SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended February 28, 1998
Commission File Number 0-27944
PRIDE AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 98-0157860
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Pride House, Watford Metro Centre, Tolpits Lane, Watford, England WD1 8SB
(Address of principal executive offices) (Zip Code)
(800) 698-6590
(Issuer's telephone number, including area code)
Indicate by (X) whether Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. YES X NO
Common Stock, $.001 par value. 2,822,500 shares outstanding as of February
28, 1998.
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page(s)
PART I. Financial Information:
ITEM 1. Financial Statements
<S> <C>
Consolidated Condensed Balance Sheets - February 28, 1998 (Unaudited)
and November 30, 1997 3.
Consolidated Condensed Statements of Operations (Unaudited) Three Months
Ended February 28, 1998 and February 29, 1997 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) Three Months
Ended February 28, 1998 and February 29, 1997 5.
Notes to Interim Consolidated Condensed Financial Statements (Unaudited) 6.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9.
PART II. Other Information 12.
SIGNATURES 13.
EXHIBITS: Exhibit 27 - Financial Data Schedule 14.
Page 2.
</TABLE>
<PAGE>
PART 1. Financial Information
ITEM 1. Financial Statements
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
- ASSETS -
February 28, November 30,
1998 1997
(unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents ..........................................................................$ 13,689 $ 77,354
Accounts receivable ................................................................................ 4,243,377 2,002,365
Inventories ........................................................................................ 179,268 1,248,360
Property, revenue producing vehicles and equipment - net (Note 2) ..................................25,570,847 27,882,350
Intangible assets - net (Note 3) ................................................................... 8,917,186 9,090,156
Investment in affiliate ............................................................................ 1,800,000 --
---------- ------------
TOTAL ASSETS .......................................................................................$40,724,367 $ 40,300,585
============ ============
- - LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES (Note 4):
Bank overdraft line of credit ......................................................................$ 5,489,924 $ 6,976,699
Accounts payable 1,567,040 1,758,764
Accrued liabilities and expenses ................................................................... 724,116 865,977
Bank debt .......................................................................................... 677,900 695,782
Obligations under hire purchase contracts .......................................................... 18,441,373 18,341,778
Other loans ........................................................................................ 1,686,000 4,198,500
Other liabilities .................................................................................. 222,310 52,707
----------- ------------
TOTAL LIABILITIES .................................................................................. 28,808,663 32,890,207
---------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 5):
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 at 1998 and 1997,
respectively ....................................................................................... 2,823 2,823
Additional paid-in capital ........................................................................ 14,122,165 13,582,795
Deferred financing costs ........................................................................... (123,750) (141,500)
Retained earnings (deficit) ........................................................................(2,289,844) (5,857,987)
Foreign currency translation ....................................................................... 204,310 (175,753)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY .........................................................................11,915,704 7,410,378
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .........................................................$40,724,367 $ 40,300,585
=========== ============
</TABLE>
See notes to interim consolidated condensed financial statements
Page 3.
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
February 28,
1998 1997
--------------- ---------
REVENUE:
<S> <C> <C>
Contract hire income ............................................. $ 2,441,865 $ 1,652,484
Sale of contract hire vehicles ................................... 817,112 1,731,816
Sale of vehicles - AC Cars (Note 1) .............................. -- 202,563
Fleet management and other income ................................ 321,994 207,420
----------- ------------
3,580,971 3,794,283
EXPENSES:
Cost of sales - contract hire .................................... 2,552,543 2,843,212
Cost of sales - AC Cars .......................................... -- 144,022
General and administrative expenses - contract hire .............. 489,586 376,027
General and administrative expenses - AC Cars .................... -- 543,238
Amortization of intangible assets - contract hire ................ 157,680 157,680
Amortization of intangible assets - AC Cars ...................... -- 10,319
Interest expenses and other - contract hire ...................... 575,809 279,311
Interest expenses and other - AC Cars ............................ -- 78,382
----------- ------------
3,775,618 4,432,191
LOSS BEFORE MINORITY INTERESTS ................................... (194,647) (637,908)
Minority interests in net loss of consolidated subsidiary (Note 1) -- 226,395
----------- ------------
LOSS BEFORE PROVISION FOR INCOME TAXES ........................... (194,647) (411,513)
Provision (credit) for income taxes -- --
----------- ------------
NET LOSS ......................................................... $ (194,647) $(411,513)
=========== ============
LOSS PER COMMON SHARE (Note 5):
Net loss before minority interest ................................ $ (.07) $ (.23)
Minority interest in net loss of subsidiary ...................... -- .08
-------------- ------------
$ (.07) $ (.15)
============== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 5) ...................................... 2,822,500 2,759,167
============== ============
</TABLE>
See notes to interim consolidated condensed financial statements
Page 4.
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
February 28,
1998 1997
-------------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ............................................................................. $ (194,647) $ (411,513)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Minority interest in net loss of subsidiary .......................................... (226,395)
Depreciation and amortization ........................................................ 1,071,956 837,328
Amortization of goodwil1 ............................................................. 57,680 148,683
Loss (gain) on disposal of fixed assets .............................................. 41,354 (28,470)
Deferred financing costs ............................................................. 17,750 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ........................................... 130,413 (43,342)
(Increase) in inventories ............................................................ (46,899) (276,261)
Increase in accounts payable, accrued expenses and other liabilities ................. 438,706 352,781
----------- -----------
Net cash provided from operating activities .......................................... 1,442,558 526,566
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of revenue producing assets ................................................. (3,104,557) (2,918,307)
Proceeds from sale of fixed assets ................................................... 909,207 517,139
----------- -----------
Net cash (utilized) by investing activities .......................................... (2,195,350) (2,401,168)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from bank lines of credit ............................................... 192,237 770,818
Proceeds from sale of common stock and warrants ...................................... -- 80,900
Costs associated with initial public offering ........................................ -- (2,038)
Principal payments of long-term debt ................................................. (17,882) (6,679)
Payment of other debt ................................................................ -- (80,000)
Proceeds from hire purchase contract funding ......................................... 3,154,590 3,701,474
Principal repayments of hire purchase contract funding ............................... (2,748,385) (3,090,658)
----------- -----------
Net cash provided by financing activities ............................................ 580,560 1,373,817
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH ....................................... 108,567 276,330
----------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS .......................................... (63,665) (224,455)
Cash and cash equivalents, beginning of year ......................................... 77,354 250,699
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................. $ 13,689 $ 26,244
=========== ===========
</TABLE>
See notes to interim consolidated condensed financial statements
Page 5.
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(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. The PMS companies are engaged in the leasing of motor vehicles
primarily on contract hire to local authorities and select 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 its newly formed majority owned
subsidiary, AC Automotive Group Inc., and its wholly-owned subsidiary AC Car
Group Limited (registered in the United Kingdom), completed the acquisition of
certain assets of AC Cars Limited and Autocraft Limited. These two companies
were engaged in the manufacture and sale of speciality 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.
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. The foregoing
issuance of shares has reduced the ownership of AC Automotive Group, Inc. by the
Company to approximately 16%.
Accordingly, the Company's investment in AC Automotive Group, Inc., is
being reported under the cost method of accounting.
The accounting policies followed by the Company are set forth in Note 2 to
the Company's consolidated financial statements included in its Annual report on
Form 10-KSB for the year ended November 30, 1997, which is incorporated herein
by reference. Specific reference is made to this report for a description of the
Company's securities and the notes to consolidated financial statements included
therein.
Page 6.
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of Pride Automotive Group, Inc. and
its wholly owned subsidiaries, contain all adjustments necessary to present
fairly the Company's financial position as of February 28, 1998 and the results
of its operations and cash flows for the three month periods ended February 28,
1998 and 1997.
The results of operations for the three month periods ended February 28,
1998 and 1997 are not necessarily indicative of the results to be expected for
the full year.
NOTE 2 - FIXED ASSETS:
<TABLE>
<CAPTION>
Fixed assets consists of the following:
February 28, November 30,
1998 1997
(unaudited)
<S> <C> <C>
Building and improvements $ 784,599 $ 820,160
Revenue producing vehicles 29,551,013 27,612,291
Aircraft - 927,561
Furniture, fixtures and machinery 544,112 4,670,067
-------------- --------------
30,879,724 33,102,518
Less: accumulated depreciation 5,308,877 5,220,168
------------- -------------
$25,570,847 $27,882,350
</TABLE>
NOTE 3 - INTANGIBLE ASSETS:
Intangible assets consist 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
February 28, 1998 and November 30, 1997 aggregated $3,780,512 and $3,622,833,
respectively.
The Company periodically reviews the valuation and amortization of goodwill
to determine possible impairment by evaluating events and circumstances that
might indicate an inability to recover the carrying amount. Such evaluation is
based on various analyses, including profitability projections and cash flows
that incorporate the impact on existing Company business.
Page 7.
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - LIABILITIES:
Included in liabilities as of February 28, 1998, are amounts in the
aggregate of $10,807,390 which are not due and payable until after February 28,
1999. This amount consists of amounts due to trade creditors, loans payable and
equipment notes payable.
NOTE 5 - EARNINGS (LOSS) PER SHARE:
The Company has adopted SFAS 128 "Earnings Per Share" ("SFAS 128"), which
has changed the method of calculating earnings (loss) per share. SFAS 128
requires the presentation of "basic" and "diluted" earnings (loss) per share on
the face of the income statement. Prior period earnings (loss) per share data
has been restated in accordance with SFAS 128. Loss per common share is computed
by dividing the net loss by the weighted average number of common shares and
common equivalent shares outstanding during each period.
Page 8.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Pride Automotive Group, Inc., (the "Company") was incorporated in the State
of Delaware in March 1995. Pursuant to the terms and conditions of a
reorganization agreement entered into in March 1995, the Company issued
1,500,000 shares of its common stock to Pride, Inc. (an entity incorporated in
the State of Delaware), in exchange for all the issued and outstanding shares of
PMS, thereby making the Company a majority owned subsidiary of Pride and PMS a
wholly-owned subsidiary of the Company. PMS is the holding company for nine
wholly-owned subsidiaries, operating as one unit, located in the United Kingdom.
PMS and its wholly-owned subsidiaries are located in the United Kingdom and
follow generally accepted accounting principles in the United Kingdom. For
purposes of the consolidated financial statements of the Company, the statements
have been converted to the generally accepted accounting principles in the
United States.
Pride, the Company's parent, is an entity reporting under the Exchange Act,
and its reports may be obtained and reviewed by either contacting the Company or
the Securities and Exchange Commission. Pride, Inc. on its own has virtually no
operations. As such, its financial viability is represented by the financial
statements of the Company. Pride was incorporated as L.H.M. Corp. in the State
of Delaware on May 10, 1988 as a "blank check" company, for the purpose of
seeking potential business ventures through acquisitions or merger. In April
1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization with
International Sportsfest, Inc. ("ISI"), a company formed to engage in and
establish sports expositions in sports merchandise such as clothing and
equipment. ISI never engaged in any business operations. In January 1994, ISI
entered into an Agreement and Plan of Reorganization with PMS, whereby PMS
became a wholly- owned subsidiary of ISI and ISI changed its name to Pride, Inc.
In December 1995, 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 effect 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), completed the acquisition of
certain assets of AC Cars Limited and Autocraft Limited. These two companies
were engaged in the manufacture and sale of speciality 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.
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. The foregoing
issuance of shares has reduced the ownership of AC Automotive Group, Inc. by the
Company to approximately 16%.
Page 9.
<PAGE>
Accordingly, the Company's investment in AC Automotive Group, Inc., is
being reported under the cost method of accounting.
The financial information presented herein include: (i) Consolidated
Condensed Balance Sheets as of February 28, 1998 and November 30, 1997; (ii)
Consolidated Condensed Statements of Operations for the Three Month Periods
Ended February 28, 1998 and 1997 and (iii) Consolidated Condensed Statements of
Cash Flows for the Three Month Periods Ended February 28, 1998 and 1997.
Results of Operations - Contract Hire
Contract hire and fleet management income increased by $903,955 when
comparing the quarter ended February 28, 1998 to the quarter ended February 28,
1997. This 49% increase is due to the net growth in the fleet of 379 vehicles
over the past year.
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 49% 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 49% over the past
year, and represents 13.67% of revenue as against 10.47% for the corresponding
period.
Page 10.
<PAGE>
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.
Page 11.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings.
None.
ITEM 2 - Changes in Securities.
None.
ITEM 3 - Defaults Upon Senior Securities.
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders.
None.
ITEM 5 - Other Information.
None.
ITEM 6 - Exhibits or Reports on Form 8-K.
Exhibit 27 - Financial Data Schedule.
Page 12.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated: April 14, 1998 PRIDE AUTOMOTIVE GROUP, INC.
By: /s/ Alan Lubinsky
Chief Executive Officer
Page 13.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
The schedule contains summary financial information extracted from the
consolidated financial statements for the three months ended February 28, 1998
and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> nov-30-1998
<PERIOD-START> dec-01-1998
<PERIOD-END> dec-01-1998
<CASH> 13,689
<SECURITIES> 0
<RECEIVABLES> 4,243,377
<ALLOWANCES> 0
<INVENTORY> 179,268
<CURRENT-ASSETS> 0
<PP&E> 30,879,724
<DEPRECIATION> 5,308,877
<TOTAL-ASSETS> 40,724,367
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,833
<OTHER-SE> 11,912,881
<TOTAL-LIABILITY-AND-EQUITY> 40,724,367
<SALES> 3,580,971
<TOTAL-REVENUES> 3,580,971
<CGS> 2,552,543
<TOTAL-COSTS> 2,552,543
<OTHER-EXPENSES> 157,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 575,809
<INCOME-PRETAX> (194,647)
<INCOME-TAX> 0
<INCOME-CONTINUING> (194,647)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (194,647)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
