provided.
(j) Earnings Per Share:
Earnings per share are computed based upon the weighted average
shares and common equivalent shares outstanding. The shares
issued in connection with the reorganization (see Note 1), the
shares issued in lieu of compensation for legal services and the
shares sold during the year ended November 30, 1996 in a private
offering (see Note 11), have been treated as outstanding for all
periods presented, in accordance with the guidelines of the
Securities and Exchange Commission. Common stock equivalents have
been excluded from the computation since the results would be
anti-dilutive.
(k) Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
(l) Lease Agreements:
The Company leases vehicles with terms generally ranging from two
to four years. The following table shows the future minimum lease
payments of existing leases to be received, net of related costs
(see also Note 7):
November 30, 1997 $5,103,977
November 30, 1998 4,390,779
November 30, 1999 2,634,819
November 30, 2000 1,007,729
----------
Total minimum lease payments receivable
net of executory costs $13,137,304
(m) Accounting Changes:
As permitted by SFAS 123, Accounting for Stock-Based
Compensation, which becomes effective for the Company as of
December 1, 1996, and which encourages companies to record
expense for stock options and other stock-based employee
compensation awards based on their fair value at date of grant,
the Company will continue to apply its current accounting policy
under Accounting Principles Board Opinion No. 25 and will include
the necessary disclosures in its fiscal 1997 financial
statements.
F - 11
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 3 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
1996 1995
-------------- ----------
Trade receivables ........... $1,192,949 $ 955,437
Lease maintenance receivables 330,902 69,182
Value added tax ............. 102,114 97,707
Due from related companies .. 95,125 --
Other ....................... 300,921 118,841
---------- ----------
$2,022,011 $1,241,167
Included in the above trade receivables is $59,002 due on a long
term basis as of November 30, 1996.
Based upon past experience, the Company has deemed that no
allowance for uncollectible accounts receivable is necessary.
NOTE 4 - FIXED ASSETS AND DEPRECIATION:
Fixed assets consist of the following:
:
1996 1995
---------------- -----------
Buildings and improvements ...................... $ 1,719,415 $ 1,719,415
Revenue producing vehicles ...................... 17,282,095 11,989,192
Furniture, fixtures, plant and equipment ........ 4,641,388 519,753
Aircraft ........................................ 927,751 --
-----------
24,570,649 14,228,360
Less: accumulated depreciation (including
$3,388,495 and $3,853,753 of accumulated
depreciation on revenue producing vehicles,
for 1996 and 1995, respectively) .......... 3,898,795 4,304,042
----------- -----------
$20,671,854 $ 9,924,318
=========== ===========
Depreciation expense for the years ended November 30, 1996 and
1995 aggregated $2,295,164 and $2,415,117, respectively.
One of the buildings owned by Pride Management is not currently
being utilized by the Company. This building is being leased to
an unrelated party at an annual rent of approximately $80,000 per
annum.
F - 12
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 5 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
1996 1995
Taxes other than income taxes $418,082 $333,586
Miscellaneous accrued expenses 72,833 25,306
-------- --------
$490,915 $358,892
======== ========
NOTE 6 - BANK LOANS/LINE OF CREDIT:
(a) The Company has a $2,684,800 line of credit with a bank at an
interest rate of 3% in excess of the base rate (6% as of November
30, 1996). This line of credit is payable on demand and is
secured by all assets of the Company other than revenue producing
vehicles and buildings which are already pledged (see Notes 6b
and 7). As of November 30, 1996, the bank had granted a temporary
increase to $2,965,000 at similar terms.
(b) At November 30, 1996, bank loans consisted of $1,002,571 due to
two banks at rates of 3% and 5% in excess of the banks' base rate
(6% as of November 30, 1996). These loans are secured by the
freehold properties (buildings) owned by Pride Management and its
subsidiaries, and mature in 2001 and 2017.
The scheduled principal payments of this bank debt as of November
30, 1996 are as follows:
For the Year Ended November 30,
1997 $ 98,890
1998 98,890
1999 98,890
2000 98,890
2001 98,890
Thereafter 508,121
-----------
$1,002,571
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING:
The Company has funding lines with several financing institutions
in the United Kingdom in the aggregate amount of approximately
$18,200,000 as of November 30, 1996. These funding lines are
utilized to acquire revenue producing vehicles, which vehicles
collateralize the outstanding obligations.
F - 13
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING (Continued):
Assets (revenue producing vehicles) obtained under hire purchase
contracts are capitalized as fixed assets and depreciated over
their useful lives. The obligations under such agreements, which
mature at various dates within five years from inception, are
reflected separately on the balance sheet net of finance charges
which are charged to the periods to which they apply. At November
30, 1996, obligations under hire purchase contracts are as
follows:
For the Year Ended November 30,
1997 $ 4,951,662
1998 3,977,882
1999 1,878,445
2000 226,962
--------------
$11,034,951
The annual interest rates on these obligations range from 7.25%
to 15.6%.
NOTE 8 - OTHER LIABILITIES:
At November 30, 1996 and 1995 other liabilities consisted of
$33,560 and $532,804, respectively due to other creditors at
interest rates approximating the current market rates and
repayable on a demand basis.
NOTE 9 - RELATED PARTY TRANSACTIONS:
At November 30, 1995, the Company was indebted to its President
in the aggregate amount of $123,668. These unsecured loans were
repayable on demand at an interest rate of 2 1/2% in excess of
the base lending rate (6.75% at November 30, 1995) of the
Company's bank. The loan was repaid during the year ended
November 30, 1996.
NOTE 10 - ACQUISITION DEBT PAYABLE:
As of November 30, 1996, acquisition debt payable (see Note 1) consisted of
the following:
Unsecured notes payable on demand after October 31, 1999;
interest payable quarterly at 8% per annum ................... $1,678,000
Unsecured notes payable on demand after May 31, 1998; interest
payable quarterly at 2% above the base rate .................. 839,000
Other short-term notes payable (see Note 19) ................. 2,581,470
----------
$5,098,470
F - 14
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 11 - COMMON STOCK/RECAPITALIZATION:
In March 1995, the Company issued 1,500,000 shares of common
stock in connection with a reorganization (see Note 1).
In March 1995, the Company issued 60,000 shares of common stock
in lieu of compensation for legal services rendered.
In December 1995, the Company completed a private placement
offering selling 20 units, each unit consisting of 25,000 shares
of common stock, at $6,000 per unit for aggregate gross proceeds
of $120,000.
In April 1996 the Company successfully completed an initial
public offering ("IPO") of its common stock whereby it sold
592,500 shares of common stock at a price of $5.00 per share and
2,300,000 common stock purchase warrants at a price of $.10 per
warrant. This offering yielded net proceeds of approximately
$2,166,000.
The warrants are exercisable at a price of $5.75 per share,
subject to adjustment, one year from the date of the offering,
for a period of four years. The warrants are redeemable by the
Company at any time commencing one year from the date of its
prospectus, upon 30 days notice, at a redemption price of $.05
per warrant.
In addition, the Company entered into a consulting agreement with
one of the Under- writers as a financial consultant for a period
of two years at a monthly fee of $2,500 payable in full at the
closing of the offering. The Underwriters have also been granted
warrants to acquire 95,000 shares of Common Stock and 200,000
warrants at 150% of the public offering prices or $7.50 per share
and $.15 per Warrant, respectively.
NOTE 12 - STOCK OPTION PLANS:
In September 1995, the board of directors adopted the 1995 Senior
Management Incentive Plan (the "Management Plan") which was
adopted by shareholder consent. The Plan provides for the
issuance of up to 300,000 shares of the Company's common stock in
connection with the issuance of stock options and other stock
purchase rights to executive officers and other key employees.
As of November 30, 1996, the Company had granted options to
purchase 100,000 shares of common stock at an exercise price of
$5.50 per share, none of which had been exercised as of that
date. These options are exercisable over a five year period
pursuant to a three year vesting schedule (331/3% per annum)
beginning in August 1996.
See also Note 2(m) re: Accounting Changes.
F - 15
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 13 - INCOME TAXES:
The provisions for United Kingdom income taxes utilizing the
requirements of SFAS No 109 consisted of the following for the
years ended November 30, 1996 and 1995:
1996 1995
-------------- ---------
Current tax expense .............. $ 763,350 $ 860,000
Deferred tax expense ............. 174,650 --
Investment tax credits on vehicles (938,000) (860,000)
--------- ---------
$$$$$$$$$ $$$$$$$$$
========= =========
At November 30, 1996, investment tax credits being carried over
to future periods aggregated approximately $11,904,000.
The components of the deferred tax asset, pursuant to SFAS No.
109, as of November 30, 1996 and 1995, respectively, are as
follows:
1996 1995
-------- -------
Operating loss carryforward $ 52,000 $ 23,000
Valuation allowance ....... (52,000) (23,000)
-------- --------
$$$$$$$$ $$$$$$$$
======== ========
The Company has available operating losses carryforwards for tax
purposes aggregating approximately $148,000 as of November 30,
1996, which may result in a deferred tax asset. The Company has
recognized this asset but has provided a valuation allowance for
the full amount since there is no assurance that such losses will
be utilized in the near future.
NOTE 14 - ECONOMIC DEPENDENCY:
For the years ended November 30, 1996 and 1995, the Company had
two unaffiliated customers, which accounted for an aggregate of
approximately 17% (1995 - 18%) and 12% (1995 - 15%) respectively,
of the Company's total revenues.
The Company purchases all of the automobiles that it leases to
its clients from automotive dealerships, usually several at a
time. The Company does not depend on any one dealership for its
purchase of automobiles and does not have any written agreements
with any of the dealerships it purchases vehicles from. The
Company believes that it will continue to be able to purchase
automobiles at competitive prices and terms into the future.
F - 16
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 15 - PENSION PLAN:
PMS and its' subsidiaries have a fully insured defined
contribution plan for all of its eligible employees.
Contributions to the plan, which are discretionary, for the years
ended November 30, 1996 and 1995 amounted to $33,264 and $55,817,
respectively.
NOTE 16 - CONVERTIBLE DEBT:
The Company had reflected convertible debt of $562,292 as of
November 30, 1994. These loans were to bear interest at 6% and
were repayable five years from date of issue. The original debt,
which was not convertible, arose at the time PMS acquired one of
its subsidiaries in 1992. The Company acquired this subsidiary
for $1 and assumed approximately $11,500,000 of net liabilities.
This acquisition resulted in goodwill of approximately
$11,500,000. The ultimate holder of the debt, in 1994, was given
the option of converting such loans into shares of Pride Inc.'s
(the Company's parent) common stock at the end of such period,
based upon their guarantee of the ultimate sales values of the
related revenue producing vehicles. The debt holder was the
controlling shareholder of the Company's parent at the time of
this transaction.
During the year ended November 30, 1995, the Company determined,
with the agreement of the debt holder, that the estimated
ultimate sales values of the vehicles were less than expected and
it was agreed that the debt would be written off against the debt
holder's guarantee. The balance of the debt, $562,292, was
therefore treated as an early extinguishment of debt. At the time
of extinguishment, the debt outstanding was owed to a related
party. In accordance with APB No 26, extinguishment transactions
between related entities should be treated as capital
transactions. Accordingly, the gain on the extinguishment was
added to additional paid-in capital.
NOTE 17 - COMMITMENTS:
(a) Leases:
The Company has entered into a one-year lease agreement for
the manufacturing facility being utilized for its new subsidiary
at a cost of approximately $54,000 per month. The Company has an
option to purchase this facility at a cost of $8,700,000, through
August 1997. This lease expires in December 1997.
(b) Employment Agreements:
In August 1995, the Company entered into an employment
agreement with its President/Chairman of the Board of Directors.
This three-year agreement provides for an annual salary of
$160,000 with annual escalations of 10% and also contains certain
non-compete restrictions. This employee was also granted 100,000
stock options (see Note 12).
F - 17
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 17 - COMMITMENTS (Continued):
(b) Employment Agreements (continued):
In September 1995, the Company entered into an employment
agreement with an officer/director for a period of twenty four
months commencing December 1, 1995. This agreement is
automatically extendable for a further twenty four month period
and provides for an annual salary of $55,000, subject to review
by the Board of Directors.
(c) Rental Income:
The Company leases one of its owned facilities to an unaffiliated
company. The lease, which expires in 2004, provides for rental
income of approximately $80,000 per annum. The annual cost of
servicing the mortgage and real estate taxes on this building
approximates $70,000.
NOTE 18 - MINORITY INTEREST IN SUBSIDIARIES:
The Company owns 70% of AC Automotive Group, Inc. ("AC Group").
In order to properly reflect the liability to the minority
shareholders as a percentage of the total assets of the AC Group,
the Company has reflected a charge to additional paid-in capital
of $539,370. As of November 30, 1996, the liability to the
minority shareholders aggregated $482,486.
NOTE 19 - SUBSEQUENT EVENT:
(a) In December 1996, the Company completed a private placement of 14
units, each unit consisting of a 10% promissory note in the
amount of $95,000 and 10,000 shares of the Company's common stock
for an aggregate price of $100,000 per unit. The gross proceeds
of $1,400,000 were used to satisfy a portion of the debt owed re:
the acquisition of AC Car Group (see Notes 1 and 10).
(b) In December 1996, the Company also entered into a loan agreement
with its bank for $755,100, with interest payable at 8% per
annum, secured by a first lien on the aircraft owned by the
Company as a result of the acquisition described in Note 1. This
loan is to be repaid from the proceeds of the sale of the
aircraft.
(c) In connection with the acquisition of AC Cars Limited
(see Note 1) the Company originally recorded fixed assets
aggregating $3,038,182 and intangible assets aggregating
$1,990,215. In June 1997, the Company, through the services of an
independent third-party expert, determined that the value of the
fixed assets acquired was actually $6,643,365. Accordingly, as of
the date of acquisition, the Company reclassified the intangible
assets to fixed assets, and recorded negative goodwill of
$1,614,968 in order to reflect the increased value of the fixed
assets acquired. In accordance with Accounting Principles Board
Opinion No. 16, the negative goodwill has been offset against
non-current assets acquired.
F - 18
<PAGE>
SIGNATURES
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 thereunto duly authorized
Dated: September 15, 1997
Pride Automotive Group, Inc.
by: \s\ Alan Lubinsky
Alan Lubinsky
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATIONS S-X
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended November 30, 1996 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<CAPTION>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> nov-30-1997
<PERIOD-END> nov-30-1997
<CASH> 250,699
<SECURITIES> 0
<RECEIVABLES> 2,022,011
<ALLOWANCES> 0
<INVENTORY> 1,022,655
<CURRENT-ASSETS> 0
<PP&E> 24,570,649
<DEPRECIATION> 3,898,795
<TOTAL-ASSETS> 33,689,582
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,653
<OTHER-SE> 11,954,558
<TOTAL-LIABILITY-AND-EQUITY> 33,689,582
<SALES> 12,884,018
<TOTAL-REVENUES> 12,884,018
<CGS> 10,241,850
<TOTAL-COSTS> 10,241,850
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 860,242
<INCOME-PRETAX> (600,622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (600,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (600,622)
<EPS-PRIMARY> (.25)
<EPS-DILUTED> (.25)
</TABLE>
