As filed with the Securities and Exchange Commission on June ^18, 1998
Registration No. 333-44131
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NUMBER ^2 TO THE
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
PRIDE AUTOMOTIVE GROUP, INC.
(Exact name of Registrant as specified in Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7510 98-0157860
(State of (Primary standard industrial I.R.S. employer
Incorporation) classification code) Identification No.
</TABLE>
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:
<TABLE>
<CAPTION>
<S> <C>
Mitchell Lampert, Esq. Jay M. Kaplowitz, Esq.
Lampert & Lampert Gersten Savage Kaplowitz
10 East 40th Street & Fredericks, LLP
New York, New York 10016 101 East 52nd Street, 9th Fl.
(212) 889-7300 New York, New York 10168
(212) 752-9700
</TABLE>
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>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
Maximum Maximum Amount of
Title of Each Class Amount Being Offering Price Aggregate Registration
of Securities Registered Per Security (1) Offering Price (1) Fee
Being Registered
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
<S> <C> <C> <C> <C>
$.001(2)............... 1,437,500 $(3) $5,750,000 $1,982.60
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
$.001 (4)...... 95,000 7.50 712,500 245.67
- -----------------------------------------------------------------------------------------------------------------------------------
Warrants (4)......... 200,000 0.15 30,000 10.34
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
$.001 (4)...... 200,000 5.75 1,150,000 396.52
- -----------------------------------------------------------------------------------------------------------------------------------
Underwriters Warrants to
Purchase Shares of
Common Stock
(5)............ 125,000 10.00 nil nil(6)
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock, Par Value
$.001.......... 125,000 (7) 825,000 284.46
- -----------------------------------------------------------------------------------------------------------------------------------
Totals $8,467,500 $2,919.59(8)
===================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457.
(2) Includes (i) 170,000 shares of Common Stock being sold by certain
Selling Shareholders (the "Selling Shareholders"), and (ii) 187,500 shares of
Common Stock, subject to sale upon exercise of the Over-allotment Option granted
to the Underwriter by the Company.
(3) For the purposes of calculating the registration fee, the Company has
assumed an offering price of $4.00 per Share.
(4) Represents the shares of Common Stock and Warrants being sold by the
Selling Securityholder, not through the Underwriter in this Offering.
(5) The Company has agreed to sell to the Underwriter, for aggregate
consideration of $10, 125,000 shares of Common Stock (the "Underwriter's
Warrants").
(6) Pursuant to Rule 457(g), no fee is payable thereon.
(7) For the purposes of calculating the registration fee, the Company has
assumed an offering price of $4.00 per share of Common Stock and an exercise
price of $6.60 per share of Common Stock for the Underwriter's Warrants.
(8) A total fee of $2,842.01 was paid, therefore an additional $77.58 fee
is required, with respect to the changes in the securities being registered.
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>
<S> <C>
Item in Form SB-2 Prospectus Caption
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 ^Shareholders
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 June , 1998
PROSPECTUS
PRIDE AUTOMOTIVE GROUP, INC.
1,250,000 Shares of Common Stock
Offering Price: $ per Share
This Prospectus relates to an offering of 1,250,000 Shares of Common
Stock, par value $.001 per share (the "Common Stock" or the "Shares") of Pride
Automotive Group, Inc. (the "Company"). All of the 1,250,000 Shares will be
offered and sold through Mason Hill & Co., Inc. ("Mason Hill"), as
representative of the several underwriters (collectively referred to as the
"Underwriters"). Of the 1,250,000 Shares being offered hereunder, 1,080,000
Shares will be sold by the Company, with the balance of the 170,000 Shares being
sold by certain Selling Shareholders (the "Selling Shareholders"). This
Registration Statement also relates to the offer and sale of an aggregate of
95,000 shares of Common Stock and 200,000 Common Stock Purchase Warrants by
certain Selling Securityholders (collectively the "Selling Securityholders'
Securities"), which securities are issuable upon exercise of an underwriter's
warrant which the Selling Securityholders received as partial compensation for
acting as underwriters for the Company in its 1996 public offering of
Securities. The Selling Securityholder Securities 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 or by the Selling
Shareholders. 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 OR ANY STATES SECURITIES
COMMISSIONS, 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 the Proceeds to
Public Commission (1) Company (2) the Company (2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per (3)$ $ $ $
Share..........
- --------------------------------------------------------------------------------------------------------------------------
Total $ $ $ $
(4)...........
==========================================================================================================================
(footnotes on following page)
</TABLE>
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 125,000 shares of the Company's
Common Stock (the "Underwriters' Warrants") at 165% 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 and the Selling Shareholders have 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 $4.00 per
share. It is currently anticipated that the proceeds to the Company and
the Selling Shareholders will be $3,888,000 and $612,000, respectively.
(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 187,500 Shares, 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, Proceeds to Company and Proceeds to the Selling Shareholders
will be $5,750,000, $575,000, $4,563,000, and $612,000 respectively. See
"Underwriting".
Prior to this Offering, there has been a limited public market for the
Company's Common Stock and Warrants. 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
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.
3
<PAGE>
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 not 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.
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.
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 Vehicle leasing. Owned property and a building in Croydon, England,
which was sold in November 1997.
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>
4
<PAGE>
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
(inclusive of 440,000 shares sold by certain Selling Stockholders) 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.
Additionally, the Company sold 142,500 shares of its common stock (inclusive of
60,000 shares sold by certain Selling Stockholders) and 300,000 redeemable
common stock purchase warrants pursuant to the exercise of an Over-allotment
Option granted to the Underwriter by the Company and certain Selling
Stockholders. The Company's securities are currently traded on the Nasdaq
SmallCap Stock Market and the Boston Stock Exchange, Inc.
In November 1996, the Company's then majority owned subsidiary, AC
Automotive Group, Inc., ("Automotive"), a Delaware Company, through its
wholly-owned subsidiary, AC Car Group Limited ("AC"), a company incorporated
under the laws of England and Wales, 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
($115,575) and the Ace has a current list price of (pound)75,000 ($125,625).
In order to finance the costs of such acquisition, the Company engaged in a
private placement, whereby it issued an aggregate of $1,700,000 of promissory
notes and 170,000 shares of Common Stock. Mason Hill acted as placement agent in
such private placement. Additionally, Mason Hill loaned the Company $100,000 of
which $29,000 has been repaid. In connection with such private offering, AC sold
an aggregate of 1,028,700 shares to Beth-Anne Kinsley, Victor
5
<PAGE>
and Marion Durchhalter and Bridget Staff, each of whom are associated
persons of Mason Hill, for aggregate consideration of $1,030, which at such time
represented 30% of the issued and outstanding common stock of Automotive. Such
persons currently own approximately 5% of the issued and outstanding common
stock of Automotive. See "Use of Proceeds" and "Certain Relationships and
Related Transactions".
On February 12, 1998, the Board of Directors of Automotive authorized the
issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a
company affiliated with Alan Lubinsky, the President, Chief Executive Officer
and a Director of the Company and Automotive, for aggregate consideration of
$6,130. In addition, on such date Automotive authorized the issuance of 176,520,
176,520 and 88,260 shares of its common stock to Beth-Anne Kinsley, Victor and
Marion Durchhalter and Bridget Staff, respectively, for consideration of $177,
$177 and $89, respectively. After the foregoing issuances, there was a total of
10,000,000 shares of Automotive authorized, issued and outstanding. See "Risk
Factors" and "Certain Relationships and Related Transactions."
On March 24, 1998, the Board of Directors of Automotive authorized a one
for four reverse split of its common stock and issued (1) 525,000 shares of its
common stock to Durnover Ltd., an entity affiliated with Alan Lubinsky, for
aggregate consideration of $526; (ii) 651,000 shares of its common stock to the
Company for aggregate consideration of $2,248,460 which consideration was paid
by the capitalization of debt of $2,248,460 owed by Automotive to the Company.
On March 31, 1998, the Board of Directors of Automotive authorized the following
issuances of its common stock (i) 2,352,000 shares of its common stock to
Michael Hall for $2,352, (ii) 514,500 shares of its common stock to Kingsbury
Company, Ltd. for $514.50, (iii) 367,500 shares of its common stock to ACL
(1996) Ltd. and a further 367,500 shares of its common stock to Autokraft for a
total consideration of $1,675,000, which consideration was paid by the
capitalization of debt of $1,675,000 owed by Automotive to ACL and Autokraft. In
connection with such share issuances, Michael Hall and Kingsbury Company, Ltd.
loaned the sum of (pound)1,000,000 and (pound)500,000 to AC, respectively. In
October 1997, Alan Lubinsky loaned AC the sum of (pound)100,000, which note is
payable on demand. During March and April 1998, Mr. Lubinsky further loaned AC
(pound)21,750 of which (pound)9,400 was repaid in May 1998. See "Certain
Relationships and Related Transactions".
The foregoing issuance of shares reduced the ownership of AC Automotive
Group, Inc. by the Company to under 50%. Accordingly, future financial
statements of the Company will be issued on an unconsolidated basis.
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.
6
<PAGE>
THE OFFERING(1)
<TABLE>
<CAPTION>
Securities Offered (2):
<S> <C>
1,250,000 Shares of Common Stock
Price Per Share: $(4)
Securities Outstanding Prior to the Offering:
Common Stock 2,822,500 Shares
Warrants (5) 2,300,000 Warrants
Securities Outstanding After the Offering:
Common Stock 3,902,500 Shares
Warrants (5) 2,300,000 Warrants
Use Of Proceeds The net proceeds of this Offering, estimated at
$3,488,000, will be used as follows: (i) $1,857,250
to repay the notes issued in the December 1996 Private
Placement and (ii) $71,000 to repay the loan to the
Underwriter and (iii) $1,559,750 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>
7
<PAGE>
<TABLE>
<CAPTION>
Symbols (4)
<S> <C>
Nasdaq Common Stock .........LEAS
Warrants .................LEASW
BSE Common Stock..........LES
Warrants..................LESW
</TABLE>
(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 187,500 Shares; (ii) the Underwriters' Warrants to purchase 125,000
Shares; (iii) options exercisable 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 199,665 shares of Common Stock have been granted or
(iv) up to 1,250,000 shares which may be issued to Pride pursuant to the Special
Warrant. See "Description of Securities.
(2) The 95,000 shares of Common Stock and 200,000 Warrants 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 $4.00 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 Shares
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".
(5) Represents Warrants exercisable at $5.75 per share which were issued in
the Company's 1996 initial public offering. The warrants expire on April 23,
2001.
8
<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,
1997 and 1996 and the unaudited three month periods ended February 28, 1998 and
February 28, 1997. The historical financial data for the years ended November
30, 1996 and 1997 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.
Statement of Operations Data:
<TABLE>
<CAPTION>
=================================================================================================================
For the Year For the Three Months
Ended Ended
- -----------------------------------------------------------------------------------------------------------------
November 30, November 30, February 28, February 28,
1996 1997 1997 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $12,884,018 $17,459,275 $3,735,283 $3,580,971
- -----------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (600,622) $(4,455,400) $(569,345) $(194,647)
- -----------------------------------------------------------------------------------------------------------------
Earnings (loss) per
Common Share $(.25) $(1.59) $(.21) $(.07)
- -----------------------------------------------------------------------------------------------------------------
Weighted Average
Shares Outstanding 2,405,760 2,801,075 2,759,167 2,822,500
=================================================================================================================
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
November 30, 1997 February 28, 1998 February 28, 1998
- -------------------------------------------------------------------------------------------------------------
Actual Actual As Adjusted (1)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tangible Assets $31,210,429 $31,807,181 $31,807,181
- -------------------------------------------------------------------------------------------------------------
Intangible Assets $9,090,156 $8,917,186 $8,971,186
- -------------------------------------------------------------------------------------------------------------
Total Assets $40,300,585 $40,724,367 $40,724,367
- -------------------------------------------------------------------------------------------------------------
Total Liabilities $32,890,207 $28,808,663 $25,320,663
- -------------------------------------------------------------------------------------------------------------
Stockholders' $7,410,378 $11,915,704 $15,403,704
Equity
=============================================================================================================
</TABLE>
(1) Gives effect to the sale by the Company of 1,080,000 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 the
Underwriters' Warrants or the Special Warrant. See "Use of Proceeds"
and "Description of Securities".
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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^ 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.^
2. Loss from Operations In February 1998, the Company entered into a
new agreement with the bank. This new line of credit of $5,862,500, of which
$5,297,687 had been drawn down as of February 28, 1998, is payable on demand and
is secured by all assets of the Company other than the building and revenue
producing vehicles which are already pledged (See Notes 6b and 7 to the
Financial Statements). Interest is payable at rates between 2% and 4% in excess
of the bank's base rate (7 1/2% as of November 30, 1997). The agreement is due
for renewal November 1998. There can be no assurance that the line of credit
will be renewed. See "Risk Factors". 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. 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 adversely
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."
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3. Accumulated Deficit; Need for Capital. 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 vehicles needed. The Company incurred losses
of $4,455,400 (of which $3,625,344 is related to AC Car Group Ltd.) and
$194,647, after goodwill amortization, for the year ended November 30, 1997 and
the three months ended February 28, 1998, respectively. In addition, the Company
had an accumulated deficit of $5,857,987 (of which $3,762,790 is related to AC
Car Group Ltd.) and $2,289,844 as of November 30, 1997 and February 28, 1998
respectively.^
4. Default on Payment of Promissory Notes Issued to Selling
Securityholders. Between December 1996 and March 1997, the Company issued an
aggregate of $1,615,000 of promissory notes to the Selling Securityholders. As
of the date hereof, $1,520,000 of such notes were due and owing, with the
balance of $95,000 due in July 1998. Although the Company intends to repay such
Promissory Notes and accrued interest with the proceeds of this Offering, the
notes are currently in default. As a result, holders of the Notes may commence
litigation if they choose to recover such sums. Moreover, the Company is
dependent on the proceeds of this Offering to satisfy such notes. If this
Offering is not completed or if any or all of the Selling Securityholders
commence litigation prior to the completion of this Offering, the Company may
not be able to repay such noteholders. The failure to repay the Promissory Notes
could adversely affect the Company. See "Certain Relationships and Related
Transactions", "Use of Proceeds" and "Financial Statements."
5. 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 county 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."
6. 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,
1997 and the three months ended February 28, 1998, General Motors and
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Ford were the manufacturers of approximately 15% and 16%, respectively and 15%
and 16%, 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. ^ 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. ^The Company has no assurances that it
will be able to acquire automobiles at favorable prices or receive such rebates
in the future. No 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."
7. Concentration of Lease Agreements; Lease Defaults; Economic
Conditions in England. For the year ended November 30, 1996 and 1997, the
Company had two unaffiliated customers, Westbury Homes Plc. and Campbell
Distillers Limited, which companies accounted for in the aggregate approximately
29% and 24%, respectively, of the Company's total revenues. For the three months
ended February 28, 1997 and February 28, 1998, revenues from these customers
accounted for approximately 27% and 20%, 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."
8. 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."
9. 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
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<PAGE>
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.
10. 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 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."
11. Control by Management and Alan Lubinsky. Upon the sale of the
Securities offered hereby, Mr. Lubinsky will have voting control of
approximately 36.8% 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 53.1% 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. In April 1998, a Special Warrant was issued
to Pride under which Pride may acquire up to 1,250,000 shares of the Company's
Common Stock at a purchase price of $4.40 per share. If fully exercised, Pride
would own approximately 51% of the Company's issued and outstanding Common
Stock. See "Management" and "Principal and Selling Securityholders."
12. Conflicts of Interest. Mr. Lubinsky is an officer and director of
the Company, Pride, AC, Automotive, PMS and each of PMS's subsidiaries. In
addition, Mr. Lubinsky has been involved in transactions with the Company and
its subsidiaries. Neither Mr. Lubinsky nor the Board of Directors sought outside
advice as to the value or the fairness of such transactions and there can be no
assurance that the Company and/or Mr. Lubinsky resolved the inherent conflicts
of interest which exist under such circumstances. In addition, there may arise
conflicts of interest with respect to matters concerning the Company, its
subsidiaries and affiliates. 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 are required 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. 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."
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13. 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, Automotive 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."
14. Non-U.S. Resident Management May Result in Special Risks. Alan
Lubinsky, Allan Edgar, Ian Satill and Ivan Averbuch, the officers and directors
of the Company, are residents of England, Switzerland, Australia and England,
respectively, and are not residents of the United States. Accordingly, the
enforcement of civil liabilities against Mr. Lubinsky, Mr. Edgar, Mr. Satill 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.
15. 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 $2.34 per share or 58.5% of their initial investment. The present
stockholders of the Company will own approximately 72.3% 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 $.60 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.
16. 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. In addition, the
Company has issued Pride a Special Warrant pursuant to which it may acquire up
to 1,250,000 shares at a price of $4.40 per share. If fully exercised, Pride
would own approximately 51% of the Company's issued and outstanding Common
Stock. 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."
17. 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."
18. 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
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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."
19. Arbitrary Determination of Offering Price. The offering price of
the Shares has 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. 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."
20. 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 for the Shares or
Warrants 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.
21. Restrictions on Exercise of Warrants; Necessity for Updating
Registration Statement. So long as the Warrants or Underwriter's Warrants are
exercisable, or in the event that the Company reduces the exercise price or
exercise period of any of such warrants, the Company would be required to file
one or more Post-Effective Amendments to its Registration Statement to update
the general and financial information contained in this Prospectus. These
obligations could result in substantial expense to the Company and could be a
hindrance to any future financing. Warrants may not be exercised at any time in
which the Company's Registration Statement is not current. Although the Company
has not updated its Registration Statement, it intends to do so shortly after
the completion of this Offering. Although the Company has undertaken and intends
to keep its Registration Statement current, there is no assurance that the
Company will keep its Registration Statement current, and if for any reason it
does not do so, the Warrants will not be exercisable. See "Description of
Securities-Warrants."
22. Shares Available for Resale. Of the 2,822,500 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. 170,000 shares of the Company's Common Stock were
issued in the Company's Private Placement of December 1996. All 170,000 shares
issued in the December Private Placement are being registered and underwritten
in this Offering. In
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addition, 95,000 shares of common stock and 200,000 Initial Warrants are being
registered herein on behalf of the Selling Securityholders and may be sold from
time to time by such 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 39,025 (40,900 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. 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.
23. 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.
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In December 1997, the Company was notified by Nasdaq that it was 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, which deficiencies have been
addressed and corrected. Additionally, the Company has added an additional
independent director and it is now in compliance with Nasdaq's corporate
governance requirements. There can be no assurance that the Company will remain
in compliance with Nasdaq requirements or that Nasdaq will not change its
listing and/or maintenance requirements in the future.
If the Company's securities become 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 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. See "Certain
Transactions".
24. 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.
25. Underwriters' Warrants. The Underwriters will acquire, for nominal
consideration, the Underwriters' Warrants to purchase 125,000 Shares at price of
$6.60 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 Securities
underlying the
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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 up to
five 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."
26. 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
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."
27. Limited Experience of Underwriters. Mason Hill & Co., Inc., has
previously managed and completed three 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."
28. 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."
29. Potential Adverse Effect of Exercise of Special Warrant owned by
Pride. Pride owns a special warrant under which it may acquire up to 1,250,000
common shares of the Company at a price of $4.40 per share during the
twenty-four month period commencing on the date of this Prospectus (the "Special
Warrant"). The Special Warrant allows Pride to purchase only such number of the
Company's common shares to increase its percent ownership of the Company's
common shares to no more than 51%.
If the Special Warrant was to be exercised in full by Pride, it would
result in Pride owning in excess of 50% of the issued and outstanding common
stock of the Company and would enable Pride to control the Company. The exercise
by Pride of the Special Warrant may result in dilution to the shareholders of
the Company
18
<PAGE>
It may be expected that Pride will exercise the Special Warrant at such
time, if any, as it deems the common stock to be worth in excess of $4.40. Such
exercise would in all likelihood result in dilution to the Company's
shareholders and result in a diminution in the value of the Shares and the
Warrants. See "Description of Securities" and "Certain Relationships and Related
Transactions."
Risks related to the business of AC Car Group Limited - Although the
Company's ownership of Automotive (and indirectly AC) has been reduced to 16%,
the following risks have been described to give investors information relative
to the risks associated with the Company's ownership of Automotive.
30. Losses from Operations. When AC completed its acquisition of AC
Cars and Autokraft in November 1997, AC Cars had been experiencing operating
losses for several years and in fact had been placed in administrative
receivership in March 1996. If AC continues to incur operating losses, the
business of AC could be materially adversely affected. There can be no assurance
that AC will ever be able to operate at a profit. See "Business - Acquisition of
AC Car Group Ltd."
31. 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.
32. 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."
33. 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."
34. 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 automobiles. At present, AC maintains
product liability insurance through Lloyds of London. The limit of the indemnity
is (pound)2,000,000 ($3,350,000) 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
19
<PAGE>
the automobiles that it manufactures, it would adversely affect the
business of the Company and could potentially cause it to discontinue
operations. See "Business."
35. 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."
^ 36. Competition. AC is a low volume, specialty manufacturer which manufactures
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."
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 $400,000 ($422,500
if the Underwriters' Over-allotment Option is exercised in full) is $3,488,000
($4,140,500 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> <C>
Repayment of Notes (1) $1,857,250 53.2%
Repayment of Lines of Credit to Bank (1)(2) $1,559,750 44.7%
Repayment of Loan to Underwriter (1) $71,000 2.1%
---------- ----
Total $3,488,000 100.0%
========== ======
</TABLE>
(1) See "Business - Financing and Collections."
(2) The Company intends to use whatever proceeds are remaining after
repayment of the Notes to pay down existing credit lines, which as of
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 and the repayment of a $71,000 loan
to Mason Hill. See "Underwriting" and "Certain Relationships and Related
Transactions".
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 $4,140,500. 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>
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.
DILUTION
As of May 25, 1998, there were outstanding 2,822,500 shares of the
Company's Common Stock. The Company's Common Stock as of February 28, 1998 had a
net tangible book value per share of approximately $1.06, based upon a total of
2,822,500 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 1,080,000 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 3,902,500 shares
of the Company's Common Stock with a net tangible book value per share of
approximately $1.66. This would represent an immediate increase in net tangible
book value of $0.60 per share to existing stockholders and an immediate dilution
of $2.34 or 58.5% 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.
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share (1) $4.00(1)
Net tangible book value per share prior to this offering $1.06
Increase attributable to new investors(2) $0.60
Net tangible book value per share after this Offering $1.66
Dilution per share to new investors $2.34
=====
</TABLE>
(1) Assumes the offering price is $4.00 per share.
(2) Does not include funds which may be received upon exercise of the
Underwriters' Warrants, the Underwriters' Over-allotment Option, the
Warrants or the Special Warrant.
22
<PAGE>
The following table sets forth at May 25, 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 2,822,500 (1)(2) 72.3% $14,124,986 76.6% $5.00
New
Investors 1,080,000 (2) 27.7% $4,320,000 23.4% $4.00 (3)
--------- ---------- -----
3,902,500 100% $18,444,988 100.0%
========= ==== =========== =======
</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 170,000 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 125,000 Shares, (ii) the Underwriters'
Over-allotment Option, to purchase from the Company 187,500 Shares, or
(iii) up to 1,250,000 shares of Common Stock issuable upon the exercise
by Pride of its Special Warrant.
23
<PAGE>
^ CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
February 28, 1998 and (ii) such capitalization as adjusted to reflect the sale
of 1,250,000 Shares in this Offering and the application of the net proceeds
thereof.
CAPITALIZATION
The following table sets forth (i) the capitalization of the Company at
February 28, 1998 and (ii) such capitalization as adjusted to reflect the sale
of 1,250,000 Shares in this Offering and the application of the net proceeds
thereof.
As
Actual Adjusted(1)
Bank Debt and Other Liabilities(2) $2,363,900 $584,900
Bank Line of Credit (2) 5,489,924 3,780,924
Stockholders' Equity:
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, 2,822,500
shares at February 28, 1998,
3,902,500 shares as adjusted 2,823 3,093
Additional Paid-In Capital 14,122,165 17,609,085
Deferred Financing Costs (123,750) (123,750)
Retained Earnings (deficit) (2,289,844) (2,289,844)
Foreign Currency Translation 204,310 204,310
Total Stockholders' Equity 11,915,704 15,403,704
Total Capitalization $19,769,528 $19,769,528
(1) Does not include (i) up to 1,250,000 shares issuable upon the exercise
of the Special Warrant, (ii) 187,500 shares of Common Stock issuable upon the
exercise of the Underwriters' Over-allotment Option, (iii) 125,000 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
199,665 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.
24
<PAGE>
MARKET FOR COMMON EQUITY
The Company's Common Stock is currently quoted on the Nasdaq SmallCap
Stock Market and the Boston Stock Exchange. The following table sets forth
representative high and low closing bid quotes as reported by the Nasdaq
SmallCap Stock Market 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 2/29/96 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 - 02/28/98 27/8 3 1/2 5/32 3/4
1998
03/01/98 - 5/15/98 3 7/16 4 1/2 5/16 3/4
</TABLE>
(1) The Company effected an initial public offering of its Common Stock and
Warrants on April 24, 1996.
As of May 15, 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 May 15, 1998, the number of outstanding shares of the Company's Common Stock
was 2,822,500.
As of May 15, 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 May 15,
1998, the number of outstanding Warrants was 2,300,000.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the years ended November 30, 1997 and 1996.
Pride Automotive Group, Inc. (the "Company") was incorporated in the
State of Delaware in March 1995. Pursuant to the terms and conditions of a
reorganization agreement entered into in March 1995, the Company issued
1,500,000 shares of its Common Stock to Pride, Inc. (an entity incorporated in
the State of Delaware), in exchange for all the issued and outstanding shares of
PMS, thereby making the Company a majority owned subsidiary of Pride and PMS a
wholly-owned subsidiary of the Company. PMS is the holding company for six
wholly-owned subsidiaries, operating as one unit, located in the United Kingdom.
PMS and its wholly-owned subsidiaries are located in the United Kingdom and
follow generally accepted accounting principles in the United Kingdom. For
purposes of the consolidated financial statements of the Company, the statements
have been converted to the generally accepted accounting principles in the
United States.
Pride, the Company's parent, is an entity reporting under the Exchange
Act, and its reports may be obtained and reviewed by either contacting the
Company or the Securities and Exchange Commission. Pride, Inc., on its own has
virtually no operations. As such, its financial viability is represented by the
financial statements of the Company. Pride was incorporated as L.H.M. Corp. in
the State of Delaware on May 10, 1988 as a "blank check" company, for the
purpose of seeking potential business ventures through acquisition or merger. In
April 1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization
with International Sportsfest, Inc. ("ISI"), a company formed to engage in and
establish sports expositions in sports merchandise such as clothing and
equipment. ISI never engaged in any business operations. In January 1994, ISI
entered into an Agreement and Plan of Reorganization with PMS, whereby PMS
became a wholly-owned subsidiary of ISI and ISI changed its name to Pride, Inc.
Pride also owns 100% of the capital stock of Watford Investments, a South
African company with minimal operations. This Company was formed in March 1995.
The six wholly-owned subsidiaries of PMS are Pride Vehicle Contracts
Limited, Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK) Limited,
Pride Leasing Limited, Pride Vehicle Management Limited and Pride Vehicle
Deliveries Limited, which comprise the majority of the operations of the
Company. Unless the context otherwise requires, all references to the "Company"
include its wholly-owned subsidiary, PMS, and PMS's wholly-owned subsidiaries.
These companies jointly engage in the business of leasing new automobiles to
businesses, servicing such automobiles during the lease term and remarketing the
automobiles upon the expiration of the lease term, which arrangement is
described as a "contract hire." The Company purchases each vehicle pursuant to
its clients' specifications, finances its purchase and pays for all the
maintenance on the vehicle during the lease term.
The Company has servicing agreements with automobile dealers and
service centers, which specify pricing schedules for maintenance and repair work
to be performed, all of which require the prior consent of the Company.
Typically, the term of the loan corresponds with the term of the lease, whereby,
upon the completion of the lease term, the automobiles are fully paid and owned
by the Company. Upon the expiration of the lease, the Company remarkets the
automobiles through various distribution channels including, but not limited to,
used car wholesalers or used car retailers. Each client's monthly lease payment
is determined by a computer program which takes into account estimated service
costs, new
26
<PAGE>
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 and servicing on the
vehicles during the lease term, with the bulk of the profits, if any, coming on
the resale of the automobile.
The Company's principal operations are conducted by PMS which reflects
its financial statements in British pounds. As a result, most assets and
liabilities of the foreign operations are translated into U.S. dollars using
current exchange rates in effect at the balance sheet date. Fixed assets and
intangible assets are translated at historical exchange rates. Revenue and
expense accounts are translated using an average exchange rate during the period
except for those expenses related to assets and liabilities which are translated
at historical exchange rates. These expenses include depreciation and
amortization which are translated at the rates existing at the time the asset
was acquired. Any resulting gains or losses due to the translation are reflected
as a separate item of stockholders' equity.
In December 1995, the Company consummated a private placement offering
of common stock of 500,000 shares, which reduced Pride's ownership interest to
72.8%. In April 1996, the Company 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 effort of the offering was to
reduce Pride's ownership interest to 56.55%.
On November 29, 1996, the Company, through its newly formed majority
owned subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC
Car Group Limited (registered in the United Kingdom), acquired certain of the
assets of AC Cars Limited and Autokraft Limited. These two companies were
engaged in the manufacture and sale of specialty automobiles. The purchase price
of approximately $6,000,000 was financed by the sale of common stock and by
loans. The acquisition involved the purchase of plant and equipment, the brand
name, inventories and an aircraft and was recorded using the purchase method of
accounting (see also Note 1 - notes to financial statements).
On February 12, 1998, the Board of Directors of AC Automotive Group,
Inc. authorized the issuance of 6,130,000 shares of its common stock to Erwood
Holdings, Inc., a company affiliated with Alan Lubinsky, the President and Chief
Executive Officer and director of the Company and AC Automotive Group, Inc., for
aggregate consideration of $6,130. In addition, 441,300 shares were issued to
other unrelated parties for aggregate consideration of $443. Following further
restructure and the foregoing issuance of shares, the ownership of AC Automotive
Group, Inc. by the Company has been reduced to 16%.
Results of Operations - Years Ended November 30, 1997 and November 30, 1996:
Contract Hire/Fleet Management
Revenues, including those from other group companies, for the year
ended November 30, 1997 were approximately $17,294,000 compared to approximately
$12,884,000 for the year ended November 30, 1996, an increase of $4,410,000 or
34%. The primary reason for this 34% 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.
27
<PAGE>
For the year ended November 30, 1997, 550 new vehicles were acquired as
against 385 in the year ended November 30, 1996. The average monthly rental of
new contracts written was $541 per vehicle as against an average of $569 per
vehicle for the previous year. The average monthly rental is dependent on the
type of vehicle being rented and the terms of the contract.
For the year ended November 30, 1997, 153 vehicles were disposed of on
termination of contracts at an average profit of $1,529 per vehicle. For the
year ended November 30, 1996, 157 vehicles were disposed of on termination of
contracts at an average profit of $2,233 per vehicle. The average profit per
disposal is dependent on the type of vehicle sold and current market value of
vehicles.
As of November 30, 1997, 1,740 vehicles were under lease and management
compared to 1,409 vehicles as at November 30, 1996.
Cost of sales increased in actual dollars but decreased as a percent of
sales, when comparing the years ended November 30, 1997 and 1996. These costs
increased by approximately $3,193,000 or 31%, which is less than the increase in
revenues. As a percent of sales, cost of sales for 1997 was 77.7% versus 79.5%
for 1996.
General and administrative expenses increased from $1,802,000 for 1996
to $1,858,000 for 1997, an increase of $56,000 or 3%. As a percent of sales
these expenses represented 11% of sales for 1997 and 14% for 1996. Management
believes that they can continue to increase revenues while keeping general and
administration costs under control.
Interest expense increased from $860,000 in 1996 to $1,747,000 in 1997.
Management attributes this increase to the large increase in new business
written and the associated increase in funding of vehicles, providing financial
support to AC Cars (see below) and the costs associated with the raising of
finances to fund the acquisition of AC Cars.
The loss on sale of fixed assets resulted from the sale of a property
to the tenant who exercised their option to purchase. The loss amounted to
approximately $455,000.
Income (loss) before taxes for the years ended November 30, 1997 and
1996, prior to amortization of goodwill for the period ($632,000 and $635,000,
respectively) aggregated $256,000 and ($20,000), respectively.
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 Autokraft 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 each.
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
28
<PAGE>
new management where necessary. New dealerships have been appointed in the
United Kingdom and a distributor has been appointed in Australia.
Revenues, including those from other group companies, for the year
ended November 30, 1997, were approximately $1,633,000. Other income of $701,000
resulted mainly from the sale of the option to purchase the property occupied by
the operation.
Cost of sales amounted to approximately $1,573,000 on the above
revenues.
General and administration expenses amounted to approximately
$2,589,000. Rent and property taxes of approximately $865,000 and salaries of
$282,000 accounted for 44% of the above costs.
Depreciation of plant, machinery, tooling, equipment and fixtures
amounted to approximately $400,000.
Interest amounted to approximately $462,000 for the year. Interest was
incurred on a bank line of credit of $195,000, on bank debt of $80,000 and on
acquisition debt of $187,000.
The Hurricane aircraft which was acquired as part of the assets at
acquisition, was disposed of at a loss of approximately $299,000.
AC Cars is in a developmental stage and certain specific expenses have
been classified as research and development costs. These costs relate to
research and development incurred on the manufacture and distribution of the AC
Cobra and AC Ace and are separately disclosed. Management believes it is more
prudent to write off these costs immediately as they occur. Research and
development costs amounted to approximately $983,000 for the current year.
(Loss) before tax for the year ended November 30, 1997 on the AC
business aggregated $4,111,000.
In February 1998, subsequent to the end of the Company's current fiscal
year, AC Automotive issued additional shares to certain individuals and an
entity affiliated with the Company's President for aggregate cash of $6,573,
thereby diluting the Company's ownership in this subsidiary to 16%. See Note 1
of Notes to the Financial Statements for additional information.
Consolidated
For the year ended November 30, 1997, the Company reported a net loss
of $4,455,400 or $1.59 per share. For the year ended November 30, 1996, the
Company reported a net loss of $600,622 or $.25 per share.
Results of Operations - Contract Hire - Three Months Ended February 28,
1998 and 1997
Contract hire and fleet management income increased by $1,004,955 when
comparing the quarter ended February 28, 1998 to the quarter ended February 28,
1997. This 57% increase is due to the net growth in the fleet of 379 vehicles
over the past year.
29
<PAGE>
Vehicle sales decreased by $914,704 when comparing the two quarters due
to less contracts terminating and less sales of vehicles.
During the quarter, 96 new contracts were written at an average rental
of $695 per vehicle compared with 117 new contracts in the corresponding period
in 1997 at an average rental of $525 per vehicle. The average monthly rental is
dependent on the type of vehicle being rented and the terms of the contract.
During the quarter, 37 vehicles were disposed on termination of
contracts at an average profit of $734 per vehicle. During the corresponding
quarter in 1997, 40 vehicles were disposed of at an average profit of $2,363 per
vehicle. The average profit per vehicle on disposal is dependent on the type of
vehicle sold and current market value of vehicles.
As of February 28, 1998, 1,757 vehicles were under lease and management
compared to 1,492 vehicles as at February 28, 1997.
Costs of sales relating to sales of vehicles decreased from $1,614,633
to $789,954 when comparing the quarter ended February 28, 1998 with the quarter
ended February 28, 1997. This decrease is due to less contracts terminating and
a decrease in the sales of vehicles.
Cost of sales, including depreciation, relating to contract hire and
fleet management income increased from $1,228,579 to $1,762,589 or 43% when
comparing the two quarters ended February 28, 1997 to 1998, respectively. This
increase is in line with the 57% increase in contract hire and fleet management
income. Cost of sales, including depreciation, as a percentage of contract hire
and fleet management income decreased from 69.8% to 63.8%, when comparing the
two quarters. This resulting increase in gross margin of approximately 6% has
enabled the Company to absorb the increases in other overheads when comparing
the results of the two quarters ended February 28, 1998 and 1997, respectively.
General and administrative expenses increased by $113,559 when
comparing the quarters ended February 28, 1998 and 1997, respectively. This
increase of 30% is in line with the growth in contract hire income of 57% over
the past year, and represents 13.67% of revenue as against 10.47% for the
corresponding period.
Interest expense increased by $296,498 when comparing the two quarters
ending February 28, 1998 and 1997, respectively. The reason for this increase is
due to the significant growth in new business which requires increased funding,
the cost of the increase in the bank overdraft line of credit utilized to fund
the AC Car operations and additional working capital requirements to fund the
growth.
For the three months ended February 28, 1998 and 1997, the Company
reported, prior to amortization of goodwill ($157,680 for both periods) losses
from operations of $36,967 and $7,829, respectively, for the contract hire
operations.
30
<PAGE>
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, 1997 and February 28,
1998, the Company's balance sheet reflected cash of $77,000 and $14,000,
respectively, accounts receivable of $2,002,000 and $4,243,000, respectively,
and total assets of $40,301,000 and $40,724,000, respectively. The principal
reason for the increase in total assets is an increase in contract hire vehicles
available for lease.
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
approximately $2,166,000.
The Company's total assets as of November 30, 1997 and 1996 include
intangible assets of approximately $9,090,000 and $9,722,000, 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, 1997 and 1996 would be approximately
($1,680,000) and $2,235,000, respectively.
During the years ended November 30, 1997 and 1996, the Company generated
cash flows from operating activities aggregating approximately $1,572,000 and
$489,000, respectively. Investing activities reflect uses of cash for the years
ended November 30, 1997 and 1996 of $11,911,000 and $8,759,000, 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 $23,677,500 at November 30, 1997. At
November 30, 1997, there was approximately $18,342,000 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.
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For the year ended November 30, 1997, the Company provided cash from
financing activities ($10,208,000) primarily due to financing provided by bank
lines of credit ($4,012,000) plus the increases in financing of new vehicles
($19,492,000) net of the amounts needed to reduce hire purchase contract
financing ($12,185,000). For fiscal 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).
Other than the annual acquisitions of revenue producing vehicles as
mentioned above, there are no material planned capital expenditures at the
present time.
The Company believes that its cash flow from operations, and its available
funding lines for the acquisition of revenue producing vehicles will be
sufficient for at least the ensuing 12 month period.
This report contains forward-looking statements and information that is
based on management's beliefs and assumptions, as well as information currently
available to management. When used in this document, the words "anticipate,
"estimate," "expect," "intend," and similar expressions are intended to identify
forward- looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
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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.
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 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., the Thornwater
Group, Inc., and J.W. Barclay 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
securities underlying such warrants are being registered hereunder. The
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Company's securities are currently traded on the Nasdaq SmallCap Stock Market
and the Boston Stock Exchange, Inc. See "Principal and Selling Securityholders".
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.
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
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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.
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 Vehicle leasing. Owned property and a building in Croydon, England,
which was sold in November 1997.
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>
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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 1,477 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 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, 1996 and 1997, the Company
had two unaffiliated customers, Westbury Homes Plc. and Campbell Distillers
Limited, which companies accounted for in the aggregate approximately 29% and
24%, respectively, of the Company's total revenues. For the three month period
ended February 28, 1997 and February 28, 1998, revenues from these two
unaffiliated customers aggregated 27% and 20%, 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. 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,
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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 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 30, 1997 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 years ended
November 30, 1996 and November 30, 1997, General Motors and Ford were the
manufacturers of approximately 17% and 16%, respectively and 15% and 16%,
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
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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 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
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 coincident with 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 $23,667,500 of
which the Company has borrowed approximately $18,341,778 as of November 30,
1997. The Company's asset funding line has increased as a result of 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
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<PAGE>
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.
On August 31, 1997, the Company's line of credit with its bank under which
it finances its general working capital requirements, expired. In February 1998,
the Company entered into a new agreement with the bank. This new line of credit
of $5,862,500, is payable on demand and is secured by all assets of the Company
other than building and revenue-producing vehicles which are already pledged
(see Notes 6b and 7 to the Notes to the Financial Statements). Interest is
payable at rates between 2% and 4% in excess of the bank's base rate (7 1/2% as
of November 30, 1997). The agreement is due for renewal November 1998. There can
be no assurance that the line of credit will be renewed. See "Risk Factors".
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.
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 county
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 Arriva 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 1,477 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
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<PAGE>
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 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 fragmented and 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 attempts
to take 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.
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.
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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 May 25, 1998, the Company employed 19 full-time persons, six of
which are in management (three of which are officers), nine administrative, two
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 owned a building in Croydon,
England, which it purchased in 1991 at a cost of approximately $825,000. The
Company sold this property in November 1997 for $400,000.
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 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. 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.
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<PAGE>
Acquisition of AC Car Group Limited
In November 1996, the Company, through its subsidiary, AC Automotive
Group, Inc. ("Automotive") and its England 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.
In March 1998, Automotive issued additional shares of its common stock to
various parties, thereby reducing the Company's ownership to a minority interest
(approximately 16% of the issued and outstanding common stock). Notwithstanding
the foregoing and despite the fact that Automotive is not expected to have a
material impact on the affairs or financial statements of the Company, a
discussion has been included herein regarding the business of AC (the operating
entity owned by Automotive) to give investors an understanding of such entity
and the Company's investment therein.
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. Automotive was incorporated under the laws of the state of
Delaware in January 1997 to act as a holding company for AC and to effect a
private offering to raise capital to complete the acquisition of AC Cars and
Autokraft. See "Certain Relationships and Related Transactions."
AC Cars was formed in 1901 as Autocarriers Limited and has been in
continuous operations ever since. AC Cars is Britain's oldest independent
manufacturer. Today, Autokraft and AC Cars manufacture two automobiles on a
limited basis, namely, 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 Superblower sells for
about (pound)69,000 ($113,643).
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 ($123,525). As of January 1, 1998, AC has produced approximately
fifty pre-production AC Aces. AC management expects the Ace to enter into its
final production stage in the second quarter of 1998.
In 1987, Ford Motor Company became a partner of 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 Autokraft and
AC Cars were placed in administrative receivership, the license arrangement with
Ford Motor Company was voided. After the Asset Acquisition, AC negotiated a new
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licensing agreement with Ford Motor Company whereby it 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
It is expected that AC will continue to evaluate and develop 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, AC has entered into a
new licensing arrangement with the Ford Motor Company whereby it has procured a
three year license to use the name "Cobra," terminating in December 1999.
Whereas AC is pleased that it has been able to procure a licensing
arrangement to continue to use the name "Cobra", it 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 AC
acquired outright as part of the Asset Acquisition.
AC believes that the principal markets for sales of its automobiles are
the United States, Australia, Germany and the United Kingdom.
The AC Cobra (which is now known as the AC Superblower) and the AC Ace
both have received low volume Type approval in the United Kingdom.
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<PAGE>
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, AC has
entered into a new license agreement with Ford Motor Company whereby it has
procured a three year license to use the name "Cobra", which terminates on
November 30, 1999. Former management of Autokraft and AC Cars has advised AC
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 ($3,350,000) 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 on 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 maintained, 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 required to pay uninsured claims, it would adversely
affect AC and could cause a discontinuation of its operations. AC does 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 formerly occupied 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. AC exercised its option to purchase the premises for the purchase price of
(pound)5,200,000 ($8,715,200) in July 1997. AC then sold the property for
$9,385,600 and entered into a 15 year lease for 39,000 square feet of the
property at the rate of $30,200 per month.
Employees
At the time of their acquisition, Autokraft and AC Cars together employed
a total of 83 persons. AC 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.
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MANAGEMENT
The names, ages and positions of the Company's executive officers and
directors are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Name Age Position with the Company
Alan Lubinsky 40 President, Secretary, and Chairman of the
Board of Directors
Ivan Averbuch 42 Chief Financial Officer
Allan Edgar 51 Director
Ian Satill 39 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 was a director and the Chief Financial Officer
of the Company since December 1995. Mr. Averbuch resigned as a Director of the
Company in March 1998. Mr. Averbuch has been the Chief Financial Officer 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.
Ian Satill. Ian Satill has been a director of the Company since February
1998. From June 1994 until present, Mr. Satill has been the Group Managing
Director of Rustlers Food Group Pty. Ltd. From 1990 to present, Mr. Satill has
been the sole shareholder, officer and director of Associated Planners Ltd., an
independent financial services brokerage located in Sydney, Australia.
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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.
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.
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Summary Compensation Table
Annual Compensation
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Name and Principal Other Annual
Position (1) Year Salary($) Bonus($) Compensation($)(2)
- ----------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Alan Lubinsky 1997 $176,000 - $30,000 (3)(4)
President, Secretary 1996 $160,000 - $30,000
and Chairman of the Board 1995 $137,750 - $30,000
</TABLE>
(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.
(3) Alan Lubinsky entered into an employment agreement with PAG 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 PAG's board of directors. Pursuant to the agreement, Mr. Lubinsky
received stock options under PAG'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.
(4) In May 1997, Mr. Lubinsky received stock options under PAG's Senior
Management Incentive Plan to purchase 43,234 shares at $2.54 per share. These
options vest at the rate of 33 1/3% per annum commencing May 1998.
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 has agreed to 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 was automatically extended for an additional 24 months in December
1997. The agreement is 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
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<PAGE>
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 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
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<PAGE>
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.
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 at the
exercise price of $2.54, $2.31 and $2.31 per share, respectively, pursuant to
the Company's Senior Management Incentive Plan.
In January 1998, Mr. Lubinsky, Mr. Averbuch and Mr. Edgar were issued
29,137, 5,000 and 5,000 options, respectively, to purchase shares of the
Company's Common Stock at the exercise price of $3.43, $3.13, and $3.13 per
share, respectively, pursuant to the Company's Senior Management Incentive Plan.
49
<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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 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.
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PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth certain information at May 25, 1998, and as
adjusted to reflect the sale of 1,250,000 Shares by the Company and the Selling
Shareholders, 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>
Shares of Percent of Shares of Percent of
Common Stock Common Stock Common Stock Common Stock
Owned Prior to Owned Prior to Owned After Owned After
Name Offering Offering Offering Offering
<S> <C> <C> <C> <C> <C>
Pride, Inc. (1) 1,500,000 53.2% 1,500,000 39.3%
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Alan Lubinsky (1)(2) 1,500,000 53.2% 1,500,000 39.3%
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Allan Edgar (3) * (3) *
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Ivan Averbuch (4) * (4) *
Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Arthur Kamian &
Jane Kamian
The Family Trust 20,000 * 0 0
Don R. Howard &
Grace Howard 5,000 * 0 0
Sierra Holdings Trust
Rachmat Martin, Trustee 15,000 * 0 0
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<PAGE>
Jeffrey E. Levine 10,000 * 0 0
Joseph Giovinazzo 5,000 * 0 0
Robert Tormey 5,000 * 0 0
Timothy M. Schlameuss 5,000 * 0 0
Seymour M. Wasserstrum 5,000 * 0 0
Mann O War Inc. 20,000 * 0 0
Wayne Wiseman 10,000 * 0 0
James Bastek 20,000 * 0 0
Dan Easley 15,000 * 0 0
Joe DiMauro 10,000 * 0 0
Robert W. Bonnewell Trust 5,000 * 0 0
Edward Wilkins 5,000 * 0 0
Charles Wilkins 5,000 * 0 0
LeRoy Dukes 5,000 * 0 0
Richard & Dorine Sasso 5,000 * 0 0
All officers and 1,500,000 53.1 1,500,000 39.3%
Directors of Pride as a Group
(3 persons) (2)
</TABLE>
* less than 1%
(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,
or (iv) the exercise of the Special Warrant granted to Pride to
purchase up to 1,250,000 shares of the Company's Common Stock. See
"Description of Securities".
(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. Does not include 29,137 shares of Common Stock issuable upon
the exercise of option granted to Mr. Lubinsky in January 1998. See
"Executive Compensation - Employment Agreement."
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<PAGE>
(Notes continued from previous page)
(3) Does not include 8,647 shares of Common Stock issuable upon the
exercise of options granted to Mr. Edgar in May 1997. Does not include 5,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Edgar in January 1998.
(4) Does not include 8,647 shares of Common Stock issuable upon the
exercise of options granted to Mr. Averbuch in May 1997. Does not include 5,000
shares of Common Stock issuable upon the exercise of options granted to Mr.
Averbuch in January 1998.
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.
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
55
<PAGE>
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.
Between ^December 1996 and March 1997, the Company consummated a
private placement offering, whereby the Company sold 17 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 approximately 5% of the capital stock of AC. In addition, the
Underwriter loaned the Company the sum of $100,000, $71,000 of which remains
outstanding.
On February 17, 1998 the Company received a letter from NASDAQ
informing the Company that it did not comply with recently amended NASDAQ
continued listing criteria which required the Company to have minimum net
tangible assets of at least $2,000,000, two independent directors and an audit
committee, a majority of which are independent directors. The Company was
granted until February 23, 1998 to comply with such requirements.
On February 12, 1998, the Board of Directors of Automotive authorized
the issuance of 6,130,000 shares of its common stock to Erwood Holdings, Inc., a
company affiliated with Alan Lubinsky, the President, Chief Executive Officer
and a Director of the Company and Automotive, for aggregate consideration of
$6,130. Such shares have been subsequently transferred from Erwood Holdings,
Inc. to Durnover, Ltd., another company with which Mr. Lubinsky is affiliated.
In addition, on such date Automotive authorized the issuance of 176,520, 176,520
and 88,260 shares of its common stock to Beth-Anne Kinsley, Victor and Marion
Durchhalter and Bridget Staff, respectively, for consideration of $177, $177 and
$89, respectively. After the foregoing issuances, there was a total of
10,000,000 shares of Automotive authorized, issued and outstanding. See "Risk
Factors" and "Certain Relationships and Related Transactions."
56
<PAGE>
On March 1998, the Board of Directors of Automotive authorized a one
for four reverse split of its common stock and issued (1) 525,000 shares of its
common stock to Durnover Ltd., an entity affiliated with Alan Lubinsky, for
aggregate consideration of $526; (ii) 651,000 shares of its common stock to the
Company for aggregate consideration of $2,248,460 which consideration was paid
by the capitalization of debt of $2,248,460 owed by Automotive to the Company.
On March 31, 1998, the Board of Directors of Automotive authorized the following
issuance of its common stock (i) 2,352,000 shares of its common stock to Michael
Hall for $2,352, (ii) 514,500 shares of its common stock to Kingsbury Company,
Ltd. for $514.50, (iii) 367,500 shares of its common stock to ACL (1996) Ltd.
and a further 367,500 shares of its common stock to Autokraft for a total
consideration of $1,675,000, which consideration was paid by the capitalization
of debt of $1,675,000 owed by Automotive to ACL and Autokraft. In connection
with such share issuances, Michael Hall and Kingsbury Company, Ltd.
loaned the sum of (pound)1,000,000 and (pound)500,000 to AC respectively.
In October 1997, Alan Lubinsky loaned AC the sum of (pound)100,000,
which note is payable on demand and accrues interest at the rate of 2% over the
base lending rate in England. During March and April 1998, Mr. Lubinsky further
loaned AC (pound)21,750, interest-free, of which (pound)9,400 was repaid in May
1998.
The foregoing issuance of shares reduced the ownership of AC Automotive
Group, Inc. by the Company to under 50%. Accordingly, future financial
statements of the Company will be issued on an unconsolidated basis. Footnote 1
to the Company's Financial Statements has been prepared to show the effect of
the share issuance described herein. See "Financial Statements."
On February 25, 1998 Ivan Averbuch resigned as a Director of the
Company and on the same date the board of directors elected Ian Satill, to fill
such vacancy.
On February 25, 1998, the Board of Directors resolved to form an audit
committee in order to comply with current Nasdaq corporate governance
requirements. The Audit Committee is comprised of the three directors of the
Company, two of whom (Ian Satill and Allan Edgar) are believed by the Board of
Directors to be independent.
On April 1, 1998, the Company issued to Pride a Special Warrant which
will entitle Pride to purchase up to 1,250,000 shares of the Company's common
stock at an exercise price of $4.40 each during the twenty-four month period
commencing with the date of this Prospectus. If the Special Warrant was to be
exercised in full by Pride, it would result in Pride owning in excess of 50% of
the issued and outstanding common stock of the Company and would enable Pride to
control the Company. See "Risk Factors" and "Description of Securities".
For a description of the Company's employment agreements, see "Executive
Compensation - Employment Agreements."
Transactions referenced herein between Management, the Company and/or
its subsidiaries present conflicts of interest for Management. There can be no
assurance that Management resolved such conflicts of interest in the past or
that it will be able to avoid or resolve conflicts of interest in the future.
There can further be no assurance that prior transactions between the Company,
its subsidiaries and Management were on terms no less favorable than could be
obtained from independent third parties,
57
<PAGE>
although Management represents herein that it will attempt to resolve
future conflicts of interest, if any in a manner such that 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. See "Risk Factors."
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 May 25, 1998, there were
2,822,500 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.
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<PAGE>
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 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
59
<PAGE>
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 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.
Special Warrant
The Special Warrant is a Warrant which the Company issued to Pride in
connection with this Offering. The Special Warrant was issued to Pride to enable
it to gain up to a majority interest in the Company provided that it pay the
Company the exercise price for the Special Warrant. The Special Warrant is not
transferrable by the Company and neither the Special Warrant nor the underlying
shares of common stock will be in registered form. The following statements are
summaries of certain provisions of the Special Warrant Agreement, copies of
which may be examined at the principal corporate offices of the Company and a
form of which is filed as an exhibit to the registration Statement of which this
Prospectus forms a part.
The Special Warrant will entitle Pride to purchase up to 1,250,000
shares of the Company's common stock at an exercise price of $4.40 each during
the twenty-four month period commencing with the date of this Prospectus. If the
Special Warrant was to be exercised in full by Pride, it would result in Pride
owning in excess of 50% of the issued and outstanding common stock of the
Company and would enable Pride to control the Company. See "Risk Factors."
It may be expected that Pride will exercise the Special Warrant at such
time, if any, as it deems the common stock to be worth in excess of $4.40. Such
exercise would in all likelihood result in dilution to the Company's
shareholders and result in a diminution in the value of the Shares and the
Warrants. See "Risk Factors."
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
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<PAGE>
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 17
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.
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 2,822,500 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.
170,000 shares of the Company's Common Stock were issued in the Company's
Private Placement of December 1996. All 170,000 shares issued in the December
Private Placement are being registered and underwritten in this offering. In
addition, the Company has registered 95,000 shares of common stock and 200,000
Warrants on behalf of certain Selling Securityholders, inclusive of the
Representative, which securities are issuable upon the exercise of an
Underwriters' Warrant which was issued to the Selling Securityholders in April
1996. All of the Selling Shareholder securities 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
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<PAGE>
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 39,025 (40,900 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 1,080,000 shares of Common Stock by the Company, the Company will
have issued and outstanding 3,902,500 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.
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 will not make sales of the
Company's Common Stock to accounts over which they exercise discretionary
authority. The Underwriters severally and not jointly, have agreed to purchase,
1,080,000 shares of Common Stock from the Company and 170,000 shares of Common
Stock from the Selling Shareholders, as follows:
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<PAGE>
Underwriter Shares
Mason Hill & Co., Inc.
Total 1,250,000
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 has granted to the Underwriters an option, exercisable for
45 days from the date of this Prospectus, to purchase up to an additional
187,500 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 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 $ , ($ , 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 125,000 shares of Common Stock at an exercise prices
of 120% of the public offering prices of the Securities or $6.60 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,
63
<PAGE>
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.
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.
64
<PAGE>
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 offered hereby
will be passed on for the Company by its counsel, Lampert & Lampert. Counsel for
the Underwriter is Gersten Savage Kaplowitz & Fredericks, LLP. 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 the year ended November
30, 1997 and for the years ended 1997 and 1996 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.
65
<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, 1997 and February 28, 1998 (Unaudited) F - 3
Consolidated Statements of Operations for the Years Ended November 30, 1997 and 1996
and the Three Months Ended February 28, 1998 and 1997 (Unaudited) F - 4
Consolidated Statement of Changes in Shareholders' Equity for the Two Years in the Period
Ended November 30, 1997 and the Three Months Ended February 28, 1998 (Unaudited) F - 5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1997 and 1996
and the Three Months Ended February 28, 1998 and 1997 (Unaudited) F - 6
Notes to Consolidated Financial Statements F - 7
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pride Automotive
Group, Inc. and subsidiaries as of November 30, 1997 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, 1997. 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, 1997 and the results of their operations for the
two years in the period ended November 30, 1997 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.
<TABLE>
<CAPTION>
<S> <C> <C>
MARBLE ARCH HOUSE
66-68 SEYMOUR STREET
LONDON W1H 5AH CIVVALS
UNITED KINGDOM FEBRUARY 20, 1998 CHARTERED ACCOUNTANTS
</TABLE>
F - 2
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (Note 6a) -
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 77,354 $ 13,689
Accounts receivable - net (Notes 2c and 3) 2,002,365 4,243,377
Inventories (Note 2d) 1,248,360 179,268
Property, revenue producing vehicles and equipment - net
(Notes 2e, 4, 6b and 7) 27,882,350 25,570,847
Intangible assets - net (Note 2f) 9,090,156 8,917,186
Investment in affiliate (Note 1) - 1,800,000
-------------------- --------------
TOTAL ASSETS $40,300,585 $40,724,367
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 6a) $ 6,976,699 $ 5,489,924
Accounts payable 1,758,764 1,567,040
Accrued liabilities and expenses (Note 5) 865,977 724,116
Bank debt (Note 6b) 695,782 677,900
Obligations under hire purchase contracts (Note 7) 18,341,778 18,441,373
Other liabilities (Note 8) 52,707 222,310
Acquisition debt payable (Note 9) 4,198,500 1,686,000
------------- --------------
TOTAL LIABILITIES 32,890,207 28,808,663
------------ ------------
MINORITY INTEREST IN SUBSIDIARY (Note 16) - -
----------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 13 and 15)
SHAREHOLDERS' EQUITY (Notes 10 and 11):
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued
or outstanding - -
Common stock, $.001 par value, 10,000,000 shares authorized 2,822,500
shares issued and outstanding 2,823 2,823
Additional paid-in capital 13,582,795 14,122,165
Deferred financing costs (Note 10) (141,500) (123,750)
Retained earnings (deficit) (5,857,987) (2,289,844)
Foreign currency translation (Note 2h) (175,753) 204,310
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 7,410,378 11,915,704
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,300,585 $40,724,367
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended For the Three Months Ended
November 30, February 28,
1997 1996 1998 1997
---------------- ---------------- ---------------- ---------
(Unaudited) (Unaudited)
REVENUE (Note 2i):
<S> <C> <C> <C> <C>
Contract hire income (Note 13) $ 8,410,366 $ 6,286,677 $2,441,865 $1,652,484
Sale of contract hire vehicles 6,762,323 5,839,080 817,112 1,731,816
Sale of vehicles - AC Cars (Note 1) 327,704 - - 202,563
Fleet management and other income - contract hire 1,076,650 758,261 321,994 106,420
Service and spare parts revenue 180,990 - - 42,000
Other income - AC Cars 701,242 - - -
----------------------------------------------------------------
17,459,275 12,884,018 3,580,971 3,735,283
------------ ------------ ----------- -----------
EXPENSES:
Cost of sales - contract hire 9,887,640 7,946,686 1,480,587 2,026,157
Cost of sales - AC Cars 448,720 - - 172,178
Depreciation - contract hire 3,546,807 2,295,164 1,071,956 817,054
Depreciation - AC Cars 399,828 - - 109,269
General and administrative expenses - contract hire 1,857,263 1,620,859 489,586 376,027
General and administrative expenses - AC Cars 1,682,866 181,252 - 379,115
Amortization of intangible assets - contract hire 630,718 634,813 157,680 157,680
Amortization of intangible assets - AC Cars 1,489 - - 616
Interest expense and other - contract hire 1,747,114 860,242 575,809 279,311
Interest expense and other - AC Cars 462,036 - - 78,382
Research and development - AC Cars 982,581 - - 81,912
Loss on sale of fixed assets - contract hire 454,851 - - -
Loss on sale of fixed assets - AC Cars 299,082 - - -
--------------------------------------------------------------
22,400,995 13,539,016 3,775,618 4,477,701
------------ ----------- ----------- ----------
LOSS BEFORE MINORITY INTERESTS (4,941,720) (654,998) (194,647) (742,418)
Minority interests in net loss of consolidated
subsidiary (Note 1) 486,320 54,376 - 173,073
-------------- -------------- ------------------ -----------
LOSS BEFORE PROVISION FOR INCOME
TAXES (4,455,400) (600,622) (194,647) (569,345)
Provision (credit) for income taxes (Notes 2g and 12) - - - -
---------------------------------------------------------------------
NET LOSS $ (4,455,400) $ (600,622) $ (194,647) $ (569,345)
============ ============ =========== ===========
LOSS PER COMMON SHARE (Note 2j):
Net loss before minority interest $(1.76) $(.27) $(.07) $ (.27)
Minority interest in net loss of subsidiary .17 .02 - .06
-------- ------ -------- -------
$(1.59) $(.25) $(.07) $(.21)
====== ===== ====== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 2j) 2,801,075 2,405,760 2,822,500 2,759,167
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Deferred Retained Foreign Total
Common Paid-in Financing Earnings Currency Shareholders'
Shares Stock Capital Costs (Deficit) Translation Equity
----------- ------------ ------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1995 1,560,000 $1,560 $11,741,922 $ - $ (801,965) $ 609,349 $11,550,866
Private offering of common
stock (Note 10) 500,000 500 119,500 - - - 120,000
Shares and warrants sold in
initial public offering (Note 10) 592,500 593 2,165,336 - - - 2,165,929
Adjustment for minority interest
(Note 16) - - (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
Private offering of common
stock (Note 10) 170,000 170 95,407 - - - 95,577
Deferred financing costs
(Note 10) - - - (141,500) - - (141,500)
Foreign currency translation
adjustment - - - - - (45,510) (45,510)
Net loss for year ended
November 30, 1997 - - - - (4,455,400) - (4,455,400)
---------------- --------------------------------------------------------- ---------------- ------------
Balance at November 30, 1997 2,822,500 2,823 13,582,795 (141,500) (5,857,987) (175,753) 7,410,378
Deferred financing costs - - - 17,750 - - 17,750
Adjustment - AC Car
Group Ltd. - - 539,370 - 3,762,790 - 4,302,160
Foreign currency translation
adjustment - - - - - 380,063 380,063
Net loss for the three months
ended February 28, 1998
(unaudited) - - - - (194,647) - (194,647)
---------------- ----------------------------------------------------------- ----------------------------
BALANCE AT
FEBRUARY 28, 1998
(UNAUDITED) 2,822,500 $2,823 $14,122,165 $(123,750) $(2,289,844) $204,310 $11,915,704
========= ====== =========== ========= =========== ======== ===========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 30, February 28,
1997 1996 1998 1997
---------------- ---------------- -------------- ---------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net (loss) $ (4,455,400) $ (600,622) $ (194,647) $ (569,345)
Adjustments to reconcile net (loss) to net cash provided
by operating activities:
Minority interest in net loss of subsidiary (486,320) (54,376) - (173,073)
Depreciation and amortization 3,946,635 2,295,164 1,071,956 946,597
Amortization of goodwill 632,207 634,813 157,680 148,683
Deferred financing costs (141,500) - 17,750 -
Loss (gain) on disposal of fixed assets 753,933 (119,030) 41,354 (28,470)
Provision for maintenance costs - (18,524) - -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 19,646 (599,753) (43,342) 125,654
(Increase) in inventories (225,705) (93,794) (46,899) (276,261)
Increase (decrease) in accounts payable, accrued
expenses and bank overdraft 1,528,020 (955,172) 438,706 352,781
--------------- ------------- -------------- --------------
Net cash provided from operating activities 1,571,516 488,706 1,442,558 526,566
--------------- -------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of revenue producing assets (16,494,724) (9,858,724) (3,104,557) (2,918,307)
Acquisition of assets in new subsidiary - (969,279) - -
Proceeds from sale of fixed assets 4,583,660 2,068,601 909,207 517,139
-------------- ------------- -------------- --------------
Net cash (utilized) by investing activities (11,911,064) (8,759,402) (2,195,350) (2,401,168)
------------- ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit 4,012,234 1,870,785 192,237 1,501,618
Net proceeds from sale of stock 95,577 2,285,929 - 78,862
Loans repaid to officers - (304,759) - -
Payment of acquisition debt (899,970) - - (810,800)
Principal payments of long term debt (306,789) (67,921) (17,882) (6,679)
Proceeds from hire purchase contract funding 19,491,763 11,530,175 3,154,590 3,701,474
Principal repayments of hire purchase contract funding (12,184,936) (6,073,790) (2,748,385) (3,090,658)
------------ ------------- ------------ ------------
Net cash provided from financing activities 10,207,879 9,240,419 580,560 1,373,817
------------- ------------- -------------- ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (41,676) (722,401) 108,567 276,330
--------------- -------------- -------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (173,345) 247,322 (63,665) (224,455)
Cash and cash equivalents, beginning of year 250,699 3,377 77,354 250,699
-------------- ---------------- --------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 77,354 $ 250,699 $ 13,689 $ 26,244
============== ============= ============== ==============
</TABLE>
SUPPLEMENTAL INFORMATION:
(i) In November 1996, the Company acquired certain of the assets of AC
Cars Limited aggregating $6,067,749 and incurred debt obligations
aggregating $5,098,470.
(ii) The loss on the disposal of fixed assets resulted from the sale of
certain non-revenue producing assets whereby the proceeds were less
than the carrying value.
See notes to consolidated financial statements.
F - 6
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
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.
On November 29, 1996, the Company, through a 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 was financed
with the proceeds of a private offering of the Company's common
stock, and by loans. The acquisition was recorded using the
purchase method of accounting.
On February 12, 1998, the Board of Directors of AC Automotive
Group, Inc. authorized the issuance of 6,130,000 shares of its
common stock to Erwood Holdings, Inc., a company affiliated
with Alan Lubinsky, the President and Chief Executive Officer
and director of the Company and AC Automotive Group, Inc., for
aggregate consideration of $6,130. In addition, 441,300 shares
were issued to other unrelated parties for aggregate
consideration of $443. Following further restructure and the
foregoing issuance of shares, the ownership of AC Automotive
Group, Inc. by the Company has been reduced to 16%. Due to the
change in ownership percentage, the Company does not believe
that it still has the ability to exercise significant influence
over AC Automotive Group, Inc. Accordingly, consolidation is
not considered appropriate. The Company's investment in AC
Automotive Group, Inc., is therefore being reported under the
cost method of accounting (See also Note 16).
F - 7
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
The following condensed pro-forma balance sheet assumes this
reduction in ownership occurred as of November 30, 1997:
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash $ 76,516
Accounts receivable - net 4,200,035
Inventory 132,369
Fixed assets - net 24,489,646
Intangible assets - net 9,074,865
Investment in affiliate 1,800,000
-------------
$39,773,431
Liabilities and Shareholder's Equity:
Bank line of credit $ 5,297,687
Accounts payable and accrued expenses 2,022,057
Bank debt 695,782
Obligations under hire purchase contracts 18,341,778
Loans payable 1,738,703
Shareholders' equity 11,677,424
------------
$39,773,431
The following pro forma statement of operations assumes the
reduction in ownership occurred at the beginning of the year
ended November 30, 1997:
Revenue $16,249,338
Expenses 17,079,394
Net loss (830,056)
Loss per share (.30)
</TABLE>
The pro-forma financial information is not necessarily
indicative of the results that would have occurred had this
reduction in ownership occurred as of the dates indicated above
nor are they necessarily indicative of future operating
results.
F - 8
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
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. All material intercompany balances and
transactions have been eliminated.
Due to the nature of the majority 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.
(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.
F - 9
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Inventories (continued):
Inventories consisted of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Cars held for resale $ 132,369 $179,268
Finished goods 90,784 -
Work-in-progress 502,500 -
Spare parts 522,707 -
------------ --------
$1,248,360 $179,268
</TABLE>
(e) Fixed Assets and Depreciation:
Fixed assets are stated at cost less depreciation. Depreciation
is provided on all assets at rates calculated to write off the
cost of each asset over its estimated useful life, as follows:
Building and improvements 50 years straight-line basis
Revenue producing vehicles 3-6 years straight-line basis
Furniture and fixtures 4 years double declining basis
Machinery and equipment 4 years double declining basis
Aircraft 4 years double declining basis
Maintenance and repairs are charged to operations and major
improvements are capitalized. Upon retirement, sale of other
disposal, the associated cost and accumulated depreciation of
the asset are eliminated from the accounts and any resulting
gain or loss is included in operations.
(f) 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, 1997 aggregated $3,622,833. Accumulated amortization as of
February 28, 1998 aggregated $3,780,512.
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.
F - 10
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(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 12 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.
(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.
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 as of November 30, 1997 (see also Note 7):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
November 30, 1998 $ 7,504,475
November 30, 1999 5,072,831
November 30, 2000 2,152,957
November 30, 2001 418,979
--------------
Total minimum lease payments receivable net of executory costs $15,149,242
===========
</TABLE>
F - 11
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(j) Earnings (Loss) Per Share:
Earnings per share are computed based upon the weighted average
shares and common equivalent shares outstanding. The shares
sold during the year ended November 30, 1996 in a private
offering (see Note 10), 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.
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128 - Earnings Per Share ("SFAS 128"),
which changes the method for calculating earnings per share.
SFAS 128 requires the presentation of "basic" and "diluted"
earnings per share on the face of the income statement. SFAS
128 is effective for financial statements for periods ending
after December 15, 1997. The Company will adopt SFAS 128 for
the year ending November 30, 1998, and accordingly restate
prior periods, as early adoption is not permitted. SFAS 128 is
not expected to materially differ from primary or fully diluted
earnings per share as previously reported.
(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) Stock Based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation",
effective December 1996, requires the Company to either record
compensation expense or to provide additional disclosures with
respect to stock awards and stock option grants made after
December 31, 1994. The accompanying Notes to Consolidated
Financial Statements include the disclosures required by SFAS
No. 123. No compensation expense is recognized pursuant to the
Company's stock option plans under SFAS No. 123 which is
consistent with prior treatment under APB No. 25.
(m) New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for
years beginning after December 15, 1997 and early adoption is
permitted. This statement prescribes standards for reporting
comprehensive income and its components. The Company will adopt
these standards effective for the year ending November 30,
1998.
See also Earnings (Loss) Per Share.
F - 12
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(n) Impact of the Year 2000 Issue:
The year 2000 issue is the result of computer programs being
written using two digits rather than four to designate the
applicable year. Accordingly, any of the Company's computer
programs that utilize date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000.
This could potentially result in a system failure or
miscalculations causing disruptions of operations, including
among other things, a temporary inability to process
transactions, send invoices, or engage in other similar normal
business activities.
The Company had already planned on upgrading its computer
software to increase operational efficiencies and information
analysis. In conjunction with this upgrade, the Company will
ensure that the new systems properly utilize dates that go
beyond December 31, 1999. The cost of this upgrade project, as
it relates to the Year 2000 issue, is not expected to have a
material effect on the operations of the Company and will be
funded through operating cash flows.
NOTE 3 - ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
Accounts receivable consist of the following:
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Trade receivables - net of allowance for doubtful
accounts of $80,486 for 1997 and 1998 $ 639,109 $ 667,954
Lease maintenance receivables 943,261 968,284
Value added tax 138,555 23,751
Due from related companies 83,219 90,263
Other debtors 198,221 2,493,125
------------ -----------
$2,002,365 $4,243,377
</TABLE>
Included in other debtors at February 28, 1998 is an amount of
$2,248,460 owing by AC Automotive Group, Inc. Subsequent to
February 28, 1998, AC Automotive Group, Inc. was restructured
and the Company was issued 651,000 shares in consideration for
the amount owing.
F - 13
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 4 - FIXED ASSETS AND DEPRECIATION:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Buildings and improvements $ 820,160 $ 784,599
Revenue producing vehicles 27,612,291 29,551,013
Furniture, fixtures, plant and equipment 4,670,067 544,112
------------- --------------
33,102,518 30,879,724
Less: accumulated depreciation (including
$4,263,115 and $4,764,963 of accumulated
depreciation on revenue producing vehicles,
for 1997 and 1998, respectively) 5,220,168 5,308,877
------------- -------------
$27,882,350 $25,570,847
</TABLE>
Depreciation expense for the years ended November 30, 1997 and
1996 aggregated $3,946,635 and $2,295,164, respectively.
Depreciation expense for the three months ended February 28,
1998 and 1997 aggregated $1,071,956 and $926,323, respectively.
One of the buildings owned by Pride Management was being leased
to an unrelated party at an annual rent of approximately
$80,000 per annum. In November 1997, the tenant exercised an
option to purchase the building for approximately $400,000.
NOTE 5 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Taxes other than income taxes $438,289 $344,903
Miscellaneous accrued expenses 427,688 379,213
--------- ---------
$865,977 $724,116
</TABLE>
F - 14
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 6 - BANK LOANS/LINE OF CREDIT:
(a) As of August 31, 1997, the Company's line of credit with its
bank expired. In February 1998, subsequent to the balance sheet
date, the Company entered into a new agreement with the bank.
This new line of credit of $5,862,500, after deconsolidating
the AC Car Group, is payable on demand and is secured by all
assets of the Company other than building and revenue-producing
vehicles which are already pledged (see Notes 6b and 7).
Interest is payable at 7 1/2% in excess of the bank's base
rate. The agreement is due for review in November 1998.
(b) At November 30, 1997, other bank loans consisted of $695,782
($677,900 at February 28, 1998) payable at a rate of 3% in
excess of the bank's base rate. This loan is secured by a
freehold property (building) owned by Pride Management and its
subsidiaries, and matures in 2017.
The scheduled principal payments of this bank debt as of
November 30, 1997 are as follows:
For the Year Ended November 30,
1998 $ 84,058
1999 84,058
2000 84,058
2001 84,058
2002 84,058
Thereafter 275,492
--------
$695,782
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 $23,667,500 as of November 30, 1997. 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, 1997, obligations under hire
purchase contracts are as follows:
For the Year Ended November 30,
1998 $ 8,860,849
1999 7,060,375
2000 2,372,636
2001 47,918
--------------
$18,341,778
F - 15
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING (Continued):
The annual interest rates on these obligations range from 9% to
11%.
As of February 28, 1998, the aggregate funding lines had been
decreased to $23,097,000 and obligations under hire purchase
funding aggregated $18,441,373.
NOTE 8 - OTHER LIABILITIES:
At November 30, 1997 and February 28, 1998 other liabilities
consisted of $52,707 and $222,310, respectively, due to other
creditors at interest rates approximating the current market
rates and are repayable on a demand basis.
NOTE 9 - ACQUISITION DEBT PAYABLE:
Acquisition debt payable (see Note 1) consists of the following:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Unsecured notes payable on demand after May 31, 1998; interest
payable quarterly at 2% above the
base rate (i) $ 837,500$ -
Unsecured notes payable on demand after May 31,
1998; interest payable at 10% per annum (see Note 10) 1,615,000 1,615,000
Unsecured notes payable on demand after October 31,
1999; interest payable quarterly at 8% per annum (i) 1,675,000 -
Other short-term notes payable 71,000 71,000
------------- -------------
$4,198,500 $1,686,000
</TABLE>
(i) These notes were issued by AC Automotive Group, Inc., and
are no longer owed by the Company.
NOTE 10 - COMMON STOCK/RECAPITALIZATION:
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 - 16
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 10 - COMMON STOCK/RECAPITALIZATION (Continued):
In April 1996, the Company successfully completed an initial
public offering ("IPO") of its common stock whereby it sold
592,500 shares of common stock at a price of $5.00 per share
and 2,300,000 common stock purchase warrants at a price of $.10
per warrant. This offering yielded net proceeds of
approximately $2,166,000.
The warrants are exercisable at a price of $5.75 per share,
subject to adjustment, one year from the date of the offering,
for a period of four years. The warrants are redeemable by the
Company at any time commencing one year from the date of its
prospectus, upon 30 days notice, at a redemption price of $.05
per warrant.
In addition, the Company entered into a consulting agreement
with one of the Underwriters 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.
In 1997, the Company completed a private placement of 17 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 (see Note 18a). The promissory
notes are classified as acquisition debt (see also Note 9).
The Company has reflected deferred financing costs based upon
the difference between the deemed fair value of the shares and
the market value at the time of issuance. These costs will be
recognized as additional interest expense over the term of the
notes.
NOTE 11 - 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.
During the year ended November 30, 1996, the Company granted
options to purchase 100,000 shares of common stock at an
exercise price of $5.50 per share (fair value of $2.60), none
of which has been exercised to 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.
F - 17
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 11 - STOCK OPTION PLANS (Continued):
In May 1997, the Company granted an aggregate of 60,528 options
to three employees exercisable at $2.54 per share. These
options vest at the rate of 331/3% per annum commencing May
1998.
The Company applies APB 25 and related Interpretations in
accounting for the Management Plan. Accordingly, no
compensation cost has been recognized for the Management Plan.
Had compensation cost of the Management Plan been determined
using the fair value-based method, as defined in SFAS 123 (see
Note 2l), the Company's net earnings (loss) and earnings (loss)
per share would have been adjusted to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1997 1996
--------------- --------
<S> <C> <C>
Net earnings (loss):
As reported $(4,455,400) $(600,622)
Pro forma (4,745,000) (906,622)
Earnings (loss) per share:
As reported (1.59) (.25)
Pro forma (1.69) (.38)
</TABLE>
The fair value of each option grant was estimated on the date
of the grant using the Black-Scholes option-pricing model with
the following weighted average assumptions for 1997 and 1996;
respectively; expected volatility of 1.2% and 1.1%,
respectively; risk-free interest rate of 6.5%; and expected
lives of 3 to 5 years.
The effects of applying SFAS 123 in the above pro forma
disclosures are not necessarily indicative of future amounts.
Additionally, future amounts are likely to be affected by the
number of grants awarded since additional awards are generally
expected to be made at varying amounts.
NOTE 12 - INCOME TAXES:
The Company has available operating losses carryforwards for
tax purposes aggregating approximately $5,028,000 as of
November 30, 1997, 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.
The components of the deferred tax asset, pursuant to SFAS
No. 109, are as follows:
<TABLE>
<CAPTION>
November 30, February 28,
1997 1998
(Unaudited)
<S> <C> <C>
Operating loss carryforward $1,709,000 $688,000
Valuation allowance (1,709,000) (688,000)
----------- ---------
$ - $ -
================= =======
</TABLE>
F - 18
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 13 - ECONOMIC DEPENDENCY:
For the years ended November 30, 1997 and 1996, the Company had
two unaffiliated customers, which accounted for an aggregate of
approximately 17% (1996 - 17%) and 7% (1996 - 12%)
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 14 - PENSION PLAN:
PMS and its' subsidiaries have a fully insured defined
contribution plan for all of its eligible employees.
Contributions to the plan, which are discretionary, for the
years ended November 30, 1997 and 1996 amounted to $65,726 and
$33,264, respectively. Contributions to the plan for the three
month periods ended February 28, 1998 and 1997 amounted to
$22,690 and $11,874, respectively.
NOTE 15 - COMMITMENTS:
(a) Leases:
In November 1996, the Company 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,
with an option to purchase this facility at a cost of
$8,700,000, through August 1997. In August 1997, the Company
sold this option to purchase for $673,750 and negotiated a new
lease for a smaller portion of this facility at an approximate
cost of $31,000 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 11).
In September 1995, the Company entered into an employment
agreement with an officer/director for a period of twenty-four
months commencing December 1, 1995. This agreement is
automatically extendable for a further twenty four-month period
subject to review by the Board of Directors. For the year ended
November 30, 1997, the annual salary amounted to $71,000
F - 19
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 15 - COMMITMENTS (Continued):
(c) Rental Income:
The Company leased one of its owned facilities to an
unaffiliated company for an annual rental of approximately
$80,000 per annum. The annual cost of servicing the mortgage
and real estate taxes on this building was approximately
$70,000. In November 1997, this property was sold for $400,000
(see Note 4).
NOTE 16 - MINORITY INTEREST IN SUBSIDIARIES:
As of November 30, 1997, the Company owned 70% of AC Automotive
Group, Inc. ("AC Group") - see Note 1. As of November 30, 1996,
the Company reflected a charge of $539,370 to additional
paid-in capital in order to properly reflect the minority
interest liability at $482,486. For the year ended November 30,
1997, losses applicable to the minority shareholder exceeded
its interest, accordingly, such losses were charged against the
operations of the Company. See Note 1 - re carrying value of
this investment.
NOTE 17 - BUSINESS SEGMENT INFORMATION:
The Company's operations have been classified into two business
segments; Contract Hire and Leasing and Automobile Manufacture.
The Contract Hire and Leasing is the business of Pride
Management Services Plc and its subsidiaries and utilizes the
resale of automobiles at the end of the contracts. The
Automobile manufacturer is the business of AC Car Group
Limited. This segment began operations in December 1996.
F - 20
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
(Information as of and for the Periods Ended
February 28, 1998 and 1997 is Unaudited)
NOTE 17 - BUSINESS SEGMENT INFORMATION (Continued):
Summarized financial information by business segment for the
years ended November 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------
Revenue:
<S> <C> <C>
Pride Management Services Plc $16,249,338 $12,884,018
AC Car Group Limited 1,209,937 -
--------------------------
$17,459,275 $12,884,018
Income (Loss) Before Minority Interests:
Pride Management Services Plc $ (830,056) $ (654,998)
AC Car Group Limited (4,111,664) -
------------- -------------
$ (4,941,720) $ (654,998)
============ =============
Total Assets:
Pride Management Services Plc $35,686,989 $27,680,689
AC Car Group Limited 4,613,596 6,008,893
------------- --------------
$40,300,585 $33,689,582
Depreciation and Amortization:
Pride Management Services Plc $ 4,155,846 $ 2,929,977
AC Car Group Limited 422,996 -
----------------------------
$ 4,578,842 $ 2,929,977
============ ===========
Capital Expenditures:
Pride Management Services Plc $15,298,608 $ 8,002,360
AC Car Group Limited 1,196,116 1,856,364
------------- -------------
$16,494,724 $ 9,858,724
=========== ============
</TABLE>
Segment information is not reflected for the period ended
February 28, 1998 due to the ownership change as described in
Note 1.
NOTE 18 - SUBSEQUENT EVENTS:
The Company has filed a Form SB-2 with the Securities and
Exchange Commission, registering for the sale of 1,250,000
shares of common stock, which includes 170,000 shares being
sold by certain selling shareholders. The estimated net
proceeds from this offering, to the Company, is expected to be
$3,488,000. The Company intends to use these proceeds to repay
existing debt.
F - 21
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
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
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
<TABLE>
<CAPTION>
<S> <C>
ADDITIONAL INFORMATION................................................................... PRIDE AUTOMOTIVE
GROUP, INC.
PROSPECTUS SUMMARY.......................................................................
RISK FACTORS.............................................................................
DIVIDEND POLICY..........................................................................
DILUTION.................................................................................
USE OF PROCEEDS..........................................................................
CAPITALIZATION...........................................................................
BUSINESS.................................................................................
MANAGEMENT...............................................................................
PRINCIPAL STOCKHOLDERS...................................................................
DESCRIPTION OF
SECURITIES...............................................................................
^ 1,250,000 Shares of Common Stock
SHARES ELIGIBLE FOR
FUTURE SALE..............................................................................
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.................................................................
UNDERWRITING.............................................................................
LEGAL OPINIONS........................................................................... -----------------------
PROSPECTUS
-----------------------
EXPERTS..................................................................................
INDEX TO FINANCIAL STATEMENTS............................................................F-1
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS MASON HILL & CO., INC.
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
^ JUNE __, 1998
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
</TABLE>
<PAGE>
Preliminary prospectus subject to completion, dated June , 1998
PROSPECTUS
PRIDE AUTOMOTIVE GROUP, INC.
95,000 Shares of Common Stock,
200,000 Warrants and 200,000 shares
of Common Stock underlying the Warrants
which may be sold from time to time
by the Selling Securityholders
This Prospectus relates to 95,000 shares of Common Stock, 200,000 Warrants
and 200,000 shares of Common Stock underlying the Warrants (the "Selling
Securityholders' Securities"), of Pride Automotive Group, Inc. (the "Company"),
which are being offered for sale by certain selling securityholders (the
"Selling Securityholders"). 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 1,250,000 shares of Common Stock (without giving
effect to the Underwriters' Over-allotment Option granted to the Underwriters to
purchase up to an additional 187,500 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 125,000 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 95,000 shares of Common Stock, 200,000 Warrants and 200,000 shares of Common Stock
underlying the Warrants. See "Description of Securities", "Risk Factors" 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 a warrant to certain NASD broker/dealers which
acted as Underwriters in the Company's 1996 public offering (the "Underwriters'
Warrant") which enables such parties to acquire from the Company an aggregate of
95,000 shares of Common Stock and 200,000 Warrants at a price of $7.50 per
share, $.15 per Warrant and $5.75 per share of Common Stock for the shares of
Common Stock underlying the Warrants, respectively. See "Certain Transactions".
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
II-2
<PAGE>
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 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, Regulation M and Rule
10b-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>
[Alternative Page for Selling Securityholders' Prospectus]
<TABLE>
<CAPTION>
Beneficial Beneficial
Ownership Percentage Ownership
Prior of Amount of After Selling
to Selling Common Shares/ Securityholders
Securityholders Stock/Warrants Warrants Offering if All
Offering Owned Before Being Shares/Warrants
Selling Securityholder Shares/Warrants Offering Registered are Sold
<S> <C> <C> <C> <C>
Mason Hill & Co., Inc. 42,750 / 90,000 45% / 45% All 0%
The Thornwater
Company, L.P. 28,500 / 60,000 30% / 30% All 0%
J.W. Barclay & Co., Inc. 23,750 / 50,000 25% / 25% All 0%
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED HEREIN, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PRIDE AUTOMOTIVE
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO GROUP, INC.
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 95,000 Shares of Common Stock, 200,000
DOES NOT IMPLY THAT THE INFORMATION STATED IS CORRECT AS OF ANY TIME SUBSEQUENT Warrants and 200,000 shares of Common
TO THE DATE HEREOF. Stock underlying the Warrants which
may be sold from time to time by the
Selling Securityholders
--------------------
TABLE OF CONTENTS
ADDITIONAL INFORMATION...................................................................
PROSPECTUS SUMMARY.......................................................................
RISK FACTORS.............................................................................
DIVIDEND POLICY..........................................................................
DILUTION.................................................................................
USE OF PROCEEDS..........................................................................
CAPITALIZATION...........................................................................
BUSINESS................................................................................. -----------------------
PROSPECTUS
-----------------------
MANAGEMENT...............................................................................
PRINCIPAL STOCKHOLDERS...................................................................
DESCRIPTION OF
SECURITIES...............................................................................
SHARES ELIGIBLE FOR
FUTURE SALE..............................................................................
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS.................................................................
UNDERWRITING............................................................................. MASON HILL & CO., INC.
LEGAL OPINIONS...........................................................................
EXPERTS..................................................................................
INDEX TO FINANCIAL STATEMENTS............................................................F-1 JUNE , 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>
II-5
<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 $2,919.59
NASD Filing Fee 1,360.15
Nasdaq Filing Fee 7,500.00
Boston Stock Exchange Fee 5,000.00
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 150,000.00(1)
Consulting Fee 108,000.00
Miscellaneous (1)
Total $400,000.00
- ------------------------
</TABLE>
(1) Estimated.
II-6
<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 ^between December
1996 and March 1997. The Company sold 17 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. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
3.2 - By-Laws of the Company. (Incorporated by reference from the Registration
Statement filed on January 12, 1996 SEC file number 333-296-NY)
4.1 - Specimen Common Stock Certificate. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
4.2 - Specimen Warrant Certificate. (Incorporated by reference from the Registration
Statement filed on January 12, 1996 SEC file number 333-296-NY)
4.3 - Form of Warrant Agreement between the Company and the Underwriters.
4.4 - Form of Warrant Agreement between the Company and Continental Stock Transfer
& Trust Company. (Incorporated by reference from the Registration Statement filed
on January 12, 1996 SEC file number 333-296-NY)
4.5 - Form of Lock-up Agreement.
II-7
<PAGE>
4.6 - Form of Special Warrant.
5.0 - Opinion of Lampert & Lampert.
10.1 - The Company's Senior Management Incentive Plan. (Incorporated by reference
from the Registration Statement filed on January 12, 1996 SEC file number 333-
296-NY)
10.2 - Employment Agreement with Alan Lubinsky. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.3 - Employment Agreement with Ivan Averbuch. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.4 - Consulting Agreement.
10.5 - Loan Agreement between PMS and Alan Lubinsky. (Incorporated by reference
from the Registration Statement filed on January 12, 1996 SEC file number 333-
296-NY)
10.6 - Form of Service Agreement. (Incorporated by reference from the Registration
Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.7 - Asset purchase agreement between Pride Vehicle Contracts (UK) Limited and
Master Vehicle Contracts Limited. (Incorporated by reference from the Registration
Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.8 - Form of Hire Purchase Agreement. (Incorporated by reference from the
Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.9 - Mortgage on Pride House, Watford Metro Center. (Incorporated by reference from
the Registration Statement filed on January 12, 1996 SEC file number 333-296-NY)
10.10 - Mortgage on Croydon, England property. (Incorporated by
reference from the Registration Statement filed on January 12,
1996 SEC file number 333-296-NY)
10.11 - Lease agreement with respect to the Croydon England property. (Incorporated by
reference from the Registration Statement filed on January 12, 1996 SEC file
number 333-296-NY)
10.12 - Lease agreement with respect to Land at Unit 1, Vickers Drive North, Brooklands
Industrial Park, Elmbridge, Surrey.
10.13 - Financing Agreement with Midland Bank dated January 22, 1998
23.1* - Consent of Civvals Chartered Accountants.
23.2 - 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;
II-8
<PAGE>
(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.
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-9
<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 18th day of June, 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 06/18/98
Officer) Date
/s/ Ivan Averbuch
Ivan Averbuch Chief Financial Officer, Vice President,
Treasurer 06/18/98
Date
/s/ Allan Edgar Director 06/18/98
Allan Edgar Date
/s/ Ian Satill Director 06/18/98
Ian Satill Date
</TABLE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this amendment No. 2 to the Registration
Statement on Form SB-2 of our report dated February 20, 1998 relating to the
consolidated financial statements of Pride Automotive Group, Inc. and
Subsidiaries, and to the reference to our Firm under the caption "Experts" in
the Prospectus. We also consent to the reference to our firm in the Summary
Financial Data section of the Registration Statement.
CIVVALS
London, United Kingdom
June 18, 1998
