UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB/A
Amendment No. 2
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.
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(Name of Small Business Issuer in its Charter)
NEVADA 33-0780055
- --------------------------------- ---------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation) No.)
161 WEST 54 TH STREET, SUITE 602, NEW YORK, NY 10019
- ----------------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
212-707-8661
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(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>
Table of Contents
PART I Page No.
Item 1. Description of Business 3
Item 2. Management's Discussion and Analysis or Plan of Operation 12
Item 3. Description of Property 15
Item 4. Security Ownership of Certain Beneficial Owners and Management 16
Item 5. Directors, Executive Officers, Promoters and Control Persons 17
Item 6. Executive Compensation 18
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 20
Item 3. Changes In and Disagreement with Accountants 20
Item 4. Recent Sales of Unregistered Securities 20
Item 5. Indemnification of Directors and Officers 22
PART F/S
Financial Statements F-1
PART III
Item 1. Index to Exhibits III-1
Item 2. Description of Exhibits III-2
Signatures III-3
<PAGE>
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 product (hand carried device
offered in a variety of configurations for explosives/narcotics), Ethypol (which
detects blood alcohol levels using a breath test), and the ARGOS product (which
detects hydrocarbons). These products were developed by the Company's research
and development group, and 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 resulting in the ownership by the former stockholders
of Pretory S.A. of 72% of the Company's common stock immediately after the
exchange. 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.
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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. The potential annual
market is presently estimated at $25 billion to $37.5 billion.
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 $100
billion worldwide security and crime control market. 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 customers who are physically transferring liquid
assets and/or cash. For the year ended December 31, 1999, the Company had five
clients utilizing its VIP security services.
Security equipment operations: Services include the Company's personnel
who are leased to various clientele and who are equipped with one or more of the
Company's licensed products described below as necessary and appropriate to the
specific security assignment, which products assist the Company's leased
personnel to perform the specific security function for the customer. For the
year ended December 31, 1999, the Company had 7 clients utilizing the Company's
security equipment operations.
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. For the year ended December 31, 1999, the Company had 2 clients (each
client requesting multiple projects) utilizing the Company's anti-terrorism and
anti-theft services.
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 discussion under licensed products below for definitions. For
the year ended December 31, 1999, the Company had 15 clients utilizing the
Company's security consulting and training services.
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. The
surveillance equipment and sensing devices used by the Company in connection
with these services are off-the-shelf equipment which is widely available. This
equipment is procured by the Company in the ordinary course of business. These
systems are administered to provide perimeter security and to secure entry for
schools. For the year ended December 31, 1999, the Company had 3 clients
utilizing the Company's security systems administration services.
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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 gatherings for which security
guards are required or other special security services are necessary. For the
year ended December 31, 1999, the Company had 2 clients utilizing the Company's
services relating to the augmentation of special police activities.
The Company's intent is to broaden its geographic penetration, through
acquisitions of other service providers, which acquisitions are intended to be
funded by the Company's available cash as well with stock of the Company. 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 is presently not negotiating in connection with the acquisition
of any third-party service providers. The Company has, however, identified and
targeted a wide variety of companies which the Company believes to be suitable
candidates for acquisition by the Company provided terms can be arranged
satisfactorily to such candidate..
The Company's list of licensed products which are currently being marketed
and offered for sale 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:
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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 commenced the sale and marketing of the IADE Thermal
Imagers during the first quarter of 2000. These products are used for
installation on non-commercial 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 development of
technology associated with the Thermal Imager has now enabled the successful
installation of these devices on airplanes. This development is significant
because previously, only governments were potential purchasers of Thermal
Imagers due to the excessive costs associated with satellite development,
testing and production. The newly-developed Thermal Imagers are more suitable to
airplanes because airplanes provide a stable operating surface with little
vibration and also because airplanes are able to achieve close proximity to
target areas. Both of these conditions maximize the effectiveness of the Thermal
Imager. 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 the Company anticipates marketing and offering for sale during
the year 2000. This product line includes:
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. Once this calibration device is developed by the LNE and
integrated into the Ethypol system, the Company will submit the Ethypol system
to the French government for approval. This product is anticipated to be
approved for use by the French government in the first quarter of 2000.
Thereafter the Company proposes to market and sell the product to the French
government as well as the general public. 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. Once the PIF is
delivered to the LNE for testing, the LNE must certify the product as fit for
its intended use. Thereafter, the PIF will be submitted to the French government
for approval. There can be no assurance that the PIF will receive LNE
certification or approval by the French government 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
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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. A prototype of this product
has been submitted to Argos for testing. Pending a favorable outcome of Argos
tests of the product, the product will be offered for sale to Argos. The Company
anticipated the completion of the Argos testing process during the year 2000.
The following chart summarizes; (i) the Company's ownership interest in
each of the products it sells; and (ii) the number of units of each product sold
during 1999:
<TABLE>
<CAPTION>
Number of
Product Company's Ownership Interest* Units Sold - 1999
- ------- ---------------------------- -----------------
<S> <C> <C>
Itemiser The Company has entered into a distribution agreement 6
with Ion Track Instruments, a Massachusetts company,
pursuant to which the Company is the exclusive
distributor for France
Drugwipe The Company has a license from Securetec, a German +20,000
company, which grants the Company (i) exclusive
sales in France and on the internet; and (ii)
non-exclusive sales in Switzerland, Belgium,
Portugal and portions of the Middle East.
Cortez The Company has a license from Cortez Diagnostics, Inc., +20,000
One-Step a California based company, which grants the Company
the exclusive right to sell this product throughout
Europe.
Argos The Company owns this product and is the sole holder of None
its trademark and proprietary interest.
Ethypol The Company owns this product and is the sole holder of 6 prototype units
its trademark and proprietary interest sold for testing
purposes only
PIF The Company owns this product and is the sole holder of None
its trademark and proprietary interest
IADE The Company has entered into a distribution agreement None
Thermal with the Institute of Aerospace Device Engineering,
Imagers pursuant to which the Company is the exclusive world-wide
distributor of this product.
<FN>
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*The Company does not manufacture any of the products set forth in this table.
All products set forth herein are manufactured by third parties.
</FN>
</TABLE>
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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 government. The
contract provides for payment to the Company of approximately $200,000 in
revenue for the year.
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,
resulting, in part, from the sale of IADE Thermal Imagers. 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.
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 intends to increase its product distribution in
these countries by attending government-sponsored commercial conferences
relating to the security industry. The Company has attended similar conferences
in the past in various countries as a guest of the French government. The
Company anticipates also being invited to attend similar conferences in the
United States, South America and the Middle East, also as a guest of the French
government. 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.
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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.
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, commencing 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, the Company relied upon two customers for approximately
93% of its sales, with sales to one customer, Louis Vuitton Moet Hennessey, that
accounted for 80.3% of the Company's 1998 sales revenues. The Company during the
nine month period ended September 30, 1999, had four principal customers
accounting for at least 10% of revenues, Louis Vuitton Moet Hennessey (48.2%),
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French Customs (13.6%), American Battle Monuments Commission (11.5%) and the
Bosnian de-mining Project (22%). 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.
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 Company believes that its products compare favorably to the
products of its competitors. The Itemiser has outperformed the Barringer
Ionscan, its major competitor, in several tests conducted by the French
government, resulting in the recent purchase of 500 Itemisers by the U.S.
government, which performed the Itemiser to the Barringer Ionscan. The Drugwipe
has no significant competition due to its unique design. The Drugwipe also
represents a low-cost and convenient alternative to more sophisticated and
cumbersome drug detection devices and methods. Although the PIF and Cortez
products are in direct competition with many similar products, the Company
believes that its pricing structure for these products makes them competitive.
The Argos is a unique product designed for purchase by a specific quasi-public
entity, and therefore has no competition. The Ethypol is the first breathalyzer
device which will yield results which will be evidentiary in nature. These
evidentiary results may be admissible in a court of law. The Ethypol should
therefore become a more valuable instrument in law enforcement than similar
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devices which do not yield evidentiary results. The IADE Thermal Imager is the
first commercially available technology for use in demining which indicates the
actual location of mines as opposed to the borders surrounding mines. This
technological advance should enable commercial enterprises to obtain a level of
accuracy in mine detection on par with a governmental entity or Department of
Defense.
The Company believes that its security personnel possess greater
skills, knowledge and levels of expertise then the Company's competitors. All of
the Company's non-management employees and the majority of the Company's
security consultants have 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
believes that its combination of products and services positions it to be
competitive with the market leaders.
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.
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 located in the Paris, France office and
59 are trained and certified security personnel dispatched from their
residences. 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.
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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 is comprised of three
phases. Phase I is the design of the project and was completed in September
1999. Phase II, completed in the fourth quarter ended December 31, 1999 was for
technical consulting. Phase III to be performed in the year 2000 is for project
management. 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, four 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 $492,000 and
$572,000 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 shares of common stock, which also served to
reduce debt service.
Net profit for the nine months ended September 30, 1999 was $213,054 as
compared to a net loss of $253,943 for the comparable period ended September 30,
1998. The improvement of $466,997 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
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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.
These trends should result in increased expenditures for both security
services and products in the year 2000 and for the foreseeable 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 currency
fluctuations, principally between the US dollar and 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. Net accounts receivable
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 increase in working capital was a
result of the increase in accounts receivable of $287,314, a decrease in accrued
expenses and other liabilities of $233,843 offset by accounts payable increases
of $183,431. 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. The Company received $55,000 in December 1999, $45,000 in January 2000 and
$300,000 on February 17, 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.
13
<PAGE>
If the Company is unsuccessful in raising additional capital or making
acquisitions, the growth of the Company will be dependent on internally
generated funds which may not occur. The possible lack of internally generated
funds would result in difficulties for the Company to meet its current
obligations as they become due. The Company has no plans for long-term financing
other than the sales of securities and the retention of profits.
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 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
14
<PAGE>
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 negative
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, principally,
of increased sales.
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.
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.
15
<PAGE>
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.
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>
<CAPTION>
Name and Address of Amount of Shares Percentage
Title of Class Beneficial Owner Beneficially Owned Ownership (a)
- -------------- ------------------- ------------------ -------------
<S> <C> <C> <C>
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 510,000 shares 6.3%
and Yvonne Marendaz
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 2,840,000 shares 34.9%
as a group (5 persons)
<FN>
(a) Based upon 8,147,124 shares outstanding at December 15, 1999
(b) Mrs. Raquel Velasco is the Company's president, and Chairman of the Board
of Directors, Pretory USA, Inc.
16
<PAGE>
(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.
</FN>
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
<TABLE>
<CAPTION>
Name Age Position Term Served Since
- ---- --- -------- ---- ------------
<S> <C> <C> <C> <C>
Raquel Velasco 39 Chairman, President One Year July 1997
and Director
Helmut Jost 46 Chief Executive Officer One Year July 1998
Marie Christine Garde 35 Secretary and Director One Year November 1997
Marc P. Palker 47 Chief Financial Officer One Year December 1999
Jacques Gaussens 44 Director and President, One Year July 1997
Pretory S.A.
</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. As a result of the purchase of UTA/Aeromaritime by Air France, while
awaiting the expiration of her employment contract, Ms. Velasco served as a
member of the Presidential and Ministerial Concorde Crew and was a Protocol
Officer for Air France from 1994 to 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. During
1997 Mr. Jost was a Vice-President for Fujitsu ICL (Europe), responsible for
restructuring organization operations and PC distribution throughout Europe.
From April, 1996 to October, 1996 Mr. Jost served as the CEO for ESCOM AG at the
request of ESCOM's Board of Directors in order to attempt to restructure ESCOM.
From October, 1995 to March, 1996, Mr. Jost was a General Manager for IBM
(Germany), during which time he managed 250 dealers and four distributors. Mr.
Jost 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
17
<PAGE>
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.
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
Annual Compensation
------------------------------
Name and
Principal Position Year Salary Bonus
- -----------------------------------------------------------------
<S> <C> <C> <C>
Raquel Velasco 1999 $67,500 0
President, Chairman, Director 1998 $90,000 0
1997 $45,000 0
Helmut Jost (1) 1999 0 0
Chief Executive Officer 1998 0 0
1997 0 0
Marie Ch. Garde 1999 0 0
Corporate Secretary 1998 0 0
1997
Jacques Gaussens 1999 $70,000 0
Director and Chief Executive 1998 $70,000 0
Officer of Pretory, S.A. 1997 $50,000 0
<FN>
(1) Represents compensation received from the Company's subsidiary, Pretory S.A.
</FN>
</TABLE>
18
<PAGE>
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.
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.
(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.
19
<PAGE>
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
approximately ___ holders of the Company's issued and outstanding shares of
common stock and 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>
<CAPTION>
1999 High Bid Low Bid
---- -------- -------
<S> <C> <C>
Quarter Ending September 30 $3 7/8 $2 7/8
Period Ending December 16 $6 1/4 $3 1/4
</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.
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.
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.
20
<PAGE>
<TABLE>
<CAPTION>
Class of persons/ Title and Amount Nature and Amount
Date purchasers of Securities of Consideration (1)
- ---- ----------------- ---------------- --------------------
<S> <C> <C> <C>
7/23/1997 private investors 900,000 common stock Cash $54,000
pursuant to Rule 504 of
Regulation D sold
to 38 persons
8/18/1997 private investors 1,164,000 common stock Cash $291,500
pursuant to Rule 504 of
Regulation D sold
to 3 persons
09/12/97 private investors 4,720,000 common stock 2,332 shares of
common stock of
Pretory S.A.
in connection with the
Share Exchange
Agreement.
09/12/97 consultants 880,000 restricted shares Consultant Services
of common stock valued at $.06 per share.
April 1999 private investors 483,124 common stock Debt conversion 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.
21
<PAGE>
(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.
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.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 ("the Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
22
<PAGE>
CONTENTS
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . F-1
CONSOLIDATED BALANCE SHEETS
For the years ended December 31, 1998 and 1997 . . . . . . . . . . . F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1998 and 1997 . . . . . . . . . . . F-3
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 and 1997 . . . . . . . . . . . F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the years ended December 31, 1998 and 1997 . . . . . . . . . . . F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . .F-6 - F-10
BALANCE SHEET
September 30, 1999 and December 31, 1998 (unaudited) . . . . . . . . F-11
STATEMENT OF OPERATIONS
For the nine months ended September 30, 1999 and 1998 (unaudited). . F-12
STATEMENT OF CASH FLOWS
For the nine months ended September 30, 1999 and 1998 (unaudited). . F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . F-14
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
TO THE SHAREHOLDERS 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 shareholders' 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 shareholders' equity and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
June 19, 1999
New York, NY
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
----------- -----------
1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash $ 35,376 $ 105,706
Accounts receivable - net of allowance of
$11,573 and $11,108 in 1998 and 1997
respectively 222,572 115,929
Due from bank 144,982 0
Inventories 25,655 89,081
Prepaid expenses 2,967 12,778
Other current assets 0 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
Organisation cost - net 13,175 15,125
---------- ---------
TOTAL OTHER ASSETS 15,107 16,898
TOTAL ASSETS $ 507,828 $ 417,667
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (Deficit)
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 4,720,000 shares authorized and issued
at December 31, 1998 and December 31, 1997 7,664 7,664
Additional paid-in capital 583,408 493,408
Accumulated deficit (825,675) (464,483)
Accumulated other comprehensive income 5,756 0
---------- ---------
TOTAL STOCKHOLDER'S EQUITY (Deficit) (228,847) 36,589
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
(Deficit) $ 507,828 $ 417,667
========== ==========
</TABLE>
F-2
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31, December 31,
----------- -----------
1998 1997
---- ----
<S> <C> <C>
SERVICES REVENUES $ 1,763,585 $ 507,289
NET SALES 134,694 -
------------ ----------
TOTAL REVENUES 1,898,279 507,289
------------ ----------
COST OF SERVICES 1,275,876 138,884
COST OF SALES 65,863 -
------------ ----------
TOTAL COST OF SALES 1,341,739 134,884
------------ ----------
GROSS PROFIT 556,540 368,405
RESEARCH AND DEVELOPMENT 140,000 12,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 643,752 778,776
CHARGE FOR EXECUTIVE COMPENSATION CAPITALIZED 90,000 45,000
------------ ----------
LOSS FROM OPERATIONS ( 317,212) (467,371)
INTEREST EXPENSE ( 18,541) ( 2,491)
OTHER INCOME 258 7,330
OTHER EXPENSES ( 19,299) -
INCOME TAXES (Note 6) ( 6,398) ( 4,172)
------------ ----------
NET LOSS ( 361,192) (466,704)
============ ==========
LOSS PER COMMON SHARE $( 0.05) $ ( 0.10)
============ ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 7,664,000 4,720,000
============ ==========
</TABLE>
F-3
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
December 31, December 31,
----------- -----------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (361,192) $ (466,704)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and Amortization 20,592 10,568
Allowance for bad debts 465 11,108
Executive Compensation Capitalized 90,000 45,000
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)
Organisation cost - ( 15,125)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES ( 6,669) ( 99,359)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of convertible debt 191,912 -
Repayment of notes and loans payable (9,470) -
Issuance of common stock - 446,345
---------- ---------
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>
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock Additional Other
Number of Per Value Paid-in Accumulated Comprehensive
Shares $0.001 capital Deficit Income Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 01, 1997 4,720,000 $ 4,720 $ 5,006 $ 2,221 $ - $ 11,947
ADDITIONAL CONTRIBUTION
OF CAPITAL 31,882 31,882
ISSUANCE FOR CASH AT $0.06
(JULY 1997) 900,000 900 53,100 54,000
ADDITIONAL CONTRIBUTION
(SEPTEMBER 1997) 16,664 16,664
ISSUANCE FOR DEVELOPMENT
AND CONSULTING SERVICES
AT $0.06 (SEPTEMBER 1997) 880,000 880 51,920 52,800
ISSUANCE FOR CASH AT $0.25
(NOVEMEBR 1997) 1,164,000 1,164 289,836 291,000
EXECUTIVE COMPENSATION
CAPITALIZATED 45,000 45,000
NET LOSS FOR THE YEAR ENDED
DECEMBER 31,1997 (466,704) (466,704)
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 7,664,000 $7,664 $493,408 $(464,483) $ - $ 36,589
EXECUTIVE COMPENSATION
CAPITALIZATED 90,000 90,000
NET LOSS FOR THE YEAR ENDED
DECEMBER 31,1998 (361,192) (361,192)
FOREIGN CURRENCY TRANSLATION
ADJUSTMENT
5,756 5,756
---------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 7,664,000 $7,664 $583,408 $(825,675) $5,756 $(228,847)
=====================================================================
</TABLE>
F-5
<PAGE>
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 Soci,t, 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.
In 1998, three customers accounted for approximately $1.5 million, $238 thousand
and $132 thousand of consolidated revenues. In 1997, one customer accounted for
$300 thousand of consolidated revenues.
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
reorganization of entities under common control in a manner similar to 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
Sales are recognized when product is shipped to customers. Service revenue form
maintenance contracts is recognized on a straight-line basis over the terms of
the respective contract. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses became known. Non-contract
service revenue is recognized when services are 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
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D.)
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 mounts 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 Company's functional currency is the French Franc, which is the currency of
the primary environment of the Company. 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.
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.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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.
Such substantial doubt has been alleviated due to the Company's additional
funding through a private placement in April, 1999 (see Note 9), a commitment by
the management to fund any cash flow deficiencies and 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.
NOTE 4 -- PROPERTY & EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
12/31/1998 12/31/1997
--------- ----------
<S> <C> <C>
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.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 -- OTHER CURRENT LIABILITIES
The following is a summary of other current liabilities:
<TABLE>
<CAPTION>
12/31/1998 12/31/1997
---------- ----------
<S> <C> <C>
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%.
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.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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 -- CAPITAL STOCK
The capital stock of the Company consists of 100,000,000 authorized common
shares, par value $0,001 per share. As of December 31, 1998 and December 31,
1997 there were 7,664,000 shares outstanding.
NOTE 12 - 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 13 -- 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.
F-10
<PAGE>
PRETORY USA, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
-ASSETS- 1999 1998
---- ----
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
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 ASSETS NET 52,041 61,169
OTHER ASSETS:
Deposits 2,702 1,932
Organization cost net - 13,175
-------- --------
TOTAL OTHER ASSETS 2,702 15,107
-------- --------
$824,479 $507,828
======== ========
-LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)-
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
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.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 891,987 560,908
Accumulated deficit (612,621) (803,175)
Accumulated other comprehensive income (1,277) 5,756
-------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 286,236 (228,847)
-------- --------
$824,479 $507,828
======== ========
<FN>
See accompanying notes
</FN>
</TABLE>
F-11
<PAGE>
PRETORY USA, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
SALES
PRODUCT $ 887,957 $ 97,256
SERVICE 931,918 1382,460
---------- ----------
TOTAL SALES 1,819,875 1,479,716
COST OF SALES 1,031,989 1,045,891
---------- ----------
GROSS PROFIT 787,886 433,825
RESEARCH AND DEVELOPMENT 58,000 85,000
SELLING, GENERAL AND ADMINISTRATIVE 491,715 572,170
---------- ----------
INCOME (LOSS) FROM OPERATIONS 238,171 (223,345)
---------- ----------
INTEREST EXPENSE (12,983) (12,909)
OTHER INCOME 4,137
OTHER EXPENSES (4,993) (13,290)
INCOME TAXES (11,278) (4,399)
NET INCOME (LOSS) $ 213,054 $ (253,943)
========== ==========
BASIC NET INCOME (LOSS) PER SHARE $ .03 $ (.03)
========== ==========
DILUTED NET INCOME (LOSS) PER SHARE $ .03
==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC 7,985,491 7,664,000
========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED 7,985,491
==========
<FN>
See accompanying notes
</FN>
</TABLE>
F-12
<PAGE>
PRETORY USA, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit (loss) $ 213,054 $(253,943)
Adjustments to reconcile net profit (loss) to
net cash used in operating activities:
Depreciation and amortization 9,128 15,444
Allowance for doubtful accounts 4,667 349
Compensation charged for services of officer 67,500 67,500
Organization costs 13,175
Other comprehensive income (7,033) 4,317
Changes in operating assets and liabilities:
(Increase) in accounts receivable (287,314) (99,277)
(Increase) in due from bank (48,240) (144,982)
Decrease in inventories 4,260 47,569
(Increase) in prepaid expenses and other current assets (19,841) 2,980
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:
Purchases of equipment (4,882)
Security deposits (770) (159)
--------- --------
Net cash (used in) provided by investing activities (770) (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 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 CASH FLOW INFORMATION:
(a) Interest paid $ 12,982 $ 13,905
Taxes paid $ 11,278 $ 6,398
(b) During 1999, the Company converted debt of
$241,562 into 483,124 shares of the Company's
common stock.
<FN>
See accompanying notes
</FN>
</TABLE>
F-13
<PAGE>
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 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 Company's functional currency is the French Franc, which is the
currency of the primary environment of the Company. The exchange rates used for
the Company's subsidiary, Pretory S.A., financial statements are FF=$0.1624 at
September 30, 1999 and FF=$0.17903 at December 31, 1998. The Company presents
its consolidated financial statements in US$.
NOTE C - CUSTOMERS
The Company during the nine month period ended September 30, 1999 had 4
principal customers accounting for at least 10% of revenues, Louis Vuitton Moet
Hennessey (48.2%), Norwegian Peoples Aid (22.0%), French Customs (13.6%) and
American Battle Monuments Commission (11.5%).
NOTE D - 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.
The value of $.50 per share was determined using the then negative book value of
the Company.
NOTE E - 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 F - 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 reagarding 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.
F-14
<PAGE>
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.
III-1
<PAGE>
ITEM 2. DESCRIPTION OF EXHIBITS.
Exhibit No. Description
3.1 Articles of Incorporation of Pretory USA, Inc.*
3.2 By-Laws of Pretory USA, Inc.*
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.*
10.2 Share Exchange Agreement dated as of September 12, 1997 by and
between Pretory, S.A. and Pretory USA, Inc*
10.3 Distribution agreement with Cortez*
10.4 Distribution agreement with Securetec*
10.5 Distribution agreement with ITI*
10.6 IADE
(to be filed by amendment)
10.7 ABMC contract
(to be filed by amendment)
10.8 Demining Project: NPA
10.9 Form of Indemnification Agreement
(to be filed by amendment)
10.10 Contract between Pretory USA,Inc. and DeMonte Associates
27 Financial data schedule (for electronic submission only)
- -------------------
* Previously filed
III-2
<PAGE>
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: /S/ Raquel Velasco
--------------------
Raquel Velasco
Chairman of the Board and
President
Dated: February 16, 2000
III-3
Exhibit 10.8
Agreement
1.1 This Agreement binds two parties, The Concorde Trust (the Trust), a
charitable trust domiciled in Hamilton, Bermuda, and Pretory USA Inc.
(Pretory), a Nevada (USA) corporation engaged in providing security related
products and services, to fund and provide services to Norwegian People's Aid
(NPA), a non-governmental organization involved in humanitarian demining,
whose central offices are located in Oslo, Norway.
1.2 This Agreement will proceed through three phases, each of which must be
validated by the designated representatives of the Trust, NPA, and Pretory.
Phase I involves the design of the Project. Phase II focuses on the technical
aspects and the final planning of the Project. Phase III involves the
execution and conclusion of the Project.
1.3 The validation of Phase I and Phase II, if accomplished and approved by
the Trust and NPA, will be added as an exhibit to this Agreement. All related
briefing material, research, and/or supporting documentation will also be
added to this Agreement as it is presented and approved chronologically as
exhibits to this Agreement for as long as this Agreement continues in force or
until the completion of Phase III of the Project.
1.4 The designated representatives are considered to be the parties that have
executed this Agreement. If for any reason a designated representative becomes
unavailable or is changed for any reason both the Trust and NPA must approve
in writing of these changes and this acknowledgement must be added as an
exhibit to this Agreement.
2.1 Phase I requires Pretory to develop in conjunction with NPA a methodology
for a humanitarian demining Project in Sarajevo, Bosnia-Herzegovina. The
Project will be conducted for NPA and operate within the auspices of NPA and
under their direction. Pretory will provide consulting services to develop and
plan a humanitarian demining Project that will: i) positively identify the
location of mines in a confirmed minefield with mines in a known location: the
NPA Training Minefield, Sarajevo, Bosnia-Herzegovina, and, ii) positively
identify the location of mines in confirmed or suspected minefields with mines
in unknown locations around Sarajevo, Bosnia-Herzegovina (see attached
Exhibits 1-8).
2.2 Phase I of this Agreement will be concluded prior to 30 September 1999.
2.3 Prior to the conclusion of Phase I, Pretory will be responsible for
providing a complete Project briefing to both the Trust and NPA. At a minimum
the briefing should include: i) an overview of the current situation with
regard to humanitarian demining in general and more specifically with regard
to NPA activities in Sarajevo, Bosnia-Herzegovina; ii) a process for the
identification of all appropriate technologies necessary to support the
Project, including an analytical review of all known useful and commercially
available devices or technologies that can be utilized to support the proposed
Project; iii) an operational plan, including but not limited to a time
schedule, an organizational and resource plan, coordinating instructions, a
scheme of implementation, and a detailed outline of control and support
issues; and iv) a budget for Phase II of the Project.
<PAGE>
2.4 If Phase I is approved Pretory will immediately begin Phase II.
3.1 Phase II requires a complete technical evaluation of the equipment to be
used to support Phase III of the Project and assumes that the proposed execution
of Phase III of the Project, as presented at the end of Phase I, has been
tentatively approved by the Trust and NPA. In Phase II, Pretory must demonstrate
that the technology and organizations/personnel selected to support the Project
have the ability to perform as required to successfully conclude Phase III of
the Project. NPA and the Trust will be solely responsible for the decision to
advance to Phase III and the actual implementation of the Project. The Trust and
NPA may employ whatever evaluation criteria or performance objectives they deem
fit exclusively to validate Phase II and to finalize and approve Phase III of
the Project.
3.2 Phase II of the Agreement will be completed by 31 December 1999.
3.3 Prior to the conclusion of Phase II, Pretory will be responsible for
providing a complete evaluation of all technology and equipment to be used to
execute Phase III of the Project, including i) the documented results of field
testing, ii) a demonstrated capacity to utilize, generate and evaluate the
results produced through the use of the technology and equipment selected to
provide quantifiable and qualitative results that can be evaluated as superior
to other known commercially available technologies and their use, and iii) a
demonstrated ability to present the test results in a manner that is judged to
be useful to NPA and other organizations as directed by the Trust and NPA, such
as, the United Nations Mine Action Service, and the International Center for
Humanitarian Demining.
3.4 Pretory will submit prior to the conclusion of Phase II a detailed budget
for Phase III of the Project. Again, NPA and the Trust will be solely
responsible for the decision to advance to the final Phase and the actual
Project implementation. The Trust and NPA may employ whatever evaluation
criteria or performance objectives they deem fit exclusively to finalize and
approve the Project. Pretory will be notified by 15 March 2000 if the Trust and
NPA concur with the proposed Project, and at that time will be given either the
approval or disapproval to proceed with the Project.
4.0 Pretory will be required by the Trust to submit the complete Agreement
document (the Final Agreement) with all exhibits to the Trust at the conclusion
of the final Phase of the Project. While it is recognized that Pretory will have
the responsibility to devise and manage every aspect of the Project, with the
approval of NPA and the Trust, the final Agreement document, which will include
an attractive and meaningful final presentation of the Project's results,
including a final report suitable for publication in a form generally acceptable
to international academic forums that would be interested in the results of this
Project, will be the property exclusively of the Trust, in totality. The Trust
will have the complete discretion to use the Final Agreement in any manner
desired.
5.0 Pretory will be paid $(US)400,000.00 to perform the services outlined for
Phase I of the Project. The terms of payment will be 25% payable at 90 days from
invoice with the balance payable at 120 days from invoice unless modified and
agreed to by both the Trust and Pretory. Pretory will invoice the Trust of
behalf of NPA, but may not do so until after the Phase I briefing is made and
acknowledged by the Trust and NPA. If the briefing is not made prior to 30
September 1999, Pretory forfeits the ability to invoice the Trust or NPA for any
amount.
5.1 Pretory is responsible for it own costs and expenses and will not be paid
any additional fees, charges, or any amount beyond the stated amount above,
without the consent and at the total discretion of the Trust.
<PAGE>
5.2 The Trust will have the full responsibility to fulfill any financial terms
of this total or any portion of this Agreement on behalf of NPA, and in no
manner or condition will any financial responsibility derived from any aspect of
this Agreement be the responsibility of NPA without the specific and written
consent of NPA as attached as an exhibit to this Agreement.
5.3 The financial terms relative to the completion of Phase II will be
determined at the conclusion of Phase I given the results and recommendations of
the findings included in the Phase I briefing.
5.4 The financial terms relative to the completion of Phase III will be
determined at the conclusion of Phase II given the results and recommendations
of the findings included in the Phase II briefing.
6.0 The Trust and NPA will unilaterally have the ability to discontinue this
Project at the conclusion of any phase of the Project at their sole and
independent discretion.
7.0 Pretory will strive to fully inform the Trust and NPA of all Project
developments and will work with the Trust and NPA to create a reporting system
that provides a meaningful appraisal of the Projects status weekly. Throughout
the duration of the Project monthly reports will be provided and be added to the
Agreement as exhibits. Weekly reports need to be informative, but can be verbal
as long as all parties are satisfied with the steady flow of reliable and timely
information. The Trust and NPA will remain the exclusive judge of the
satisfactory nature of these reports.
8.0 The Trust and NPA recognize that Pretory is a "public company," and that
from time-to-time Pretory may have the desire to inform its shareholders of the
Company's activities as it relates to this Project. Pretory will provide to the
Trust and to NPA a copy of all press releases prior to their distribution for
the consideration and approval by the Trust and NPA unilaterally.
9.0 The Trust reserves the right to modify this Agreement as required excepting
payment terms and the abbreviation of time schedules at any time during the
Project. All modifications will be acknowledged by NPA and Pretory and included
as an exhibit to this Agreement as they occur chronologically.
10.0 NPA has the right for any reason to withdraw their support at any time for
any reason from this Project. Should this occur the Trust, with concurrence of
Pretory, will have the ability to carry a similar Project forward without
restriction with any other organization involved in Humanitarian Demining.
Signed and agreed to on 15 July 1999:
---------------------- ---------------------- ----------------------
Per Nergaard Andrew Mead Raquel Velasco
Norwegian Peoples Aid The Concorde Trust Pretory USA, Inc.
Exhibit 10.10
CONTRACT
Pretory USA, Inc. (hereinafter referred to as "PRTU") hereby engages
DeMonte Associates as its investor relations/corporate communications advisor.
The fee for the 12 month period of the Agreement, commencing on December 1,
1999 will be 5,000.00 per month. The fee is payable at the commencement of this
contract and on the first of each month in advance of the month worked.
DeMonte Associates shall act as investor relations counsel for PRTU and
perform the services enumerated below:
1. Analysis of PRTU's business and industry, following which a
comprehensive fact sheet that summarizes PRTU's corporate and financial profile
will be recreated, for distribution to investment professionals and the media.
2. Work to develop a complete financial public relations program designed
to broaden recognition of PRTU in the financial community in the U.S. and
abroad.
3. Advise PRTU in its overall relationship with the financial community
through consultation with its management.
4. Planning, writing and preparation of press releases and annual and
quarterly reports to shareholders, including the creative graphics and printing,
if required.
5. Preparation, together with management, of presentation material for
meetings with stockholders.
6. Develop interest in PRTU and its products through placement of articles,
reviews and quotes in financial and trade publications.
7. Meet with financial community on behalf of PRTU, surveying essential
analysts, brokers and institutional investors throughout the country,
maintaining an ongoing personal contact program and establishing a schedule of
activities.
8. Arrange meetings between management and members of the financial
community; including individual meetings, informal group meetings and formal
presentations.
9. Review PRTU's transfer sheets to identify holdings and identify regional
and institutional strengths.
<PAGE>
10. Establish a mailing list for PRTU, maintain and update the list. This
mailing list shall be utilized by PRTU at any time during the length of this
contract and shall remain the sole property of PRTU. Any names provided to
DeMonte Associates by PRTU will be supplied with status on an ongoing basis.
11. Work with PRTU as corporate communications advisor and additional
shareholder relations liaison throughout crises, as they arise and are
rectified.
12. Provide trade show support and, if required, make arrangements for show
and provide booth support.
In addition to the above, DeMonte Associates will provide its mailing
address, a separtate phone line, use of its central fax number, and office space
from time to time at no additional cost as long as this agreement is in effect.
In the event this agreement is terminated, Pretory agrees to negotiate for these
services at the then commercially acceptable rates.
Payment Requirement
Invoices will include all out-of-pocket expenses incurred by DeMonte
Associates on behalf of PRTU for that month, plus the monthly fee payable and
due one month in advance, provided that DeMonte Associates shall not incur any
expense on behalf of PRTU in any amount exceeding $200.00 unless approved in
writing by PRTU in advance. Business Wire expenses will be direct billed PRTU.
Termination of this agreement shall not relieve PRTU to pay all amounts accrued
prior to such termination and shall not limit DeMonte Associates from pursuing
other remedies which may be available to it.
In the event of any dispute, the parties must resort to the American
Association of Arbitration in New York City. Either party may make application.
This Association shall have power to decide who shall pay costs, fees and
disbursements, in addition to making an award.
<PAGE>
Term
This agreement shall commence upon execution of this document and shall
continue in force for a period of twelve months.
Out-of-Pocket Expenses
1. PRTU shall reimburse DeMonte Associates as to any and all expenses
incurred and expenditures made on behalf of PRTU. These expenses include, but
are not limited to, the following: travel and miscellaneous expenses (postage,
photocopy, fax, federal express and messenger service).
2. If, as an agent, DeMonte Associates places paid media advertising (at
PRTU's discretion, media and production costs must be paid to DeMonte Associates
in advance.
PRTU agrees to and hereby does indemnify DeMonte Associates against any
damages, costs and expenses, including reasonable attorney's fees, incurred in
defending against any legal action arising out of the release of materials
previously cleared and approved by PRTU, and hereby expressly holds DeMonte
Associates harmless from any such damages, costs and expenses.
PRTU acknowledges that it has read this agreement between the parties,
which supersedes all proposals or prior agreements, oral or written, and all
other communications between the parties relating to the subject matter of this
agreement.
DeMonte Associates agrees to exercise due care to prevent disclosure of
PRTU's proprietary information to any third party, authorization for further,
internal dissemination within DeMonte Associates shall be limited to those whose
duties justify their need to know such information, and then only with a clear
understanding that these employees of their obligation to maintain the
proprietary status of such information.
This Agreement may be terminated by either party upon 30 days written
notice.
By:_______________________________ Date:________________
Pretory USA, Inc.
By:________________________________ Date:_________________
DeMonte Associates
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for the nine months ended September 30, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<CASH> 27,092 35,376
<SECURITIES> 0 0
<RECEIVABLES> 505,218 222,572
<ALLOWANCES> (16,240) (11,572)
<INVENTORY> 21,395 25,655
<CURRENT-ASSETS> 769,736 431,552
<PP&E> 90,489 90,489
<DEPRECIATION> (38,448) (29,320)
<TOTAL-ASSETS> 824,479 507,828
<CURRENT-LIABILITIES> 538,243 736,675
<BONDS> 0 0
0 0
0 0
<COMMON> 8,147 7,664
<OTHER-SE> 278,089 (236,511)
<TOTAL-LIABILITY-AND-EQUITY> 824,479 507,828
<SALES> 1,819,875 1,898,279
<TOTAL-REVENUES> 1,819,875 1,898,279
<CGS> 1,031,989 1,341,739
<TOTAL-COSTS> 1,588,845 2,221,631
<OTHER-EXPENSES> 4,993 19,299
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,983 18,541
<INCOME-PRETAX> 213,054 (361,192)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 213,054 (361,192)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 00000000 0000000
<NET-INCOME> 213,054 (361,192)
<EPS-BASIC> .03 (.05)
<EPS-DILUTED> .03 (.05)
</TABLE>
