UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/12g
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PRETORY USA, INC.
-----------------
(Name of Small Business Issuer in its Charter)
NEVADA 33-0780055
------ ----------
(State or Other Jurisdiction of Incorporation) (IRS Employer Identification No.)
161 WEST 54 TH STREET, SUITE 602, NEW YORK, NY 10019
------------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
212-707-8661
------------
(Issuer's telephone number)
Securities Registered under Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
------------------- ------------------------------
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001
-----------------------------
(Title of class)
Page 1 of 42
Table of Content
PARTI
Page No.
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Description of Property 14
Item 4. Security Ownership of Certain Beneficial
Owners and Management 15
Item 5. Directors, Executive Officers, Promoters and
Control Persons 16
Item 6. Executive Compensation 17
Item 7. Certain Relationships and Related Transactions 18
Item 8. Description of Securities 19
PART II
Item 1. Market for Common Equity and Related
Stockholder Matters 20
Item 2. Legal Proceedings 21
Item 3. Changes In and Disagreement with Accountants 21
Item 4. Recent Sales of Unregistered Securities 22
Item 5. Indemnification of Directors and Officers 23
PART F/S
Financial Statements 24
PART III
Item 1. Index to Exhibits 39
Item 2. Description of Exhibits 40
Signatures 41
FDS 42
PART I
ITEM 1. DESCRIPTION OF BUSINESS
- ---------------------------------
General
Pretory USA, Inc. ("Pretory" or "the Company"), was
incorporated under of the laws of the state of Nevada on June 27,
1997. On August 15, 1997, an agreement of transfer was signed by
what became Pretory's subsidiary, Pretory S.A, a corporation
organized under the laws of France, and certain third parties,
under which Pretory S.A. obtained the rights to a technology and
any inventions developed from such technology, specifically
products designed for the purpose of detecting odors in the
ambient air with semiconductor gas sensors. To date, the
technology acquired by the Company has resulted in the
development of three products known as the PIF(TM) product (hand
carried device offered in a variety of configurations for
explosives/narcotics), Ethypol(TM) (which detects blood alcohol
levels using a breath test), and the ARGOS(TM) product (which
detects hydrocarbons). These products are manufactured by third
parties for distribution by the Company. See the discussion under
"Products and Services" below.
Effective September 12, 1997, the Company entered into a
share exchange agreement with the stockholders of Pretory S.A.,
the French corporation that is the owner of proprietary rights to
the technology and products, including PIF, Ethypol, and the
ARGOS product. Pursuant to this agreement, the Pretory S.A.
stockholders exchanged 2,332 shares of their common stock, equal
to 99.7% of the issued and outstanding shares of Pretory S.A.,
for 4,720,000 restricted shares of Pretory's common stock. See
Note 1 to the Notes to Consolidated Financial Statements, for the
years ended December 31, 1998 and 1997.
Since its inception, the Company has been engaged in the
activity of developing, selling, and providing security services
and sophisticated security devices, explosion detection systems,
drug/alcohol detection devices and the services associated with
the use of these products.
The Company is seeking to expand its operations for the
purpose of expanding the market for both its existing and new
products and services, into the United States and elsewhere.
There can be no assurance that the Company will be successful in
expanding the market for its products, or in developing new
products. See the discussion below under "Products and Services",
"Research and Development", "Sales and Marketing", "Licensing and
Intellectual Property" and "Competition". Also see the discussion
under "Management's Discussion and Analysis of Financial
Condition and Results of Operations, Item 2, of Part I below.
The Company maintains offices in New York, NY and in Paris,
France.
Products and Services
The Company operates as a security and detection equipment
company. It provides sophisticated security devices, explosion
detection systems; drug and alcohol detection devices and systems
designated to reveal environmental hazards.
The Company's present products and services are designed
with the purpose of commercially exploiting the market
opportunities for detection products using current technologies
and security services. Such market is presently estimated at $20
billion by the end of 1999, and $40 billion by 2004.
Page 3
This data has been published in a report in June 1999 by
Westergaard Securities, an investment research firm. This
is a growing sector of the $200 billion worldwide security and
crime control market. The Company shall supplementally submit
publications to support this industry information. This growth has
been partially driven by public and private sector entities
desiring or requiring protection from the real and/or perceived
dangers of explosives, as well as from the ever-present abuse of
alcohol and narcotics. Such entities include government
institutions such as courts, jails, customs, postal services and
schools, transportation hubs, such as airports and train
stations; and public venues such as stadiums and shopping malls,
among others. An additional market that the Company shall
pursue, and which it believes is growing, is the insurance
company market, which the Company believes can benefit from use
of devices such as those of the Company in order to reduce their
yearly claim expenditures. While there is growth in the
protective security services and detection markets, as referred
above, there can be no assurance that the Company will be able to
share in this growth.
The Company currently markets the following six types of security
services:
VIP security services: VIP security services include
personal security services for high net worth individuals and
corporations. These services include personal escorts, couriers,
chauffeurs and drivers.
An example of this would be providing armed couriers for custom-
ers who are physically transferring liquid assets and/or cash.
Security equipment operations: Services include the
Company's personnel who are leased with the equipment they
operate to perform the specific security function for the
customer.
Anti-terrorism and anti-theft services: Services include
specialized security audits, which are performed at public
facilities such as airports. These audits assist in the detection
of theft such as luggage for the Airline industry.
Security consulting and training: Services include the
training of French Customs officers to operate products such as
the Itemiser and various airport personnel to utilize and
administer the Cortez products and the Drugwipe. See the discus-
sion under licensed products below for definition.
Security systems administration: Services include the
provision of surveillance equipment and sensing devices to
provide security and surveillance for entities such as schools,
cemeteries and National Monuments. These systems are admin-
istered to provide perimeter security, and to secure entry for
schools and other facilities.
Augmentation of special police activities: Services include
special activity with regard to riots, protests and other problem
group activities. An example of these services is monitoring
any group gathering for which security guards are required or
other special security services are necessary.
The Company's strategy with respect to marketing the above
security services is to continue efforts to develop on-going
relationships with national and local governments, international
institutions, and corporations that utilize services such as
those offered by the Company. The Company shall also seek to
simultaneously improve its reputation in certain security
specialties such as anti-terrorism at airports and narcotics
interdiction at international borders. The Company's immediate
focus is to devote efforts to market both its security services
and detection products to customers as a package in Europe and
expand into North and South America and the Middle-East.
Page 4
The Company's intent is to broaden its geographic
penetration, through acquisitions of other service providers. The
Company's target for potential acquisitions are those that will
bring the Company additional services and products, as well as
additional customers.
The Company's current list of licensed products consists of the
following:
The Itemiser: a desktop instrument that can detect certain
designated substances, in amounts smaller than a thirty billionth
of a gram in approximately six to thirty seconds.
The Vapotracer: a lightweight handheld device utilizing the same
technology as the Itemiser.
These products detect explosives such as RDX, PETN, TNT and
Semtex or narcotics such as heroin and cocaine, and such products
are sold through a distribution agreement with Ion Track
Instruments (ITI), a company based in Massachusetts. The
Company is the exclusive distributor in France and its overseas
territories.
The Drugwipe: a series of inexpensive single-use drug detection
products that immediately identify traces of a variety of illegal
narcotics on surfaces, such as human skin or luggage. The four
Drugwipes currently available and being marketed for detection
are used to detect opiates, cocaine, marijuana, or amphetamines.
The Drugwipe is sold under an exclusive license in France from
Securetec, a German company.
The Cortez: are products referred to as "dip" tests for the
rapid, qualitative detection of a variety of different illegal
drugs in urine. These products are sold under an exclusive
license from Cortez Diagnostics, Inc. of Calabasas, CA for sale
by the Company in Europe.
The IADE Thermal Imagers: from the Institute of Aerospace Device
Engineering ("IADE"). Initially, the Company's intent was to sell
the use of the IADE technologies and not the products themselves.
The IADE is doing business in Russia and the Commonwealth of
Independent States (CIS), engaged in research, development and
production of electro-optical devices for remote sensing objects
that detect spectral heat and heat from Infrared (IR) optical
ranges. The IADE has been successfully developing these
technologies for 30 years and its products include:
The IR-radiometer, "Klimat", used for meteorological and
hydrological measurements with the satellite "Meteor-3"; the
multi-spectral high resolution scanning device, MSU-B, intended
for the measurement/determination of natural resources with the
Russian-Ukrainian satellite, "Resurs-O"; and the hemispherical
radiometer and space pyrometer for ozone layer and temperature
measurements on the Earth's surface from the orbital station
"Mir".
The Company plans to begin marketing IADE thermal imagers and the
radiometers during the first quarter of 2000. These products are
used for installation on aircraft and produce heat recognition
images on a minute scale. Originally designed to function in
conjunction with satellites, the technology allows for advanced
imaging based on spectral zones and three-dimensional volumetric
color imagery in real time. The Company became the exclusive
worldwide distributor of these services in July 1999 and is in
the process of implementing an initial marketing plan.
The Company also has a trademarked product line that it deems
proprietary, which includes
Page 5
The Ethypol: is an alcohol breathalyzer system that is a
lightweight, handheld, LED read, alcohol detection system. The
Company owns the product and the underlying intellectual
property. The product is in the process of being tested by the
French Government's, Laboratoire National D'Essais ("LNE"). The
LNE is the French government laboratory for the development
standards and testing for industrial and commercial products.
The LNE has been contracted by the Company to develop the
associated calibration device that will insure that each Ethypol
will accurately indicate a test result in accordance with
governmental standards. This product is anticipated to be
approved for use by the French Government in the first quarter of
2000. There can be no assurance that the development of the
calibration device will be successful and that the Company will
succeed in marketing the product.
The PIF: is being designed to be offered in a variety of
configurations for explosive and/or narcotics detection. It can
detect airborne substances and particles. The Company owns the
product and the underlying intellectual property. This product is
in development and is anticipated to be delivered in prototype
form for testing by the LNE before the end of 2000. There can be
no assurance that the Company will achieve positive results of
testing by the LNE and/or whether the Company will be able to
successfully market this product.
The ARGOS: product is a hand-carried, LED-read system designed
for ARGOS, the French non-profit consortium of Automobile
Insurance Companies. This product was created by Mr. Serge
Marendaz, who is part of the Company's R & D team, replacing the
ethanol sensor in the Ethypol with a sensor for hydrocarbons and
adding a vacuum-like device to draw air into the sensor chamber.
The ARGOS products' use is to search closed merchant shipping
cargo containers for stolen vehicles. ARGOS, in addition to
being a product, is also the name of the consortium that
represents the insurance companies that underwrite substantially
all of the automobile insurance in France and is responsible for
coordinating the recovery of stolen vehicles for these companies.
Recent projects undertaken by the Company utilizing its products
include:
The installation of security systems at sixteen sites on
behalf of the United States for the American Battle Monuments
Commission. The Company under this agreement installed anti-
intrusion systems at American cemeteries and monuments located in
France, Belgium, Luxembourg and the UK. This project marks the
completion of the Company's first contract with the US govern-
ment. The contract provides for payment to the Company of approx-
imately $200,000 in revenue for the year, which is less than 10%
of the Company's revenues.
Providing project development and consulting services for a
Humanitarian Demining project in Sarajevo, Bosnia-Herzegovina.
The project, which is being conducted together with IADE, and
certain other parties, for the Norwegian People's Aid
organization and will be supported by the Bosnia-Herzegovina Mine
Action Center, a United Nations Development Project, has resulted
in revenues of $400,000 to the Company through September 30,
1999. The initial cash payment in the amount of $100,000 on this
contract was paid to the Company in December, 1999. The Company
will employ the IADE thermal imaging complex on a Russian Mi-8
helicopter to positively identify the location of mines in
confirmed and suspected minefields around Sarajevo. See
"Dependence Upon Limited Customers" below, and Item 2,
"Management's Discussion and Analysis", below.
Research and Development
For the years ended December 31, 1998 and 1997, the Company
expensed approximately $140,000 and $12,000 respectively, for
research and development in connection with proprietary products.
For the nine month periods ended September 30, 1999 and 1998 the
Company expensed approximately $58,000 and $85,500, respectively,
for research and development.
Page 6
While the Company will be marketing licensed products developed
by others, it also intends to increase its investment in product
development and believes that its future success will depend, in
part, on its ability to develop, manufacture and market new
proprietary products and enhancements to existing products on a
cost-effective and timely basis. The Company estimates that it
will be required to expend $ 200,000 during the year 2000 on
research and development, which it plans to fund through
operating revenues and/or from additional debt or equity. There
can be no assurance that it will generate sufficient revenues
from operations or be able to raise either debt or equity at
terms and conditions satisfactory to the Company.
Distribution Methods-Sales and Marketing
The Company currently markets security and related consulting
services and a line of both licensed and proprietary detection
products. The Company has used and continues to use its security
services as an entry into new customers for its marketing of
licensed and proprietary products in its two principal markets:
governmental agencies and commercial organizations. To date, all
of the Company's principal customers are located in Europe, with
its principal customer being Louis Vuitton Moet Hennessey. The
Company plans on increasing its efforts to distribute its
products and services in the United States, South America and the
Middle East. The Company is dependent upon increasing revenues
from operations or other sources of revenues, including debt and
equity, in order to increase its market into the US, South
America and the Middle East.
Currently, the Company's executive management has been
responsible for the development, lead generation and marketing of
the Company and its products and services. Proposed marketing
efforts include public relations, seminars and industry
conferences and trade shows. Expansion plans also include hiring
additional sales and marketing employees to support the sale and
distribution of its products and services and to assist in
communicating corporate direction. The Company does not pay any
commissions on the sale of its Drugwipe and Cortez "dip" test
product. The Company does not have any agreements to pay
royalties on products under license.
Governmental agencies and authorities are candidates for
substantially all of the Company's products and services, with
several governmental and agency events and functions having
already engaged the Company's guard services. These events
include visiting heads of state and dignitaries, economic
summits, state-owned airlines and international sporting events.
The Company intends to more fully develop its presence in this
market as a candidate for such contracts. The Company intends to
devote its efforts toward the following customer base:
- - domestic and international airports,
- - transit authorities,
- - border and port authorities,
- - military,
- - state-owned airlines such as Air France,
- - customs agencies; and
- - police and law enforcement agencies.
Page 7
The Drugwipe (for use to detect narcotics presence on surfaces
including the skin) and the Cortez (urinalysis for narcotics
presence) shall be marketed to companies for employee screening,
to institutions, for client screening and for correctional
institutions, among other customers. The Company has also
targeted the French home market for the Drugwipe product. The
Company intends to market the Drugwipe through the 24,000
national regulated pharmacies in France, in the first quarter of
2000.
Among other governmental and commercial customers presently
utilizing the Company's services and/or products include the
following, principally in France and Europe:
- - Air France
- - Louis Vuitton Moet Hennessey
- - U.S. Government - American Battle Monuments Commission
- - French Ministry of the Interior
- - World ORT Union
Dependence Upon Limited Customers
During 1998 and 1997, the Company relied upon one customer
and five customers, respectively, for 10% of its sales, with
sales to one customer, Louis Vuitton Moet Hennessey, that
accounted for $1,100,000 of the Company's 1998 sales revenues and
$400,000 of its sales revenues during the prior year. The Company
during the nine month period ended September 30, 1999, had 2
principal customers accounting for at least 10% of revenues,
Louis Vuitton Moet Hennessey and the Bosnian de-mining project.
See the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below. The Company
would be materially adversely effected if it lost any major
customer. It has had a relationship with Louis Vuitton Moet
Hennessey since 1997.
Licensing and Intellectual Property
The Company considers certain features of its products, including
its methodology and technology to be proprietary. The Company
relies on a combination of trade secret, copyright and trademark
laws, contractual provisions and certain technology and security
measures to protect its proprietary intellectual property. The
Company currently has certain pending patent applications.
Notwithstanding the efforts the Company takes to protect its
proprietary rights, existing trade secret, copyright, and
trademark laws afford only limited protection. In addition,
effective protection of copyrights, trade secrets, trademarks and
other proprietary rights may be unavailable or limited in certain
foreign countries.
Competition-Competitive Conditions
The Company faces competition from the manufacturers of several
different types of products in its markets. In blood and
breath alcohol, the principal competitors are Intoximeter, Inc.,
Lion, which is a subsidiary of MPD, Inc., and Sound-Off, Inc. In
explosives and narcotics detection, there are a variety of
competitors, most of which provide high-end, state-of-the-art,
products. These include American Science and Engineering, Inc.,
Barringer Technologies, Invision Technologies, Ion Track
Instruments, OSIS Systems, IDS Intelligent Detection Systems,
Thermedics Detection, CPAD Technologies, Inc., Vivid
Technologies, EG&G Astrophysics, Lockheed Martin Corporation and
Magol Systems, Ltd. These companies have substantially greater
financial and marketing resources, research and development
staffs, manufacturing and distribution facilities, and longer
operating histories.
Page 8
The Company believes that an important factor in these markets is
the cost effectiveness of the product, its portability, ease of
use and its ability to detect expanding numbers of substances.
The Company believes that it competes favorably in these areas.
However, equally important are other factors, including, but not
limited to, product reliability, availability and upgradeability.
The Company's ability to compete will depend upon, among other
factors, its ability to effectively service and manage its
existing products as well as introducing new or upgraded products
into targeted markets.
The private security service business is highly fragmented with
approximately 9,000 private security service companies in the
United States alone. However, twenty of these companies
presently own approximately 48% of the worldwide market share
including Borg-Warner Automotive, Pinkerton's, Wackenhut,
International Total Services and Gage-Babcock. These companies
have substantially greater financial and marketing resources and
longer operating histories than the Company.
The Company believes that its combination of products and
services positions it to be competitive with the market leaders.
The Company's focus is on the high end of this market, which it
intends to further develop as an outgrowth of its governmental
and multi-national relationships.
Employees
The Company currently has 65 full-time employees and
approximately 200 persons who serve as on-call consultants
available on an as needed basis. Of the full-time employees, 6
are in management and 59 are trained and certified security
personnel. The majority of the 200 consultants have also been
certified by the French Government as trained security personnel.
This certification requires validation in official Government
programs and includes emergency medical procedures, fire and
safety procedures, and security and crime control methods and
procedures. The Company anticipates hiring additional employees,
primarily in sales and marketing, as its business plan further
develops, dependent upon its cash flow from operations and the
availability of debt or equity capital. The Company has never
experienced a work stoppage and none of its employees are covered
by collective bargaining agreements. The Company believes that
it has good relations with its employees.
As the Company expands its sale of security services into the US,
it will not require certification and licensing from US and/or
state agencies.
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
- -----------------------------------------------------------------
Results of Operations
Nine Months Ended September 30, 1999 and September 30, 1998
The Company's sales for the nine months ended September 30, 1999
and 1998 were $1,819,875 and $1,479,716, respectively, reflecting
an increase of 23% during the 1999 period. This increase
resulted primarily from a contract to develop a methodology for
the humanitarian de-mining project in Sarajevo, Bosnia-
Herzegovina. The project will be conducted for the Norwegian
People's Aid organization and will be supported by the Bosnia-
Herzegovina Mine Action Center, a United Nations Development
Project. This contract, which generated revenues of $400,000 to
the Company for the nine months ended September 30, 1999, is for
technical consulting and project management by the Company. Sales
and services for the nine months ended September 30, 1999, other
than the de-mining contract, were at the same level as the
previous year. However, the Company generated these sales
revenues from a broader base of customers than in the previous
calendar year. During the nine month period ended September 30,
1999, the Company had more than 25 customers, only one of which
accounted for more than 10% of sales revenues, Louis Vuitton Moet
Hennessey, whereas, during the comparable nine month period of
the prior year, three customers accounted for more than 10% of
sales revenues.
Gross profit for the nine months ended September 30, 1999 was $
787,886 or 43.3% of sales as compared to $433,825 or 29.3% of
sales for the nine months ended September 30, 1998. The increase
is directly related to the de-mining contract for already
developed technical expertise of the Company, with no incremental
costs associated therewith. Gross profit on product sales and
other security services remained constant at approximately 30%.
Selling, general and administrative expenses for the nine months
ended September 30, 1999 and September 30, 1998 were
approximately $469,000 and $589,000 respectively. The decrease
was attributable to reductions in advertising expense ($50,000),
professional fees ($55,000) and insurance ($5,000).
Interest expense, net of interest income, for the nine months
ended September 30, 1999 and September 30, 1998, remained
unchanged at approximately $13,000. Since the Company's volume,
other than the de-mining contract, which occurred at the end of
the nine-month period, was level and selling, general and
administrative expenses were reduced, the Company did not have
the need to borrow significant additional funds and incur
additional interest expense. During the nine month period ended
September 30, 1999, debt in the amount of $241,562 was converted
into 483,124 restricted shares of common stock, which also served
to reduce debt service.
Net profit for the nine months ended September 30, 1999 was
$293,729 as compared to a net loss of $ 186,443 for the
comparable period ended September 30, 1998. The improvement of
$483,172 was directly related to the highly profitable de-mining
contract and the reduction in selling, general and administrative
expenses.
While the Company does not have specific published information,
it is believed by management, and has been reported generally in
many publications and mass media that there exist trends, both on
the part of governments and in the private sector to devote
increasing resources to security and to drug detection.
Page 10
These trends should result in increased expenditures for both
security services and products in the year 2000 and for the fore-
seeable future. However, because the Company is relatively new,
and has limited financial and personnel resources, there can
be no assurance that it will benefit from any such trends, if
indeed they occur. The Company shall also be dependent upon cur-
rency fluctuations, principally in between the US dollar and the
French Franc, which could adversely effect profit margins.
Cash Flow
Net cash used for operating activities was $101,056 in the nine
months ended September 30, 1999 as compared to net cash used by
operating activities of $230,148 for the nine months ended
September 30,1998. Accounts receivable, net increased $282,646 to
$505,218 as a result of the de-mining contract that requires the
first payment to be made in December, 1999. Accounts payable and
accrued expenses increased by $183,431 to $368,395, primarily as
a result of the timing of sales during the nine-month period
ended September 30, 1999. In April 1999, the Company converted
debt of $241,562 into 483,124 shares of the Company's common
stock.
Liquidity and Capital Resources
At September 30, 1999, the Company had $27,092 in cash and
working capital of $231,493. This compares to cash of $35,376 and
a negative working capital of $305,123 at December 31, 1998. The
receivable associated with the de-mining contract calls for
payments of $100,000 in December 1999 and the balance of $300,000
in January 2000. It is anticipated that these payments will
provide sufficient working capital for the Company to operate
through the first quarter of the year 2000.
During the first quarter of 2000, the Company believes that it
will begin the sale of its Drugwipe (single-use drug detection)
product, which it intends to market through approximately 24,000
pharmacies in France. These sales should provide additional cash
flow to the Company through the year 2000. However, there can be
no assurance that the Company will be successful in this
marketing effort, or will be able to sell the product through the
entire 24,000 pharmacy market.
The Company plans to devote approximately $100,000 for sales and
marketing of its products and services during 2000. The Company
will be dependent upon its ability to generate operating revenues
or have other sources of financing to meet its intention and to
satisfy its plans to expand its products and services. However,
there can be no assurance that the Company will generate
sufficient revenues from any sources to complete its plan for the
expansion of products and services sales.
The Company has historically raised capital through the private
sale of securities. The Company plans to continue to explore
possible private financing in 2000 or raise additional capital
through the public offering of its securities. The proceeds of
these sales of securities would be to make acquisitions for the
purpose of increasing the market for the Company's current
products and or expand the Company's product line. There can be
no assurance that the Company will be successful in either the
sale of securities or acquiring other entities.
Page 11
While there can be no assurance, the Company's management
believes that contracts such as the Bosnian de-mining project and
other projects utilizing the Company's technical expertise will
provide additional operating revenues for the Company into the
year 2000. In the year 2000, the Company will seek to increase
the distribution of its products, specifically the Drugwipe
(single-use drug detection) which the Company plans to market for
sale in approximately 24,000 pharmacies in France. There can be
no assurance, as noted herein and elsewhere in this Form 10-
SB/12g that the Company will be successful in generating
significant revenues from this product and/or other projects.
Results of Operations-
Year Ended December 31, 1998 and December 31, 1997
The Company's sales for the year ended December 31, 1998 and 1997
were $1,898,279 and $507,289, respectively, an increase of
274.2%. Sales to the Company's largest customer, Louis Vuitton
Moet Hennessey, increased by approximately 275% from
approximately $400,000 for the year ended December 31, 1997 to
approximately $1,100,000 for the year ended December 31, 1998.
The Company through increased marketing efforts and expanding its
product line was able to reduce this customer's percentage of its
sales from 78% in 1997 to 58% in 1998. The Company is dependent
upon this customer as well as the Bosnian de-mining project for a
significant percentage of its gross revenues and would be
materially adversely effected if it were to lose these customers
and were unable to replace the revenues from such customer from
one or more customers.
Gross profit for the year ended December 31, 1998 was $556,540 or
29.3% of sales as compared to $368,405 or 72.6% of sales for the
year ended December 31, 1997. The decrease in gross profit
percentage is attributable to the increase in products sold,
which traditionally has a lower profit margin than security
service sales.
Selling, general and administrative expenses for the year ended
December 31, 1998 and December 31, 1997 were approximately
$784,000 and $791,000 respectively. The Company had positioned
itself in 1997 to handle the growth in 1998 as it expanded its
product line and customer base. Therefore, the selling, general
and administrative expenses did not need to increase with the
volume, but rather declined significantly as a percentage of
sales from 156% in 1997 to 41.3% in 1998.
Interest expense, net of interest income, for the year ended
December 31, 1998 increased to $18,541from $2,491 for the year
ended December 31, 1997 due to higher borrowing levels as a
result of the higher volume and net loss.
Net loss for the year ended December 31, 1998 was $271,192 as
compared to $421,704 for the comparable period ended December 31,
1997. The improvement in 1998 was a result of the increase in
gross profit caused by the higher sales volume.
Liquidity and Capital Resources
At December 31, 1998 the Company had $35,376 in cash and a nega-
tive working capital of $305,123. This compares to cash of
$105,706 and a negative working capital of $53,610 at December 31,
1997. The Company had net accounts receivable of $222,572 at
December 31, 1998, compared to $115,929 at December 31, 1997.
This represents an increase of 92%, which is the result, prin-
cipally, of increased sales.
Page 12
The Company's current liabilities were $736,675 at December 31,
1998, compared to $381,078 at December 31, 1997. This increase
was principally the result of the conversion of debt in the
amount of $241,562 represented by the advance of monies for the
Company's operations, into 483,124 shares of common stock in
April, 1999, as discussed above.
The Company raised no cash from the sale of its securities
during 1998 compared to cash of $345,500 from the sale of shares
during 1997.
The Year 2000
The Company has developed and acquired its computer systems with
an objective to being Year 2000 compliant. The Company has
engaged the services of qualified technicians to determine the
extent to which it may be vulnerable to third party Year 2000
issues. As a relatively new corporation, all computer equipment
was purchased after 1997 and all such equipment and software is
Year 2000 compliant. The Company uses Microsoft software and has
installed all the available updates to this software. Further,
Microsoft updates will be installed if any further software shall
become available from Microsoft prior to the end of 1999. The
Company has expended approximately $ 5,000 on hardware and
software to become Year 2000 compliant. The Company has assessed
and continues to assess whether its information and non-
information technology systems will be effected by the Year 2000
issues. The Company has investigated its third party
communications suppliers such as the telephone company and its
Internet service provider and found that all are in the process
of becoming Year 2000 compliant in 1999. Based upon current
information, management believes that the necessary modifications
have been made internally to effectively continue The Company
into the Year 2000, however, management is continuing to monitor
internal systems, and to assess the readiness of its systems, to
ensure Year 2000 compliance. As a contingency, the Company has
identified other communication suppliers who could provide the
necessary service at a minimal cost to the Company, and a minimal
effect on the operations of the Company. In the event no other
communication suppliers can be found, there could be a material
adverse effect on the Company and its operations. Based upon
current information, the Company does not believe that the costs
associated with Year 2000 compliance shall be material for the
Company.
Page 13
ITEM 3. DESCRIPTION OF PROPERTY
- --------------------------------
The Company's U.S. Office is located at 161 West 54th
Street, Suite 602, New York, New York 10019. This office acts
as the company's U.S. office and is approximately 900 square feet
and is shared with the Company's public relations firm at no cost
to the company.
The Company's place of business and corporate offices occupy
approximately 2,000 square feet and are located at 182 Rue des
Pyrenees, 75020, Paris, France which the Company leases for
approximately $800 US per month. The Company's present offices
in New York and Paris are adequate for the foreseeable future.
Page 14
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
- -------------------------------------------------------------
The following table sets forth the beneficial ownership of the
Company's common stock as of December 15, 1999 of (i) each person
known by the Company to beneficially own 5% or more of the
Company's outstanding common stock, (ii) each of the Company's
executive officers, directors and director nominees, and (iii)
all of the Company's executive officers and directors as a group.
Except as otherwise indicated, all shares of common stock are
beneficially owned, and investment and voting power is held, by
the persons named as owners.
<TABLE>
<S> <C> <C> <C>
Title of Name and Address Amount of Shares Percentage
Class of Beneficially Ownership (a)
Beneficial Owner Owned
- --------------------------------------------------------------------------
Common Stock Raquel Velasco(b) 1,345,000 shares 16.5%
182 Rue des Pyrenees
75020 Paris, France
Common Stock Jacques Gaussens(c) 1,125,000 shares 13.8%
182 Rue des Pyrenees
75020 Paris, France
Common Stock Arcole Investment Trust 680,000 shares 8.3%
c/o
182 Rue des Pyrenees
75020 Paris, France
Common Stock Serge Marendaz
and Yvonne Marendaz 510,000 shares 6.3%
182 Rue des Pyrenees
75020 Paris, France
Common Stock Helmut Jost (d) 320,000 shares 3.9%
182 Rue des Pyrenees
75020 Paris, France
Common Stock Marie-Christine Garde(e) 50,000 shares 0.6%
182 Rue des Pyrenees
75020 Paris, France
Common Stock All officers and
directors as a group 2,840,000 shares 34.9%
(5 persons)
</TABLE>
a) Based upon 8,147,124 shares outstanding at December 15, 1999
b) Ms. Raquel Velasco is the Company's president, and Chairman of
the Board of Directors, Pretory USA, Inc.
c) Mr. Jacques Gaussens is Director and the CEO of Pretory S.A.,
France
d) Mr. Helmut Jost is CEO of the Company.
e) Mrs. Marie-Christine Garde is Corporate Secretary of the Company.
Page 15
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
- --------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Name Age Position Term Served Since
- -----------------------------------------------------------------
Raquel Velasco 39 Chairman, One Year July 1997
President and
Director
Helmut Jost 46 Chief Executive One Year July 1998
Officer
Marie C. Garde 35 Secretary and One Year Nov. 1997
Director
Marc Palker 47 Chief Financial One Year Nov. 1997
Officer
Jacques Gaussens 47 Chief Financial One Year July 1997
Officer
</TABLE>
Ms. Raquel Velasco joined Pretory in 1996 as a stockholder of the
French company, Pretory SARL, predecessor of Pretory S.A.,
France. Ms. Velasco has been Chairman, and President and a
director of the Company since its inception in July 1997. Ms.
Velasco was a principal in the formation of UTA/Aeromaritime, the
first free market airline in France, from 1988 to 1994. She
managed labor relationships, handled public relations and managed
crew and crew support issues. Ms. Velasco has represented
numerous companies and has sold a variety of products in Europe,
North Africa, and the Middle East. Ms. Velasco is fluent in
French, English, Spanish and Italian.
Mr. Helmut Jost joined the Company as Chief Executive Officer in
July in 1998. Mr. Jost has been an international manager and
sales professional. He has managed European PC sales for IBM and
Fujitsu served as the General manager of Commodore Germany (a
computer manufacturer) and as the CEO of ESCOM AG. He has
extensive corporate experience, previously managing over 6,000
people in a company with annual revenues of over $2 billion. Mr.
Jost has joined the company to assist in the negotiation and
acquisition of related companies and in the establishment of an
international distribution network.
Ms. Garde has been associated with Pretory since its inception in
December 1995 as Corporate Counsel. She became the Secretary and
a director of the Company in November 1997, shortly after the
Company's formation. Ms. Garde has been practicing law in Paris,
France since 1990. She is a graduate of the Law School of
Sorbonne with further certification for all aspects of business
law.
Mr. Palker has been a financial consultant to the Company since
March 1999 and its Chief Financial Officer since November 1999.
From January 1997 to the present, Mr. Palker has been an
independent financial consultant. From February 1989 through
December 1996 Mr. Palker was Chief Financial Officer of
Firetector Inc. a publicly owned business involved in the design,
manufacture and service of life safety communications equipment.
From 1994 through 1995, Mr. Palker served as a National Vice
President of the Institute of Management Accountants. Mr. Palker
is Certified Management Accountant.
Mr. Gaussens founded Pretory, S.A. in December 1995. Following
military service Mr. Gaussens spent ten years in the French
Ministry of Interior, almost entirely as a member of a special
team involved in drug and contraband interdiction. In 1996 he
left the Ministry and created an industrial services company,
which he developed over a 9 year period and sold it to General
des Eaux, one of France's larger industrial companies. During
his service with the government, Mr. Gaussens obtained his French
law degree in 1979.
Page 16
ITEM 6. EXECUTIVE COMPENSATION
- ------------------------------
The information set forth below concerns the compensation to the named
executive officers of the Company for each of the past three years. Ms. Raquel
Velasco, the Chairman of the Board of Directors, Mr. Helmut Jost, the Chief
Executive Officer, Marie Christine Garde, the Corporate Secretary, and Jacques
Gaussens, a director and the CEO of Pretory S.A. are currently the only full
time executives of the Company and are not in receipt of any salary at this
time.
There was no executive or director who received compensation in excess of
$100,000 for the years ended December 31, 1997 and 1998. The following sets
forth information concerning all cash and non-cash compensation received or
anticipated to be received by the Company's officers for the year ending
December 31, 1999:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All other
Name and Annual Restricted Underlying LTIP Compen-
Principal Compen- Stock Options/SAR's Payouts sation
Position Year Salary($) Bonus($) sation($) Award(s) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------
Raquel
Velasco
President, 1999 0 0 0 0 0 0 0
Chairman,
Director
Raquel
Velasco
President, 1998 0 0 0 0 0 0 0
Chairman,
Director
Raquel
Velasco
President, 1997 0 0 0 0 0 0 0
Chairman,
Director
Helmut
Jost 1999 0 0 0 0 0 0 0
CEO
Helmut
Jost 1998 0 0 0 0 0 0 0
CEO
Helmut
Jost 1997 0 0 0 0 0 0 0
CEO
Marie Ch.
Garde, 1999 0 0 0 0 0 0 0
Corporate
Secretary
Marie Ch.
Garde, 1998 0 0 0 0 0 0 0
Corporate
Secretary
Marie Ch.
Garde, 1997 0 0 0 0 0 0 0
Corporate
Secretary
Jacques
Gaussens
Director 1999 70,000 0 0 0 0 0 0
and CEO
of Pretory
S.A.(1)
Jacques
Gaussens
Director 1998 70,000 0 0 0 0 0 0
and CEO
of Pretory
S.A.(1)
Jacques
Gaussens
Director 1997 50,000 0 0 0 0 0 0
and CEO
of Pretory
S.A.(1)
</TABLE>
(1) Represents compensation received from the Company's subsidiary, Pretory S.A.
Page 17
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
There was no transactions during the last two years, or proposed
transactions, to which the Company was or is to be a party, in
which any director, executive officer, nominee for directorship,
security holder or immediate family member had a direct or
indirect material interest.
Page 18
ITEM 8. DESCRIPTION OF SECURITIES
- -----------------------------------
The holders of shares of the Company's common stock shall
have one vote on each matter submitted to shareholders for vote,
including the election of directors. There are no cumulative
voting rights for shares of common stock and therefore, the
holders of a majority of the Company's outstanding shares of
common stock, will be able to elect the entire board of
directors. The board of directors of the Company has the
authority to designate the management of the Company and
therefore control the Company.
(a) Common Stock: At December 15, 1999, the Company had
8,147,124 shares of common stock issued and outstanding. The
Company's Articles of Incorporation authorizes the issuance of up
to 100,000,000 of common stock with a par value of $0.001.
Holders of common stock are entitled to one vote for each share
on all matters to be voted on by the stockholders. Holders of
common stock have no cumulative voting rights. Holders of shares
of common stock are entitled to share ratably in dividends, if
any, as may be declared from time to time by the Board of
Directors in its discretion, from funds legally available
therefore.
In the event of a liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share pro
rata all assets remaining after payments in full of all
liabilities. Holders of common stock have no preemptive rights
to purchase the Company's common stock. All of the outstanding
shares of common stock are fully paid and non-assessable.
(b) Preferred Stock: The Company is also authorized to issue
shares of preferred stock in one or more series and in such
amounts as may be determined by the Board of Directors. The
Company's Board of Directors may fix and determine the
designations, rights, preferences or other rights, preferences or
other variations of each class or series of the preferred stock.
To date, the Company has not issued any preferred stock.
Page 19
PART II
ITEM 1. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
- ----------------------------------------------------------
The Company's common stock is traded over-the-counter in
what is referred to as the "NASDAQ Bulletin Board". As of
December 15, 1999, there were 24 market makers in the Company's
stock. The Company's common stock has traded on the OTC Bulletin
Board under the symbol PRTU since July 7, 1999. The Company's
common stock price as of the close of business on December 16,
1999 was $ 6 1/4 per share.
The following is the range of the high and low closing
prices for the Company's common stock since the inception of
trading as determined by the over-the counter market. Quotations
reflect inter-dealer prices, without retail market, mark-down or
commission and may not represent actual transactions. Such quotations
were obtained from the National Quotation Bureau.
<TABLE>
<S> <C> <C>
Bid
1999 High Low
Quarter Ending $ 3 7/8 $ 2 7/8
September 30
Period Ending $ 6 1/4 $ 3 1/4
December 16
</TABLE>
The Company has not paid any cash dividends on its common
stock and does not presently intend to pay cash dividends in the
foreseeable future. It is the present policy of the Company to
retain any extra profits to finance growth and development of the
business.
Page 20
ITEM 2. LEGAL PROCEEDINGS
- ---------------------------
The Company is not involved in any legal proceedings that would
have a material adverse effect on the its financial conditions or
results of the operations.
ITEM 3. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
- -------------------------------------------------------------------
None.
Page 21
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
- ------------------------------------------------
The Company sold the following shares as set forth below during
the past three years. In connection with the transactions, no
commissions were paid to any person or entity, and no underwriter
was involved, nor was any officer, director or affiliate of the
Company paid or given any consideration.
<TABLE>
<S> <C> <C> <C>
Class of Title and Amount Nature and
Date persons/purchasers of Securities Amount of Consideration(1)
- ----------------------------------------------------------------------------------
7/23/1997 private 900,000 common Cash $54,000
investors stock
pursuant to Rule
504 of
Regulation D sold
to 38 persons
8/18/1997 private 1,164,000 common Cash $291,500
investors stock pursuant to
Rule 504 of
Regulation D sold
to 3 persons
09/12/97 private 4,720,000 common 2,332 shares of
investors stock common stock of
Pretory S.A.
in connection
with the
Share Exchange
Agreement.
09/12/97 private 880,000 Consultant
investors restricted shares Services
of common stock valued at $.06 per share.
April 1999 private 483,124 common Debt conversion
investors stock of $241,562
</TABLE>
(a) Recent Sales: The Company had the following stock issuances
as described below. All such shares were sold by the officers and
directors of the Company and no underwriters were utilized.
1. On July 23, 1997, 900,000 shares of common stock were sold
to 38 persons at $.06 per share pursuant to Rule 504 of
Regulation D for a total offering of $54,000.
2. On August 18, 1997, 1,164,000 shares of common stock were
sold to 3 persons at $.25 per share pursuant to Rule 504 of
Regulation D for a total offering of $291,500.
3. On September 12, 1997, the stockholders of the Company and
Pretory S.A. entered into a Share Exchange Agreement with the
Company for 2,332 shares of Pretory S.A. (99.7%) common stock in
exchange for 4,720,000 restricted shares of the Company's common
stock.
4. Concurrent with the Share Exchange Agreement, the Company issued
880,000 shares to four consultants for services valued at $.06
per share.
5. In April 1999 $241,562 of indebtedness by the Company was
converted into 483,124 shares of Common Stock.
Page 22
(b) Exemptions From Registration: With respect to the issuance
of the 900,000 common shares listed at Item 4(a)1 and the
1,164,000 shares listed at Item 4(a)2, such issuances were made
in reliance on the private placement exemptions provided by
Section 4(2) of the Securities Act of 1933 as amended, (the
"Act"), SEC Regulation D, Rule 504 of the Act and Nevada Revised
Statutes Sections 78.211, 78.215, 73.3784, 78.3785 and 78.3791
(collectively the "Nevada Statutes"). In addition, the Company
relied upon Section 4(2) in connection with the transactions in
Item 4(a) 3-5 above.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
- --------------------------------------------------
The Articles of Incorporation and Bylaws of the Company provide
for indemnification of the Company's officers and directors for
liabilities arising due to certain acts performed on behalf of
the Company that are not a result of any act or omission on any
such director or officer: provided, however, that the foregoing
provision shall not eliminate or limit the liability of director
or officer (i) for acts or omissions which involve intentional
misconduct, fraud or a knowing violation of the law, or (ii) the
payment of dividends in violation of section 78.300 of the Nevada
Revised Status. Although the state statutes allow for
indemnification of officers and directors, the SEC rules however,
prohibit indemnification of officers and directors of publicly
held companies.
The Company also has entered into indemnification agreements with
its officers and directors. The indemnification agreements
provide for reimbursement for all direct and indirect costs of
any type or nature whatsoever (including attorneys' fees and
related disbursements) actually and reasonably incurred in
connection with either the investigation, defense or appeal of a
proceeding, (as defined) including amounts paid in settlement by
or on behalf of an indemnitee thereunder.
Page 23
PART F/S
FINANCIAL STATEMENTS
Page
Independent Auditor's Report 25
Consolidated Balance Sheets
December 31, 1998 and 1997 26-27
Consolidated Statements of Operations
Years ended December 31, 1998 and 1997 28
Consolidated Statements of Stockholder's Equity
Years ended December 31, 1998 and 1997 29
Consolidated Statements of Cash Flows
Years ended December 31, 1998 and 1997 30
Notes to Consolidated Financial Statements 31-34
Interim Balance Sheet
September 30, 1999 35
Interim Statements of Operations
Nine Months Ended September 30, 1999 and 1998 36
Interim Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 37
Notes to Interim Financial Statements 38
Page 24
[LETTERHEAD OF MAZARS & GUERARD, LLP]
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS OF PRETORY USA, INC.
We have audited the accompanying consolidated balance sheets of
Pretory USA, Inc. and subsidiary as of December 31, 1998 and 1997
and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based upon our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Pretory USA, Inc. and subsidiary as of
December 31, 1998 and 1997, and the consolidated results of their
operations, changes in stockholders' equity and its cash flows
for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Mazars & Guerard, LLP
June 19, 1999
New York, NY
Page 25
PRETORY USA, INC.
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS December 31, 1998 December 31, 1997
Cash $35,376 $105,706
Accounts receivable -
net of allowance
of $11,573 and $11,573
in 1998 and 1997
respectively 222,572 115,929
Due from bank 144,982 -
Inventories 25,655 89,081
Prepaid expenses 2,967 12,778
Other current assets - 3,974
TOTAL CURRENT ASSETS 431,552 327,468
PROPERTY & EQUIPMENT 90,489 83,979
Accumulated Depreciation (29,320) (10,678)
------ ------
61,169 73,301
OTHER ASSETS
Deposits 1,932 1,773
Organization cost - net 13,175 15,125
------ ------
TOTAL OTHER ASSETS 15,107 16,898
TOTAL ASSETS $507,828 $417,667
======== ========
</TABLE>
Page 26
LIABILITIES AND STOCKHOLDER'S EQUITY (Deficit)
<TABLE>
<S> <C> <C>
December 31, 1998 December 31, 1997
CURRENT LIABILITIES
Notes payable $32,200 $41,670
Loans to employees 1,520 1,559
Convertible debt 191,912 0
Accounts payable
and accrued expenses 184,964 178,525
Other current liabilities 326,079 159,324
------- -------
TOTAL CURRENT
LIABILITIES 736,675 381,078
STOCKHOLDER'S EQUITY
Common stock -$0.001 par
value 7,664,000 and
7,664,000 shares
authorized
and issued
at December 31, 1998 and
December 31, 1997 7,664 7,644
Additional paid-in capital 448,408 448,408
Accumulated deficit (690,675) (419,483)
Accumulated other
comprehensive income 5,756 -
------- -------
TOTAL STOCKHOLDER'S
EQUITY (Deficit) (228,847) 36,589
------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY(Deficit) $507,828 $417,667
======== ========
</TABLE>
See independent auditor's report and accompanying notes.
Page 27
PRETORY USA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C>
December 31, 1998 December 31, 1997
GROSS SALES $1,898,279 $507,289
COST OF GOODS SOLD 1,341,739 138,884
--------- -------
GROSS PROFIT 556,540 368,405
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES 783,752 790,776
------- -------
LOSS FROM OPERATIONS (227,212) (422,371)
INTEREST EXPENSE (18,541) (2,491)
OTHER INCOME 258 7,330
OTHER EXPENSES (19,299) 0
INCOME TAXES (Note 8) (6,398) (4,172)
------- -------
NET LOSS (271,192) (421,704)
========= =========
LOSS PER COMMON SHARE $(0.04) $(0.06)
========= =========
</TABLE>
See independent auditor's report and accompanying notes.
Page 28
PRETORY USA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Other
Common Stock Accumu- Compre-
Number of Additional lated hensive
Par Value Paid-in Deficit Income
capital
shares $0.001 Total
BALANCE AT 4,720,000 $4,720 $5,006 $2,221 $ $11,947
JAN. 01, 1997
ADDITIONAL
CONTRIBUTION
OF CAPITAL 31,882 31,882 31,88
ISSUANCE FOR 900,000 900 53,100 54,000
AT $0.06
(JULY 1997
ADDITIOANL
CONTRIBUTION
(SEPT. 1997) 16,664 16,664 4
ISSUANCE FOR
DEVELOPMENT
AND CONSULTING
SERVICE
AT $.06
(Sept. 1997) 880,000 880 51,920 52,800
ISSUANCE FOR
CASH AT $.25
(NOV> 1997) 1,164,000 1,164 289,836 291,000
NET LOSS FOR
THE YEAR
ENDED
DEC. 31, 1997 (421,704) (421,704)
-------------------------------------------------------------------
BALANCE AT
DEC. 31, 1997 7,664,000 $7,664 $448,408 ($419,483) $36,589)
NET LOSS
FOR THE YEAR
ENDED
DEC.31, 1998 (271,192) (271,192)
Foreign
currency
Translation 5,756 5,756
Adjustment
--------------------------------------------------------------------
BALANCE
AT
DEC. 31,1998 7,664,000 $7,664 $448,408 ($690,675) $5,756 ($228,847)
====================================================================
</TABLE>
See independent auditor's report and accompanying notes.
Page 29
PRETORY USA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<S> <C> <C>
December 31, 1998 December 31, 1997
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $(271,192) $(421,704)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depr. and Amortization 20,592 10,568
Allowance for bad debts 465 11,108
Change in current
assets and liabilities:
(Increase) decrease in
accounts receivable (107,108) (74,647)
(Increase) in due from bank (144,982) -
(Increase) decrease in
prepaid expenses 9,811 (12,778)
(Increase) decrease in
inventory 63,426 (89,081)
(Increase) decrease in
other current assets 3,974 (1,549)
Increase (decrease) in
accounts payable &
accrued expenses 6,439 166,130
Increase in other
current liabilities 166,755 110,209
(Decrease) increase in
loan to employees (39) (8,522)
Increase in notes
payable - 41,670
Increase in other
comprehensive income 5,756 -
----- -------
NET CASH (USED IN)
OPERATING ACTIVITIES (246,104) (268,596)
------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES
Deposits (159) (1,773)
Purchase of equipment (6,510) (82,461)
Organization cost - (15,125)
------ ------
NET CASH USED IN
INVESTING ACTIVITIES (6,669) (99,359)
------ ------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds of convertible debt 191,912 446,345
Repayment of notes and
loans payable (9,470) -
----- -------
NET CASH (USED IN)
PROVIDED BY FINANCING
ACTIVITIES 182,442 446,345
------- -------
NET (DECREASE) INCREASE
IN CASH (70,330) 78,390
CASH AT BEGINNING OF
YEAR 105,706 27,316
------- ------
CASH AT END OF YEAR $35,376 $105,706
======= ========
Supplemental disclosure
of cash flows
information
Cash paid during the
year for:
Interest $18,541 $2,491
====== ======
Taxes $6,398 $1,137
====== ======
</TABLE>
See independent auditor's report and accompanying notes.
Page 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 Summary of Significant Accounting Policies
A. Nature of Business and Relationship of the consolidated
Companies
The consolidated financial statements include the financial
statements of Pretory USA Inc (the Company) and Pretory S.A.
Pretory USA Inc, is a holding company. Pretory S.A. is a French
Societe Anonyme. This company is engaged in providing security
services, selling drug and explosive detection equipment and in
developing its own technologies for drug and explosive detection.
Pretory S.A. has one customer and 5 customers which represent
more than 10% of sales, each for the years ended December 31,
1998 and 1997, respectively.
On September 12, 1997, Pretory USA Inc. entered into a share
exchange agreement with Pretory S.A. whereby 99.7% of the shares
in Pretory S.A. were acquired through the issuance of 4,720,000
shares of the Company. For presentation purposes the company has
decided to treat this business combination as a pooling of
interest whereby the activities of Pretory S.A. and its
predecessor, Pretory S.A.R.L. are included from inception (April
1995).
B. Revenue recognition
Revenue is recognized from sales when a product is shipped, and
from services when performed.
C. Property and Equipment
Property and equipment are stated at historical cost. Major
additions and betterments are capitalized. Repairs and
maintenance are charged to operations as incurred. When assets
are sold or retired, the cost and accumulated depreciation are
removed from the accounts and any resulting gains or losses are
reflected in income.
Depreciation is calculated using the straight line method over
the following useful lives:
Equipment: 3 years
Vehicles: 4 years
Leasehold improvements: 5-10 years
D. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
E. Foreign Currency
The exchange rates used for the Pretory S.A.'s financial
statements are respectively FF=$0.17903 and FF=$0.16411 at
December 31, 1998 and December 31, 1997.
Page 31
F. Fair value of financial instruments
The carrying amounts reflected in the balance sheet for cash,
accounts receivable and accounts payable approximate fair value
due to the short-term maturities of these instruments.
G. Accumulated Other Comprehensive Income
Financial statements for Pretory SA translated into US dollars at
year-end exchange rates for assets and liabilities and weighted
average exchange rates for income and expenses. The resulting
cumulative translation adjustment is recorded as a separate
component of stockholders' equity in the Company's statement of
consolidated common equity.
H. Earnings Per Share
The Financial Accounting Standards Board ("FASB") has issued SFAS
No. 128, "Earnings per Share", which is effective for financial
statements issued for periods ending after December 15, 1997.
Accordingly, earnings per share data in the financial statements
for the years ended December 31, 1998 and 1997, have been
calculated in accordance with SFAS No. 128. At December 31, 1998.
the Company had 483,124 potentially dilutive common shares. At
December 31,1997, the Company did not have any potentially
dilutive shares.
NOTE 2 Current Operations and Future Financing Plans
The accompanying consolidated financial statements have been
prepared based upon the continuation of operations which
contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. As
shown in the consolidated financial statements, the Company
incurred a net loss of $271,192 for the year ended December 31,
1998. and has accumulated a deficit to that date of $690,675.
Future operations of the Company may be dependent upon Company's
ability to obtain additional financing, proceeds from a private
placement and a conversion to profitable operation.
Management believes that the operations of the Company have been
enhanced by the Company's additional funding through a conversion
of debt to equity in April, 1999 (see Note 9), a commitment by
the stockholders and management to fund any cash flow
deficiencies and the projected growth in both revenues and
operating income for 1999.
NOTE 3 Due From Bank
This balance represents an amount deposited with a financial
institution in France pursuant to accounts receivable financing
transaction with this institution. This amount is refundable
within one year of the date of deposit.
Page 32
NOTE 4 Property & Equipment
The following is a summary of property and equipment:
<TABLE>
<S> <C> <C>
12/31/1998 12/31/1997
Machinery and equipment $6,071 $5,637
Leasehold improvement 37,372 34,702
Office equipment 12,960 12,612
Transport and delivery equipment 34,086 31,028
------- -------
TOTAL-At Cost 90,489 83,979
Less: Accumulated depreciation (29,320) (10,678)
------- -------
NET $61,169 $73,301
======= =======
</TABLE>
NOTE 5 NOTES PAYABLE
Notes payable are due to Credit Agricole and BMW Finance, both
located in France, bearing interest at 5.8% and 13.3%
respectively.
NOTE 6 OTHER CURRENT LIABILITIES
The following is a summary of other current liabilities:
<TABLE>
<S> <C> <C>
12/31/1998 12/31/1997
Salaries payable $92,670 $27,402
Benefits payable 98,930 60,780
Income Tax payable - 4,172
Sales Tax payable 135,109 20,071
Other Taxes payable - 3,169
Due to stock subscribers - 32,000
Miscellaneous payable - 11,730
TOTAL $326,709 $159,323
======== ========
</TABLE>
NOTE 7 Commitments and Contingencies
Pretory S.A. rents its offices in Paris, France for $800 a month.
The Company is involved in legal proceedings which are considered
routine and incidental to its business. The Company believes that
the legal proceedings which are presently pending have no
potential liability which would have an adverse material effect
on the financial condition and statement of operations of the
Company.
NOTE 8 Taxes
Corporation tax rate is 41.66% in 1998. The French sales tax rate
is currently 20.60%.
Page 33
NOTE 9 Convertible Debt
This balance represents non-interest bearing advances made by
three stockholders to the Company. Interest is considered to be
immaterial and has not been imputed. Additional advances of
$49,650 were made by one of the stockholders in February 1999. On
April 2, 1999, total balance due of $241,562 was converted into
483,124 shares of the Company's common stock in a private
placement transaction with such stockholders.
NOTE 10 Retirement Plan
Pretory S.A. is not engaged in any retirement plan since the
company subscribes on a monthly basis to French state plan which
cover such future charges.
NOTE 11 Year 2000 Computer Systems Compliance
Pretory USA, Inc has reviewed the software systems and related
applications used in each of its business segments and geographic
regions to assess its requirements regarding the "Year 2000
issue" which, if unresolved, could have a significant impact on
the Company's operations. Pretory USA, Inc. has made and will
make the expenditures necessary to ensure that its software
systems and applications continue to function properly before,
during and after the year 2000. These expenditures, which are
expensed as incurred, have not been and are not expected to be
material to the Company's financial position or results of
operations.
NOTE 12 New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as (a) a
hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of a foreign currency
exposure of a net investment in foreign operation, an
unrecognized firm commitment, an available-for-sale security or a
foreign currency-denominated forecasted transaction. The
accounting for changes in the fair value of a derivative (that
is, gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 is not
expected to have a material impact on the Company.
Page 34
PRETORY USA, INC.
CONSOLIDATED BALANCE SHEETS
FOR SEPTEMBER 30, 1999 AND DECEMBER 31,1998
ASSETS
<TABLE>
<S> <C> <C>
1999 1998
(unaudited)
Cash $27,092 $35,376
Accounts receivable,
Less allowance for
doubtful Accounts
of $16,240
and $11,573 respectively 505,218 222,572
Due from bank 193,223 144,982
Inventories 21,395 25,655
Prepaid expenses
and other current assets 22,808 2,967
------ -----
TOTAL CURRENT ASSETS 769,736 431,552
------- -------
Fixed Net Assets-Net 52,041 61,169
OTHER ASSETS
Deposits 2,702 1,932
Organization cost - net 13,175 13,175
------ ------
TOTAL OTHER ASSETS 15,877 15,107
------ ------
TOTAL ASSETS $837,654 $507,828
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDER'S EQUITY (Deficit)
<TABLE>
<S> <C> <C>
1999 1998
CURRENT LIABILITIES
Notes payable $76,092 $32,200
Loans to employees 1,520 1,520
Convertible debt - 191,912
Accounts payable
and accrued expenses 368,395 184,964
Other current liabilities 92,236 326,079
------ -------
TOTAL CURRENT
LIABILITIES 538,243 736,675
------- -------
STOCKHOLDER'S EQUITY
Common stock -$0.001
par value 100,000,000
shares authorized,
8,147,124
and 7,664,000 shares
issued and outstanding,
respectively 8,147 7,664
Additional paid-in capital 689,487 448,408
------- -------
Accumulated deficit (396,946) (690,675)
Accumulated other
comprehensive income (1,277) 5,756
------ -----
TOTAL STOCKHOLDER'S
EQUITY (Deficit) 299,411 (228,847)
------- -------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY(Deficit) $837,654 $507,828
======== ========
</TABLE>
See independent auditor's report and accompanying notes.
Page 35
PRETORY USA, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS SEPTEMBER 30,
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
GROSS SALES $1,819,875 $1,479,716
COST OF GOODS SOLD 1,031,989 1,045,891
--------- ---------
GROSS PROFIT 787,886 433,825
SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES 469,040 589,670
------- -------
INCOME(LOSS) FROM
OPERATIONS 318,846 (155,845)
------- -------
INTEREST EXPENSE (12,983) (12,909)
OTHER INCOME 4,137 -
OTHER EXPENSES (4,993) (13,290)
INCOME TAXES (Note 8) (11,278) (4,399)
------- ------
NET INCOME (LOSS) $293,729 $(186,443)
======== =========
BASIC NET INCOME(LOSS)
PER SHARE $0.04 $(0.02)
===== =======
DILUTED NET INCOME
PER SHARE $0.04
=====
WEIGHTED AVARAGE
COMMON SHARES OUT-
STANDING 7,985,491 7,664,000
========= =========
WEIGHTED AVARAGE
COMMON SHARES OUT-
STANDING - DILUTED 7,985,491
=========
</TABLE>
See independent auditor's report and accompanying notes.
Page 36
PRETORY USA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(Unaudited)
<TABLE>
<S> <C> <C>
1999 1998
CASH FLOWS FROM
OPERATING ACTIVITIES
Net loss $293,729 $(186,443)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Depr. and Amortization 9,128 15,444
Allowance for bad debts 4,667 349
Other comprehensive Income (7,033) 4,317
Change in current
assets and liabilities:
(Increase) decrease in
accounts receivable (287,314) (99,277)
(Increase) in due from bank (48,240) (144,982)
(Increase) decrease in
inventory 4,260 47,569
(Increase) in prepaid
expenses and other
current assets (19,841) 2,930
Increase (decrease) in
accounts payable 183,431 4,829
Increase (decrease) in
Accrued expenses and
other liabilities (233,843) 125,066
------- -------
NET CASH (USED IN)
OPERATING ACTIVITIES (101,056) (230,148)
------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES
Deposits (770) (159)
Purchase of equipment - (4,882)
----- -------
NET CASH USED IN
INVESTING ACTIVITIES (707) (5,041)
----- -------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from notes payable 43,892 -
Repayments of notes and
Loans payable - (9,470)
Proceeds of convertible debt - 191,912
Proceeds from private
placement of common stock 49,650 -
------ -------
NET CASH (USED IN)
PROVIDED BY FINANCING ACTIVITIES 93,542 182,442
------ -------
NET (DECREASE) INCREASE
IN CASH
AND CASH EQUIVALENTS (8,284) (52,747)
CASH AND CASH
EQUIVALENTS, AT
BEGINNING OF YEAR 35,376 105,706
------ -------
CASH AND CASH
EQUIVALENTS, SEPTEMBER 30, $27,092 $52,959
======= =======
Supplemental disclosure
of cash flows
information
Cash paid during the
year for:
Interest $12,982 $13,905
======= =======
Taxes $11,278 $6,398
======= =======
</TABLE>
During 1999, the Company converted debt of $241,562 into 483,124
shares of the Company's common stock.
See independent auditor's report and accompanying notes.
Page 37
PRETORY USA, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The balance sheet as of September 30, 1999 and the related
statements of operations for the nine month periods ended
September 30, 1999 and 1998 and changes in cash flow for the nine
month periods ended September 30, 1999 and 1998 and have been
prepared by Pretory USA, Inc. (the "Company") without audit. In
the opinion of management, all adjustments (which include only
normal, recurring accrual adjustments) necessary to present
fairly the financial position as of September 30, 1999 and for
all periods presented have been made.
Certain information and footnote disclosures, normally included
in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the years ended
December 31, 1998 and 1997 contained herein
Results of operations for the period ended September 30, 1999
are not necessarily indicative of the operating results expected
for the full year.
NOTE B FOREIGN CURRENCY
The exchange rates used for the Company's financial statements
are FF=$0.1624 at September 30, 1999 and FF=$0.17903 at December
31, 1998.
NOTE C STOCKHOLDER'S EQUITY
In February 1999, a stockholder advanced the Company $49,650. On
April 2, 1999 this advance along with $191,912 of convertible
debt was exchanged for 483,124 shares of the Company's common
stock in a private placement transaction.
NOTE D COMMITMENTS AND CONTINGENCIES
The Company is involved in legal proceedings which are considered
routine and incidental to its business. The Company believes that
the legal proceedings which are presently pending have no
potential liability which would have an adverse material effect
on the financial condition and statement of operations of the
Company.
NOTE E - YEAR 2000 COMPUTER SYSTEMS COMPLIANCE
Pretory USA, Inc. has reviewed the software and related
applications used in each of its business segments and geographic
regions to assess its requirements regarding the "Year 2000
issue" which, if unresolved, could have a significant impact on
the Company's operations. The Company's has made and will make
the expenditures necessary to ensure that its software systems
and applications continue to function properly before, during and
after the year 2000. These expenditures, which are expensed as
incurred, have not been and are not expected to be material to
the Company's financial position or results of operations.
Page 38
PART III
ITEM 1. INDEX TO EXHIBITS
- ---------------------------
The exhibits listed and described below in Item 2 are filed
herein as the part of this Registration Statement.
Page 39
ITEM 2. DESCRIPTION OF EXHIBITS
- ---------------------------------
<TABLE>
<S> <C>
Exhibit No. Description
3.1 Articles of Incorporation of Pretory USA, Inc.
(to be filed by amendment)
3.2 By-Laws of Pretory USA, Inc.
(to be filed by amendment)
4.1 Specimen common stock certificate
(to be filed by amendment)
10.1 Agreement of Transfer dated August 15, 1997
with Pretory, Sarl, et al.
(to be filed by amendment)
10.2 Share Exchange Agreement dated as of September
12, 1997 by and between Pretory, S.A. and
Pretory USA, Inc
(to be filed by amendment)
10.3 Distribution agreement with Cortez
(to be filed by amendment)
10.4 Distribution agreement with Securetec
(to be filed by amendment)
10.5 Distribution agreement with ITI
(to be filed by amendment)
10.6 IADE (to be filed by amendment)
10.7 ABMC contract
(to be filed by amendment)
10.8 Demining Project: NPA
(to be filed by amendment)
10.9 Form of Indemnification Agreement
(to be filed by amendment)
27 Financial data schedule (for electronic
submission only)
</TABLE>
Page 40
SIGNATURES
In accordance with Section 12 the Securities and Exchange Act of
1934 Pretory caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRETORY USA, INC.
By: ________________________
Raquel Velasco
Chairman of the Board and President
Dated: December 20, 1999
Page 41
PRETORY USA, INC.
FORM 10-SB/12g
SEPTEMBER 30, 1999
This schedule contains summary financial information extracted
from the financial statements for the nine months ended September
30, 1999 and year ended December 31, 1998 is qualified in its
entirety by reference to such statements.
<TABLE>
<S> <C> <C>
Period Type 9 months 12 months
Fiscal Year End December 31, 1999 December 31, 1999
Period End September 30, 1999 December 31, 1998
Cash $27,092 $ 35,376
Securities $0 $ 0
Receivables $505,218 $ 222,572
Allowances $(16,240) $ (11,573)
Inventory $21,395 $ 25,655
Current Assets $769,736 $ 431,552
Property Plant & Equipment $90,489 $ 90,489
Accumulated deprecation $(38,448) $ (29,320)
Total Assets $837,654 $ 507,828
Current Liabilities $538,243 $ 736,675
Bonds $0 $0
Preferred-Mandatory 0 0
Preferred Stock 0 0
Common Stock $8,147 $ 7,664
Other Stockholders' Equity $291,264 $ 236,511
Total Liabilities and Stockholders' Equity $837,654 $ 507,828
Sales $1,819,875 $1,898,279
Total Revenues $1,819,875 $1,898,279
Cost of Goods Sold $1,031,989 $1,031,989
Total Costs $1,512,307 $2,131,631
Other Expenses $4,993 $ 19,299
Loss- Provision 0 0
Interest Expense $12,983 $ 18,541
Income-Pretax $293,729 $ (271,192)
Income-Tax $0 $0
Income-Continuing $293,729 $ (271,192)
Discontinued $0 $0
Extraordinary Charges $0 $0
Net Income $293,729 $ (271,192)
Basic $.04 $(.04)
Diluted $.04 $(.04)
</TABLE>
Page 42
