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, 1997
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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 65-0109088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
</TABLE>
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 May 6, 1998 (consisting of
Common Stock, $.002 par value per share) held by non-affiliates was
approximately $ , based upon the average bid and asked prices for such Common
Stock on said date ($0.66) as reported by a market maker. The issuer's and its
subsidiaries had on a consolidated basis, revenues of $ for its fiscal year
ended November 30, 1997. On May 6, 1998, 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 and
establish sports expositions in sports products such as clothing and sports
related equipment. At such time L.H.M. Corp. changed its name to ISI. ISI never
engaged in any business operations. In November 1992, ISI effected a 1 for 200
reverse split of its issued and outstanding shares of Common Stock. In January
1994, ISI entered into an Agreement and Plan of Reorganization with Pride
Management Services, Plc. ("PMS"), an English corporation, whereby PMS became a
wholly owned subsidiary of ISI and ISI changed its name to Pride, Inc.
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 minimal revenues from
operations in fiscal 1996 and no revenues from operations in fiscal 1997.
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."
<PAGE>
Public Offering of Pride Automotive Group, Inc.
In April 1996, the Company completed an underwritten initial public
offering of its securities. The securities were registered with the Securities
and Exchange Commission ("SEC") pursuant to a registration statement on Form
SB-2. The initial public offering was declared effective by the SEC on April 24,
1996. In the offering, the Company sold 592,500 shares of its common stock to
the public at a price of $5.00 per share and 2,300,000 redeemable common stock
purchase warrants at a price of $.10 per warrant. The warrants are exercisable
at a price of $5.75 per share, subject to adjustment, beginning April 24, 1997
and expiring April 23, 2001. In connection therewith, the Company also granted
to the underwriters of the offering, Mason Hill & Co., Inc. and the Thornwater
Group, Inc., warrants to purchase an aggregate of 95,000 shares of the Company's
common stock at a purchase price of $7.50 and 200,000 redeemable common stock
purchase warrants at a price of $0.15 per warrant, each warrant exercisable to
purchase one share of common stock at a purchase price of $7.50 per share. Other
than with respect to the exercise price, the terms of the warrants granted to
the underwriter are identical to those described above. The Company's securities
are currently traded on the Nasdaq SmallCap Stock Market and the Boston Stock
Exchange, Inc.
On January 12, 1998, PAG filed a registration statement on Form SB-2 with
the SEC, to register 1,000,000 shares of PAG's Common Stock. In connection
therewith, PAG has entered into a letter of intent with Mason Hill & Co., Inc.,
an NASD broker-dealer, to underwrite such securities a firm commitment basis. A
condition to such commitment requires PAG to grant to Mason Hill, warrants to
purchase an aggregate of 100,000 shares of PAG's common stock at 120% of the
public offering price. PAG has applied to have the additional securities being
underwritten in that offering listed on the Nasdaq SmallCap Stock Market, Inc.
and the Boston Stock Exchange. Additionally, PAG has agreed to register 170,000
shares of Common Stock on such registration statement, which shares were issued
in connection with PAG's December 1996 private placement (the "Private Placement
Shares"). The Private Placement Shares will not be underwritten by Mason Hill &
Co., Inc. There can be no assurance that the public offering described herein
will be completed.
Business of Pride Management Services, Plc.
The Company engages in the business of leasing new automobiles to
businesses, servicing such automobiles during the lease term and remarketing the
automobiles upon the expiration of the lease. The Company's business strategy is
to (i) provide personal and attentive service to its clientele, (ii) lease
primarily to high-quality credit applicants in order to continue to build a
lease portfolio with low delinquency and credit loss rates, (iii) finance its
lease portfolio with competitive credit terms and (iv) manage its residual risk
relating to the Company's resale of automobiles after the expiration of the
lease term. The leasing, financing and servicing of the vehicles is described as
a "contract hire."
The Company purchases each automobile pursuant to the specifications of its
clients, finances the purchase and pays for all the maintenance and repairs on
the vehicle during the term of lease. Typically, the Company pays off the
purchase price of the vehicles during the term of the lease and then resells the
automobile at the end of the lease term.
2
<PAGE>
Acquisitions
The Company has expanded its operations in the past several years
through acquisition. In May 1990, the Company formed Baker Vehicle Contracts
Limited ("Baker") to acquire certain assets, including the right to the name and
contracts of Baker Hire Limited, an English company. At the time of its
acquisition, Baker was a division of W.H. Baker Limited, which company had filed
for bankruptcy protection. Baker's vehicle leasing is primarily in Wales and the
southwest region of England. In December 1990, PMS was contracted to run the
business of County Contract Hire Limited ("County"), which at that time
comprised approximately 3,500 leased vehicles. In February 1992, the Company
purchased County from Berisford International Plc., an English public company,
pursuant to a stock purchase agreement, whereby PMS acquired all of the
outstanding shares of County and changed County's name to Pride Vehicle
Contracts (UK) Limited. In October 1994, the Company acquired certain assets of
Master Vehicle Contracts Limited ("Master"), an English company, pursuant to the
terms of an asset purchase agreement. The assets purchased included vehicles,
vehicle lease agreements and customer lists. At the time of the sale, Master was
in receivership, whereby the sale was entered into by PMS and the court
appointed receivers. In connection with this purchase, the Company acquired the
rights to use the name Master Vehicle Contracts Limited.
Industry Overview
Companies have a variety of financing alternatives available to them in
acquiring the use of a new automobile, either through the purchase or lease of
such vehicle. In financing the purchase of a vehicle there are various loan
alternatives including, fully amortizing, balloon payment, no money down, low
down payment and business equity loans. In terms of leasing vehicles, there are
various options including, payment schedules, term, maintenance and repurchase
rights. The primary benefit of leasing over purchasing is that leasing typically
provides a consumer with the opportunity to acquire the use of a new automobile
at a lower monthly payment than financing the purchase of such vehicle, usually
without a significant initial cash outlay, and enables the return of the
automobile without any further liability at the 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
3
<PAGE>
improve the terms of its financing arrangements, (iv) further develop and
increase the profitability of its used automobile remarketing operations, and
(v) lease primarily to high quality credit applicants in order to continue to
build a lease portfolio with low delinquency and credit loss rates.
Subsidiaries
The following table lists all the wholly owned subsidiaries of PMS, the
date of their formation and business operations. These companies operate as one
unit in conducting the business affairs of the Company.
<TABLE>
<CAPTION>
Date of
Name Formation Business Operations
<S> <C> <C>
Pride Vehicle Contracts
Limited 12/23/86 Conducts all administrative functions for the Company,
including paying salaries and all operational expenses of
the Company.
Baker Vehicle Contracts Limited 02/22/89 Vehicle leasing, primarily the business operations of Baker
Hire Contracts Limited, acquired in May 1990, which
operations are primarily in Wales and the south west region
of England.
Pride Vehicle Contracts 09/28/88 Vehicle leasing, acquired County Contract Hire Limited
(UK) Limited Hire Limited and Master Vehicle Contracts Limited in
February 1992 and March 1994, respectively.
Pride Leasing Limited 02/22/89 Owned property and a building in Croydon, England,
which was sold in November 1997.
Pride Vehicle Management 02/14/90 Operates the Company's fleet management services.
Limited
Pride Vehicle Deliveries 06/14/90 Provides vehicle distribution and collection services for
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 January 1,
1998, the Company had approximately 1,477 vehicles under lease.
The term of the leases average generally between 24 and 48 months, with
the average lease being 36 months. In addition to setting forth the lease term,
the amount of the rental payments and the mileage allowance, each lease requires
the lessee to pay all fees, taxes, fines and other costs relating to the use of
the vehicle. Generally, the lessee pays the first and last two months lease
payment in advance of the
4
<PAGE>
lease term. The lessee is required to maintain liability and casualty insurance
on each vehicle at specified limits and to name the Company as an additional
insured and loss payee. The Company will only approve policies which have a
maximum deductible of $500.
The Company's sales policy emphasizes leasing to financially sound
clients and requires certain financial disclosures prior to executing any lease
agreement. Customer accounts are targeted from profitable, growing, medium-sized
corporate companies. For the years ended November 30, 1996 and 1997, the Company
had two unaffiliated customers, Westbury Homes Plc. and Campbell Distillers
Limited, which companies accounted for in the aggregate approximately 15% and
7%, respectively, of the Company's 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 mileage limitation
and additional fees for overages. Therefore, the Company does not incur
significant expenses for repairs. Maintenance is regularly performed on all
vehicles, pursuant to negotiated pricing schedules. No work is permitted to be
performed on any vehicle, unless performed by one of the Company's contracted
service centers with the prior consent of the Company.
The monthly lease payment which the Company charges its clients is
determined by a computer program which takes into account estimated service
costs, new vehicle pricing, manufacturer bonuses, 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
5
<PAGE>
automobile market at the end of the lease term and by utilizing multiple
remarketing channels including, but not limited to used car wholesalers and used
car retailers. The Company upon pricing the lease of a new vehicle reviews the
listed wholesale price as listed in several pricing guides, predominantly the
Current Auction Prices ("CAP") book, which gives the current wholesale price of
the model being leased. The Company currently attempts to get at least 85% of
the CAP listed wholesale price upon the resale of the vehicle. The Company
believes that with increased working capital and cash flow from operations, the
Company can make minor repairs and refurbishings on the automobiles performed
and seek higher prices on resales of up to 110% of the wholesale price on
popular models. The Company sells its used vehicles through used automobile
wholesalers and retailers, automobile auctions, unaffiliated dealers and
pursuant to sales to related parties of the lessees. In the event the market for
used automobiles decreases the models or conditions of the vehicles returned to
the Company decrease their resale value or vehicles are returned pursuant to
defaults in the lease agreements, such events may adversely affect the Company's
cash flow, profitability and business operations. See "-- Financing and
Collections" and "-- Competition."
Fleet Management Services
In 1994, the Company opened its fleet management division, which
division manages the automobiles for certain of its corporate clients who choose
to own the vehicle(s) directly. Customarily, these clients purchase the
automobiles through the Company in order to take advantage of the Company's bulk
purchase discounts. The Company maintains these vehicles on behalf of such
clients pursuant to a monthly management fee, usually $15 per automobile and
disposes of the vehicles thereafter on behalf of the client. The client pays all
costs associated with the purchase, maintenance and resale of the automobiles.
The Company estimates that for the year ended November 30, 1997 less than 5% of
the Company's revenues were from fleet management services.
Suppliers
The Company purchases all of the automobiles that it leases to its
clients from automotive dealerships, usually several at a time. For the years
ended November 30, 1996 and November 30, 1997, General Motors and Ford were the
manufacturers of approximately 20% and 20%, respectively and 16% and 17%,
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
6
<PAGE>
Company in the future, although, the Company believes that there are a
sufficient number of automobile dealerships, so that in the event any individual
or group of dealerships can no longer service the Company's needs, the Company
will be able to find other dealerships at competitive prices. In the event the
Company cannot obtain the automobiles of any specific manufacturer or
automobiles in general or is not able to purchase such automobiles on similar
terms as is presently available to it, the Company may be materially adversely
affected.
Financing and Collections
The Company provides new automobiles to its clients pursuant to each
individual client's specifications, with personal and attentive service to
include all of its clients needs. The Company's sales representatives have
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 has asset funding lines to acquire revenue producing
vehicles with several institutions in England in the aggregate amount of
$23,667,500 of which the Company has borrowed approximately $18,342,778 as of
November 30, 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; (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.
7
<PAGE>
As of August 31, 1997, the Company's line of credit with its bank
expired. In February 1998, the Company entered into a new agreement with the
bank. This new line of credit of $7,202,500, is payable on demand and is secured
by all assets of the Company other than building and revenue-producing vehicles
which are already pledged (see Notes 6b and 7 to the Notes to the Financial
Statements). Interest is payable at rates between 2% and 4% in excess of the
bank's base rate (7 1/2% at November 30, 1997). This facility has to be reduced
by $837,500 by March 31, 1998 and a further $921,250 by December 31, 1998. The
agreement is due for review November 1998.
The Company attempts to enhance the performance of its leases and
thereby minimize its financial risks by maintaining timely, consistent and
direct customer contact. When a default does occur, collections and
repossessions are handled by the Company's collection department. Upon a lease
payment default and after the passage of three days, the Company mails a written
notice to the defaulting customer and attempts to contact the customer directly
by phone. Once contact is established, the collection department will work with
the customer until the default is cured. If contact is not made or the default
is not satisfactorily cured, the Company will proceed to repossess the vehicle.
The Company will repossess the vehicle upon a determination that there is a risk
of not recovering the vehicle. In the event repossession is required, it
typically will take place within 20 days after the initial default. Pursuant to
English law, a company can repossess a vehicle for non payment in the event
payment is not received within two days of the due date, however, the Company's
lease agreements provide for a seven day grace period. No notice is required and
no demand for payment need be made prior to repossession. The Company, as the
vehicles owner, has all key numbers with respect to the vehicles it leases. In
the event the Company deems repossession necessary it sends an employee to
physically drive the vehicle away from the lessee. Repossessed vehicles are
offered by the Company at public sale, after the giving of notice, and sold by
the Company in a commercially reasonable manner. There were no repossessions of
vehicles in fiscal 1996. In 1997, there were eight repossessions, however six of
those repossessions were re-leased. There have been none to date in 1998. 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 county
of Hertfordshire and the surrounding areas), regional (includes London and the
surrounding areas) and national (includes all of the United Kingdom, inclusive
of England, Wales, Scotland and Northern Ireland) automotive leasing companies,
many of which have greater resources and more extensive distribution and
marketing than the Company. The largest leasing companies in direct competition
with the Company are 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 January 1, 1998, the Company had 1,477
vehicles under lease. The Company also competes in the automobile financing
industry with providers of other forms of financing. Other competitors include
finance companies affiliated with automobile 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
8
<PAGE>
concern of the lessee or buyer of a new automobile is the amount of the monthly
payment and of any down payment. Many of the Company's competitors have
significantly greater financial, technical and marketing resources and market
share than the Company. Automobile finance companies affiliated with automobile
manufacturers, from time to time offer aggressive leasing and financing programs
at below market pricing to promote the sale of certain vehicle models. Many of
the national leasing companies have extensive advertising campaigns which
develop and reinforce brand recognition. In addition, many of such manufacturers
have agreements with vehicle leasing entities to jointly advertise and market
their products and services.
The used automobile sales business is highly 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
9
<PAGE>
established any regulations or licensing requirements specifically regulating
the leasing of automobiles 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 allowed the Company to charge lower lease
rates.
Employees
As of January 1, 1998, the Company employed 20 full-time persons, six
are in management (three of which are officers), eight administrative, four
sales representative and two drivers. None of the employees are represented by a
union, and the Company considers employee relations to be good.
Properties
The Company maintains 6,000 square feet of executive office space in a
modern, free standing building at Pride House, Watford Metro Centre, Tolpits
Lane Watford Hertfordshire, WD1 8SB England. The building was purchased by PMS
in December 1992 at a cost of approximately $895,000. The annual cost of
servicing the building's mortgage and taxes is approximately $80,000 and
$18,000, respectively. Pride Leasing Limited owned a building in Croydon,
England, which it purchased in 1991 at a cost of approximately $825,000. The
Company sold this property in November 1997 for $400,000.
Pending Litigation
The Company is not a party to any material pending litigation which, if
decided adversely to the Company, would have a significant negative impact on
the business, income, assets or operation of the Company, and the Company is not
aware of any material threatened litigation which might involve the Company. In
England, the owner of the automobile is not considered liable for the acts of
the driver where there is a lease arrangement.
10
<PAGE>
Acquisition of AC Car Group Limited
In November 1996, the Company, 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, AC Car Group Limited manufactures and sell two
automobiles, the Superblower (a continuation of the AC Cobra) and the AC Ace.
The AC Cobra is a high-powered, hand built sports car with an aluminum
body. The automobile is manufactured today using the same traditional coach
building methods and original Cobra tooling which were used on the original
manufactured Cobras in the 1960s. Historically, in 1963 the AC Cobra caused a
sensation by racing along the MI motorway (England's first motorway) at 196
miles per hour, and by 1964, the 427 AC Cobra was listed in the Guinness Book of
Records as the fastest production car in the world. The AC Cobra sells for about
(pound)69,000 ($115,644).
In 1994, the AC Ace prototype was first displayed at the London Motor
show. In 1995, the AC Ace was shown to the North American public at the Detroit
Motorshow. When the AC Ace comes into production, it will sell for approximately
(pound)75,000 ($125,700). As of January 1, 1998, AC has produced approximately
fifty pre-production AC Aces. The Company expects the AC Ace should enter into
its final production stage in January 1998.
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, the Company
negotiated a new licensing agreement with Ford Motor Company whereby the Company
has procured a three year license, commencing December 7, 1996, to continue to
use the name "Cobra" on its AC Cobra model. Notwithstanding the foregoing, the
"Cobra" has been recently updated and has been renamed the AC "Superblower."
11
<PAGE>
Administrative Receivership
AC Cars has incurred losses in recent years as a result of design and
development costs incurred in bringing the AC Ace into production. Although most
of the development work is now complete and approximately fifty AC Aces have
been produced to date as pre-production vehicles, the expenses AC Cars and
Autokraft incurred in connection with the development of the Ace forced
Autokraft and AC Cars to seek additional capital investments so as to enable
them to both meet current production needs and increase future production
levels. Once it became clear to Autokraft and AC Cars' management that
additional funds were unlikely to be forthcoming in time to allow the businesses
to meet their financial obligations, coupled with their bankers indications that
they no longer had confidence in the current ownership, the Directors of the
businesses resolved to request their bankers to appoint Administrative
Receivers. Administrative receivers were appointed on March 7, 1996.
Development Projects and Enhancements
The Company, 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, the Company has
entered into a new licensing arrangement with the Ford Motor Company whereby the
Company has procured a three year license to use the name "Cobra," terminating
in December 1999.
Whereas the Company is pleased that it has been able to procure a
licensing arrangement to continue to use the name "Cobra", the Company
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 the Company acquired outright as part of the Asset Acquisition.
The Company believes that the principal markets for sales of its
automobiles are the United States, Australia, Germany and the United Kingdom.
The Company is in the process of negotiating distribution 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.
The AC Cobra is Type approved for sale in certain countries of the
European Economic Community ("EEC").
12
<PAGE>
Trademarks
Acquired as part of the Asset Acquisitions was the rights to utilize
the "Ace" mark on sales of the Ace. The right to use the Cobra name was subject
to a license arrangement which was in place with Ford Motor Company, the owner
of the trademark just prior to the appointment of Receivers. As discussed above,
the Company has entered into a new license agreement with Ford Motor Company
whereby the Company has procured a three year license to use the name "Cobra".
Former management of Autokraft and AC Cars has advised the Company that it is
not aware of any actions attempting to invalidate or challenge its use of such
trademarks and that it has not received any notice or claims of infringement
regarding its trademarks.
Products Liability Insurance
At present, AC maintains product liability insurance through Lloyds of
London. The limit of the indemnity is (pound)2,000,000 ($3,520,000) for each
instance. Although AC has procured this insurance policy, there can be no
assurance that it will be able to maintain such insurance, that such insurance
will be sufficient to cover claims, if any, or that such insurance will continue
to be available at commercially reasonable terms. If AC is unable to maintain
products liability insurance for the automobiles that it manufactures, it would
adversely affect the business of AC and could potentially cause it to
discontinue operations. However, there can be no assurance that such insurance
will be 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 the Company or AC are required to pay
uninsured claims, it would adversely affect the businesses of the Company and AC
and could cause a discontinuation of operations. The Company 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. Although the Company acquired the assets of AC Cars
and Autokraft and does not believe that it will have any exposure to liability
claims for automobiles built by AC Cars and Autokraft, there can be no assurance
that the Company is correct in such belief. Any such claim relating to new
automobiles built by AC or to automobiles built by AC Cars and Autokraft could
have an adverse effect on the Company.
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. The Company had agreed to lease the premises currently occupied by AC for
a period of one year commencing December 1, 1996. The Company's lease costs
approximately (pound)32,000 ($53,632) per month. AC exercised its option to
purchase the premises for the purchase price of (pound)5,200,000
13
<PAGE>
($8,715,200) in July 1997. AC then sold the property for (pound)5,600,000
($9,385,600) and entered into a 15 year lease for 39,000 square feet of the
property at the rate of (pound)18,000 ($30,200) per month.
Employees
At the time of their acquisition, Autokraft and AC Cars together
employed a total of 83 persons. The Company retained approximately 31 of such
employees upon completion of the Asset Acquisition and has hired 12 additional
employees to oversee the manufacturing and marketing of the automobiles.
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 owned a building in Croydon,
England, which it purchased in 1991 at a cost of approximately $825,000. The
Company sold this property in November 1997 for $400,000.
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 had agreed to lease the premises currently occupied by AC for
a period of one year commencing December 1, 1996. The Company's lease costs
approximately (pound)32,000 ($53,632) per month. AC exercised its option to
purchase the premises for the purchase price of (pound)5,200,000 ($8,715,200) in
July 1997. AC then sold the property for $9,385,600 and entered into a 15 year
lease for 39,000 square feet of the property at the rate of $30,200 per month.
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. Although the Company acquired the assets of AC Cars
and Autokraft and does not believe that it will have any exposure to liability
claims for automobiles built by AC Cars and Autokraft, there can be no assurance
that the Company is correct in such belief. Any such claim relating to new
automobiles built by AC or to automobiles built by AC Cars and Autokraft could
have an adverse effect on the Company.
14
<PAGE>
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, 1997.
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
3/01/97 to 5/31/97 1/4 1
6/01/97 to 8/31/97 5/16 1
9/01/97 to 11/30/97 1/4 1
12/01/97 to 3/13/98 5/16 1
</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 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 March 13, 1998, 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
15
<PAGE>
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
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant factors
which have affected the Company's financial position and operations during the
years ended November 30, 1997 and 1996.
Pride 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 11) 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.
<PAGE>
The Company has servicing agreements with automobile dealers and service
centers, which specify pricing schedules for maintenance and repair work to be
performed, all of which require the prior consent of the Company. 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 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. (See also Notes 1 and 17b - Notes to Financial Statements.)
Results of Operations - Years Ended November 30, 1997 and November 30, 1996:
Contract Hire/Fleet Management
Revenues, including those from other group companies, for the year ended
November 30, 1997 were approximately $17,366,000 compared to approximately
$12,982,000 for the year ended November 30, 1996, an increase of $4,384,000 or
34%. The primary reason for this 34% increase was due to an increase in revenues
from contract hire, sale of vehicles at lease maturity and the selling of
vehicles at low margins to take advantage of dealer bonuses.
For the year ended November 30, 1997, 550 new vehicles were acquired as against
385 in the year ended November 30, 1996. The average monthly rental of new
contracts written was $541 per vehicle as against an average of $569 per vehicle
for the previous year. The average monthly rental is dependent on the type of
vehicle being rented and the terms of the contract.
For the year ended November 30, 1997, 153 vehicles were disposed of on
termination of contracts at an average profit of $1,529 per vehicle. For the
year ended November 30, 1996, 157 vehicles were disposed of on termination of
contracts at an average profit of $2,233 per vehicle. The average profit per
disposal is dependent on the type of vehicle sold and current market value of
vehicles.
As of November 30, 1997, 1,740 vehicles were under lease and management compared
to 1,409 vehicles as at November 30, 1996.
<PAGE>
Cost of sales increased in actual dollars and as a percent of sales, when
comparing the years ended November 30, 1997 and 1996. These costs increased by
approximately $3,279,000 or 32%, which is less than the increase in revenues. As
a percent of sales, cost of sales for 1997 was 77.8% versus 79.1% for 1996.
General and administrative expenses increased from $1,835,000 for 1996 to
$1,940,000 for 1997, an increase of $105,000 or 6%. As a percent of sales these
expenses represented 11% of sales for 1997 and 14% for 1996. Management believes
that they can continue to increase revenues whilst keeping general and
administration costs under control.
Interest expense increased from $884,000 in 1996 to $1,747,000 in 1997.
Management attributes this increase to the large increase in new business
written and the associated increase in funding of vehicles, providing financial
support to AC Cars (see below) and the costs associated with the raising of
finances to fund the acquisition of AC Cars.
The loss on sale of fixed assets resulted from the sale of a property to the
tenant who exercised their option to purchase. The loss amounted to
approximately $455,000.
Income (loss) before taxes and minority interests for the years ended November
30, 1997 and 1996, prior to amortization of goodwill for the period ($632,000
and $635,000, respectively) and the loss on sale of fixed assets, aggregated
$160,000 and ($10,000), respectively.
AC Cars
The Company, on November 29, 1996, through its newly formed 70% owned
subsidiary, AC Automotive Group, Inc. and its wholly-owned subsidiary AC Car
Group Limited, completed the acquisition of certain assets of AC Cars Limited
and Autocraft Limited. These two companies are engaged in the manufacture and
sale of sports cars among which the famous AC Cobra sells for approximately
$100,000 each.
The Company acquired the business out of administrative receivership and for
most of the year has devoted most of its resources to resurrecting operations.
This has involved upgrading of production facilities, improving efficiency,
appointing new dealerships, installing systems and controls and appointing new
management where necessary. New dealerships have been appointed in the United
Kingdom and a distributor has been appointed in Australia. The Company has
embarked on a program to bring the new AC Ace Sports car into production in the
last quarter of 1997.
Revenues, including those from other group companies, for the year ended
November 30, 1997, were approximately $1,633,000. Other income of $701,000
resulted mainly from the sale of the option to purchase the property occupied by
the operation.
Cost of sales amounted to approximately $1,573,000 on the above revenues.
General and administration expenses amounted to approximately $2,589,000. Rent
and property taxes of approximately $865,000 and salaries of $282,000 accounted
for 44% of the above costs.
Depreciation of plant, machinery, tooling, equipment and fixtures amounted to
approximately $400,000.
Interest amounted to approximately $462,000 for the year. Interest was incurred
on a bank line of credit of $195,000, on bank debt of $80,000 and on acquisition
debt of $187,000.
The Hurricane aircraft which was acquired as part of the assets at acquisition,
was disposed of at a loss of approximately $299,000.
<PAGE>
AC Cars is in a developmental stage and certain specific expenses have been
classified as research and development costs. These costs relate to research and
development incurred on the manufacture and distribution of the AC Cobra and AC
Ace and are separately disclosed. Management believes it is more prudent to
write off these costs immediately as they occur. Research and development costs
amounted to approximately $983,000 for the current year.
(Loss) before tax and minority interests for the year ended November 30, 1997 on
the AC business aggregated $4,111,000. In February 1998, subsequent to the end
of the Company's current fiscal year, AC Automotive issued
additional shares to certain individuals and an entity affiliated with the
Company's President for aggregate cash of $6,776, thereby diluting the Company's
ownership in this subsidiary to 20%. See Note 17b of Notes to the Financial
Statements for additional information.
Consolidated
For the year ended November 30, 1997, the Company reported a net loss of
$2,464,724 or $1.24 per share. For the year ended November 30, 1996, the Company
reported a net loss of $328,741 or $.16 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, 1997 and 1996, the Company's
balance sheet reflected cash of $85,000 and $255,000, respectively, accounts
receivable of $1,960,000 and $1,936,000, respectively, and total assets of
$40,087,000 and $33,535,000, respectively. The principal reason for the increase
in total assets is an increase in contract hire vehicles available for lease.
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 approximately
$2,166,000.
The Company's total assets as of November 30, 1997 and 1996 include intangible
assets of approximately $8,891,000 and $9,544,000, respectively. These
intangible assets consist of the unamortized portion of the costs over net
assets acquired in acquisitions, which are being amortized over periods ranging
from 10 to 20 years. When adjusted for these intangible assets, the net tangible
book value of the Company at November 30, 1997 and 1996 would be approximately
($1,760,000) and ($2,967,000), respectively.
During the year ended November 30, 1997, the Company generated cash flows from
operating activities aggregating approximately $1,363,000. During the year ended
November 30, 1996, the Company generated $456,000 of cash flows from operations.
Investing activities reflect uses of cash for the years ended November 30, 1997
and 1996 of $11,702,000 and $8,759,000, respectively. These uses of cash are the
result of the purchases of fixed assets (primarily revenue producing vehicles)
net of the proceeds received from the sale of vehicles at lease expiration dates
and the acquisition described above.
In order to replenish its fleet of revenue producing vehicles, annually, the
Company is required to purchase from 300 to 400 new vehicles at an average cost
of approximately $25,000 each. At the time of purchase, the Company typically
makes a cash deposit of approximately 10% and finances the balance. The Company
has funding lines with several financing institutions for this purpose which
aggregate approximately $23,667,000 at November 30, 1997. At November 30, 1997,
there was approximately $18,000,000 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
<PAGE>
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, 1997, the Company provided cash from financing
activities of approximately $10,208,000 primarily as a result of increase in
bank lines a credit $4,900,000 and the financing needed to acquire new vehicles
($19,492,000) net of the amounts utilized to pay hire purchase contract
financing ($12,185,000). For fiscal 1996, the Company provided cash from
financing activities of $9,280,000 primarily from bank lines of credit of
$1,820,000, minority shareholders of $2,285,000 and net proceeds from hire
purchase financing of $5,456,000.
Other than the annual acquisitions of revenue producing vehicles as mentioned
above, there are no material planned capital expenditures at the present time.
The Company believes that its cash flow from operations, and its available
funding lines for the acquisition of revenue producing vehicles will be
sufficient for at least the ensuing 12 month period.
This report contains forward-looking statements and information that is based on
management's beliefs and assumptions, as well as information currently available
to management. When used in this document, the words "anticipate, "estimate,"
"expect," "intend," and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected.
<PAGE>
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.
17
<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 39 President, Secretary
Chairman of the Board
and Director
Ivan Averbuch 42 Chief Financial Officer
and Director
Allan Edgar 51 Director
</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.
Ivan Averbuch has been the Chief Financial Officer of the of the Company
since December 1995. Mr. Averbuch has been the Chief Financial Officer of PAG
since December 1995. Mr. Averbuch was a director of PAG from December 1995 until
February 1998. From September 1987 to November 1995, Mr. Averbuch was employed
at Kessel Feinstein, a member firm of Grant Thorton International, an accounting
firm. In January 1989, Mr. Averbuch was promoted to audit manager and appointed
as a partner in October 1992.
Allan Edgar has been a director of the Company since May 1997. Mr. Edgar
has been a director of PAG since May 1997. Mr. Edgar has been a director of AC
Automotive Group, Inc. since its inception in 1996. Mr. Edgar has been the
Marketing Director of Hyatt Hotels & Resorts for Europe, Africa and the Middle
East since 1990. Mr. Edgar has extensive experience in the automobile industry,
including positions at Hertz Rent-a-Car, Volkswagen Interent, and Leyland Motor
Corporation.
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
18
<PAGE>
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, Ivan Averbuch and Allan
Edgar did not file Form 4's with respect to the receipt of stock options in June
1997. Messrs. Lubinsky, Averbuch and Edgar have stated that they intend on
filing Form 5's 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.
19
<PAGE>
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, 1997, 1996 and 1995. 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
Position (1) Year Salary($) Bonus($) Compensation($)(2)
- ----------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Alan Lubinsky (3)(4)(5)(6) 1997 $176,000 - $30,000
President, Secretary 1996 $160,000 - $30,000
and Chairman of the Board 1995 $137,750 - $30,000
</TABLE>
(1) All of the Company's administrative functions, including the payment of
salaries, are performed by Pride Vehicle Contracts Limited, since the Company's
operations run basically as one operation. The Company believes that it is
easier and cost effective to operate in this manner. The Company plans on
continuing this practice in the future.
(2) Includes contributions to the Company's pension plan of $18,000 in each
of 1997, 1996 and 1995, respectively, and the cost of an automobile and expenses
of $12,000 annually.
(3) Alan Lubinsky entered into an employment agreement with PAG in August
1995. The agreement is for a term of three years, and pays Mr. Lubinsky an
annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by PAG's board of directors. Pursuant to the agreement, Mr. Lubinsky
received stock options under PAG's Senior Management Incentive Plan to purchase
100,000 shares at $5.50 per share. These options vest at the rate of 33 1/3% per
annum commencing August 1996.
(4) 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 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.
20
<PAGE>
(6) On June 2, 1997, Mr. Lubinsky was granted an option to purchase up to
an aggregate of 250,000 shares of the Company's Common Stock at an exercise
price of $0.38 per share. The shares underlying this option will vest on June 2,
1998.
Stock Options
The following table sets forth certain information concerning the grant of
stock options made during the year ended November 30, 1997, under the Company's
1994 Stock Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
====================================================================================================================================
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted to
Options/SAR's Employees in Exercise or Base
Name Granted(1) Fiscal Year Price ($/SH) Expiration Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alan Lubinsky 250,000 78.13% $0.38 6/1/03
- ------------------------------------------------------------------------------------------------------------------------------------
Ivan Averbuch 35,000 10.94% $0.38 6/1/08
- ------------------------------------------------------------------------------------------------------------------------------------
Allan Edgar 35,000 10.94% $0.38 6/1/08
====================================================================================================================================
</TABLE>
(1) Represents incentive stock options granted under the Company's 1994 Stock
Option Plan (the "Plan"), as amended. Options granted under the Plan are
intended to qualify as incentive stock options under the Internal Revenue
Code of 1986, as amended. Under the terms of the Plan, options may be
granted to officers, key employees, directors and consultants of the
Company until December 1999. Options granted to directors, who are not
officers or employees, or to consultants, do not qualify as incentive stock
options. The option price per share may not be less than the fair market
value of the Company's shares on the date the option is granted. However,
options granted to persons owning more than 10% of the Company's Common
Stock may not have a term in excess of five years and may not have an
option price of less than 110% of the fair market value per share of the
Company's shares on the date the option is granted. See "--1994 Stock
Option Plan."
21
<PAGE>
The following table contains information with respect to employees of the
Company concerning options held as of November 30, 1997
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
================================================================================================================================
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised In-
Unexercised The-Money
Options/SAR's at Options/SAR's
FY-End (#) at FY-End($)
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 50,000/25,000 $7,812.50/0 (3)
- --------------------------------------------------------------------------------------------------------------------------------
Alan Lubinsky 0 0 175,000/0 30,843.75/0 (4)
- --------------------------------------------------------------------------------------------------------------------------------
Alan Lubinsky 0 0 0/250,000 0/0(5)
- --------------------------------------------------------------------------------------------------------------------------------
Allan Edgar 0 0 0/35,000 0/0(6)
- --------------------------------------------------------------------------------------------------------------------------------
Ivan Averbuch 0 0 50,000/0 8,812.50/0(7)
- --------------------------------------------------------------------------------------------------------------------------------
Ivan Averbuch 0 0 0/35,000 0/0(8)
================================================================================================================================
</TABLE>
(1) As of March 13, 1998, the average of the prior day's closing bid and
ask prices was $0.66. 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 March 13, 1998, the average of the prior day's closing bid and
ask prices was $0.66. 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 March 13, 1998, the average of the prior day's closing bid and
ask prices was $0.66. As of March 13, 1998, 50,000 shares underlying these
options have vested. However, Mr. Lubinsky has not exercised this option.
(4) As of March 13, 1998, the average of the prior day's closing bid and
ask prices was $0.66. As of March 13, 1998, 175,000 shares underlying these
options have vested. However, Mr. Lubinsky has not exercised this option.
(5) As of March 13, 1998, none of the shares underlying these options have
vested.
(6) As of March 13, 1998, none of the shares underlying these options have
vested.
(7) As of March 13, 1998, the average of the prior day's closing bid and
ask prices was $0.66. As of March 13, 1998, 50,000 shares underlying these
options have vested. However, Mr. Averbuch has not exercised this option.
(8) As of March 13, 1998, none of the shares underlying these options have
vested.
22
<PAGE>
Employment Agreements
Alan Lubinsky entered into an employment agreement with the Company in
August 1995. The agreement is for a term of three years, and pays Mr. Lubinsky
an annual salary of $160,000 per annum with 10% yearly escalations, subject to
adjustment by the Company's board of directors. Pursuant to the terms of his
employment agreement, Mr. Lubinsky will devote all his business time to the
affairs of the Company and Pride. Pursuant to the agreement, Mr. Lubinsky
received stock options under the Company's Senior Management Incentive Plan to
purchase 100,000 shares at $5.50 per share. These options vest at the rate of 33
1/3% per annum commencing August 1996. The agreement restricts Mr. Lubinsky from
competing with the Company for a period of one year after the termination of his
employment.
Ivan Averbuch entered into an employment agreement with the Company in
September 1995, for a term of 24 months, commencing December 1, 1995. The
agreement is automatically extendable for an additional 24 months, subject to
cancellation by either the Company or Mr. Averbuch on 90 days written notice.
Pursuant to the terms of the agreement, Mr. Averbuch is to receive an annual
salary of $55,000 per annum, with an annual increase of 10% per annum, subject
to review by the Company'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.
During the 1996 annual meeting of shareholders, a majority of the
shareholders authorized an amendment to the Plan increasing the number of shares
of Common Stock authorized and available for issuance thereunder from 500,000 to
1,000,000.
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 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.
23
<PAGE>
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.
On June 2, 1997, 250,000, 35,000 and 35,000 options were granted to Alan
Lubinsky, Ivan Averbuch and Allan Edgar, respectively, to purchase shares of
Common Stock at a purchase price of $0.38.
24
<PAGE>
ITEM 11. PRINCIPAL STOCKHOLDERS - UPDATE
The following table sets forth certain information at March 13, 1998, 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
Ivan Averbuch (5) 50,000 *
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertordshire
WD1 8SB England
Allan Edgar * *
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
25
<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
(3 persons) (1)(2)(3)(4)(5) 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 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.
26
<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
27
<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.
In December 1996, PAG consummated a private placement offering, whereby
PAG sold 18.5 units, each unit comprised of a 10% promissory note in the amount
of 10,000 shares of Common Stock at a purchase price of $100,000 per unit. In
connection with such offering, AC sold an aggregate of 1,028,700 shares to three
affiliates of the Underwriter for aggregate consideration of $1,030. Such
persons currently own an aggregate of 14% of the capital stock of AC. In
addition, the Underwriter loaned PAG the sum of $100,000, $71,000 of which
remains outstanding.
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:
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
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.
(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.
28
<PAGE>
<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>
29
<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 May, 1998.
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 5/26/98
ALAN LUBINSKY of the Board of Directors (Principal Date
Executive Officer)
/s/ Ivan Averbuch Chief Financial Officer 5/26/98
IVAN AVERBUCH Date
/s/ Allan Edgar Director 5/26/98
ALLAN EDGAR Date
</TABLE>
30
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Nos
<S> <C>
Independent Auditors' Report F - 2
Financial Statements:
Consolidated Balance Sheets as of November 30, 1997 and 1996 F - 3
Consolidated Statements of Operations for the Years Ended November 30, 1997 and 1996 F - 4
Consolidated Statement of Changes in Shareholders' Equity for the Two Years in the
Period Ended November 30, 1997 F - 5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1997 and 1996 F - 6
Notes to Consolidated Financial Statements F - 7
F - 1
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pride Inc. and
subsidiaries as of November 30, 1997 and 1996 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
each of the two years in the period ended November 30, 1997. These consolidated
financial statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United Kingdom which are substantially the same as those followed in the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the above mentioned consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Corporation as of November 30, 1997 and 1996 and the results of their operations
for the two years in the period ended November 30, 1997 in conformity with
accounting principles generally accepted in the United States of America.
Our audits also include the translation of British pounds into United States
dollars for amounts included in the consolidated financial statements. In our
opinion, such translation has been made in conformity with the basis stated in
Note 2(h) of the notes to the consolidated financial statements.
<TABLE>
<CAPTION>
<S> <C> <C>
MARBLE ARCH HOUSE
66-68 SEYMOUR STREET
LONDON W1H 5AH CIVVALS
UNITED KINGDOM April 14, 1998 CHARTERED ACCOUNTANTS
</TABLE>
F - 2
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (Note 6a) -
<TABLE>
<CAPTION>
November 30,
1997 1996
--------------- -----------
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 85,065 $ 255,283
Accounts receivable (Notes 2c and 3) 1,959,355 1,936,166
Inventories (Note 2d) 1,248,360 1,127,452
Property, revenue producing vehicles and equipment - net
(Notes 2e, 4, 6 and 7) 27,882,350 20,671,854
Intangible assets - net (Note 2f) 8,912,087 9,544,293
------------- --------------
TOTAL ASSETS $40,087,217 $33,535,048
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 6a) $ 6,976,699 $ 2,964,465
Accounts payable 1,767,166 654,920
Accrued liabilities and expenses (Note 5) 865,977 490,915
Bank debt (Note 6b) 695,782 1,002,571
Obligations under hire purchase contracts (Note 7) 18,341,778 11,034,951
Acquisition debt payable (Note 9) 4,198,500 5,098,470
Other liabilities (Note 8) 109,978 33,560
-------------- ----------------
TOTAL LIABILITIES 32,955,880 21,279,852
------------ ------------
MINORITY INTEREST IN SUBSIDIARY (Notes 10 and 17) 3,473,242 5,677,891
------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 6a, 14, 15 and 17)
SHAREHOLDERS' EQUITY (Notes 11 and 12):
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
shares issued and outstanding 3,991 3,991
Additional paid-in capital 8,063,111 8,425,722
Retained earnings (deficit) (4,019,828) (1,555,104)
Deferred financing costs (75,178) -
Foreign currency translation (Note 2h) (314,001) (297,304)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY 3,658,095 6,577,305
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $40,087,217 $33,535,048
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended November 30,
1997 1996
REVENUES (Note 2i):
<S> <C> <C>
Contract hire income $ 8,410,366 $ 6,286,677
Sale of vehicles 7,090,028 5,839,080
Fleet management and other income 1,984,656 856,341
------------- --------------
TOTAL REVENUE 17,485,050 12,982,098
------------ ------------
COSTS AND EXPENSES:
Cost of sales 14,368,881 10,272,334
General and administrative expenses 3,577,588 1,834,815
Amortization of goodwill 632,207 634,813
Interest and other expenses 2,209,150 884,223
Loss on sale of fixed assets (Note 4) 753,933 -
Research and development 982,581 -
----------------------------
22,524,340 13,626,185
LOSS BEFORE MINORITY INTERESTS AND PROVISION
FOR INCOME TAXES (5,039,290) (644,087)
Minority interest (Note 10) 2,574,566 315,346
-------------- ---------------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,464,724) (328,741)
Provision for income taxes (Notes 2g and 13) - -
------------------------------------
NET LOSS $ (2,464,724) $ (328,741)
============ =============
LOSS PER COMMON AND DILUTIVE COMMON
EQUIVALENT SHARE (Note 2j):
Net loss before minority interests $(2.53) $(.32)
Minority interest in net loss of subsidiaries 1.29 .16
------- ------
NET LOSS PER SHARE $(1.24) $(.16)
====== =====
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 1,995,357 1,995,357
========= =========
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Retained Deferred Foreign Total
Common Paid-in Earnings Financing Currency Shareholders'
Shares Stock Capital (Deficit) Costs Translation Equity
----------- ------------ ------------------------------------------- ------------------------
Balance at December 1,
<S> <C> <C> <C> <C> <C> <C> <C>
1995 1,905,357 $3,811 $12,126,311 $(1,226,363) $ - $ 409,636 $11,313,395
Compensatory stock
(Note 11) 90,000 180 5,820 - - - 6,000
Minority interest in
shareholders' equity
at time of issue of
shares in subsidiary
(Note 10) - - (3,706,409) - - - (3,706,409)
Foreign currency
translation adjustment - - - - - (706,940) (706,940)
Net loss for the year ended
November 30, 1996 - - - (328,741) - - (328,741)
---------------- ------------------------------------------- ---------------------------------------------
Balance at
November 30, 1996 1,995,357 3,991 8,425,722 (1,555,104) - (297,304) 6,577,305
Foreign currency
translation adjustment - - - - - (16,697) (16,697)
Increase in minority
shareholders' interest - - (362,611) - - - (362,611)
Deferred financing
costs - - - - (75,178) - (75,178)
Net loss for the year ended
November 30, 1997 - - - (2,464,724) - - (2,464,724)
-------------- ------------------------------------------ ------------------------------ ------------
BALANCE AT
NOVEMBER 30, 1997 1,995,357 $3,991 $ 8,063,111 $(4,019,828) $(75,178) $(314,001) $ 3,658,095
========= ====== ============= =========== ======== ========= ============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
PRIDE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 30,
1997 1996
---------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (2,464,724) $ (328,741)
Adjustments to reconcile net loss to net cash provided by operating activities:
Minority interest in net loss of subsidiary (2,574,566) (315,346)
Depreciation and amortization 3,946,635 2,354,942
Amortization of goodwill 632,206 594,735
Gain (loss) on disposal of fixed assets 403,352 (119,030)
Provision for maintenance costs - (18,524)
Changes in assets and liabilities:
(Increase) in accounts receivable (23,189) (556,622)
(Increase) in inventories (120,908) (198,591)
Increase (decrease) in accounts payable, accrued expenses and other creditors 1,563,726 (956,502)
--------------- -------------
Net cash provided from operating activities 1,362,532 456,321
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of revenue - producing assets (16,144,143) (9,858,724)
Proceeds from sale of fixed assets 4,442,160 2,068,601
Acquisition of assets in new subsidiary - (969,279)
--------------------- --------------
Net cash (utilized) by investing activities (11,701,983) (8,759,402)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit 4,012,234 1,870,785
Minority shareholders investment in subsidiary 95,577 2,285,929
Repayment of officers loans - (294,719)
Payment of acquisition debt (899,970) -
Principal payments of long term debt (306,789) (67,921)
Proceeds from hire purchase contract funding 19,491,763 11,530,175
Principal repayments of hire purchase contract funding (12,184,936) (6,073,790)
------------ -------------
Net cash provided from financing activities 10,207,879 9,250,459
------------ --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (38,646) (766,041)
--------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (170,218) 181,337
Cash and cash equivalents, beginning of year 255,283 73,946
-------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 85,065 $ 255,283
============== ==============
</TABLE>
SUPPLEMENTAL INFORMATION: (i) In November 1996, a subsidiary of 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, 1997 AND 1996
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
11) 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 the 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 was financed with the proceeds of a
private debt offering which was completed, by PAG, in December
1996 and by loans (see Note 9). The acquisition was recorded
using the purchase method of accounting (see also Note 17b).
F - 7
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
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):
<TABLE>
<CAPTION>
<S> <C>
Revenues $14.3
Net loss (2.1)
Loss per common share $(1.05)
</TABLE>
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.
F - 8
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(b) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results could
differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
(c) Concentration of Credit Risk/Fair Value:
Financial instruments that potentially subject the Company to
concentrations of credit risk in accordance with SFAS No 105
consist principally of accounts receivable. The Company believes
however, that risks associated with accounts receivable are
limited due to its large customer base and the fact that it
leases vehicles to companies in many industries.
The carrying amounts of cash and cash equivalents, trade
receivables, other assets, accounts payable and debt obligations
approximate fair value.
(d) Inventories:
Inventories include vehicles which are no longer being leased to
customers and which are temporarily being held for resale at cost
less accumulated depreciation, which approximates net realizable
value. The inventories of AC Automotive Group, Inc. and its
subsidiary consist of finished goods, work in progress and spare
parts of specialty automobiles and are stated at the lower of
cost, (first-in, first-out method) or market. Market is
considered as net realizable value.
As of November 30, 1997 and 1996 inventories consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------------- ---------
<S> <C> <C>
Cars held for resale $ 132,369 $ 124,932
Finished goods 90,784 180,307
Work-in-progress 502,500 684,305
Spare parts 522,707 137,908
------------ ------------
$1,248,360 $1,127,452
</TABLE>
F - 9
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(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 or other
disposal, the associated cost and accumulated depreciation of the
asset are eliminated from the accounts and any resulting gain or
loss is included in operations.
(f) Intangible Assets:
Intangible assets consist primarily of goodwill which arose in
connection with the acquisition of certain subsidiaries of PMS.
Goodwill is being amortized over a period of 10-20 years on a
straight-line basis. Accumulated amortization as of November 30,
1997 and 1996 aggregated $3,622,833 and $2,990,626, respectively.
In November 1996, 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 $16,780. This amount
was assigned to the brand name and is being 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, they are subject to taxation in the
UK based upon that country's tax statutes. Under UK taxation
rules, provision is made for taxation deferred as a result of
material timing differences between the incidence of income and
expenditures for taxation and accounting purposes, using the
liability method, only to the extent that there is reasonable
probability that a liability or asset will crystallize in the
near future. See also Note 13 regarding SFAS No 109 - Accounting
for Income Taxes.
F - 10
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(h) Foreign Currency Translation:
The Company's principal operations are conducted by PMS which
reflects its financial statements in British pounds. As a result,
most assets and liabilities of the foreign operations are
translated into US dollars using current exchange rates in effect
at the balance sheet date. Fixed assets and intangible assets are
translated at historical exchange rates. Revenue and expense
accounts are translated using an average exchange rate during the
period except for those expenses related to assets and
liabilities which are translated at historical exchange rates.
These include depreciation and amortization which are translated
at the rates existing at the time the asset was acquired. Any
resulting gains or losses due to the translations are reflected
as a separate item of shareholders' equity.
(i) Income Recognition:
Contract hire income of leased vehicles is recognized as
operating leases over the period of the contract in accordance
with SFAS No 13 - Accounting for Leases and the related
amendments and interpretations. Income from the sale of
previously leased vehicles is reflected at the time of sale of
the vehicle. Fleet management revenues and miscellaneous income
are reflected on the accrual basis over the term that the
services are provided.
The Company leases vehicles with terms generally ranging from two
to four years. The following table shows the future minimum lease
payments of existing leases to be received, net of related costs
(see also Note 7):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
November 30, 1998 $ 7,504,475
November 30, 1999 5,072,831
November 30, 2000 2,152,957
November 30, 2001 418,979
--------------
Total minimum lease payments receivable
net of executory costs $15,149,242
</TABLE>
(j) Earnings (Loss) Per Share:
Earnings per share are computed based upon the weighted average
shares and common equivalent shares outstanding. Common stock
equivalents have been excluded from the computation since the
results would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128 - Earnings Per Share ("SFAS 128"), which
changes the method for calculating earnings per share. SFAS 128
requires the presentation of "basic" and "diluted" earnings per
share on the face of the income statement. SFAS 128 is effective
for financial statements for periods ending after December 15,
1997. The Company will adopt SFAS 128 for the year ending
November 30, 1998, and accordingly restate prior periods, as
early adoption is not permitted. SFAS 128 is not expected to
materially differ from primary or fully diluted earnings per
share as previously reported.
F - 11
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(k) Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
(l) Stock Based Compensation:
SFAS No. 123 "Accounting for Stock Based Compensation", effective
December 1996, requires the Company to either record compensation
expense or to provide additional disclosures with respect to
stock awards and stock option grants made after December 31,
1994. The accompanying Notes to Consolidated Financial Statements
include the disclosures required by SFAS No. 123. No compensation
expense is recognized pursuant to the Company's stock option
plans under SFAS No. 123 which is consistent with prior treatment
under APB No. 25.
(m) New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997 and early adoption is
permitted. This statement prescribes standards for reporting
comprehensive income and its components. The Company will adopt
these standards effective for the year ending November 30, 1998.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information" is effective for years beginning after December 15,
1997 and early adoption is encouraged. The Company is currently
operating in more than one business segment. See Notes 16 and
17b.
See also Earnings (Loss) Per Share.
(n) Impact of the Year 2000 Issue:
The year 2000 issue is the result of computer programs being
written using two digits rather than four to designate the
applicable year. Accordingly, any of the Company's computer
programs that utilize date sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This
could potentially result in a system failure or miscalculations
causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or
engage in other similar normal business activities.
The Company had already planned on upgrading its computer
software to increase operational efficiencies and information
analysis. In conjunction with this upgrade, the Company will
ensure that the new systems properly utilize dates that go beyond
December 31, 1999. The cost of this upgrade project, as it
relates to the Year 2000 issue, is not expected to have a
material effect on the operations of the Company and will be
funded through operating cash flows.
F - 12
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 3 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Trade receivables - net of allowance for doubtful
accounts of $80,486 and $0, for 1997 and 1996,
respectively $ 639,109 $1,288,074
Lease maintenance receivables 943,261 330,902
Value added tax 138,555 102,114
Due from related companies 83,219 -
Other 155,211 215,076
------------ ------------
$1,959,355 $1,936,166
</TABLE>
NOTE 4 - FIXED ASSETS AND DEPRECIATION:
<TABLE>
<CAPTION>
Fixed assets consist of the following:
1997 1996
---------------- -----------
<S> <C> <C>
Buildings and improvements $ 820,160 $ 1,719,415
Revenue producing vehicles 27,612,291 17,282,095
Furniture, fixtures, plant and equipment 4,670,067 4,641,388
Aircraft - 927,751
-------------------- ---------------
33,102,518 24,570,649
Less: accumulated depreciation (including
$4,263,115 and $3,388,495 of accumulated
depreciation on revenue producing vehicles,
for 1997 and 1996, respectively) 5,220,168 3,898,795
------------- -------------
$27,882,350 $20,671,854
</TABLE>
Depreciation expense for the years ended November 30, 1997 and
1996 aggregated $3,946,635 and $2,354,942, respectively.
One of the buildings owned by Pride Management was being leased
to an unrelated party at an annual rent of approximately $80,000
per annum. In November 1997, the tenant exercised an option to
purchase the building for approximately $400,000.
NOTE 5 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -------
<S> <C> <C>
Taxes other than income taxes $438,289 $418,082
Miscellaneous accrued expenses 427,688 72,833
--------- ----------
$865,977 $490,915
======== ========
</TABLE>
F - 13
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 6 - BANK LOANS/LINE OF CREDIT:
(a) As of August 31, 1997, the Company's line of credit with its bank
expired. In February 1998, subsequent to the balance sheet date,
the Company entered into a new agreement with the bank. This new
line of credit of $7,202,500, is payable on demand and is secured
by all assets of the Company other than building and
revenue-producing vehicles which are already pledged (see Notes
6b and 7). Interest is payable at rates between 2% and 4% in
excess of the bank's base rate (7 1/2% at November 30, 1997).
This facility has to be reduced by $837,500 by March 31, 1998 and
a further $921,250 by December 31, 1998. The agreement is due for
review in November 1998.
(b) At November 30, 1997, other bank loans consisted of $695,782
payable at a rate of 3% in excess of the bank's base rate
($1,002,571 due to two banks at rates of 3% and 5% in excess of
the banks' base rate as of November 30, 1996). This loan is
secured by the freehold properties (buildings) owned by Pride
Management and its subsidiaries, and matures in 2017.
The scheduled principal payments of this bank debt as of November
30, 1997 are as follows:
For the Year Ended November 30,
1998 $ 84,058
1999 84,058
2000 84,058
2001 84,058
2002 84,058
Thereafter 275,492
--------
$695,782
NOTE 7 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING:
The Company has funding lines with several financing institutions
in the United Kingdom in the aggregate amount of approximately
$23,667,500 as of November 30, 1997. These funding lines are
utilized to acquire revenue producing vehicles, which vehicles
collateralize the outstanding obligations.
F - 14
<PAGE>
PRIDE INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
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, 1997, obligations under hire purchase contracts are as
follows:
For the Year Ended November 30,
1998 $ 8,860,849
1999 7,060,375
2000 2,372,636
2001 47,918
--------------
$18,341,778
The annual interest rates on these obligations range from 9% to
11%.
NOTE 8 - OTHER LIABILITIES:
At November 30, 1997 and 1996 other liabilities consisted of
$109,978 and $33,560, respectively, due to other creditors at
interest rates approximating the current market rates and are
repayable on a demand basis.
NOTE 9 - ACQUISITION DEBT PAYABLE:
Acquisition debt payable (see Note 1) consists of the following:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------
<S> <C> <C>
Unsecured notes payable on demand after May 31, 1998; interest
payable quarterly at 2% above the
base rate $ 837,500 $ 839,000
Unsecured notes payable on demand after May 31,
1998; interest payable at 10% per annum 1,615,000 -
Unsecured notes payable on demand after October 31,
1999; interest payable quarterly at 8% per annum 1,675,000 1,678,000
Other short-term notes payable 71,000 2,581,470
------------- -----------
$4,198,500 $5,098,470
</TABLE>
F - 15
<PAGE>
PRIDE INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 10 - 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 $3,706,409 in order to
properly reflect the aggregate minority interest liability at
$5,677,891 which represents 43.45% of the net assets of PAG
including the minority interest in PAGs 70% owned, newly formed,
subsidiary, AC Automotive Group Inc. See also Note 17b.
NOTE 11 - 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.
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.
NOTE 12 - STOCK OPTION PLANS:
During 1994, the Company adopted a Stock Option Plan ("the Plan")
whereby options to purchase an aggregate of not more than
1,000,000 shares, as amended 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 Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees (APB
25) and related interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123
"Accounting for Stock-Based Compensation" requires use of option
valuation models that were not developed for use in valuing
employee stock options. Under APB 25, if the exercise price of
the Company's employee stock options equals the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.
F - 16
<PAGE>
PRIDE INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 12 - STOCK OPTION PLANS (Continued):
Pro forma information regarding net income and earnings per share
is required by Statement 123, and has been determined as if the
Company had accounted for its employee stock options under the
fair value method of that Statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: risk-free interest
rates of 6.1% and 6.8% and dividend yields of 2.6% and 1.8%.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options vesting
period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1997 1996
--------------- --------
Net loss:
<S> <C> <C>
As reported $(2,464,724) $(328,741)
Pro forma (2,663,124) (407,141)
Basic loss per share:
As reported (1.24) (.16)
Pro forma (1.33) (.20)
</TABLE>
A summary of stock option activity, and related information for
the years ended December 31, follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Price
<S> <C> <C>
Outstanding at December 31, 1995 255,000
Granted 245,000 .48
Exercised - -
Canceled - -
-------------- ----
Outstanding, November 30, 1996 500,000 .48
------
</TABLE>
F - 17
<PAGE>
PRIDE INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 12 - STOCK OPTION PLANS (Continued):
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Price
<S> <C> <C>
Weighted average fair value of options
granted during the year -
Granted 320,000 .38
Exercised - -
Canceled - -
-------------- ---
Outstanding, November 30, 1997 820,000 .38
======== ---
Weighted average fair value of options
granted during the year -
Options exercisable:
November 30, 1996 205,000
November 30, 1997 475,000
</TABLE>
Exercise prices for options outstanding as of November 30, 1997
ranged from $.38 to $1.65. The weighted-average remaining
contractual life of these options is seven years.
NOTE 13 - INCOME TAXES:
The Company has available operating losses carryforwards for tax
purposes aggregating approximately $4,000,000 as of November 30,
1997, which may result in a deferred tax asset. The Company has
recognized this asset but has provided a valuation allowance for
the full amount since there is no assurance that such losses will
be utilized in the near future.
The components of the deferred tax asset, pursuant to SFAS No.
109, as of November 30, 1997 and 1996, respectively, are as
follows:
<TABLE>
<CAPTION>
1997 1996
--------------- --------
<S> <C> <C>
Operating loss carryforward $1,360,000 $ 52,000
Valuation allowance (1,360,000) (52,000)
----------- ---------
$ - $ -
================= =======
</TABLE>
F - 18
<PAGE>
PRIDE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 14 - PENSION PLAN:
PMS and its' subsidiaries have a fully insured defined
contribution plan for all of its eligible employees.
Contributions to the plan, which are discretionary, for the years
ended November 30, 1997 and 1996 amounted to $65,726 and $33,264,
respectively.
NOTE 15 - COMMITMENTS:
(a) Leases:
In November 1996, PAG entered into a one-year lease agreement for
the manufacturing facility being utilized for its new subsidiary
at a cost of approximately $54,000 per month, with an option to
purchase this facility at a cost of $8,700,000, through August
1997. In August 1997, PAG sold this option to purchase for
$673,750 and negotiated a new lease for a smaller portion of this
facility at an approximate cost of $31,000 per month.
(b) Employment Agreements:
In August 1995, the Company entered into an employment agreement
with its President/Chairman of the Board of Directors. This
three-year agreement provides for an annual salary of $160,000
with annual escalations of 10% and also contains certain
non-compete restrictions. This employee was also granted 100,000
stock options (see Note 12).
In September 1995, the Company entered into an employment
agreement with an officer/director for a period of twenty-four
months commencing December 1, 1995. This agreement is
automatically extendable for a further twenty four-month period
subject to review by the Board of Directors. For the year ended
November 30, 1997, the annual salary amounted to $71,000
(c) Rental Income:
The Company leased one of its owned facilities to an unaffiliated
company for an annual rental of approximately $80,000 per annum.
The annual cost of servicing the mortgage and real estate taxes
on this building was approximately $70,000. In November 1997,
this property was sold for $400,000 (see Note 4).
NOTE 16 - BUSINESS SEGMENT INFORMATION:
The Company's operations have been classified into two business
segments; Contract Hire and Leasing and Automobile Manufacture.
The Contract Hire and Leasing is the business of Pride Management
Services Plc and its subsidiaries and utilizes the resale of
automobiles at the end of the contracts. The Automobile
Manufacturer is the business of AC Car Group Limited. This
segment began operations in December 1996.
F - 19
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 16 - BUSINESS SEGMENT INFORMATION (Continued):
Summarized financial information by business segment for the
years ended November 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -----------
Revenue:
<S> <C> <C>
Pride Management Services Plc $16,275,113 $12,982,098
AC Car Group Limited 1,209,937 -
--------------------------
$17,485,050 $12,982,098
Income (Loss) Before Minority Interests:
Pride Management Services Plc $ (927,626) $ (644,087)
AC Car Group Limited (4,111,664) -
------------- -------------
$ (5,039,290) $ (644,087)
============ =============
Total Assets:
Pride Management Services Plc $35,473,621 $27,526,155
AC Car Group Limited 4,613,596 6,008,893
------------- --------------
$40,087,217 $33,535,048
Depreciation and Amortization:
Pride Management Services Plc $ 4,155,846 $ 2,929,977
AC Car Group Limited 422,995 19,700
-------------- ---------------
$ 4,578,841 $ 2,949,677
============ ============
Capital Expenditures:
Pride Management Services Plc $14,948,027 $ 8,002,360
AC Car Group Limited 1,196,116 1,856,364
------------- -------------
$16,144,143 $ 9,858,724
=========== ============
</TABLE>
NOTE 17 - SUBSEQUENT EVENTS:
(a) In January 1998, PAG filed a Form SB-2 with the Securities and
Exchange Commission, registering for the sale of 1,000,000 shares
of common stock. The estimated net proceeds from this offering is
expected to be $4,100,000. The Company intends to use these
proceeds to repay existing debt.
(b) In February 1998, AC Automotive, PAG's 70% owned subsidiary,
issued additional shares to certain individuals and an entity
affiliated with the Company's President for aggregate cash of
$7,076. As a result of this and other transactions, PAG's
ownership in this subsidiary was diluted to 16%, and the Company
is no longer reflecting this investment under the consolidation
or equity method of accounting. The following condensed pro-forma
unaudited balance sheet assumes this dilution occurred as of
November 30, 1997:
F - 20
<PAGE>
PRIDE AUTOMOTIVE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1997 AND 1996
NOTE 17 - SUBSEQUENT EVENTS (Continued):
<TABLE>
<CAPTION>
Assets:
<S> <C>
Cash $ 84,227
Accounts receivable - net 4,178,222
Inventory 132,369
Fixed assets - net 24,489,646
Intangible assets - net 8,875,599
Investment in affiliate 1,800,000
-------------
$39,560,063
Liabilities and Shareholder's Equity:
Bank line of credit $ 5,297,687
Accounts payable and accrued expenses 2,030,459
Bank debt 695,782
Obligations under hire purchase contracts 18,341,778
Loans payable 1,773,313
Minority interest 5,473,209
Shareholders' equity 5,947,835
------------
$39,560,063
</TABLE>
The following pro forma unaudited statement of operations assumes
the disposition occurred at the beginning of the year ended
November 30, 1997:
Revenue $16,275,113
Expenses 17,201,922
Net loss (926,809)
Loss per share (.46)
The pro-forma financial information is not necessarily indicative
of the results that would have occurred had this dilution
occurred as of the dates indicated above nor are they necessarily
indicative of future operating results.
F - 21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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, 1997 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> nov-30-1997
<PERIOD-START> dec-01-1996
<PERIOD-END> dec-01-1997
<CASH> 85,065
<SECURITIES> 0
<RECEIVABLES> 2,039,841
<ALLOWANCES> 80,486
<INVENTORY> 1,248,360
<CURRENT-ASSETS> 0
<PP&E> 33,102,518
<DEPRECIATION> 5,220,168
<TOTAL-ASSETS> 40,087,217
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,991
<OTHER-SE> 3,654,104
<TOTAL-LIABILITY-AND-EQUITY> 40,087,217
<SALES> 15,500,394
<TOTAL-REVENUES> 17,485,050
<CGS> 14,368,881
<TOTAL-COSTS> 14,368,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,209,150
<INCOME-PRETAX> (2,464,724)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,464,724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,464,724)
<EPS-PRIMARY> (1.24)
<EPS-DILUTED> (1.24)
</TABLE>
