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, 1998
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)
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Delaware 65-0109088
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
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Pride House, Watford Metro Centre, Tolpits Lane, Watford,
Hertfordshire, WD1 8SB England
(Address of principal executive offices)
011441923211888
(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 [x].
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 $428,882, 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 $8,329,000 for its
fiscal year ended November 30, 1998. On November 30, 1998 there were 1,995,357
shares of Registrant's Common Stock outstanding.
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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.
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.
In connection with the Reorganization and formation of PAG, PMS became a
wholly owned subsidiary of PAG which, prior to PAG's initial public offering,
was approximately 72.8% owned by Pride. PMS is a holding company which has six
wholly owned subsidiaries which, prior to the Asset Disposition (as hereinafter
defined) engaged in the Company'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 operated as one
unit, with the same management and facilities. Unless the context otherwise
requires, all references to the "Company" are to its wholly owned subsidiary,
PMS and PMS's six wholly owned subsidiaries. See "Subsidiaries."
Public Offering of Pride Automotive Group, Inc.
In April 1996, PAG completed an underwritten initial public offering of its
securities. The securities were registered with the Securities and Exchange
Commission ("SEC") pursuant to a registration statement on Form SB-2. The
initial public offering was declared effective by the SEC on April 24, 1996. In
the offering, PAG sold 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, PAG 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 PAG'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
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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
securities of the Company are currently traded on the NASD Bulletin Board. Prior
to February 19, 1999, PAG's securities were traded on the Nasdaq SmallCap Stock
Market and the Boston Stock Exchange, Inc. On February 19, 1999, both Nasdaq and
the Boston Stock Exchange halted trading in PAG's upon its dissemination of news
that it had executed a letter of intent to acquire a company known as Digital
Mafia Entertainment, LLC. ("DME"). Shortly thereafter, PAG received notice from
Nasdaq that it was being delisted for, among other things, failure to maintain
tangible book value of at least $2,000,000.
In 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 had entered into a letter of intent with Mason Hill & Co., Inc.,
an NASD broker-dealer, to underwrite such securities a firm commitment basis.
The Registration Statement was subsequently withdrawn by PAG.
Business of Pride Management Services, Plc.
Prior to November 1998, the Company engaged in the business of leasing new
automobiles to businesses through PMS, servicing such automobiles during the
lease term and remarketing the automobiles upon the expiration of the lease. In
November 1998, PMS and its subsidiaries entered into an agreement with Newcourt
Automotive Services, Ltd. ("Newcourt) to sell it substantially all of their
leasing portfolios for the sum of approximately $14,763,000. The portfolio sold
had been carried on the books of the Company at a value of approximately
$17,851,000. PMS currently maintains leases on approximately 10 vehicles,
although it intends to discontinue its leasing operations by the end of calendar
year 1999. The sale of such assets was deemed necessary by PMS due to pressure
from its lenders. The sale of the leasing portfolios and operating losses
reduced PAG's net tangible assets to a level which caused the NASDAQ SmallCap
market to delist its securities.
Employees
As of June 11,1999, the Company employed no persons directly. As at such
date, PAG and its subsidiaries employed persons respectively for their
operations.
Properties
The Company, through PMS, 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.
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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. PAG is currently in litigation
relating to sums claimed to be owed on a $95,000 promissory note. It is expected
that such litigation will be settled prior to June 30, 1999.
Acquisition of AC Car Group Limited
In November 1996, PAG, through its subsidiary AC Automotive Group Limited
("Automotive"), 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.
The Asset Purchase was financed by a private placement, whereby PAG issued
an aggregate of approximately $1,615,000 of promissory notes and 170,000 shares
of Common Stock to Holders. Mason Hill acted as placement agent in such private
placement. Additionally, Mason Hill loaned the Company $100,000 of which $29,000
was repaid in cash and $71,000 was repaid through the issuance of 142,000 shares
of PAG common stock in February 1999. Interest and principal due under the Notes
was in default at year end and PAG lacked the liquidity and capital resources to
repay same. The Company's 16% equity interest in Automotive is valued at
approximately $4,048,460 as at the date hereof.
Subsequent to the end of fiscal 1998, PAG and the holders of $1,425,000 of
principal notes agreed to issue 2,850,000 shares of PAG common stock in exchange
for principal and interest due under the Notes. PAG has also entered into an
agreement to repay the holder of $95,000 principal note the sum of $100,000 in
exchange for principal and interest due under the Note, together with the
noteholder agreeing to return 10,000 shares of PAG common stock to PAG. The
remaining holder of a $95,000 principal note has commenced litigation against
PAG. PAG expects to settle such litigation in June 1999.
Sale of PAG Interest in AC Car Group Limited to the Company
PAG sold its 16% interest in Automotive to the Company for the sum of $1.00
on the closing of the Digital Acquisition. The sale of the Automotive interest
to the Company was coupled with the sale by PAG of its interest in PMS to the
Company for the sum of $1.00.
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.
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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.
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."
Development Projects and Enhancements
The Company is advised that Automotive, through AC, intends to continue to
evaluate developing the Cobra and the Ace's chassis to be compatible with other
engines.
Marketing and Sales; License Arrangement
AC Cars has used very little, if any, print or other media advertising with
respect to the AC Ace. However, both the Cobra and the Ace have been the subject
of numerous magazine articles in automotive publications, and, as such, have
received extensive exposure.
As discussed above, AC Cars and Autokraft were using the name Cobra under a
license arrangement with Ford Motor Company. Although the arrangement became
void when the two companies were placed in receivership, PAG had entered into a
new licensing arrangement with the Ford Motor Company whereby it procured a
three year license to use the name "Cobra," terminating in December 1999.
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The Company believes that the principal markets for sales of AC automobiles
are the United States, Australia, Germany and the United Kingdom. Automotive 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").
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. Although this arrangement
became void when the two businesses were sold by the Receivers to Automotive, AC
Car Group Limited, AC Car Group Limited entered into a new licensing agreement
with the From Motor Company whereby it procured a license to use the name
"Cobra". Former management of Autokraft and AC Cars had advised PAG that it is
not aware of any actions attempting to invalidate or challenge its use of such
trademarks and that it has not received any notice or claims of infringement
regarding its trademarks.
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, Automotive and AC
do not carry business interruption or key man insurance. See "Risk Factors."
Properties
AC currently occupies premises on a four acre site at the Brooklands
Industrial Park in Surrey, England. The property comprises a factory, workshop,
showroom and office space. In all, the facility provides approximately 90,000
square feet of manufacturing area and 20,000 square feet of executive office
area. PAG had agreed to lease the premises currently occupied by AC for a period
of one year commencing December 1, 1996. Its 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
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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. Automotive retained approximately 31 of such employees upon
completion of the Asset Acquisition and has hired 16 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. It 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. AC and Automotive had agreed to lease the premises currently occupied by
AC for a period of one year commencing December 1, 1996. The lease costs
approximately (pound)32,000 ($53,632) 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
AC is not a party to any material litigation. 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.
Acquisition of Digital Mafia Enterprises, LLC
PMS is winding down its operations and has a negative net worth. The
Company has acquired PMS from PAG for nominal consideration (ie, $1.00) together
with its interest in Automotive. Although Automotive has a book value in excess
of $4,000,000, the Company advised PAG that it would not acquire PMS, with its
negative book value, without acquiring the 16% interest in Automotive. The
Company is of the opinion that PMS is of no commercial value and agreed to
acquire same from PAG to orderly sell off the remaining assets and attempt to
minimize any additional losses to lenders of PMS. The disposition of PMS and
Automotive was approved by the shareholders of PAG (which the Company,
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as majority shareholder, approved by vote of the Company's board of directors)
and was completed on June 18, 1999 simultaneous with PAG's completion of the
acquisition of Digital Mafia Enterprises, LLC.
("DME" or "Digital").
The opportunity to acquire DME was presented to PAG by Mason Hill. Mason
Hill had agreed to act as PAG's investment bankers in connection with such
acquisition opportunity and will be compensated therefor. In addition, the
Company retained Mason Hill as investment bankers subsequent to the end of
fiscal 1998 and has issued Mason Hill 81,000 shares of its common stock as
compensation therefor.
On February 19, 1999, PAG entered into a letter of intent to acquire 100%
of the capital stock of Digital in exchange for 7,400,000 shares of PAG"s common
stock. After receiving a notice of delisting from NASDAQ, PAG and DME
renegotiated the terms of the acquisition, and agreed to double the number of
shares being issued to DME to 14,800,000 in exchange for 100% of the issued and
outstanding capital stock of DME. The Acquisition was completed in June 1999.
PAG will have approximately 23,352,999 shares of its common stock issued and
outstanding, 1,425,000 of which are owned by the Company.
This includes approximately 728,000 shares being issued in lieu of debt and
costs of $364,000 and 740,000 shares of common stock being issued to Mason Hill
for its investment banking services in connection with the Digital Transaction.
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, 1998.
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.
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Common Stock
Calendar Quarter Prices
Ended Low High
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12/01/97 to 2/28/97 1/4 1
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 2/28/98 5/16 1
3/01/98 to 5/31/98 1/4 1
6/01/98 to 8/31/98 5/16 1
9/01/98 to 11/30/98 1/4 1
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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 November 30, 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 security
holders, dealers and clearing agencies. The Company believes there are in excess
of 400 beneficial holders of the Common Stock.
The Company has paid no dividends and has no present plan to pay dividends.
Payment of future dividends will be determined from time to time by its board of
directors, based upon its future earnings, if any, financial condition, capital
requirements and other factors. The Company is not presently subject to any
contractual or similar restriction on its present or future ability to pay such
dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of significant
factors which have affected the Company's financial position and operations
during the years ended November 30, 1998 and 1997.
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
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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 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 acquiror 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 majority of 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 purpose and pays
for all the maintenance on the vehicle during the lease term.
All references to the Company, include its subsidiary, Pride Automotive
Group, Inc, and its subsidiaries.
The Company has servicing agreements with automobile dealers and service
centres, 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, user 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
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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 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 an liabilities which are translated at historical
exchange rates. These expenses include depreciation and amortisation 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. The purchase price of approximately
$6,000,000 was financed by the sale of common stock and by loans. The
acquisition involved the purpose of plant and equipment, the brand name,
inventories and an aircraft and was recorded using the purchase method of
accounting.
On February 12, 1998, following restructure of AC Automotive Group, Inc,
the ownership of AC Automotive Group, Inc, by PAG was reduced to 16% (see Note
1- Description of Company). PAG's investment in AC Automotive Group, Inc, is
therefore being reported under the cost method of accounting.
On December 11, 1998, PAG, through its subsidiary, Pride Management
Services Plc, completed the sale of a large portion of its leasing assets (see
Note 3 - Subsequent Event). Pride Management Services Plc, through its
subsidiaries, continues to service the remaining contract hire agreements.
On February 19, 1999, PAG executed a letter of intent to acquire all the
issued and outstanding capital stock of Digital Mafia Entertainment, LLC, in
exchange for the issuance of 7,400,000 shares of common stock. In addition, PAG
also announced that it will, at the same time, sell its shares in Pride
Management Services Plc and its 16% interest in Automotive to the Company, its
majority shareholder, for a nominal value ($1.00 each). After receiving a notice
of delisting from NASDAQ on March 12, 1999, PAG and DME renegotiated the terms
of the acquisition, and agreed to double the number of shares being issued to
DME to 14,800,000 in exchange for 100% of the issued and outstanding capital
stock of DME. The Acquisition was completed in June 1999. PAG will have
approximately 23,352,999 shares of its common stock issued and outstanding,
1,425,000 of which are owned by the Company.
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RESULT OF OPERATIONS -
YEARS ENDED NOVEMBER 30, 1998 AND NOVEMBER 30, 1997
The following discusses the results of operations of the contract hire and
fleet management operations of the Company. The Consolidated Statement of
Operations for November 30, 1997 included the consolidated results of AC
Automotive Group, Inc.
Contract hire income for the year ended November 30, 1998 was approximately
$8,329,000 compared to approximately $8,410,000 for the year ended November 30,
1997, a decrease of $81,000. The main reason for this small decrease is that
there was an overall decrease in the contract hire fleet of 88 vehicles over the
year which gave rise to the decrease in revenues.
Fleet management and other income for the year ended November 30, 1998 was
approximately $492,000 compared to approximately $1,076,000 for the year ended
November 30, 1997, a decrease of $534,000. This decrease is mainly due to a
decrease of 385 vehicles managed and loss of rental income from property
disposed at the end of 1997.
Vehicle sales for the year ended November 30, 1998 was approximately
$4,302,000 compared to approximately $6,762,000 for the year ended November 30,
1997. This decrease was mainly due to reduction in sale of vehicles at low
margins to take advantage of dealer bonuses.
For the year ended November 30, 1998, 194 new vehicles were acquired as
against 550 in the year ended November 30, 1997. The average monthly rental of
new contracts written was $675 as against an average of $541 per vehicle for the
previous year. The average monthly rental is dependant on the type of vehicle
being rented and the terms of the contract.
For the year ended November 30, 1998, 284 vehicles were disposed of on
termination of contracts. 152 vehicles were disposed of at an average net profit
of $2,830 and 132 vehicles were disposed of at an average net loss of $3,191 per
vehicle. 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. The average
profit per disposal is dependent on the type and the current market value of
vehicles sold, as well as any additional termination income that accrues on
termination of the contract.
As of November 30, 1998, 1,265 vehicles were under lease and management
compared to 1,740 vehicles as at November 30, 1997.
Cost of sales including depreciation, decreased by approximately $3,146,000
or 16% when comparing the years ended November 30, 1998 and 1997. This decrease
is less than the 19% decrease in revenues. As a percentage of sales, cost of
sales for 1998 was 85.5% versus 82.6% for 1997.
General and administration expenses increased from approximately $1,958,000
to $1,988,000, an increase of $130,000 or 7%. Management believe that this
increase was acceptable in a difficult trading environment.
11
<PAGE>
Interest expense increased from $1,747,000 in 1997 to $2,307,000 in 1998,
an increase of $560,000. Management attributes this increase to the effect of
funding for a full year, the 550 new vehicles acquired in 1997 and the increased
cost of the increasing bank line of credit.
After the completion of the sale of a substantial portion of the contracts
and related assets on December 11, 1998, the Company decided to write off the
intangibles.
Loss for the years ended November 30, 1998 and 1997, prior to amortization
and write off of goodwill for the period ($9,075,000 and $632,000 respectively)
and before minority interests aggregated ($2,477,283) and ($295,419).
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. As at November 30, 1998 and 1997, the
Company's balance sheet reflected cash of $55,000 and $85,000 respectively,
accounts receivable of $1,572,000 and $1,959,000 respectively, and total assets
of $27,275,000 and $40,087,000 respectively. The principal reason for the
decrease in total assets is due to the deconsolidation of the assets in AC
Automotive Group, Inc, after the change in ownership and control.
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 proceeds of $120,000 ($0.24 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.
During the years ended November 30, 1998 and 1997, the Company generated
cash flows from operating activities aggregating approximately $3,903,000 and
$1,362,000 respectively. Investing activities reflect uses of cash for the years
ended November 30, 1998 and 1997 of $2,327,000 and $11,701,000 respectively.
These uses of cash are the result of the purchase of fixed assets (primarily
revenue producing vehicles) net of the proceeds from sale of vehicles at lease
expiration dates and the acquisition described above and the disposal of shares
in PAG for $236,000.
For the year ended November 30, 1998, the Company utilized cash from
financing activities of $1,913,000. This was due to financing provided by bank
lines of credit ($966,000) and increases in financing of new vehicles
($6,888,000) net of the amounts to reduce hire purchase financing ($9,757,000)
and long term debt ($10,000). For fiscal 1997, the Company provided cash from
financing activities ($10,208,000) primarily due to financing provided by
banking lines of credit ($4,012,000) plus increases in financing of new vehicles
($19,492,000) net of amounts needed to reduce hire purchase contract financing
($12,185,000) and debts ($1,207,000) and the net proceeds from the sale of stock
($96,000).
There are no material planned capital expenditure.
12
<PAGE>
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 word "anticipate",
"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.
The Company has incurred losses from operations of $11,552,148 and
$5,039,290 before minority interests for the years ended November 30, 1998 and
1997. The losses for the year ended November 30, 1997 includes a loss of
$4,111,664 incurred by its then subsidiary, AC Car Group Limited. The equity
held in this Company has since been diluted and the Company's accounts are
therefore no longer consolidated. The losses for the year ended November 30,
1998 includes $8,444,147 from the writing off of the goodwill related to the
subsidiary, Pride Management Services Plc, as substantially all of its assets
were sold on December 11, 1998 (see Note 3). The circumstances described above,
together with the material events discussed in Note 3 to the financial
statements, which took place subsequent to November 30, 1998, and the restated
proforma balance sheets after these events, raise substantial doubts about the
Company's ability to continue as a going concern.
Management plans in regard to this matter were described in a press release
issued on February 19, 1999. In this press release, it was announced that PAG
had executed a Letter of Intent to acquire all of the issued and outstanding
capital stock of Digital Mafia Entertainment, LLC, in exchange for the issuance
of 7,400,000 shares in Pride Automotive common stock. After receiving a notice
of delisting from NASDAQ, PAG and DME renegotiated the terms of the acquisition,
and agreed to double the number of shares being issued to DME to 14,800,000 in
exchange for 100% of the issued and outstanding capital stock of DME. In
addition, PAG also announced that it will, at the same time, sell its ownership
of Pride Management Services and its 16% ownership interest in Automotive to
Pride, Inc, its majority shareholder, for nominal value ($1.00 each). The sale
was completed in June 1999.
Management may also raise capital through the sale of its PAG stock for the
purpose of meeting its financial obligations and those of Automotive. If this
raising of capital is unsuccessful, then Automotive will not have sufficient
cash on hand to meet its current obligations. The financial statements do not
include any adjustments that might result from this uncertainty.
ITEM 7. FINANCIAL STATEMENTS
See attached Financial Statements.
13
<PAGE>
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, 1995, 1996, 1997 and
1998. 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.
14
<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 at year end fiscal 1998
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Alan Lubinsky 41 President,
Secretary
Chairman of
the Board
and Director
Ivan Averbuch 43 Chief Financial
Officer
and Director
Allan Edgar 53 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 was been the President and a director of Pride Automotive
Group, Inc. ("PAG") since its inception in March 1995 to June 1999. Mr. Lubinsky
has been the Chief Executive Officer and a director of AC Automotive Group, Inc.
since its inception in 1996. 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 to June 1999. 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 to June 1999.
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,
15
<PAGE>
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 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 no officers, directors or greater than 10% shareholders have
filed such reports as is required pursuant to Section 16(a) during the 1996
fiscal year. Alan Lubinsky, Ivan Averbuch and Allan 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.
16
<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, 1997 and 1996. 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) 1998 $82,500 - $30,000
1997 $176,000 - $30,000
President, Secretary 1996 $160,000 - $30,000
and Chairman of the Board
</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 1998, 1997 and 1996, 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.
17
<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 $0.38 per share. The shares underlying this option will vest on June 2,
1998.
Stock Options
The following table sets forth certain information concerning the grant of
stock options made during the year ended November 30, 1998, under the Company's
1994 Stock Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
====================================================================================================================================
Individual Grants
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
% of Total
# of Securities Options/SAR's
underlying Granted to
Options/SAR's Employees in Exercise or Base
Name Granted(1) Fiscal Year Price ($/SH) Expiration Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <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% $0.38 6/1/08
====================================================================================================================================
</TABLE>
(1) Represents incentive stock options granted under the Company's 1994
Stock Option Plan (the "Plan"), as amended. Options granted under the Plan are
intended to qualify as incentive stock options under the Internal Revenue Code
of 1986, as amended. Under the terms of the Plan, options may be granted to
officers, key employees, directors and consultants of the Company until December
1999. Options granted to directors, who are not officers or employees, or to
consultants, do not qualify as incentive stock options. The option price per
share may not be less than the fair market value of the Company's shares on the
date the option is granted. However, options granted to persons owning more than
10% of the Company's Common Stock may not have a term in excess of five years
and may not have an option price of less than 110% of the fair market value per
share of the Company's shares on the date the option is granted. See "--1994
Stock Option Plan."
18
<PAGE>
The following table contains information with respect to employees of the
Company concerning options held as of November 30, 1998
AGGREGATED OPTION/SAR EXERCISE IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
================================================================================================================================
(a) (b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised In-
Unexercised The-Money
Options/SAR's at Options/SAR's
FY-End (#) at FY-End($)
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.
19
<PAGE>
Employment Agreements
No Officer receives compensation from the Company or has any employment
agreement with the Company. Alan Lubinsky entered into an employment agreement
with PAG in August 1995. The agreement is for a term of three years, and pays
Mr. Lubinsky an annual salary of $160,000 per annum with 10% yearly escalations,
subject to adjustment by PAG's board of directors. Pursuant to the terms of his
employment agreement, Mr. Lubinsky will devote all his business time to the
affairs of the Company and PAG. 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 PAG in September
1995, for a term of 24 months, commencing December 1, 1995. The agreement is
automatically extendable for an additional 24 months, subject to cancellation by
either PAG or Mr. Averbuch on 90 days written notice. Pursuant to the terms of
the agreement, Mr. Averbuch is to receive an annual salary of $55,000 per annum,
with an annual increase of 10% per annum, subject to review by the PAG's board
of directors.
1994 Stock Option Plan
During 1994, the Company adopted the Company's 1994 Stock Option Plan (the
"Plan"). The Board believes that the Plan is desirable to attract and retain
executives and other key employees of outstanding ability. Under the Plan,
options to purchase an aggregate of not more than 500,000 shares of Common Stock
may be granted from time to time to key employees, officers, directors, advisors
and independent consultants to the Company and its subsidiaries.
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.
20
<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.
21
<PAGE>
ITEM 11. PRINCIPAL STOCKHOLDERS
The following table sets forth certain information at November 30, 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 Hertfordshire
WD1 8SB England
Ivan Averbuch (5) 50,000 *
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Allan Edgar * *
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
New World Finance, Ltd. (1) 1,050,535 52.6%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
22
<PAGE>
Eros Nominees, Ltd. (1) 100,000 5.0%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
WD1 8SB England
Fort Investments, Ltd. (1) 100,000 5.0%
c/o Pride House
Watford Metro Centre
Tolpits Lane
Watford Hertfordshire
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.
23
<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
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
24
<PAGE>
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 were traded on the Nasdaq SmallCap Stock Exchange and the
Boston Exchange until March 1999, when they were delisted. PAG's common stock
and warrants currently trade on the NASD OTC Bulletin Board.
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 17 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 1998 fiscal year, the Company filed no Reports on Form 8-K.
(c) The exhibits designated with an asterisk have previously been filed with the
Commission in connection with Pride, Inc.'s Report on Form 8-K, dated January
13, 1994, PAG's Registration Statement on Form SB-2 dated January 12, 1996
(33-296-NY) and PAG's Report on Form 8-K dated September 5, 1996, pursuant to 17
C.F.R. ss.230.411, are incorporated by reference herein.
<TABLE>
<CAPTION>
<S> <C>
2.1* - Agreement and Plan of Reorganization dated effective as of January
13, 1994.
3.1* - Amendment to the Certificate of Incorporation of the Company dated January
15, 1994.
3.2* - By-Laws of the Company.
25
<PAGE>
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>
26
<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 June, 1999.
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 6/28/99
ALAN LUBINSKY of the Board of Directors (Principal Date
Executive Officer)
/s/ Ivan Averbuch Chief Financial Officer 6/28/99
IVAN AVERBUCH Date
/s/ Allan Edgar Director 6/28/99
ALLAN EDGAR Date
</TABLE>
27
<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, 1998 and 1997 F - 3
Consolidated Statements of Operations for the Years Ended November 30, 1998 and 1997 F - 4
Consolidated Statement of changes in Shareholders' Equity for the Years Ended November 30, 1998 and 1997 F - 5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1998 and 1997 F - 6
Notes to Consolidated Financial Statements F - 7 to 22
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Pride, Inc.
and subsidiaries as of November 30, 1998 and 1997 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, 1998. 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, 1998 and 1997 and the results of their
operations for the two years in the period ended November 30, 1998 in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company had incurred losses of $11,552,148 and
$5,039,290 before minority interests for the years ended November 30, 1998 and
1997, respectively. This, together with the sale of assets, the restated balance
sheets after this sale, and the delisting of PAG's shares from the Nasdaq Small
Cap Market as discussed in Note 3 to the financial statements, raises
substantial doubts about PAG's ability to continue as a going concern.
Management's plans regarding these matters are also discussed in Note 2. As
discussed in Note 3, the restated pro forma balance sheets show that there was
an excess of liabilities over assets on December 11, 1998. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
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 4(h) of the notes to the consolidated financial statements.
<TABLE>
<CAPTION>
<S> <C> <C>
MARBLE ARCH HOUSE
66-68 SEYMOUR STREET
LONDON W1H 5AF CIVVALS
UNITED KINGDOM APRIL 12, 1999 CHARTERED ACCOUNTANTS
======================================== ============================= =================================================
</TABLE>
F - 2
<PAGE>
PRIDE, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ASSETS (Note 8a) -
<TABLE>
<CAPTION>
November 30, 1998 November 30, 1997
------------------------ -----------------------
$ $
ASSETS:
<S> <C> <C>
Cash and cash equivalents 54,953 85,065
Accounts receivable (Notes 4c and 5) 1,571,983 1,959,355
Inventories (Note 4d) - 1,248,360
Property, revenue producing vehicles and equipment - net
(Notes 4e, 6, 8 and 9) 21,599,835 27,882,350
Intangible assets - net - 8,912,087
Investment in affiliate 4,048,460 -
------------------------ -----------------------
TOTAL ASSETS 27,275,231 40,087,217
======================== =======================
- LIABILITIES AND SHAREHOLDERS' EQUITY -
LIABILITIES:
Bank line of credit (Note 8a) 6,264,245 6,976,699
Accounts payable 558,314 1,767,166
Accrued liabilities and expenses (Note 7) 1,738,304 865,977
Bank debt (Note 8b) 685,428 695,782
Obligations under hire purchase contracts (Note 9) 15,231,850 18,341,778
Other liabilities (Note 11) 284,452 109,978
Acquisition debt payable (Note 12) 1,686,000 4,198,500
-----------------------
------------------------
TOTAL LIABILITIES 26,448,593 32,955,880
------------------------ -----------------------
MINORITY INTEREST IN SUBSIDIARY (Note 10) 370,043 3,473,242
------------------------ -----------------------
COMMITMENTS AND CONTINGENCIES (Note 18)
SHAREHOLDERS' EQUITY (Notes 10, 13 and 14):
Preferred stock, $.001 par value, 5,000,000
shares authorized, none issued or outstanding - -
Common stock, $.002 par value, 500,000,000 shares
authorized, 1,995,357 shares issued and outstanding 3,991 3,991
Additional paid-in capital 8,332,895 8,063,111
Retained earnings (deficit) (7,903,830) (4,019,828)
Deferred financing costs (44,734) (75,178)
Foreign currency translation (Note 4h) 68,273 (314,001)
------------------------ -----------------------
TOTAL SHAREHOLDERS' EQUITY 456,595 3,658,095
------------------------ -----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 27,275,231 40,087,217
======================== =======================
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
PRIDE, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
November 30, 1998 November 30, 1997
------------------------ -----------------------
$ $
REVENUES (Notes 4i and 18):
<S> <C> <C>
Contract hire income 8,329,498 8,410,366
Sale of vehicles 4,302,757 7,090,028
Fleet management and other income 492,248 1,984,656
------------------------ -----------------------
TOTAL REVENUE 13,124,503 17,485,050
------------------------ -----------------------
COSTS AND EXPENSES:
Cost of sales 11,227,976 14,368,881
General and administrative expenses 1,988,093 3,577,588
Amortization of goodwill 630,718 632,207
Interest and other expenses 2,328,481 2,209,150
Loss on sale of fixed assets (Note 6) - 753,933
Loss on sale of investment 57,236 -
Research and development - 982,581
Write off of intangibles 8,444,147 -
------------------------ -----------------------
24,676,651 22,524,340
------------------------ -----------------------
LOSS BEFORE MINORITY INTERESTS AND PROVISION FOR INCOME TAXES
(11,552,148) (5,039,290)
Minority interest (Note 10) 5,663,879 2,574,566
(5,888,269) (2,464,724)
PROVISION FOR INCOME TAXES (Notes 4g and 15) - -
------------------------ -----------------------
NET (LOSS) (5,888,269) (2,464,724)
======================== =======================
LOSS PER COMMON AND DILUTIVE COMMON EQUIVALENT SHARE (Note 4j)
Net loss before minority interests $(5.79) $(2.53)
Minority interest in net loss of subsidiaries 2.84 1.29
------------------------ -----------------------
NET LOSS PER SHARE (2.95) (1.24)
======================== =======================
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 CHANGE IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares Common Additional Retained Deferred Foreign Total
Stock Paid-In Earnings Financing Currency Shareholders'
Capital (Deficit) Costs Translation Equity
$ $ $ $ $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at November 30, 1996 .... 1,995,357 3,991 8,425,722 (1,555,104) -- (297,304) 6,577,305
Foreign currency translation .... -- -- -- -- -- (16,697) (16,697)
adjustment
Increase in minority ............ -- (362,611) -- -- -- (362,611)
shareholders' interest
Deferred financing costs ........ -- -- -- -- (75,178) -- (75,178)
Net Loss for the year ended ..... -- -- (2,464,724) -- -- (2,464,724)
November-30, 1997
-------------------------------------------------------------------------------------------------
Balance at November 30, 1997 .... 1,995,357 3,991 8,063,111 (4,019,828) (75,178) (314,001) 3,658,095
Deferred financing costs ........ -- -- -- -- 30,444 -- 30,444
Adjustment - AC Car Group Limited -- -- 286,567 2,004,267 -- -- 2,298,834
Increase in minority ............ -- (16,783) -- -- -- (16,783)
shareholders' interest
Foreign currency translation .... -- -- -- -- -- 382,274 382,274
adjustment
Net loss for the year ended ..... -- -- (5,888,269) -- -- (5,888,269)
November-30, 1998
-------------------------------------------------------------------------------------------------
BALANCE AT NOVEMBER ............. 1,995,357 3,991 8,332,895 (7,903,830) (44,734) 68,273 456,595
30, 1998
=================================================================================================
</TABLE>
See notes to consolidated financial statements
F - 5
<PAGE>
PRIDE, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
November 30, 1998 November 30, 1997
------------------------ -----------------------
$ $
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)
<S> <C> <C>
Adjustments to reconcile net (loss) to net cash provided by operating activities: (5,888,269) (2,464,724)
Minority interest in net loss of subsidiary (5,663,879) (2,574,566)
Depreciation and amortization 4,735,456 3,946,635
Amortization of goodwill 9,074,865 632,206
Loss on disposal of fixed assets 715,694 403,352
Loss on sale of investment 57,236 -
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 298,600 (23,189)
Decrease (Increase) in inventories 132,369 (120,908)
Increase in accounts payable, accrued expenses and other creditors 440,687 1,563,726
------------------------ -----------------------
Net cash generated from operating activities 3,902,759 1,362,532
------------------------ -----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of revenue producing assets (6,800,055) (16,144,143)
Proceeds from sale of fixed assets 4,237,204 4,442,160
Proceeds on sale of investment 235,870 -
------------------------ -----------------------
Net cash (utilized) by investing activities (2,326,981) (11,701,983)
------------------------ -----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank lines of credit 966,558 4,012,234
Minority shareholders investment in subsidiary - 95,677
Payment of acquisition debt - (899,970)
Principal payment of long term debt (10,354) (306,789)
Proceeds from hire purchase contract funding 6,887,945 19,491,763
Principal repayments of hire purchase contract funding (9,757,781) (12,184,936)
------------------------ -----------------------
Net cash (utilized) provided by financing activities (1,913,632) 10,207,879
------------------------ -----------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 307,742 (38,646)
------------------------ -----------------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (30,112) (170,218)
Cash and cash equivalents, beginning of year 85,065 255,283
CASH AND CASH EQUIVALENTS END OF YEAR 54,953 85,065
======================== =======================
</TABLE>
See notes to consolidated financial statements.
F - 6
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
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 common stock,
was determined in arms-length negotiations between management of the company and
management of PMS. None of the stockholders or management of PMS were previously
affiliated with the Company in any manner. The principal basis used in the
negotiations to determine the number of shares to be issued by the Company was
the percentage of stock which would be owned by the new control groups after the
issuance thereof, rather than any traditional valuation formulas. By acquiring
100% of the issued and outstanding common stock of PMS, PMS became a
wholly-owned subsidiary of the Company. For accounting purposes, the acquisition
has been treated as a recapitalization of PMS, with PMS as the acquirer in a
reverse acquisition. In March 1995, pursuant to the terms and conditions of a
reorganization, the Company exchanged all its shares in Pride Management
Services Plc for 1,500,000 shares of common stock in Pride Automotive Group Plc
(a newly formed Delaware corporation). As a result of this exchange, Pride
Automotive Group, Inc ("PAG") became a majority owned subsidiary of the Company
and the parent of PMS.
Pride Management Services Plc (PMS) is a holding company of six
subsidiaries engaged in the leasing of motor vehicles primarily on contract hire
to local authorities and selected corporate customers throughout the United
Kingdom.
On November 29, 1996, the Company, through PAG's newly formed majority
owned subsidiary, AC Automotive Group Inc. and its wholly owned subsidiary AC
Car Group Limited (registered in the United Kingdom), completed the acquisition
of net assets of AC Cars Limited and Autokraft Limited. These two companies were
engaged in the manufacture and sale of specialty automobiles. The purchase price
of $6,067,000 was financed with the proceeds of a private debt offering which
was completed, by PAG, in December 1996 and by loans (see Note 12). The
acquisition was recorded using the purchase method of accounting.
F - 7
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 1 - DESCRIPTION OF COMPANY (Continued):
On February 12, 1998, the board of Directors of AC Automotive Group, Inc.
authorized the issuance of 6,130,000 shares of its common stock to Erwood
Holdings, Inc., a company affiliated with Alan Lubinsky, the President and Chief
Executive Officer and director of the Company and AC Automotive Group, Inc, for
aggregate consideration of $6130. In addition, 441,300 shares were issued to
other unrelated parties for aggregate consideration of $443. Following further
restructure and the foregoing issuance of shares, the ownership of AC Automotive
Group, Inc. by PAG has been reduced to 16%. Due to the change in ownership
percentage, the Company does not believe that it still has the ability to
exercise significant influence over AC Automotive Group, Inc. Accordingly,
consolidation is not considered appropriate. PAG's investment in AC Automotive
Group, Inc., is therefore being reported under the cost method of accounting.
See Note 3 regarding PAG's sale of substantially all of its leasing assets,
subsequent to the balance sheet date.
NOTE 2 - BASIS OF PRESENTATION:
The Company has incurred losses from operations of $11,552,148 and
$5,039,290 before minority interests for the years ended November 30, 1998 and
1997.
The losses for the year ended November 30, 1997 includes a loss of
$4,111,664 incurred by its then subsidiary, AC Car Group Limited. The equity
held in this Company has since been diluted and the Company's accounts are
therefore no longer consolidated.
The losses for the year ended November 30, 1998 includes $8,444,147 from
the writing off of the goodwill related to the subsidiary, Pride Management
Services Plc, as substantially all of its assets were sold on December 11, 1998
(see Note 3).
The circumstances described above, together with the material events
discussed in Note 3 to the financial statements, which took place subsequent to
November 30, 1998, and the restated proforma balance sheets after these events,
raise substantial doubts about the Company's ability to continue as a going
concern.
Management plans in regard to this matter were described in a press release
issued by PAG on February 19, 1999. In this press release, it was announced that
PAG had executed a Letter of Intent to acquire all of the issued and outstanding
capital stock of Digital Mafia Entertainment, LLC, in exchange for the issuance
of 7,400,000 shares in PAG common stock. In addition, PAG also announced that it
will, at the same time, sell its ownership of Pride Management Services to the
Company, for nominal value. At this time, the these sales has not been
consummated and the terms are being renegotiated in the light of the delisting
of PAG's shares as discussed in Note 3(b).
F - 8
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 2 - BASIS OF PRESENTATION (Continued):
Management is also raising capital for the purpose of meeting PAG's
financial obligations until such time as the Contract of Sale described above is
consummated. If this raising of capital is unsuccessful, then PAG will not have
sufficient cash on hand to meet its current obligations. The financial
statements do not include any adjustments that might result from this
uncertainty.
NOTE 3 - SUBSEQUENT EVENT:
(a) Sale of Assets:
On December 11, 1998, PAG, through its subsidiary, Pride Management
Services Plc, completed the sale of substantially all its leasing assets,
leaving approximately 13% of its revenue producing vehicles after the sale (see
also Note 2 which discusses the sale of PAG's shares in Pride Management
Services Plc to the Company).
The consideration paid was $14,763,680 against a balance sheet value of
$17,851,023.
As a condition of sale, hire purchase creditors were paid $14,537,000 in
full and final settlement of the debt outstanding on the leased assets sold
against a balance sheet value of $13,127,303 at an early settlement penalty of
$1,409,697.
In addition, the bank line of credit was restructured as follows. Upon
completion of the sale, $1,815,000 was repaid to the bank. The balance of
$4,449,245 has been converted into two loans; Loan A for $1,485,000 and Loan B
for $2,964,245 respectively.
Loan A of $1,485,000 is repayable by July 31, 1999, in the event of which
Loan B of $2,964,245 will be forgiven.
In the event that Loan A is not repaid by July 31, 1999, the full amount
outstanding on the two loans is repayable on demand.
As a result of the sale, PAG has decided to write off its related goodwill,
which had a carrying value of $8,444,147.
F - 9
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 3 - SUBSEQUENT EVENT:
(a) Sale of Assets (Continued):
The following is a condensed proforma balance sheet of the Company assuming
this sale occurred as of November 30, 1998.
<TABLE>
<CAPTION>
Assets Exhibit 1 Exhibit 2
--------- ---------
<S> <C> <C>
Cash $ 1,050,987 $ 1,050,987
Accounts receivable - net 1,571,989 1,571,989
Fixed assets - net (Note 6) 4,213,330 4,213,330
Investment in affiliate 4,048,460 4,048,460
------------- -------------
Total Assets $10,884,766 $10,884,766
=========== ===========
Liabilities and Shareholders Equity
Accounts payable 649,889 649,889
Accrued liabilities and expenses (Note 7) 4,206,305 4,206,305
Bank debt (Note 8a) 5,134,673 2,170,428
Obligations under hire purchase contracts (Note 9) 2,104,547 2,104,547
Loans payable 99,719 99,719
Other liabilities 209,514 209,514
Acquisition debt payable 1,686,000 1,686,000
------------- -------------
Total Liabilities 14,090,647 11,126,402
Shareholders equity (deficit) ( 3,205,881) ( 241,636)
------------- --------------
$10,884,766 $10,884,766
</TABLE>
Exhibit 2 assumes that the bank conditions will be met and the outstanding
loan balance of $2,964,245 will be forgiven.
(b) Nasdaq Small Cap Market Listing:
On March 12, 1999, PAG was notified by NASDAQ that PAG's securities would
be delisted from the Nasdaq Small Cap Market effective March 19, 1999, since
PAG's financial condition does not meet the requirements for continual inclusion
of such securities. PAG is in the process of appealing this decision.
F - 10
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 4 - 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' subsidiary Pride Automotive Group, Inc and its' wholly owned
subsidiaries, and for 1997 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 nature of the Company's business, contract leasing of motor
vehicles (revenue producing assets) which are treated as non-current fixed
assets, the balance sheet is reflected on an unclassified basis. Accordingly,
current assets and current liabilities are not reflected separately on the face
of the balance sheet.
(b) Use of Estimates:
In preparing financial statements in accordance with generally accepted
accounting principles, management makes certain estimates and assumptions, where
applicable, that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. While actual results could differ from those estimates,
management does not expect such variances, if any, to have a material effect on
the financial statements.
(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 as of November 30, 1997 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. The Company did not have any inventory as
of November 30, 1998.
F - 11
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Inventories (Continued):
As of November 30, 1998 and 1997, inventories consisted of the following:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
<S> <C> <C>
Cars held for resale $ - $ 132,369
Finished goods - 90,784
Work-in-progress - 502,500
Spare parts - 522,707
---------- ---------
$ - $1,248,360
=================== ==========
</TABLE>
(e) Fixed Assets and Depreciation:
Fixed assets are stated at cost less depreciation. Depreciation is provided
on all assets at rates calculated to write off the cost of each asset over its
estimated useful life, as follows:
Building and improvements 50 years straight-line basis
Revenue producing vehicles 3-6 years straight-line basis
Furniture and fixtures 4 years double declining basis
Machinery and equipment 4 years double declining basis
Aircraft 4 years double declining basis
Maintenance and repairs are charged to operations and major improvements
are capitalized. Upon retirement, sale 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 consisted primarily of goodwill which arose in connection
with the acquisition of certain subsidiaries of PMS. Goodwill has been amortized
over a period of 10-20 years on a straight-line basis. Accumulated amortization
as of November 30, 1998 and 1997 aggregated $4,253,551 and $3,622,833
respectively.
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.
F - 12
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Intangible Assets (Continued):
On December 11, 1998, PAG, through its subsidiary Pride Management Services
Plc, completed the sale of substantially all its leasing assets (see Note 3).
Accordingly, PAG has decided to write off its related goodwill, which had a
carrying value of $8,444,147.
(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 14 regarding SFAS No
109 - Accounting for Income Taxes.
(h) Foreign Currency Translation:
The Company's principal operations are conducted by PMS which reflects its
financial statements in British pounds. As a result, most assets and liabilities
of the foreign operations are translated into US dollars using current exchange
rates in effect at the balance sheet date. Fixed assets and intangible assets
are translated at historical exchange rates. Revenue and expense accounts are
translated using an average exchange rate during the period except for those
expenses related to assets and liabilities which are translated at historical
exchange rates. These include depreciation and amortization which are translated
at the rates existing at the time the asset was acquired. Any resulting gains or
losses due to the translations are reflected as a separate item of shareholders'
equity.
(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 (after sale as discussed in Note 3) to be received, net of related costs
(see also Note 9):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
November 30, 1999 $560,640
November 30, 2000 160,666
November 30, 2001 66,581
November 30, 2002 11,277
----------
Total minimum lease payments receivable net of executory costs $799,164
========
</TABLE>
F - 13
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(j) Earnings Per Share:
Earnings per share are computed based upon the weighted average shares and
common equivalent shares outstanding. The shares sold during the year ended
November 30, 1996 in a private offering (see Note 12), have been treated as
outstanding for all periods presented, in accordance with the guidelines of the
Securities and Exchange Commission. Common stock equivalents have been excluded
from the computation since the results would be anti-dilutive.
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 the period ending after December 15,
1997. The Company has adopted SFAS 128 for the year ending November 30, 1998,
and accordingly restated prior periods.
(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 123. No compensation expense
is recognized pursuant to the Company's stock option plans under SFAS 123 which
is consistent with prior treatment under APB No 25.
(m) New Accounting Pronouncements:
SFAS No 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 has adopted these standards effective for the year ended
November 30, 1998.
See also Earnings (Loss) Per Share.
F - 14
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(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. Due to the subsequent event described in
Note 3, 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.
NOTE 5 - ACCOUNTS RECEIVABLE:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
Trade receivables - net of allowance for doubtful
accounts of $NIL and $80,486 for 1998 and 1997,
<S> <C> <C>
respectively $ 638,001 $ 639,109
Lease maintenance receivables - 943,261
Value added tax 919 138,555
Due from related companies 558,729 83,219
Other 374,334 155,211
------------ ------------
$1,571,983 $1,959,355
</TABLE>
F - 15
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 6 - FIXED ASSETS AND DEPRECIATION:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
<S> <C> <C>
Buildings and improvements $ 784,599 $ 820,160
Revenue producing vehicles 26,954,977 27,612,291
Furniture, fixtures, plant and equipment 576,270 4,670,067
------------ -----------
28,315,846 33,102,518
Less: accumulated depreciation (including
$6,139,923 and $4,263,115 of accumulated
depreciation on revenue producing vehicles,
for 1998 and 1997 respectively) 6,716,011 5,220,168
------------- -------------
$21,599,835 $27,882,350
=========== ===========
</TABLE>
Depreciation expense for the years ended November 30, 1998 and
1997 aggregated $4,735,456 and $4,681,932, respectively.
On December 11, 1998, PAG sold a substantial portion of its assets (see
Note 3) at a loss of $3,087,343. The fixed assets and depreciation after this
transaction were:-
<TABLE>
<CAPTION>
<S> <C>
Buildings and improvements $ 784,599
Revenue producing vehicles 4,050,639
Furniture, fixtures, plant and equipment 576,270
-----------
5,411,508
Less: accumulated depreciation (including
$612,840 of accumulated depreciation on
revenue producing vehicles) 1,198,178
$4,213,330
</TABLE>
NOTE 7 - ACCRUED LIABILITIES AND EXPENSES:
Accrued liabilities and expenses consist of the following:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
<S> <C> <C>
Taxes other than income taxes $1,350,195 $438,289
Miscellaneous accrued expenses 388,109 427,688
------------ ---------
$1,738,304 $865,977
On December 11, 1998, PAG sold a substantial portion of its assets (See
Note 3) and as a result, incurred sales taxes. The accrued liabilities and
expenses after this transaction were:-
Taxes other than income taxes $3,360,323
Miscellaneous accrued expenses 845,982
$4,206,305
</TABLE>
F - 16
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 8 - BANK LOANS/LINE OF CREDIT:
As of November 30, 1998 PAG was in negotiation with its bankers regarding
the settlement of outstanding lines of credit in the amount of $6,264,245. As a
result of these negotiations, the line of credit was restructured as follows:-
<TABLE>
<CAPTION>
Payable on completion of sale of assets on
<S> <C> <C> <C> <C>
December 11, 1998 as described in Note 3 $1,815,000
Payable on July 31, 1999 1,485,000
---------
3,300,000
To be forgiven if July 31, 1999 installment
is paid on time 2,964,245
$6,264,245
</TABLE>
At November 30, 1998, bank loans consisted of $685,428 payable at a rate of
3% in excess of the bank's base rate. This loan is secured by the freehold
property owned by Pride Management Services and its subsidiaries and matures in
2017.
The scheduled principal payments of this bank debt as of November 30, 1998
are as follows:
For the Year Ended November 30,
1999 $ 77,043
2000 77,043
2001 77,043
2002 77,043
2003 77,043
thereafter 300,213
---------
$685,428
NOTE 9 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING:
The Company has funding lines with several financing institutions in the
United Kingdom in the aggregate amount of approximately $15,500,000 as of
November 30, 1998. These funding lines are utilized to acquire revenue producing
vehicles, which vehicles collateralize the outstanding obligations. 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, 1998, obligations under hire purchase contracts were $15,231,850.
F - 17
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 9 - HIRE PURCHASE CONTRACTS/EQUIPMENT FINANCING (Continued):
As a result of the sale of assets on December 11, 1998, as described in
Note 5, $13,127,303 of the hire purchase contracts was repaid at an early
settlement penalty of $1,409,697. The balance of hire purchase contracts after
this settlement was $2,104,547.
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 56.45%.
In November 1996, PAG completed a private placement of 17 units, each unit
consisting of a 10% promissory note in the amount of $95,000 and 10,000 shares
of the Company's common stock for the aggregate price of $100,000. The effect of
this placement reduced the Company's investment in PAG to 53.33%.
In August 1998, the Company sold 70,000 shares of PAG common stock for net
proceeds of $235,870, realizing a loss of $57,236.
As a result of this transaction, the Company now holds 1,425,000 shares of
PAG common stock which represents a 50.49% investment. The minority interests
liabilities represents the minority shareholders portion of the equity in this
subsidiary.
NOTE 11 - OTHER LIABILITIES:
At November 30, 1998 and 1997 other liabilities consisted of $284,452 and
$109,978, respectively due to other creditors, at interest rates approximating
the current market rates and repayable on a demand basis.
F - 18
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 12 - ACQUISITION DEBT PAYABLE:
The acquisition debt payable (see Note 1) consisted of the following:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
Unsecured notes payable on demand after
May 31, 1998; interest payable quarterly at
<S> <C> <C> <C>
2% above the base rate $ - $ 837,500
Unsecured notes payable on demand after
May 31, 1998; interest payable at 10% per
annum (see Note 12) 1,615,000 1,615,000
Unsecured notes payable on demand after
October 31, 1999; interest payable quarterly
at 8% per annum - 1,675,000
Other short-term notes payable 71,000 71,000
------------- -----------
$1,686,000 $4,198,500
========== ==========
</TABLE>
PAG is in default with the repayment of the unsecured notes due on May 31,
1998. One noteholder has sued the company to recover $95,000.
NOTE 13 - COMMON STOCK/RECAPITALIZATION:
On September 20, 1994, the Company's board of directors approved a
one-for-ten reverse stock split of the Company's issued and outstanding common
stock to be effective on September 28, 1994.
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 14 - STOCK OPTION PLANS:
During 1994, the Company adopted a Stock Option Plan ("the Plan") whereby
options to purchase an aggregate of not more than 1,000,000 shares, as amended
of, 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.
F - 19
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 14 - STOCK OPTION PLANS (Continued):
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 equal the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
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 is as follows:-
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
Net loss:
<S> <C> <C>
As reported $(2,464,724) $ (328,741)
Pro forma (2,464,724) (328,741)
Basic loss per share:
As reported (1.24) (.16)
Pro forma (1.24) (.16)
</TABLE>
F - 20
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 14 - STOCK OPTION PLANS (Continued):
A summary of stock option activity, and related information for the years
ended November 30, is as follows:-
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Options Price
------- --------
<S> <C> <C> <C>
Outstanding at November, 1996 500,000 .48
Weighted average fair value of options
granted during the year -
Granted 320,000 .38
Exercised - -
Canceled - -
------ ---
Outstanding at November 30, 1997 and 1998 820,000 .38
======= ====
Weighted average fair value of options
granted during the year -
Options exercisable:
November 30, 1997 and 1998 475,000
</TABLE>
Exercise prices for options outstanding as of November 30, 1998 ranged from
$.38 to $1.65. The weighted-average remaining contractual life of these options
is seven years.
NOTE 15 - INCOME TAXES:
The Company has available operating losses carry forwards for tax purposes
aggregating approximately $4,000,000 as of November 30, 1998, 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.
F - 21
<PAGE>
PRIDE, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1998 AND 1997
NOTE 15 - INCOME TAXES (Continued):
The components of the deferred tax asset, pursuant to SFAS No. 109, as of
November 30, 1998 and 1997, respectively, are as follows:
<TABLE>
<CAPTION>
November 30, November 30,
1998 1997
<S> <C> <C>
Operating loss carry forward $ 1,360,000 $ 52,000
Valuation allowance (1,360,000) (52,000)
$ - $ -
=================== =================
</TABLE>
NOTE 16 - ECONOMIC DEPENDENCY:
For the years ended November 30, 1998 and 1997, the Company had two
unaffiliated customers, which accounted for an aggregate of approximately 15%
(1997 17%) and 6% (1997 7%) respectively, of the Company's total revenues.
The Company purchases all of the automobiles that it leases to its clients
from automotive dealerships, usually several at a time. The Company does not
depend on any one dealership for its purchase of automobiles and does not have
any written agreements with any of the dealerships it purchases vehicles from.
The Company believes that it will continue to be able to purchase automobiles at
competitive prices and terms into the future.
NOTE 17 - PENSION PLAN:
PMS and its' subsidiaries have a fully insured defined contribution plan
for all of its eligible employees. Contributions to the plan, which are
discretionary, for the years ended November 30, 1998 and 1997 amounted to
$80,384 and $65,726, respectively.
NOTE 18 - COMMITMENTS:
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 provided
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 13). This agreement was not renewed upon
expiration and the employee is currently earning an annual salary of $82,500.
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 extendible for a further twenty four month
period and provides for an annual salary of $55,000, subject to review by the
Board of Directors. As at November 30, 1998, the annual salary amounted to
$76,000.
F - 22
