SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-24550
PRIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 65-0109088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
Pride House, Watford Metro Centre, Tolpits Lane, Watford, Hertfordshire,
WD1 8SB England
(Address of principal executive offices)
(800) 698-6590
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
Securities registered pursuant to Section 12(g)
of the Act:
Common Stock, $.002 par value
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB [ ].
The aggregate market value of the voting stock on January 31, 1997 (consisting
of Common Stock, $.002 par value per share) held by non-affiliates was
approximately $409,387.86, based upon the average bid and asked prices for such
Common Stock on said date ($.63), as reported by a market maker. The issuer's
and its subsidiaries had on a consolidated basis, revenues of $12,982,098 for
its fiscal year ended November 30, 1996. On February 21, 1997, there were
1,995,357 shares of Registrant's Common Stock outstanding.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
History of the Company
Pride, Inc. (the "Company") was incorporated as L.H.M. Corp. in the State
of Delaware on May 10, 1988, as a "blank check" company for the purpose of
seeking potential business ventures through acquisition or merger. In April
1990, L.H.M. Corp. entered into an Agreement and Plan of Reorganization with
International Sportsfest, Inc. ("ISI"), a company formed to engage in establish
sports expositions in sports products such as clothing and sports related
equipment. At such time L.H.M. Corp. changed its name to ISI. ISI never engaged
in any business operations. In November 1992, the Company effected a 1 for 200
reverse split of its issued and outstanding shares of Common Stock. In January
1994, the Company entered into an Agreement and Plan of Reorganization with
Pride Management Services, Plc. ("PMS"), an English corporation, whereby PMS
became a wholly owned subsidiary of the Company and the Company changed its name
to Pride, Inc.
The Company also owns 100% of the capital stock of Watford Investments
(Pty) Limited ("WI"), a South African company, which was formed in March 1995.
WI was formed for the purpose of obtaining a 24% interest in Masonic Motors, an
automobile dealership in South Africa, which WI subsequently sold in September
1995. WI is an import and export company, which had no revenues from operations
in fiscal 1995.
Pride Automotive Group, Inc., a Delaware corporation ("PAG") was formed
by the Company in March 1995 for the purpose of acquiring all of the outstanding
shares of common stock of PMS, which has been accounted for as a
"Reorganization." Prior to the Reorganization, PMS was a wholly owned subsidiary
of the Company.
Pursuant to the terms and conditions of the Reorganization in March
1995, between the Company, PMS and PAG, PAG issued 1,500,000 shares of its
common stock to the Company in exchange for all of the issued and outstanding
shares of PMS. In connection with the Reorganization and formation of PAG, PMS
became a wholly owned subsidiary of PAG which is approximately 72.8% owned by
the Company. PMS is a holding company which has six wholly owned subsidiaries
which engage in PAG's operations. PMS's wholly-owned subsidiaries include; Pride
Vehicle Contracts Limited, Baker Vehicle Contracts Limited, Pride Vehicle
Contracts (UK) Limited, Pride Leasing Limited, Pride Vehicle Management Limited
and Pride Vehicle Deliveries Limited. These companies operate as one unit, with
the same management and facilities. Unless the context otherwise requires, all
references to the "Company" are to its subsidiary PAG, PAG's wholly owned
subsidiary, PMS and PMS's six wholly owned subsidiaries. See "--Subsidiaries."
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Public Offering of Pride Automotive Group, Inc.
In April 1996, PAG completed an underwritten initial public offering of
its securities. The securities were registered with the Securities and Exchange
Commission ("SEC") pursuant to a registration statement on Form SB-2. The
initial public offering was declared effective by the SEC on April 24, 1996. In
the offering, PAG sold 950,000 shares of its common stock to the public at a
price of $5.00 per share and 2,000,000 redeemable common stock purchase warrants
at a price of $.10 per warrant. The warrants are exercisable at a price of $5.75
per share, subject to adjustment, beginning April 24, 1997 and expiring April
23, 2001. In connection therewith, PAG also granted to the underwriter of the
offering a warrant to purchase 95,000 shares of PAG's common stock at a purchase
price of $5.00 and 200,000 redeemable common stock purchase warrants, each
warrant exercisable to purchase one share of common stock at a purchase price of
$7.50 per share. Other than with respect to the exercise price, the terms of the
warrants granted to the underwriter are identical to those described above.
PAG's securities are currently traded on the Nasdaq SmallCap Stock Exchange and
the Boston Stock Exchange, Inc.
Acquisition of AC Car Group Limited
In November 1996, PAG, through its subsidiary AC Car Group Limited,
acquired all of the assets of AC Cars Limited ("AC Cars") and Autokraft Limited
("Autokraft"), two companies incorporated under the laws of England and Wales,
respectively. AC Cars and Autokraft are specialty automobile manufacturers that
had been in administrative receivership since March 1996.
Business of AC Car Group Limited
AC Car Group Limited was incorporated in England and Wales on June 28,
1996, as Paradehaven Limited. The name was changed to AC Car Group Limited on
August 30, 1996.
AC Cars was formed in 1901 as Autocar & Accessories Limited and has
been in continuous operations ever since. AC Cars is Britain's oldest
independent manufacturer. Today, Autokraft and AC Cars manufacture and sell two
automobiles, the AC Cobra and the AC Ace.
The AC Cobra is a high-powered, hand built sports car with an aluminum
body. The automobile is manufactured today using the same traditional coach
building methods and original Cobra tooling which were used on the original
manufactured Cobras in the 1960s. Historically, in 1963 the AC Cobra caused a
sensation by racing along the MI motorway (England's first motorway) at 196
miles per hour, and by 1964, the 427 AC Cobra was listed in the Guinness Book of
Records as the fastest production car in the world. The AC Cobra sells for about
(pound)69,000 ($115,782).
In 1986, the AC Ace prototype was first displayed at the Birmingham
Motor show. The AC Ace was shown at the London Motor Show in the same year. In
1995, the AC Ace was shown to the North American public at the Detroit
Motorshow. When the AC Ace comes into production, it will sell for approximately
(pound)66,000 ($110,748). As of February 19, 1997, AC has produced approximately
fifty pre-production AC Aces. The AC Ace should go into its final production
stage in August 1997.
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Also in 1987, Ford Motor Company became a partner with Autokraft and AC
Cars. The AC Cobra is equipped with a Ford V8 engine. Currently, Ford Motor
Company owns the trademark to the name Cobra. However, Autokraft and AC Cars
used the name Cobra under a license arrangement with Ford Motor Company. When
they were placed in administrative receivership, the license arrangement with
Ford Motor Company was voided. After the Asset Acquisition, PAG negotiated a
licensing agreement with Ford Motor Company whereby PAG has procured a three
year license, commencing December 7, 1996, to continue to use the name "Cobra"
on its AC Cobra model.
Administrative Receivership
AC Cars has incurred losses in recent years as a result of design and
development costs incurred in bringing the AC Ace into production. Although most
of the development work is now complete and approximately fifty AC Aces have
been produced to date as pre-production vehicles, the expenses AC Cars and
Autokraft incurred in connection with the development of the Ace forced
Autokraft and AC Cars to seek additional capital investments so as to enable
them to both meet current production needs and increase future production
levels. Once it became clear to Autokraft and AC Cars' management that
additional funds were unlikely to be forthcoming in time to allow the businesses
to meet their financial obligations, coupled with their bankers indications that
they no longer had confidence in the current ownership, the Director's of the
businesses resolved to request their bankers to appoint Administrative
Receivers. Administrative receivers were appointed on March 7, 1996.
Development Projects and Enhancements
PAG, through AC, intends to continue to evaluate developing the Cobra
and the Ace's chassis to be compatible with other engines.
Marketing and Sales; License Arrangement
AC Cars has used very little, if any, print or other media advertising
with respect to the AC Ace. However, both the Cobra and the Ace have been the
subject of numerous magazine articles in automotive publications, and, as such,
have received extensive exposure.
As discussed above, AC Cars and Autokraft were using the name Cobra
under a license arrangement with Ford Motor Company. Although the arrangement
became void when the two companies were placed in receivership, PAG has entered
into a licensing arrangement with the Ford Motor Company whereby PAG has
procured a three year license to use the name "Cobra".
Whereas PAG is pleased that it has been able to procure a licensing
arrangement to continue to use the name "Cobra", PAG anticipates that a
significantly larger portion of its future marketing efforts will concentrate on
the venerable history and prestige associated with the name "AC", which name PAG
acquired outright as part of the Asset Acquisition.
PAG believes that the principal markets for sales of its automobiles
are the United States, Australia, Thailand, Germany and the United Kingdom. PAG
is in the process of negotiating distribution
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agreements in some of these important markets, including Australia and the
United Kingdom, while agreements and approvals in other key markets have already
been received. Although the Thailand distribution agreement became void when AC
Cars and Autokraft were placed in receivership, management of PAG received
verbal confirmation that the Thailand agreement will be continued upon
consummation of the Asset Acquisitions.
The AC Cobra is Type approved for sale in certain countries of the
European Economic Community ("EEC").
Trademarks
Acquired as part of the Asset Acquisitions was the rights to utilize
the "Ace" mark on sales of the Ace. The right to use the Cobra name was subject
to a license arrangement which was in place with Ford Motor Company, the owner
of the trademark just prior to the appointment of Receivers. As discussed above,
PAG has entered into a new license agreement with Ford Motor Company whereby PAG
has procured a three year license to use the name "Cobra". Former management of
Autokraft and AC Cars has advised PAG that it is not aware of any actions
attempting to invalidate or challenge its use of such trademarks and that it has
not received any notice or claims of infringement regarding its trademarks.
Insurance
PAG and AC are in the process of purchasing products liability
insurance. However, there can be no assurance that such insurance will be
obtained, or that if obtained, that such insurance will be sufficient to cover
claims, if any, or that such insurance will continue to be available at
commercially reasonable terms. If PAG or AC are required to pay uninsured
claims, it would adversely affect the businesses of PAG and AC and could cause a
discontinuation of operations. PAG and AC do not carry business interruption or
key man insurance. See "Risk Factors."
Legal Proceedings
AC is not a party to any material litigation. Autokraft and AC Cars are
involved in legal proceedings, all of which are related to their being placed in
administrative receivership.
Properties
AC currently occupies premises on a four acre site at the Brooklands
Industrial Park in Surrey, England. The property comprises a factory, workshop,
showroom and office space. In all, the facility provides approximately 90,000
square feet of manufacturing area and 20,000 square feet of executive office
area. PAG has agreed to lease the premises currently occupied by AC for a period
of one year commencing December 1, 1996. PAG lease costs approximately
(pound)32,000 ($53,696) per month. AC has an option to purchase the premises for
the purchase price of (pound)5,200,000 ($8,725,600) during the nine month period
commencing December 1, 1996 and ending August 1, 1997.
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Employees
Autokraft and AC Cars together employed a total of 83 persons as of
March 7, 1996, the date the two companies were placed in receivership. PAG
retained approximately 31 of such employees upon completion of the Asset
Acquisition and has hired four additional employees to oversee the manufacturing
and marketing of the automobiles.
Business of Pride Management Services, Plc.
The Company engages in the business of leasing new automobiles to
businesses, servicing such automobiles during the lease term and remarketing the
automobiles upon the expiration of the lease. the Company's business strategy is
to (i) provide personal and attentive service to its clientele, (ii) lease
primarily to high-quality credit applicants in order to continue to build a
lease portfolio with low delinquency and credit loss rates, (iii) finance its
lease portfolio with competitive credit terms and (iv) manage its residual risk
relating to PAG's resale of automobiles after the expiration of the lease term.
The leasing, financing and servicing of the vehicles is described as a "contract
hire."
The Company purchases each automobile pursuant to the specifications of
its clients, finances the purchase and pays for all the maintenance and repairs
on the vehicle during the term of lease. Typically, the Company pays off the
purchase price of the vehicles during the term of the lease and then resells the
automobile at the end of the lease term.
Acquisitions
The Company has expanded its operations in the past several years
through acquisition. In May 1990, the Company formed Baker Vehicle Contracts
Limited ("Baker") to acquire certain assets, including the right to the name and
contracts of Baker Hire Limited, an English company. At the time of its
acquisition, Baker was a division of W.H. Baker Limited, which company had filed
for bankruptcy protection. Baker's vehicle leasing is primarily in Wales and the
southwest region of England. In December 1990, PMS was contracted to run the
business of County Contract Hire Limited ("County"), which at that time
comprised approximately 3,500 leased vehicles. In February 1992, the Company
purchased County from Berisford International Plc., an English public company,
pursuant to a stock purchase agreement, whereby PMS acquired all of the
outstanding shares of County and changed County's name to Pride Vehicle
Contracts (UK) Limited. In October 1994, the Company acquired certain assets of
Master Vehicle Contracts Limited ("Master"), an English company, pursuant to the
terms of an asset purchase agreement. The assets purchased included vehicles,
vehicle lease agreements and customer lists. At the time of the sale, Master was
in receivership, whereby the sale was entered into by PMS and the court
appointed receivers. In connection with this purchase, the Company acquired the
rights to use the name Master Vehicle Contracts Limited.
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Industry Overview
Companies have a variety of financing alternatives available to them in
acquiring the use of a new automobile, either through the purchase or lease of
such vehicle. In financing the purchase of a vehicle there are various loan
alternatives including, fully amortizing, balloon payment, no money down, low
down payment and business equity loans. In terms of leasing vehicles, there are
various options including, payment schedules, term, maintenance and repurchase
rights. The primary benefit of leasing over purchasing is that leasing typically
provides a consumer with the opportunity to acquire the use of a new automobile
at a lower monthly payment than financing the purchase of such vehicle, usually
without a significant initial cash outlay, and enables the return of the
automobile without any further liability at the end of the lease term. Companies
which provide employees with automobile transportation typically lease such
vehicles and expense the costs.
The increase in new vehicle prices in relation to annual median family
income has been a contributing factor in the growth in the leasing and used
automobile markets. This has provided the Company with a further opportunity for
revenue growth through the resale of its vehicles after the term of the lease or
in the event there are defaults of the leases.
Business Objectives
The Company's primary goal is to expand its leasing and fleet
management operations, increase and obtain better terms with respect to the
financing of the vehicles it leases and to increase the profitability of its
vehicle remarketing program. The Company's strategy for continued growth is to
(i) increase lease origination by (a) increased name recognition, (b)
acquisition of similar companies or their assets, (c) the development, expansion
and retention of existing clients, and (d) the expansion into new geographic
markets, (ii) further develop and market its fleet management services, (iii)
increase and improve the terms of its financing arrangements, (iv) further
develop and increase the profitability of its used automobile remarketing
operations, and (v) lease primarily to high quality credit applicants in order
to continue to build a lease portfolio with low delinquency and credit loss
rates.
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Subsidiaries
The following table lists all the wholly owned subsidiaries of PMS, the
date of their formation and business operations. These companies operate as one
unit in conducting the business affairs of the Company.
<TABLE>
<CAPTION>
Date of
Name Formation Business Operations
<S> <C> <C> <C> <C> <C> <C>
Pride Vehicle Contracts
Limited 12/23/86 Conducts all administrative functions for the Company,
including paying salaries and all operational expenses of
the Company.
Baker Vehicle Contracts Limited 02/22/89 Vehicle leasing, primarily the business operations of Baker
Hire Contracts Limited, acquired in May 1990, which
operations are primarily in Wales and the south west region
of England.
Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract Hire Limited
(UK) Limited Hire Limited and Master Vehicle Contracts Limited in
February 1992 and March 1994, respectively.
Pride Leasing Limited 02/22/89 Owns property and a building in Croydon,
England, which is leased to an unaffiliated company.
Pride Vehicle Management 02/14/90 Operates the Company's fleet management services.
Limited
Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services for
Limited all the Company's leasing operations.
</TABLE>
Leasing, Maintenance and Resale
The Company purchases each vehicle pursuant to its client's
specifications; finances its purchase and pays for all the maintenance on the
vehicle during the term of the lease. The Company usually finances the purchase
of each vehicle to correspond with the term of the lease, such that upon the
completion of the lease term the automobiles are fully paid. As of February 25,
1997, the Company had approximately 1,420 vehicles under lease.
The term of the leases average generally between 24 and 48 months, with
the average lease being 36 months. In addition to setting forth the lease term,
the amount of the rental payments and the mileage allowance, each lease requires
the lessee to pay all fees, taxes, fines and other costs relating to the use of
the vehicle. Generally, the lessee pays the first and last two months lease
payment in advance of the lease term. The lessee is required to maintain
liability and casualty insurance on each vehicle at specified limits and to name
the Company as an additional insured and loss payee. The Company will only
approve policies which have a maximum deductible of $500.
The Company's sales policy emphasizes leasing to financially sound
clients and requires certain financial disclosures prior to executing any lease
agreement. Customer accounts are targeted from profitable, growing, medium-sized
corporate companies. For the years ended November 30, 1995 and
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1996, the Company had two unaffiliated customers, Westbury Homes Plc. and
Campbell Distillers Limited, which companies accounted for in the aggregate
approximately 18% and 17%, respectively, of the Company's total revenues. For
the three month period ended February 29, 1995 and the two month period January
31, 1996, revenues from these two unaffiliated customers aggregated 18% and 12%,
respectively, of total revenues. The Company also leases vehicles to the
following local government agencies; Swansea Council in Wales, Brent Council in
London and Mid Glarmorgan Council in Wales.
Each lease applicant must provide information regarding, among other
things, corporate history, length of time in business, ability to pay based both
on income level and certain debt to income ratios developed by the Company and
credit history, including comparable borrowing experience. Review of financial
statements, audited where obtainable allows for the independent verification of
the Company's financial position and past history. The foregoing procedures
provide the general basis for the Company's credit decisions, but the ultimate
determination is in the discretion of the Company's credit analysts.
Accordingly, certain of the leases entered into by the Company may not meet each
of the Company's credit guidelines.
The Company has servicing agreements with over 1,400 automotive
dealerships and independent service centers in its areas of operations. Since
all of the leased vehicles are new, there are warranties typically ranging from
12 to 36 months or 20,000 to 60,000 miles, which ever comes first, with the
average being 24 months or 40,000 miles. Also each lease has milage limitation
and additional fees for overages. Therefore, the Company does not incur
significant expenses for repairs. Maintenance is regularly performed on all
vehicles, pursuant to negotiated pricing schedules. No work is permitted to be
performed on any vehicle, unless performed by one of the Company's contracted
service centers with the prior consent of the Company.
The monthly lease payment which the Company charges its clients is
determined by a computer program which takes into account estimated service
costs, new vehicle pricing, manufacturer bonuses, rebates and options, potential
residual value at lease end as well as other variable information including
interest rates and other current anticipated future economic variables. The
client is responsible for maintaining its own insurance, of which the Company is
the beneficiary, in the event the vehicle is damaged.
The Company typically attempts to match the financing term with the
lease term, whereby at the end of the lease term the Company owns the
automobile. The Company does not currently perform repairs or refurbishing on
the returned vehicles, rather, the Company attempts to resell such vehicles
immediately upon their return in the same condition as they are returned in.
This enables the Company to increase its cash flow, though the Company believes
it could obtain higher prices for the used vehicles in the event minor repairs
were performed prior to resale. The Company manages its residual risk by
focusing on the leasing of vehicle models which it believes will have a broad
appeal in the used automobile market at the end of the lease term and by
utilizing multiple remarketing channels including, but not limited to used car
wholesalers and used car retailers. The Company upon pricing the lease of a new
vehicle reviews the listed wholesale price as listed in several pricing guides,
predominantly the Current Auction Prices ("CAP") book, which gives the current
wholesale price of the model being leased. The Company currently attempts to get
at least 85% of the CAP listed wholesale price upon the resale
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of the vehicle. The Company believes that with increased working capital and
cash flow from operations, the Company can make minor repairs and refurbishings
on the automobiles performed and seek higher prices on resales of up to 110% of
the wholesale price on popular models. The Company sells its used vehicles
through used automobile wholesalers and retailers, automobile auctions,
unaffiliated dealers and pursuant to sales to related parties of the lessees. In
the event the market for used automobiles decreases the models or conditions of
the vehicles returned to the Company decrease their resale value or vehicles are
returned pursuant to defaults in the lease agreements, such events may adversely
affect the Company's cash flow, profitability and business operations. See "--
Financing and Collections" and "-- Competition."
Fleet Management Services
In 1994, the Company opened its fleet management division, which
division manages the automobiles for certain of its corporate clients who choose
to own the vehicle(s) directly. Customarily, these clients purchase the
automobiles through the Company in order to take advantage of the Company's bulk
purchase discounts. The Company maintains these vehicles on behalf of such
clients pursuant to a monthly management fee, usually $15 per automobile and
disposes of the vehicles thereafter on behalf of the client. The client pays all
costs associated with the purchase, maintenance and resale of the automobiles.
The Company estimates that for the year ended November 30, 1996 less than 5% of
the Company's revenues were from fleet management services.
Suppliers
The Company purchases all of the automobiles that it leases to its
clients from automotive dealerships, usually several at a time. For the year
ended November 30, 1996 and two months ended January 31, 1997, General Motors
and Renault were the manufacturers of approximately 16.2% and 16.2%,
respectively and 11.7% and 11.7%, respectively, of the vehicles which it leased.
The Company does not depend on any individual dealership for the purchase of any
vehicle brand. The Company has no written agreements with any dealership it
purchases vehicles from, though it does receive yearly rebates from
manufacturers based on quantity of automobiles purchased. Management believes
that the price it pays and the terms it receives for the automobiles it
purchases are more favorable than it would receive if it was purchasing
automobiles on an individual basis. The Company believes that it will continue
to be able to purchase automobiles at competitive prices and terms into the
future.
A portion of the Company's profit margin is based on rebates received
directly from the automobile manufacturers on a yearly basis. The Company
receives a rebate on most vehicles purchased based upon the quantity of
automobiles purchased from said manufacturer each year. This rebate is usually
between $100 and $400 per vehicle. However, the Company has no assurances that
it will be able to acquire automobiles at favorable prices in the future or
receive such rebates in the future. No assurance can be given that an
uninterrupted and adequate supply of automobiles will be available to the
Company in the future, although, the Company believes that there are a
sufficient number of automobile dealerships, so that in the event any individual
or group of dealerships can no longer service the Company's needs, the Company
will be able to find other dealerships at competitive prices. In the event the
Company cannot obtain the automobiles of any specific manufacturer or
automobiles in general or
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is not able to purchase such automobiles on similar terms as is presently
available to it, the Company may be materially adversely affected.
Financing and Collections
The Company provides new automobiles to its clients pursuant to each
individual client's specifications, with personal and attentive service to
include all of its clients needs. The Company's sales representatives have
extensive experience in the automobile finance and leasing industry and work
closely with the clients to meet their driving and financial needs.
Since November 1992, when entering into new lease agreements, the
Company purchases the automobile, which usually requires a 10% down payment and
pays down the note on the purchase including principal and interest during the
term of the lease. Prior to November 1992, the Company would finance the
purchase of automobiles through promissory notes which required the payment of
interest during the term of the loan and the repayment of the principal in a
balloon payment at loan maturity which is the same as the end of the lease term.
This financing strategy enabled the Company to increase its cash flow during the
term of the lease, but the higher financing fees and interest expense reduced
the Company's profit on the resale of the vehicles.
The Company used $1,000,000 of the proceeds from its Public Offering to
purchase vehicles pursuant to customer orders. The automobiles purchased will be
subsequently utilized as a group as security for bank loans obtained by the
Company. The principal amount of such loans will typically be equal to 90% of
the value of the vehicles used as security. For example, if the Company
purchases separately 10 automobiles during a month, pursuant to customer orders,
at an aggregate purchase price of $200,000, the Company would seek a loan for
$180,000, with the 10 vehicles being used as security for the loan. The Company
believes that by obtaining loans on groups of vehicles instead of on an
individual basis it will be able to obtain better financing terms and reduced
financing costs, based on (i) the security for each loan is a group of vehicles
instead on one individual vehicle and (ii) there being less administrative and
closing costs incurred by the Company because there are fewer loans to process.
This process will be cyclical for the Company, whereby, the proceeds of the
loans will be used to purchase additional vehicles, pursuant to customer orders,
which vehicles will in turn be financed in groups.
The Company has asset funding lines to acquire revenue producing
vehicles with several institutions in England in the aggregate amount of
$18,200,000 of which the Company has borrowed approximately $11,000,000 as of
January 31, 1997. The increase in the Company's asset funding line is
attributable to the equity raised in the Company's initial public offering in
April 1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources." Under the lease
agreements, the lessees generally have no right to terminate their leases prior
to the end of their scheduled term. In the event that any lease terminates prior
to the end of its scheduled term (whether by way of default, the destruction or
theft of the vehicle), the lessee is liable to the Company for the amount by
which the lessee's default termination liability under the lease agreement
exceeds the realized value of such vehicle, which may be obtained through the
proceeds of the sale of the vehicle (including a sale following repossession) or
the proceeds of any applicable insurance on the vehicle. Under the terms of the
lease, the term "default termination liability" includes;
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(i) all payments due under the lease agreement up to the termination date,
inclusive of interest, (ii) future rental payments due from termination date
until the contracted lease termination date, less maintenance and a 5% discount
and (iii) the difference between the amount received pursuant to the sale of the
vehicle and the estimated residual value, if such sale price is less than the
estimated residual value. Under its agreements with the lessee, the Company pays
the sale or insurance proceeds to its lender up to the amount of the then
remaining balance of the note payable related to the vehicle. Any shortfall is a
credit loss and is borne by the lessee, and any excess is retained by the
Company.
The Company attempts to enhance the performance of its leases and
thereby minimize its financial risks by maintaining timely, consistent and
direct customer contact. When a default does occur, collections and
repossessions are handled by the Company's collection department. Upon a lease
payment default and after the passage of three days, the Company mails a written
notice to the defaulting customer and attempts to contact the customer directly
by phone. Once contact is established, the collection department will work with
the customer until the default is cured. If contact is not made or the default
is not satisfactorily cured, the Company will proceed to repossess the vehicle.
The Company will repossess the vehicle upon a determination that there is a risk
of not recovering the vehicle. In the event repossession is required, it
typically will take place within 20 days after the initial default. Pursuant to
English law, a company can repossess a vehicle for non payment in the event
payment is not received within two days of the due date, however, the Company's
lease agreements provide for a seven day grace period. No notice is required and
no demand for payment need be made prior to repossession. The Company, as the
vehicles owner, has all key numbers with respect to the vehicles it leases. In
the event the Company deems repossession necessary it sends an employee to
physically drive the vehicle away from the lessee. Repossessed vehicles are
offered by the Company at public sale, after the giving of notice, and sold by
the Company in a commercially reasonable manner. There were no repossessions of
vehicles in fiscal 1996 and there have been none to date in 1997. There were no
repossessions in fiscal 1995. Only one vehicle was repossessed during fiscal
1994.
Competition
The Company's business is highly competitive, with relatively
insignificant barriers to entry and with numerous firms competing for the same
customers. The Company is in direct competition with local (includes the city of
Hertfordshire and the surrounding areas), regional (includes London and the
surrounding areas) and national (includes all of the United Kingdom, inclusive
of England, Wales, Scotland and Northern Ireland) automotive leasing companies,
many of which have greater resources and more extensive distribution and
marketing than the Company. The largest leasing companies in direct competition
with the Company are Cowie Interleasing, a division of Cowie, Plc., and Lex
Vehicle Leasing Limited, each of which claim to have presently on lease
approximately 65,000 vehicles. As of February 25, 1997, the Company had 1,420
vehicles under lease. The Company also competes in the automobile financing
industry with providers of other forms of financing. Other competitors include
finance companies affiliated with automobile manufacturers, a variety of local,
regional and national finance companies, commercial banks, savings and loans,
and other consumer lenders such as industrial thrifts and credit unions. The
automobile leasing business is highly competitive and the Company competes for
business on the basis of both pricing and service. The Company believes that the
main concern of the lessee or buyer of a new automobile is the amount of the
monthly payment and of any
11
<PAGE>
down payment. Many of the Company's competitors have significantly greater
financial, technical and marketing resources and market share than the Company.
Automobile finance companies affiliated with automobile manufacturers, from time
to time offer aggressive leasing and financing programs at below market pricing
to promote the sale of certain vehicle models. Many of the national leasing
companies have extensive advertising campaigns which develop and reinforce brand
recognition. In addition, many of such manufacturers have agreements with
vehicle leasing entities to jointly advertise and market their products and
services.
The used automobile sales business is highly competitive, with
competition coming from individuals, independent used automobile wholesalers and
dealerships and used automobile lots operated by new automobile dealers and
rental car companies.
Marketing and Sales
The sales policies of the Company have emphasized quality of business
rather than volume, both in its own new business contracts and its acquired
contracts. This controlled and conservative approach to growth allows the
Company to write what it considers to be good quality, profitable contract
hires. Customer service and satisfaction is then emphasized as a high priority,
to ensure that the group's premium pricing policies can be maintained for repeat
business.
Customer accounts are targeted from profitable, growing, medium-sized
corporate companies together with public sector referrals. The Company's credit
underwriting policies reflect this prudent approach, and ensure that the high
quality of the portfolio is maintained. The Company takes a balanced, portfolio
approach to risk management with a variety of company sizes to balance credit
risk against profit margin.
The Company executes a finance company standard hire purchase agreement
for each lease and the finance company takes a registered charge (security
interest) over the underlying agreement between the Company and its customer.
The security of the lender is further increased by the Company's down payment on
the vehicles and the monthly payments of principal and interest during the term
of the lease. The Company has all required liens and security interests
appropriately filed and recorded.
As part of its obligations, the Company performs all administrative
functions in the acquisition, registration and leasing of the automobile and
controls and pays for all required servicing of its vehicles. The Company
obtains appropriate vehicle registrations and titles for all lease vehicles,
tracks compliance with insurance requirements, negotiates and handles all claims
with insurance companies and remits all appropriate sales taxes on lease
payments to the taxing authority.
Government Regulations
The Company is subject to regulation by the United Kingdom Department
of Trade and Industry (the "Department of Trade"). The Department of trade
establishes general rules and regulations with respect to the operation of a
business in the United Kingdom. The Department of Trade has not established any
regulations or licensing requirements specifically regulating the leasing of
automobiles
12
<PAGE>
to companies. There can be no assurances that such will be the case in the
future or that if licensing or other form of regulation is required in order to
engage in the Company's business that the Company will be successful in
obtaining such licenses or in meeting the requirements of such regulations. The
Department of Trade, in accordance with the credit agreement act, requires the
issuance of a license in order to lease vehicles to individuals, which license
the Company has obtained, however, the Company never has nor does it presently
intend to lease vehicles to individuals. In addition, the Company must also
comply with a wide range of other state and local rules and regulations
applicable to its business, including regulations covering labor relations,
safety standards, affirmative action and the protection of the environment.
Continued compliance with the broad regulatory network of the United Kingdom is
essential and costly and the failure to comply with such regulations may have an
adverse effect on the Company's operations.
In August 1995, the British Government passed a law allowing leasing
companies to be reimbursed by the Government for the value added tax "VAT" which
is added to all consumer goods including automobiles. The VAT tax is currently
at 17.5%. Reimbursement of the VAT tax will allow the Company to charge lower
lease rates.
Employees
As of January 31, 1997, the Company employed 50 full-time persons,
eight are in management (three of which are officers), eleven administrative,
three sales representative and two drivers. None of the employees are
represented by a union, and the Company considers employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains 6,000 square feet of executive office space in a
modern, free standing building at Pride House, Watford Metro Centre, Tolpits
Lane Watford Hertfordshire, WD1 8SB England. The building was purchased by PMS
in December 1992 at a cost of approximately $895,000. The annual cost of
servicing the building's mortgage and taxes is approximately $80,000 and
$18,000, respectively. Pride Leasing Limited owns a building in Croydon,
England, which it purchased in 1991 at a cost of approximately $825,000, which
it currently leases to an unaffiliated company. The lease term expires in 2004,
and generates gross income of approximately $80,000 per annum. The annual cost
of servicing that building's mortgage and taxes is estimated at $70,000 per
annum.
AC currently occupies premises on a four acre site at the Brooklands
Industrial Park in Surrey, England. The property comprises a factory, workshop,
showroom and office space. In all, the facility provides approximately 90,000
square feet of manufacturing area and 20,000 square feet of executive office
area. The Company has agreed to lease the premises currently occupied by AC for
a period of one year commencing December 1, 1996. The lease costs approximately
(pound)32,000 ($53,696) per month. AC has an option to purchase the premises for
the purchase price of (pound)5,200,000 ($8,725,600) during the nine month period
commencing December 1, 1996 and ending August 1, 1997.
13
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending litigation which, if
decided adversely to the Company, would have a significant negative impact on
the business, income, assets or operation of the Company, and the Company is not
aware of any material threatened litigation which might involve the Company. In
England, the owner of the automobile is not considered liable for the acts of
the driver where there is a lease arrangement.
AC is not a party to any material litigation. Autokraft and AC Cars are
involved in legal proceedings, all of which are related to their being placed in
administrative receivership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security
holders during its fiscal year ended November 30, 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $.002 par value per share, is currently
traded sporadically and on a limited basis in the over-the-counter market on the
OTC Bulletin Board. The following table sets forth representative high and low
closing prices by calendar quarters as reported by a market maker, during the
periods provided for herein. Quotations represent prices between dealers, do not
include resale mark-ups, mark-downs or other fees or commissions, and do not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Common Stock
Calendar Quarter Prices Calendar Quarter Prices
Ended Low High Ended Low High
<S> <C> <C> <C> <C> <C>
12/1/94 to 2/28/95 11/16 21/2 3/1/96 to 5/31/96 1/16 1 7/16
3/1/95 to 5/31/95 1/4 11/4 6/1/96 to 8/31/96 1 1 7/16
6/1/95 to 8/31/95 1/4 1/4 9/1/96 to 11/30/96 5/8 1 7/16
9/1/95 to 11/30/95 1/4 1/4 12/1/96 to 2/21/97 1/4 1 7/16
12/1/95 to 2/29/96 3/32 1/8
</TABLE>
On January 13, 1994, the Company entered into an Agreement and Plan of
Reorganization with PMS and the shareholders of PMS. The Company issued
9,000,000 (pre 10 for 1 reverse stock split) shares of Common Stock to the
stockholders of PMS for all the shares of PMS, thereby making PMS a wholly-owned
subsidiary of the Company. On September 20, 1994, the Company effected a 1 for
10
14
<PAGE>
reverse stock split of its issued and outstanding shares of Common Stock,
thereby reducing the issued and outstanding shares of Common Stock from
12,205,355 shares to 1,220,537 shares.
As of February 21, 1997, the number of registered holders of record of
the Common Stock, $.002 par value, of the Company was approximately 40, as
determined by the Company's stockholder records, and does not include beneficial
owners at the Common Stock whose shares are held in names of various security
holders, dealers and clearing agencies. The Company believes there are in excess
of 400 beneficial holders of the Common Stock.
The Company has paid no dividends and has no present plan to pay
dividends. Payment of future dividends will be determined from time to time by
its board of directors, based upon its future earnings, if any, financial
condition, capital requirements and other factors. The Company is not presently
subject to any contractual or similar restriction on its present or future
ability to pay such dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant factors
which have affected the Company's financial position and operations during the
years ended November 30, 1996 and 1995.
Pride Inc. (the "Company") which is a holding company, was incorporated as
International Sportsfest, Inc. in the state of Delaware on September 11, 1988.
The Company was a development stage company with no operations through January
13, 1994. On January 13, 1994, the Company acquired Pride Management Services,
Plc ("PMS"), a consolidated group of operating companies located in the United
Kingdom. Simultaneously with the acquisition, the Company changed its name from
International Sportsfest Inc. to Pride, Inc. And now has its corporate offices
in Watford, England and New York City, New York. The Company also decided to
change its year end from April 30 to November 30, in order to coincide
accounting periods with its new subsidiary.
Pursuant to the acquisition, the Company issued an aggregate of 9,000,000
(900,000 shares - post reverse stock split - see Note 13) shares of its common
stock to the stockholders of PMS in the acquisition. The 9,000,000 (pre-reverse
split) shares represented 89% of the 10,155,350 (pre-reverse split) shares of
common stock outstanding immediately after the acquisition. The consideration
given by the Company, in the form of 9,000,000 (pre-reverse split) shares of its
common stock, was determined in arms-length negotiations between management of
the Company and management of PMS. None of the stockholders or management of PMS
were previously affiliated with the Company in any manner. The principal basis
used in the negotiations to determine the number of shares to be issued by the
Company was the percentage of stock which would be owned by the new control
groups after the issuance thereof, rather than any traditional valuation
formulas. By acquiring 100% of the issued and outstanding common stock of PMS,
PMS became a wholly-owned subsidiary of the Company. For accounting purposes,
the acquisition has been treated as a recapitalization of PMS with PMS as the
acquirer in a reverse acquisition. In March 1997, pursuant to the terms and
conditions of a reorganization, the Company exchanged all its shares in Pride
Management Services Plc for 1,500,000 shares of common stock in Pride Automotive
Group Plc (a newly formed Delaware corporation). As a result of this exchange,
Pride Automotive Group, Inc. ("PAG") became a majority owned subsidiary of the
Company and the parent of PMS.
The six wholly-owned subsidiaries of PMS are Pride Vehicle Contracts Limited,
Baker Vehicle Contracts Limited, Pride Vehicle Contracts (UK) Limited, Pride
Leasing Limited, Pride Vehicle Management Limited and Pride Vehicle Deliveries
Limited, which comprise the operations of the Company. These companies jointly
engage in the business of leasing new automobiles to businesses, servicing such
automobiles during the lease term and remarketing the automobiles upon the
expiration of the lease term, which arrangement is described as a "contract
hire." The Company purchases each vehicle pursuant to its clients'
specifications, finances its purchase and pays for all the maintenance on the
vehicle during the lease term.
All references to the Company include its subsidiary Pride Automotive
Group, Inc. and its subsidiaries.
The Company has servicing agreements with automobile dealers and service
centers, which specify pricing schedules for maintenance and repair work to be
performed, all of which require the prior consent of the Company. Typically, the
term of the loan corresponds with the term of the lease, whereby, upon the
completion of the lease term, the automobiles are fully paid and owned by the
Company. Upon the expiration of the lease, the Company remarkets the automobiles
through various distribution channels including, but not limited to, used car
wholesalers or used car retailers. Each client's monthly lease payment is
determined by a computer program which takes into account estimated service
costs, new vehicle pricing, manufacturer bonuses, rebates and options, potential
residual value at lease end, as well as other variable information including
interest rates and other current and anticipated future economic variables. The
monthly lease payments are usually sufficient to
<PAGE>
pay the financing and servicing on the vehicles during the lease term, with the
bulk of the profits, if any, coming on the resale of the automobile.
The Company's principal operations are conducted by PMS which reflects its
financial statements in British pounds. As a result, most assets and liabilities
of the foreign operations are translated into U.S. dollars using current
exchange rates in effect at the balance sheet date. Fixed assets and intangible
assets are translated at historical exchange rates. Revenue and expense accounts
are translated using an average exchange rate during the period except for those
expenses related to assets and liabilities which are translated at historical
exchange rates. These expenses include depreciation and amortization which are
translated at the rates existing at the time the asset was acquired. Any
resulting gains or losses due to the translation are reflected as a separate
item of stockholders' equity.
On November 29, 1996, PAG through its newly formed majority owned subsidiary AC
Automotive Group, Inc. and its wholly-owned subsidiary AC Car Group Limited
(registered in the United Kingdom), acquired certain of the assets of AC Cars
Limited and Autokraft Limited. These two companies were engaged in the
manufacture and sale of specialty automobiles. The purchase price of
approximately $6,000,000 was financed by the sale of common stock and by loans.
The acquisition involved the purchase of plant and equipment, the brand name,
inventories and an aircraft and has been recorded using the purchase method of
accounting.
Results of Operations - Years Ended November 30, 1996 and November 30, 1995:
Revenues for the year ended November 30, 1996 were approximately $12,982,000
compared to approximately $9,778,000 for the year ended November 30, 1995, an
increase of $3,204,000 or 32.8%. The primary reason for this increase was an
increase in revenues from contract hire income and from the sales of vehicles at
lease maturity, and an overall increase in the contract hire fleet size. There
was also an increase in the fleet management division.
The Company's cost of sales increased both in actual dollars and as a percent of
sales, when comparing the years ended November 30, 1996 and 1995. These costs
increased by approximately $2,675,000 or 35.2%. As a percent of sales, costs of
sales for 1996 were 79.1% versus 77.7% for 1995. Management believes that the
increase was primarily due to the continuation of the more prudent
(conservative) approach to estimating the residual values of vehicles thereby
increasing depreciation expense and costs of sales and reducing residual value
risk. This more conservative approach reduces the residual value of an auto
thereby increasing the amount of the auto to be depreciated. This approach will
therefore increase depreciation expense, which costs will reduce the income from
contract leasing. Since the residual value is now lower, the income from the
ultimate sale of the vehicle is now higher.
General and administrative expenses decreased from $1,941,000 for 1995 to
$1,835,000 for 1996 a decrease of $106,000 or 5.5%. As a percent of sales these
expenses represented 14% of sales for 1996 and 19.9% for 1995. Management
believes that the decrease in overhead costs relate to an aggressive costs
reduction program instituted by management during 1996 and 1995.
Interest expense increased when comparing the year ended November 30, 1996 to
1995 from $630,000 to $884,000, an increase of $254,000 or 40.3%. Management
attributes this increase to a higher volume of borrowings on hire purchase
contracts. The Company is continuously negotiating with various banking
institutions to obtain credit lines, all of which are secured by the vehicles
purchased.
<PAGE>
Income (loss) before taxes for the years ended November 30, 1996 and 1995, prior
to amortization of goodwill for the period ($635,000 and $631,000, respectively)
aggregated $276,000 and ($389,000), respectively. This improvement was primarily
due to the increased revenues as described above and a portion of the losses
being allocated to minority shareholders. For the year ended November 30, 1996,
the Company reflected a net loss of ($359,492) or $.18 per share. For the year
ended November 30, 1995, the Company reported a net loss of ($1,019,624 or $.54
per share.
Liquidity and Capital Resources
Due to the nature of the Company's business, namely contract leasing of motor
vehicles which are fixed long-term assets, the balance sheet has been prepared
on an unclassified basis. Accordingly, there is no classification of current
assets and current liabilities. At November 30, 1996 and 1995, the Company's
balance sheet reflected cash of $255,000 and $74,000, respectively, accounts
receivable of $1,936,000 and $1,256,000, respectively, and total assets of
$33,535,000 and $21,426,000, respectively. The principal reasons for the
increase in total assets are the acquisition described above, an increase in
contract higher vehicles available for lease and the proceeds from PAG's initial
public offering.
In December 1995, PAG completed a private placement offering selling 20 units,
each unit consisting of 25,000 shares of Common Stock, at $6,000 per unit for
aggregate gross proceeds of $120,000 ($.24 per share).
In April 1996 PAG successfully completed an initial public offering of its
common stock, which yielded net proceeds to the Company of $2,166,000.
The Company's total assets as of November 30, 1996 and 1995 include intangible
assets of $11,535,000 and $10,141,000, respectively. These intangible assets
consist of the unamortized portion of the costs over net assets acquired in
acquisitions, which are being amortized over periods ranging from 10 to 20
years. When adjusted for these intangible assets, the net tangible book value of
the Company at November 30, 1996 and 1995 would be approximately ($4,649,000)
and $1,172,000, respectively.
The Company had reflected convertible debt of $562,292 as of November 30, 1994.
These loans were to bear interest of 6% and were repayable five years from the
date of issue. The original debt, which was not convertible, arose at the time
PMS acquired one of its subsidiaries in 1992. The Company acquired this
subsidiary for $1 and assumed approximately $11,500,000 of net liabilities. The
acquisition resulted in goodwill of approximately $11,500,000. The ultimate
holder of the debt in 1994, was given the option of converting such loans into
shares of Pride, Inc.'s common stock at the end of such period based upon their
guarantee of the ultimate sales values of the related revenue producing
vehicles. This debtholder was the controlling shareholder of the Company's
parent at the time of this transaction.
During the year ended November 30, 1995, the Company determined with the
agreement of the debtholder, that the estimated ultimate sales values of the
vehicles were less than expected and it was agreed that the debt would be
written off against the debtholder guarantee. The balance of the debt, $562,292,
was therefore treated as an early extinguishment of debt. At the time of the
extinguishment, the debt outstanding was owed to a related party. In accordance
with APB No. 26, extinguishment transactions between related entities should be
treated as capital transactions. Accordingly, the gain on the extinguishment was
added to additional paid-in capital.
During the year ended November 30, 1995, the Company generated cash flows from
operating activities aggregating approximately $2,763,000. During the year ended
November 30, 1996, the Company utilized $310,000 of cash flows from operations.
The differences in utilization of cash in 1996 was primarily due to currency
translation adjustments.
<PAGE>
Investing activities reflect uses of cash for the years ended November 30, 1996
and 1995 of $8,759,000 and $2,526,000, respectively. These uses of cash are the
result of the purchases of fixed assets (primarily revenue producing vehicles)
net of the proceeds received from the sale of vehicles at lease expiration dates
and the acquisition described above.
In order to replenish its fleet of revenue producing vehicles, annually, the
Company is required to purchase from 300 to 400 new vehicles at an average cost
of approximately $25,000 each. At the time of purchase, the Company typically
makes a cash deposit of approximately 10% and finances the balance. The Company
has funding lines with several financing institutions for this purpose which
aggregate approximately $18,200,000 at November 30, 1996. At November 30, 1996,
there was approximately $11,000,000 outstanding under these lines. These lines
are typically open for between 24 and 60 months depending on the terms, the most
important term being the interest rate. Therefore, the principal amount of the
Company's current credit lines is constantly changing. Since the Company's
funding lines are asset based (secured by the vehicles purchased), there is
generally no difficulty obtaining funding lines, however, the Company is
continuously seeking to find the best terms and rates. Typically financing
institutions authorize credit lines with a fixed interest rate, which line is to
be open for a certain period of time. During the term of the line, the Company
may draw down on such line in order to finance the purchase of vehicles to
lease. When the time for drawing down on the line expires, the Company can no
longer draw down on such line to finance additional vehicles, however, the
amount drawn is repaid pursuant to the terms of such line.
For the year ended November 30, 1996, the Company provided cash from financing
activities of approximately $9,250,000 primarily as a result of minority
shareholders investments ($2,300,000) and the financing needed to acquire new
vehicles ($11,500,000) net of the amounts utilized to pay hire purchase contract
financing ($6,100,000). For fiscal 1995, the Company utilized cash for financing
activities ($185,000) primarily due to loan repayments and the amounts needed to
reduce hire purchase contract financing ($3,496,000) net of new hire purchase
contract financing.
Other than the annual acquisitions of revenue producing vehicles as mentioned
above, there are no material planned capital expenditures at the present time.
The Company believes that its cash flow from operations, and its available
funding lines for the acquisition of revenue producing vehicles will be
sufficient for at least the ensuing 12 month period.
This report contains forward-looking statements and information that is based on
management's beliefs and assumptions, as well as information currently available
to management. When used in this document, the words "anticipate, " "estimate,"
"expect," "intend," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
ITEM 7. FINANCIAL STATEMENTS
See attached Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On November 15, 1994, the firm of Lazar, Levine & Company, LLP,
Certified Public Accountants, which had served as auditors of Pride, Inc.'s
financial statements for the fiscal year ended November 30, 1993, ceased to act
as such by mutual agreement with the registrant's Board of Directors. The Board
of Directors of the registrant thereupon engaged Civvals, Chartered Accountants
and Registered Auditors, of London, England, as auditors of its consolidated
financial statements for the years ended November 30, 1994 and November 30,
1995. This Firm was previously the auditors of PMS, the acquiror for accounting
purposes in the reverse acquisition.
There have been no disagreements between registrant and the firm of
Civvals, Chartered Accountants and Registered Auditors on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
18
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Directors and Executive Officers.
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Alan Lubinsky 38 President, Secretary
Chairman of the Board
Peter Dixon 52 Vice President, Treasurer
and Director
Alan Berkun 38 Director
Ivan Averbuch 41 Chief Financial Officer
</TABLE>
Alan Lubinsky. Mr Lubinsky has been the President, Secretary and director
of the Company since January 14, 1994. Mr. Lubinsky has been the Chairman and
Managing Director of Pride Management Services, Plc ("PMS") since its inception
in 1988. Mr. Lubinsky has been the President and a director of Pride Automotive
Group, Inc. ("PAG") since its inception in March 1995. Mr. Lubinsky has 18 years
experience in the motor vehicle industry in positions of executive management.
Peter Dixon has been the Vice President, Treasurer and a director of the
Company since January 14, 1994. Mr. Dixon has been the Vice President, Treasurer
and a director of PAG since its inception in March 1995. Mr. Dixon has
experience in corporate finance, investment banking, and manufacturing
industries. From April 1990 to present, Mr. Dixon has been a director of
Kingsland Community Services Limited, and Kingsland Developments Limited,
companies which own and lease properties. From February 1990 to present, Mr.
Dixon has been a director of Snuggledown of Norway (UK) Limited, a distribution
of camping goods. His executive positions have included being the managing
director of the securities division of Den Norske Bank from 1986 to 1990 and
Chairman of several subsidiaries at Berisford International Plc from 1977 to
1986 and from December 1990 to August 1992. From August 1994 to August 1995, Mr.
Dixon was a director of Welpac Plc, a company which was a distributor of
hardware.
19
<PAGE>
Alan Berkun has been a director of the Company since January 1994. For the
past five years, Mr Berkun has been employed by Russo Securities as its general
counsel. Mr. Berkun has been a director of Multimedia Concepts International,
Inc. since June 12, 1995. Mr. Berkun has also been a director of American Toys
and Play Co. Toys since 1993. Mr. Berkun was licensed as an NASD series 7
Registered Representative with Russo Securities from October 1991 through
November 1991 and June 1989 through October 1989. Mr. Berkun's Series 7 license
lapsed in December 1993, however, subsequently, Mr. Berkun received a waiver
from the NASD and renewal of his Series 7 status. Presently, Mr. Berkun is the
sole officer, director and stockholder of Emme Corp., d/b/a Marlowe & Company, a
registered NASD broker/dealer. Mr. Berkun is an attorney licensed in the State
of New York.
Ivan Averbuch has been the Chief Financial Officer of the of the Company
since December 1995. Mr. Averbuch has been a director and the Chief Financial
Officer of PAG since December 1995. From September 1987 to November 1995, Mr.
Averbuch was employed at Kessel Feinstein, a member firm of Grant Thorton
International, an accounting firm. In January 1989, Mr. Averbuch was promoted to
audit manager and appointed as a partner in October 1992.
The directors of the Company are elected annually by the shareholders
and hold office until the next annual meeting of shareholders, or until their
successors are elected and qualified. The Executive officers are elected
annually by the board of directors, serve at the discretion of the board of
directors and hold office until their successors are elected and qualified.
Vacancies on the board of directors may be filled by the remaining directors.
As permitted under Delaware Corporation Law, the Company's certificate
of incorporation eliminates the personal liability of the directors to the
Company or any of its shareholders for damages for breaches of their fiduciary
duty as directors. As a result of the inclusion of such provision, stockholders
may be unable to recover damages against directors for actions taken by them
which constitute negligence or gross negligence or that are in violation of
their fiduciary duties. The inclusion of this provision in the Company's
Certificate of Incorporation may reduce the likelihood of derivative litigation
against directors and other types of shareholder litigation.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and persons who beneficially own more
than ten percent of a registered class of the Company's equity securities to
file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
ten percent beneficial owners also are required by rules promulgated by the SEC
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon a review of the copies of such forms furnished to the Company, the
Company has been informed that all officers, directors or greater than 10%
shareholders have stated that they have filed such reports as is required
pursuant to Section 16(a) during the 1996 fiscal year, except Alan Lubinsky did
not file a Form 4 with respect to the receipt of stock options in July 1995 and
May 1996. Mr. Lubinsky has stated that he intends on filing a Form 5 to rectify
the situation. Neither Ivan Averbuch nor Peter Dixon filed a Form 4 with respect
to the receipt of stock options in May 1996. Messrs. Averbuch and Dixon have
stated that they intent to file Form 5's
20
<PAGE>
to rectify the situation. The Company has no basis to believe that any other
required filing by any of the above indicated individuals has not been made.
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
Summary of Cash and Certain Other Compensation
The following provides certain information concerning all Plan and
Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded
to, earned by, paid by Pride Vehicle Contracts Limited during the years ended
November 30, 1996, 1995 and 1994. The Company did not incur any compensation
expenses during such period.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
(a) (b) (c) (d) (e)
Name and Principal Other Annual Options/
Position (1) Year Salary($) Bonus($) Compensation($)(2) SARS
- ------------------------ ---- --------- -------- ------------------ ------
Alan Lubinsky
<S> <C> <C> <C> <C> <C>
President, Secretary 1996 $160,000 - $30,000 275,000(3)(4)
and Chairman of the Board 1995 $137,750 - 30,000 245,000(5)
1994 $135,000 - 30,000 -
</TABLE>
(1) All of the Company's administrative functions, including the payment of
salaries, are performed by Pride Vehicle Contracts Limited, since the Company's
operations run basically as one operation. The Company believes that it is
easier and cost effective to operate in this manner. The Company plans on
continuing this practice in the future.
(2) Includes contributions to the Company's pension plan of $18,000 in each
of 1996, 1995 and 1994, respectively, and the cost of an automobile and expenses
of $12,000 annually.
(3) Alan Lubinsky entered into an employment agreement with PAG in August
1995. The agreement is for a term of three years, and pays Mr. Lubinsky an
annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by PAG's board of directors. Pursuant to the agreement, Mr. Lubinsky
received stock options under PAG's Senior Management Incentive Plan to purchase
100,000 shares at $5.50 per share. These options vest at the rate of 33 1/3% per
annum commencing August 1996.
(4) On May 8, 1996, Mr. Lubinsky was granted an option to purchase an
additional 175,000 shares of the Company's Common Stock at an exercise price of
$0.48 per share. The shares underlying this option vest one year from the date
of grant.
(5) On December 28, 1994, Mr. Lubinsky was granted an option to purchase up
to an aggregate of 60,000 shares of the Company's Common Stock at an exercise
price of $1.65 per share. The shares underlying this option vested on December
28, 1995. On February 14, 1995, Mr. Lubinsky was granted an option to purchase
an additional 110,000 shares of the
21
<PAGE>
Company's Common Stock at an exercise price of $0.90 per share. The
shares underlying this option vested on February 14, 1996. On July 21,
1995, Mr. Lubinsky was granted an option to purchase an additional
75,000 shares of the Company's Common Stock at a purchase price of
$0.50 per share. These shares vest 25,000 on each anniversary of the
date of grant commencing July 21, 1996.
Stock Options
The following table sets forth certain information concerning the grant
of stock options made during the year ended November 30, 1996, under the
Company's 1994 Stock Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Individual Grants
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted to
Options/SAR's Employees in Exercise or Base
Name Granted(1) Fiscal Year Price ($/SH) Expiration Date
<S> <C> <C> <C> <C>
Alan Lubinsky 175,000 71.4% $0.48 5/8/01
Ivan Averbuch 50,000 20.4% $0.48 5/8/01
Peter Dixon 20,000 8.2% $0.48 5/8/01
</TABLE>
- ------------------------
(1) Represents incentive stock options granted under the Company's 1994
Stock Option Plan (the "Option Plan"). Options granted under the Option
Plan are intended to qualify as incentive stock options under the
Internal Revenue Code of 1986, as amended. Under the terms of the
Option Plan, options may be granted to officers, key employees,
directors and consultants of the Company until December 1999. Options
granted to directors, who are not officers or employees, or to
consultants, do not qualify as incentive stock options. The option
price per share may not be less than the fair market value of the
Company's shares on the date the option is granted. However, options
granted to persons owning more than 10% of the Company's Common Stock
may not have a term in excess of five years and may not have an option
price of less than 110% of the fair market value per share of the
Company's shares on the date the option is granted. See "-- 1994 Stock
Option Plan."
22
<PAGE>
The following table contains information with respect to employees of
the Company concerning options held as of November 30, 1996
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
(a) (b) (c) (d) (e)
Value of
Number of Unexercised In-
Unexercised The-Money
Options/SAR's at Options/SAR's
FY-End (#) at FY-End($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Alan Lubinsky 0 0 60,000/0 0/0 (1)
Alan Lubinsky 0 0 110,000/0 0/0 (2)
Alan Lubinsky 0 0 25,000/50,000 $3,125/0 (3)
Alan Lubinsky 0 0 0/175,000 0/0 (4)
Ivan Averbuch 0 0 0/50,000 0/0 (4)
Peter Dixon 0 0 0/20,000 0/0 (4)
Alan Berkun 0 0 5,000/0 0/0 (1)
Alan Berkun 0 0 5,000/0 0/0 (2)
</TABLE>
(1) As of February 21, 1997, the average of the prior day's closing bid and
ask prices was $0.63. Since the exercise prices of the Options ($1.65) is
greater than the current average price, the Company believes the Options have no
value.
(2) As of February 21, 1997, the average of the prior day's closing bid and
ask prices was $0.63. Since the exercise prices of the Options ($0.90) is
greater than the current average price, the Company believes the Options have no
value.
(3) As of February 21, 1997, the average of the prior day's closing bid and
ask prices was $0.63. As of February 21, 1997, 25,000 shares underlying these
options have vested. However, Mr. Lubinsky has not exercised this option.
(4) None of these options vest until May 8, 1997, therefore, the Company
believes the Options have no value.
Employment Agreements
Alan Lubinsky entered into an employment agreement with PAG in August
1995. The agreement is for a term of three years, and pays Mr. Lubinsky an
annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by PAG's board of directors. Pursuant to the terms of his employment
agreement, Mr. Lubinsky will devote all his business time to the affairs of PAG
and the Company. Pursuant to the agreement, Mr. Lubinsky received stock options
under PAG's Senior Management Incentive Plan to purchase 100,000 shares at $5.50
per share. These options vest at the rate
23
<PAGE>
of 33 1/3% per annum commencing August 1996. The agreement restricts Mr.
Lubinsky from competing with PAG for a period of one year after the termination
of his employment.
Ivan Averbuch entered into an employment agreement with PAG in
September 1995, for a term of 24 months, commencing December 1, 1995. The
agreement is automatically extendable for an additional 24 months, subject to
cancellation by either PAG or Mr. Averbuch on 90 days written notice. Pursuant
to the terms of the agreement, Mr. Averbuch is to receive an annual salary of
$55,000 per annum, with an annual increase of 10% per annum, subject to review
by PAG's board of directors.
1994 Stock Option Plan
During 1994, the Company adopted the Company's 1994 Stock Option Plan
(the "Plan"). The Board believes that the Plan is desirable to attract and
retain executives and other key employees of outstanding ability. Under the
Plan, options to purchase an aggregate of not more than 500,000 shares of Common
Stock may be granted from time to time to key employees, officers, directors,
advisors and independent consultants to the Company and its subsidiaries.
The Board of Directors is charged with administration of the Plan, the
Board is generally empowered to interpret the Plan, prescribe rules and
regulations relating thereto, determine the terms of the option agreements,
amend them with the consent of the optionee, determine the employees to whom
options are to be granted, and determine the number of shares subject to each
option and the exercise price thereof. The per share exercise price for
incentive stock options ("ISOs") will not be less than 100% of the fair market
value of a share of the Common Stock on the date the option is granted (110% of
fair market value on the date of grant of an ISO if the optionee owns more than
10% of the Common Stock of the Company).
Options will be exercisable for a term determined by the Board which
will not be less than one year. Options may be exercised only while the original
grantee has a relationship with the Company or a subsidiary of the Company which
confers eligibility to be granted options or up to ninety (90) days after
termination at the sole discretion of the Board. In the event of termination due
to retirement, the Optionee, with the consent of the Board, shall have the right
to exercise his option at any time during the thirty-six (36) month period after
such retirement. Options may be exercised up to thirty-six (36) months after
death or total and permanent disability. In the event of certain basic changes
in the Company, including a change in control of the Company (as defined in the
Plan) in the discretion of the Board, each option may become fully and
immediately exercisable. ISOs are not transferable other than by will or the
laws of descent and distribution. Options may be exercised during the holder's
lifetime only by the holder, his or her guardian or legal representative.
Options granted pursuant to the Plan may be designated as ISOs, with
the attendant tax benefits provided under Section 421 and 422A of the Internal
Revenue Code of 1986. Accordingly, the Plan provides that the aggregate fair
market value (determined at the time an ISO is granted) of the Common Stock
subject to ISOs exercisable for the first time by an employee during any
calendar year (under all plans of the Company and its subsidiaries) may not
exceed $100,000. The Board may modify, suspend or terminate the Plan; provided,
however, that certain material modifications affecting the Plan must be
24
<PAGE>
approved by the shareholders, and any change in the Plan that may adversely
affect an optionee's rights under an option previously granted under the Plan
requires the consent of the optionee.
On December 28, 1994, 60,000 and 5,000 options were granted to Alan
Lubinsky and Alan Berkun, respectively, to purchase shares of Common Stock at a
purchase price of $1.65 per share. These options are exercisable commencing one
year from the date of grant until five years from the date of grant.
On February 14, 1995, 110,000 and 5,000 options were granted to Alan
Lubinsky and Alan Berkun, respectively, to purchase shares of Common Stock at a
purchase price of $0.90 per share. These options are exercisable commencing one
year from the date of grant until five years from the date of grant.
On July 21, 1995, 75,000 options were granted to Alan Lubinsky to
purchase shares of Common Stock at a purchase price of $0.50 per share. 25,000
of these options are exercisable each July 21 commencing July 21, 1996 until
five years from the date of grant.
On May 8, 1996, 175,000, 50,000 and 20,000 options were granted to Alan
Lubinsky, Ivan Averbuch and Peter Dixon, respectively, to purchase shares of
Common Stock at a purchase price of $0.48 per share. These options are
exercisable one year from the date of grant until five years from the date of
grant.
25
<PAGE>
ITEM 11. PRINCIPAL STOCKHOLDERS
The following table sets forth certain information at February, 1997,
with respect to the beneficial ownership of Common Stock by (i) each person
known by the Company to be the owner of 5% or more of the outstanding Common
Stock; (ii) by each director; (iii) and by all officers and directors as a
group. Except as otherwise indicated below, each named beneficial owner has sole
voting and investment power with respect to the shares of Common Stock listed.
<TABLE>
<CAPTION>
Number of Percentage of
Name Shares Share Ownership
<S> <C> <C>
Alan Lubinsky (1)(2)(3)(4) 1,765,535 70.3%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
Peter Dixon (5) 20,000 *
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
Alan Berkun (6) 10,000 *
83 Arnold Court
East Rockaway, New York
Ivan Averbuch (7) 50,000 *
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
New World Finance, Ltd. (1) 1,050,535 52.6%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
26
<PAGE>
Eros Nominees, Ltd. (1) 100,000 5.0%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
Fort Investments, Ltd. (1) 100,000 5.0%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
All officers and
Directors as a group
(4 persons) (1)(2)(3)(4)(5)(6)(7) 1,845,535 70.3%
</TABLE>
(1) Although Mr. Lubinsky disclaims beneficial ownership of the shares
owned by New World Finance, Ltd., Eros Nominees, Ltd., Fort Investments, Ltd.
and Regent Nominees, Ltd., it may be expected that each of such entities will
vote their respective shares in favor of proposals espoused by Mr. Lubinsky.
(2) Includes 170,000 shares which are issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan. Of the 170,000 shares
issuable upon exercise of the options, 60,000 vested on December 28, 1995 and
110,000 vested on February 14, 1996.
(3) Includes 175,000 shares which are issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan on May 8, 1996. None of the
175,000 shares issuable upon the exercise of the options are vested.
(4) Includes 75,000 shares which are issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan on July 21, 1995. Of the
75,000 shares issuable upon the exercise of the options, 25,000 vested on July
21, 1996.
(5) Includes 20,000 shares which are issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan. None of the 20,000 shares
issuable upon the exercise of the options are vested.
(6) Includes 10,000 shares which are issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan. Of the 10,000 shares
issuable upon exercise of the options, 5,000 vested on December 28, 1995 and
5,000 vested on February 14, 1996 and 5,000 vested on December 28, 1995.
(7) Includes 50,000 shares which are issuable upon the exercise of options
granted under the Company's 1994 Stock Option Plan. None of the 50,000 shares
issuable upon the exercise of the options are vested.
27
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 13, 1994, the Company entered into an Agreement and Plan of
Reorganization with PMS and the shareholders of PMS. The Company issued
9,000,000 (pre 10 for 1 reverse stock split) shares of Common Stock to the
stockholders of PMS for all the shares of PMS, thereby making PMS a wholly-owned
subsidiary of the Company. On September 20, 1994, the Company effected a 1 for
10 reverse stock split of its issued and outstanding shares of Common Stock,
thereby reducing the issued and outstanding shares of Common Stock from
12,205,355 shares to 1,220,537 shares.
On September 20, 1994 and October 18, 1994, the Company issued to New
World Finance, Ltd., the Company's principal shareholder, 281,250 and 114,285
shares of Common Stock, respectively, in exchange for the cancellation by New
World Finance, Ltd. of debt of approximately $1,125,000 and $400,000,
respectively.
In October 1994, the Company sold an additional 114,285 shares of its
common stock (post Reverse-split) at a price of $1.75 per share to foreign
investors pursuant to Regulation S of the Securities Act of 1933. Woodbury
Capital Assets, Inc. received a commission in connection with such transaction.
In December 1994, the Company granted 60,000 and 5,000 Options to Alan
Lubinsky and Alan Berkun, respectively, to purchase shares of the Company's
Common Stock at $1.65 per share.
In February 1995, the Company granted 110,000 and 5,000 Options to Alan
Lubinsky and Alan Berkun, respectively, to purchase shares of the Company's
Common Stock at $0.90 per share.
In March 1995, the Company formed Pride Automotive Group, Inc. ("PAG")
in the State of Delaware and reorganized its corporate structure by exchanging
all of its shares of PMS for 1,500,000 shares of the Company's Common Stock,
making PMS a wholly owned subsidiary of PAG.
In March 1995, PAG issued 60,000 shares of its Common Stock to Lampert
& Lampert, counsel to PAG for fees and expenses of $60,000.
In July 1995, PMS entered into a loan agreement with PAG's president,
whereby PMS borrowed approximately $232,500. The loan is payable on demand and
accrues interest at the rate of 2.5% over the Midland Bank base rate. The
principal balance of such loan was $123,668 as of November 30, 1995. The
principal amount of the loan, including accrued interest thereon, will be paid
from the proceeds of PAG's Offering. "Use of Proceeds."
In December 1995, PAG consummated a private placement offering, whereby
PAG sold 20 units, each unit comprised 25,000 shares of Common Stock at a
purchase price of $6,000 per unit.
In April 1996, PAG consummated an initial public offering, whereby PAG
sold 950,000 shares of its common stock at a purchase price of $5.00 per share
and 2,000,000 redeemable common stock purchase warrants at a price of $0.10 per
warrant. The warrants are exercisable at a price of $5.75 per share, subject to
adjustment, beginning April 24, 1997 and expiring April 23, 2001. In connection
28
<PAGE>
therewith, PAG also granted to the underwriter of the offering a warrant to
purchase 95,000 shares of PAG's common stock at a purchase price of $5.00 and
200,000 redeemable common stock purchase warrants, each warrant exercisable to
purchase one share of common stock at a purchase price of $7.50 per share. Other
than with respect to the exercise price, the terms of the warrants granted to
the underwriter are identical to those described above. PAG's securities are
currently traded on the Nasdaq SmallCap Stock Exchange and the Boston Exchange.
In November 1996, PAG, through its subsidiary AC Car Group Limited,
purchased all the assets of AC Cars Limited and Autokraft Limited.
For a description of the Company's employment agreements, see "Executive
Compensation - Employment Agreements."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following financial statements of the Company are included as Part
II, Item 8:
1) Independent Auditors Reports F-1
2) Balance Sheets F-2
3) Statements of Operations F-3
4) Statement of Stockholders' Equity F-4
5) Statements of Cash Flows F-5
6) Notes to Financial Statements F-7
FINANCIAL STATEMENT SCHEDULES
(b) During the 1996 fiscal year, the Company filed no Reports on Form 8-K.
PAG filed a report on Form 8-K on September 5, 1996 with respect to the
Asset Acquisition.
<PAGE>
(c) The exhibits designated with an asterisk have previously been filed with the
Commission in connection with Pride, Inc.'s Report on Form 8-K, dated January
13, 1994, PAG's Registration Statement on Form SB-2 dated January 12, 1996
(33-296-NY) and PAG's Report on Form 8-K dated September 5, 1996, pursuant to 17
C.F.R. ss.230.411, are incorporated by reference herein.
<TABLE>
<CAPTION>
<S> <C>
2.1* - Agreement and Plan of Reorganization dated effective as of January
13, 1994.
3.1* - Amendment to the Certificate of Incorporation of the Company dated January
15, 1994.
3.2* - By-Laws of the Company.
10.2* - Employment Agreement with Alan Lubinsky.
10.3* - Employment Agreement with Ivan Averbuch.
10.5* - Loan Agreement between PMS and Alan Lubinsky.
10.6* - Form of Service Agreement.
10.7* - Asset purchase agreement between Pride Vehicle Contracts (UK)
Limited and Master Vehicle Contracts, Limited.
10.8* - Form of Hire Purchase Agreement.
10.9* - Mortgage on Pride House, Watford Metro Centre.
10.10* - Mortgage on Croydon, England property.
10.11* - Lease agreement with respect to the Croydon, England property.
10.12* - Form of Agreement to purchase all of the assets of AC Cars Limited and
Autokraft Limited.
24.1* - Letter from Mark H. Sternberg, with respect to the change in
accountants [incorporated by reference to Exhibit 7(a)(1) of the Amendment
to the Report on Form 8-K/A dated June 6, 1994].
24.2* - Letter from Lazar, Levine & Company, Certified Public Accountants,
with respect to the change in accountants [incorporated by reference to
Exhibit 4(a)(v) of the Report on Form 8-K dated November 14, 1994].
</TABLE>
30
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 26th day of February, 1997.
PRIDE, INC.
/s/ Alan Lubinsky
ALAN LUBINSKY, President
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Alan Lubinsky President, Secretary and Chairman 2/26/97
ALAN LUBINSKY of the Board of Directors (Principal Date
Executive Officer)
/s/ Ivan Averbuch Chief Financial Officer 2/26/97
IVAN AVERBUCH Date
/s/ Peter Dixon Vice-President, Treasurer and 2/26/97
PETER DIXON Director (Principal Financial Officer) Date
/s/ Alan Berkun Director 2/26/97
ALAN BERKUN Date
</TABLE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Nos
<S> <C>
Independent Auditors' Report F - 2
Financial Statements:
Consolidated Balance Sheets as of November 30, 1996 and 1995 F - 3
Consolidated Statements of Operations for the Years Ended November 30, 1996 and 1995 F - 4
Consolidated Statement of Changes in Shareholders' Equity for the Two Years in the Period
Ended November 30, 1996 F - 5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1996 and 1995 F - 6
Notes to Consolidated Financial Statements F - 7
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pride Inc and
subsidiaries as of November 30, 1996 and 1995 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the two years in the period ended November 30, 1996. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the above mentioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Corporation as of November 30, 1996 and 1995 and the results of their operations
for the two years in the period ended November 30, 1996 in conformity with
accounting principles generally accepted in the United States of America.
Our audits also include the translation of British pounds into United States
dollars for amounts included in the consolidated financial statements. In our
opinion, such translation has been made in conformity with the basis stated in
Note 2(h) of the notes to the consolidated financial statements.
MARBLE ARCH HOUSE
66-68 SEYMOUR STREET
LONDON W1H 5AF CIVVALS
UNITED KINGDOM FEBRUARY 14, 1997 CHARTERED ACCOUNTANTS
F - 2
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (Note 6a) -
<TABLE>
<CAPTION>
November 30,
1996 1995
--------------- ----------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 255,283 $ 73,946
Accounts receivable (Notes 2c and 3) 1,936,166 1,255,690
Inventories (Note 2d) 1,127,452 31,137
Property, revenue producing vehicles and equipment - net (Notes 2e, 4, 6 and 7) 18,681,638 9,924,318
Intangible assets - net (Note 2f) 11,534,509 10,141,130
------------ -----------
TOTAL ASSETS $33,535,048 $21,426,221
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 6a) $ 2,964,465 $ 1,093,680
Accounts payable 654,920 1,328,455
Accrued liabilities and expenses (Note 5) 490,915 358,892
Bank debt (Note 6b) 1,002,571 1,070,492
Obligations under hire purchase contracts (Note 7) 11,034,951 5,578,565
Loans payable - directors (Note 9) - 149,938
Other liabilities (Note 8) 33,560 532,804
Acquisition debt payable (Note 10) 5,098,470 -
-------------------------
TOTAL LIABILITIES 21,279,852 10,112,826
------------- ------------
MINORITY INTERESTS IN SUBSIDIARIES 5,369,073 -
----------------------------
COMMITMENTS AND CONTINGENCIES (Notes 15, 18 and 19)
SHAREHOLDERS' EQUITY (Notes 11, 13 and 14):
Preferred stock, $.001 par value, 5,000,000 shares authorized none
issued or outstanding - -
Common stock, $.002 par value, 500,000,000 shares authorized 1,995,357 and
1,905,357 shares issued and outstanding in 1996 and 1995, respectively 3,991 3,811
Additional paid-in capital 8,824,392 12,126,311
Retained earnings (deficit) (1,585,855) (1,226,363)
Foreign currency translation (Note 2h) (356,405) 409,636
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 6,886,123 11,313,395
------------- ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $33,535,048 $21,426,221
</TABLE>
See notes to consolidated financial
statements.
F - 3
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
November 30,
1996 1995
---------------- ----------
REVENUES (Notes 2i and 15):
<S> <C> <C>
Contract hire income $ 6,286,677 $ 4,723,539
Sale of vehicles 5,839,080 4,629,860
Fleet management and other income 856,341 369,657
Gain on sale of investment - 54,780
------------------- --------------
TOTAL REVENUES 12,982,098 9,777,836
----------- ------------
COSTS AND EXPENSES:
Cost of sales 10,272,334 7,596,580
General and administrative expenses 1,834,815 1,940,539
Amortization of goodwill 634,813 630,718
Interest and other 884,223 629,623
------------- -------------
13,626,185 10,797,460
LOSS BEFORE MINORITY INTERESTS AND
PROVISION FOR INCOME TAXES (644,087) (1,019,624)
Minority interests (Note 12) 284,595 -
--------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (359,492) (1,019,624)
Provision for income taxes (Notes 2g and 16) - -
--------------------------------
NET LOSS $ (359,492) $(1,019,624)
============ ===========
LOSS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE (Note 2j):
Net loss before minority interest $(.32) $(.54)
Minority interests in net loss of subsidiary .14 -
------- ---
NET LOSS PER SHARE $(.18) $(.54)
===== =====
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING (Note 2j) 1,995,357 1,892,440
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares Additional Retained Foreign Total
(As Restated Common Paid-in Earnings Currency Shareholders'
- See Note 13) Stock Capital (Deficit) Translation Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 1, 1994 1,750,357 $3,501 $11,971,621 $(206,739) $97,190 $11,865,573
Shares issued in exchange for debt
(Notes 11 and 13) 155,000 310 154,690 - - 155,000
Foreign currency translation adjustment - - - - 312,446 312,446
Net loss for the year ended
November 30, 1995 - - - (1,019,624) - (1,019,624)
Balance at November 30, 1995 1,905,357 3,811 12,126,311 (1,226,363) 409,636 11,313,395
Compensatory stock (Note 13) 90,000 180 5,820 - - 6,000
Minority interest in shareholders equity at time of issue
of shares in subsidiary (Note 12) - - (3,307,739) - - (3,307,739)
Foreign currency translation adjustment - - - - (766,041) (766,041)
Net loss for the year ended
November 30, 1996 - - - (359,492) - (359,492)
BALANCE AT NOVEMBER 30, 1996 1,995,357 $3,991 $ 8,824,392 $(1,585,855) $(356,405) $ 6,886,123
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 30,
1996 1995
--------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (359,492) $(1,019,624)
Adjustments to reconcile net (loss) to net cash (utilized)provided by
operating activities:
Depreciation and amortization 2,354,942 2,361,515
Minority interests in net loss of subsidiary (284,595) -
Amortization of goodwill 594,735 630,718
(Gain) loss on disposal of fixed assets (119,030) 223,446
Provision for maintenance costs (18,524) (176,302)
Foreign currency translation (766,041) 312,446
Changes in assets and liabilities:
(Increase) in accounts receivable (556,622) (369,352)
(Increase) decrease in inventories (198,591) 111,382
(Decrease) increase in accounts payable, accrued expenses and bank overdraft (956,502) 688,651
------------- -------------
Net cash (utilized) provided by operating activities (309,720) 2,762,880
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (9,858,724) (3,433,132)
Acquisition of assets in new subsidiary (969,279) -
Proceeds from sales of fixed assets 2,068,601 906,727
------------- --------------
Net cash (utilized) by investing activities (8,759,402) (2,526,405)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit 1,870,785 -
Minority shareholders investment in subsidiary 2,285,929 -
Repayment of loans receivable - 123,148
Loans received from officers - 149,938
Loans repaid to affiliates - (132,147)
Loans repaid to officers (294,719) -
Principal payments of long term debt (67,921) (92,375)
Proceeds from hire purchase contract funding 11,530,175 3,262,390
Principal repayments of hire purchase contract funding (6,073,790) (3,495,819)
------------- ------------
Net cash provided (utilized) by financing activities 9,250,459 (184,865)
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 181,337 51,610
Cash and cash equivalents, beginning of year 73,946 22,336
--------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 255,283 $ 73,946
============== ============
</TABLE>
SUPPLEMENTAL INFORMATION:
(i) In November 1996, the Company acquired certain of the assets of AC Cars
Limited aggregating $6,067,749 and incurred debt obligations
aggregating $5,098,470.
(ii) The loss on the disposal of fixed assets resulted from the sale of
certain non-revenue producing assets whereby the proceeds were less
than the carrying value.
See notes to consolidated financial statements.
F - 6
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 1 - DESCRIPTION OF COMPANY:
Pride Inc (the "Company") which is a holding company, was
incorporated as International Sportsfest, Inc in the state of
Delaware on September 11, 1988. The Company was a development
stage company with no operations through January 13, 1994. On
January 13, 1994, the Company acquired Pride Management Services,
Plc ("PMS"), a consolidated group of operating companies located
in the United Kingdom. Simultaneously with the acquisition, the
Company changed its name from International Sportsfest Inc to
Pride Inc and now has its corporate offices in Watford, England
and New York City, New York. The Company also decided to change
its year end from April 30 to November 30, in order to coincide
accounting periods with its new subsidiary.
Pursuant to the acquisition, the Company issued an aggregate of
9,000,000 (900,000 shares - post reverse stock split - see Note
13) shares of its common stock to the stockholders of PMS in the
acquisition. The 9,000,000 (pre-reverse split) shares represented
89% of the 10,155,350 (pre-reverse split) shares of common stock
outstanding immediately after the acquisition. The consideration
given by the Company, in the form of 9,000,000 (pre-reverse
split) shares of its common stock, was determined in arms-length
negotiations between management of the Company and management of
PMS. None of the stockholders or management of PMS were
previously affiliated with the Company in any manner. The
principal basis used in the negotiations to determine the number
of shares to be issued by the Company was the percentage of stock
which would be owned by the new control groups after the issuance
thereof, rather than any traditional valuation formulas. By
acquiring 100% of the issued and outstanding common stock of PMS,
PMS became a wholly-owned subsidiary of the Company. For
accounting purposes, the acquisition has been treated as a
recapitalization of PMS with PMS as the acquirer in a reverse
acquisition. In March 1995, pursuant to the terms and conditions
of a reorganization, the Company exchanged all its shares in
Pride Management Services Plc for 1,500,000 shares of common
stock in Pride Automotive Group Plc (a newly formed Delaware
corporation). As a result of this exchange, Pride Automotive
Group Inc ("PAG") became a majority owned subsidiary of the
Company and the parent of PMS.
Pride Management Services Plc (PMS) is a holding company of six
subsidiaries engaged in the leasing of motor vehicles primarily
on contract hire to local authorities and selected corporate
customers throughout the United Kingdom.
On November 29, 1996, the Company, through PAG's newly formed
majority owned subsidiary, AC Automotive Group Inc and its wholly
owned subsidiary AC Car Group Limited (registered in the United
Kingdom), completed the acquisition of net assets of AC Cars
Limited and Autokraft Limited. These two companies were engaged
in the manufacture and sale of specialty automobiles. The
purchase price of $6,067,000 is being financed with the proceeds
of a private debt offering which was completed, by PAG, in
December 1996 (see Note 19) and by loans. The acquisition has
been recorded using the purchase method of accounting.
.
F - 7
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
The following unaudited pro-forma results of operations assume
the acquisition occurred as of March 1, 1996 (amounts in millions
except per share data):
Revenues $14.3
Net loss (2.1)
Loss per common share $(1.05)
The pro-forma financial information, which is only available beginning
March 1, 1996, is not necessarily indicative of the operating results that would
have occurred had the acquisition been consummated as of March 1, 1996, nor are
they necessarily indicative of future operating results. This is because AC Cars
Limited and Autokraft Limited were in administrative receivership in the United
Kingdom and this severely restricted the ability of the companies to manufacture
and market their products. The Company has made the United States Securities and
Exchange Commission aware of the fact that financial information is not
available for prior periods.
All references to the Company include its' subsidiary, Pride Automotive
Group, Inc. and its subsidiaries.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PMS, the operating group of companies, which is located in the
United Kingdom, follows generally accepted accounting principles
in the United Kingdom. For purposes of these consolidated
financial statements, the Company has converted to the generally
accepted accounting principles of the United States.
(a) Basis of Consolidation and Presentation:
The consolidated financial statements include the accounts of the
Company (Pride Inc), its' wholly owned subsidiary Pride
Automotive Group, Inc. and its' wholly owned subsidiaries, and
its' majority owned subsidiary, AC Automotive Group Inc and its'
wholly owned subsidiary. All material intercompany balances and
transactions have been eliminated.
Due to the current nature of the Company's business, contract
leasing of motor vehicles (revenue producing assets) which are
treated as non-current fixed assets, the balance sheet is
reflected on an unclassified basis. Accordingly, current assets
and current liabilities are not reflected separately on the face
of the balance sheet.
(b) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results could
differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
F - 8
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(c) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk in accordance with SFAS No 105
consist principally of accounts receivable. The Company believes
however, that risks associated with accounts receivable are
limited due to its large customer base and the fact that it
leases vehicles to companies in many industries.
The carrying amounts of cash and cash equivalents, trade
receivables, other assets, accounts payable and debt obligations,
approximate fair value.
(d) Inventories:
Inventories include vehicles which are no longer being leased to
customers and which are temporarily being held for resale at cost
less accumulated depreciation, which approximates net realizable
value.
The inventories of AC Automotive Group Inc and its subsidiary
consist of finished goods, work in progress and spare parts of
specialty automobiles and are stated at the lower of cost
(first-in, first-out method) or market. Market is considered as
net realizable value.
As of November 30, 1996 and 1995, inventories consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
------------- ------
<S> <C> <C>
Vehicles held for resale $ 124,932 $31,137
Finished goods 180,307 -
Work-in-progress 684,305 -
Spare parts 137,908 -
$1,127,452 $31,137
========== =======
</TABLE>
(e) Fixed Assets and Depreciation:
Fixed assets are stated at cost less depreciation. Depreciation
is provided on all assets at rates calculated to write off the
cost of each asset over its estimated useful life, as follows:
Building and improvements 50 years straight-line basis
Revenue producing vehicles 3-6 years straight-line basis
Furniture and fixtures 4 years double declining basis
Machinery and equipment 4 years double declining basis
Aircraft 4 years double declining basis
Maintenance and repairs are charged to operations and major
improvements are capitalized. Upon retirement, sale of other
disposal, the associated cost and accumulated depreciation of the
asset are eliminated from the accounts and any resulting gain or
loss is included in operations.
F - 9
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Intangible Assets:
Intangible assets consist primarily of goodwill which arose in
connection with the acquisition of certain subsidiaries of PMS.
Goodwill is being amortized over a period of 10-20 years on a
straight-line basis. Accumulated amortization as of November 30,
1996 and 1995 aggregated $2,990,626 and $2,355,813, respectively.
In November 1996, the PAG acquired certain of the assets of AC
Cars Limited and Autokraft Limited (see Note 1). The purchase
price exceeded the tangible net assets acquired by $2,006,995.
This amount was assigned to the brand name and various contracts
with suppliers and customers and is to be amortized over 20 years
on a straight-line basis.
The Company periodically reviews the valuation and amortization
of goodwill and other intangibles to determine possible
impairment by evaluating events and circumstances that might
indicate an inability to recover the carrying amount. Such
evaluation is based on analysis, including profitability,
projections and cash flows that incorporate the impact on
existing Company business.
(g) Income Taxes:
The Company conducts all of its operating activities in the
United Kingdom (UK). As such, it is subject to taxation in the UK
based upon that country's tax statutes. Under UK taxation rules,
provision is made for taxation deferred as a result of material
timing differences between the incidence of income and
expenditures for taxation and accounting purposes, using the
liability method, only to the extent that there is reasonable
probability that a liability or asset will crystallize in the
near future. See also Note 16 regarding SFAS No 109 - Accounting
for Income Taxes.
(h) Foreign Currency Translation:
The Company's principal operations are conducted by PMS which
reflects its financial statements in British pounds. As a result,
most assets and liabilities of the foreign operations are
translated into US dollars using current exchange rates in effect
at the balance sheet date. Fixed assets and intangible assets are
translated at historical exchange rates. Revenue and expense
accounts are translated using an average exchange rate during the
period except for those expenses related to assets and
liabilities which are translated at historical exchange rates.
These include depreciation and amortization which are translated
at the rates existing at the time the asset was acquired. Any
resulting gains or losses due to the translations are reflected
as a separate item of shareholders' equity.
F - 10
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(i) Income Recognition:
Contract hire income of leased vehicles is recognized as
operating leases over the period of the contract in accordance
with SFAS No 13 - Accounting for Leases and the related
amendments and interpretations. Income from the sale of
previously leased vehicles, is reflected at the time of sale of
the vehicle. Fleet management revenues and miscellaneous income
are reflected on the accrual basis over the term that the
services are provided.
(j) Earnings Per Share:
Earnings per share are computed based upon the weighted average
shares and common equivalent shares outstanding. The shares
issued in connection with the reorganization (see Note 1), the
shares issued in lieu of compensation for legal services and the
shares sold during the year ended November 30, 1996 (see Note
13), have been treated as outstanding for all periods presented,
in accordance with the guidelines of the Securities and Exchange
Commission. Common stock equivalents have been excluded from the
computation since the results would be anti-dilutive.
(k) Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
(l) Lease Agreements:
The Company leases vehicles with terms generally ranging from two
to four years. The following table shows the future minimum lease
payments of existing leases, to be received net of related costs
(see also Note 7):
<TABLE>
<CAPTION>
<S> <C>
November 30, 1997 $ 5,103,977
November 30, 1998 4,390,779
November 30, 1999 2,634,819
November 30, 2000 1,007,729
Total minimum lease payments receivable
net of executory costs $13,137,304
</TABLE>
(m) Accounting Changes:
As permitted by SFAS 123, Accounting for Stock-Based
Compensation, which becomes effective for the Company as of
December 1, 1996, and which encourages companies to record
expense for stock options and other stock-based employee
compensation awards based on their fair value at date of grant,
the Company will continue to apply its current accounting policy
under Accounting Principles Board Opinion No. 25 and will include
the necessary disclosures in its fiscal 1997 financial
statements.
F - 11
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 3 - ACCOUNTS RECEIVABLE:
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- ---------
<S> <C> <C>
Trade receivables $1,288,074 $ 955,437
Lease maintenance receivable 330,902 69,182
Value added Tax 102,114 97,707
Other 215,076 133,364
----------- ------------
$1,936,166 $1,255,690
</TABLE>
Included in the above trade receivables is $59,002 due on a long
term basis as of November 30,1996.
Based upon past experience, the Company has deemed that no
allowance for uncollectible accounts is necessary.
NOTE 4 - FIXED ASSETS AND DEPRECIATION:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------------- ---------
<S> <C> <C>
Buildings and improvements $ 1,719,415 $ 1,719,415
Revenue producing vehicles 17,282,095 11,989,192
Furniture, fixtures, plant and equipment 2,247,430 519,753
Aircraft 1,331,493 -
---------------------------
22,580,433 14,228,360
Less: accumulated depreciation (including
$3,388,495 and $3,853,753 of
accumulated depreciation on revenue
producing vehicles) for 1996 and 1995,
respectively 3,898,795 4,304,042
------------- -------------
$18,681,638 $ 9,924,318
=========== ============
</TABLE>
Depreciation expense for the years ended November 30, 1996 and
1995 aggregated $2,295,164 and $2,415,117 respectively.
One of the buildings owned by Pride Management is not currently
being utilized by the Company. This building is being leased to
an unrelated party at an annual rent of approximately $80,000 per
annum.
F - 12
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 5 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- --------
<S> <C> <C>
Taxes other than income taxes $418,082 $333,586
Miscellaneous accrued expenses 72,833 25,306
---------- ----------
$490,915 $358,892
</TABLE>
NOTE 6 - BANK LOANS/LINE OF CREDIT:
(a) The Company has a $2,684,800 line of credit with a bank at an
interest rate of 3% in excess of the base rate (6% as of November
30, 1996). This line of credit is payable on demand and is
secured by all assets of the Company other than revenue producing
vehicles and buildings which are already pledged (see Notes 6b
and 7). As of November 30, 1996, the bank had granted a temporary
increase in the line to $2,965,000 at similar terms.
(b) At November 30, 1996, bank loans consisted of $1,002,571 due to
two banks at rates of 3% and 5% in excess of the banks' base rate
(6% as of November 30, 1996). These loans are secured by the
freehold properties (buildings) owned by Pride Management and its
subsidiaries, and mature in 2001 and 2017.
The scheduled principal payments of this bank debt as of the
fiscal year ended November 30, 1996 are as follows:
For the Year Ended November 30,
1997 $ 98,890
1998 98,890
1999 98,890
2000 98,890
2001 98,890
Thereafter 508,121
------------
$1,002,571
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING:
The Company has funding lines with several financing institutions
in the United Kingdom in the aggregate amount of approximately
$18,200,000 as of November 30, 1996. These funding lines are
utilized to acquire revenue producing vehicles, which vehicles
collateralize the outstanding obligations.
F - 13
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING (Continued):
Assets (revenue producing vehicles) obtained under hire purchase
contracts are capitalized as fixed assets and depreciated over
their useful lives. The obligations under such agreements, which
mature at various dates within five years from inception, are
reflected separately on the balance sheet net of finance charges,
which are charged to the periods to which they apply. At November
30, 1996 obligations under hire purchase contracts are as
follows:
For the Year Ended November 30,
1997 $ 4,951,662
1998 3,977,882
1999 1,878,445
2000 226,962
--------------
$11,034,951
The annual interest rates on these obligations range from 7.25%
to 15.6%.
NOTE 8 - OTHER LIABILITIES:
At November 30, 1996 and 1995 other liabilities consisted of
$33,560 and $532,804, respectively due to other creditors at
interest rates approximating the current market rates and
repayable on a demand basis.
NOTE 9 - RELATED PARTY TRANSACTIONS:
At November 30, 1995 the Company was indebted to its President in
the aggregate amount of $149,938 These unsecured loans were
repayable on demand at an interest rate of 2 1/2% in excess of
the base lending rate (6.75% at November 30, 1995) of the
Company's bank. The loan was repaid during the year ended
November 30, 1996.
NOTE 10 - ACQUISITION DEBT PAYABLE:
<TABLE>
<CAPTION>
As of November 30, 1996 acquisition debt payable (see Note 1) consisted of the following:
<S> <C>
Unsecured notes payable on demand after October 31, 1999;
interest payable quarterly at 8% per annum $1,678,000
Notes payable in 18 monthly installments of $46,611 plus
interest at 2% above the base rate 839,000
Other short-term notes payable (see Note 19) 2,581,470
-----------
$5,098,470
</TABLE>
F - 14
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 11 - CONVERTIBLE DEBT:
The Company had reflected convertible debt of $208,602 as of
November 30, 1994. These loans, which were incurred at the time
PMS acquired one of its subsidiaries, were to bear interest at 6%
and were repayable five years from date of issue. The lenders had
the option of converting such loans into shares of the Company's
common stock at the end of such period. During the current year,
the Company re-evaluated the aforementioned acquisition and found
that the residual value of the net assets acquired was less than
anticipated at the maturity date of the contract hire agreements.
Accordingly, the Company and the holder of a portion of the debt
reached an agreement whereby $53,602 of this debt would be
canceled, resulting in an offsetting reduction in the residual
values of the vehicles acquired and their corresponding
accumulated depreciation. The effect of this change in estimate
was to reduce depreciation expense in the current period by
$53,602. In January 1995, the balance of $155,000 was converted
into 155,000 shares of common stock.
NOTE 12 - MINORITY INTERESTS:
In April 1996, PAG successfully completed an initial public
offering of its common stock, as a result of which the Company's
investment in PAG was reduced to 56.55%. The Company has recorded
a charge to additional paid-in capital of $3,307,739 in order to
properly reflect the minority interest liability at $5,369,073
which represents 43.45% of the net assets of PAG.
PAG owns 70% of a newly formed subsidiary AC Automotive Group,
Inc., ("AC Group"). As of November 30, 1996 the minority interest
liabilities in AC Group were written down to zero since the
losses applicable to the minority shareholders exceeded their
interest in AC Group.
NOTE 13 - COMMON STOCK/RECAPITALIZATION:
On September 20, 1994, the Company's board of directors approved
a one-for-ten reverse stock split of the Company's issued and
outstanding common stock to be effective on September 28, 1994.
All references to the number of common shares and per common
share amounts have been restated to retroactivity reflect the
reverse split.
During the year ended November 30, 1995 the Company issued
155,000 shares of common stock at a price of $1.00 per share in
lieu of repayment of loans aggregating $155,000.
In May 1996, the Company issued 90,000 shares of its common stock
in lieu of professional fees owed in the amount of $6,000.
F - 15
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 14 - STOCK OPTION PLANS:
During 1994, the Company adopted a Stock Option Plan ("the Plan")
whereby options to purchase an aggregate of not more than 500,000
shares of common stock may be granted from time to time to key
employees, officers, directors, advisors and independent
consultants to the Company and its subsidiaries.
As of November 30, 1996, the Company had granted options to
purchase an aggregate of 500,000 shares of common stock to three
directors, at exercise prices ranging from $.48 to $1.65 per
share, aggregating $365,850. None of these options have been
exercised.
NOTE 15 - ECONOMIC DEPENDENCY:
For the years ended November 30, 1996 and 1995, the Company had
two unaffiliated customers, which accounted for an aggregate of
approximately 17% (1995 - 18%) and 12% (1995 - 15%) respectively,
of the Company's total revenues.
The Company purchases all of the automobiles that it leases to
its clients from automotive dealerships, usually several at a
time. The Company does not depend on any one dealership for its
purchase of automobiles and does not have any written agreements
with any of the dealerships it purchases vehicles from. The
Company believes that it will continue to be able to purchase
automobiles at competitive prices and terms into the future.
NOTE 16 - INCOME TAXES:
The provisions for United Kingdom income taxes utilizing the
requirements of SFAS No 109 consisted of the following for the
years ended November 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------------- --------
<S> <C> <C>
Current tax expense $ 760,350 $ 860,000
Deferred tax expense 174,650 -
Investment tax credits on vehicles (935,000) (860,000)
------------ ---------
$ - $ -
</TABLE>
F - 16
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 16 - INCOME TAXES (Continued):
The components of the deferred tax asset, pursuant to SFAS No
109, as of November 1996, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Operating loss carryforward $ 38,000 $ 51,000
Valuation allowance (38,000) (51,000)
-------- ----------
$ - $ -
</TABLE>
The Company has available operating losses carryforwards for tax
purposes aggregating approxi mately $112,000 as of November 30,
1996, which may result in a deferred tax asset. The Company has
recognized this asset but has provided a valuation allowance for
the full amount since there is no assurance that such losses will
be utilized in the near future.
NOTE 17 - PENSION PLAN:
PMS and its' subsidiaries have a fully insured defined
contribution plan for all of its eligible employees.
Contributions to the plan, which are discretionary, for the years
ended November 30,1996 and 1995 amounted to $33,264 and $55,817,
respectively.
NOTE 18 - COMMITMENTS:
(a) Leases:
PAG has entered into a one-year lease agreement for the
manufacturing facility being utilized for its new subsidiary at a
cost of approximately $54,000 per month. PAG has an option to
purchase this facility at a cost of $8,700,000 through August
1997. This lease expires in December 1997.
(b) Employment Agreements:
In August 1995, the Company entered into an employment agreement
with its President/Chairman of the Board of Directors. This
three-year agreement provides for an annual salary of $160,000
with annual escalations of 10% and also contains certain
non-compete restrictions. This employee was also granted 100,000
stock options (see Note 14).
In September 1995, the Company entered into an employment
agreement with an officer/director for a period of twenty four
months commencing December 1, 1995. This agreement is
automatically extendable for a further twenty four month period
and provides for an annual salary of $55,000, subject to review
by the Board of Directors.
F - 17
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996 AND 1995
NOTE 18 - COMMITMENTS (Continued):
(c) Rental Income:
The Company leases one of its owned facilities to an unaffiliated
company. The lease, which expires in 2004, provides for rental
income of approximately $80,000 per annum. The annual cost of
servicing the mortgage and real estate taxes on this building
approximates to $70,000.
NOTE 19 - SUBSEQUENT EVENT:
In December 1996, PAG completed a private placement of 16 units,
each unit consisting of a 10% promissory note of $95,000 and
10,000 shares of PAG's common stock for an aggregate price of
$100,000 per unit. The gross proceeds of $1,600,000 was used to
satisfy a portion of the debt owed re: the acquisition of AC Cars
(see Notes 1 and 10).
The Company also entered into a loan agreement with its bank for
$755,000 with interest payable at 8% per annum, secured by a
first lien on the aircraft owned by the Company as a result of
the acquisition described in Note 1. This loan is to be repaid
from the proceeds of the sale of the aircraft.
F - 18
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATIONS S-X
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended November 30, 1996 and is
qualified in its entirety by reference of such statements.
<TABLE>
<CAPTION>
<S> <C>
Period type 12 Mos.
Fiscal year end Nov. 30, 1996
Period start Dec. 01, 1995
Period end Nov. 30, 1996
Cash 255,283
Securities 0
Receivables 1,936,166
Allowances 0
Inventory 1,127,452
Current assets 0
PP&E 22,580,430
Depreciation 3,898,795
Total assets 33,535,048
Current liabilities 0
Bonds 0
Common 3,991
Preferred mandatory 0
Preferred 0
Other SE 6,882,132
Total liability and equity 33,535,048
Sales 12,982,098
Total revenues 12,982,098
CGS 10,272,334
Total costs 10,272,334
Other expenses 0
Loss provision 0
Interest expense 884,223
Income pretax (359,492)
Income tax 0
Income continuing (359,492)
Discontinued 0
Extraordinary 0
Changes 0
Net income (359,492)
EPS primary (.18)
EPS diluted (.18)
</TABLE>
- Exhibit 27 -
