COACHMAN INCORPORATED
301 NW 63rd Street
Suite 500
Oklahoma City, Oklahoma 73116
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held October ___, 1995
To the Stockholders of
COACHMAN INCORPORATED
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders
of Coachman Incorporated, a Delaware corporation (the
"Corporation"), will be held at 10:00 a.m., October ___, 1995 at
301 N.W. 63rd Street, Suite 500, Oklahoma City, Oklahoma, for the
following purposes:
1. To authorize the increase of authorized Common Stock to
50,000,000 and to decrease the par value to $0.005 per
share.
2. To approve and authorize the Board of Directors to effect
a reverse stock split of the Corporation's Common Stock
on a 1 share for 6 shares basis and to increase or
maintain the Corporation's authorized Common Stock at
50,000,000 shares, par value $0.005, at such time as the
Corporation's Common Stock is accepted for listing on a
national market;
3. To transact such other business as may properly come
before the meeting.
Only stockholders of record at the close of business on
___________________, 1995 are entitled to notice of and to vote at
this meeting and any adjournment thereof. Such stockholders may
vote in person or by proxy. The stock transfer books of the
Corporation will not be closed.
Stockholders are invited to attend the meeting in person.
Whether or not you plan on attending the meeting in person, it is
important that your shares be represented and voted at the meeting
in accordance with your instructions. Therefore, you are urged to
fill in, sign, date and return the accompanying proxy in the
enclosed envelope. No postage is required if mailed in the United
States.
By Order of the Board of Directors
Dennis D. Bradford
Chairman of the Board
Oklahoma City, Oklahoma
October ___, 1995
COACHMAN INCORPORATED
301 NW 63rd Street
Suite 500
Oklahoma City, Oklahoma 73116
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
To Be Held October _____, 1995
This proxy statement is being furnished in connection with the
solicitation of proxies by and on behalf of the Board of Directors
of Coachman Incorporated, a Delaware corporation (the
"Corporation"), to be used at a Special Meeting of Shareholders and
at any adjournment or postponement thereof. This proxy statement
and the accompanying form of proxy were first mailed to the holders
of the Corporation's common stock on or about October ____, 1995.
SOLICITATION OF PROXIES AND VOTING RIGHTS
The presence, in person or by proxy, of the holders of 1/3 of
the votes represented by the outstanding shares of the
Corporation's common stock is necessary to constitute a quorum at
the Special Meeting. Holders of shares are entitled to one vote
per share of common stock and are not allowed to cumulate votes in
the election of directors.
Subject to the rights of Shareholders to revoke their proxies,
the shares represented by each proxy executed in the accompanying
form of proxy will be voted at the meeting in accordance with the
instructions therein. Proxies on which no voting instructions are
indicated will be voted FOR Proposals 1 and 2 and in the best
judgment of the proxy holders on any other matter than may properly
come before the Special Meeting. If a broker indicates on a proxy
that it does not have discretionary authority to vote shares on a
certain matter, those shares will not be considered present and
entitled to vote with respect to that matter. If a shareholder
indicates on a proxy card that such shareholder abstains from
voting with respect to a proposal, the shares will be considered as
present and entitled to vote with respect to that matter, and
abstention will have the effect of a vote AGAINST the proposal.
Shareholders have the unconditional right to revoke their
proxies at any time prior to the voting of their proxies at the
Special Meeting by giving written notice to the Secretary of the
Corporation or by attending the Special Meeting and voting in
person.
The expenses of the solicitation of the proxies for the
meeting, including the cost of preparing, assembling and mailing
the notice, proxy, proxy statement and return envelopes, the
handling and tabulation of proxies received, and charges of
brokerage houses and other institutions, nominees or fiduciaries
for forwarding such documents to beneficial owners, will be paid by
the Corporation. The Corporation's Board of Directors believe that
it controls a sufficient number of votes to approve the proposals
without a solicitation of proxies. The Corporation does not intend
to solicit proxies other than the mailing of proxy materials. Both
Proposals require the affirmative vote of a majority of the issued
and outstanding shares of Common Stock.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto sets forth, as of June 30,
1995, certain information regarding ownership of common stock
by (i) each person known to the Corporation to beneficially own
more than 5% of its common stock, (ii) each director and nominee
for director of the Corporation and (iii) all present officers and
directors of the Corporation as a group.
Under the rules and regulations of the Securities and Exchange
Commission, a person is deemed to own beneficially all securities
of which that person owns or shares voting or investment power as
well as all securities which may be acquired through the exercise
of currently available conversion, warrant or option rights.
Unless otherwise indicated, each such person possesses sole voting
and investment power with respect to the shares owned by him.
Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership Outstanding
Dennis D. Bradford 1,522,638 (a)(b) 18%
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
Robert E. and Linda D. Swain 1,721,170 21%
1055 Bay Esplanade
Tampa, FL 34630
Craig Missler 507,646 (c) 6%
P. O. Box 1826
Venice CA 90294
Jay T. Edwards 6,150 (d) *
Alejandro G. Asmar 0 0
Catherine Myers 20 *
All officers and directors
as a group (4 persons) 3,249,978 (e) 45%
*Less than 1% of the common stock outstanding at June 30, 1995.
(a) Includes 13,100 shares of common stock that may be acquired
upon exercise of employee stock options previously granted
under the Corporation's 1987 Stock Option Plan.
(b) Includes 403,000 shares of common stock which may be acquired
upon exercise of nonqualified incentive stock options granted
December 14, 1993.
(c) Includes 129,143 shares available if a $30,000 note due Mr.
Missler by the Corporation is converted to stock.
(d) Includes 4,700 shares of common stock that may be acquired
upon exercise of employee stock options previously granted
under the Corporation's 1987 Stock Option Plan.
(e) Includes 417,800 shares of common stock that may be acquired
by such persons upon exercise of employee stock options
previously granted under the Corporation's 1987 Stock Option
Plan and on December 14, 1993.
AUTHORIZATION TO INCREASE COMMON STOCK
(Proposal One)
The Board of Directors has approved and recommends that the
stockholders of the Corporation approve an amendment to the
Corporation's Certificate of Incorporation for the purpose of
increasing the number of its authorized shares of Common Stock from
25,000,000 to 50,000,000 and to decrease the par value to $.005 per
share.
The Board of Directors believes that the increase in the
number of authorized shares of Common Stock will increase the
flexibility of the Corporation for raising additional capital and
future acquisitions. Except for the intended acquisition of
Olympic Mills and the sale of shares in the private placement
described below, the Corporation does not presently have any plans
to issue any Common Stock.
The affirmative vote of a majority of the outstanding Common
Stock entitled to vote on this proposal to amend the Corporation's
Certificate of Incorporation is required for approval of the
proposal. The Board of Directors recommends voting FOR this
proposal to amend the Certificate of Incorporation.
AUTHORIZATION OF REVERSE STOCK SPLIT
(Proposal Two)
The Board of Directors has approved and recommends that the
stockholders of the Corporation approve a one for six reverse stock
split of the Corporation's Common Stock and to increase or maintain
the authorized Common Stock at 50,000,000 shares, par value $0.005
per share; provided, however, that the Corporation's Common Stock
will be accepted for listing on Nasdaq National Market or the
American Stock Exchange. Accordingly, shareholders are being asked
to approve the reverse stock split and to authorize the Board of
Directors to take the necessary action to achieve the stock split
and change or maintain authorized Common Stock only if the business
purpose will be achieved. It is possible that the reverse stock
split will not occur if the Corporation is unable to list the
Common Stock on a national market for reasons other than pricing.
The Corporation knows of no reason why its Common Stock would not
be accepted for listing.
The proposed reverse stock split would be achieved by
amendment to the Certificate of Incorporation to reclassify and
change (without any further act) the currently authorized
25,000,000 shares of Common Stock par value of $0.01 to 4,166,666
shares of Common Stock par value $0.06 or if the stock split is
delayed, the 50,000,000 shares expected to be authorized to
8,333,333 shares of Common Stock, par value $0.03. The amendment
to the Certificate of Incorporation would also provide for an
increase in the authorized Common Stock to 50,000,000 shares, par
value $0.005 per share.
The purpose of the reverse stock split is to establish an
appropriate price in the public market for the Corporation's Common
Stock in order to meet certain listing requirements for the Common
Stock being traded in a meaningful market, such as the Nasdaq
National Market or the American Stock Exchange. On August 8, 1995,
shares of the Corporation's Common Stock were trading at $.50 per
share, asked, as quoted by the NASDAQ Electronic OTC Board.
If the reverse stock split is approved by the stockholders,
the Corporation will file an appropriate amendment to the
Certificate of Incorporation effecting such reverse stock split and
establishing the required number of shares of authorized Common
Stock only upon a the listing of the Common Stock and a decision by
the Board of Directors to do so. The stockholders of the
Corporation will be given notice to surrender their certificates of
shares to American Stock Transfer, as transfer agent for the
Corporation, in order that new certificates (giving effect to the
reverse stock split) can be issued.
Any fractional shares to be issued will be rounded up the
nearest whole share by the stock transfer agent upon the reissuance
of shares surrendered.
IMPACT OF CERTAIN TRANSACTIONS ON SHARES OUTSTANDING
Currently, there are 8,278,142 shares of Common Stock issued
and outstanding and ______________ shares reserved for issuance
under certain incentive option plans and outstanding warrants. In
June 1995, the Corporation signed a definitive acquisition
agreement with the owners of Olympic Mills Corporation to acquire
that business for cash and the issuance of 6,000,000 shares of
Common Stock. The Corporation intends to raise an additional
$4,500,000 to $8,000,000 through the sale of a minimum of
11,250,000 shares and a maximum of 20,000,000 shares of Common
Stock in a private placement to fund the acquisition and provide
working capital for the Corporation. The shares required to
complete the acquisition of Olympic Mills are currently authorized.
If the shareholders vote for the proposals to effect a reverse
stock split of 1 share for each 6 shares and to increase the number
of authorized shares, each of which is recommended by the Board of
Directors, the number of shares of Common Stock authorized would be
50,000,000 par value $.005 per share. The number of shares
outstanding after the reverse split would be 1,379,691 with
____________ shares reserved for issuance under the various stock
option plans and outstanding warrants. The number of shares to be
issued in the acquisition of Olympic Mills would be 1,000,000
shares and the minimum number of shares to be sold in the private
placement would be a minimum of 1,875,000 shares and a maximum of
3,333,334 shares.
Assuming the closing of the Olympic Mills transaction, current
shareholders would own approximately 32% of the issued and
outstanding shares upon the issuance of the minimum shares offered
in the private placement and 24% upon the issuance of the maximum
shares offered in the private placement.
ACQUISITION OF OLYMPIC MILLS
The Corporation entered into an agreement dated June 27, 1995
(the "Agreement") with Corporacion Inmobiliaria Textil ("Cintex"),
a Puerto Rico corporation; Fideicomiso Hispamer ("Hispamer"), a
Puerto Rico trust; OM Acquisition Corp. ("OM"), a Delaware
corporation; and Olympic Holding Corp. ("Holding"), a Puerto Rico
corporation. The Agreement provides that the Corporation will
acquire (i) all issued and outstanding Class A Preferred Stock of
Olympic Mills from Cintex and Hispamer, as well as $3,570,400 in
indebtedness owed by Olympic Mills to Cintex and Hispamer; (ii) all
the issued and outstanding common stock of Olympic Mills from OM;
(iii) all of the issued and outstanding common stock of Lutania
Mills, Inc. ("Lutania") from Holding. Unless the context otherwise
requires, references to Olympic Mills include Lutania. Upon
execution of the Agreement, the Corporation deposited into escrow
the sum of $100,000, which will be applied to the purchase price at
closing, which was to have occurred on August 31, 1995, but was
extended to October 15, 1995, upon the deposit by the Corporation
of an additional $100,000 in earnest money.
The purchase price is (i) $12,500,000 in cash, less
adjustments; (ii) 6,000,000 shares of Common Stock of the
Corporation; (1,000,000 after the reverse stock split); (iii) a
note for $1,000,000 if Olympic Mills has a signed contract with the
U.S. Department of Defense for a minimum of $11,000,000 in
purchases the first year ("Defense Contract Amount"); plus, (iv) a
note in an amount equal to the grants made to Olympic Mills after
May 23, 1995, and before December 31, 1995, (other than grants
under a wage incentive program) by Puerto Rican government
agencies, but not more than $1,000,000 ("Grant Amount").
The cash portion of the purchase price will be reduced by the
amount in escrow ($200,000) and the amount by which Olympic Mills'
indebtedness to Congress Credit as of the closing date exceeds
$5,000,000. The notes evidencing the Defense Contract Amount and
the Grant Amount will be due 5 years from the closing date, will
bear interest at an annual rate of 7%, payable quarterly and will
be secured by a subordinated lien on all the furniture and
equipment of Olympic Mills.
The amount by which Olympic Mills' indebtedness to Congress
Credit exceeds $5,000,000, will be evidenced by a promissory note
from Olympic to Cintex, will be due 90 days from the date of issue
and will bear interest at the rate of 0.11% per day.
In addition to the purchase price described above, the
Corporation will also be obligated, as a contingent purchase price,
to issue additional shares of Common Stock of the Corporation to
the sellers if (i) none of the sellers sells or disposes of any of
the Corporation's Common Stock for 3 years after the closing date,
and (ii) the average price of the Corporation's Common Stock owned
by them as quoted on a national exchange for every 30 day period
preceding the third anniversary date of the closing is less than
$15,000,000. If these contingencies are not met, the Corporation
is required to issue an additional number of shares sufficient for
sellers to own Common Stock of the Corporation having an average
price of $15,000,000 for the 30 day period preceding the third
anniversary date of the closing.
If the sellers voluntarily sell any of the Common Stock to a
third party, the Corporation has a 10 day right of first refusal to
acquire the shares at the same price offered by the sellers.
The acquisition will be treated as a sale for both Puerto Rico
and United States federal income tax purposes.
Upon completion of the acquisition, Olympic Mills will operate
as a subsidiary of the Corporation and Yabucoa Industries, Inc.,
and Lutania will operate as subsidiaries of Olympic Mills.
BUSINESS OF OLYMPIC MILLS CORPORATION
Olympic Mills is a privately held, vertically integrated
textile and apparel manufacturer in Puerto Rico. It is Puerto
Rico's leading manufacturer of underwear, T-shirts, school uniforms
and polo shirts. Olympic Mills is classified as a "936 Company"
under the Code which generally provides that qualified income
earned in Puerto Rico is not subject to U.S. taxation. Olympic
Mills' products are sold primarily in Puerto Rico or to the U.S.
Military. Total net sales for 1994 were $28,930,919 with net
earnings of $1,964,342. Olympic Mills operates two vertical mills
and a cut and sew operation in Puerto Rico.
Products. Olympic Mills has four basic product lines. All
cotton knitted men's underwear, cotton and cotton blend knitted T-
shirts, cotton and cotton blend polo shirts and non-knitted sewn
products such as pajamas and shorts. Trade names used by Olympic
Mills include Grana underwear, America Project underwear and
sportswear and Olympic Mills. Olympic Mills knits, bleaches and
dies most of the knitted fabric used by it and purchases the non-
knitted fabric from outside sources.
In 1994, the product mix of the Corporation's business was
underwear 30%, T-shirts 50%, polo shirts 15%, and other products
5%. This product mix is expected to change during 1995 as a result
of the increased military purchasing of underwear. Currently,
Olympic Mills produces 3,000 dozen T-shirts and 2,000 dozen briefs,
polo shirts and other products daily. Olympic Mills operates
vertical mills in Guaynabo and Humacao, Puerto Rico and a cutting
and sewing operation in Yabucoa, Puerto Rico. These facilities are
sufficient to supply the current sales and future expansion.
Customers. With the exception of underwear sold to the U.S.
Department of Defense and a private label "big and tall" program,
all of Olympic Mills' products are now sold in Puerto Rico. Grana
underwear is sold to the general public through leading department
stores, retailers and discounters such as WalMart and K-Mart. The
T-shirts are sold to screen printers who distribute printed shirts
to retailers like Caribbean Outfitters. The polo shirts are used
primarily as school uniform shirts and are sold through retailers
and the school themselves.
The three largest customers in 1994 were E. Mendoza & Co.,
Estampados Deportivos, an affiliate of Olympic Mills not a party to
the acquisition, and the U.S. Department of Defense. No other
single customer accounted for more than 5% of Olympic Mills' net
sales in fiscal 1994. The loss of the sales to any of the key
customers would have a material adverse effect on Olympic Mills'
results of operations. Olympic Mills has no long-term purchase
contracts or commitments with any customer other than the U.S.
Department of Defense.
Supplying products to retail stores outside of Puerto Rico
could represent a major growth area for Olympic Mills. Shirts
imprinted at the Humacao plant will be exported throughout the
Caribbean Basin. Customers would be retail stores, hotel shops,
cruise ships and Caribbean Outfitters stores. One of the fastest
growing segments of the T-shirt business is licensing. This area
which could be pursued by Olympic Mills. Coachman, through common
stockholders and prior dealings, has relationships with B.U.M.
Equipment and Ocean Pacific as well as other apparel licensing
companies. The licensing market in the Caribbean and South America
represents a great opportunity.
In the past Olympic Mills operated a sales office in the
United States. The office was closed in 1987 due to a change in
the ownership of Olympic Mills and the owner's desire to
concentrate on business in Puerto Rico. Re-entering the U.S.
market directly or through strategic alliances present a
significant opportunity for growth. Approximately 4 million Puerto
Ricans live in the United States, and they constitute approximately
20% of the Latin community in the United States which is the
fastest growing segment of the population. With the high name
recognition of the Grana name in the Puerto Rican community, both
Grana underwear and America Project T-shirt, offer potential
opportunities for penetrating the U.S. market.
Marketing. At the present time, Olympic Mills is marketing
its consumer products only in Puerto Rico through two channels of
distribution. One is through an in-house sales staff of 6 which
handles direct sales, and the other is through the distributors
such as E. Mendoza & Co.
In the past, Olympic Mills has used limited advertising in
promoting brand awareness. The existing core business is supplying
quality underwear and T-shirts to the Puerto Rican market. By
expanding the product line, increasing marketing and advertising
and expanding the customer base, management believes that future
growth in this core business is attainable.
The contract business with the U.S. military is relatively new
to Olympic Mills. Sales from the military contract are becoming a
significant portion of the Olympic Mills' gross revenues. During
the last year, Olympic Mills produced underwear for all branches of
the military with quality and service meeting or exceeding military
standards. The U.S. military now requires contractors to
electronically receive purchase orders and transmit invoices, and
Olympic Mills has made the necessary changes to meet this
requirement.
Future Expansion. In the future, the Corporation expects to
open a sales and marketing operation in the United States. Such
operation would handle sales and distribution of all of Olympic
Mills' products in the United States. Both the Grana underwear
and America Project T-shirts lines could be very competitive in
light of the large Puerto Rican and hispanic population in the
United States who are familiar with the Grana trademark and
products. The Corporation will also pursue licensing and private
label manufacturing in the U.S.
Competition. There are several competitors for Olympic Mills
consumer products. The two largest are Fruit of the Loom and
Hanes. In Puerto Rico, Olympic Mills' is very competitive due to
brand recognition and loyalty and delivery time and service.
However, as the Corporation expands outside Puerto Rico, it will be
at a disadvantage due to the size and financial strength of its
competition.
Raw Materials. The principal raw materials used by Olympic
Mills are 100% cotton yarn and a blend of pre-spun 50% cotton and
50% synthetic yarn. Many factors including crop conditions,
agricultural policies, market conditions and demand can
significantly affect the cost and availability of these yarns, but
to date, Olympic Mills has experienced no difficulty obtaining
adequate supplies. Olympic Mills currently purchases yarn from
three suppliers however, these are commodity purchases and are
available from a wide range of suppliers It currently maintains a
60 day inventory of raw materials. All woven and some knitted
cloth is purchased from outside suppliers.
Inventory and Backlog. Olympic Mills' backlog consists of
confirmed purchase orders. At June 30, 1995, Olympic Mills had
approximately $3,000,000 of unfilled customer orders for goods
compared to $2,000,000 on June 30, 1994. Olympic Mills has not
experienced any difficulty in filling orders on a timely basis or
material returns of its products. Olympic Mills maintains a 60 day
supply of raw materials and also maintains an inventory of finished
goods to level out the effects of seasonality of sales.
Seasonally. The products sold to the U.S. Department of
Defense are not seasonal. Commercial sales are seasonal in nature
with Christmas, back to school and Fathers Day being the peak
seasons.
Financing. The Corporation has obtained a letter of intent
from Congress, to finance through Olympic Mills a portion of the
purchase price and provide an operating credit line. Terms are, in
general, a $10,000,000 revolving credit line funding up to an
amount equal to 50% of inventory and 80% of receivables secured by
inventory and receivables and a $5,000,000 3 year term loan secured
by machinery and equipment. The rate will be 4% over Congress's
"cost of 936 Funds," which is regulated by a local Puerto Rican
authority which rate is normally between 75% and 90% of the LIBOR
rate.
Patents, Copyrights and Trademarks. Olympic Mills is the
holder of a number of copyrights and registered trademarks. Those
actively used now are Grana and America Project . Olympic Mills
has used the trade name "Olympic Mills" for 46 years in Puerto Rico
and has used it in the United States while operating a sales office
in the United States; however, it has not been registered.
Regulations. Olympic Mills' various operations will be
regulated by federal, state and foreign laws, rules and
regulations. On the federal level, the Olympic Mills is subject to
minimum wage and other labor laws. It will also be subject to
foreign and state regulation regarding wages, hours, working
conditions and worker's compensation. Olympic Mills must comply
with local land use and zoning regulations. Olympic Mills is now
also subject to the terms of the Disabled American's Act and is
making every effort to comply.
Facilities. Olympic Mills leases and occupies a 170,000
square foot manufacturing facility, which contains the executive
offices, in Guaynabo, Puerto Rico. It also leases and occupies a
140,000 square foot manufacturing facility in Humacao and a 28,000
square foot cut and sew facility in Yabucoa, Puerto Rico.
Employees. Olympic Mills employs 1,035 full and part-time
employees. None of Olympic Mills' employees is represented by a
labor union or subject to a collective bargaining agreement.
Olympic Mills does not have a collective bargaining agreement
covering any of its employees, nor has it ever experienced any
material labor disruption, and is not aware of any efforts or plans
to organize its employees. Olympic Mills contributes part of the
cost of medical and life insurance coverage for eligible employees.
Olympic Mills considers relations with its employees to be
excellent. Olympic Mills does not have a retirement or pension
program.
Legal Proceedings. There are no material legal proceedings
pending against Olympic Mills at this time.
THE CORPORATION
Common Stock
The Corporation has paid no dividends on its Common Stock
as of the date of this Proxy Statement nor does it intend to pay
dividends on its Common Stock in the foreseeable future. The
Corporation currently intends to retain future earnings to fund
development and growth of its businesses. In the future, any
payment of dividends on Common Stock will be dependent upon the
financial condition, capital requirements and earnings of the
Corporation, restrictions in any lending arrangements the
Corporation may have, including the facility with Congress, and any
other factors the Board of Directors may deem relevant.
The Corporation's Common Stock is listed for trading on the
NASDAQ OTC Bulletin Board under the trading symbol "CINC". The
following table reflects the range of high and low bid prices, as
reported by the National Quotation Bureau, for each quarterly
period during 1994 and through the date of the Proxy Statement.
The prices represent inter-dealer prices, without mark-up, mark-
down or commission and may not represent actual transactions.
Trading in the Corporation's Common Stock is very limited and may
not be an indication of the value of the Common Stock.
High Low High Low
Quarterly Period Ended Bid Bid Ask Ask
March 31, 1994 .50 .25
June 30, 1994 .3125 .1875 .4375 .3750
September 30, 1994 .3125 .25 .50 .34375
December 31, 1994 .3125 .1875 .46875 .34375
March 31, 1995 .21875 .125 .40625 .20
June 30, 1995 .50 .125 .6875 .1875
Current 8-25-95 .25 .25 .4375 .4375
On September 6, 1995, the average of the bid and asked price
for the Common Stock, as reported on the NASDAQ OTC Bulletin Board,
was $.34375 per share. As of September 6, 1995, the Corporation
had approximately 665 holders of its Common Stock.
The Corporation intends to apply to have the Common Stock
listed on the American Stock Exchange or the Nasdaq National
Market. To achieve the price per share required for listing, the
shareholders of the Corporation must approve a reverse stock split
of 1 share for each 6 shares and authorize the Board of Directors
to file the necessary amendments to its Articles of Incorporation
if and when the listing is accepted. The prices shown in the above
table do not reflect the impact of the reverse stock split.
Business
The Corporation, through its subsidiaries, currently: (i)
operates four Caribbean Outfitters retail stores in Aruba (2),
Bonaire and St. Thomas and a Back Bay Outfitters store in Tampa,
Florida; (ii) manages a hotel in San Antonio, Texas; and (iii) has
an option to purchase the Hotel on the Cay in St. Croix, U.S.V.I.
During the past two years the Corporation has consolidated its
financial and management operations to increase efficiency. During
the next year, the Corporation intends to move the supervision of
its retail and resort operations to Puerto Rico, and with the
acquisition of Olympic Mills, establish a T-shirt distribution and
printing operation.
Market Segments. The Corporation is engaged in the following
leisure travel related business: Caribbean Outfitters stores are
specialty retailers of casual clothing, tropical gifts and native
crafts; Back Bay Outfitters sells eco-tourism clothes, gear and
supplies; Resorts of Americas and Innkeepers, Inc. sell time shares
at a resort and manages a hotel. With the acquisition of Olympic
Mills, the Corporation will produce and distribute a proprietary
line of T-shirts and travel clothing.
Retail Customers. There are significant number of potential
customers both at current locations and potential future locations.
The Corporation will aggressively market its retail stores and
clothing lines to customers traveling by air, cruise and visiting
overnight in Caribbean locations. This will be done primarily
through print media and placing logos prominently on all
merchandise sold.
Retail Expansion Strategy. As the population ages and people
have more free time, the leisure travel industry has grown rapidly.
Statistics show more people are traveling than ever before. The
Caribbean is one of the top destinations for leisure travel. The
cruise business has grown by over 8% annually, and there are now
40,000 cruise ship berths under construction for delivery by 1997,
a 28% increase. The Corporation is positioned to take advantage of
this growth and is planning to expand its retail operations. Its
retail and distribution operation sells resort clothing and gifts
in the Caribbean Basin as well as eco-tourism clothing, gear and
supplies. All of these segments are expected to grow with the
leisure travel industry.
Retail Competition. Competition in the retail business in the
Caribbean Basin is primarily from local shops, most with single
locations. Although there are Caribbean wide chains such as Little
Switzerland and Benneton, they do not directly compete with
Caribbean Outfitters due to the difference in product line. There
are a wide range of competitors in wholesale distribution from
small one man shops to large suppliers of clothing such as "Bye" .
Hotel and Time Share. The Coachman Inn concept was developed
and refined by the Corporation since it was founded in 1985. The
concept was to develop, construct and operate luxury/economy
lodging properties positioned towards the lower priced end of the
lodging industry. The hotels were designed to attract the value-
conscious traveler desiring quiet, clean, comfortable, "no-frills"
lodging at reasonable prices. The Corporation owned and managed 10
hotel properties but had to curtail additional development due to
a lack of expansion capital and financing. Without the ability to
expand the hotel business into a substantial chain, the Corporation
shifted its primary business emphasis from hotel operations to
retail operations. The Corporation then began liquidating a
significant portion of the hotel properties. The Corporation
currently manages one Coachman Inn Hotel in San Antonio, Texas.
In 1994, the Corporation acquired an option to purchase the
Hotel on the Cay in St. Croix, U.S.V.I. and a contract to sell time
share units at that hotel. The option on the Hotel expires in
October, 1995 and the Corporation has not decided whether to
exercise or negotiate an extension of the option. The Corporation
does not manage that hotel and has not actively sold time share
units since the quality standards required by the Corporation for
the hotel have not been met. Competition in the time share sales
business varies from large multi-property chains like Disney and
Marriott to individual properties. Location and property value are
the deciding factor on most buying decisions.
Patents, Copyrights and Trademarks. The Corporation has
registered the trade name "Coachman Inn" with the United States
Patent and Trademark office which has issued a certificate of
registration effective March 1986. The Corporation has also
registered the trade name "Caribbean Outfitters " with the United
States Patent and Trademark office which has issued a certificate
of registration effective in April, 1995. The Corporation has
filed a Federal Trademark Application with the United States Patent
and Trademark office for "Back Bay Outfitters ". The Corporation
intends to maintain the integrity of these symbols against
unauthorized use and to protect future use against claims of
infringement and unfair competition where circumstances warrant.
Any licensee's use of the trade name, service mark and logo must be
in strict conformance with the license of franchise agreement to be
entered into with the Corporation.
Regulations The Corporation's various operations will be
regulated by federal, state and foreign laws, rules and
regulations. On the federal level, the Corporation is subject to
minimum wage and other labor laws. It will also be subject to
foreign and state regulation regarding wages, hours, working
conditions and worker's compensation. The Corporation must comply
with local land use and zoning regulations. Operation of the
Corporation's hotel properties will require compliance with state
and local health regulations and other laws and regulations of
state and local authorities. The Corporation is now also subject
to the terms of the Disabled American's Act and is making every
effort to comply.
Facilities. The Corporation currently leases approximately
5,700 square feet of office space at 301 N.W. 63rd Street, Suite
500, Oklahoma City, Oklahoma, as its corporate headquarters, which
lease expires March 31, 1997. Caribbean Outfitters leases
approximately 1,000 square feet of office space at 715 N. Sherrill,
Tampa, Florida, as its operations headquarters on a short term
basis.
Caribbean Outfitters has leases with remaining terms ranging
from two to five years on the six current store locations. The
store sizes range from 734 square feet in Bonaire, Netherlands
Antilles, to 2,900 square feet in Aruba. The average store size is
2,000 square feet.
Employees. As of December 31, 1994, the Corporation employed
63 people, 10 of whom were in management positions. Non-management
employees were composed of approximately 30 full-time employees and
23 part-time employees. The number of part-time employees
fluctuates during peak selling periods. Full-time employees are
defined as those working over 30 hours per week. None of the
Corporation's employees is represented by a labor union or subject
to a collective bargaining agreement.
The Corporation does not have a collective bargaining
agreement covering any of its employees, nor has it ever
experienced any material labor disruption, and is not aware of any
efforts or plans to organize its employees. The Corporation
contributes part of the cost of medical and life insurance coverage
for eligible employees. All employees also receive very
substantial discounts on Caribbean Outfitters merchandise. The
Corporation considers relations with its employees to be excellent.
The Corporation does not have a retirement or pension program.
Legal Proceedings. There are no material legal proceedings
pending against the Corporation at this time. The Corporation's
Florida subsidiary, Caribbean Outfitters, Inc. has accounts payable
and lease obligations of approximately $782,374, some of which are
pending claims and litigation filed against the subsidiary.
INDEPENDENT PUBLIC ACCOUNTANTS
Sartain Fischbein & Co., independent certified public
accountants, have served the Corporation as its principal
accountants, for the past year and were responsible for the audit
of the Corporation's most recent financial statements.
Representatives of such firm will be present at the Corporation's
Special Meeting and will have the opportunity to respond to
appropriate questions and to make a statement if they so desire.
KPMG Peat Marwick have served Olympic Mills as its principal
accountants for the past year and were responsible for the audit of
the financial statements of Olympic Mills included herein and for
the pro forma financial statements included herein. No
representatives of KPMG Peat Marwick will be present at the Special
Meeting. The Corporation has not decided who will serve as its
principal accountants for the current year and does not expect to
do so until after the completion of the transaction with Olympic
Mills.
FINANCIAL INFORMATION
The financial statements for Olympic Mills included in this
Proxy Statement have been audited by KPMG Peat Marwick independent
accountants, as stated in their reports appearing herein, and have
been so included in reliance upon such reports given on the
authority of that firm as experts in accounting and auditing.
The financial statements for Coachman Incorporated included in
this Proxy Statement have been audited by Sartain Fischbein & Co.
independent accountants, as stated in their reports appearing
herein, and have been so included in reliance upon such reports
given on the authority of that firm as experts in accounting and
auditing.
OTHER BUSINESS
Management does not intend to bring any matters before the
meeting other than those set forth in the accompanying notice.
Management knows of no other matters to be brought before the
meeting by others. However, if any other matters are brought
before the meeting, the proxies named in the enclosed form of proxy
will vote in accordance with their judgment on such matters.
By Order of the Board of Directors
Dennis D. Bradford
Chairman of the Board
Oklahoma City, Oklahoma
October ____, 1995
YOUR COOPERATION IN GIVING THIS MATTER YOUR IMMEDIATE
ATTENTION AND IN RETURNING YOUR PROXY PROMPTLY
WILL BE APPRECIATED
Independent Auditors' Report
The Board of Directors and Stockholders
Coachman Incorporated and Subsidiaries
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheets of
Coachman Incorporated and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1994. These financial
statements are the responsibility of Coachman's management. Our
responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the 1993
financial statements of Caribbean Outfitters, Inc., a wholly-owned
subsidiary, which statements reflect total assets of $1,958,000 as
of December 31, 1993 and total revenues of $54,300 for the sixteen
days then ended. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as
it relates to the amounts included for Caribbean Outfitters, Inc.
for 1993 is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. 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 and
the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Coachman Incorporated and Subsidiaries as of
December 31, 1994 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1994 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in
Note 17 to the financial statements, the Company s significant
operating losses, working capital deficiency, stockholder s
deficit, and Caribbean Outfitters default on several notes, bonds
and interest payments raise substantial doubt about its ability to
continue as a going concern. Management s plans in regard to these
matters are also described in Note 17. The financial statements do
not include any adjustments that might result from the outcome of
this uncertainty.
As discussed in Note 8, effective January 1, 1993, Coachman changed
its method of accounting for income taxes.
As discussed in Note 4, effective January 1, 1993, Coachman changed
its method of accounting for certain debt and equity securities.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed
in Item 14(a) of this Form 10-K are presented for purposes of
complying with the Securities and Exchange Commission's rules and
are not part of the basic consolidated financial statements and, in
our opinion, based on our audits and the report of other auditors,
fairly state, in all material respects, the financial data required
to be set forth therein in relation to the basic financial
statements taken as a whole.
Tulsa, Oklahoma SARTAIN FISCHBEIN & COMPANY
June 8, 1995
Independent Auditor's Report
To the Board of Directors of
Caribbean Outfitters, Inc. and Subsidiaries
Tampa, Florida
We have audited the consolidated balance sheet of Caribbean
Outfitters, Inc. and Subsidiaries as of December 31, 1993 and the
related consolidated statements of income, changes in stockholders
equity, and cash flows for the sixteen days then ended (none of
which are shown separately herein). These consolidated financial
statements are the responsibility of the Company s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Caribbean Outfitters, Inc. and Subsidiaries as of
December 31, 1993 and the results of their operations an their cash
flows for the sixteen days then ended in conformity with generally
accepted accounting principles.
Tampa, Florida LIGORI, VAILLANT AND COMPANY
February 28, 1994
COACHMAN INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 1993
------------ ------------
ASSETS
Current Assets:
Cash $ 32,777 $ 174,969
Accounts receivable:
Trade 25,317 2,394
Related parties 2,658 24,721
Notes receivable:
Officer (Note 2) 27,619 29,271
Affiliates (Note 3) 35,702 54,399
Inventory 228,855 343,717
Marketable equity securities
(Notes 4 and 5) 168,750 -
Prepaid expenses 1,884 7,576
------------ ------------
Total Current Assets 523,562 637,047
------------ ------------
Other Assets:
Property and equipment, net of
accumulated depreciation of $320,145
in 1994 and $243,804 in 1993 309,105 420,045
Goodwill (Notes 13 and 16) - 1,014,404
Notes receivable:
Officer (Note 2) 92,767 101,608
Related parties (Note 3) 436,656 472,360
Marketable equity securities
(Notes 4 and 5) - 229,688
Investment in condominium time-share
memberships (Note 5) 60,000 60,000
Investments in affiliated entities
(Note 3) 30,638 34,696
Deferred costs, net of accumulated
amortization of $19,936 in 1994
and $20,075 in 1993 23,367 59,227
Deposits 67,345 62,268
Other 34,655 1,000
------------ ------------
Total Other Assets 1,054,533 2,455,296
------------ ------------
$ 1,578,095 $ 3,092,343
COACHMAN INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 1993
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current Liabilities:
Notes payable (Note 6):
Related party $ 154,150 $ 155,000
Other 139,189 42,853
Current maturities of long-term debt
(Note 7) 289,785 217,185
Accounts payable:
Trade 657,127 439,040
Related parties 58,771 -
Accrued liabilities:
Commission - 30,000
Taxes 15,112 10,683
Interest 195,128 14,788
Other 147,567 89,761
Deferred income - 25,626
------------ ------------
Total Current Liabilities 1,656,829 1,024,936
------------ ------------
Long-Term Debt (Note 7) 339,196 816,155
------------ ------------
Commitments and Contingencies
(Notes 11 and 14) - -
------------ ------------
Stockholders' Equity (Deficit):
Preferred stock, $.01 par value;
authorized 200,000 shares; issued
and outstanding 4,750 shares in
1994 (Note 9) 48 -
Common stock, $.01 par value;
authorized 25,000,000 shares, issued
and outstanding 7,421,000 shares in
1994 and 5,812,500 in 1993 74,210 58,125
Additional paid-in capital 7,819,458 6,921,143
Accumulated deficit (8,311,646) (5,788,954)
------------ ------------
(417,930) 1,190,314
Net unrealized gains on noncurrent
marketable equity securities (Note 4) - 60,938
------------ ------------
Total Stockholders' Equity (Deficit): (417,930) 1,251,252
------------ ------------
$ 1,578,095 $ 3,092,343
COACHMAN INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 1993 1992
----------- ---------- ---------
Revenues:
Retail sales $ 1,843,378 $ 54,271 $ -
Management fees from affiliates 67,076 124,686 134,528
Time share commissions 52,780 - -
----------- ---------- ---------
1,963,234 178,957 134,528
----------- ---------- ---------
Expenses:
Cost of retail goods sold 1,010,704 22,223 -
Retail operating expenses 896,847 62,663 -
Timeshare commission expenses 55,840 - -
General and administrative 908,724 251,785 193,410
Depreciation and amortization 121,536 11,717 23,756
Special charges (Note 16) 1,483,870 - -
----------- ---------- ---------
4,477,521 348,388 217,166
----------- ---------- ---------
Loss From Operations (2,514,287) (169,431) (82,638)
----------- ---------- ---------
Other Income (Expenses):
Interest income 52,861 84,888 66,086
Interest expense (148,176) (7,380) (5,212)
Other income 86,910 18,650 19,834
Other expenses - - (1,505)
Recovery on note receivable (Note 3) - - 195,000
Gain on sale of Varsity (Note 5) - - 228,750
----------- ---------- ---------
(8,405) 96,158 502,953
----------- ---------- ---------
Income (Loss) Before Income Taxes (2,522,692) (73,273) 420,315
Income Taxes (Note 8) - - 142,907
----------- ---------- ---------
Income (Loss) Before Extraordinary Item (2,522,692) (73,273) 277,408
Extraordinary Item - Utilization of Net
Operating Loss Carryforward - - 142,907
----------- ---------- ---------
Net Income (Loss) $(2,522,692) $ (73,273) $420,315
Net Income (Loss) Per Common Share:
Primary:
Before extraordinary item $ (.38) $ (.02) $ .07
Extraordinary item - - .04
----------- ---------- ---------
Total $ (.38) $ (.02) $ .11
----------- ---------- ---------
Fully diluted:
Before extraordinary item $ (.37) $ (.02) $ .07
Extraordinary item - - .04
----------- ---------- ---------
Total $ (.37) $ (.02) $ .11
----------- ---------- ---------
Weighted Average Shares Outstanding:
Primary 6,616,750 3,895,833 3,812,500
Fully diluted 6,886,125 3,895,833 3,812,500
<TABLE>
<CAPTION>
COACHMAN INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Net Unreal-
ized Gains
(Losses) on
Paid-in Noncurrent Total
Capital Marketable Stockholders'
Preferred Common in Excess Equity Accumulated Equity
Stock Stock of Par Securities Deficit (Deficit)
--------- ------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ - $38,125 $6,741,143 $ - $(6,094,357) $ 684,911
Net unrealized loss on noncurrent
marketable equity securities - - - (70,313) - (70,313)
Spin-off of Coachman
Construction Company
(Note 12) - - - - (41,639) (41,639)
Net income - 1992 - - - - 420,315 420,315
------- ------- ---------- --------- ------------ -------------
Balance, December 31, 1992 - 38,125 6,741,143 (70,313) (5,715,681) 993,274
Issuance of common stock - 20,000 180,000 - - 200,000
Net unrealized recovery on
noncurrent marketable
equity securities - - - 131,251 - 131,251
Net Loss - 1993 - - - - (73,273) (73,273)
------- ------- ---------- --------- ------------ -------------
Balance, December 31, 1993 - 58,125 6,921,143 60,938 (5,788,954) 1,251,252
Issuance of common stock - 16,085 443,323 - - 459,408
Issuance of preferred stock 48 - 454,992 - - 455,040
Net unrealized loss on noncurrent
marketable equity securities - - - (60,938) - (60,938)
Net loss - 1994 - - - - (2,522,692) (2,522,692)
------- ------- ---------- -------- ------------ -------------
Balance, December 31, 1994 $ 48 $74,210 $7,819,458 $ - $(8,311,646) $ (417,930)
------- ------- ---------- -------- ------------ -------------
</TABLE>
COACHMAN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 1993 1992
------------ ---------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(2,522,692) $ (73,273) $ 420,315
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Special charges (Note 16) 1,483,870 - -
Depreciation and amortization 121,536 11,717 23,756
Write-off of deferred revenue (25,626) - -
Write-off of accounts
receivable - affiliates 1,449 - 6,990
Gain on sale of interest in
Varsity - - (228,750)
Net change in accounts receivable (10,263) (40,103) -
Net change in inventory 106,336 (43,367) -
Net change in prepaids and other 27,758 2,844 (2,394)
Net change in accounts payable
and other accrued liabilities 374,352 (51,362) 17,374
------------ ---------- ---------
Net Cash Provided by (Used in)
Operating Activities (443,280) (193,544) 237,291
------------ ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net loans to affiliates - - (18,769)
Net repayments from affiliates 22,063 - -
Collection of (recovery on)
note receivable 32,642 207,920 (195,000)
Collection of notes receivable-
related parties - 195,000 -
Capital expenditures (43,631) (3,413) (5,159)
Purchase of mortgage note - - (25,000)
Loan to officer - (85,000) (3,200)
Repayments from officer 17,308 - -
Increase in other assets (36,479) - -
------------ ---------- ---------
Net Cash Provided by (Used in)
Investing Activities (8,097) 314,507 (247,128)
------------ ---------- ---------
(Continued)
COACHMAN INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 1993 1992
------------ ---------- ---------
Cash Flows From Financing Activities:
Issuance of preferred and common stock $ 260,000 $ - $ -
Capital contributions received - 50,000 -
Spin-off of Coachman Construction
Company - - (41,639)
Advances from affiliates 23,271 - -
Advances from related parties 45,500 - -
Principal payments on note payable
and long-term debt (19,586) - (6,156)
------------ ---------- ---------
Net Cash Provided by (Used in)
Financing Activities 309,185 50,000 (47,795)
------------ ---------- ---------
Net Increase (Decrease) in Cash (142,192) 170,963 (57,632)
Cash, beginning of year 174,969 4,006 61,638
------------ ---------- ---------
Cash, end of year $ 32,777 $ 174,969 $ 4,006
------------ ---------- ---------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Net unrealized recovery (losses)
on noncurrent equity
marketable securities $ (60,938) $ 131,251 $ (70,313)
------------ ---------- ---------
Purchase of Caribbean Outfitters, Inc.
common stock through the issuance of
Coachman common stock (Note 13) $ - $1,943,334 $ -
------------ ---------- ---------
Conversion of long-term debt and accrued
interest into preferred stock $ 425,040 $ - $ -
------------ ---------- ---------
Purchase of St. Thomas retail store through
increase in notes payable $ 75,000 $ - $ -
------------ ---------- ---------
Purchase of Florida retail store through
assumption of liabilities $ 113,427 $ - $ -
------------ ---------- ---------
OTHER DISCLOSURES
Interest paid $ 3,223 $ 4,125 $ 1,937
------------ ---------- ---------
Income taxes paid $ - $ - $ -
------------ ---------- ---------
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SIGNIFICANT ACCOUNTING POLICIES
Organization: Coachman Incorporated (" Coachman") was incorporated on
February 5, 1985, to develop, construct, and manage lodging properties.
At December 31, 1994, Coachman had eight wholly-owned subsidiaries:
Coachman Inns of America, Inc.
Innkeepers, Inc.
Caribbean Outfitters, Inc., Caribbean Outfitters,
NV Aruba, Caribbean Outfitters NV, COVI, Inc.
(together herein "Caribbean"),
Back Bay Outfitters, Inc.
Resorts of the Americas, Inc. ("RAI") and its
wholly-owned subsidiaries, West Indies Resort
Company ("WIRC"), and The West Indies Club Limited
("WICL"),
Effective December 16, 1993 Caribbean was acquired by Coachman. As a
result, the consolidated statements of operations and cash flows include
Caribbean's operations and cash flows for the period December 16,
1993 through December 31, 1993. Caribbean operates a chain of retail
clothing stores (currently four at December 31, 1994) located in Aruba (2),
Bonaire, and St. Thomas specializing in men's and women's sports apparel.
Effective July 1, 1994, WIRC and WICL was acquired by RAI. As a result, the
consolidated statements of operations and cash flows include WIRC and WICL's
operations and cash flows for the period July 1, 1994 through December 31,
1994. WIRC sells time share units in the Virgin Islands and WICL has an
option to purchase a hotel in the Virgin Islands.
During May 1994, Caribbean Outfitters, Inc. closed one of its Florida stores
and one store in St. Croix, and in January 1995, Caribbean Outfitters, Inc.
closed the last of its Florida stores.
During 1992, there was a spin-off of Coachman Construction Company and VCA
Incorporated, which were two wholly-owned subsidiaries.
Principles of Consolidation: The accompanying consolidated financial
statements include the amounts of Coachman and its wholly-owned
subsidiaries. Intercompany transactions and balances have been eliminated
in consolidation.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Inventories: Inventories are stated at the lower of cost determined by the
first-in, first-out (FIFO) method, or market.
Investments: Investments in affiliated entities are stated at cost plus
equity in undistributed earnings and losses since acquisition.
Management determines the appropriate classification of marketable
investment securities at the time of purchase. Securities to be held for
indefinite periods of time and not intended to be held to maturity or on a
long-term basis are classified as available for sale and carried at fair
value. Realized gains and losses on dispositions are based on the net
proceeds and the adjusted book value of the securities sold, using the
specific identification method. Unrealized gains and losses on investment
securities available for sale are based on the differences between book
value and fair value of each security. These gains and losses are credited
or charged to shareholders equity, whereas realized gains and losses flow
through Coachman s yearly operations.
Investments in condominium time-share memberships are carried at cost.
Property and Equipment: Property and equipment is stated at cost and
consists principally of retail store equipment. Depreciation is provided
using the straight-line method over the estimated useful lives of the
related assets. Repairs and maintenance are expensed as incurred, whereas
major improvements are capitalized.
Income Taxes: Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
property and equipment, gains and losses on investments and net operating
loss deductions for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes also are recognized for
the income tax benefit of operating losses that are available to offset future
taxable income and tax credits that are available to offset future federal
income taxes.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Management Fees: Coachman recognizes management fees based on the terms of
each contract. Contract terms vary and are based on a percentage of revenue,
a percentage of net income or a fixed fee.
Goodwill: Goodwill represents the excess of the cost of companies acquired
over the fair value of their net assets at dates of acquisition and is being
amortized on the straight-line method over twenty-five years. Amortization
expense charged to operations for 1994 and 1993 based on a twenty-five year
life was approximately $42,800 and $4,300, respectively. In 1994, the
remaining balance of goodwill was written off based on management's
evaluation of operations for 1994 and the uncertainty of future revenues.
Goodwill written off in the amount of $1,330,468 is included in special
charges in the statement of operations.
Deferred Costs: Deferred costs relate to the issuance of bonds, and are
amortized using the straight-line method over five years. Amortization
expense charged to operations for 1994 and 1993 was approximately
$15,900 and $700, respectively.
Earnings Per Common Share: In 1994, 1993 and 1992, the computation of
primary earnings per share is based on the weighted average number of
outstanding common shares. In 1994, the computation of fully diluted
earnings per share further assumes the conversion of Coachman s Series A,
Series B, and Series C Cumulative Convertible Redeemable Preferred Stock.
Accounting rules governing the computation of earnings per share
require that dividends on cumulative preferred stock, whether declared or
not, be deducted in the earnings per share computation.
Reclassifications: Certain reclassifications have been made in the 1993
and 1992 financial statements to conform to the classifications used in 1994.
3. NOTES RECEIVABLE - OFFICER
Notes receivable - officer includes a $110,000 note due December 2003. The
note bears an interest rate of 6% with interest and principal of $14,657
payable annually and is collateralized by 1,109,498 restricted shares of
Coachman common stock.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
3. NOTES RECEIVABLE - RELATED PARTIES
Notes receivable - related parties consist of the following:
1994 1993
--------- ---------
Coachman Inns Income Limited Partnership $ 472,358 $ 512,595
Other - 14,164
--------- ---------
472,358 526,759
Less current maturities 35,702 54,399
--------- ---------
$ 436,656 $ 472,360
--------- ---------
Coachman Inns Income Limited Partnership ("CIILP"): Coachman advanced
$700,000 to CIILP under a note agreement which bears interest at 9.0%,
payable in monthly installments of $6,397 and maturing in January 2004.
The loan is collateralized by a second mortgage on real estate owned by
CIILP. In the event that the first mortgage lender were to foreclose on the
real estate, management believes proceeds from the eventual sale of the
property would be sufficient to cover the lender's first mortgage and
Coachman's second mortgage.
Coachman recognized interest income of approximately $44,100, $58,300,
and $63,000 in 1994, 1993 and 1992, respectively on this note.
Big Town Motels, Inc., ("Big Town Motels"): In 1989, Coachman charged
off as uncollectible, $854,651 due from a related party, Hospitality
Realty, Inc. (including its wholly owned subsidiary Big Town Motels).
During 1992, Coachman purchased an existing first mortgage note having a
principal balance of $54,243 on real estate owned by Big Town Motels for
$25,000. This mortgage note was purchased by Coachman to enable them to
obtain a first mortgage on the real estate which would collateralize the
amounts due to Coachman of $908,894 (consisting of the amounts charged off
in 1989 plus the balance owing on the first mortgage purchased). In
conjunction with these transactions, Coachman received a note from Big
Town Motels in the amount of $220,000, which is collateralized by the first
mortgage. This note bears interest at 9% and requires monthly payments of
principal and interest of $1,980 to be made through December 2012. As a
result of these transactions, Coachman recognized $195,000 (consisting of the
$220,000 note less $25,000 cost of acquiring the first mortgage) as Recovery
on note receivable in the accompanying financial statements.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
3. NOTES RECEIVABLE - RELATED PARTIES (CONTINUED)
In November 1993, the real estate secured by Coachman's first mortgage was
sold. As a result, Coachman received $207,920 against the mortgage and
stock representing fifty percent ownership in a company which owns a parcel
of real estate valued at approximately $100,000. Coachman's basis in the
stock is valued at $30,323 which represents the remaining unpaid principal
and interest of $12,080 and $18,243, respectively, on the Big Town Motels
note and is included in Investments in affiliated entities in the accompanying
financial statements.
4. MARKETABLE EQUITY SECURITIES
Effective January 1, 1993 Coachman adopted SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" effective for fiscal years
beginning after December 15, 1993, with early application permissible for
companies which have not yet released their annual financial statements. As
a result of early adoption of SFAS No. 115, Coachman adjusted its investment
in marketable equity securities to fair value at December 31, 1993 with
recognition of the adjustment being recognized as a net change in a separate
component of stockholders' equity. Coachman s securities are classified as
available for sale securities at December 31, 1994 and 1993. The aggregate
fair value of these investments amounted to $168,750 and $229,688 including
unrealized holding gains of $0 and $60,938 at December 31, 1994 and 1993,
respectively. Coachman intends to sell these securities in 1995 and, therefore,
are reflected as a current asset at December 31, 1994.
5. GAIN ON SALE OF INTEREST IN VARSITY
VCA Incorporated ("VCA"), a wholly-owned subsidiary of Coachman before
being spun-off to Coachman stockholders effective June 1, 1992, was a
general partner in Varsity Clubs of America ("Varsity"). Varsity was formed
as a joint venture to develop high quality all-suite hotels near major colleges
and universities, primarily for the purpose of selling time-share memberships
to alumni and other supporters of the institutions. On March 24, 1992, VCA
sold its interest in Varsity to ILX Incorporated ("ILX") in exchange for
150,000 common shares of ILX, and six time-share memberships of
Los Abrigados Sedona Vacation Club. As a result of this transaction, VCA
recognized a gain of $228,750 in the accompanying financial statements.
Subsequent to the sale of Varsity, VCA distributed the ILX stock and the
time-share memberships to Coachman, which were recorded as Marketable
equity securities and Investment in condominium time-share memberships at
their market values at date of distribution of $168,750 and $60,000
respectively.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
6. NOTES PAYABLE
Notes payable to a related party are due to an officer and stockholder of
Coachman. The notes are unsecured, bear interest at the prime rate plus 2.0%
and are due on demand.
Other notes payable consist of the following:
1994 1993
--------- --------
Summary judgment awarded by court with interest
at 12% due on demand $ 64,189 $ 31,733
6.0% unsecured note payable to a company, due
in monthly installments of $6,455, including
interest, with the final installment due in
June 1995 75,000 -
Other notes - 11,120
--------- --------
$ 139,189 $ 42,853
--------- --------
The $64,189 summary judgment includes amounts awarded by court decree to
an individual for outstanding amounts advanced and other costs incurred. The
debt was settled during June 1995.
Required payments under the $75,000 note have not been made by Coachman
through December 1994. The holder of the note and Coachman are currently
renegotiating the note.
7. LONG-TERM DEBT
Long-term debt consists of the following:
1994 1993
--------- ----------
12.0% note payable to Aruba Bank, Ltd. from
Caribbean Outfitters, N.V. The note is
secured by certain equipment, furniture, and
fixtures of Caribbean. $ 86,680 $ 86,680
9.25% note payable from Caribbean Outfitters,
Inc. to a bank due in monthly installments of
$1,000, including interest, with the final
installment due in June, 1994. The note is
secured by certain accounts receivable,
inventory, equipment, furniture, and fixtures
of the Sarasota store. 29,888 43,660
14.0% Caribbean outfitters, N.V. bonds payable,
with interest paid annually April 1. The bonds
mature in April, 1994 and April, 1996 and are
secured by certain inventory, furniture,
fixtures and accounts receivable of Caribbean. 260,000 318,000
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
7. LONG-TERM DEBT (CONTINUED)
12.0% Caribbean Outfitters, N.V., bonds
payable, with interest paid semi-annually on
March 31 and September 30. The bonds mature
annually beginning September, 1994 through
September 1999 and are secured by certain
inventory, furniture, fixtures, equipment and
accounts receivable of Caribbean. $ 188,000 $ 428,000
12.0% Caribbean Outfitters, N.V. bonds payable,
with interest payable semi-annually on March 31
and September 30. The bonds are participating
and mature annually beginning March 1996,
through March 2000 and are secured by certain
inventory, furnitures, fixtures, equipment
and accounts receivable of Caribbean. 28,000 127,000
13% unsecured note to related party with
interest and principal due March 1996. The
note contains provisions whereby it can be
settled through the issuance of Coachman
common stock assuming a conversion rate of
approximately $.15 per share. 30,000 30,000
Other secured note 6,413 -
--------- ----------
628,981 1,033,340
Less current maturities 289,785 217,185
--------- ----------
$ 339,196 $ 816,155
--------- ----------
No principal and interest payments have been made on the 12% note with
Aruba Bank, Ltd. This note is past due, although the Bank has not made
demand for payment.
The $29,888 note payable to a bank is in default according to its original
terms at December 31, 1994. Interest is being paid currently in an agreement
with the lender. Assets securing the loan are being liquidated with the asset
value estimated to be in excess of the note amount. The Bank has made no
demand for payment of principal.
Bond Principal in the amount of approximately $153,000, and accrued Bond
Interest of approximately $108,000 are delinquent at December 31, 1994.
The Bond holders have been assured by management that Caribbean
Outfitters, N.V. Aruba, the Issuer, intends to bring this debt current in the
future. At June 8, 1995, no action has been taken by the bondholders.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
7. LONG-TERM DEBT (CONTINUED)
Approximate maturities of long-term debt over the next five years are as
follows:
1995 - $290,000; 1996 - $213,000; 1997 - $15,000; 1998 - $9,000; 1999 -
$89,000.
8. INCOME TAXES
Effective January 1, 1993, Coachman adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The cumulative
effect of the change in accounting principle is not material and is included
in determining the net loss for 1993. Financial statements for prior years
have not been restated.
The net deferred tax asset or liability in the accompanying balance sheets
include the following components:
1994 1993
---------- ----------
Deferred tax asset, net operating loss $ 989,000 $ 540,000
Deferred tax asset valuation allowance (989,000) (490,000)
Deferred tax liability - (50,000)
---------- ----------
$ - $ -
---------- ----------
Coachman has net operating loss carryforwards of approximately $2,600,000
which, if unused against future Federal income taxes, will expire between the
years 2003 and 2009.
The deferred tax asset reflects estimated income taxes attributable to the net
operating loss carryforward. A valuation allowance has been provided due
to the uncertainty of realization of the deferred tax asset, thereby, resulting
in no net deferred tax asset or liability.
9. PREFERRED STOCK
Preferred Stock: At December 31, 1994 Preferred stock includes 500 shares
of Coachman's 6% Cumulative Convertible Redeemable Series A Preferred
Stock ("Series A"), 979 shares of Coachman's 14% Cumulative Convertible
Redeemable Series B Preferred Stock ("Series B"), and 3,271 shares of
Coachman's 12% Cumulative Convertible Redeemable Series C Preferred
Stock ("Series C"). Stated values are $100, $115 and $115 for Series A, B
and C, respectively, and all three series have a liquidation preference of
$100 plus accrued but unpaid dividends per share.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
9. PREFERRED STOCK (CONTINUED)
Preferred Stock (Continued): Dividends will be at the rate of $6.00,
$16.10 and $13.80, respectively, per share annually, payable in semi-
annual installments on June 30 and December 31 of each year,
commencing on December 31, 1994 for the Series A stock and
commencing on June 30, 1994 for the Series B and Series C stock.
Any or all three of the series are redeemable, in whole or in part, at the
option of Coachman on at least 30 days notice, at any time and at the
redemption price of $110, $115, and $115, respectively, per share plus
accrued and unpaid dividends to the redemption date.
The Series A, B and C stocks are convertible at any time prior to
December 31, 1996, at the option of the holder, into 200, 115, and 115
shares of Coachman common stock for each share of Series A, B or C
stock, subject to adjustment in certain events.
The Series A, B and C stock will not have voting rights (except as required
by law) unless unpaid dividends accumulate in an amount equal to or
exceeding three six month dividend periods, at which time the holders of
Series A, B or C stock will be entitled to elect 20% of the members of
Coachman s board of directors. The voting rights (one vote per share)
will continue until all dividends on the Series A, B or C stock are paid
current. All three series of preferred stock are restricted.
The Series A stock is senior to the Series B and Series C stock issues and
to Coachman s Common stock with respect to dividends and on liquidation
or dissolution.
At December 31, 1994, cumulative unpaid dividends on Series A, B and
C stock totaled approximately $62,300. There were no Series A, B or C
redemptions during the year ended December 31, 1994.
10. EMPLOYEES INCENTIVE STOCK OPTION PLANS
1987 Options: On March 30, 1987, Coachman adopted an Employees
Incentive Stock Option Plan. This plan originally provided for the
granting of options to purchase up to 65,400 shares of Coachman's
common stock to certain officers, directors, and employees of Coachman
upon terms and conditions (including price, exercise date, and number of
shares) determined by the Compensation Committee appointed by the
Board of Directors which administers the plan. The plan was amended on
March 9, 1989 to increase from 65,400 shares to 190,652 shares of
Coachman common stock available for the granting of options.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
10. EMPLOYEES INCENTIVE STOCK OPTION PLANS (CONTINUED)
Under the plan, the Compensation Committee may require that any
optionee remain in the employ of Coachman for a stated period of time
before exercising any portion of his option, and the exercise price specified
by the Committee may not be less than 100% (110% in the case of holders
of 10% of Coachman's common stock) of the fair market value, as
defined, of Coachman's common stock as of the date of the grant. Each
option will be exercisable after the period or periods specified in the
individual option agreements, but no option shall be exercisable at a time
over fifteen years from the date of grant and no "qualified" incentive stock
option shall be exercisable at a time over ten years (five years in the case
of a "qualified" incentive stock option granted to a 10% stockholder) from
the date of grant.
On January 25, 1989, the Board of Directors approved that options
covering 32,750 shares of common stock with exercise prices of $2.50 to
$2.75 previously granted be rescinded, and options covering 38,250 shares
of common stock were then granted. On January 24, 1990, the Board of
Directors approved that options on 15,500 shares previously granted be
rescinded and that options covering 15,600 shares of common stock be
granted (thereby increasing net options outstanding to 38,350 common
shares), with an average exercise price of $.26. During 1993, two option
holders no longer qualified under the plan. Therefore, net outstanding
options decreased to 33,550 at December 31, 1993 and 1994. No options
were exercised during 1994, 1993, or 1992.
1993 Options: In December 1993, Coachman granted to three Company
officers non-qualified incentive stock options to purchase a total of
1,000,000 shares of Coachman common stock exercisable at an exercise
price of 120% of the closing asked price on December 15, 1993 (closing
of $.10 per share). The options may be exercised at any time during the
succeeding five year period from the option grant date subject to
Coachman's ability to raise $1,500,000, the opening of ten new Caribbean
stores, and two years of continuous employment by the officers from the
option grant date. Subsequent to December 31, 1994, two of Coachman s
officers resigned from the Company. As a result, stock options granted
to the two officers during 1993 to purchase a total of 600,000 shares have
been canceled.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
11. RELATED PARTY TRANSACTIONS
Management Fees: In addition to the management fees which
Coachman receives, Coachman is also reimbursed for direct
administrative services that it provides to affiliates. General and
administrative expenses from continuing operations in the
accompanying statements of operations are net of allocated direct
charges. Reimbursement of these expenses were approximately
$314,000, $564,000, and $730,000 for the years ended December 31,
1994, 1993, and 1992, respectively.
Guarantor of Debt: Coachman, one of its subsidiaries, and an officer
are guarantors on certain debt of CIILP which is collateralized by real
estate. The outstanding balance of the debt amounted to approximately
$2,266,000 at December 31, 1994. Coachman also holds a second
mortgage on the debt (see Note 3).
Consulting Fees: During 1994, Coachman paid approximately
$30,000 to a consulting company whose owner is related to one of
Coachman's stockholders.
12. SPIN-OFFS OF SUBSIDIARIES
On March 17, 1992, Coachman declared a liquidating dividend to
Coachman stockholders in the form of all 400,000 outstanding shares
of common stock of Coachman Construction Company ("CCC"), a
wholly-owned subsidiary of Coachman. Coachman stockholders
received one share of CCC common stock for every ten shares, or part
thereof, of Coachman's common stock held. Accumulated deficit has
been charged in the amount of $41,639, as a liquidating dividend,
which represents the net book value of CCC at March 17, 1992.
On April 21, 1992, Coachman declared, effective June 1, 1992, a
liquidating dividend to Coachman stockholders in the form of all
200,000 outstanding shares of VCA Incorporated ("VCA"), a wholly-
owned subsidiary of Coachman. Coachman stockholders received one
share of VCA common stock for every twenty shares, or part thereof,
of Coachman's common stock held. At the time of the transfer, VCA
had no assets or liabilities; therefore, no liquidating dividend amount
was recognized on the transfer.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
12. SPIN-OFFS OF SUBSIDIARIES (CONTINUED)
The combined operations of these subsidiaries for the year ended December 31,
1992 are summarized as follows:
Revenues $ 230,158
Expenses 3,285
---------
Net income $ 226,873
13. ACQUISITIONS
Caribbean Outfitters, Inc.: Effective December 16, 1993, Coachman
acquired Caribbean Outfitters, Inc. in a tax-free merger with Coachman's
subsidiary, COI Acquisition, Inc. under Internal Revenue Code Section
368(a)(2)(D). Caribbean operates a chain of four retail clothing stores
specializing in men's and women's sports apparel. In order to effect the
merger, Coachman issued 2,000,000 shares of its common stock with a fair
market value of $200,000 for all of the outstanding common stock of
Caribbean. As a result of the transaction, Caribbean became a wholly-owned
subsidiary of Coachman.
As part of the merger agreement, the former Caribbean stockholders have the
right to receive as a contingent stock earn-out a total of: (1) an additional
100,000 Coachman common shares for each retail store location then open
and operating over six stores, up to an additional 1,000,000 Coachman
common shares; and (2) an additional 100,000 Coachman common shares for
each $1,000,000 in cumulative gross revenues from operations from
Caribbean over $2,000,000 in annual revenues, up to a total additional
1,000,000 Coachman common shares. The contingent stock earn-out shall
be calculated and paid annually and is not anti-dilutive except for stock splits
and stock dividends. Additional Coachman common shares issued, if any, as
a result of the contingent stock earn-out will be recorded as additional
purchase price of Caribbean at the fair market value of the Coachman
common stock at the date of issuance.
This transaction was accounted for as a purchase and, accordingly, the
consolidated financial statements include the results of operations of
Caribbean since the acquisition date. The purchase price of $1,943,334
consisted of $200,000 of Coachman common stock plus Caribbean liabilities
of $1,743,334. The purchase price of the acquisition was allocated to the
assets acquired based on their fair value and resulted in the recognition of
goodwill of $1,018,704. The goodwill is being amortized over 25 years on
the straight-line method.
In 1994, the unamortized balance of goodwill was written off.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
13. ACQUISITIONS (CONTINUED)
WIRC: In July 1994, Coachman issued 300,000 shares of its common stock
for all of the outstanding common stock of West Indies Resort Company
("WIRC"). WIRC has entered into a sales and marketing agreement with
Legend Resorts L.P. ("Legend"), a limited partnership and one of
Coachman's common stockholders, whereby WIRC will market and sell time
share units on behalf of Legend for the Hotel On the Cay, a resort property
located in St. Croix, Virgin Islands. WIRC earns commissions equal to 45%
of the sales price of each time share unit sold. For the six months ended
December 31, 1994, WIRC recognized approximately $52,800 in
commissions, which has been included in Time share commissions in the
accompanying financial statements. The sales and marketing agreement
expires October 1, 1995.
WICL: In July 1994, Coachman issued 260,000 shares of its common stock
and paid cash of $260,000 for all of the limited partnership interests of West
Indies Club Limited ( WICL ). WICL has entered into an asset purchase
agreement with Legend to purchase the assets of the Hotel On the Cay for
$2,000,000. The purchase price may be reduced in general by (1) 55% of the
sales price of each time share unit sold by WIRC during the period covered by
the WIRC sales and marketing agreement and (2) the greater of 371/2% of the
remaining outstanding principal balances of time share units previously sold
or 50% of the actual sale price realized upon the sale (to bonafide third
parties prior to closing under the asset purchase agreement) of outstanding
principal balances of time share units previously sold. For the six months
ended December 31, 1994, WICL has earned, through WIRC sales, credits of
approximately $63,000 available to reduce the purchase price of the hotel. The
asset purchase agreement expires October 1, 1995.
WICL's asset purchase agreement also includes a provision which stipulates
that if WICL obtains permits to build additional time share units not covered
in the asset purchase agreement, WICL would be required to pay Legend
additional amounts in excess of the $2,000,000 purchase price of the hotel.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
13. ACQUISITIONS (CONTINUED)
The acquisitions of WIRC and WICL are considered to be tax-free mergers
under Internal Revenue Code Section 368 (a)(2)(D). The transactions were
accounted for as purchases and, accordingly, the consolidated financial
statements include the results of operations of WIRC and WICL since the
acquisition date. The purchase price of $265,600 consisted of cash of
$260,000 and $5,600 of Coachman common stock. The purchase price of the
acquisition was allocated to the assets acquired based on their fair market
value and resulted in the recognition of goodwill of $261,201, which was
written off in 1994. The results of operations of WIRC and WICL for 1994
and 1993 are immaterial to the consolidated financial statements, and
accordingly, no unaudited proforma information as though Coachman and
WIRC and WICL had been combined as of the beginning of 1993 is
presented.
Proforma (unaudited) information for 1993 and 1992 as though Coachman
and Caribbean had been combined as of the beginning of 1992 is as follows:
1993 1992
---------- ----------
Revenue:
Coachman $ 228,224 $ 220,448
Caribbean 1,710,614 984,993
---------- ----------
Total Revenue 1,938,838 1,205,441
---------- ----------
Cost of Sales and Operating and
General Administration Expenses 2,260,651 1,109,000
---------- ----------
Income (Loss) From Operations (321,813) 96,441
Other Income - 423,750
---------- ----------
Income (Loss) Before Income Taxes (321,813) 520,191
Income Taxes - 176,865
---------- ----------
Income (Loss) Before Extraordinary
Items (321,813) 343,326
Extraordinary Items:
Utilization of net operating loss
carryforward - 176,865
Loss on investment (1,028,174) -
---------- ----------
Net Income (Loss) $(1,349,987) $ 520,191
----------- ----------
Net Income (Loss) Per Share:
Income (Loss) before extraordinary
item $ (.05) $ .06
Extraordinary item $ (.18) $ .03
--------- --------
Net Income (Loss) $ (.23) $ .09
--------- --------
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
13. ACQUISITIONS (CONTINUED)
Florida Stores: During April 1994, Back Bay Outfitters, Inc. acquired the
assets and assumed the liabilities of a store located in Florida. In addition,
COVI, Inc. acquired the assets of a store in St. Thomas in May 1994 by
paying cash of $25,000 and issuing a $75,000 note. As a result of the
acquisitions, goodwill amounting to approximately $95,000 was recorded,
which was written off in 1994.
14. COMMITMENTS AND CONTINGENCIES
Operating Leases: Coachman's subsidiaries lease retail facilities under
operating leases that expire through 1999. Coachman leases office space
under an agreement expiring in 1997. Minimum future rental payments
under noncancelable operating leases as of December 31, 1994 are as
follows:
Year ended
December 31,
1995 $ 347,000
1996 346,000
1997 229,000
1998 144,000
1999 58,000
-----------
$1,124,000
-----------
Rental expense was approximately $536,000, $44,000, and $54,000 for the
years ended December 31, 1994, 1993, and 1992, respectively.
Caribbean closed two of its retail stores in May 1994 and one in January
1995. The lease on the closed store in St. Croix was settled by conveying
the tenant improvements and fixtures to the landlord. The lease in
Clearwater Beach, Florida was released by the landlord. The cancellation
of the lease in Sarasota, Florida is the subject of litigation. Counsel for
Coachman believes that Coachman has no liability under the lease.
Caribbean Outfitters, Inc. may be liable for past rent. Other accrued
liabilities include approximately $34,000 in unpaid rent attributable to the
Sarasota store for rent through December 31, 1994.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Investment in Affiliated Partnership: Coachman's wholly-owned
subsidiary, Coachman Inns of America, Inc., serves as a general partner in
a partnership. As a general partner, Coachman's subsidiary may be exposed
to liability with respect to claims asserted against the partnership
Employment Agreements: In December 1993, Coachman entered into
employment agreements with three of its officers (the "Agreements"). The
Agreements granted the officers include stock options which are more fully
described in Note 10.
In addition, the Agreements commit Coachman to employ the officers for the
three year period ending December 31, 1996. Should the officers be
terminated, under certain conditions, the officers are entitled to severance
pay in the amount of the salary to be paid during the following twenty-four
month period after the officers are terminated or the number of months
remaining in the employment period, whichever is less. The Agreements
stipulate that bonus compensation shall be paid to each of the officers in an
amount of 4% of Coachman's pretax net income up to the first $1,000,000
of such net income and 6% thereafter.
Subsequent to December 31, 1994 two of the officers resigned and are not
entitled to severance pay.
Litigation: Coachman s Florida subsidiary, Caribbean Outfitters, Inc. has
total liabilities of approximately $780,000, some of which are pending
claims and litigation filed against Caribbean Outfitters, Inc. One claim
which was made against Coachman for a guarantee of $40,000 on a lease at
a store which was closed has been settled. Coachman feels it is not liable
for these amounts and will vigorously defend itself against any claim arising
out of the acquisition of Caribbean Outfitters, Inc.
Coachman is a defendant in a lawsuit filed by the landlord for the closed
store in Sarasota, Florida for non-payment of rents. The suit asks for past
due rent of approximately $56,000 (including approximately $34,000 through
December 31, 1994) and accelerated rents of approximately $351,000, plus
attorneys fees and costs. Outside counsel for Coachman has advised that the
claim for accelerated rent is questionable. Coachman believes the total suit
against Coachman for rent is without merit and is vigorously defending its
position.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
15. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
Business Segment Information: Coachman's operations consist principally
of three segments, which include motel management operations in the state
of Oklahoma, retail clothing sales in the state of Florida and the Caribbean
and time share sales in the Virgin Islands. Following is a summary of
information for 1994, 1993 and 1992:
1994 1993 1992
----------- ---------- ----------
Revenues from Operations:
Retail sales $ 1,843,378 $ 54,271 $ -
Motel management 67,076 124,686 134,528
Time share sales 52,780 - -
----------- ---------- ----------
1,963,234 178,957 134,258
----------- ---------- ----------
Operating Expenses:
Retail sales 2,439,797 103,417 -
Motel management 498,014 244,971 217,166
Time share sales 55,840 - -
----------- ---------- ----------
2,993,651 348,388 217,166
----------- ---------- ----------
Special charges (1,483,870) - -
Other income 139,771 103,538 509,670
Other expenses (148,176) (7,380) (6,717)
----------- ---------- ----------
Income (loss) before income taxes,
as reported in the accompanying
income statements $(2,522,692) $ (73,273) $ 420,315
----------- ---------- ----------
Identifiable Assets:
Retail sales $ 660,682 $1,958,476 $ -
Motel management 917,413 1,133,867 1,142,393
Time share sales - - -
----------- ---------- ----------
Total assets as reported in the
accompanying balance sheets $ 1,578,095 $3,092,343 $1,142,393
----------- ---------- ----------
Capital Expenditures:
Retail sales $ 79,846 $ 2,772 $ -
Motel management - 641 5,159
----------- ---------- ----------
Total Capital Expenditures $ 79,846 $ 3,413 $ 5,159
----------- ---------- ----------
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
15. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
1994 1993 1992
----------- ---------- ----------
Depreciation and Amortization:
Retail sales $ 117,649 $ 7,110 $ -
Motel management 3,887 4,607 23,756
Time share sales - - -
----------- ---------- ----------
Total Depreciation and amortization $ 121,536 $ 11,717 $ 23,756
----------- ---------- ----------
Geographic Information: Some of Caribbean's Operations are conducted
in Netherlands Antilles. Operations for Caribbean are included in the
consolidated financial statements since the date of acquisition of Caribbean
(December 16, 1993). Other geographic information is as follows:
1994 1993 1992
----------- ---------- ----------
Revenues from Operations:
United States $ 657,090 $ 138,254 $ 134,528
Netherlands Antilles 1,253,364 40,703 -
Virgin Islands 52,780 - -
----------- ---------- ----------
1,963,234 $ 178,957 $ 134,528
----------- ---------- ----------
Operating Expenses:
United States 1,722,289 270,825 217,166
Netherlands Antilles 1,215,522 77,563 -
Virgin Islands 55,840 - -
----------- ---------- ----------
2,993,651 348,388 217,166
----------- ---------- ----------
Special Charges (1,483,870) - -
Other income 139,771 103,538 509,670
Other expenses (148,176) (7,380) (6,717)
----------- ---------- ----------
Income (loss) before income taxes,
as reported in the accompanying
income statements $(2,522,692) $ (73,273) $ 420,315
----------- ---------- ----------
Identifiable Assets:
United States $ 1,250,095 $2,772,343 $1,142,393
Netherlands Antilles 301,931 320,000 -
Virgin Islands 26,069 - -
----------- ---------- ----------
$ 1,578,095 $3,092,343 $1,142,393
----------- ---------- ----------
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
16. SPECIAL CHARGES
In 1994, special charges of $1,483,870 were recorded consisting principally
of the write off the remaining unamortized balance of goodwill. The write
off was based on management s evaluation of operations for 1994 and the
uncertainty of future revenues. Additionally, special charges includes costs
attributable to store closings. The amount attributable to goodwill written
off and store closings was $1,330,468 and $153,402, respectively.
17. GOING CONCERN
As shown in the accompanying financial statements, Coachman incurred a
loss of $2,522,692 during the year ended December 31, 1994, and as of
that date, Coachman's current liabilities exceeded its current assets by
$1,133,267 and had a stockholders' deficit of $417,930. At December 31,
1994 Caribbean was in default on several notes, bonds and interest
payments. Those factors create an uncertainty about Coachman's ability
to continue as a going concern.
Management has implemented a cost reduction plan which includes the
resignation of two of its officers, a reduction of various expenses and
consolidation of operations. In addition, several unprofitable retail stores
were closed during 1994 and early 1995. Management believes these
changes should result in cost savings of approximately $694,000 annually.
Retail sales depend significantly on the level of inventories that can be
maintained. Due to lack of working capital, inventory levels fell
significantly throughout 1994. Management intends to rebuild its
inventories during 1995 thereby providing a significant sales increase in the
second half of the year. Sales for 1995 are anticipated to be approximately
$1,800,000. Management feels that by increasing its average inventory
levels to $375,000, $75,000 per store, that sales on an annual basis should
increase to approximately $3,000,000. This sales increase would provide
the Company with $540,000 of additional gross profit from sales on an
annualized basis at its historic gross profit rate of 45%.
COACHMAN INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
17. GOING CONCERN (CONTINUED)
In order to alleviate the lack of sufficient inventory, the Corporation sold
$200,000 of common stock under Regulation S during the first quarter of
1995 to non U.S. investors and the proceeds of this sale were used
primarily to increase inventory levels. In addition the Corporation has
signed an investment banking agreement with RK Grace & Company and
AGA Business and Investment Group to further recapitalize the Company
through the private placement of $350,000 of units consisting of Common
Stock and Warrants. The offering has now been partially funded.
There are several contingency plans which could be undertaken if the above
steps are not sufficient. The Corporation could close its Tampa, Florida
office completely, moving all operations to the Oklahoma City office, a
savings of $12,000 monthly. If necessary, management could sell its
investment in ILX common stock (a non earning asset) and receive cash of
approximately $200,000 from the sale. Due to the fact that a substantial
portion of non-current accounts payable are owed by Caribbean Outfitters,
Inc., which has no operations and limited assets, that subsidiary could seek
court protection or liquidation without effecting the other operations of the
Corporation. Management does not believe these contingency plans will
be necessary to continue current operations.
The ability of Coachman to continue as a going concern is dependent on
successful completion of one or more of its stated plans. The financial
statements do not include any adjustments that might be necessary if
Coachman is unable to continue as a going concern.
18. SUBSEQUENT EVENT
On May 23, 1995, Coachman signed a letter of intent which expires 60
days from signing date, to purchase a T-shirt and underwear manufacturing
and distribution operation in Puerto Rico. The purchase price would consist
of $12,500,000 in cash at closing, promissory notes up to $2,000,000 and
six million (6,000,000) shares of Coachman common stock with a
guaranteed market value of $15,000,000 three years from the closing date.
Should this market value be less than $15,000,000, Coachman will issue
additional shares of common stock sufficient to increase the market value
to $15,000,000. The necessary funding to close is yet to be raised by
Coachman and is intended to consist of $4,500,000 in equity capital plus
cash raised through secured long term borrowings.
COACHMAN INCORPORATED Schedule II
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Deferred tax
assets Balance at Charged to Charged to Balance at
valuation beginning costs and other end of
allowance of period expenses accounts Deductions period
- ------------ ---------- ---------- ---------- ---------- ----------
Year ended
December 31,
1994 $ 490,000 $499,000 (2) $ - $ - $989,000
--------- -------- -------- -------- --------
Year ended
December 31,
1993 $ 490,000 $ - (1) $ - $ - $490,000
--------- -------- -------- -------- --------
Year ended
December 31,
1992 $ - $ - $ - $ - $ -
--------- -------- -------- -------- --------
(1) Amount offset the deferred tax assets 100% at January 1, 1993 as part of
the cumulative effect adjustment.
(2) Amount was offset 100% in the deferred tax expense account by the change
in deferred tax assets and liabilities
OLYMPIC MILLS CORPORATION AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1994, 1993 and 1992
With Independent Auditors' Report Thereon
Independent Auditors' Report
The Board of Directors
Olympic Mills Corporation:
We have audited the accompanying consolidated balance sheets of
Olympic Mills Corporation and subsidiary as of December 31, 1994
and 1993, and the related consolidated statements of operations
and retained earnings, and cash flows for each of the three years
ended December 31, 1994, 1993 and 1992. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Olympic Mills Corporation and its
subsidiary at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three years
ended December 31, 1994, 1993 and 1992 in conformity with
generally accepted accounting principles.
As discussed in note 1, the Company changed its method of
accounting for income taxes in 1993 to adopt the provisions of
the Financial Accounting Standard Board's Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes".
March 10, 1995
Stamp No. 1308076 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
OLYMPIC MILLS CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1994 and 1993
Assets 1994 1993
Current assets:
Cash $ 800 800
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $319,574 in 1994 and 4,577,559 2,661,980
$240,000 in 1993 (note 4)
Other 531,390 366,666
--------- ---------
5,108,949 3,028,646
Due from affiliates (note 8) 55,976 410,889
Inventories (notes 2 and 4) 8,358,664 8,743,768
Prepaid expenses 287,550 166,370
Prepaid income taxes 3,025 -
---------- ----------
Total current assets 13,814,964 12,350,473
Equipment and improvements, net 2,178,399 2,297,625
notes 3, 5 and 8)
Intangibles:
Leasehold rights, net of accumulated
amortization of $488,351 in 1994 115,793 176,207
and $427,937 in 1993
Tradenames, net of accumulated amortization
of $1,265,920 in 1994 and $1,117,770 1,697,080 1,845,230
in 1993
Goodwill, net of accumulated amortization
of $3,413,322 in 1994 and $3,041,738 5,876,291 6,247,875
in 1993
Other assets including advances to affiliated
companies of $5,250,433 in 1994 and
$4,222,610 in 1993 (note 8) 5,273,404 4,252,080
----------- ----------
$28,955,931 27,169,490
Liabilities and Stockholders' Equity
Current liabilities:
Note payable (note 4) 2,605,388 3,133,456
Accounts payable 1,651,743 524,154
Accrued expenses 1,895,619 2,729,557
Income tax payable (note 6) 103,697 133,437
----------- ----------
Total current liabilities 6,256,447 6,520,604
Deferred tax liability (note 6) 167,466 81,210
Due to preferred and common shareholders 3,570,400 3,570,400
(notes 3 and 5)
Class A redeemable preferred stock, $100
par value. Authorized, issued and
outstanding 96,405 shares 9,640,500 9,640,500
(notes 7 and 8)
----------- ----------
19,634,813 19,812,714
Stockholders' equity (note 7):
Common stock, $10 par value. Authorized,
issued and outstanding 100 shares 1,000 1,000
Additional paid-in capital 1,426,554 1,426,554
Retained earnings 7,893,564 5,929,222
----------- ----------
Total stockholders' equity 9,321,118 7,356,776
Commitments (notes 8 and 9)
----------- ----------
$28,955,931 27,169,490
See accompanying notes to consolidated
financial statements.
OLYMPIC MILLS CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations and Retained Earnings
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
Net sales:
Trade $25,839,901 20,853,870 26,846,434
Affiliated company (note 8) 3,091,018 2,759,741 3,239,740
----------- ---------- ----------
Total net sales 28,930,919 23,613,611 30,086,174
Cost of goods sold 23,019,292 17,033,852 24,147,090
----------- ---------- ----------
Gross profit 5,911,627 6,579,759 5,939,084
Selling, general and
administrative expenses 4,536,891 4,353,291 3,830,397
----------- ---------- ----------
Operating income 1,374,736 2,226,468 2,108,687
Other income/(expense)
(note 8):
Interest expense net,
including interest
expense of $682,000 and
interest income of
$311,000 in 1994,
interest expense of
$428,000 and interest (366,347) (510,112) (483,895)
income of $185,000 in
1993 and interest expense
of $480,000 and interest
income of $272,519 in 1992
to affiliated companies
Reversal of loss
contingency reserve 1,125,948 - -
----------- ---------- ----------
Other income/(expense), net 759,601 (510,112) (483,895)
----------- ---------- ----------
Earnnings before income taxes 2,134,337 1,716,356 1,624,792
Income taxes (notes 1 and 6) 169,995 143,852 392,011
----------- ---------- ----------
Net earnings 1,964,342 1,572,504 1,232,781
----------- ---------- ----------
Retained earnings at
beginning of year 5,929,222 4,356,718 3,123,937
----------- ---------- ----------
Retained earnings at end
of year $ 7,893,564 5,929,222 4,356,718
----------- ---------- ----------
See accompanying notes to consolidated financial
statements.
OLYMPIC MILLS CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993 and 1992
1994 1993 1992
Cash flows from operating
activities:
Net earnings $1,964,342 1,572,504 1,232,781
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortiz 1,015,364 1,008,002 1,038,174
Deferred income taxes 86,256 81,210 -
Reversal of loss (1,125,948) - -
contingency reserve
Changes in assets and liabilities:
Accounts receivable (2,080,303) 561,435 175,550
Due from affiliates 354,913 186,185 (554,909)
Inventories 385,104 (1,486,357) (206,198)
Prepaid expenses (121,180) (7,791) 93,741
Prepaid income taxes (3,025) - -
Other assets 6,499 - -
Accounts payable 1,127,589 (502,935) (934,343)
Accrued expenses 292,010 (881,632) 81,585
Income tax payable (29,740) (260,448) 392,011
Total adjustments (92,461) (1,302,331) 85,611
---------- ---------- ---------
Net cash provided by
operating activities 1,871,881 270,173 1,318,392
Cash flows from investing
activities:
Capital expenditures (315,990) (49,313) (235,798)
Advances to affiliated company
for the acquisition of
manufacturing equipment and (1,027,823) (691,125) (1,107,605)
other working capital needs
----------- --------- ----------
Net cash used in
investing activities (1,343,813) (740,438) (1,343,403)
Cash flows provided by/(used in)
financing activities-net
borrowings under line-of- (528,068) 467,382 28,194
credit agreement
----------- --------- ---------
Increase/(decrease) in cash - (2,883) 3,183
Cash at beginning of year 800 3,683 500
----------- --------- ---------
Cash at end of year $ 800 800 3,683
Supplemental disclosure of cash flow
information
Interest paid $ 133,417 254,115 462,343
Income taxes paid $ 116,504 286,000 1,235
See accompanying notes to consolidated
financial statements.
OLYMPIC MILLS CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
(1) Organization and Significant Accounting Policies
Organization
Olympic Mills Corporation (the Company) was organized under
the laws of the State of Delaware on October 19, 1984 to
operate a textile manufacturing plant. On April 20, 1990,
Corporacion Inmobiliaria Textil (Cintex), then owner of 51%
of the Company's common stock, acquired 100% control over the
Company through the acquisition of the stock of the other
shareholder, Bruce Acquisition Corporation (BAC).
Simultaneously, Cintex acquired a $3,000,000 promissory note
payable jointly and severally by the Company, and its
affiliate, Estampados Deportivos, Inc. (Estampados) (the
Companies), 39,276 shares of the Company's preferred stock,
and 4,724 shares of Estampados' preferred stock. Yabucoa
Industries, Inc. (Yabucoa), the Company's wholly-owned
subsidiary, operates a textile manufacturing plant which
produces underwear and pajamas that are sold exclusively to
the Company.
Significant Accounting Policies:
(a)Investment in Yabucoa Industries, Inc.
The consolidated financial statements include the
accounts of the Company and Yabucoa. All significant
intercompany balances and transactions have been
eliminated in consolidation, including intercompany
profit on assets remaining within the group.
(b)Inventories
Inventories are stated at the lower of cost (first-in,
first-out method) or market.
(c)Equipment and Improvements
Equipment and improvements are stated at cost.
Depreciation is computed by the straight-line method
over the estimated useful life of the assets. Repairs
and maintenance are charged to expense as incurred,
whereas major improvements are capitalized.
The estimated useful lives (in years) of the Company's
equipment and improvements are as follows:
Useful Life
Machinery and 2.5 to 15
equipment
Leasehold improvements 8
The cost of maintenance and repairs is charged to
expense as incurred. The cost of significant renewals
and improvements is added to the carrying amounts and
accumulated depreciation for assets sold on retired are
eliminated from the respective accounts and gains on
losses on disposition are reflected in the consolidated
statement of operations and retained earnings.
(d)Intangibles
Goodwill represents the excess of the purchase price
over the net identifiable fair value of assets acquired.
Goodwill is being amortized by the straight-line method
over 25 years. Tradenames and leasehold rights
represent the portion of the purchase price attributable
to these intangible assets at the acquisition date based
on fair values determined by an independent appraisal.
Tradenames and leasehold rights are being amortized by
the straight-line method over 20 years and 10 years,
respectively.
Amortization expense for the Company for each of the
years ended December 31, 1994, 1993 and 1992 is
summarized as follows:
1994 $ 580,148
1993 580,149
1992 595,685
(e)Income taxes
Effective January 1, 1993, the Company adopted the
provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes. Under
the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are
expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities
of changes in tax rates is recognized in income in the
period that includes the enactment date.
(2) Inventories
Inventories as of December 31 were comprised of the
following:
1994 1993
Finished goods $4,754,195 5,942,869
Work-in-process 462,406 462,795
Raw materials 3,142,063 2,338,104
---------- ----------
$8,358,664 8,743,768
(3) Equipment and Improvements
Equipment and improvements as of December 31 consist of the
following:
1994 1993
Machinery and equipment $4,870,865 4,558,763
Leasehold improvements 102,077 98,189
---------- ---------
4,972,942 4,656,952
Less accumulated depreciation
and amortization 2,794,543 2,359,327
---------- ---------
Equipment and improvements,net $2,178,399 2,297,625
At December 31, 1994, the equipment and improvements are
pledged as security for the payment of a promissory note due
by the Companies to the shareholders.
(4) Note Payable
The note payable is due to Congress Credit Corporation
("Congress") pursuant to a loan and security agreement. The
lender will advance to the Companies up to a combined maximum
of $5,000,000, secured by a factor's lien over receivables
and inventories of the Companies. The Company pays interest
of 2.5% over Congress' average cost of 936 funds.
Collections from trade accounts receivable are deposited in
this factor lien account.
(5) Due to Preferred and Common Shareholders
Due to preferred and common shareholders at December 31, 1994
and 1993 consists of the following:
12% promissory note payable to
the Hispamer Trust on October 1, $ 1,785,200
2000
12% promissory note payable to
Cintex on October 1, 2000 1,785,200
October 1, 2000 ------------
Total $ 3,570,400
Promissory notes payable are secured by a first mortgage on
the equipment and improvements of the Companies.
Pursuant to a consent of subordination entered by the Company
and Estampados, the companies will only make interest
payments on the notes while the $1,000,000 guaranteed loan of
America Mills C. por A (an affiliate) is outstanding and has
not been paid in full (see note 8).
(6) Income Taxes
The provision for income taxes is calculated separately for
the Company and Yabucoa since the tax laws of Puerto Rico
require the filing of separate income tax returns for each
company. Corporate income earned in Puerto Rico is taxed at
graduated statutory rates of 22% to 45%.
Under the provisions of the Puerto Rico Industrial Incentives
Act of 1978, as amended, the Company has been granted partial
tax exemption from the payment of Puerto Rico income,
property and municipal taxes for a period of 10 years ending
in March 1995 at the following rates:
First 5 years 80%
Second 5 years 70%
The Company has applied for a new tax exemption grant under
the provisions of the Puerto Rico Tax Incentives Act of 1987
at 90% exemption for income and property and 60% for
municipal taxes. The new tax grant is expected to be
retroactively effective on January 1, 1993; accordingly, the
provision for income taxes reflected in the accompanying
financial statements has been calculated assuming the 90%
exemption will be granted.
Yabucoa has been granted, under the provisions of the Puerto
Rico Tax Incentives Act of January 24, 1987, as amended,
partial tax exemption from the payment of Puerto Rico income,
property and municipal taxes for a period of 20 years ending
in August 2010, January 2010 and June 2011, respectively, at
the following rates:
Income and property 90%
Municipal 60%
As discussed in note 1, the Company adopted Financial
Accounting Standard No. 109 as of January 1, 1993. The
income tax expense for the years ended December 31, 1994,
1993 and 1992, which is from Puerto Rico, consists of the
following:
1994 1993 1992
Current $83,739 62,642 392,011
Deferred 86,256 81,210 -
-------- ------- -------
$169,995 143,852 392,011
The income tax effect of the temporary difference comprising
the deferred income tax expense for the years ended December
31, 1994 and 1993 relates to the undistributed earnings of
Yabucoa, at a tax rate of ten percent which is the applicable
statutory tax rate for exempt subsidiaries.
Consolidated income tax expense for the years ended December
31, 1994, 1993 and 1992 differed from the amounts computed by
applying the statutory rates applicable in Puerto Rico as a
result of the following:
1994 1993 1992
Computed "expected" tax $960,452 772,360 731,156
expense
Tax reduction resulting
from Industrial (864,406) (695,124) (511,809)
Incentives Tax Grant
Prior years' income taxes - - 97,756
Other permanent and other
differences (12,307) (14,594) 74,908
-------- -------- --------
$ 83,739 62,642 392,011
The Company is incorporated in the United States and,
accordingly, is subject to U.S. income taxes; however, it has
elected the benefits of Section 936 of the U.S. Internal
Revenue Code. In 1993 and 1992, Section 936 allowed a credit
equal to the tax on earnings derived from Puerto Rico. In
taxable years after December 31, 1993, the credit under
Section 936 is subject to certain limitations. Section 936
allows an income tax credit
limited to the sum of 60% of total employees compensation
subject to certain limitations, certain percentages of the
depreciation allowance and qualified state income taxes.
Based on this formula called OEconomic Activity LimitationO,
no federal tax liability results for the year ended
DecemberE31, 1994.
(7) Redeemable Preferred Stock
The holders of the Class A Redeemable Preferred Stock (the
Preferred Stock) are entitled to receive, when and as
declared by the Board of Directors, preferred cumulative cash
dividends at the rate of $12.00 per share per annum. The
Preferred Stock is redeemable in certain instances. In the
event of a voluntary or involuntary liquidation of the
Company, the holders of the Preferred Stock are entitled to
receive out of the assets of the Company up to the sum of
$100 per share, plus an amount equal to any unpaid dividends
at the distribution date, prior to any payments to the
holders of the common stock. The holders of the Preferred
Stock are not entitled to voting rights. Dividends in
arrears at December 31, 1994 amounted to $3,470,580.
Dividends applicable to periods prior to 1992 had been waived
by the preferred stock shareholders.
(8) Transactions with Related Parties
During the years ended December 31, 1994, 1993 and 1992,
sales to Estampados amounted to approximately $3,091,000,
$2,760,000 and $3,240,000, respectively.
Hispamer Trust, a beneficiary trust (the "Trust") created by
Francisco Carvajal Narvez and his family under the laws of
the Commonwealth of Puerto Rico and under the administration
of Central Hispano Puerto Rico holds 57,129 shares of the
Company's Preferred Stock and 6,871 shares of Estampados
Class A Preferred Stock. The Trust also holds a $2,000,000
promissory note issued by the Companies, secured by the
Companies' equipment and improvements.
During 1994, 1993 and 1992, the Company made advances
amounting to $204,033, $435,165 and $702,527, respectively,
to an affiliate in development stage, for the acquisition and
conditioning of manufacturing equipment purchased at an
auction and charged interest of $248,117, $154,560 and
$247,654, respectively. The Company also advanced $952,282,
$135,500 and $304,219 during 1994, 1993 and 1992,
respectively, to another affiliate in development stage and
charged interest of $62,112 during 1994.
The Company allocated insurance expense of approximately
$267,585 in 1994, $183,418 in 1993 and $122,963 and 1992 to
affiliated companies.
The Company, together with Estampados and other affiliates,
guarantees the repayment of a $1,000,000 loan granted by a
commercial bank to America Mills C. por A., an affiliate.
This loan contains certain covenants which were not met as of
December 31, 1994.
The Company leases its office and manufacturing facilities
from Cintex under a yearly renewable lease agreement. Total
rent expense under all leases amounted to approximately
$682,000 in 1994 and $676,000 in 1993 and 1992.
(9) Commitments
Yabucoa leases office and operating facilities under
operating leases.
Rent expense under all noncancellable operating leases for
the Company and its subsidiary for the years ended December
31, 1994, 1993 and 1992 is summarized as follows:
1994 $ 735,526
1993 723,590
1992 723,590
Following is a summary of future minimum lease payments by
Yabucoa under its noncancellable operating lease at December
31, 1994:
1995 $ 53,526
1996 59,474
1997 59,474
1998 59,474
1999 59,474
2000 29,737
Total minimum lease $ 321,159
payments
<TABLE>
<CAPTION>
COACHMAN INCORPORATED
PRO FORMA BALANCE SHEET
DECEMBER 31, 1994
Pro Forma
Coachman Olympic Pro Forma Consolidated
Incorporated Mills Adjustments Balances
ASSETS 12-31-94 12-31-94 Increase (Decrease) 12-31-94
--------------- ---------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash 32,777 800 33,577
Securities and negotiable assets 168,750 168,750
Accounts receivable 91,296 5,164,925 5,256,221
Inventory 228,855 8,358,664 8,587,519
Prepaid assets 1,884 290,575 292,459
----------------------- ------------
Total Current Assets 523,562 13,814,964 14,338,526
Property and Equipment:
Machinery and equipment 309,105 2,178,399 2,487,504
----------------------- ------------
Total Property and Equipment 309,105 2,178,399 2,487,504
Other Assets:
Goodwill 5,876,291 5,876,291
Other intangible assets 1,812,873 1,812,873
Notes receivable - Long-term 5,250,433 5,250,433
Other long-term investments 745,428 22,971 768,399
----------------------- ------------
Total Other Assets 745,428 12,962,568 13,707,996
----------------------- ------------
Total Assets 1,578,095 28,955,931 30,534,026
======================= ============
Liabilities and Stockholders' Equity
---------------------------
Current Liabilities:
Notes payable - Current 293,339 2,605,388 4,139,336 7,038,063
Accounts payable - Trade 715,898 1,651,743 (1,612,644) 754,997
Current portion of long-term debt 289,785 289,785
Due to subsidiary 0
Other accrued liabilities 357,807 1,895,619 946,850 (1,826,692) 1,373,584
Income tax payable 103,697 103,697
----------------------- ------------
Total Current Liabilities 1,656,829 6,256,447 9,560,126
Long - Term Debt:
Notes payable - Non-current 339,196 7,000,000 7,339,196
Due to preferred and common shareholders 3,570,400 (3,570,400)
Deferred income taxes 167,466 167,466
Class A redeemable preferred stock 9,640,500 (9,640,500)
----------------------- ------------
Total Long - Term Debt 339,196 13,378,366 7,506,662
----------------------- ------------
Deferred Credits:
Excess of net assets acquired over cost 5,032,018 5,032,018
----------------------- ------------
Stockholders' Equity:
Common stock 74,210 1,000 260,000 (1,000) 334,210
Preferred stock 48 48
Additional paid-in capital 7,819,458 1,426,554 9,540,000 (1,426,554) 17,359,458
Retained earnings (Deficit) (8,311,646) 7,893,564 (8,840,414) (9,258,496)
----------------------- ------------
Total Stockholders' Equity (417,930) 9,321,118 8,435,220
----------------------- ------------
Total Liabilities and Stockholders' Equity 1,578,095 28,955,931 30,534,026
======================= ============
COACHMAN INCORPORATED
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
Pro Forma
Coachman Olympic Pro Forma Consolidated
Incorporated Mills Adjustments Balances
YE 12/31/94 YE 12/31/94 Increase (Decrease) 12-31-94
--------- ------- ------ --------- --------
Revenue 1,963,234 28,930,919 30,894,153
Cost of Sales 1,010,704 23,019,292 24,029,996
----------------------- ------------
Gross Profit 952,530 5,911,627 6,864,157
Operating Expenses:
Selling, general and administrative 1,861,411 4,131,059 5,992,470
Depreciation and amortization 121,536 405,832 527,368
Special charges 1,483,870 1,483,870
----------------------- ------------
3,466,817 4,536,891 8,003,708
----------------------- ------------
Net Income (Loss) from Operations (2,514,287) 1,374,736 (1,139,551)
Other Income and (Expense):
Interest expense (148,176) (682,000) (946,850) (1,777,026)
Reversal of loss contingency reserve 1,125,948 1,125,948
Interest income 52,861 315,653 368,514
Other 86,910 86,910
----------------------- ------------
Other Income (Expense) , Net (8,405) 759,601 (195,654)
----------------------- ------------
Income (Loss) before Taxes (2,522,692) 2,134,337 (1,335,205)
Income Taxes -- 169,995 169,995
----------------------- ------------
Net Income (Loss) (2,522,692) 1,964,342 (946,850) (1,505,200)
======================= ============
</TABLE>
