As filed with the Securities and Exchange Commission on January 12, 1998
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PRIDE AUTOMOTIVE GROUP, INC.
(Exact name of Registrant as specified in Charter)
Delaware 7510 98-0157860
(State of (Primary standard industrial I.R.S. employer
Incorporation) classification code) Identification No.
Pride House, Watford Metro Centre, Tolpits Lane
Watford Hertfordshire, WD1 8SB England
(800) 698-6590
(Address and Telephone Number of Principal Executive Offices)
Alan Lubinsky, President
Pride House, Watford Metro Centre, Tolpits Lane
Watford Hertfordshire, WD1 8SB England
(800) 698-6590
(Name, Address and Telephone Number of Agent for Service)
Copies To:
Mitchell Lampert, Esq. Jay Kaplowitz, Esq.
Lampert & Lampert Gersten Savage Kaplowitz
10 East 40th Street & Fredericks
New York, New York 10016 101 East 52nd Street,
(212) 889-7300 9th Fl.
New York, New York 10168
(212) 752-9700
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If any of the securities being registered on this Form SB-2 are to be
offered on a continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [x]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Each Class Maximum Maximum Amount of
of Securities Amount Being Offering Price Aggregate Registration
Being Registered Registered Per Security (1) Offering Price(1) Fee
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock,
<S> <C> <C> <C> <C>
$.001 par value (2) 1,335,000 (3) $7,175,000 (3) $2,474.14
- ------------------------------------------------------------------------------------------------------------------------------------
Underwriters'
Warrants (4) 100,000 -- --(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Totals........... $7,175,000 (3) $2,474.14
====================================================================================================================================
</TABLE>
(1) Total estimated solely for the purpose of determining the registration
fee.
(2) Includes (i) 150,000 shares of Common Stock subject to sale upon
exercise of the Underwriters' Over-allotment Option granted to the Underwriters
by the Company and (ii) 185,000 shares to be sold from time to time by the
Selling Securityholders.
(3) For the purposes of calculating the fee, the Company has assumed an
offering price of $5.00 per share.
(4) Represent warrants to be issued to the Underwriters to purchase 100,000
shares of Common Stock (the "Underwriters' Warrants"). See "Underwriting."
(5) No fee due pursuant to Rule 457(g).
ii
<PAGE>
Cross Reference Sheet Pursuant to Rule 404 (a)
Showing the Location In Prospectus of
Information Required by Items of Form SB-2
<TABLE>
<CAPTION>
Item in Form SB-2 Prospectus Caption
<S> <C>
1. Forepart of the Registration Cover Page and Cover Page of Registration
Statement and Outside Front Statement
Cover Page of Prospectus
2. Inside Front and Outside Continued Cover Page, Table of Contents
Back Cover Pages of
Prospectus
3. Summary Information and Prospectus, Summary, Risk Factors,
Risk Factors Summary Financial Information
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Cover Page, Underwriting, Risk Factors
Price
6. Dilution Risk Factors, Dilution
7. Selling Securityholders Principal and Selling Stockholders
8. Plan of Distribution Cover Page, Underwriting
9. Legal Proceedings Business
10. Directors, Executive Officers Management
Promoters and Certain Control
Persons
11. Security Ownership of Principal and Selling Stockholders
Certain Beneficial Owners
and Management
iii
<PAGE>
12. Description of Securities Description of Securities
13. Interest of Named Experts Legal Opinions, Experts
and Counsel
14. Disclosure of Commission Position Management and Item 24. Indemnification
on Securities Act Liabilities Officers and Directors
15. Organization Within Five Years Prospectus Summary, Business, Principal and
Selling Stockholders, Certain Relationships
and Related Transactions, Risk Factors
16. Description of Business Business
17. Management's Discussion Management's Discussion and Analysis of
and Analysis or Plan of Operation Financial Condition and Results of Operations
18. Description of Property Business
19. Certain Relationships and Related Certain Relationships and Related
Transactions Transactions
20. Market for Common Equity Not Applicable
and Related Stockholder
Matters
21. Executive Compensation Management
22. Financial Statements Financial Statements
23. Changes in and Disagreements Not Applicable
with Accountants and Financial
Disclosure
</TABLE>
iv
<PAGE>
Preliminary prospectus subject to completion, dated January , 1998
PROSPECTUS
PRIDE AUTOMOTIVE GROUP, INC.
1,000,000 Shares of Common Stock
Par Value $.001 Per Share
This Prospectus relates to an offering of 1,000,000 shares of Common
Stock, par value $.001 per share (the "Common Stock"), of Pride Automotive
Group, Inc. (the "Company") being sold by the Company through Mason Hill & Co.,
Inc., as representative of the several underwriters (collectively referred to as
the "Underwriters"). This Registration Statement also relates to the offer and
sale of an aggregate of 185,000 shares of Common Stock (collectively the
"Selling Securityholders' Shares") by certain selling security holders (the
"Selling Securityholders"). The Selling Securityholders' Shares are being
registered pursuant to registration rights agreements which have been executed
by the Company and the Selling Securityholders. The Selling Securityholder
Shares may be sold from time to time by the Selling Securityholders. The Company
will not receive any proceeds from the sale of any securities sold by the
Selling Securityholders. It is estimated that the offering price will be $5.00
per share. The shares of Common Stock are sometimes referred to as the
"Securities." See "Description of Securities" and "Principal and Selling
Securityholders."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION TO INVESTORS.
SEE "RISK FACTORS" AND "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================================
Price to Discounts and Proceeds to
Public Commission (1) the Company (2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.......... (3)$ $ $
- -----------------------------------------------------------------------------------------------------------------
Total (4)........... $ $ $
=================================================================================================================
</TABLE>
(footnotes on following page)
MASON HILL & CO., INC.
110 Wall Street
New York, NY 10005
The date of this Prospectus is_______________, 1998.
<PAGE>
(1) Does not include additional compensation to be received by the
Underwriters, including (i) a non-accountable expense allowance equal
to 3% of the gross proceeds of the Offering; (ii) warrants entitling
the Underwriters to purchase from the Company 100,000 shares of the
Company's Common Stock (the "Underwriters' Warrants") at 120% of the
public offering price, exercisable for a period of four years
commencing one year from the date of the Prospectus; and (iii) a three
year consulting fee of $36,000 per year, to be paid in advance at the
closing of this Offering. The Company has also agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deduction of expenses of the Offering, all or which are payable
by the Company, estimated at $400,000, which includes the Underwriters'
non-accountable expenses allowance, the financial consulting fee as
well as filing, legal, accounting, printing and other costs and
expenses.
(3) It is currently anticipated that the offering price will be $5.00 per
share.
(4) The Company has granted the Underwriters an option, exercisable within
forty-five days from the date of this Prospectus, to purchase up to an
additional 150,000 shares of Common Stock, on the same terms set forth
above, solely for the purpose of covering over-allotments. If such
options are exercised in full, the total Price to the Public,
Underwriting Discounts and Commission and Proceeds to Company will be
$5,750,000, $575,000 and $5,175,000, respectively. See "Underwriting".
Prior to this Offering, there has been a limited public market for the
Company's Common Stock and a class of outstanding common stock purchase warrants
(the "Warrants") (the "Company's Securities"). The Company's Common Stock and
Warrants are currently listed on the Nasdaq SmallCap Stock Market ("Nasdaq")
under the symbols "LEAS" and "LEASW" and on the Boston Stock Exchange ("BSE")
under the symbols "LES" and "LESW". Quotation on Nasdaq or BSE does not imply
that a meaningful, sustained market for the Company's Securities will develop or
if developed that it will be sustained for any period of time. In the event the
Company's Securities do not continue to be listed on Nasdaq or the BSE, the
Company's Securities will be available for trading only in the over-the-counter
market on the OTC Electronic Bulletin Board. The offering price of the shares of
Common Stock has been determined in negotiations between the Company and the
Underwriters on an arbitrary basis and bears no direct relationship to the
assets, earnings or any other recognized criteria of value. Factors considered
in determining such prices, in addition to prevailing market conditions,
included the history of and the business prospects for the Company and an
assessment of the net worth and financial condition of the Company, as well as
such other factors as were deemed relevant, including an evaluation of
management and the general economic climate. The prices should in no event,
however, be regarded as an indication of any future market price of the Common
Stock. See "Risk Factors."
The Securities are being sold by the Company through Mason Hill & Co.,
Inc. as representative of the several underwriters (collectively referred to as
the "Underwriters"), on a "firm commitment" basis subject to prior sale, when,
as and if accepted by the Underwriters and subject to approval of certain legal
matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and
reject any order in whole or in part. It is expected that delivery of
certificates representing the Securities being sold hereby will be made against
payment therefor at the offices of Mason Hill & Co., Inc., 110 Wall Street, New
York, New York on or about ____________, 1998.
2
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
COMPANY'S SECURITIES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY DISCONTINUE AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 under the Securities Act,
with respect to the shares of Common Stock to which this Prospectus relates. As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement. For
further information with respect to the Company and the Securities offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, which may be copied and inspected at the Public Reference Section of
the Commission at its principal office at 450 Fifth Street, N.W., Washington,
D.C., 20549 or at its regional office at 7 World Trade Center, New York, New
York or at its website, http://www.sec.gov/.
The Company's fiscal year end is November 30. The Company is subject to
the informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith, files periodic
reports, proxy statements and other information with the Commission. At present,
the Company is current in its filings under the Exchange Act. In the event the
Company's obligation to file such periodic reports, proxy statements and other
information is suspended, the Company will voluntarily continue to file such
information with the Commission. The Company distributes to its stockholders,
annual reports containing audited financial statements, together with an opinion
by its auditing accountants. In addition, the Company may, in its discretion,
furnish quarterly reports to stockholders containing unaudited financial
information for the first three quarters of each year.
SUMMARY
The following summary is intended to set forth certain pertinent facts and
highlights from material contained in the body of this Prospectus. The summary
is qualified in its entirety by the detailed information and financial
statements appearing elsewhere in this Prospectus.
This Prospectus contains forward looking statements that involve risks an
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that might cause
such differences include, but are limited to, those discussed in "Risk Factors."
THE COMPANY
Pride Automotive Group, Inc., a Delaware corporation (the "Company") was
formed by Pride, Inc. ("Pride"), in March 1995 for the purpose of acquiring all
of the outstanding shares of common stock of Pride Management Services, Plc., an
English corporation ("PMS"), in a transaction which was accounted for as a
reorganization (the "Reorganization"). Prior to the Reorganization, PMS was a
wholly owned subsidiary of Pride.
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 1990 L.H.M. Corp. changed its name to
International Sportsfest, Inc. ("ISI"). In January 1994, ISI entered into an
Agreement and Plan of Reorganization with Pride Management Services, Plc.
("PMS"), an English corporation, whereby PMS became a wholly owned subsidiary of
ISI and ISI changed its name to Pride, Inc.
Pursuant to the terms and conditions of the Reorganization, the Company
issued 1,500,000 shares of its Common Stock to Pride in exchange for all of the
issued and outstanding shares of PMS. In connection with the Reorganization and
formation of the Company, PMS became a wholly owned subsidiary of the Company
which, prior to the Company's initial public offering, was approximately 52.9%
owned by Pride. PMS is a holding company which has six wholly owned subsidiaries
which engage in the Company's operations. PMS's wholly-owned subsidiaries
include; 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. These companies operate as one
unit, with the same management and facilities. Unless the context otherwise
requires, all references to the "Company" are to its wholly owned subsidiary,
PMS and PMS's six wholly owned subsidiaries. See "--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's sales policy emphasizes leasing to
financially sound clients and requires certain financial disclosures prior to
executing any lease agreements. Customer accounts are targeted from profitable,
growing, medium-sized corporate companies. The Company purchases each vehicle
pursuant to its client's specifications, finances its purchase and pays for all
the maintenance on the vehicle during the lease term. 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.
3
<PAGE>
The following is a list of the PMS subsidiaries, their dates of formation
and their business operations:
<TABLE>
<CAPTION>
Date of
Name Formation Business Operations
<S> <C> <C>
Pride Vehicle Contracts
Limited 12/23/86 Conducts all administrative functions for the Company,
including paying salaries and all operational expenses of the
Company.
Baker Vehicle Contracts Limited 02/22/89 Vehicle leasing, primarily the business operations of Baker Hire
Contracts Limited, acquired in May 1990, which operations are
primarily in Wales and the south west region of England.
Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract Hire Limited and Master
(UK) Limited Vehicle Contracts Limited in February 1992 and March 1994,
respectively.
Pride Leasing Limited 02/22/89 Owns property and a building in Croydon, England, which is leased to
an unaffiliated company.
Pride Vehicle Management 02/14/90 Operates the Company's fleet management services.
Limited
Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services for all the
Limited Company's leasing operations.
</TABLE>
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. The lessees
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 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 costs and servicing costs on the vehicles during the lease
term, with the bulk of the profits, if any, coming on the resale of the
automobile. 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. The lessee is responsible for
maintaining full comprehensive insurance on each vehicle, of which the Company
is a beneficiary and payee in the event the vehicle is damaged.
The Company also engages in fleet management services for certain of its
clients who choose to own the vehicle(s) directly. Customarily, these clients
purchase the automobiles through the Company in order to take advantage of the
Company's bulk purchase discounts. The Company maintains these vehicles on such
clients behalf pursuant to a monthly management fee, usually $15 per automobile
and disposes of the vehicles thereafter on behalf of the client. These clients
pay all costs associated with the purchase, maintenance and resale of the
automobiles.
In April 1996, the Company sold 950,000 shares of its common stock to
the public at a price of $5.00 per share and 2,000,000 redeemable common stock
purchase warrants at a price of $.10 per warrant in a public offering
underwritten by the Underwriter. The warrants are exercisable at a price of
$5.75 per share, subject to adjustment, beginning April 24, 1997 and expiring
April 23, 2001. The Company's securities are currently traded on the Nasdaq
SmallCap Stock Market and the Boston Stock Exchange, Inc.
4
<PAGE>
In December 1996, the Company's majority owned subsidiary AC Car Group
Limited ("AC"), acquired all of the assets of AC Cars Limited ("AC Cars") and
Autokraft Limited ("Autokraft") (the "Asset Purchase"), two companies
incorporated under the laws of England and Wales, respectively. AC Cars and
Autokraft are specialty automobile manufacturers that had been in administrative
receivership since March 1996. AC Cars is the oldest automobile company in
continuous existence in England and currently manufactures two automobiles, the
Superblower (which is a continuation of the AC Cobra) and the Ace, a newly
developed automobile of which less than 50 prototype cars have been sold to
date. The Superblower has a current list price of (pound)69,000 ($ ) and the Ace
has a current list price of (pound)75,000 ($ ).
In order to finance the costs of such acquisition, the Company engaged
in a private placement, whereby it issued an aggregate of $1,757,500 of
promissory notes and 185,000 shares of Common Stock. The Underwriter acted as
placement agent in such private placement. In connection with such offering, AC
sold an aggregate of 1,028,700 shares to three affiliates of the Underwriter for
aggregate consideration of $1,030. Such persons currently own an aggregate of
14% of the capital stock of AC.
The Company's executive offices are located at Pride House, Watford Metro
Centre, Tolpits Lane Watford, Hertfordshire, WD1 8SB England, phone number (800)
698-6590.
5
<PAGE>
THE OFFERING(1)
<TABLE>
<CAPTION>
<S> <C>
Securities Offered (2):
1,000,000 shares of Common Stock
Price Per Share: (3)
Securities Outstanding Prior to the Offering:
Common Stock 2,837,500 Shares
Warrants 2,300,000 Warrants
Securities Outstanding After the Offering:
Common Stock 3,837,500 Shares
Warrants 2,300,000 Warrants
Use Of Proceeds The net proceeds of this Offering, estimated at
$4,100,000, will be used as follows: (i)
$1,850,000 to repay the notes issued in the
December 1996 Private Placement and (ii)
$2,250,000 to repay lines of credit to the bank.
See "Use of Proceeds."
Risk Factors An investment in the Securities offered hereby
involves a high degree of risk and immediate
substantial dilution to investors. Potential
purchasers should not invest in these securities
unless they can afford the risk of losing their
entire investment. See "Risk Factor" and
"Dilution."
</TABLE>
6
<PAGE>
Symbols (4)
Nasdaq Common Stock ............ LEAS
Warrants .....................LEASW
BSE Common Stock..............LES
Warrants......................LESW
(1) Unless otherwise indicated, no effect is given in this Prospectus to
the exercise of (i) the Underwriters' Over-allotment Option to purchase
up to an additional 150,000 shares of Common Stock; (ii) the
Underwriters' Warrants to purchase 100,000 shares of Common Stock;
(iii) options on the issuance of restricted shares under the Company's
Senior Management Incentive Plan in the aggregate of 300,000 shares, of
which options to purchase 160,528 shares of Common Stock have been
granted.
(2) The 185,000 shares of Common Stock being registered hereunder are not
being underwritten and may be sold from time to time by the Selling
Securityholders pursuant to a separate prospectus.
(3) It is currently anticipated that the offering price will be $5.00 per
share.
(4) The Company's Common Stock and Warrants are currently listed on Nasdaq
and the BSE and the Company has applied for additional listing of the
Common Stock being offered hereby, on both Nasdaq and BSE. Quotation on
Nasdaq and/or BSE does not imply that a meaningful, sustained market
for the Company's Securities will develop or if developed that it will
be sustained for any period of time. In addition, continued inclusion
on Nasdaq and/or the BSE is subject to certain maintenance criteria.
The failure to meet these criteria in the future may result in the
discontinuance of the listing of the Company's Securities which in turn
may have a material adverse effect on the market for the Company's
Securities. See "Risk Factors".
7
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is the historical summary financial information with
respect to the Company and its subsidiaries for the years ended November 30,
1995 and 1996 and the unaudited nine month period ended August 31, 1996 and
August 31, 1997. The historical financial data for the years ended November 30,
1995 and 1996 is derived from the audited consolidated financial statements of
the Company and its subsidiaries which have been reported upon by Civvals,
Chartered Accountants. The summary historical financial data presented below
should be read in conjunction with the audited financial statements of the
Company and its subsidiaries and related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Statement of Operations Data:
=================================================================================================================
For the Year For the Nine Months
Ended Ended
- -----------------------------------------------------------------------------------------------------------------
November 30, November 30, August 31, August 31,
1995 1996 1996 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 9,973,056 $ 12,884,018 $8,276,389 $12,469,862
- -----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (870,145) $ (654,998) $(337,968) $(2,221,640)
- -----------------------------------------------------------------------------------------------------------------
Earnings (loss) per
Common Share $(.42) $ (.27) $(.15) $(.79)
- -----------------------------------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding 2,060,000 2,405,760 2,652,500 2,837,500
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet Data:
- -------------------------------------------------------------------------------------------------------------
November 30, 1996 August 31, 1997 August 31, 1997
- -------------------------------------------------------------------------------------------------------------
Actual Actual As Adjusted (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible Assets $21,977,00 $30,453,260 $30,453,260
- -------------------------------------------------------------------------------------------------------------
Intangible Assets $11,712,578 $9,247,939 $9,247,939
- -------------------------------------------------------------------------------------------------------------
Total Assets $33,698,581 $39,701,199 $39,701,199
- -------------------------------------------------------------------------------------------------------------
Total Liabilities $21,249,885 $29,771,303 $25,671,303
- -------------------------------------------------------------------------------------------------------------
Stockholders' $12,439,696 $9,929,896 $14,029,896
Equity
=============================================================================================================
</TABLE>
(1) Gives effect to the sale by the Company of 1,000,000 shares of Common
Stock in this Offering, and the application of net proceeds therefrom. Does not
give effect to the exercise of the Over-allotment Option or the Underwriters'
Warrants. See "Use of Proceeds."
8
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree
of risk. In addition to the other information contained in this Prospectus, the
following factors should be carefully considered before purchasing the
securities offered by this Prospectus. The purchase of these Securities should
not be considered by anyone who cannot afford the risk of loss of his entire
investment.
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this section, as well as in the sections entitled "Plan of
Operation" and "Business."
1. Negative Cash Flow; Loss from Operations; Accumulated Deficit; Need
for Capital. The proceeds raised in this Offering will be used primarily to
repay existing indebtedness to private lenders and commercial banks. The
Company's operations have historically been depicted by negative cash flow. In
entering into a new lease agreement, the Company (i) purchases the automobile,
which usually requires a 10% down payment, (ii) pays down the note on the
purchase including principal and interest during the lease term and (iii) pays
all maintenance costs during the term of the lease, all of which require the
outlay of operating capital. The lease payments received from the customer, over
the term of the lease, typically are sufficient to pay the Company's monthly
obligations on the vehicle. However, due to the timing of the payment of
expenses versus the receipt of lease payments, the Company has continuously
experienced negative cash flow problems. This problem increases as the Company
expands operations. Historically, the Company has financed its negative cash
flow by borrowing from a secured line of credit through its bank, Midland Bank
Plc. Although the Company's current line of credit has expired, the Company has
reached a verbal agreement regarding a new line of credit with Midland Bank Plc.
in the amount of (pound)3,250,000 (approximately $ ), which line of credit
expires in August 1998. This agreement has not yet been memorialized in written
form. In the event that the Company and the bank do not formalize their verbal
agreement regarding the line of credit or in the event that the bank revokes
this line of credit during the proposed term or in the event that the bank fails
to renew this new line of credit when it expires, the Company will have
insufficient cash flow to finance operations. There can be no assurance that the
Company will be able to secure the necessary financing if one of the
aforementioned events comes to pass. The Company realizes most of its profit on
the lease of a vehicle, if any, from the proceeds of the resale of the vehicle
at the end of the lease term. Prior to November 1992, the Company's financing
arrangements in the purchase of its vehicles required monthly payments of
interest and a balloon payment of the principal amount borrowed being made at
the end of the lease term. This financing strategy enabled the Company to have
more cash available for operations during the term of the lease, but the higher
financing fees and interest expense limited the profit margin over the lease
term. In November 1995, the Company began to receive back the vehicles it first
financed using its current financing method.
Due to the nature of the Company's business, namely contract leasing of
motor vehicles which are fixed long-term assets, the Company's balance sheet has
been prepared on an unclassified basis. Accordingly, there is no classification
of current assets, current liabilities or working capital. As vehicles are
returned each month, they are sold by the Company and the cash received
increases cash flow. However, in trying to increase the number of leases each
month, the cash flow from the resale of returned vehicles has not been
sufficient to enable the Company to purchase the number of additional
9
<PAGE>
vehicles needed. The Company incurred losses of $600,622 and $1,735,746, after
goodwill amortization, for the year ended November 30, 1996 and the nine months
ended August 31, 1997, respectively. In addition, the Company had an accumulated
deficit of $1,402,587 and $3,138,333 as of November 30, 1996 and August 31,
1997, respectively. In the event that the Company has continuous losses from
operations, cannot meet its current capital needs, is unable to finance the
purchase of new vehicles for its clients or defaults in the payment of any of
its financing arrangements, all or any of the above could materially affect the
operations of the Company. In the event the Company is required to seek
additional financing, there can be no assurance that such additional financing
will be available to the Company in the future, or if available, at such times,
or upon such terms and conditions acceptable to the Company. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business - Financing and Collections."
2. Competition. The Company's business is highly competitive, with
relatively insignificant barriers to entry and with numerous firms competing for
the same customers. The Company is in direct competition with local (includes
the city of Hertfordshire and the surrounding areas including Watford), regional
(includes London and surrounding areas) and national (includes the entire United
Kingdom inclusive of England, Wales, Scotland and Northern Ireland) automotive
leasing companies, many of which have greater resources and more extensive
distribution and marketing than the Company. The Company also competes in the
automobile financing industry with providers of other forms of financing. The
Company primarily competes on the basis of both pricing and service. Many of its
competitors have significantly greater financial and marketing resources than
the Company.
The wholesale of used automobiles is highly competitive, with the
Company's competition coming from individuals, other leasing companies,
independent used automobile wholesalers and dealerships and rental car
companies. In the event of a decrease in the demand for or market value of used
automobiles or the models leased and resold by the Company, the Company may not
be able to resell such vehicles at prices it had anticipated when entering into
the lease agreements. Such conditions would have a material adverse affect on
the business of the Company and its profitability. There can be no assurance
that the Company will be able to compete successfully in this market. See "Risk
Factor - Decrease in Automotive Resale Market; Decrease in Profitability" and
"Business - Competition."
3. Dependence on Suppliers and Service Centers. The Company purchases
all of the automobiles that it leases to its clients from automotive
dealerships, usually several at any one time. For the year ended November 30,
1996 and the nine months ended August 31, 1997, General Motors and Renault were
the manufacturers of approximately 16.2% and 15.2%, respectively and 11.7% and
9.7%, respectively, of the vehicles which it leased. The Company does not depend
on any one dealership for its purchase of automobiles and does not have any
written agreements or arrangements with any of the dealerships it purchases
vehicles from. The Company has servicing agreements with over 1,400 automotive
dealerships and independent service centers in its areas of operations. The
Company believes that there are a sufficient number of dealerships of the models
its purchases, so that it will continue to be able to purchase automobiles at
competitive prices and terms in the future. A portion of the Company's profit
margin is based on discounts received on the purchase of vehicles from the
dealerships as well as rebates received directly from the manufacturers.
However, the Company has no assurances that it will be able to acquire
automobiles at favorable prices or receive such rebates in the future. No
10
<PAGE>
assurance can be given that an uninterrupted and adequate supply of automobiles
or service centers will be available to the Company in the future, although, the
Company believes that there are a sufficient number of automobile dealerships
and independent service centers so that in the event any individual or group of
dealerships or service centers can no longer service the Company's needs, the
Company will be able to find other dealerships and service centers at
competitive prices. In the event the Company cannot obtain automobiles or
maintenance of such vehicles on similar terms as is presently available to it or
the production of automobiles ceases or is significantly reduced, the Company
would be materially adversely affected. See "Business - Suppliers."
4. Concentration of Lease Agreements; Lease Defaults; Economic
Conditions in England. For the year ended November 30, 1995 and 1996, the
Company had two unaffiliated customers, Westbury Homes Plc. and Campbell
Distillers Limited, which companies accounted for in the aggregate approximately
18% and 17%, respectively, of the Company's total revenues. For the nine months
ended August 31, 1996 and August 31, 1997, revenues from these customers
accounted for approximately 17% and 11%, respectively of total revenues. The
Company is dependent on client loyalty and the continued increase in the number
of its leases. The Company's profitability is dependent on the number of leases
entered into each year due to the small profit margin realized on each
individual lease. The discontinuance or default by the above clients or of any
group of leases or a continued or general economic downturn in England would
have a material adverse affect on the Company's results of operations. See
"Business - Leasing, Maintenance and Resale."
5. Decrease in Automotive Resale Market; Decrease in Profitability. The
automotive resale market is highly competitive, with model, mileage and
condition being the basis for a vehicle's resale value. Recently, the market for
used automobiles has increased due to the increase in the prices for new
vehicles. The Company is dependent on its ability to resell the vehicles which
are returned to it at the end of the lease term quickly and profitably. Pursuant
to the Company's current financing arrangements, at the end of a lease term the
Company owns the automobile. The Company does not currently do repairs on the
returned vehicles and attempts to sell such vehicles immediately upon their
return. In the event the market for used automobiles decreases, the models or
conditions of the vehicles returned to the Company decrease their resale value
or vehicles are returned pursuant to defaults in the lease agreements, such
events may adversely affect the Company's business and profitability. See
"Business - Leasing, Maintenance and Resale."
6. Foreign Currency and Foreign Exchange Regulation. Fluctuations in
exchange rates of the English Pound against foreign currencies could adversely
affect the Company's results of operations. The Company intends to convert the
net proceeds of this Offering (exclusive of funds being repaid to private U.S.
investors) into pounds immediately upon consummation of the Offering. The
Company will experience the risk of currency fluctuations with respect to the
conversion of dollars into pounds. In the event that the conversion rate of
dollars into pounds decreases, the Company will receive less proceeds than
expected. Similarly, in the event that the Company issues cash dividends in the
future, the proceeds of such dividend will be subject to the risk of currency
fluctuations.
7. Government Regulation. The Company is subject to regulation by the
United Kingdom Department of Trade and Industry (the "Department of Trade"). The
Department of Trade establishes
11
<PAGE>
general rules and regulations with respect to the operation of a business in the
United Kingdom. The Department of Trade has not established any regulations or
licensing requirements specifically regulating the leasing of automobiles to
companies. There is no license required for a company to lease automobiles to a
company. There can be no assurances that such will be the case in the future or
that if licensing or other forms of regulation is required in order to engage in
the Company's business that it will be successful in obtaining such licenses or
in meeting the requirements of such regulations. In addition, the Company must
comply with a wide range of national, regional and local rules and regulations
applicable to its business, including regulations covering labor relations,
safety standards, affirmative action and the protection of the environment.
Continued compliance with the broad regulatory network of the United Kingdom is
essential and costly and the failure to comply with such regulations may have an
adverse effect on the Company's operations. See "Business - Government
Regulations."
8. Control by Management and Alan Lubinsky. Upon the sale of the
Securities offered hereby, Mr. Lubinsky will have voting control of
approximately 39.3% of the outstanding shares of Common Stock by virtue of his
family's trust ownership of approximately 65% of Pride which prior to the
Offering owned 53.2% of the Company. The trustee is Elfin Trust Company Limited,
located on the Island of Guernsey, Channel Islands. Although Mr. Lubinsky
disclaims beneficial ownership of the shares of Pride owned by New World
Finance, Limited, which company is wholly owned by New World Trust, the
beneficiaries of which are members of Mr. Lubinsky's family, it may be expected
that such entity will vote its respective shares in favor of proposals espoused
by Mr. Lubinsky. Accordingly, Mr. Lubinsky through his family, will in all
likelihood be able to elect the entire board of directors of the Company and to
direct the affairs of the Company. See "Management" and "Principal and Selling
Securityholders."
9. Conflicts of Interest. Mr. Lubinsky is an officer and director of
the Company, Pride, AC, PMS and each of PMS's subsidiaries. There may arise
conflicts of interest with respect to matters concerning the Company and such
other entities. Although no specific measures to resolve conflicts of interest
have been formulated, the officers and directors of the Company have a fiduciary
obligation to deal fairly and in good faith with the Company. The directors
intend to exercise reasonable judgment and take such steps as they deem
necessary under all of the circumstances in resolving any specific conflict of
interest which may occur and will determine what, if any, specific measures,
such as retention of an independent advisor, independent counsel or special
committee, may be necessary or appropriate. There can be no assurance that the
Company will employ any of such measures or that conflicts of interest will be
resolved in the best interest of the stockholders of the Company. See
"Management" and "Certain Relationships and Related Transactions."
10. Dependence on Management. The Company is dependent upon the
personal efforts and abilities of Alan Lubinsky, the President, Secretary and
Chairman of the Board of Directors of the Company, Pride, AC and PMS. Pursuant
to the terms of his employment agreement, Mr. Lubinsky will devote all of his
business time to the affairs of the Company and its subsidiaries. The loss of
the services of Mr. Lubinsky would adversely affect the business of the Company.
Although PMS has a key-man insurance policy of $750,000 on the life of Mr.
Lubinsky, neither the Company nor AC currently have any such policy and have no
current intent to obtain any such insurance. See "Management."
12
<PAGE>
11. Non-U.S. Resident Management May Result in Special Risks. Alan
Lubinsky, Allan Edgar and Ivan Averbuch, the officers and directors of the
Company, are residents of England and are not residents of the United States.
Accordingly, the enforcement of civil liabilities against Mr. Lubinsky, Mr.
Edgar or Mr. Averbuch by investors may be adversely affected. Investors may have
difficulty effecting service of process within the United States and judgments
against Mr. Lubinsky, Mr. Edgar or Mr. Averbuch in United States courts may be
difficult or impossible to enforce. In addition, there can be no assurance that
foreign courts would enforce such judgments, either predicated upon the civil
liability provisions of the federal securities laws or otherwise.
12. Immediate Substantial Dilution. The purchasers of the Securities
offered hereby will incur immediate substantial dilution from their purchase
price in the net tangible book value of each share of Common Stock of
approximately $3.75 per share or 75% of their initial investment. The present
stockholders of the Company will own approximately 73.9% of the Company's
outstanding shares of Common Stock upon completion of this Offering and will
realize an immediate increase in the net tangible book value of their shares of
approximately $1.01 per share. Accordingly, Pride will be the primary
beneficiary of this Offering. If the Company's future operations are
unsuccessful, the persons who purchased the Securities offered hereby will
sustain the principal losses. See "Use of Proceeds," "Certain Relationships and
Related Transactions," "Dilution" and Note 11 of Notes to the Financial
Statements.
13. Possible Future Dilution. The Company has authorized capital stock
of 10,000,000 shares of Common Stock, par value $.001 per share and 2,000,000
shares of Preferred Stock, none of which have been issued. Inasmuch as the
Company may use authorized but unissued shares of Preferred Stock or issue
shares of Preferred Stock which are convertible into shares of Common Stock,
without stockholder approval, there may be further dilution of the stockholders'
interests. See "Description of Securities."
14. No Dividends and None Anticipated. To date, the Company has not
paid any cash dividends on its Common Stock and does not expect to declare or
pay any cash or other dividends in the foreseeable future. The Company
anticipates that any profits from operations will be reinvested in the Company.
See "Dividend Policy."
15. Authorization of Preferred Stock. The Company's certificate of
incorporation authorizes the issuance of 2,000,000 shares of preferred stock,
$.01 par value, which shares may be issued in classes and series, pursuant to
the rights, designations and preferences as determined by the board of
directors. Accordingly, the board of directors is empowered, without obtaining
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting power
or other rights of the holders of the Common Stock. In the event of issuance,
the preferred stock could be utilized, under certain circumstances, as a method
of discouraging, delaying, or preventing a change in the control of the Company.
See "Description of Securities - Common Stock."
16. Arbitrary Determination of Offering Price. The offering price of
the shares of Common Stock have been determined by negotiations between the
Company and the Underwriter on an arbitrary basis and bears no direct
relationship to the assets, earnings or any other recognized criteria of value.
13
<PAGE>
Factors considered in determining such prices, in addition to prevailing market
conditions and the current price of the Company's Common Stock, included the
history of and the business prospects for the Company, an assessment of the net
worth and financial condition of the Company, an evaluation of management and
the general economic climate of the United Kingdom. The prices should in no
event, however, be regarded as an indication of any future market price of the
Common Stock. Prior to this Offering, there has been only a limited public
market for the Common Stock. See "Dilution" and "Underwriting."
17. Limited Public Market for the Securities. At present, only a
limited public market exists for the Company's Common Stock and Warrants. There
is no assurance that a regular trading market will develop at the conclusion of
this Offering, or if one does develop, that it will be sustained. Therefore,
purchasers of the Securities offered herein may be unable to resell said
Securities at or near their original offering price or at any price.
Furthermore, it is unlikely that a lending institution will accept the Company's
securities as pledged collateral for loans even if a regular trading market
develops.
18. Shares Available for Resale.
Of the 2,837,500 shares of the Company's Common Stock outstanding,
1,560,000 shares were issued in March 1995. All of such shares were issued as
"restricted securities" which may be sold upon compliance with Rule 144 adopted
under the Securities Act, or any other exemption from the registration
requirements of the Securities Act. 500,000 shares of Common Stock were issued
in the Company's Private Placement in December 1995, all of which were
registered and sold in the Company's initial public offering in April 1996.
185,000 shares of the Company's Common Stock were issued in the Company's
Private Placement of December 1996. All 185,000 shares issued in the December
Private Placement are being registered in this offering and may be sold from
time to time by the Selling Securityholders.
Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of two years may sell every three months in brokerage
transactions an amount equal to the greater of: (a) one percent of the Company's
outstanding shares of Common Stock; (b) the average weekly reported volume of
trading for the securities on all national exchanges and/or through the
automated quotation system of a registered securities association during the
four calendar week period preceding each transaction; or (c) the average weekly
trading volume in the securities reported through the consolidated transaction
reporting system during the four calendar week period. Rule 144 also requires
that current information about the securities must be available to stockholders
and brokers.
Therefore, after taking into account the shares to be sold in this
Offering (and without giving effect to any shares of Common Stock which may be
issued upon exercise of the Warrants) in each three-month period commencing
January 1998, at least 38,175 (39,675 shares if the Underwriters' Over-allotment
option is exercised in full) shares may be publicly sold under Rule 144 by each
holder of "restricted securities" who has held such shares for at least one
year.
Persons who are not "affiliates" of the Company, as that term is
defined under the Securities Act, who have been non-affiliates for the 90 days
immediately preceding the sale, and who have owned their
14
<PAGE>
shares for a period of at least two years, may sell such shares without
limitation. Giving effect to the sale of 1,000,000 shares of Common Stock by the
Company, the Company will have issued and outstanding 3,837,500 shares of its
Common Stock, of which 1,500,000 shares will be "restricted securities." All
1,500,000 of said shares of Common Stock became eligible for resale under Rule
144 in March 1997. Investors should be aware that the possibility of such sales
under Rule 144 will in all probability have a depressive effect on the price of
the Company's Common Stock in any market which may develop. See "Shares Eligible
for Future Sales."
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Securityholders, have agreed to "lock-up" and
not sell, publicly, privately or otherwise dispose of any shares of Common Stock
for a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of the Underwriter.
19. Possible Delisting of Securities from Nasdaq System; Risks of Low
Priced Stocks. The Commission has approved rules imposing more stringent
criteria for listing of the Securities on the Nasdaq SmallCap Stock Market
("Nasdaq"). In order to continue to be listed on the Nasdaq the Company would be
required to maintain (i) net tangible assets of at least $2,000,000, or market
capitalization of $35,000,000 or $500,000 in net income for two of the last
three years (ii) total stockholders' equity of $1,000,000, (iii) a minimum bid
price of $1.00, (iv) two market makers, (v) 300 stockholders, (vi) at least
500,000 shares in the public float, (vii) a minimum market value for the public
float of $1,000,000 and (viii) compliance with the Corporate Governance
Standards. In the event the Company's Securities are delisted from the Nasdaq,
and not traded on the Boston Stock Exchange ("BSE") or other exchange, trading,
if any, in Securities would thereafter be conducted in the over-the-counter
market on the OTC Bulletin Board. Consequently, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the price of the
Company's Securities. The Company has applied for the additional listing of its
Securities on Nasdaq and the BSE. Quotation on Nasdaq and/or the BSE does not
imply that a meaningful, sustained market for the Company's Securities will
develop or if developed that it will be sustained for any period of time.
In December 1997, the Company was notified by Nasdaq that it in danger
of falling out of compliance with Nasdaq's continued listing requirements.
Specifically, the Company was advised that its net tangible assets were below
the minimum prescribed amount and that the Company needed to add an additional
independent director. The Company was advised that it had until February 24,
1998 to correct these deficiencies. The Company believes that it will be in
conformity with the Nasdaq continued listing requirements in a timely fashion.
Specifically, the Company believes that it will meet the net tangible assets
requirement with the proceeds from this Offering. Additionally, the Company is
in the process of selecting an additional independent director and expects that
it will have one in place prior to the date prescribed by Nasdaq. Should the
Company fail to correct the deficiencies cited by Nasdaq, the Company may be
adversely affected and could be delisted from Nasdaq.
If the Company's securities were subject to the existing or proposed
regulations on penny stocks, the market liquidity for the Company's Securities
could be severely and adversely affected by limiting
15
<PAGE>
the ability of broker/dealers to sell the Company's Securities and the ability
of purchasers in this Offering to sell their securities in the secondary market.
20. Penny Stock Regulation. Broker/dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission. Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker/dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker/dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker/dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker/dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for a stock that becomes subject to the penny
stock rules. If the Company's Securities become subject to the penny stock
rules, investors in this Offering may find it more difficult to sell their
Securities.
21. Underwriters' Warrants. The Underwriters will acquire, for nominal
consideration, the Underwriters' Warrants to purchase 100,000 shares of Common
at price of $6.00 per share (assuming the offering price is $5.00 per share)
during the four year period commencing one year from the date of this
Prospectus. The Securities issuable upon exercise by the Underwriters of the
Underwriters' Warrants are identical to the Securities being offered hereby. The
Company has agreed to register the Underwriters' Warrants and the underlying
securities at its expense, one time only, upon request of holders of a majority
of the Underwriters' Warrants or underlying securities. In addition, the Company
has agreed, for a period of seven years following the date of this Prospectus,
to give advance notice to the holders of the Underwriters' Warrants or
underlying securities of its intention to file a registration statement, and in
such case the holders of the Underwriters' Warrants and underlying securities
shall have the right to require the Company to include the Underwriters'
Warrants and underlying securities in such registration statement at the
Company's expense. These obligations could be a hindrance to any future
financing of the Company. Furthermore, in the event the Underwriters exercise
their registration rights to effect the distribution of the Common Stock
underlying the Underwriters' Warrants, the Underwriters and any holder of such
Warrants who is a market maker in the Company's Securities, prior to such
distribution, will be unable to make a market in the Company's Securities for up
to a period upto days prior to the commencement of such distribution and until
such distribution is completed. If the Underwriters cease to make a market, the
market and market prices for the Securities may be adversely affected, and the
holders thereof may be unable to sell such Securities. See "Underwriting."
22. Underwriters' Possible Ability to Dominate or Influence the Market
for the Securities. A significant number of the Securities offered in the
Offering may be sold to customers of the Underwriters. Such customers
subsequently may engage in transactions for the sale or purchase of the
16
<PAGE>
Securities through or with the Underwriters. Although they have no
obligation to do so, all or any individual Underwriter may exert a dominating
influence on the market, if one develops, for the Company's Securities. The
price, liquidity and price volatility of the Company's Securities may be
significantly affected by the degree, if any, of an Underwriter's participation
in such market. See "Underwriting."
23. Limited Experience of Underwriters. Mason Hill & Co., Inc., has
previously completed two public offerings inclusive of the Company's initial
public offering. The Underwriter is a relatively small firm and there can be no
assurance that it will be able to make a meaningful market in the Company's
Securities or that another broker/dealer will make a meaningful market in the
Company's Securities. See "Underwriting."
24. Indemnification of Officers and Directors. The Certificate of
Incorporation of the Company provides indemnification to the fullest extent
permitted by Delaware law for any person whom the Company may indemnify
thereunder, including directors, officers, employees and agents of the Company.
In addition, the Certificate of Incorporation, as permitted under the Delaware
General Corporation Law, eliminates the personal liability of the directors to
the Company or any of its stockholders for damages for breaches of their
fiduciary duty as directors. As a result of the inclusion of such provision,
stockholders may be unable to recover damages against directors for actions
taken by them which constitute negligence or gross negligence or that are in
violation of their fiduciary duties. The inclusion of this provision in the
Company's Certificate of Incorporation may reduce the likelihood of derivative
litigation against directors and other types of stockholder litigation, even
though such action, if successful, might otherwise benefit the Company and its
stockholders. See "Management."
Risks related to the business of AC Cars Group Limited
25. Dependence on Retention of AC Employees. Since its acquisition of
AC Cars, AC has attempted to retain most if not all of the former employees of
AC Cars, however, there can be no assurance that any or all of such employees
will continue to work for AC. If some or all of the former employees of AC Cars
refuse to work for AC, there can be no assurance that it will be able to locate
or attract personnel with the requisite talent and skills necessary to build,
manage, engineer and/or market AC automobiles. In addition, if the Company
decides to move the current manufacturing facilities of AC, there can be no
assurance that any employees of AC will relocate. See "Properties" and
"Business."
26. Limited Market for AC Automobiles; Low Production Manufacturer. The
market for AC automobiles is limited to a select group of purchasers. AC
automobiles are typically purchased by successful business and professional
individuals. Accordingly, the Company is dependent on a small, affluent segment
of the population to purchase its products. If this segment should alter its
interests or spending habits, if the economy or tax laws are such that these
persons or entities are negatively impacted, either financially or otherwise,
the Company may be unable to sell a sufficient number of automobiles, if any, to
continue in operation. See "Business."
27. Product Liability Claims; Insurance. As a result of the purchase of
AC, the Company will face the inherent business risk of exposure to product
liability claims as a manufacturer of new
17
<PAGE>
automobiles. At present, AC maintains product liability insurance through Lloyds
of London. The limit of the indemnity is (pound)2,000,000 for each instance.
Although the Company has procured this insurance policy, there can be no
assurance that it will be able to maintain such insurance, that such insurance
will be sufficient to cover claims, if any, or that such insurance will continue
to be available at commercially reasonable terms. If the Company is unable to
maintain products liability insurance for the automobiles that it manufactures,
it would adversely affect the business of the Company and could potentially
cause it to discontinue operations. See "Business."
28. Regulation. As a manufacturer of automobiles, AC is subject to
regulation by the Vehicle Certification Agency (VCA). The VCA prescribes
standards for the safe manufacturing of automobiles for sale in the United
Kingdom. The costs of compliance with these requirements are significant. AC
will be subject to inspections by the VCA and may be subjected to fines and
other penalties (including orders to cease production) for noncompliance with
VCA regulations. The failure of AC to adhere to the standards prescribed by the
VCA could have a material adverse affect on AC's ability to continue its
operations. See "Business - Governmental Regulation."
29. Lack of Experience of Current Management in Operation of Automobile
Manufacturing. Management of the Company and AC do not have any prior experience
in the manufacturing of automobiles. Management will be dependent on employees
and consultants to render advise on modifying, improving and manufacturing
automobiles for AC. The lack of experience in manufacturing automobile could
adversely affect AC and the Company.
30. Competition. AC is a low volume, specialty manufacturer which
manufacture a limited number of hand made, relatively expensive, sports cars. AC
is in direct competition with other well financed manufacturers such as Mercedes
Benz, BMW, Aston Martin, as well as others. All aspects of AC's business are and
will continue to be highly competitive. AC will compete in a mature marketplace
which is well established and heavily capitalized. Most of the entities with
which AC will compete have substantially greater sales, personnel and financial
resources than that of AC. Moreover, there can be no assurance that other
companies will not enter the marketplace or that other companies will not
produce products superior to AC's. See "Competition."
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock and intends
to retain earnings, if any, for use in its activities. Payment of cash dividends
in the future will be wholly dependent upon the Company's earnings, financial
condition, capital requirements and other factors deemed relevant by the board
of directors. It is not likely that cash dividends or other dividends will be
paid in the foreseeable future.
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<PAGE>
DILUTION
As of January 5, 1998, there were outstanding 2,837,500 shares of the
Company's Common Stock. The Company's Common Stock prior as of August 31, 1997
had a net tangible book value per share of approximately $.24, based upon a
total of 2,837,500 shares issued and outstanding. Net tangible book value per
share represents the amount by which the Company's total tangible assets exceed
its total liabilities, divided by the number of shares of its Common Stock
outstanding.
After giving effect to the sale of the 1,000,000 shares of Common Stock
by the Company, offered hereby and the application of the net proceeds therefrom
(after deducting estimated underwriting discounts and commissions and other
expenses of the Offering) there would be outstanding a total of 3,837,500 shares
of the Company's Common Stock with a net tangible book value per share of
approximately $1.25. This would represent an immediate increase in net tangible
book value of $1.01 per share to existing stockholders and an immediate dilution
of $3.75 or 75% of the offering price per share to new investors. Dilution is
determined by subtracting net tangible book value per share after the Offering
from the amount paid by new investors per share of Common Stock.
<TABLE>
<CAPTION>
The following table illustrates the per share dilution:
<S> <C>
Public offering price per share (1) $5.00
Net tangible book value per share prior to this offering $0.24
Increase attributable to new investors(2) $1.01
Net tangible book value per share after this Offering $1.25
-----
Dilution per share to new investors $3.75
=====
</TABLE>
(1) Assumes the offering price is $5.00 per share.
(2) Does not include funds which may be received upon exercise of the
Underwriters' Warrants or the Underwriters' Over- allotment Option.
19
<PAGE>
The following table sets forth at January 5, 1998 the difference
between the existing stockholders and the new investors with respect to the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the price per share paid.
<TABLE>
<CAPTION>
Shares Total Average
Purchased Consideration Paid Consideration Paid
Number Percent Amount Percent Per Share
Existing
<S> <C> <C> <C> <C> <C>
Stockholders 2,837,500 (1) 73.9% $13,402,589 72.8% $4.72
New
Investors 1,000,000 (2) 26.1% $5,000,000 27.2% $5.00 (3)
--------- ----- ---------- ------
3,837,500 100% $18,402,589 100.0%
========= ==== =========== =======
</TABLE>
(1) Includes 1,500,000 shares owned by Pride pursuant to the
Reorganization, 60,000 shares of Common Stock issued in March 1995 and
500,000 shares of Common Stock issued in the December 1995 Private
Placement and 185,000 shares issued in the December 1996 Private
Placement. See "Capitalization" and "Certain Relationships and Related
Transactions."
(2) No effect is given to the possible exercise of (i) the Underwriters'
Warrants to purchase 100,000 shares of Common Stock or (ii) the
Underwriters' Over-allotment Option, to purchase from the Company
150,000 shares of Common Stock.
(3) The Company anticipates that the offering price will be $5.00 per share.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby after deducting underwriting discounts and estimated expenses of the
Offering payable by the Company, which have been estimated at $900,000 ($997,500
if the Underwriters' Over-allotment Option is exercised in full) is $4,100,000
($4,752,500 if the Underwriters' Over-allotment Option is exercised in full).
The net proceeds of this Offering are intended to be used as follows:
<TABLE>
<CAPTION>
Percent of
Use of Proceeds Amount of Proceeds Net Proceeds
<S> <C> <C>
Repayment of Notes (1) $1,757,500 42.9%
Repayment of Lines of Credit to Bank (1)(2) $2,342,500 57.1%
Total $4,100,000 100.0%
======
</TABLE>
(1) See "Business - Financing and Collections."
(2) The Company intends to use whatever proceeds are remaining after the
Notes to pay down existing credit lines, which as at January 9, 1998
aggregated (pound)3,250,000 ($5,200,000) to the banks. Given this, the
Company may need to draw upon its lines of credit for working capital
in the future.
The Company believes that the proceeds of this Offering will be
sufficient to meet its anticipated cash requirements for the 12 months
subsequent to the closing of this Offering. It is not anticipated that the
Company will be required to raise any additional capital within the next twelve
months. If for any reason such estimates prove inaccurate, the Company may be
forced to seek additional financing. There can be no assurances that such
financing will be available, and if available, that it will be on terms
acceptable to the Company. None of the proceeds of this Offering will be paid to
members of the National Association of Securities Dealers, Inc. (the "NASD") or
associates or affiliates thereof, except for the proceeds being paid to the
Underwriters as described in this Prospectus. See "Underwriting."
Any additional proceeds received from the purchase of additional
securities by the Underwriters to cover over-allotments, will be added to the
Company's working capital. In the event the Underwriters exercise the
Underwriters' Over-allotment Option in full, the net proceeds to the Company
would be approximately $4,752,500. No proceeds from this Offering will be paid
to any officer or director of the Company, or affiliates or associates for
expenses of the Offering or for any type of fee or remuneration except. A
portion of the proceeds may be used to pay salaries in the event the Company's
income from operations does not meet its cash requirements. The Company will not
make any loans to any officer, director, affiliate or associate with the
proceeds of the Offering.
21
<PAGE>
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
August 31, 1997 and (ii) such capitalization as adjusted to reflect the sale of
1,000,000 shares of Common Stock in this Offering and the application of the net
proceeds thereof.
<TABLE>
<CAPTION>
As
Actual Adjusted(1)
<S> <C> <C>
Bank Debt (2) $948,782 $948,782
-------- --------
Bank Line of Credit (2) 5,972,743 3,722,743
Stockholders' Equity: 4,274,500 2,424,500
Preferred Stock, $.01 par value,
2,000,000 shares authorized, none
issued or outstanding -- --
Common Stock, $.001 par value,
10,000,000 shares authorized;
issued and outstanding, 2,837,500
shares at August 31, 1997, 3,837,500
shares as adjusted 2,838 3,838
Additional Paid-In Capital 13,399,751 17,498,751
Retained Earnings (deficit) (3,138,333) (3,138,333)
Foreign Currency Translation
Total Stockholders' Equity (334,360) (334,360)
----------- -----------
Total Capitalization 9,929,896 14,029,896
----------- -----------
$21,125,921 $21,125,921
=========== ===========
</TABLE>
(1) Does not include (i) 2,000,000 shares of Common Stock reserved for
issuance upon the exercise of the Warrants, (ii) 150,000 shares of Common Stock
issuable upon the exercise of the Underwriters' Over-allotment Option, (iii)
100,000 shares of Common Stock reserved for issuance upon the exercise of the
Underwriters' Warrants and (iv) 300,000 shares of Common Stock reserved for
issuance under the Company's Senior Management Incentive Plan, of which an
option to purchase 160,528 shares have been granted by the Company.
(2) Does not include additional liabilities reflected on the balance sheet
of approximately $22,849,778 which consists of accounts payable, equipment
financing, loans payable-directors, bank overdrafts and miscellaneous
liabilities.
22
<PAGE>
MARKET FOR COMMON EQUITY
The Company's Common Stock is currently quoted on the Nasdaq SmallCap
Stock Market. The following table sets forth representative high and low closing
bid quotes as reported by a market maker during the periods stated below. Bid
quotations reflect prices between dealers, do not include resale mark-ups,
mark-downs, or other fees or commissions, and do not necessarily represent
transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
Calendar Period Low High Low High
1996
<S> <C> <C> <C> <C>
4/24/96 to 5/31/96 7 1/2 8 1/4 3 4 1/8
6/1/96 to 8/31/96 8 8 1/8 2 7/8 4
9/1/95 to 11/30/96 5 6 7/8 1 1/8 1 1/2
12/1/96 to 2/1/96 1 3/4 4 11/16 5/16 1 1/2
1997
03/01/97 - 05/31/97 2 2 1/2 5/16 5/8
06/01/97 - 08/31/97 1 1/4 2 5/16 5/16 3/8
09/01/97 - 11/30/97 2 1/4 3 1/2 13/32 13/32
12/01/97 - 01/09/98 2 7/8 3 1/2 5/32 13/32
</TABLE>
(1) The Company effected an initial public offering of its Common Stock and
Warrants on April 24, 1996.
As of January 9, 1998, there were 32 holders of record of the Company's
Common Stock, although the Company believes that there are approximately 1,000
additional beneficial owners of shares of Common Stock held in street name. As
of January 9, 1998, the number of outstanding shares of the Company's Common
Stock was 2,837,500.
As of January 9, 1998, there were 9 holders of the Company's Warrants,
although the Company believes that there are approximately 400 additional
beneficial owners of the Company's Warrants held in street name. As of January
9, 1998, the number of outstanding Warrants was 2,300,000.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 Inc.
("Pride") and PMS a wholly-owned subsidiary of the Company. PMS is the holding
company for nine wholly-owned subsidiaries, operating as one unit, located in
the United Kingdom. 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 acquisitions 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.
In December 1995, Pride Automotive Group, Inc. consummated a private
placement offering of common stock of 500,000 shares, which reduced Pride's
ownership interest to 72.8%. In April 1996, Pride Automotive Group, Inc.
completed an initial public offering of 592,500 shares of common stock at $5.00
per share and 2,000,000 redeemable common stock warrants at a price of $.10
each. The effect of the offering was to reduce Pride's ownership interest to
56.55%.
On November 29, 1996, the Company, through its newly formed, 70%, 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 Autocraft Limited. These two companies
were engaged in the manufacture and sale of specialty automobiles. The purchase
price of approximately $6,067,000 was financed with the proceeds of a private
offering of the Company's common stock and by loans. Fixed assets recorded as a
result of this acquisition aggregated $3,038,182. In April 1997, the Company,
through the services of an independent third-party expert, determined that the
value of such fixed assets acquired was actually $6,643,365 at the date of
acquisition. A portion of this increase ($1,990,215) was previously reflected as
an intangible asset, and has been reclassified. The balance of the increase of
$1,614,968, recorded as negative goodwill, has been offset against non-current
assets acquired. The balance sheet as of November 30, 1996 (year end) included
herein has therefore been restated to reflect this corrected valuation as
follows: Fixed Assets has been increased by $1,990,215 and Intangible Assets has
been reduced by $1,990,215. In addition, financial statements for the year ended
November 30, 1996 have been restated to correct an error in the method by which
the Company was reflecting the minority shareholders' interest in AC Automotive
Group, Inc. The effect of this restatement was to increase the minority interest
liability and decrease additional paid-in capital as of November 30, 1996 in the
amount of $482,486. The Company has filed an amended Form 10-KSB with the
Securities and Exchange Commission to reflect such restatements. Due to
operating losses of AC Automotive Group, the minority interest in its common
stock has been written down to zero as of August 31, 1997.
24
<PAGE>
The financial information presented herein includes: (i) Consolidated
Condensed Balance Sheets as of August 31, 1997 and November 30, 1996 (as
restated); (ii) Consolidated Condensed Statements of Operations for the Nine and
Three Month Periods Ended August 31, 1997 and 1996 and (iii) Consolidated
Condensed Statements of Cash Flows for the Nine Month Periods Ended August 31,
1997 and 1996.
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.
(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.
25
<PAGE>
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.
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.
26
<PAGE>
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).
Results of Operations - Nine months ended August 31, 1997 and 1996
Contract Hire/Fleet Management:
Revenues increased by $826,486 when comparing the three months period
August 31, 1997 to the three months ended August 31, 1996. The primary reason
for this 27% increase was due to an increase in revenues from contract hire,
sale of vehicles at lease maturity and the selling of vehicles at low margins to
take advantage of dealer bonuses. During this quarter, 168 new contracts were
written at an average rental of $582 per vehicle compared with 102 contracts in
the corresponding period in 1996 at an average rental of $663 per vehicle. The
average monthly rental is dependent on the type of vehicle being rented and the
terms of the contract. During this quarter, 32 vehicles were disposed of on
termination of contracts at an average profit of $1,076 per vehicle. During the
same quarter in 1996, 30 vehicles were disposed of at an average profit of
$2,276 per vehicle.
For the nine month period August 31, 1997, revenues increased by $3,299,075
or 40%, when compared to the same period in 1996. The primary reason for this
increase was due to an increase in revenues from contract hire, sale of vehicles
at lease maturity and the selling of vehicles at low margins to take advantage
of dealer bonuses. During this period, 403 new contracts were written at an
average rental of $572 per vehicle compared with 235 contracts in the
corresponding period in 1996 at an average rental of $574 per vehicle. For the
nine month period ending August 31, 1997, 92 vehicles were disposed of on
termination of contracts at an average profit of $2,106 per vehicle compared
with 76 vehicles being disposed of in the corresponding period in 1996 at an
average profit of $2,616 per vehicle. As of August 31, 1997, 1,654 vehicles were
under lease and management compared to 1,299 vehicles as at August 31, 1996.
Cost of sales (including depreciation) as a percent of revenue remained
constant at 80% when comparing the three months ended August 31, 1997 and 1996.
Cost of sales as a percent of revenue increased marginally from 77% to 78% when
comparing the nine month periods ending August 31, 1997 and 1996.
General and administrative expenses decreased by $65,817 when comparing the
three month periods ended August 31, 1997 and 1996. For the nine month period
ending August 31, 1997, compared to the same period in the prior year, general
and administrative expenses increased marginally by $12,040 which indicates that
despite the 40% growth in business general and administrative expenses are being
kept under control.
Interest expense increased by 58% and 44% for the three month and nine
month periods ending August 31, 1997 and 1996, respectively. This increase is in
line with the increase in new contracts written and associated increase in
funding of vehicles.
27
<PAGE>
AC Cars
The Company, on November 29, 1996, through its newly formed 70% owned
subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car
Group Limited, completed the acquisition of certain assets of AC Cars Limited
and Autocraft Limited. These two companies are engaged in the manufacture and
sale of sports cars among which the famous AC Cobra sells for approximately
$100,000.
Since the Company did not own AC Cars during the prior year, the discussion
below represents the current quarter as compared to the previous quarter of the
current year.
The Company acquired the business out of administrative receivership and
for most of the year has devoted most of its resources to resurrecting
operations. This has involved upgrading of production facilities, improving
efficiency, appointing new dealerships, installing systems and controls and
appointing new management where necessary. New dealerships have been appointed
in the United Kingdom and a distributor has also been appointed in Australia.
The Company has embarked on a program to bring the new AC Ace sports car into
production in the last quarter of 1997, and has incurred research and
development costs associated with such planned production.
For the three-month period ended August 31, 1997, these operations reported
a loss of $827,139. Revenues for the period were $290,178 compared with $359,657
for the previous quarter. Included in revenues is a profit of $184,936 related
to the sale of an option on the property. Cost of sales amounted to $50,381
compared with $269,794 for the previous quarter. General and administrative
expenses increased from $397,342 to $477,966 when comparing the quarters ended
May 31 and August 31, 1997. The main reason for the increase is due to an
increase in factory overheads over the last quarter. Interest charges amounted
to $100,612 compared with $107,581 for the first quarter.
Research and development costs incurred relate to the manufacture and
distribution of the AC Cobra and AC Ace cars. These costs amounted to $377,244
and $232,010 for the three months ended August 31, and May 31, 1997,
respectively.
The shortfall in the working capital requirements of AC Cars has been
funded by the contract hire operations which have obtained increased bank lines
of credit for this purpose. This will continue in the future until AC Cars is
self supportive and able to fund its own working capital requirements. The
repayment of the monies owed to the contract hire operations will be funded out
of proceeds of vehicle sales.
Consolidated
For the three months ended August 31, 1997, the Company reported a loss of
$741,259 before amortization and minority interests, as compared to a profit of
$6,368 for the same period in 1996. The quarter loss comprises a loss of
$826,524 before amortization and minority interests in AC Cars, a profit of
$131,140 in the contract hire operations before amortization, and a loss in the
Holding Company of $45,875.
For the nine-month period ended August 31, 1997, the Company reported a
loss of $1,746,753 before amortization and minority interests as compared to a
profit of $135,431 for the same period in 1996. The loss comprises a loss of
$2,159,177 before amortization and minority interests in AC Cars and a profit
before goodwill amortization of $509,079 in the contract hire operations and a
loss in the Holding Company of $96,655, which is mainly due to interest accrued
on the acquisition loan of $1,850,000.
28
<PAGE>
Liquidity and Capital Resources
In 1997, the Company completed a private placement of 18.5 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
proceeds have been used to satisfy a portion of the debt owed for the
acquisition of AC Car Group Limited.
The Company acquires new vehicles as required. There are no material
planned capital expenditures at the present time.
Other
Except for historical information contained herein, the matters set forth
above may be forward-looking statements that involve certain risks and
uncertainties that could cause actual results to differ from those in the
forward-looking statements. Potential risks and uncertainties include such
factors as the level of business and consumer spending in the Company's
industry, the competitive environment, the ability of the Company to expand its
operations, the level of costs incurred in connection with the Company's
expansion efforts and economic conditions. Investors are also directed to
consider other risks and uncertainties discussed in documents filed by the
Company with the Securities and Exchange Commission. 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.
29
<PAGE>
BUSINESS
History
Pride Automotive Group, Inc., a Delaware corporation (the "Company") was
formed by Pride, Inc. ("Pride"), in March 1995 for the purpose of acquiring all
of the outstanding shares of common stock of Pride Management Services, Plc., an
English corporation ("PMS"), which has been accounted for as a "Reorganization."
Prior to the Reorganization, PMS was a wholly owned subsidiary of Pride.
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 products such as clothing and sports related equipment. At such time
L.H.M. Corp. changed its name to ISI. ISI never engaged in any business
operations. In November 1992, the Company effected a 1 for 200 reverse split of
its issued and outstanding shares of Common Stock. In January 1994, ISI entered
into an Agreement and Plan of Reorganization with Pride Management Services,
Plc. ("PMS"), an English corporation, 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 (Pty)
Limited ("WI"), a South African company, which was formed in March 1995. WI was
formed for the purpose of obtaining a 24% interest in Masonic Motors, an
automobile dealership in South Africa, which WI subsequently sold in September
1995. WI is an import and export company, which had minimal revenues from
operations in fiscal 1996 and no revenues from operations in fiscal 1995.
Pursuant to the terms and conditions of the Reorganization in March 1995,
between the Company, PMS and Pride, the Company issued 1,500,000 shares of its
Common Stock to Pride in exchange for all of the issued and outstanding shares
of PMS. In connection with the Reorganization and formation of the Company, PMS
became a wholly owned subsidiary of the Company which, prior to the Company's
initial public offering, was approximately 72.8% owned by Pride. PMS is a
holding company which has six wholly owned subsidiaries which engage in the
Company's operations. PMS's wholly-owned subsidiaries include; 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. These companies operate as one unit, with the same
management and facilities. Unless the context otherwise requires, all references
to the "Company" are to its wholly owned subsidiary, PMS and PMS's six wholly
owned subsidiaries. See "--Subsidiaries."
Public Offering of Pride Automotive Group, Inc.
In April 1996, the Company completed an underwritten initial public
offering of its securities. The securities were registered with the Securities
and Exchange Commission ("SEC") pursuant to a registration statement on Form
SB-2. The initial public offering was declared effective by the SEC on April 24,
1996. In the offering, the Company sold 592,500 shares of its common stock to
the public at
30
<PAGE>
a price of $5.00 per share and 2,300,000 redeemable common stock purchase
warrants at a price of $.10 per warrant. The warrants are exercisable at a price
of $5.75 per share, subject to adjustment, beginning April 24, 1997 and expiring
April 23, 2001. In connection therewith, the Company also granted to the
underwriters of the offering, Mason Hill & Co., Inc. and the Thornwater Group,
Inc., warrants to purchase an aggregate of 95,000 shares of the Company's common
stock at a purchase price of $7.50 and 200,000 redeemable common stock purchase
warrants at a price of $0.15 per warrant, each warrant exercisable to purchase
one share of common stock at a purchase price of $7.50 per share. Other than
with respect to the exercise price, the terms of the warrants granted to the
underwriter are identical to those described above. The Company's securities are
currently traded on the Nasdaq SmallCap Stock Market and the Boston Stock
Exchange, Inc.
Business of Pride Management Services, Plc.
The Company engages 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. The Company's business strategy is
to (i) provide personal and attentive service to its clientele, (ii) lease
primarily to high-quality credit applicants in order to continue to build a
lease portfolio with low delinquency and credit loss rates, (iii) finance its
lease portfolio with competitive credit terms and (iv) manage its residual risk
relating to the Company's resale of automobiles after the expiration of the
lease term. The leasing, financing and servicing of the vehicles is described as
a "contract hire."
The Company purchases each automobile pursuant to the specifications of its
clients, finances the purchase and pays for all the maintenance and repairs on
the vehicle during the term of lease. Typically, the Company pays off the
purchase price of the vehicles during the term of the lease and then resells the
automobile at the end of the lease term.
Acquisitions
The Company has expanded its operations in the past several years through
acquisition. In May 1990, the Company formed Baker Vehicle Contracts Limited
("Baker") to acquire certain assets, including the right to the name and
contracts of Baker Hire Limited, an English company. At the time of its
acquisition, Baker was a division of W.H. Baker Limited, which company had filed
for bankruptcy protection. Baker's vehicle leasing is primarily in Wales and the
southwest region of England. In December 1990, PMS was contracted to run the
business of County Contract Hire Limited ("County"), which at that time
comprised approximately 3,500 leased vehicles. In February 1992, the Company
purchased County from Berisford International Plc., an English public company,
pursuant to a stock purchase agreement, whereby PMS acquired all of the
outstanding shares of County and changed County's name to Pride Vehicle
Contracts (UK) Limited. In October 1994, the Company acquired certain assets of
Master Vehicle Contracts Limited ("Master"), an English company, pursuant to the
terms of an asset purchase agreement. The assets purchased included vehicles,
vehicle lease agreements and customer lists. At the time of the sale, Master was
in receivership, whereby the sale was entered into by PMS and the court
appointed receivers. In connection with this purchase, the Company acquired the
rights to use the name Master Vehicle Contracts Limited.
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Industry Overview
Companies have a variety of financing alternatives available to them in
acquiring the use of a new automobile, either through the purchase or lease of
such vehicle. In financing the purchase of a vehicle there are various loan
alternatives including, fully amortizing, balloon payment, no money down, low
down payment and business equity loans. In terms of leasing vehicles, there are
various options including, payment schedules, term, maintenance and repurchase
rights. The primary benefit of leasing over purchasing is that leasing typically
provides a consumer with the opportunity to acquire the use of a new automobile
at a lower monthly payment than financing the purchase of such vehicle, usually
without a significant initial cash outlay, and enables the return of the
automobile without any further liability at the end of the lease term. Companies
which provide employees with automobile transportation typically lease such
vehicles and expense the costs.
The increase in new vehicle prices in relation to annual median family
income has been a contributing factor in the growth in the leasing and used
automobile markets. This has provided the Company with a further opportunity for
revenue growth through the resale of its vehicles after the term of the lease or
in the event there are defaults of the leases.
Business Objectives
The Company's primary goal is to expand its leasing and fleet management
operations, increase and obtain better terms with respect to the financing of
the vehicles it leases and to increase the profitability of its vehicle
remarketing program. The Company's strategy for continued growth is to (i)
increase lease origination by (a) increased name recognition, (b) acquisition of
similar companies or their assets, (c) the development, expansion and retention
of existing clients, and (d) the expansion into new geographic markets, (ii)
further develop and market its fleet management services, (iii) increase and
improve the terms of its financing arrangements, (iv) further develop and
increase the profitability of its used automobile remarketing operations, and
(v) lease primarily to high quality credit applicants in order to continue to
build a lease portfolio with low delinquency and credit loss rates.
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Subsidiaries
The following table lists all the wholly owned subsidiaries of PMS, the
date of their formation and business operations. These companies operate as one
unit in conducting the business affairs of the Company.
<TABLE>
<CAPTION>
Date of
Name Formation Business Operations
<S> <C> <C>
Pride Vehicle Contracts
Limited 12/23/86 Conducts all administrative functions for the Company,
including paying salaries and all operational expenses of the
Company.
Baker Vehicle Contracts Limited 02/22/89 Vehicle leasing, primarily the business operations of Baker Hire
Contracts Limited, acquired in May 1990, which operations are
primarily in Wales and the south west region of England.
Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract Hire Limited and Master
(UK) Limited Vehicle Contracts Limited in February 1992 and March 1994,
respectively.
Pride Leasing Limited 02/22/89 Owns property and a building in Croydon, England, which is leased to
an unaffiliated company.
Pride Vehicle Management 02/14/90 Operates the Company's fleet management services.
Limited
Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services for all the
Limited Company's leasing operations.
</TABLE>
Leasing, Maintenance and Resale
The Company purchases each vehicle pursuant to its client's
specifications; finances its purchase and pays for all the maintenance on the
vehicle during the term of the lease. The Company usually finances the purchase
of each vehicle to correspond with the term of the lease, such that upon the
completion of the lease term the automobiles are fully paid. As of January 1,
1998, the Company had approximately 1,512 vehicles under lease.
The term of the leases average generally between 24 and 48 months, with
the average lease being 36 months. In addition to setting forth the lease term,
the amount of the rental payments and the mileage allowance, each lease requires
the lessee to pay all fees, taxes, fines and other costs relating to the use of
the vehicle. Generally, the lessee pays the first and last two months lease
payment in advance of the lease term. The lessee is required to maintain
liability and casualty insurance on each vehicle at specified
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limits and to name the Company as an additional insured and loss payee. The
Company will only approve policies which have a maximum deductible of $500.
The Company's sales policy emphasizes leasing to financially sound
clients and requires certain financial disclosures prior to executing any lease
agreement. Customer accounts are targeted from profitable, growing, medium-sized
corporate companies. For the years ended November 30, 1995 and 1996, the Company
had two unaffiliated customers, Westbury Homes Plc. and Campbell Distillers
Limited, which companies accounted for in the aggregate approximately 18% and
17%, respectively, of the Company's total revenues. For the nine month period
ended August 31, 1996 and August 31, 1997, revenues from these two unaffiliated
customers aggregated 19% and 16%, respectively, of total revenues. The Company
also leases vehicles to the following local government agencies; Swansea Council
in Wales, Brent Council in London and Mid Glarmorgan Council in Wales.
Each lease applicant must provide information regarding, among other
things, corporate history, length of time in business, ability to pay based both
on income level and certain debt to income ratios developed by the Company and
credit history, including comparable borrowing experience. Review of financial
statements, audited where obtainable allows for the independent verification of
the Company's financial position and past history. The foregoing procedures
provide the general basis for the Company's credit decisions, but the ultimate
determination is in the discretion of the Company's credit analysts.
Accordingly, certain of the leases entered into by the Company may not meet each
of the Company's credit guidelines.
The Company has servicing agreements with over 1,400 automotive
dealerships and independent service centers in its areas of operations. Since
all of the leased vehicles are new, there are warranties typically ranging from
12 to 36 months or 20,000 to 60,000 miles, which ever comes first, with the
average being 24 months or 40,000 miles. Also each lease has mileage limitation
and additional fees for overages. Therefore, the Company does not incur
significant expenses for repairs. Maintenance is regularly performed on all
vehicles, pursuant to negotiated pricing schedules. No work is permitted to be
performed on any vehicle, unless performed by one of the Company's contracted
service centers with the prior consent of the Company.
The monthly lease payment which the Company charges its clients 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 other variable information including
interest rates and other current anticipated future economic variables. The
client is responsible for maintaining its own insurance, of which the Company is
the beneficiary, in the event the vehicle is damaged.
The Company typically attempts to match the financing term with the
lease term, whereby at the end of the lease term the Company owns the
automobile. The Company does not currently perform repairs or refurbishing on
the returned vehicles, rather, the Company attempts to resell such vehicles
immediately upon their return in the same condition as they are returned in.
This enables the Company to increase its cash flow, though the Company believes
it could obtain higher prices for the used vehicles in the event minor repairs
were performed prior to resale. The Company manages its residual risk by
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focusing on the leasing of vehicle models which it believes will have a broad
appeal in the used automobile market at the end of the lease term and by
utilizing multiple remarketing channels including, but not limited to used car
wholesalers and used car retailers. The Company upon pricing the lease of a new
vehicle reviews the listed wholesale price as listed in several pricing guides,
predominantly the Current Auction Prices ("CAP") book, which gives the current
wholesale price of the model being leased. The Company currently attempts to get
at least 85% of the CAP listed wholesale price upon the resale of the vehicle.
The Company believes that with increased working capital and cash flow from
operations, the Company can make minor repairs and refurbishings on the
automobiles performed and seek higher prices on resales of up to 110% of the
wholesale price on popular models. The Company sells its used vehicles through
used automobile wholesalers and retailers, automobile auctions, unaffiliated
dealers and pursuant to sales to related parties of the lessees. In the event
the market for used automobiles decreases the models or conditions of the
vehicles returned to the Company decrease their resale value or vehicles are
returned pursuant to defaults in the lease agreements, such events may adversely
affect the Company's cash flow, profitability and business operations. See "--
Financing and Collections" and "-- Competition."
Fleet Management Services
In 1994, the Company opened its fleet management division, which
division manages the automobiles for certain of its corporate clients who choose
to own the vehicle(s) directly. Customarily, these clients purchase the
automobiles through the Company in order to take advantage of the Company's bulk
purchase discounts. The Company maintains these vehicles on behalf of such
clients pursuant to a monthly management fee, usually $15 per automobile and
disposes of the vehicles thereafter on behalf of the client. The client pays all
costs associated with the purchase, maintenance and resale of the automobiles.
The Company estimates that for the year ended November , 1996 less than 5% of
the Company's revenues were from fleet management services.
Suppliers
The Company purchases all of the automobiles that it leases to its
clients from automotive dealerships, usually several at a time. For the year
ended November 30, 1996 and nine months ended August 31, 1997, General Motors
and Ford were the manufacturers of approximately 20% and 20%, respectively and
16% and 17%, respectively, of the vehicles which it leased. The Company does not
depend on any individual dealership for the purchase of any vehicle brand. The
Company has no written agreements with any dealership it purchases vehicles
from, though it does receive yearly rebates from manufacturers based on quantity
of automobiles purchased. Management believes that the price it pays and the
terms it receives for the automobiles it purchases are more favorable than it
would receive if it was purchasing automobiles on an individual basis. The
Company believes that it will continue to be able to purchase automobiles at
competitive prices and terms into the future.
A portion of the Company's profit margin is based on rebates received
directly from the automobile manufacturers on a yearly basis. The Company
receives a rebate on most vehicles purchased based upon the quantity of
automobiles purchased from said manufacturer each year. This rebate is usually
between $100 and $400 per vehicle. However, the Company has no assurances that
it will be able to acquire automobiles at favorable prices in the future or
receive such rebates in the future. No
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<PAGE>
assurance can be given that an uninterrupted and adequate supply of automobiles
will be available to the Company in the future, although, the Company believes
that there are a sufficient number of automobile dealerships, so that in the
event any individual or group of dealerships can no longer service the Company's
needs, the Company will be able to find other dealerships at competitive prices.
In the event the Company cannot obtain the automobiles of any specific
manufacturer or automobiles in general or is not able to purchase such
automobiles on similar terms as is presently available to it, the Company may be
materially adversely affected.
Financing and Collections
The Company provides new automobiles to its clients pursuant to each
individual client's specifications, with personal and attentive service to
include all of its clients needs. The Company's sales representatives have
extensive experience in the automobile finance and leasing industry and work
closely with the clients to meet their driving and financial needs.
Since November 1992, when entering into new lease agreements, the
Company purchases the automobile, which usually requires a 10% down payment and
pays down the note on the purchase including principal and interest during the
term of the lease. Prior to November 1992, the Company would finance the
purchase of automobiles through promissory notes which required the payment of
interest during the term of the loan and the repayment of the principal in a
balloon payment at loan maturity which is the same as the end of the lease term.
This financing strategy enabled the Company to increase its cash flow during the
term of the lease, but the higher financing fees and interest expense reduced
the Company's profit on the resale of the vehicles.
The Company has asset funding lines to acquire revenue producing
vehicles with several institutions in England in the aggregate amount of
$22,650,000 of which the Company has borrowed approximately $15,350,000 as of
August 31, 1997. The increase in the Company's asset funding line is
attributable to the equity raised in the Company's initial public offering in
April 1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." Under the lease
agreements, the lessees generally have no right to terminate their leases prior
to the end of their scheduled term. In the event that any lease terminates prior
to the end of its scheduled term (whether by way of default, the destruction or
theft of the vehicle), the lessee is liable to the Company for the amount by
which the lessee's default termination liability under the lease agreement
exceeds the realized value of such vehicle, which may be obtained through the
proceeds of the sale of the vehicle (including a sale following repossession) or
the proceeds of any applicable insurance on the vehicle. Under the terms of the
lease, the term "default termination liability" includes; (i) all payments due
under the lease agreement up to the termination date, inclusive of interest,
(ii) future rental payments due from termination date until the contracted lease
termination date, less maintenance and a 5% discount and (iii) the difference
between the amount received pursuant to the sale of the vehicle and the
estimated residual value, if such sale price is less than the estimated residual
value. Under its agreements with the lessee, the Company pays the sale or
insurance proceeds to its lender up to the amount of the then remaining balance
of the note payable related to the vehicle. Any shortfall is a credit loss and
is borne by the lessee, and any excess is retained by the Company.
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<PAGE>
Although the Company's current line of credit has expired, the Company
has reached a verbal agreement regarding a new line of credit with Midland Bank
Plc. in the amount of (pound)3,250,000 (approximately $5,200,000). This
agreement has not yet been memorialized in written form. In the event that the
Company and the bank do not formalize their verbal agreement regarding the line
of credit or in the event that the bank revokes this line of credit during the
proposed term or in the event that the bank fails to renew this new line of
credit when it expires, the Company will have insufficient cash flow to finance
operations. There can be no assurance that the Company will be able to secure
the necessary financing if one of the aforementioned events comes to pass.
The Company attempts to enhance the performance of its leases and
thereby minimize its financial risks by maintaining timely, consistent and
direct customer contact. When a default does occur, collections and
repossessions are handled by the Company's collection department. Upon a lease
payment default and after the passage of three days, the Company mails a written
notice to the defaulting customer and attempts to contact the customer directly
by phone. Once contact is established, the collection department will work with
the customer until the default is cured. If contact is not made or the default
is not satisfactorily cured, the Company will proceed to repossess the vehicle.
The Company will repossess the vehicle upon a determination that there is a risk
of not recovering the vehicle. In the event repossession is required, it
typically will take place within 20 days after the initial default. Pursuant to
English law, a company can repossess a vehicle for non payment in the event
payment is not received within two days of the due date, however, the Company's
lease agreements provide for a seven day grace period. No notice is required and
no demand for payment need be made prior to repossession. The Company, as the
vehicles owner, has all key numbers with respect to the vehicles it leases. In
the event the Company deems repossession necessary it sends an employee to
physically drive the vehicle away from the lessee. Repossessed vehicles are
offered by the Company at public sale, after the giving of notice, and sold by
the Company in a commercially reasonable manner. There were no repossessions of
vehicles in fiscal 1996. In 1997, there were eight repossessions, however six of
those repossessions were re-leased. There have been none to date in 1998. There
were no repossessions in fiscal 1995. Only one vehicle was repossessed during
fiscal 1994.
Competition
The Company's business is highly competitive, with relatively
insignificant barriers to entry and with numerous firms competing for the same
customers. The Company is in direct competition with local (includes the city of
Hertfordshire and the surrounding areas), regional (includes London and the
surrounding areas) and national (includes all of the United Kingdom, inclusive
of England, Wales, Scotland and Northern Ireland) automotive leasing companies,
many of which have greater resources and more extensive distribution and
marketing than the Company. The largest leasing companies in direct competition
with the Company are Cowie Interleasing, a division of Cowie, Plc., and Lex
Vehicle Leasing Limited, each of which claim to have presently on lease
approximately 65,000 vehicles. As of January 1, 1998, the Company had 1,512
vehicles under lease. The Company also competes in the automobile financing
industry with providers of other forms of financing. Other competitors include
finance companies affiliated with automobile manufacturers, a variety of local,
regional and national finance companies, commercial banks, savings and loans,
and other consumer lenders such as industrial thrifts and credit unions. The
automobile leasing business is highly competitive and the Company
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<PAGE>
competes for business on the basis of both pricing and service. The Company
believes that the main concern of the lessee or buyer of a new automobile is the
amount of the monthly payment and of any down payment. Many of the Company's
competitors have significantly greater financial, technical and marketing
resources and market share than the Company. Automobile finance companies
affiliated with automobile manufacturers, from time to time offer aggressive
leasing and financing programs at below market pricing to promote the sale of
certain vehicle models. Many of the national leasing companies have extensive
advertising campaigns which develop and reinforce brand recognition. In
addition, many of such manufacturers have agreements with vehicle leasing
entities to jointly advertise and market their products and services.
The used automobile sales business is highly competitive, with
competition coming from individuals, independent used automobile wholesalers and
dealerships and used automobile lots operated by new automobile dealers and
rental car companies.
Marketing and Sales
The sales policies of the Company have emphasized quality of business
rather than volume, both in its own new business contracts and its acquired
contracts. This controlled and conservative approach to growth allows the
Company to write what it considers to be good quality, profitable contract
hires. Customer service and satisfaction is then emphasized as a high priority,
to ensure that the group's premium pricing policies can be maintained for repeat
business.
Customer accounts are targeted from profitable, growing, medium-sized
corporate companies together with public sector referrals. The Company's credit
underwriting policies reflect this prudent approach, and ensure that the high
quality of the portfolio is maintained. The Company takes a balanced, portfolio
approach to risk management with a variety of company sizes to balance credit
risk against profit margin.
The Company executes a finance company standard hire purchase agreement
for each lease and the finance company takes a registered charge (security
interest) over the underlying agreement between the Company and its customer.
The security of the lender is further increased by the Company's down payment on
the vehicles and the monthly payments of principal and interest during the term
of the lease. The Company has all required liens and security interests
appropriately filed and recorded.
As part of its obligations, the Company performs all administrative
functions in the acquisition, registration and leasing of the automobile and
controls and pays for all required servicing of its vehicles. The Company
obtains appropriate vehicle registrations and titles for all lease vehicles,
tracks compliance with insurance requirements, negotiates and handles all claims
with insurance companies and remits all appropriate sales taxes on lease
payments to the taxing authority.
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Government Regulations
The Company is subject to regulation by the United Kingdom Department
of Trade and Industry (the "Department of Trade"). The Department of trade
establishes general rules and regulations with respect to the operation of a
business in the United Kingdom. The Department of Trade has not established any
regulations or licensing requirements specifically regulating the leasing of
automobiles to companies. There can be no assurances that such will be the case
in the future or that if licensing or other form of regulation is required in
order to engage in the Company's business that the Company will be successful in
obtaining such licenses or in meeting the requirements of such regulations. The
Department of Trade, in accordance with the credit agreement act, requires the
issuance of a license in order to lease vehicles to individuals, which license
the Company has obtained, however, the Company never has nor does it presently
intend to lease vehicles to individuals. In addition, the Company must also
comply with a wide range of other state and local rules and regulations
applicable to its business, including regulations covering labor relations,
safety standards, affirmative action and the protection of the environment.
Continued compliance with the broad regulatory network of the United Kingdom is
essential and costly and the failure to comply with such regulations may have an
adverse effect on the Company's operations.
In August 1995, the British Government passed a law allowing leasing
companies to be reimbursed by the Government for the value added tax "VAT" which
is added to all consumer goods including automobiles. The VAT tax is currently
at 17.5%. Reimbursement of the VAT tax will allow the Company to charge lower
lease rates.
Employees
As of January 1, 1998, the Company employed 24 full-time persons, eight
are in management (three of which are officers), eleven administrative, three
sales representative and two drivers. None of the employees are represented by a
union, and the Company considers employee relations to be good.
Properties
The Company maintains 6,000 square feet of executive office space in a
modern, free standing building at Pride House, Watford Metro Centre, Tolpits
Lane Watford Hertfordshire, WD1 8SB England. The building was purchased by PMS
in December 1992 at a cost of approximately $895,000. The annual cost of
servicing the building's mortgage and taxes is approximately $80,000 and
$18,000, respectively. Pride Leasing Limited owns a building in Croydon,
England, which it purchased in 1991 at a cost of approximately $825,000. The
Company sold this this property in October 1997 for (pound)248,000.
Pending Litigation
The Company is not a party to any material pending litigation which, if
decided adversely to the Company, would have a significant negative impact on
the business, income, assets or operation of the Company, and the Company is not
aware of any material threatened litigation which might involve the
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Company. In England, the owner of the automobile is not considered liable
for the acts of the driver where there is a lease arrangement.
AC is not a party to any material litigation. Autokraft and AC Cars are
involved in legal proceedings, all of which are related to their being placed in
administrative receivership. Although the Company acquired the assets of AC Cars
and Autokraft and does not believe that it will have any exposure to liability
claims for automobiles built by AC Cars and Autokraft, there can be no assurance
that the Company is correct in such belief. Any such claim relating to new
automobiles built by AC or to automobiles built by AC Cars and Autokraft could
have an adverse effect on the Company.
Acquisition of AC Car Group Limited
In November 1996, the Company, through its subsidiary AC Car Group Limited,
acquired all of the assets of AC Cars Limited ("AC Cars") and Autokraft Limited
("Autokraft"), two companies incorporated under the laws of England and Wales,
respectively. AC Cars and Autokraft are specialty automobile manufacturers that
had been in administrative receivership since March 1996.
Business of AC Car Group Limited
AC Car Group Limited was incorporated in England and Wales on June 28,
1996, as Paradehaven Limited. The name was changed to AC Car Group Limited on
August 30, 1996.
AC Cars was formed in 1901 as Autocar & Accessories Limited and has been in
continuous operations ever since. AC Cars is Britain's oldest independent
manufacturer. Today, Autokraft and AC Cars manufacture and sell two automobiles,
the Superblower (a continuation of the AC Cobra) and the AC Ace.
The AC Cobra is a high-powered, hand built sports car with an aluminum
body. The automobile is manufactured today using the same traditional coach
building methods and original Cobra tooling which were used on the original
manufactured Cobras in the 1960s. Historically, in 1963 the AC Cobra caused a
sensation by racing along the MI motorway (England's first motorway) at 196
miles per hour, and by 1964, the 427 AC Cobra was listed in the Guinness Book of
Records as the fastest production car in the world. The AC Cobra sells for about
(pound)69,000 ($115,782).
In 1994, the AC Ace prototype was first displayed at the London Motor show.
In 1995, the AC Ace was shown to the North American public at the Detroit
Motorshow. When the AC Ace comes into production, it will sell for approximately
(pound)75,000 ($125,853). As of January 1, 1998, AC has produced approximately
fifty pre-production AC Aces. The Company expects the AC Ace should enter into
its final production stage in January 1998.
Also in 1987, Ford Motor Company became a partner with Autokraft and AC
Cars. The AC Cobra is equipped with a Ford V8 engine. Currently, Ford Motor
Company owns the trademark to the name Cobra. However, Autokraft and AC Cars
used the name Cobra under a license arrangement with Ford Motor Company. When
they were placed in administrative receivership, the license arrangement
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<PAGE>
with Ford Motor Company was voided. After the Asset Acquisition, the
Company negotiated a new licensing agreement with Ford Motor Company whereby the
Company has procured a three year license, commencing December 7, 1996, to
continue to use the name "Cobra" on its AC Cobra model. Notwithstanding the
foregoing, the "Cobra" has been recently updated and has been renamed the AC
"Superblower."
Administrative Receivership
AC Cars has incurred losses in recent years as a result of design and
development costs incurred in bringing the AC Ace into production. Although most
of the development work is now complete and approximately fifty AC Aces have
been produced to date as pre-production vehicles, the expenses AC Cars and
Autokraft incurred in connection with the development of the Ace forced
Autokraft and AC Cars to seek additional capital investments so as to enable
them to both meet current production needs and increase future production
levels. Once it became clear to Autokraft and AC Cars' management that
additional funds were unlikely to be forthcoming in time to allow the businesses
to meet their financial obligations, coupled with their bankers indications that
they no longer had confidence in the current ownership, the Directors of the
businesses resolved to request their bankers to appoint Administrative
Receivers. Administrative receivers were appointed on March 7, 1996.
Development Projects and Enhancements
The Company, through AC, intends to continue to evaluate developing the
Cobra and the Ace's chassis to be compatible with other engines.
Marketing and Sales; License Arrangement
AC Cars has used very little, if any, print or other media advertising with
respect to the AC Ace. However, both the Cobra and the Ace have been the subject
of numerous magazine articles in automotive publications, and, as such, have
received extensive exposure.
As discussed above, AC Cars and Autokraft were using the name Cobra under a
license arrangement with Ford Motor Company. Although the arrangement became
void when the two companies were placed in receivership, the Company has entered
into a new licensing arrangement with the Ford Motor Company whereby the Company
has procured a three year license to use the name "Cobra," terminating in
December 1999.
Whereas the Company is pleased that it has been able to procure a licensing
arrangement to continue to use the name "Cobra", the Company anticipates that a
significantly larger portion of its future marketing efforts will concentrate on
the venerable history and prestige associated with the name "AC", which name the
Company acquired outright as part of the Asset Acquisition.
The Company believes that the principal markets for sales of its
automobiles are the United States, Australia, Germany and the United Kingdom.
The Company is in the process of negotiating distribution
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agreements in some of these important markets, including Australia and the
United Kingdom, while agreements and approvals in other key markets have already
been received.
The AC Cobra is Type approved for sale in certain countries of the European
Economic Community ("EEC").
Trademarks
Acquired as part of the Asset Acquisitions was the rights to utilize the
"Ace" mark on sales of the Ace. The right to use the Cobra name was subject to a
license arrangement which was in place with Ford Motor Company, the owner of the
trademark just prior to the appointment of Receivers. As discussed above, the
Company has entered into a new license agreement with Ford Motor Company whereby
the Company has procured a three year license to use the name "Cobra". Former
management of Autokraft and AC Cars has advised the Company that it is not aware
of any actions attempting to invalidate or challenge its use of such trademarks
and that it has not received any notice or claims of infringement regarding its
trademarks.
Products Liability Insurance
At present, AC maintains product liability insurance through Lloyds of
London. The limit of the indemnity is (pound)2,000,000 for each instance.
Although AC has procured this insurance policy, there can be no assurance that
it will be able to maintain such insurance, that such insurance will be
sufficient to cover claims, if any, or that such insurance will continue to be
available at commercially reasonable terms. If AC is unable to maintain products
liability insurance for the automobiles that it manufactures, it would adversely
affect the business of AC and could potentially cause it to discontinue
operations. However, there can be no assurance that such insurance will be
obtained, or that if obtained, that such insurance will be sufficient to cover
claims, if any, or that such insurance will continue to be available at
commercially reasonable terms. If the Company or AC are required to pay
uninsured claims, it would adversely affect the businesses of the Company and AC
and could cause a discontinuation of operations. The Company and AC do not carry
business interruption or key man insurance. See "Risk Factors."
Legal Proceedings
AC is not a party to any material litigation. Autokraft and AC Cars are
involved in legal proceedings, all of which are related to their being placed in
administrative receivership.
Properties
AC currently occupies premises on a four acre site at the Brooklands
Industrial Park in Surrey, England. The property comprises a factory, workshop,
showroom and office space. In all, the facility provides approximately 90,000
square feet of manufacturing area and 20,000 square feet of executive office
area. The Company has agreed to lease the premises currently occupied by AC for
a period of one year commencing December 1, 1996. The Company's lease costs
approximately (pound)32,000 ($53,696) per month. AC exercised its option to
purchase the premises for the purchase price of (pound)5,200,000
42
<PAGE>
($8,725,600) in July 1997. AC then sold the property for (pound)5,600,000
and entered into a 15 year lease for 39,000 square feet of the property at the
rate of (pound)18,000 per month.
Employees
At the time of their acquisition, Autokraft and AC Cars together employed a
total of 83 persons. The Company retained approximately 31 of such employees
upon completion of the Asset Acquisition and has hired 12 additional employees
to oversee the manufacturing and marketing of the automobiles.
43
<PAGE>
MANAGEMENT
The names, ages and positions of the Company's executive officers and
directors are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
<S> <C> <C>
Alan Lubinsky 39 President, Secretary, and Chairman of
the Board of Directors
Ivan Averbuch 42 Chief Financial Officer and Director
Allan Edgar 51 Director
</TABLE>
Alan Lubinsky Mr. Lubinsky has been the President and a director of the
Company since its inception in March 1995. Mr Lubinsky has been the President,
Secretary and director of Pride, Inc since January 14, 1994. Mr. Lubinsky has
been the Chairman and Managing Director of Pride Management Services, Plc
("PMS") since its inception in 1988. Mr. Lubinsky has been the Chairman and
Managing Director of AC Car Group Limited since July 1996. Mr. Lubinsky has been
the President, Chairman and director of AC Automotive Group, Inc. since its
inception in 1996. Mr. Lubinsky has 19 years experience in the motor vehicle
industry in positions of executive management.
Ivan Averbuch Mr. Averbuch has been a director and the Chief Financial
Officer of the Company since December 1995. Mr. Averbuch has been the Chief
Financial Officer of the of Pride, Inc. since December 1995. Mr. Averbuch has
been the Financial Director of AC Car Group Limited since July 1996. Mr.
Averbuch has been the Chief Financial Officer and Director of AC Automotive
Group, Inc. since its inception in 1996. From September 1987 to November 1995,
Mr. Averbuch was employed at Kessel Feinstein, a member firm of Grant Thorton
International, an accounting firm. In January 1989, Mr. Averbuch was promoted to
audit manager and appointed as a partner in October 1992.
Allan Edgar Mr. Edgar has been a director of the Company since May 1997.
Mr. Edgar has been a director of AC Automotive Group, Inc. since its inception
in 1996. Mr. Edgar has been the Marketing Director of Hyatt Hotels & Resorts for
Europe, Africa and the Middle East since 1990. Mr. Edgar has extensive
experience in the automobile industry, including positions at Hertz Rent-a-Car,
Volkswagen Interent, and Leyland Motor Corporation.
The directors of the Company are elected annually by the stockholders and
hold office until the next annual meeting of stockholders, or until their
successors are elected and qualified. The executive officers are elected
annually by the board of directors, serve at the discretion of the board of
directors and hold office until their successors are elected and qualified.
Vacancies on the board of directors may be filled by the remaining directors.
44
<PAGE>
As permitted under Delaware Corporation Law, the Company's Certificate of
Incorporation eliminates the personal liability of the directors to the Company
or any of its stockholders for damages for breaches of their fiduciary duty as
directors. As a result of the inclusion of such provision, stockholders may be
unable to recover damages against directors for actions taken by them which
constitute negligence or gross negligence or that are in violation of their
fiduciary duties. The inclusion of this provision in the Company's Certificate
of Incorporation may reduce the likelihood of derivative litigation against
directors and other types of stockholder litigation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company, will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan compensation awarded to, earned by the named executive officer (as
designated in Item 402 (a)(2) of Regulation S-B), paid by Pride Vehicle
Contracts Limited during the years ended November 30, 1997, 1996 and 1995.
The Company did not incur any compensation expense during such periods.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Other Annual
Position (1) Year Salary($) Bonus($) Compensation($)(2)
- ----------------------- ---- --------- -------- ------------------
<S> <C> <C> <C>
Alan Lubinsky 1997 $176,000 - $30,000
President, Secretary 1996 $160,000 - $30,000
and Chairman of the Board 1995 $137,750 - $30,000
</TABLE>
45
<PAGE>
(notes from previous page)
(1) All of the Company's administrative functions, including the payment of
salaries, are performed by Pride Vehicle Contracts Limited, since the Company's
operations run basically as one operation. The Company believes that it is
easier and cost effective to operate in this manner. The Company plans on
continuing this practice in the future.
(2) Includes contributions to the Company's pension plan of $18,000 in each
of 1997, 1996 and 1995, respectively, and the cost of an automobile and expenses
of $12,000 annually.
Employment Agreements
Alan Lubinsky entered into an employment agreement with the Company in
August 1995. The agreement is for a term of three years, and pays Mr. Lubinsky
an annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by the Company's board of directors. Pursuant to the terms of his
employment agreement, Mr. Lubinsky will devote all of his business time to the
affairs of Pride and the Company. Pursuant to the agreement, Mr. Lubinsky
received stock options under the Company's Senior Management Incentive Plan to
purchase 100,000 shares at $5.50 per share. These options vest at the rate of 33
1/3% per annum commencing August 1996. The agreement restricts Mr. Lubinsky from
competing with the Company for a period of one year after the termination of his
employment.
Ivan Averbuch entered into an employment agreement with the Company in
September 1995, for a term of 24 months, commencing December 1, 1995. The
agreement is automatically extendable for an additional 24 months, subject to
cancellation by either the Company or Mr. Averbuch on 90 days written notice.
Pursuant to the terms of the agreement, Mr. Averbuch is to receive an annual
salary of $55,000 per annum, with a 10% escalation in December 1996, subject to
review by the board of directors.
Senior Management Incentive Plan
In September 1995, the board of directors adopted the Senior Management
Incentive Plan (the "Management Plan"), which was adopted by written stockholder
consent. The Management 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, key employees and
consultants.
The adoption of the Management Plan was prompted by its desire to provide
the board with sufficient flexibility regarding the forms of incentive
compensation which the Company will have at its disposal in rewarding executive
officers, key employees and consultants who render significant services to the
Company and its subsidiaries. The board of directors intends to offer key
personnel equity ownership in the Company through the grant of stock options and
other rights pursuant to the Management Plan to enable the Company to attract
and retain qualified personnel without unnecessarily depleting the Company's
cash reserves. The Management Plan is designed to augment the Company's existing
compensation programs and is intended to enable the Company to offer to its as
well as its subsidiaries
46
<PAGE>
executives, key employees and consultants a personal interest in the
Company's growth and success through awards of either shares of Common Stock or
rights to acquire shares of Common Stock.
The Management Plan is intended to attract and retain executive officers,
key employees and consultants whose performance is expected to have a
substantial impact on the Company's and its subsidiaries long-term profit and
growth potential by encouraging and assisting those persons to acquire equity in
the Company. It is contemplated that only those who perform services of special
importance to the Company will be eligible to participate under the Management
Plan. A total of 300,000 shares of Common Stock will be reserved for issuance
under the Management Plan. It is anticipated that awards made under the
Management Plan will be subject to three-year vesting periods, although the
vesting periods are subject to the discretion of the Administrator.
Unless otherwise indicated, the Management Plan is to be administered by
the board of directors or a committee of the board, if one is appointed for this
purpose (the board or such committee, as the case may be, shall be referred to
in the following description as the "Administrator"). Subject to the specific
provisions of the Management Plan, the Administrator will have the discretion to
determine the recipients of the awards, the nature of the awards to be granted,
the dates such awards will be granted, the terms and conditions of awards and
the interpretation of the Management Plan, except that any award granted to any
employee of the Company who is also a director of the Company shall also be
subject, in the event the persons serving as members of the Administrator of
such plan at the time such award is proposed to be granted do not satisfy the
requirements regarding the participation of "disinterested persons" set forth in
Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act, to the approval of
an auxiliary committee consisting of not less than two individuals who are
considered "disinterested persons" as defined under Rule 16b-3. As of the date
hereof, the Company has not yet determined who will serve on such auxiliary
committee, if one is required. The Management Plan generally provides that,
unless the Administrator determines otherwise, each option or right granted
under a plan shall become exercisable in full upon certain "change of control"
events as described in the Management Plan. If any change is made in the stock
subject to the Management Plan, or subject to any right or option granted under
the Management Plan (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Administrator will make appropriate
adjustments to such plans and the classes, number of shares and price per share
of stock subject to outstanding rights or options. Generally, the Management
Plan may be amended by action of the board of directors, except that any
amendment which would increase the total number of shares subject to such plan,
extend the duration of such plan, materially increase the benefits accruing to
participants under such plan, or would change the category of persons who can be
eligible for awards under such plan must be approved by affirmative vote of a
majority of stockholders entitled to vote. The Management Plan permits awards to
be made thereunder until September 2005.
Directors who are not otherwise employed by the Company will not be
eligible for participation in the Management Plan. The Management Plan provides
for four types of awards: stock options, incentive stock rights, stock
appreciation rights (including limited stock appreciation rights) and restricted
stock purchase agreements, as described below.
47
<PAGE>
Stock Options. Options granted under the Management Plan may be either
incentive stock options ("ISOs") or options which do not qualify as ISOs
("non-ISOs"). ISOs may be granted at an option price of not less than 100% of
the fair market value of the Common Stock on the date of grant, except that an
ISO granted to any person who owns capital stock representing more than 10% of
the total combined voting power of all classes of Common Stock of the Company
("10% stockholder") must be granted at an exercise price of at least 110% of the
fair market value of the Common Stock on the date of the grant. The exercise
price of the non-ISOs may not be less than 85% of the fair market value of the
Common Stock on the date of grant. Unless the Administrator determines
otherwise, no ISO or non-ISO may be exercisable earlier than one year from the
date of grant. ISOs may not be granted to persons who are not employees of the
Company. ISOs granted to persons other than 10% stockholders may be exercisable
for a period of up to ten years from the date of grant; ISOs granted to 10%
stockholders may be exercisable for a period of up to five years from the date
of grant. No individual may be granted ISOs that become exercisable in any
calendar year for Common Stock having a fair market value at the time of grant
in excess of $100,000. Non-ISOs may be exercisable for a period of up to 13
years from the date of grant. In connection with the Company's entering into an
employment agreement with its president, Alan Lubinsky, Mr. Lubinsky received
100,000 stock options to purchase shares of Common Stock. See "Management -
Employment Agreement."
In May 1997, Mr. Lubinsky, Mr. Averbuch and Mr. Edgar were issued 43,234,
8,647 and 8,647 options to purchase shares of the Company's Common Stock
pursuant to the Company's Senior Management Incentive Plan.
Payment for shares of Common Stock purchased pursuant to the exercise of
stock options shall be paid in full in cash, by certified check or, at the
discretion of the Administrator, (i) by promissory note combined with cash, (ii)
by shares of Common Stock having a fair market value equal to the total exercise
price or (iii) by a combination of (i) and (ii) above. The provision that
permits the delivery of already owned shares of stock as payment for the
exercise of an option may permit "pyramiding". In general, pyramiding enables a
holder to start with as little as one share of common stock and, by using the
shares of common stock acquired in successive, simultaneous exercises of the
option, to exercise the entire option, regardless of the number of shares
covered thereby, with no additional cash or investment other than the original
share of Common Stock used to exercise the option.
Upon termination of employment or consulting services, an optionee will be
entitled to exercise the vested portion of an option for a period of up to three
months after the date of termination, except that if the reason for termination
was a discharge for cause, the option shall expire immediately, and if the
reason for termination was for death or permanent disability of the optionee,
the vested portion of the option shall remain exercisable for a period of twelve
months thereafter.
Incentive Stock Rights. Incentive stock rights consist of incentive stock
units equivalent to one share of Common Stock in consideration for services
performed for the Company. Each incentive stock unit shall entitle the holder
thereof to receive, without payment of cash or property to the Company, one
share of Common Stock in consideration for services performed for the Company or
any subsidiary by the employee, subject to the lapse of the incentive periods,
whereby the Company shall issue such number of shares upon the completion of
each specified period. If the employment or consulting services of the holder
with the Company terminate prior to the end of the incentive period relating to
the units awarded, the rights shall thereupon be null and void, except that if
termination is caused by death or permanent
48
<PAGE>
disability, the holder or his/her heirs, as the case may be, shall be entitled
to receive a pro rata portion of the shares represented by the units, based upon
that portion of the incentive period which shall have elapsed prior to the death
or disability.
Stock Appreciation Rights (SARs). SARs may be granted to recipients of
options under the Management Plan. SARs may be granted simultaneously with, or
subsequent to, the grant of a related option and may be exercised to the extent
that the related option is exercisable, except that no general SAR (as
hereinafter defined) may be exercised within a period of six months of the date
of grant of such SAR and no SAR granted with respect to an ISO may be exercised
unless the fair market value of the Common Stock on the date of exercise exceeds
the exercise price of the ISO. A holder may be granted general SARs ("general
SARs") or limited SARs ("limited SARs"), or both. General SARs permit the holder
thereof to receive an amount (in cash, shares of Common Stock or a combination
of both) equal to the number of SARs exercised multiplied by the excess of the
fair market value of the Common Stock on the exercise date over the exercise
price of the related option. Limited SARs are similar to general SARs, except
that, unless the Administrator determines otherwise, they may be exercised only
during a prescribed period following the occurrence of one or more of the
following "Change of Control" transactions: (i) the approval of the Board of
Directors of a consolidation or merger in which the Company is not the surviving
corporation, the sale of all or substantially all the assets of the Company, or
the liquidation or dissolution of the Company; (ii) the commencement of a tender
or exchange offer for the Company's Common Stock (or securities convertible into
Common Stock) without the prior consent of the Board; (iii) the acquisition of
beneficial ownership by any person or other entity (other than the Company or
any employee benefit plan sponsored by the Company) of securities of the Company
representing 25% or more of the voting power of the Company's outstanding
securities; or (iv) if during any period of two years or less, individuals who
at the beginning of such period constitute the entire Board cease to constitute
a majority of the Board, unless the election, or the nomination for election, of
each new director is approved by at least a majority of the directors then still
in office.
The exercise of any portion of either the related option or the tandem SARs
will cause a corresponding reduction in the number of shares remaining subject
to the option or the tandem SARs, thus maintaining a balance between outstanding
options and SARs.
Restricted Stock Purchase Agreements. Restricted stock purchase agreements
provide for the sale by the Company of shares of Common Stock at prices to be
determined by the Board, which shares shall be subject to restrictions on
disposition for a stated period during which the purchaser must continue
employment with the Company in order to retain the shares. Payment can be made
in cash, a promissory note or a combination of both. If termination of
employment occurs for any reason within six months after the date of purchase,
or for any reason other than death or by retirement with the consent of the
Company after the six-month period but prior to the time that the restrictions
on disposition lapse, the Company shall have the option to reacquire the shares
at the original purchase price.
Restricted shares awarded under the Management Plan will be subject to a
period of time designated by the Administrator (the "restricted period") during
which the recipient must continue to render services to the Company before the
restricted shares will become vested. The Administrator may also impose other
restrictions, terms and conditions that must be fulfilled before the restricted
shares may vest.
49
<PAGE>
Upon the grant of restricted shares, stock certificates registered in the
name of the recipient will be issued and such shares will constitute issued and
outstanding shares of Common Stock for all corporate purposes. The holder will
have the right to vote the restricted shares and to receive all regular cash
dividends (and such other distributions as the Administrator may designate), if
any, which are paid or distributed on the restricted shares, and generally to
exercise all other rights as a holder of Common Stock, except that, until the
end of the restricted period: (i) the holder will not be entitled to take
possession of the stock certificates representing the restricted shares and (ii)
the holder will not be entitled to sell, transfer or otherwise dispose of the
restricted shares. A breach of any restrictions, terms or conditions established
by the Administrator with respect to any restricted shares will cause a
forfeiture of such restricted shares.
Upon expiration of the applicable restricted period and the satisfaction of
any other applicable conditions, all or part of the restricted shares and any
dividends or other distributions not distributed to the holder (the "retained
distributions") thereon will become vested. Any restricted shares and any
retained distributions thereon which do not so vest will be forfeited to the
Company. If prior to the expiration of the restricted period a holder is
terminated without cause or because of a total disability (in each case as
defined in the Management Plan), or dies, then, unless otherwise determined by
the Administrator at the time of the grant, the restricted period applicable to
each award of restricted shares will thereupon be deemed to have expired. Unless
the Administrator determines otherwise, if a holder's employment terminates
prior to the expiration of the applicable restricted period for any reason other
than as set forth above, all restricted shares and any retained distributions
thereon will be forfeited.
Accelerating of the vesting of the restricted shares shall occur, under the
provisions of the Management Plan, on the first day following the occurrence of
any of the following: (a) the approval by the stockholders of the Company of an
"Approved Transaction"; (b) a "Control Purchase"; or (c) a "Board Change".
An "Approved Transaction" is defined as (A) any consolidation or merger of
the Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of Common Stock would be converted into cash,
securities or other property other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (B) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company, or (C) the adoption of any plan or proposal for
the liquidation or dissolution of the Company.
A "Control Purchase" is defined as circumstances in which any person (as
such term is defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act),
corporation or other entity (other than the Company or any employee benefit plan
sponsored by the Company) (A) shall purchase any Common Stock of the Company (or
securities convertible into the Company's Common Stock) for cash, securities or
any other consideration pursuant to a tender offer or exchange offer, without
the prior consent of the Board of Directors, or (B) shall become the "beneficial
owner" (as such term is defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing twenty-five percent
(25%) or more of the combined voting power of the then outstanding securities of
the Company ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the
50
<PAGE>
election of directors (calculated as provided in paragraph (d) of such Rule
13d-3 in the case of rights to acquire the Company's securities).
A "Board Change" is defined as circumstances in which, during any period of
two consecutive years or less, individuals who at the beginning of such period
constitute the entire Board shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, of each new director was approved by a vote of at least a majority
of the directors then still in office.
51
<PAGE>
PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth certain information at January 5, 1998, and
as adjusted to reflect the sale of 1,000,000 shares of Common Stock by the
Company, with respect to the beneficial ownership of Common Stock by (i) each
person known by the Company to be the owner of 5% or more of the outstanding
Common Stock; (ii) by each officer and director; and (iii) by all officers and
directors as a group. Except as otherwise indicated below, each named beneficial
owner has sole voting and investment power with respect to the shares of Common
Stock listed.
<TABLE>
<CAPTION>
Number of Percent of Percent of
Common Stock Common Stock Common Stock
Name Shares Owned Owned After the Offering
<S> <C> <C> <C>
Pride, Inc. 1,500,000 53.2% 39.3%
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Alan Lubinsky (2) 1,500,000 53.2% 39.3%
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Allan Edgar (3) * *
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Ivan Averbuch (4) * *
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
All officers and 1,500,000 53.2% 53.2%
Directors of Pride as a Group
(3 persons) (2)
* less than 1%
</TABLE>
(1) Does not include shares of Common Stock issuable upon (i) the exercise
of the Underwriters' Warrants, (ii) the exercise of the Underwriters'
Over-allotment Option, (iii) the exercise of options or the grant of restricted
shares under the Company's Senior Management Incentive Plan.
52
<PAGE>
(2) New World Finance, Limited, which is wholly owned by a trust of which
family members of Mr. Lubinsky are the beneficiaries, owns approximately 65% of
the outstanding shares of Pride, Inc. and may be considered the beneficial owner
of the shares of the Company owned by Pride, Inc. The trustee is Elfin Trust
Company Limited, located on the Island of Guernsey, Channel Islands. Although
Mr. Lubinsky disclaims beneficial ownership of the shares owned by New World
Finance, Limited, it may be expected that such entity will vote its respective
shares in favor of proposals espoused by Mr. Lubinsky. Does not include 100,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Lubinsky in August 1995. Does not include 43,234 shares of Common Stock issuable
upon the exercise of options granted to Mr. Lubinsky in May 1997. See "Executive
Compensation - Employment Agreement."
(3) Does not include 8,647 shares of Common Stock issuable upon the
exercise of options granted to Mr. Edgar in May 1997.
(4) Does not include 8,647 shares of Common Stock issuable upon the
exercise of options granted to Mr. Averbuch in May 1997.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the acquisition of County in 1992, the Company
paid $1 and assumed approximately $11,500,000 of net liabilities. These
liabilities were purchased by New World Finance Limited within thirty days of
the acquisition. New World Finance Limited ("New World") is a company which is
wholly owned by New World Trust, the beneficiaries of which are members of Mr.
Lubinsky's family. This debt accrued interest at 6% and was repayable five years
from the date of issuance. This debt was converted in March 1992 into a
convertible note, which was convertible into shares of common stock of PMS at
$1.50 per share. In March 1992, New World converted approximately $5,250,0000 of
the note into 3,500,000 shares of PMS. In March 1993, New World converted
approximately $3,750,000 of the note into 2,500,000 shares of PMS. In January
1994, pursuant to the reorganization of Pride and PMS, Pride acquired all the
shares of PMS from New World, and issued shares of common stock of Pride, in
return. In September 1994, the right to convert the note into shares of PMS, was
converted into the right to purchase shares of common stock of Pride, at a price
to be determined by the board of directors of Pride, as of each conversion date.
In addition, New World guaranteed to PMS that the sale proceeds of vehicles
acquired from County would be at least equal to the residual value shown on the
books of County as of the date of the acquisition. Mr. Lubinsky did not vote on
the conversion price of any of the following conversions. In September 1994, New
World converted $1,125,000 into 281,250 shares of common stock of Pride, Inc. In
October 1994, New World converted $400,000 into 114,285 shares of common stock
of Pride, Inc. In January 1995, New World converted $155,000 into 155,000 shares
of common stock of Pride, Inc.
In August 1995, the Company determined, with the agreement of New
World, that the estimated ultimate sales values of the vehicles were less than
expected and it was agreed that the note ($562,292) be written off and canceled
against the New World guarantee.
In March 1995, Pride formed the Company in the State of Delaware and
reorganized its corporate structure by exchanging all of its shares of PMS for
1,500,000 shares of the Company's Common Stock, making PMS a wholly owned
subsidiary of the Company.
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<PAGE>
In March 1995, the Company issued 60,000 shares of its Common Stock to
Lampert & Lampert, counsel to the Company for fees and expenses of $500.
In July 1995, PMS entered into a loan agreement with the Company's
president, whereby PMS borrowed approximately $232,500. The loan is payable on
demand and accrues interest at the rate of 2.5% over the Midland Bank base rate.
The principal balance of such loan was $117,034, which was paid in April 1996.
In December 1995, the Company consummated a private placement offering,
whereby the Company sold 20 units, each unit comprised 25,000 shares of Common
Stock at a purchase price of $6,000 per unit.
In April 1996, the Company consummated an initial public offering, whereby
the Company sold 950,000 shares of its common stock at a purchase price of $5.00
per share and 2,000,000 redeemable common stock purchase warrants at a price of
$0.10 per warrant. The warrants are exercisable at a price of $5.75 per share,
subject to adjustment, beginning April 24, 1997 and expiring April 23, 2001. In
connection therewith, the Company also granted to the underwriter of the
offering a warrant to purchase 95,000 shares of the Company's common stock at a
purchase price of $7.50 and 200,000 redeemable common stock purchase warrants at
a purchase price of $0.15 per warrant, each warrant exercisable to purchase one
share of common stock at a purchase price of $7.50 per share. Other than with
respect to the exercise price, the terms of the warrants granted to the
underwriter are identical to those described above. The Company's securities are
currently traded on the Nasdaq SmallCap Stock Exchange and the Boston Exchange.
In November 1996, the Company, through its subsidiary AC Automotive Group,
Inc., purchased all the assets of AC Cars Limited and Autokraft Limited.
In December 1996, the Company consummated a private placement offering,
whereby the Company sold 18.5 units, each unit comprised of a 10% promissory
note in the amount of 10,000 shares of Common Stock at a purchase price of
$100,000 per unit. In connection with such offering, AC sold an aggregate of
1,028,700 shares to three affiliates of the Underwriter for aggregate
consideration of $1,030. Such persons currently own an aggregate of 14% of the
capital stock of AC. In addition, the Underwriter loaned the Company the sum of
$100,000, $71,000 of which remains outstanding.
For a description of the Company's employment agreements, see "Executive
Compensation - Employment Agreements."
All future transactions between the Company and any officer, director or 5%
stockholder will be on terms no less favorable than could be obtained from
independent third parties and will be approved by a majority of the independent
disinterested directors of the Company.
54
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capitalization consists of 10,000,000 shares
of Common Stock, par value $.001 per share and 2,000,000 shares of Preferred
Stock, par value $.01 per share, which may be issued in one or more series at
the discretion of the board of directors. As of January 5, 1998, there were
2,837,500 shares of Common Stock outstanding, all of which were fully paid and
non-assessable. The following summary description of the Common Stock, Warrants
and Preferred Stock is qualified in its entirety by reference to the Company's
Articles of Incorporation and all amendments thereto.
Common Stock
Each share of Common Stock entitles its holder to one non-cumulative
vote per share and, subject to the preferential rights of the preferred
stockholders, the holders of more than fifty percent (50%) of the shares voting
for the election of directors can elect all the directors if they choose to do
so, and in such event the holders of the remaining shares will not be able to
elect a single director. Holders of shares of Common Stock are entitled to
receive such dividends as the board of directors may, from time to time, declare
out of Company funds legally available for the payment of dividends. Upon any
liquidation, dissolution or winding up of the Company, holders of shares of
Common Stock are entitled to receive pro rata all of the assets of the Company
available for distribution to stockholders after the satisfaction of the
liquidation preference of the preferred stockholders.
Stockholders do not have any pre-emptive rights to subscribe for or
purchase any stock, warrants or other securities of the Company. The Common
Stock is not convertible or redeemable. Neither the Company's Certificate of
Incorporation nor its By-Laws provide for pre-emptive rights.
Preferred Stock
The preferred stock may be issued in one or more series, to be
determined and to bear such title or designation as may be fixed by resolution
of the board of directors prior to the issuance of any shares thereof. Each
series of the preferred stock will have such voting powers (including, if
determined by the board of directors, no voting rights), preferences, and other
rights as determined by the board of directors, with such qualifications,
limitations or restrictions as may be stated in the resolutions of the board of
directors adopted prior to the issuance of any shares of such series of
preferred stock.
Purchasers of the Securities offered hereby should be aware that the
holders of any series of preferred stock, which may be issued in the future
could have voting rights, rights to receive dividends or rights to distribution
in liquidation, superior to those of holders of the Common Stock, thereby
diluting or negating the voting rights, dividend rights or liquidation rights of
the holders of the Common Stock.
Because the terms of each series of preferred stock may be fixed by the
Company's board of directors without stockholder action, the preferred stock
could be issued with terms calculated to defeat a proposed takeover of the
Company, or to make the removal of the Company's management more difficult.
Under certain circumstances, this could have the effect of decreasing the market
price of the
55
<PAGE>
Common Stock. Management of the Company is not aware of any such threatened
transaction to obtain control of the Company.
Warrants
Each warrant gives the holder the right to purchase one share of the
Company's Common Stock, subject to adjustment in certain events at an initial
price of $5.75 per share. The Warrants will be exercisable one year from the
date of this Prospectus for a period of four years, until April 23, 2001. The
Warrants are redeemable by the Company at any time commencing one year from the
date of this Prospectus upon 30 days notice at a redemption price of $.05 per
Warrant, provided that the closing bid quotation of the Common Stock for at
least 20 trading consecutive days ending not more than 15 days prior to the date
on which the Company gives notice has been at least 120% of the then effective
exercise price of the Warrants. The Company may elect to redeem the Warrants at
such time as the Company requires additional capital. Redemption of the Warrants
could force the holders to exercise the Warrants and pay the exercise price at a
time when it may be disadvantageous for the holders to do so, to sell the
Warrants at the then current market price when they might otherwise wish to hold
the Warrants, or to accept the redemption price, which is likely to be
substantially less than the market value of the Warrants at the time of
redemption. The Company will not redeem the Warrants at any time in which its
registration statement is not current, so that investors will be able to
exercise their Warrants during the 30 day notice period in the event of a
warrant redemption by the Company.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of each Warrant are subject to adjustment in certain events,
including the issuance of a stock dividend to holders of Common Stock, or a
combination, subdivision or reclassification of Common Stock. No fractional
shares will be issued upon exercise of Warrants, but the Company will pay the
cash value of the fractional shares otherwise issuable.
Notwithstanding the foregoing, in case of any consolidation, merger,
sale or conveyance of the property of the Company as an entirety or
substantially as an entirety, the holder of each outstanding Warrant shall
continue to have the right to exercise the Warrant for the kind and amount of
shares and other securities and property (including cash) receivable by a holder
of the number of shares of Common Stock for which such Warrants were exercisable
immediately prior thereto.
Holders of Warrants are not entitled, by virtue of being such holders,
to receive dividends or to consent or to receive notice as stockholders in
respect of any meeting of stockholders for the election of directors of the
Company or any other mater, or to vote at any such meeting, or to exercise any
rights whatsoever as stockholders of the Company.
Although the Company intends to seek to qualify for sale the shares of
Common Stock underlying the Warrants in those states in which the Securities are
to be offered, i.e., Colorado, Connecticut, Delaware, Florida, Georgia,
Illinois, Louisiana Maryland, Nevada, New Hampshire, New Jersey, New York, Rhode
Island, Utah and Virginia, no assurance can be given that such qualification
will occur. The Warrants may be deprived of any value and the market for the
Warrants may be limited if a current prospectus covering the Common Stock
issuable upon exercise of the Warrants is not kept effective or
56
<PAGE>
if such Common Stock is not qualified or exempt from qualification in the
jurisdictions in which the holders of the Warrants then reside.
The Warrants may not exercised unless the Company has a current
Prospectus. Prior to the exercise of any Warrants, the Company must file a
post-effective amendment to this Registration Statement of which this Prospectus
forms a part, and such post-effective amendment must be declared effective by
the Commission. The Company will notify all Warrantholders and its transfer
agent that the Warrants may not be exercised in the event that a post-effective
amendment has not been declared effective on or before the one-year anniversary
of this Prospectus, as to prevent the Warrants from being exercised in the
absence of a current, effective Registration Statement.
In the event the Company reduces the exercise price or extends the
exercise period of the Warrants, the Company will undertake the notification
filing provisions herein referred to with respect to notification of
Warrantholders and the filing of a post-effective amendment. No such changes are
currently contemplated by the Company.
Private Placements
The Company consummated a private placement offering in December 1995
(the "Private Placement"), whereby the Company sold 20 units, each comprised of
25,000 shares of Common Stock at a purchase price of $6,000 per unit. 440,000
shares of Common Stock were sold by certain selling securityholders in the
Company's initial public offering through the Underwriters on a firm commitment
basis, with an additional 60,000 shares sold pursuant to the exercise of the
Underwriters' Over-allotment Option granted by certain selling securityholders
to the Underwriters. The proceeds of the Private Placement were used by the
Company as working capital to finance its operations.
In December 1996, the Company completed a private placement of 18.5
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 notes are payable on the earlier of 18 months from the
date of issuance or the closing of an underwritten public offering of the
Company' securities. The gross proceeds of the Private Placement were used by
the Company's majority owned subsidiary to complete the acquisition of the
assets of AC Cars Limited ("AC Cars") and Autokraft Limited ("Autokraft"), two
companies incorporated under the laws of England and Wales, respectively.
Transfer Agent and Warrant Agent.
The Company's Transfer Agent and Warrant Agent is Continental Stock
Transfer and Trust Company, which Agent is responsible for all record keeping
and administrative functions in connection with the Common Stock and Warrants.
57
<PAGE>
REPORTS TO STOCKHOLDERS
The Company has adopted November 30 as its fiscal year end. The Company
will distribute annual reports to its stockholders, including financial
statements examined and reported on by an independent certified public
accountant, and will provide such other reports as management may deem necessary
or appropriate to keep stockholders informed of the Company's operations.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 2,837,500 shares of the Company's Common Stock outstanding,
1,560,000 shares were issued in March 1995. All of such shares were issued as
"restricted securities" which may be sold upon compliance with Rule 144 adopted
under the Securities Act, or any other exemption from the registration
requirements of the Securities Act. 500,000 shares of Common Stock were issued
in the Company's Private Placement in December 1995, all of which were
registered and sold in the Company's initial public offering in April 1996.
185,000 shares of the Company's Common Stock were issued in the Company's
Private Placement of December 1996. All 185,000 shares issued in the December
Private Placement are being registered in this offering and may be sold from
time to time by the Selling Securityholders.
Rule 144 provides, in essence, that a person holding "restricted
securities" for a period of two years may sell every three months in brokerage
transactions an amount equal to the greater of: (a) one percent of the Company's
outstanding shares of Common Stock; (b) the average weekly reported volume of
trading for the securities on all national exchanges and/or through the
automated quotation system of a registered securities association during the
four calendar week period preceding each transaction; or (c) the average weekly
trading volume in the securities reported through the consolidated transaction
reporting system during the four calendar week period. Rule 144 also requires
that current information about the securities must be available to stockholders
and brokers.
Therefore, after taking into account the shares to be sold in this
Offering (and without giving effect to any shares of Common Stock which may be
issued upon exercise of the Warrants) in each three-month period commencing
January 1998, at least 38,175 (39,675 shares if the Underwriters' Over-allotment
option is exercised in full) shares may be publicly sold under Rule 144 by each
holder of "restricted securities" who has held such shares for at least one
year.
Persons who are not "affiliates" of the Company, as that term is
defined under the Securities Act, who have been non-affiliates for the 90 days
immediately preceding the sale, and who have owned their shares for a period of
at least two years, may sell such shares without limitation. Giving effect to
the sale of 1,000,000 shares of Common Stock by the Company, the Company will
have issued and outstanding 3,837,500 shares of its Common Stock, of which
1,500,000 shares will be "restricted securities." All 1,500,000 of said shares
of Common Stock became eligible for resale under Rule 144 in March 1997.
Investors should be aware that the possibility of such sales under Rule 144 will
in all probability have a depressive effect on the price of the Company's Common
Stock in any market which may develop. See "Shares Eligible for Future Sales."
58
<PAGE>
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Securityholders, have agreed to "lock-up" and
not sell, publicly, privately or otherwise dispose of any shares of Common Stock
for a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of the Underwriter.
UNDERWRITING
The Company has entered into an Underwriting Agreement (the
"Agreement") with the Underwriters. Mason Hill & Co., Inc. has previously
completed two public offerings. Mason Hill is a relatively small firm and plans
on making a market in the Company's securities, however, there can be no
assurances that it will be able to make a meaningful market in the Company's
Securities or that another broker/dealer will make a meaningful market in the
Company's Securities. The Agreement has been filed as an exhibit to the
Registration Statement filed with the Securities and Exchange Commission of
which this Prospectus forms a part. The Underwriters severally and not jointly,
have agreed to purchase, 1,000,000 shares of Common Stock from the Company, as
follows:
Number of
Underwriter Shares
Mason Hill & Co., Inc.
Total 1,000,000
Summary of Underwriting Agreement.
The obligations of the several Underwriters are subject to the
satisfaction of certain conditions precedent. Pursuant to the Agreement, the
Underwriters are committed to purchase and pay for all of the Securities, on a
"firm commitment" basis, if any Securities are purchased. The Underwriters have
advised the Company that they propose to offer the Securities to the public at
the public offering prices set forth on the cover page of this Prospectus.
Investors will not be required to purchase shares of Common Stock and Warrants
together or in any particular ratio. The Underwriters may allow to certain
dealers who are members of the National Association of Securities Dealers, Inc.
("NASD") concessions, not in excess of $.___ and $.____ per share and Warrant
respectively.
The Company and Selling Securityholders have granted to the
Underwriters an option, exercisable for 45 days from the date of this
Prospectus, to purchase up to an additional 150,000 shares of Common Stock at
the public offering prices set forth on the cover page of this Prospectus, less
the underwriting discounts and commissions. The Underwriters may exercise this
option in whole or, from time to time, in part, solely for the purpose of
covering over-allotments, if any, made in connection with the sale of
59
<PAGE>
the Securities offered hereby. To the extent that the Underwriters exercise this
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of such Securities
which the number of Securities to be purchased by it shown in the foregoing
table bears to the total number of Securities initially offered hereby.
The Company has agreed to pay to the Underwriters 3% of the gross
proceeds, or a total of $150,000, ($172,500, if the Over-allotment Option is
exercised in full), for the Underwriters expenses on a non-accountable basis, of
which none has been paid by the Company to date. The Company is required to pay
the cost of qualifying and registering the Securities being sold under federal
and certain state securities laws, together with any other legal and accounting
fees, printing and other costs in connection with the Offering.
In connection with this Offering, the Company has agreed to sell to the
Underwriters, for $10, warrants (the "Underwriters' Warrants") to purchase from
the Company an aggregate of 100,000 shares of Common Stock at an exercise prices
of 120% of the public offering prices of the Securities or $6.00 per share,
subject to adjustment. The Underwriters' Warrants are exercisable for a period
of four years commencing one year from the date of this Prospectus. The
Underwriters' Warrants may not be sold, transferred, assigned or hypothecated
for a period of one year, except to the officers of each of the Underwriters.
The Underwriters' Warrants will contain anti-dilution provisions providing for
appropriate adjustment under certain circumstances. The holders of the
Underwriters' Warrants have no voting, dividend or other rights as stockholders
of the Company with respect to Shares underlying the Underwriters' Warrants
until the Underwriters' Warrants have been exercised.
The Company has agreed, for a period of five years following the date
of this Prospectus, to give advance notice to the holders of the Underwriters'
Warrants or underlying shares of its intention to file a registration statement,
and in such case the holders of the Underwriters' Warrants and underlying shares
shall have the right to require the Company to include the Underwriters'
Warrants and underlying shares in such registration statement at the Company's
expense. In addition, at any time during the four year period following the
first anniversary of the date of this Prospectus, holders of 50% of the
Underwriters' Warrants or the underlying shares will have the right to require
the Company to prepare and file, at the Company's expense, one registration
statement so as to permit the public offering of the Underwriters' Warrants and
the shares underlying such Warrants.
In addition, the Company has agreed to enter into a consulting
agreement with Mason Hill & Co., Inc. to provide financial consulting services
to the Company for a period of three years at an aggregate monthly fee of $3,000
payable in full at the closing of the Offering. Pursuant to the terms of the
consulting agreement, the Company has agreed, for a period of five years
following the date of this Prospectus, to pay to Mason Hill & Co., Inc. a cash
finder's fee of (i) five percent (5%) of the first $1,000,000; (ii) four percent
(4%) of the second $1,000,000; (iii) three percent (3%) of the third $1,000,000;
(iv) two percent (2%) of the fourth $1,000,000; and (v) one percent (1%) of any
consideration over $5,000,000 upon the completion of any transaction in which
Mason Hill & Co., Inc. is responsible for introducing a merger or acquisition
candidate to the Company.
60
<PAGE>
All officers, directors and owners of 5% or more of the Company's
Common Stock, except the Selling Securityholders, have agreed to "lock-up" and
not sell, publicly, privately or otherwise dispose of any shares of Common Stock
for a period of two years from the date of this Prospectus, whereby these
stockholders cannot sell, publicly, privately or otherwise dispose of any of
their shares without the prior written consent of the Underwriters. 1,500,000
shares of Common Stock will not be eligible for resale under Rule 144 until
January 2000.
For a period of five years from the date hereof, the Company has agreed
to nominate a designee of the Underwriters, to stand for election to the
Company's board of directors. At present the Underwriters have advised the
Company that they have no intention to select such individual in the immediate
future. In the event such designee is not elected, or in lieu thereof, the
Underwriters may designate an observer to be notified and attend all meetings of
the board. No designee or observer shall be an associated person of any
Underwriter.
The Company has agreed to indemnify the Underwriters against
liabilities incurred by the Underwriters by reason of misstatements or omissions
to state material facts in connection with the statements made in this
Prospectus and the Registration Statement of which it forms a part. The
Underwriters, in turn, has agreed to indemnify the Company against liabilities
incurred by the Company by reason of misstatements or omissions to state
material facts in connection with statements made in the Registration Statement
and Prospectus based on information furnished by the Underwriters.
The foregoing does not purport to be a complete statement of the terms
and conditions of the Agreement, copies of which are filed at the offices of the
Company and Underwriters and may be examined there during regular business
hours.
LEGAL OPINIONS
Legal matters relating to the shares of Common Stock and Warrants
offered hereby will be passed on for the Company by its counsel, Lampert &
Lampert. Counsel for the Underwriter is Gersten Savage Kaplowitz & Frederiks.
Lampert & Lampert has acted as counsel to the Underwriter on other matters
unrelated to this Offering and may do so in the future.
EXPERTS
The financial statements of the Company as of and for the years ended
November 30, 1996 and 1995 included in the Prospectus and in the Registration
Statement have been audited by Civvals, Chartered Accountants to the extent and
for the period set forth in their report appearing elsewhere herein and in the
Registration Statement and is included in reliance upon such report given upon
the authority of said firm as experts in accounting and auditing.
61
<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 August 31, 1997 F - 3
Consolidated Statements of Operations for the Year Ended November 30, 1996 and the Nine F - 4
Months Ended 31st August, 1997
Consolidated Statement of changes in Shareholders' Equity for the Two Years Ended F - 5 &- 6
November 30, 1996 and the Nine Months Ended August 31, 1997
Consolidated Statements of Cash Flows for the Year Ended November 30, 1996 and the Nine F - 7
Months Ended 31st August, 1997
Notes to Consolidated Financial Statements F - 8 to 21
</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.
FEBRUARY 14, 1997
MARBLE ARCH HOUSE EXCEPT AS TO
66-68 SEYMOUR STREET NOTES 18 AND 19(c)
LONDON W1H 5AF WHICH ARE DATED CIVVALS
UNITED KINGDOM JUNE 26, 1997 CHARTERED ACCOUNTANTS
F - 2
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
- ASSETS (Note 6a) -
<TABLE>
<CAPTION>
November 30, 1996 August 31, 1997
------------------- -------------------
$ $
ASSETS:
<S> <C> <C>
Cash and cash equivalents 250,699 26,178
------------------------- ------- ------
Accounts receivable (Notes 2c and 3) 2,022,011 2,035,511
------------------------------------ --------- ---------
Inventories (Note 2d) 1,022,655 1,691,941
--------------------- --------- ---------
Property, revenue producing vehicles and equipment - net
(Notes 2e, 4, 6, 7 and 19c) 20,671,854 26,699,630
--------------------------- ---------- ----------
Intangible assets - net (Notes 2f and 19c) 9,722,363 9,247,939
------------------------------------------ --------- ---------
------------------- -------------------
TOTAL ASSETS 33,689,582 39,701,199
- ------------ ---------- ----------
------------------- -------------------
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 6a) 2,964,465 5,972,743
----------------------------- --------- ---------
Accounts payable 624,953 2,759,541
---------------- ------- ---------
Accrued liabilities and expenses (Note 5) 490,915 374,944
----------------------------------------- ------- -------
Bank debt (Note 6b) 1,002,571 948,782
------------------- --------- -------
Obligations under hire purchase contracts (Note 7) 11,034,951 15,326,166
-------------------------------------------------- ---------- ----------
Other liabilities (Note 8) 33,560 114,627
-------------------------- ------ -------
Acquisition debt payable (Note 10) 5,098,470 4,274,500
---------------------------------- --------- ---------
------------------- -------------------
TOTAL LIABILITIES 21,249,885 29,771,303
- ----------------- ---------- ----------
------------------- -------------------
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 2,837,500 shares issued and outstanding in 1996 and 1997 respectively
2,653 2,838
----- -----
Additional paid-in capital 13,487,388 13,399,751
-------------------------- ---------- ----------
Retained earnings (deficit) ( 1,402,587) ( 3,138,333)
--------------------------- ------------- -------------
Foreign currency translation (Note 2h) ( 130,243) ( 334,360)
-------------------------------------- -------------- --------------
------------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 11,957,211 9,929,896
- -------------------------- ---------- ---------
------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 33,689,582 39,701,199
- ------------------------------------------ ---------- ----------
=================== ===================
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended November 30, For the Nine Months Ended August 31,
1996 1995 1997 1996
---- ---- ---- ----
-------------- --- --------------- --------------- --- --------------
$ $ $ $
REVENUE:
<S> <C> <C> <C> <C>
Contract hire income 6,286,677 4,723,539 5,571,724 3,524,377
Sale of vehicles 5,839,080 4,629,860 5,343,285 4,105,599
Fleet management and other income - Pride 758,261 369,657 660,455 646,413
AC Car Group Limited (vehicle sales) - - 516,506 -
Service and spare parts revenue - - 192,956 -
Other income - AC Car Group Limited - - 184,936 -
12,884,018 9,723,056 12,469,862 8,276,389
---------- --------- ---------- ---------
EXPENSES:
Cost of sales - Pride 7,946,686 4,882,214 6,530,114 4,415,012
- AC Car Group Lt- - 492,353 -
Depreciation - Pride 2,295,164 2,415,117 2,559,706 1,984,034
- AC Car Group Lt- 329,057
General and admin exps
- Pride 1,802,111 2,035,529 1,029,518 1,017,478
- AC Car Group Lt- - 1,254,423 -
Amortization of goodwill and other intangible assets - Pride
634,813 630,718 473,040 473,399
- AC Car Group Lt- - 1,847 -
Interest expenses and other
- Pride 860,242 629,623 1,043,702 724,434
- AC Car Group L-d - 286,576 -
Research and development - - 691,166 -
------------------------ ------- ------- ------- -
13,539,016 10,593,201 14,691,502 8,614,357
---------- ---------- ---------- ---------
LOSS BEFORE PROVISION FOR MINORITY INTERESTS ( 654,998) ( 870,145) (2,221,640) ( 337,968)
Minority interest ( 54,376) - ( 485,894) -
----------------- ------------ ------- ----------- -
NET INCOME / (LOSS) ( 600,622) ( 870,145) (1,735,746) ( 337,968)
- ------------------- ----------- ------------ ----------- -----------
Retained deficit brought forward ( 801,965) 68,180 (1,402,587) ( 801,965)
-------------------------------- ----------- ------ ----------- -----------
-------------- --------------- --------------- --------------
RETAINED EARNINGS CARRIED FORWARD (1,402,587) ( 801,965) (3,138,333) (1,139,933)
--------------------------------- ----------- ----------- ----------- -----------
============== =============== =============== ==============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGE IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares Common Additional Retained Foreign Total
(As Restated - Stock Paid-In Earnings Currency Shareholders
See Note 1) Capital (Deficit) Translation Equity
$ $ $ $ $ $
----------- ------ --------- -------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> 0
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 extinguishant 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 STATEMENT OF CHANGE IN SHAREHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Shares Common Additional Retained Foreign Total
(As Restated - Stock Paid-In Earnings Currency Shareholders'
See Note 1) Capital (deficit) Translation Equity
$ $ $ $ $ $
BALANCE AT
NOVEMBER 30,
<S> <C> <C> <C> <C> <C> <C>
1996 ..........................2,652,500 2,653 13,487,388 (1,402,587) (130,243) 11,957,211
Foreign currency
translation adjustment ........ -- -- -- -- (204,117) (204,117)
Net Loss for the
Nine Months ended
August 31, 1997
(Unaudited)
-- -- -- (1,735,746) -- (1,735,746)
Issue of common
stock ......................... 185,000 185 92,315 -- -- 92,500
Cost relating to
issue of shares
and bridging loan -- -- (179,952) -- -- (179,952)
BALANCE AT
AUGUST 31, 1997
(UNAUDITED)
----------- ----------- ----------- ----------- ----------- -----------
2,837,500 2,838 1,339,751 (3,138,333) (334,360) 9,929,896
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F - 6
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended November 30, For the Nine Months Ended August 31,
1996 1995 1997 1996
---- ---- ---- ----
--------------- ---- --------------- ---------------- --- ---------------
$ $ $ $
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net (loss) ( 600,622) ( 870,145) (1,735,746) ( 337,968)
Adjustments to reconcile net (loss) to
net cash (utilized) provided by operating
activities:
Minority interest in net loss of subsidiary ( 54,376) - ( 485,894) -
Depreciation and amortization 2,354,942 1,852,825 2,888,753 2,013,901
Amortization of goodwill 594,735 630,718 474,424 443,174
Extinguishment of debt with related party - 562,292 - -
(Gain) loss on disposal of fixed assets ( 119,030) 229,563 (193,752) ( 46,078)
Compensatory stock - 60 - -
Provision for maintenance costs ( 18,524) ( 176,302) - 31,679
Changes in assets and liabilities:
Increase (decrease) in accounts receivable ( 599,753) ( 236,681) ( 13,500) ( 351,809)
Increase (decrease) n inventories ( 93,794) 111,382 ( 669,286) ( 163,859)
Decrease (increase) in accounts payable,
accrued expenses and bank ( 955,172) ( 553,388) 2,099,683 (1,055,398)
----------- ----------- --------- -----------
Net cash provided from operating activities 508,406 1,550,324 2,364,682 533,642
--------------- --------------- ---------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (9,858,724) (3,433,132) (10,162,619) (6,438,370)
Acquisition of assets in new subsidiary ( 969,279) - -
Proceeds from sale of fixed assets 2,068,601 906,727 1,443,250 1,195,509
Net cash (utilized) by investing activities (8,759,402) (2,526,405) (8,719,369) (5,242,861)
--------------- --------------- ---------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank lines of credit 1,870,785 1,093,680 3,008,278 452,301
Proceeds from sale of common stock and warrants 2,285,929 - 92,500 3,282,500
Costs associated with stock/debt offerings - - ( 179,952) ( 882,206)
Loans received from officers - 232,500 - -
Loans repaid to officers ( 304,759) ( 108,832) - ( 123,668)
Loans repaid to affiliate - ( 132,147) - -
Principal payments of long-term debt ( 67,921) ( 92,375) ( 53,789) ( 43,537)
Payment of acquisition debt - - ( 823,970) -
Proceeds from hire purchase contract funding 11,530,175 3,262,390 14,438,622 7,628,185
Principal repayments of hire purchase
contract funding (6,073,790) (3,495,819) (10,147,407) (5,533,009)
----------- ----------- ------------ -----------
Net cash provided from financing activities 9,240,419 759,397 6,334,282 4,780,566
-------------- ---------------- ---------------- ---------------
Effect of exchange rate changes on cash ( 742,101) 201,581 ( 204,116) ( 48,570)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS 247,322 ( 15,103) ( 224,521) 22,777
Cash and cash equivalents, beginning of year 3,377 18,480 250,699 3,377
----- ------ ------- -----
CASH AND CASH EQUIVALENTS END OF YEAR 250,699 3,377 26,178 26,154
============== ================ ================ ===============
SUPPLEMENTAL INFORMATION
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. 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.
</TABLE>
See notes to consolidated financial statements.
F - 7
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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 marke 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 - 8
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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 - 9
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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.
Inventories consisted of the following:
November 30, August 31,
1996 1997
Cars held for resale .. $ 124,932 $ 206,440
Finished goods . 75,510 221,400
Work-in-progress 684,305 697,575
Spare parts .... 137,908 566,525
---------- ----------
$1,022,655 $1,691,941
(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 or 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 - 10
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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 aggregated $2,990,626. Accumulated amortization as of
August 31, 1997 aggregated(pound)3,465,050.
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 - 11
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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, August 31,
1996 1997
November 30, 1997 $ 5,103,977 2,384,395
November 30, 1998 4,390,779 3,209,682
November 30, 1999 2,634,819 2,474,200
November 30, 2000 1,007,729 1,174,806
-------------
Total minimum lease payments receivable
net of executory costs $13,137,304 9,243,083
(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 - 12
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 3 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
November 30, August 31,
1996 1997
Trade receivables $1,192,949 $1,051,261
Lease maintenance receivables 330,902 358,683
Value added tax 102,114 461,722
Due from related companies 95,125 79,823
Other 300,921 84,022
------------ ------------
$2,022,011 $2,035,511
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:
November 30, August 31,
1996 1997
Buildings and improvements $ 1,719,415 $ 1,719,415
Revenue producing vehicles 17,282,095 25,056,005
Furniture, fixtures, plant and equipment 4,641,388 4,519,731
Aircraft 927,751 927,751
------------- ------------
24,570,649 32,222,902
Less:accumulated depreciation (including
$3,388,495 and $4,614,419 of accumulated
depreciation on revenue producing vehicles,
for 1996 and August 31, 1997 respectively) 3,898,795 5,523,272
---------------- ----------
$20,671,854 $26,699,630
Depreciation expense for the year ended November 30, 1996 and nine months
ended August 31, 1997 aggregated $2,295,164 and $2,888,763 respectively.
One of the buildings owned by Pride Management and not currently being
utilized by the Company, is being leased to an unrelated party at an annual rent
of approximately $95,000 per annum.
F - 13
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 4 - FIXED ASSETS AND DEPRECIATION (Continued):
In November 1997, the tenant exercised their option to purchase and the
building was disposed of for approximately $400,000. The bank loan of $288,000
was repaid.
In October 1997, the Aircraft was disposed of for $816,000 and the bank
loan of $720,000 was repaid.
NOTE 5 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
November 30, August 31,
1996 1997
Taxes other than income taxes $418,082 $108,645
Miscellaneous accrued expenses 72,833 266,299
$490,915 $374,944
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. As of August 31, 1997, the facility had
expired. The Company is currently negotiating a new facility for the forthcoming
year.
(b)At November 30, 1996, and August 31, 1997, bank loans consisted of
$1,002,571 and $997,382 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. In December 1996, the Company 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. In October 1997,
this loan was repaid from the proceeds of the sale of the aircraft. In November
1997,(pound)288,074 was repaid out of the proceeds of the sale of a property.
F - 14
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 6 - BANK LOANS/LINE OF CREDIT (Continued):
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.
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%.
As of August 31, 1997, the aggregate funding lines had been increased to
$22,650,000 and obligations under hire purchase funding aggregated to
$15,326,166.
NOTE 8 - OTHER LIABILITIES:
At November 30, 1996 and August 31, 1997 other liabilities consisted of
$33,560 and $114,627, respectively due to other creditors at interest rates
approximating the current market rates and repayable on a demand basis.
F - 15
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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
As of August 31, 1997, the acquisition debt payable amounted to $4,274,500,
the reduction being as a result of the repayment of the loan raised in December
1996 against the security of the aircraft.
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.
F - 16
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 11 - COMMON STOCK/RECAPITALIZATION (Continued):
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.
NOTE 13 - INCOME TAXES:
The provisions for United Kingdom income taxes utilizing the requirements
of SFAS No 109 consisted of the following for the year ended November 30, 1996
and the nine months ended August 31, 1997:
November 31, August 31,
1996 1997
----------- ---------
Current tax expense $ 763,350 $1,503,000
Deferred tax expense 174,650 -
Investment tax credits on vehicles (938,000)(1,503,000)
--------- ----------
$ - $ -
=============== ==========
At November 30, 1996, investment tax credits being carried over to future
periods aggregated approximately $11,904,000.
F - 17
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 13 - INCOME TAXES (Continued):
The components of the deferred tax asset, pursuant to SFAS No. 109, as of
November 30, 1996 and August 31, 1997, respectively, are as follows:
November 30, Auguat 31,
1996 1997
-------- -------
Operating loss carry forward $ 52,000 $1,351,000
Valuation allowance (52,000) (23,000)
-------- ---------
$ - $ -
============ =======
The Company has available operating losses carry forwards 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 August 31, 1997, the Company had
two unaffiliated customers, which accounted for an aggregate of approximately
21% and 16% 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.
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 year ended November 30, 1996 and the nine months ended
August 31, 1997 amounted to $55,817 and $62,746, respectively.
F - 18
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
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. In July 1997, the Company exercised this option and sold the
property for $8,960,000, thereafter entering into a 15 year leaseback of a
portion of the property at $29,000 per month.
(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).
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 extendible for a further twenty four month
period and provides for an annual salary of $55,000, subject to review by the
Board of Directors. At December 1, 1997, this agreement was extended or a
further twenty-four month period at an annual salary of $65,000.
F - 19
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 17 - COMMITMENTS (Continued):
(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. As of August 31, 1997, the
liability to the minority shareholders had been returned to zero.
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.
NOTE 20 - COMMON STOCK/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.
F - 20
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997 AND NOVEMBER 30, 1996
NOTE 20 - COMMON STOCK/INITIAL PUBLIC OFFERING (Continued):
In April 1996 the Company successfully completed an initial public offering
of its common stock. The Company sold 592,500 shares of common stock (including
the underwriter's over allotment) at a price of $5.00 per share and 2,000,000
redeemable common stock purchase warrant at a price of $.10 per warrant for
aggregate net proceeds of $2,280,294. Each common stock purchase warrant
entitles the holder to purchase one share of common stock at an exercise price
of $5.75.
In 1997, the Company completed a private placement of 18 1/2 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 notes are payable on the earlier of 18 months from the date of
issuance or a closing of an underwritten public offering of the Company's (or
any of its subsidiaries) securities.
F - 21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY PRIDE AUTOMOTIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS GROUP, INC.
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO 1,000,000 Shares of Common Stock
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
ADDITIONAL INFORMATION..................................................
PROSPECTUS SUMMARY......................................................
RISK FACTORS............................................................
DIVIDEND POLICY.........................................................
DILUTION................................................................
USE OF PROCEEDS.........................................................
CAPITALIZATION..........................................................
BUSINESS................................................................
MANAGEMENT..............................................................
PRINCIPAL STOCKHOLDERS.................................................. -----------------------
DESCRIPTION OF PROSPECTUS
SECURITIES.............................................................. -----------------------
SHARES ELIGIBLE FOR
FUTURE SALE.............................................................
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS................................................
UNDERWRITING............................................................
LEGAL OPINIONS.......................................................... MASON HILL & CO., INC.
EXPERTS.................................................................
INDEX TO FINANCIAL STATEMENTS........................................F-1
January __, 1998
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
</TABLE>
<PAGE>
Preliminary prospectus subject to completion, dated January , 1998
PROSPECTUS
PRIDE AUTOMOTIVE GROUP, INC.
185,000 Shares of Common Stock
which may be sold from time to time
by the Selling Securityholders
Par Value $.001 Per Share
This Prospectus relates to 185,000 shares of Common Stock (the "Selling
Securityholders' Shares"), $.001 par value (the "Common Stock"), of Pride
Automotive Group, Inc. (the "Company"), which are being offered for sale by
certain selling securityholders (the "Selling Securityholders"). The Selling
Securityholders' Shares are sometimes referred to herein as the "Selling
Securityholders' Securities." See "Selling Securityholders and Plan of
Distribution."
The Company will not receive any of the proceeds from the sales of the
Selling Securityholders' Securities by the Selling Securityholders. The Selling
Securityholders' Securities may be offered from time to time by the Selling
Securityholders, their transferees, pledgees and/or their donees, through
ordinary brokerage transactions in the over-the-counter market, in negotiated
transactions or otherwise, at market prices prevailing at the time of sale or at
negotiated prices.
The Selling Securityholders, their pledgees and/or their donees, may be
deemed to be "underwriters" as defined in the Securities Act of 1933, as amended
(the "Securities Act"). If any broker-dealers are used by the Selling
Securityholders, their pledgees and/or their donees, any commission paid to
broker-dealers and, if broker-dealers purchase any Selling Securityholders'
Securities as principals, any profits received by such broker-dealers on the
resale of the Selling Securityholders' Securities, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Securityholders, their pledgees and/or their
donees, may be deemed to be underwriting commissions. All costs, expenses and
fees in connection with the registration of the Selling Securityholders'
Securities will be borne by the Company except for any commission paid to
broker-dealers.
The Selling Securityholders' Securities offered by this Prospectus may
be sold from time to time by the Selling Securityholders, their pledgees and/or
their donees. No underwriting arrangements have been entered into by the Selling
Securityholders. The distribution of the Selling Securityholders' Securities by
the Selling Securityholders, their pledgees and/or their donees, may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders, their pledgees and/or their donees, in connection with sales of
the Selling Securityholders' Securities.
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering (the
"Underwritten Offering") of 1,000,000 shares of Common Stock (without giving
effect to the Underwriters' Over-allotment Option granted to the Underwriters to
purchase up to an additional 150,000 shares of Common Stock), was declared
effective by the Securities and Exchange Commission. In connection with the
Underwritten Offering, the Company granted the Representative a warrant to
purchase 100,000 shares of Common Stock (the "Underwriter's Warrants").
II-1
<PAGE>
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSIONS PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Offering
<TABLE>
<CAPTION>
<S> <C>
Securities Registered 185,000 shares of Common Stock. See "Description of Securities" and "Selling
Securityholders and Plan of Distribution."
Risk Factors This offering involves a high degree of risk and immediate substantial dilution.
See "Risk Factors" and "Dilution."
</TABLE>
SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION
The Company has issued an aggregate of 185,000 shares of Common Stock.
See "Principal Stockholders". The Selling Securityholders have advised the
Company that sales of the Selling Securityholders' Securities may be effected
from time to time by themselves, their pledgees and/or their donees, in
transactions (which may include block transactions) in the over-the-counter
market, in negotiated transactions, through the writing of options on the
Selling Securityholders' Securities, or a combination of such methods of sale,
at fixed prices that may be changed, at market prices prevailing at the time of
sale, or at negotiated prices. The Selling Securityholders, their pledgees
and/or their donees, may effect such transactions by selling the Selling
Securityholders' Securities directly to purchasers or through broker-dealers
that may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Securityholders and/or the purchasers of Selling Securityholders'
Securities for whom such broker-dealers may act as agents or to whom they sell
as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions).
The Selling Securityholders, their pledgees and/or their donees, and
any broker-dealers that act in connection with the sale of the Selling
Securityholders' Securities as principals may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act and any commissions
received by them and any profit on the resale of the Selling Securityholders'
Securities as principals might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Securityholders' Securities
being registered on behalf of the Selling Securityholders are restricted
securities while held by the Selling Securityholders and the resale of such
securities by the Selling Securityholders is subject to the prospectus delivery
and other requirements of the Act. The Selling Securityholders, their pledgees
and/or their donees, may agree to indemnify any agent, dealer or broker-dealer
that participates in transactions involving sales of the Selling
Securityholders' Securities against certain liabilities, including liabilities
arising under the Securities Act. The Company will not receive any proceeds from
the sale of the Selling Securityholders' Securities by the Selling
Securityholders. Sales
II-2
<PAGE>
of the Selling Securityholders' Securities by the Selling Securityholders, or
even the potential of such sales, would likely have an adverse effect on the
market price of the Company's securities.
At the time a particular offer of any securities is made by or on
behalf of the Selling Securityholders, to the extent required, a prospectus
supplement will be distributed which will set forth the number of securities
being offered and the terms of the offering, including the names or names of any
underwriters, dealers or agents, the purchase price paid by any underwriter for
shares purchased from the Selling Securityholders and any discounts, commissions
or concessions allowed or reallowed or paid to dealers, and the proposed selling
price to the public.
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the regulations thereto, any person engaged in distribution of
Company securities offered by this Prospectus may not simultaneously engage in
market-making activities with respect to Company securities during the
applicable "cooling off" period prior to the commencement of such distribution.
In addition, and without limiting the foregoing, the Selling Securityholders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation, Rules 10b-6 and 106-7, in
connection with transactions in the securities, which provisions may limit the
timing of purchases and sales of Company securities by the Selling
Securityholders.
The following table sets forth certain information with respect to
persons for whom the Company is registering the Selling Securityholders'
Securities for resale to the public. The Company will not receive any of the
proceeds from the sale of the Selling Securityholders' Securities. Beneficial
ownership of the Selling Securityholders' Securities by such Selling
Securityholders after the Offering will depend on the number of Selling
Securityholders' Securities sold by each Selling Securityholder. The securities
held by the Selling Securityholders are restricted securities while held by such
Selling Securityholders and the resale of such securities by the Selling
Securityholders is subject to prospectus delivery and other requirements of the
Act. The Selling Securityholders' Securities offered by the Selling
Securityholders are not being underwritten by the Underwriter.
II-3
<PAGE>
<TABLE>
<CAPTION>
[Alternative Page for Selling Securityholders' Prospectus]
Beneficial Beneficial
Ownership Percentage Ownership
Prior of After Selling
to Selling Common Amount of Securityholders
Securityholders Stock Shares Offering if All
Offering Owned Before Being Shares
Selling Securityholder Shares Offering Registered are Sold
<S> <C> <C> <C> <C>
Arthur Kamian &
Jane Kamian Kamian
The Family Trust 20,000 * 20,000 0
Don R. Howard &
Grace Howard 5,000 * 5,000 0
Sierra Holdings Trust
Rachmat Martin, Trustee 15,000 * 15,000 0
Jeffrey E. Levine 10,000 * 10,000 0
Joseph Giovinazzo 5,000 * 5,000 0
Robert Tormey 5,000 * 5,000 0
Timothy M. Schlameuss 5,000 * 5,000 0
Seymour M. Wasserstrum 5,000 * 5,000 0
Mann O War Inc. 20,000 * 20,000 0
Wayne Wiseman 10,000 * 10,000 0
James Bastek 20,000 * 20,000 0
Dan Easley 15,000 * 15,000 0
Joe DiMauro 10,000 * 10,000 0
Robert W. Bonnewell Trust 5,000 * 5,000 0
Edward Wilkins 5,000 * 5,000 0
Charles Wilkins 5,000 * 5,000 0
II-4
<PAGE>
LeRoy Dukes 5,000 * 5,000 0
Richard & Dorine Sasso 5,000 * 5,000 0
TOTAL 170,000 6.0% 170,000 0
======= ==== ======= =
</TABLE>
* less than 1% of the issued and outstanding shares of Common Stock
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY PRIDE AUTOMOTIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS GROUP, INC.
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO 185,000 Shares of Common Stock which
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY STATE TO ANY PERSON TO WHOM IT may be sold from time to time by the
IS UNLAWFUL TO MAKE SUCH AN OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME Selling Securityholders
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
ADDITIONAL INFORMATION..................................................
PROSPECTUS SUMMARY......................................................
RISK FACTORS............................................................
DIVIDEND POLICY.........................................................
DILUTION................................................................
USE OF PROCEEDS.........................................................
CAPITALIZATION..........................................................
BUSINESS................................................................
MANAGEMENT..............................................................
PRINCIPAL STOCKHOLDERS.................................................. -----------------------
DESCRIPTION OF PROSPECTUS
SECURITIES.............................................................. -----------------------
SHARES ELIGIBLE FOR
FUTURE SALE.............................................................
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS................................................
UNDERWRITING............................................................
LEGAL OPINIONS..........................................................
EXPERTS.................................................................
INDEX TO FINANCIAL STATEMENTS........................................F-1
January __, 1998
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
As permitted under the Delaware Corporation Law, the Company's
Certificate of Incorporation and By-laws provide for indemnification of a
director or officer under certain circumstances against reasonable expenses,
including attorneys fees, actually and necessarily incurred in connection with
the defense of an action brought against him by reason of his being a director
or officer. In addition, the Company's charter documents provide for the
elimination of directors' liability to the Company or its stockholders for
monetary damages except in certain instances of bad faith, intentional
misconduct, a knowing violation of law or illegal personal gain.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to any charter,
provision, by-law, contract, arrangement, statute or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company in
the successful defense of any such action, suit or proceeding) is asserted by
such director, officer or controlling person of the Company in connection with
the Securities being registered pursuant to this Registration Statement, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
by such court of such issue.
Item 25. Other Expenses of Issuance and Distribution.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee $ 2,474.14
NASD Filing Fee 1,167.50
Nasdaq Filing Fee 10,000.00
Boston Stock Exchange Fee 15,000.00
Printing and Engraving 35,000.00(1)
Legal Fees 80,000.00(1)
Accounting 35,000.00(1)
Transfer Agent and Warrant Agent Fees 2,500.00(1)
Blue Sky Fee Expenses 25,000.00(1)
Underwriters non-accountable
expense allowance (1)
Consulting Fee 108,000.00
Miscellaneous (1)
--------------------
Total $400,000.00
</TABLE>
- ------------------------
(1) Estimated.
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The following issuance of shares of Common Stock were exempt from
registration under the Securities Act, in reliance upon the exemption afforded
by Section 4(2) of the Securities Act for transactions not involving a public
offering. All certificates evidencing such sales bear an appropriate restrictive
legend.
In March 1995, Pride caused the Company to be incorporated in the State
of Delaware and reorganized its corporate structure by exchanging all of its
shares of Pride Management Services, Plc., an English corporation ("PMS") with
the Company in exchange for 1,500,000 newly issued shares of the Company's
common stock, making PMS a wholly owned subsidiary of the Company.
In March 1995, the Company issued 60,000 shares of its Common Stock to
Lampert & Lampert, counsel to the Company for fees and expenses.
The Company consummated a private placement offering in December 1995.
The Company sold 20 units in the Private Placement. The units each comprised
25,000 shares of Common Stock at a purchase price of $6,000 per unit.
The Company consummated a private placement offering in December 1996.
The Company sold 18.5 units in the Private Placement to the Selling
Shareholders. The units each comprised 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 notes are payable on the earlier of 18 months from the
date of issuance or a closing of an underwritten public offering of the
Company's securities. In connection with acting as the Placement Agent for this
transaction, the Underwriter received $240,500 as commission.
Item 27. Exhibits.
The following exhibits marked with an asterisk are being filed with
this Registration Statement on Form SB-2. All other Exhibits have been
previously filed.
<TABLE>
<CAPTION>
<S> <C>
1.1 - Form of Underwriting Agreement.
3.1 - Certificate of Incorporation of the Company.
3.2 - By-Laws of the Company.
4.1 - Specimen Common Stock Certificate.
4.2 - Form of Lock-up Agreement.
5.0 - Opinion of Lampert & Lampert.
10.1 - The Company's Senior Management Incentive Plan.
II-2
<PAGE>
10.2 - Employment Agreement with Alan Lubinsky.
10.3 - Employment Agreement with Ivan Averbuch.
10.4 - Consulting Agreement.
10.5 - Loan Agreement between PMS and Alan Lubinsky.
10.6 - Form of Service Agreement.
10.7 - Asset purchase agreement between Pride Vehicle Contracts (UK) Limited and
Master Vehicle Contracts Limited.
10.8 - Form of Hire Purchase Agreement.
10.9 - Mortgage on Pride House, Watford Metro Center.
10.10 - Mortgage on Croydon, England property.
10.11 - Lease agreement with respect to the Croydon England property.
24.1* - Consent of Civvals Chartered Accountants.
24.2* - Consent of Lampert & Lampert, Esqs., is contained in their opinion filed as exhibit
5.0 to this Registration Statement.
</TABLE>
Item 28. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a Post-Effective Amendment to this Registration Statement;
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
Post-Effective Amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the Registration
Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement, including
but not limited to any addition or deletion of a managing Underwriter.
(2) That, for the purpose of determining any liability under the
Securities Act, each such Post-Effective Amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of Post-Effective Amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
The undersigned Registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company, pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue. See Item 24.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in New York, New York on the th day of January, 1998.
PRIDE AUTOMOTIVE GROUP, INC.
By: /s/ Alan Lubinsky
ALAN LUBINSKY, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Alan Lubinsky President and Director
Alan Lubinsky (Principal Executive 01/12/98
Officer) Date
/s/ Ivan Averbuch
Ivan Averbuch Chief Financial Officer, Vice President,
Treasurer 01/12/98
and Director Date
/s/ Allan Edgar Director 01/12/98
Allan Edgar Date
</TABLE>
CONSENT OF CIVVALS CHARTERED ACCOUNTANTS
The undersigned, CIVVALS CHARTERED ACCOUNTS, hereby consents to the use of
our name and the use of our Opinion dated August 31, 1997 for Pride Automotive
Group, Inc. (the "Company") as filed with its Registration Statement on Form
SB-2 being filed by the Company.
Dated : August 31, 1997
/s/ Civvals Chartered Accountants
CIVVALS CHARTERED ACCOUNTANTS
LAMPERT & LAMPERT
ATTORNEYS AT LAW
10 EAST 40TH Street
NEW YORK, NEW YORK
TELEPHONE (212) 889-7300
TELECOPIER (212) 889-5732
MITCHELL LAMPERT* IRWIN S. LAMPERT
DARREN LAMPERT OF COUNSEL
--
MICHAEL H. FERENCE*
--
*NEW YORK AND NEW JERSEY
CONSENT OF ATTORNEYS
The undersigned, LAMPERT & LAMPERT, hereby consent of our name and the use
of our Opinion dated January 12, 1998 for Pride Automotive Group, Inc. (The
"Company") as filed with this Registration Statement on Form SB-2 being filed by
the Company.
Dated: January, 12 1998
LAMPERT & LAMPERT
