UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from
_____________________________ to _________________
Commission File Number 1-9593
COACHMAN INCORPORATED
(Exact Name of registrant as specified in its charter)
Delaware 73-1244422
(State of incorporation) (I.R.S.Employer Identification No.)
301 N.W. 63rd Street, Suite 500, Oklahoma City, OK 73116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(405) 840-4667
Securities registered pursuant to Section 12(b) Of The
Securities Exchange Act:
Title of Each Class Name of Each
Exchange on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) Of The
Securities Exchange Act:
Common stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing re-
quirements for the past 90 days. [ ] Yes[ X] No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form
10-K.[ ]
The aggregate market value of the voting stock held by
non-affiliates of the Registrant on March 30, 1996 was
$3,198,634. As of December 31, 1995, there were
20,265,100 shares of the Registrant's Common Stock, $.01
par value, outstanding.
Documents Incorporated by Reference
Certain information called for by Part IV of this
report is incorporated by reference to the Company's
Annual Meeting Proxy statement to be filed within 120
days.
PART I
Item 1. Business
DESCRIPTION OF BUSINESS
General
Coachman Incorporated (the "Corporation") was formed
on February 5, 1985 as a Delaware Corporation. The
Corporation sold shares to the public on August 13, 1987.
The Corporation has 7 subsidiaries: Olympic Mills
Corporation; Lutania Mills, Inc.; Back Bay Outfitters,
Inc.; Caribbean Outfitters, Inc.; Resorts of the Americas
Inc.; Innkeepers, Inc. and Coachman Inns of America, Inc.
Back Bay Outfitters, Inc.; Caribbean Outfitters, Inc. and
Resorts of the America, Inc. are now inactive as their
operations were discontinued in 1995 and early 1996. The
Corporation's subsidiaries, Coachman Inns of America,
Inc. and Innkeepers, Inc. will continue to operate as in
the past.
Acquisition of Olympic Mills Corporation and Lutania
Mills, Inc.
On December 21, 1995 the Corporation purchased all of
the stock of Olympic Mills Corporation ("OMC") and
Lutania Mills, Inc. ("LMI") (together "Olympic Mills").
The business of Olympic Mills will become the primary
business of the Corporation.
OMC, a Delaware Corporation, is a 46 year old vertical
textile and apparel manufacturer located in Puerto Rico
and LMI is a Puerto Rican Corporation which is an
affiliate. Olympic Mills is Puerto Rico's leading
producer of knitted underwear, T-shirts and polo shirts.
Trade names owned by OMC are Grana (registered) underwear, America
Project underwear and sportswear and Olympic Mills. In
addition, Olympic Mills produces underwear for the U.S.
Department of Defense. Currently, Olympic Mills produces
3,000 dozen T-shirts and 2,000 dozen briefs, polo shirts
and other products daily. OMC operates one vertical mill
in Guaynabo, Puerto Rico and LMI operates a second
vertical mill in Humacao, Puerto Rico that will be in
full operation later this year. A subsidiary of OMC,
Yabucoa Industries, Inc. ("YII"), also operates a cutting
and sewing operation in Yabucoa, Puerto Rico. These
facilities are sufficient to supply the current sales and
future expansion.
Audited results of OMC for 1995 were sales of
$31,184,281 and net earnings of $1,179,632. Audited
results for 1994 were sales of $28,930,919 with net
income of $1,669,082. During 1995, OMC recorded invento-
ry adjustments of approximately $600,000 and expensed
approximately $244,100 of transaction fees associated
with the acquisition by the Corporation.
LMI, a Puerto Rico corporation is a development stage
company which is completing the construction and begin-
ning operation of a vertical mill in Humacao, Puerto
Rico. Early in 1996 the mill will begin production will
full operations commencing by mid 1996. LMI had losses
of $624,407 and limited operations for 1995.
Olympic Mills
OMC, a wholly owned subsidiary of the Corporation, is
a vertically integrated textile and apparel manufacturer
in Puerto Rico. OMC is Puerto Rico's leading manufactur-
er of underwear, T-shirts and polo shirts. OMC is
classified as a "936 Company" under the U.S. Internal
Revenue Code which generally provides that qualified
income earned in Puerto Rico is not subject to U.S.
taxation, subject to certain limitations. OMC is ranked
82nd in Caribbean Business' "Top 200 Puerto Rican
Companies." OMC operates one vertical mill and its
subsidiary YII operates a cut and sew operation and its
affiliate, LMI operates another vertical mill all in
Puerto Rico. OMC and LMI operate as subsidiaries of the
Corporation and YII operates as a subsidiary of OMC.
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 (registered) underwear, America Project (registered) underwear
and sportswear and Olympic Mills. Olympic Mills knits, bleaches
and dies most of the knitted fabric used by it and
purchases non-knitted fabric from outside sources.
In 1995, the product mix of Olympic Mills business was
underwear 47%, T-shirts 32%, polo shirts 14%, panties 1%
and other products 6%. Currently, Olympic Mills produces
3,000 dozen T-shirts and 2,000 dozen briefs, polo shirts
and other products daily. Olympic Mills operates a
vertical mill in Guaynabo, Puerto Rico, a vertical mill
in Humacao, Puerto Rico and a cutting and sewing opera-
tion in Yabucoa, Puerto Rico.
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 Mill's products are now
sold in Puerto Rico. Grana (registered) underwear is sold to the
general public through leading department stores, retailers and
such as WalMart (registered) and K-Mart (registered).
America Project (registered) t-shirts are sold to screen printers
who distribute printed shirts to retailers. America
Project polo shirts are used primarily as school uniform
shirts and are sold through retailers and also directly
to schools in Puerto Rico.
All of the sales to third parties by Olympic Mills are
through OMC. The three largest customers in 1995 were
the U.S. Department of Defense, E. Mendoza & Co., and
Estampados Deportivos. These three customers accounted
for 34.4%, 15.7% and 7.4% of OMC's net sales in fiscal
1995, respectively. No other single customer accounted
for more than 5% of OMC's net sales in fiscal 1995. The
loss of the sales to any of the key customers would have
a material adverse effect on OMC's results of operations.
OMC has no long-term purchase contracts or commitments
with any customer other than the U.S. Department of
Defense.
OMC recently completed a military contract to supply
underwear to all branches of the U.S. military and, in
June 1995, the U.S. Department of Defense entered into a
new two year contract which may result in a significant
increase in sales to the U.S. Department of Defense. The
contract business with the U.S. military is relatively
new to OMC. Sales from the military contract are
becoming a significant portion of OMC's net sales.
During 1995, OMC produced underwear for all branches of
the military with quality and service meeting or exceed-
ing military standards. The Department of Defense
contract provides that OMC must sell goods meeting
certain specifications at contracted prices if ordered
by the Department of Defense. In addition, the contract
has no minimum purchase requirements and can be terminat-
ed by the Department of Defense at any time. The U.S.
military now requires contractors to electronically
receive purchase orders and transmit invoices, and OMC
has made the necessary changes to meet this requirement.
Supplying products to retail stores outside of Puerto
Rico could represent a major growth area for OMC. Shirts
imprinted at the Humacao plant will be exported through-
out the Caribbean Basin. Customers would be retail
stores, hotel shops, and cruise ships. A fast growing
segment of the T-shirt business is licensing. This area
could be pursued by OMC.
In the past OMC operated a sales office in the United
States. The office was closed in 1987 due to a change in
the ownership of OMC and the owner's desire to concen-
trate on business in Puerto Rico. Re-entering the U.S.
market directly or through strategic alliances present a
significant opportunity for growth. Approximately 2.8
million Puerto Ricans live in the United States, and they
constitute approximately 20% of the Latin community in
the United States. With the high name recognition of
Grana 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, OMC 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 its distributors.
In the past, OMC 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.
Future Expansion. In the future, OMC expects to open
a sales and marketing operation in the United States.
Such operation would handle sales and distribution of all
of OMC's products in the United States. OMC believes that both
the Grana (registered) underwear and America Project (registered)
T-shirts lines could be very competitive in the U.S.
market. The Grana (registered) brand is familiar to a large number
of Puerto Ricans living in the United States, and OMC
intends to market its products to other hispanics. OMC
will also pursue licensing and private label manufactur-
ing in the U.S.
Competition. There are several competitors for OMC
consumer products. The two largest are Fruit of the Loom (registered)
and Hanes (registered). In Puerto Rico, OMC is very competi-
tive due to brand recognition, loyalty, delivery time
and service. However; as OMC expands outside Puerto
Rico, it will be at a disadvantage due to the size and
financial strength of its competitors.
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. OMC's backlog consists of
confirmed purchase orders. At December 31, 1995, OMC had
approximately $14,000,000 of unfilled customer orders for
goods (of which approximately $11,000,000 was to the
Department of Defense) compared to $4,000,000 on December
31, 1994. OMC has not experienced any difficulty in
filling orders on a timely basis or material returns of
its products. OMC 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.
Seasonality. 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.
Patents, Copyrights and Trademarks. OMC is the holder
of a number of copyrights and registered trademarks. Those actively
used now are Grana (registered) and America Project (registered).
OMC has used the trade names "Olympic Mills Corporation"
and "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.
Employees. OMC employs 1,035 full and part-time
employees. OMC 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.
OMC contributes part of the cost of medical and life
insurance coverage for eligible employees. OMC considers
relations with its employees to be excellent. OMC does
not have a retirement or pension program.
Discontinued Operations
During 1995, the Corporation elected to close all of
its retail operations. These included all of the
remaining Caribbean Outfitters stores and Back Bay
Outfitters store. These operations had not been
profitable and had contributed significant losses to the
Corporation. Caribbean Outfitters, Inc. and Back Bay
Outfitters, Inc. (together "Outfitters"), the corpora-
tions which owned these stores, have considerable debt
and virtually no assets. No determination has been made
as to the future of Outfitters. The Corporation contin-
ues to own the right and title to the names and regis-
tered trademarks.
Item 2. 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. The current rate is $9.25 per square feet
on a lease which expires March 31, 1997.
The Corporation's subsidiary, Coachman Inns of
America, Inc., is co-general partner of a partnership
which owns one Coachman Inn property at Military Drive
and Interstate 37 in San Antonio, Texas and has an
interest in a hotel property in Anaheim, California,
located on Katella Avenue at Harbour Drive adjacent to
Disneyland.
OMC leases from a related party a 170,000 square foot
manufacturing facility, which contains the executive
offices, in Guaynabo, Puerto Rico which lease expires
December 31, 1996 and is renewable annually. OMC
believes that the current terms are greater than the
market rate and that any renewal would be on terms that
are no more favorable than could be negotiated with an
independent third party. OMC intends to explore relocat-
ing to another facility if more favorable terms can be
obtained. LMI, also leases and occupies a 140,000 square
foot manufacturing facility in Humacao which lease
expires May 31, 2002 and YII occupies a 28,000 square
foot cut and sew facility in Yabucoa, Puerto Rico which
lease expires July 1, 2000.
Item 3. Legal Proceedings
There were no material legal proceedings pending
against the Corporation, Olympic Mills Corporation;
Lutania Mills, Inc.; Innkeepers, Inc. or Coachman Inns of
America, Inc.; at December 31, 1995. The Corporation's
subsidiaries, Caribbean Outfitters, Inc. and Back Bay
Outfitters, Inc., have total liabilities of approximately
$2,202,000, some of which are pending claims and litiga-
tion filed against those companies. One claim which was
made against the Corporation for a guarantee of $40,000
on a lease at a store which was closed has been settled.
Landlord for the closed store in Sarasota, Florida has
named the Corporation in a suit for back and future rent,
the Corporation 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted, during the fourth quarter
of the fiscal year covered by this report, to a vote of
security holders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
PRICE RANGE OF COMMON STOCK
The Corporation's Common Stock is listed for trading
on the 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 1995. 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 thin and may not be an indication of the value of
the Common Stock.
Quarterly Period Ended High Low High Low
Bid Bid Ask Ask
March 31, 1995 $.21875 .125 .40625 .2
June 30, 1995 $.5 .125 .6875 .1875
September 30, 1995 $.3125 .25 .5625 .4375
December 31, 1995 $.53125 .25 .75 .4375
On March 31, 1996, the bid and asked price for the
Common Stock, as reported on the OTC Bulletin Board, was
$.1875 and $.28125 per share, respectively. As of
December 31, 1995, the Corporation had approximately 675
holders of its common stock.
Item 6. Selected Financial Data
Operating Data
Year Ended Year Ended Year Ended Year Ended Year Ended
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1995 1994 1993 1992 1991
Revenues $67,590 $119,856 $124,686 $134,528 $98,826
Income (loss) from
continuing
operations (302,492) (1,808,805) (24,127) 277,408 (9,204)
Net income
(loss) (1,296,320) (2,522,692) (73,273) 420,315 (9,204)
Income (loss)
per common
share from
continuing
operations (.04) (.28) (.01) .07 --
Dividends
declared per
common share -- -- -- -- --
Balance Sheet Data:
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1995 1994 1993 1992 1991
Working capital
(deficiency) $(6,883,573) $(1,160,886) $(387,889) $(58,903) $(18,623)
Total assets 9,587,921 1,578,095 3,092,343 1,142,393 825,996
Long-term debt 32,975 339,196 816,155 36,156 30,000
Total liabilities
(1) 7,266,449 1,996,025 1,841,091 149,119 141,085
Stockholders'
equity (deficit) 2,321,472 (417,930) 1,251,252 993,274 684,911
(1) $2,202,000 of the total liabilities at December 31,
1995 are liabilities related to discontinued opera-
tions. $5,108,826 of total liabilities relate to
the acquisition of Olympic Mills. See the Consoli-
dated Financial Statements and notes thereto.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
During the past three years, the Corporation has
made significant changes in its business, which have,
and will, affect its financial condition and results of
operations. On December 21, 1995, the Corporation
purchased all of the common stock of OMC and LMI (to-
gether "Olympic Mills"). The operation and develop-
ment of Olympic Mills will become the major focus of
the Corporation for the foreseeable future. During
1991, the Corporation was primarily in the hotel man-
agement business. During 1992 and 1993, most of the
properties managed by the Corporation were sold and, at
the end of 1993, the Corporation purchased Caribbean
Outfitters, Inc., which operated specialty retail
stores. During 1994 the Corporation purchased Back Bay
Outfitters, Inc. a retail store specializing in adven-
ture travel gear, clothing and equipment. The Corpora-
tion also purchased the West Indies Resort Company and
the West Indies Club Limited, thus entering the time
share vacation sales business. During 1995, the Corpo-
ration closed the operations of Outfitters and dis-
continued the retail operations thereof. No decision
has been made as to the future of Outfitters. The
Corporation also elected not to exercise the option to
purchase the Hotel on the Cay held by West Indies Club
Limited. These changes in operations from past to
present to future make the analysis of the
Corporation's Consolidated Financial Statements diffi-
cult. The purpose of this discussion will be to clari-
fy these significant changes and supply forward looking
information about the Corporation's planned activity
(although there can be no assurance that these activi-
ties will meet expectations).
Liquidity
The Corporation closed the acquisition of all of
the issued and outstanding stock of OMC and its affili-
ate LMI pursuant to a Stock Purchase Agreement dated
December 21, 1995 (the "Agreement") for $2,002,000 in
cash, $4,448,826 in notes due the Sellers and 6,000,000
shares of the Common Stock of the Corporation. The
6,000,000 shares have a guaranteed public trading price
of $2.50 per share after 2 years from issuance, with
additional shares being issued if the price is lower.
The Sellers were Corporacion Inmobiliaria Textil
("Cintex"), a Puerto Rico corporation; Fideicomiso
Hispamer ("Hispamer"), a Puerto Rico trust; OM Acquisi-
tion Corp. ("OM"), a Delaware corporation; Olympic
Holding Corp. ("Holding"), a Puerto Rico corporation
and Estampados Deportivos ("ED"), a Puerto Rico corpo-
ration (collectively "the Sellers"). Under the Agree-
ment the Corporation purchased all of the common stock
of OMC from ED and provided the necessary capital in
the form of cash, notes and stock for OMC to repay all
sums due to the Sellers by OMC totalling $3,570,400 and
to redeem all of the preferred stock and accumulated
dividends of OMC owned by and owed to the Sellers. All
of the Common Stock of LMI was purchased from Holdings
for a cash payment of $1,000. The sources of the funds
used to close the acquisition were loans of $2,000,000
and $852,000 from Congress Credit Corporation to OMC,
deferred payment notes from the Corporation and OMC to
the Sellers, $1,500,000 from the sale of 3,747,650
shares of common stock of the Corporation in a private
placement, $250,000 from the sale of 2,500 shares of
preferred stock of the Corporation in a private place-
ment and $250,974 in funds of the Corporation.
In order to complete the acquisition the Corpora-
tion arranged loans from Congress Credit Corporation
("Congress") to OMC and LMI totaling up to $15,000,000
in the form of a $13,000,000 revolving credit line and
$2,000,000 three year term loan. The availability of
the revolving credit line is based on 50% of qualified
inventory and 80% of qualified receivables of OMC. At
December 31, 1995, the availability, based on collater-
al, of the revolving credit line was $8,411,304 and the
balance drawn was $5,787,091; leaving an excess avail-
ability of $2,624,213.
The terms of various notes used to close the
Acquisition were as follows: 1. Note from the Corpora-
tion of $4,448,826, due July 15, 1996 at a rate of 8%;
to be repaid by the Corporation. 2. Note from OMC of
$1,785,200, due July 15, 1996 at a rate of 12%; which
will be repaid out of available credit of OMC or
through OMC's operations. 3. Note from OMC of $603,589
to be repaid out of sums owed to OMC by the government
of Puerto Rico. 4. Note from OMC of $370,000 at a rate
of .11% per day; which has been repaid in full out of
available funds of OMC.
The $4,448,826 note from the Corporation and the
$1,785,200 note from OMC are secured by a pledge of
the common stock of OMC. The Corporation is planning
to repay the notes through the sale of common or pre-
ferred stock of the Corporation, through the sale of
preferred stock of OMC or through borrowings. The
other loans should be self liquidating from the opera-
tions, receivables and credit facilities of Olympic
Mills.
In addition to the above, OMC issued notes to the
sellers of $1,000,000 and $465,000 due in December 21,
2000 at a rate of 7%. OMC has agreed to issue another
note to the sellers of up to $1,000,000 on similar
terms; if the sellers arrange a grant from the govern-
ment of Puerto Rico.
During 1995, the Corporation elected to close all
of its retail operations. The subsidiaries which own
the operations accounted for $2,202,000 of the accounts
payable, accrued liabilities, notes payable and long
term debt of the Corporation. Management feels that
these are not liabilities of the Corporation as the
parent company, but only of the respective subsidiary,
although this has not been decided by court action.
With the exception of the liabilities associated
with discontinued operations, management believes that
the Corporation will be able to meet its commitments.
Of the working capital deficiency at December 31, 1995,
of $6,883,573; $2,202,000 related to discontinued
operations of Outfitters and $4,448,826 resulted from
the Acquisition. Management believes that the amount
resulting from discontinued operations can be settled
at significantly less than face amount and that if
Outfitters were liquidated, none of these liabilities
would accrue to the Corporation. If the $4,448,826
note to the Sellers of OMC is not reduced, the Corpora-
tion would own at least 29% of the common stock of OMC.
If the note is reduced by $1,386,666 the Corporation
would own at least 51% of the common stock of OMC. In
either case the Corporation would be entitled to a
portion of the profits of OMC.
Capital Resources
During 1996, the Corporation or OMC have commit-
ments to repay $7,207,655 to the sellers of OMC. The
Corporation anticipates repaying $605,514 of the amount
from funds due to OMC from the government of Puerto
Rico, another $5,280,000 from the sale of convertible
preferred stock of OMC which would be convertible into
the Common Stock of the Corporation. The balance of
$1,324,066 would be repaid out of funds available to
OMC through its credit line or from profits.
Outfitters have current liabilities of $2,200,000.
The Corporation has discontinued the operations of
Outfitters which now have no operations and limited
assets. During the past year, Outfitters have been
successful in settling some of their liabilities.
During 1996, Outfitters will continue to try to work
out satisfactory arrangements to settle the remaining
liabilities. If this cannot be successfully done,
these corporations will seek bankruptcy protection and
liquidation.
Management believes that the current commitments of the
Corporation, other than described above can be met out
of current operations.
Results of Operations
Revenues from continuing operations decreased by
$52,266, during 1995 compared to 1994. Management fee
income was relatively stable, decreasing by $1,779.
Management fee income should be comparable in 1996.
Time-share commissions decreased by $50,487 and Time-
share commission expenses decreased by $49,468; during
1995 compared to 1994. After the expiration of the
option on the time-share hotel these operations ceased.
There will be no Time-share commissions or commission
expense in the future. General and administrative
expenses were decreased by $49,809. This was caused by
closing the office in Florida in September and other
cost savings instituted during the year. During 1996,
management believes that it can further decrease these
expenses. During 1994, Impairment of goodwill and
other assets totaled $1,483,870; as the Corporation
wrote off goodwill and other assets associated with
Outfitters. Because these assets were totally written
off in 1994 there was no Impairment of goodwill and
other assets in 1995.
On December 21, 1995 the Corporation purchased all
of the common stock of Olympic Mills. The transaction
is being accounted for as an acquisition in progress
due to the fact that the Sellers have control over
contracts and commitments over $100,000 and Mr. Fran-
cisco Carvajal, beneficial owner of the Seller, must
serve as Chairman of the Board of OMC until certain
amounts are paid. Also, the common stock of OMC owned
by the Corporation is pledged as collateral on certain
notes issued to close the transaction. After the
completion of the transaction, the financial statements
of OMC, LMI and the Corporation will be consolidated.
Revenues for OMC were $31,184,281; $28,187,898 and
$23,613,611 for 1995, 1994 and 1993 respectively. Net
earnings for OMC were $1,179,632; $1,964,342 and
$1,572,504 for the same periods.
LMI was a development stage company in 1995.
During early 1996, LMI began operations. By the end of
the second quarter of 1996 it should be in full opera-
tions. LMI will produce goods on contract to OMC.
LMI incurred a net loss of $624,407 for 1995. The
additional capacity provided by LMI should increase the
revenues of OMC. Projected revenues for 1996, for OMC
are approximately $50,000,000.
During 1995, the Corporation elected to close all
of its retail operations and discontinued them. Retail
sales were approximately $517,000, $1,843,000 and
$54,000 in 1995, 1994 and 1993 respectively. The loss
from retail operations was $601,027; $713,887 and
$30,615 in 1995, 1994 and 1993 respectively. The
Corporation does not expect the loss from discontinued
operations to be significant in 1996. During 1996, the
Corporation will attempt to settle the liabilities of
Outfitters. If the liabilities cannot be settled,
management will seek to liquidate Outfitters. In
addition to reducing the loss from the retail opera-
tions, discontinuing retail operations will decrease
general and administrative expenses.
During 1995, the Corporation also closed its time
share sales operation which earned revenues of $2,293
and $52,780 in 1995 and 1994 respectively.
The reports of independent auditors on the
Corporation's consolidated financial statements for
1995 and 1994 contain an explanatory paragraph discuss-
ing conditions that raise doubt about the Corporation's
ability to continue as a going concern. These condi-
tions relate to recurring losses, working capital
deficiencies at December 31, 1995 and 1994, insuffi-
cient operating cash flows in 1995 and 1994, default on
notes and bonds by a subsidiary, and certain future
commitments relating to the Corporation's acquisition
of Olympic Mills. Management believes that it has
begun the process of alleviating these situations.
The continuing losses were caused by the
unprofitability of the Corporation's retail operations.
These operations have been closed. As was stated in
Liquidity and Capital Resources, $2,200,000 of the
working capital deficiency is from debts of Outfitters.
The Corporation will try to settle these debts, howev-
er; if they cannot be successfully settled, Outfitters
will seek the protection from its debtors through a
bankruptcy court filing.
Management believes that the funding necessary to
complete the acquisition of Olympic Mills can be ar-
ranged prior to the due date of the acquisition notes
of July 15, 1996. During the first two quarters of
1996, OMC will offer for sale convertible preferred
stock. The proceeds of the sale of this stock along
with other financing now available should be sufficient
to repay the notes and complete the acquisition.
However, no assurance can be given that the Corporation
or OMC will be successful in its convertible preferred
stock offering.
Upon the completion of the acquisition of Olympic
Mills, management believes that the situations leading
to the going concern explanatory paragraph in the
reports of the Corporation's independent auditors will
be mitigated.
Impact of Inflation
The Corporation's hotel operations have not been adversely affected by
inflation. Revenues have kept up with the increase in costs.
Olympic Mills operations are affected primarily by changes in the cost
of cotton. During 1994, the costs of cotton increased more rapidly than the
company could increase prices due to contractual agreements. During 1995,
major contracts were negotiated with escalation clauses for increases in cotton
prices. The proposed increase in the minimum wage could cause an adverse
affect on the cost of the products of Olympic Mills.
Item 8. Financial Statements and Supplementary Data
Financial Statements as of December 31, 1995 and 1994 and for the
three year period ended December 31, 1995 are contained at pages F-1 through
F-21 included in this Report on Form 10-K.
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Management
The names, ages and current positions with the
Corporation of the directors and executive officers of
the Corporation are set forth below:
Name Age Positions
Dennis D. Bradford 50 Chairman of the Board, President and
Chief Executive Officer
Catherine A. Myers 34 Secretary
Robert E. Swain 49 Director
Jay T. Edwards 63 Director
Alejandro G. Asmar 46 Director Nominee
The following is a brief description of the busi-
ness experience during the past five years of each of
the above-named persons:
Dennis D. Bradford, age 50, has been the Chairman,
President, Chief Executive Officer and Director (except
from December 1993 until January 1995 when he did not
serve as President) of the Corporation since its incep-
tion on February 5, 1985. From 1973 to 1985, he was a
partner in various partnerships which constructed,
owned and operated real estate properties including
Coachman Inns until the sale of his interests in those
partnerships to the Corporation. From 1983 until 1984,
he served as Vice President of Corporate Development
for PetroSouthern, Inc., a publicly held oil and gas
exploration company. PetroSouthern became Craft World
International, Inc. ("Craft World") in 1986 and changed
its basic business to a distributor of craft and lei-
sure products. In 1986, Mr. Bradford was elected to
the Board of Directors of Craft World. Mr. Bradford
has been Vice Chairman of the National Advisory Council
to the U.S. Small Business Administration and a dele-
gate to the 1986 White House Conference on Small Busi-
ness. He is a graduate of the University of Tulsa with
a BSBA degree in Economics.
Catherine A. Myers, age 34, has been an employee
of the Company since 1988, serving as an administrative
assistant. She was elected Secretary of the Company in
1995 and has served in that capacity since that date.
Ms. Myers received a B.S. Degree from Oklahoma State
University in 1984.
Robert E. Swain, age 49, has been a Director of
the Company since December 14, 1993 and was President
from December, 1993 until December 31, 1994. Mr. Swain
is president of American Landmark Homes, Inc. Mr.
Swain founded Caribbean Outfitters, Inc. and has been
its President, Chief Executive Officer and Director
since its inception in 1989. Prior to founding Carib-
bean Outfitters, Inc. Mr. Swain was the Chairman,
President and Chief Executive Officer of Craft World.
Mr. Swain also has developed and marketed a time share
resort and shopping mall in Aruba from 1983 through
1990 and managed sales at a resort in the Dominican
Republic during 1990 and 1991. Mr. Swain is a graduate
of Bowdoin College.
Jay T. Edwards, age 63, has been a Director of the
Company since it inception on February 5, 1985. He is
a management consultant and General Administrator of
the Oklahoma Corporation Commission. He was the Presi-
dent, Chief Operating Officer and Director of CMI
Corporation, a publicly held American Stock Exchange
company from 1985 until 1991. From 1982 to 1985,
General Edwards was the Executive Director of the
University of Oklahoma Energy Center. From 1954 to
1982, General Edwards served in the United States Air
Force, retiring in 1982 after having achieved the rank
of Major General. General Edwards is a Director of the
State Fair of Oklahoma, a Director of Oklahoma Airspace
Museum and Chairman of the Natural Resource Education
Foundation. General Edwards is a graduate of the
United States Military Academy, West Point, New York,
and received a B.S. Degree in Mechanical Engineering in
1954. General Edwards received a Master of Science
Degree in Aeronautical Engineering from Texas A & M
University in 1962, and a Master of Science Degree in
Management from George Washington University in 1971.
Dr. Alejandro G. Asmar, age 46, Director nominee.
Dr. Asmar is President of the merchant banking firm AGA
Associates, Inc. (formerly AGA & Associates). From
1984 to 1988, Dr. Asmar was with Drexel Burnham Lam-
bert, Inc.'s Puerto Rico Branch and was its First Vice
President and Chief Operating Officer from 1987 to
1988. From 1983 to 1984, he served as Vice President,
Finance and Administration Puerto Rican American Insur-
ance Co. and from 1977 to 1982 was Senior Vice Presi-
dent, Finance of First Federal Savings & Loan Associa-
tion of Puerto Rico. Dr. Asmar served as an Indepen-
dent Consultant, Assistant Professor, Director, Depart-
ment of Administration and Director, Business Research
Center with the University of Puerto Rico from 1972 to
1977. Dr. Asmar is a graduate of the University of
Pennsylvania, The Wharton School, receiving a Ph.D. in
Business and Applied Economics in 1976 and a MA in
Finance in 1972; and received a BA in Social Sciences
in 1969 from University of Puerto Rico.
Item 11. Executive Compensation
The following sets forth the annual and long-term
compensation paid to the Chief Executive Officer of the
Corporation during the last three fiscal years.
Summary Compensation Table
Long-Term
Compensation
Securities
Name and Annual Compensation Underlying All Other
Principal Position Year Salary $ Bonus $ Option Compensation$
Dennis D. Bradford 1995 120,000.00 -0- -0- -0-
Chairman of the Board 1994 81,666.70 -0- -0- -0-
Chief Executive Officer 1993 90,000.00 -0- -0- -0-
1992 90,000.00 -0- -0- -0-
All officers and directors serve at the pleasure
of the Board of Directors, except that Dennis D. Brad-
ford entered into a three year Management Agreement,
dated December 14, 1993, with the Corporation. Mr.
Bradford's current salary with the Company under the
terms of his employment agreement is $120,000 per year;
however, Mr. Bradford was only paid approximately
$82,000 to preserve cash for the Corporation. No other
officer received a salary in excess of $100,000 during
the past three years. All the executive officers as a
group (2) received $136,000 in 1995.
The following table indicates the total number and
value of exercisable and unexercisable non-qualified
stock options held by the executive officer named in
the Summary Compensation Table above as of December 31,
1995. No options to purchase stock were exercised by
him in the fiscal year ended December 31, 1995.
Number of Securities Value of Unexercised
Underlying Unexercised In-The Money Options
Options at FY-End(1995) at FY-End(1995)
Exercisable/ Exercisable/
Name Unexercisable(2) Unexercisable(1)(2)
Dennis D. Bradford 13,100/403,000 $6,550/$201,500
__________________
(1) Based on an asked price of $.50 per share of the Corporation's
Common Stock as quoted by the OTC Electronic Bulletin Board on
December 31, 1995.
(2) Due to the discontinuation of operations of Outfitters, these options
will never become exercisable and will expire December 31, 1996.
The employment contract also provides for addi-
tional bonus compensation based on the annual net
income of the Corporation. Mr. Bradford is to receive
an amount equal to 4% of the Corporation's net pre-tax
income as determined by the Corporation's annual audit
up to $1,000,000 of net pre-tax income and 6% thereaf-
ter. The compensation committee of the Board of Direc-
tors is empowered to increase base salaries for 1996
based upon performance of the executives.
Incentive Stock Option Plan
The Corporation has an incentive stock option plan
(the "Plan"). Under the terms of the Plan, shares of
Common Stock are reserved for issuance to key employees
and directors of the Corporation. The Plan provides
for administration by the Corporation's Board of Direc-
tors or by a committee consisting of not less than two
persons. Any option granted under the Plan must be for
a term not to exceed ten years. The purchase price for
shares subject to options, and the manner in which the
options may be exercised, are determined by the Board
of Directors on a case by case basis. However, the
purchase price to be paid for the shares underlying the
options may not be less than the fair market value of
the Common Stock on the date of the grant.
Except for the Plan described above, the Corpora-
tion does not have any pension plan, profit sharing
plan, incentive bonus plan or similar plans for the
benefit of its officers, directors or employees.
However, the Corporation reserves the right to estab-
lish any such plans in the future in its sole discre-
tion.
Items 12. Security Ownership of Certain Beneficial
Owners and Management
The following table and notes thereto sets forth,
as of the date of this Memorandum, 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 Commission,
a person is deemed to own beneficially all securities
of which that person owns or shares voting or invest-
ment 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 Beneficial
of Beneficial Owner Beneficial Ownership Ownership
After Offering
Francisco Carvajal 6,000,000(a) 29.6%
Box 1669
Guaynabo, PR 00970
Dennis D. Bradford 1,522,638 (b)(c) 7.5%
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
Robert E. and Linda D. Swain 1,721,170 8.5%
1055 Bay Esplanade
Tampa, FL 34630
Jay T. Edwards 6,150 (d) *
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
Catherine Myers 20 *
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
All officers and directors
as a group (4 persons) 3,249,978 (e) 16%
*Less than 1% of the common stock outstanding at June 30, 1995.
__________________
(a) Francisco Carvajal is beneficial owner of 500,000 shares held by
Corporation Inmobiliaria Textil; and 5,500,000 shares held by
Fundacion Carvajal as Trustee of Fideicomiso Hispamer.
(b) 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.
(c) Includes 403,000 shares of Common Stock which may be acquired upon
exercise of non-qualified incentive stock options granted
December 14, 1993, however; due to the discontinuation of operations
of Outfitters, these options will never be exercisable.
(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.
Compensation of Directors
Non-employee directors of the Corporation are
entitled to a fee of $2,000 per year plus $500 for
attendance at each meeting of the Board of Directors.
Non-employee directors receive a fee of $250 for each
committee meeting attended.
Item 13. Certain Relationships and Related Transactions
Hospitality Realty, Inc. ("Hospitality"), in which
Mr. Bradford holds approximately 35% of the outstanding
shares of common stock, was indebted to the Corporation
in the amount of $804,669 as of December 31, 1988,
which was subsequently written off by the Corporation.
During 1993, Hospitality repaid $225,000 of the amount
owed to the Corporation.
During 1991 and 1993, the Corporation loaned
$109,958 to Dennis D. Bradford and received as collat-
eral 1,109,513 shares of the Corporation's Common Stock
owned by Mr. Bradford. Mr. Bradford in turn loaned a
portion of the funds to Hospitality.
On December 16, 1993, the Corporation acquired all
of the stock of Caribbean Outfitters, Inc. in exchange
for 2,000,000 shares of Common Stock of the Corpora-
tion. In addition to the 2,000,000 shares of Common
Stock issued, the Corporation also granted a contingent
stock earn-out to the stockholders of Caribbean Outfit-
ters, Inc. for up to an additional 2,000,000 shares to
be issued based upon the following earnings and expan-
sion contingencies: (i) an additional 100,000 shares of
Common Stock for each new store location opened up to
1,000,000 shares; and (ii) an additional 100,000 shares
of Common Stock for each $1,000,000 in cumulative gross
revenues from Caribbean Outfitters' operations over
$2,000,000 in annual revenues up to an additional
1,000,000 shares. The contingent stock earn-out runs
through December 31, 1996. Mr. Swain and his wife
received 1,721,170 shares of Common Stock issued in the
acquisition. Due to the fact that the Corporation has
discontinued the operations of Outfitters, it is antic-
ipated that no stock will be issued under the earnout.
During July 1994, the Corporation purchased all of
the stock of the West Indies Resort Company and all of
the limited partnership interests in the West Indies
Club Limited which together owned the option to pur-
chase the Hotel on the Cay in St. Croix and a marketing
agreement to sell time share units in that hotel. As a
result of this transaction, 125,962 shares of Common
Stock were issued to Robert E. Swain as a part owner of
those companies.
Dr. Alejandro G. Asmar, a director of the Corpora-
tion is the president and principal in AGA Associates,
Inc. which acted as a financial advisor to the Corpora-
tion in the acquisition of Olympic Mills. AGA will
receive a fee of $440,000 in stock and cash for provid-
ing financial advisory services with respect to the
Acquisition. AGA also received a fee of $112,500 from
OMC for arranging a loan with respect to the Acquisi-
tion. AGA also receives an on going fee of $8,000 per
month for providing advisory services to OMC.
Director Liability
Because of increasing concern about director
liability and the growing unavailability of insurance,
the Corporation may find it necessary to provides
incentives to induce outside individuals to join its
Board. For the same reasons, the Corporation has
adopted the provisions of the Delaware Corporation Law
permitting the Corporation to limit the liability of
the Corporation's directors to the Corporation and its
stockholders for monetary damages for breach of fidu-
ciary duty as a director. Such limitation on a
director's liability is subject to the following statu-
tory exceptions: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders;
(ii) for acts of omissions not in good faith or which
involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend
payments or stock redemptions or repurchases, or (iv)
for any transaction from which the director derived an
improper personal benefit.
The Corporation has also adopted the provisions of
the Delaware Corporation Law permitting indemnification
of directors, officers, employees or agents of the
Corporation against expenses, including attorneys'
fees, incurred in connection with the defense of any
action, suit or proceeding in which such a person is a
party by reason of his being or having been a director,
officer, employee or agent of the Corporation, or of
any corporation, partnership, joint venture, trust or
other enterprise in which he served as such at the
request of the Corporation, provided that he acted in
good faith and in a manner reasonably believed to be in
or not opposed to the best interests of the Corpora-
tion, and with respect to any criminal action or pro-
ceeding, had no reasonable cause to believe his conduct
was unlawful, and provided further (if the threatened,
pending or completed action or suit is by or in the
right of the Corporation) that he shall not have been
adjudged to be liable for negligence or misconduct in
the performance of his duty to the Corporation (unless
the court determines that indemnity would nevertheless
be proper under the circumstances).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on
Form 8-K
(a) The following are filed as part of this report:
1. Consolidated Financial Statements:
Reference is made to the Index to Consolidated
Financial Statements appearing on page F-1 of this report.
2. Financial Statement Schedules
All Financial Statement Schedules are omitted as
they are inapplicable or the required information is immaterial.
3. Exhibits:
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (1)
4.1 Form of Common Stock Certificate (1)
10.1 Stock Purchase and Redemption Agreement - Olympic Mills Corporation (2)
10.2 Form of Management Contract (1)
10.3 Coachman Incorporated 1987 Stock Option Plan, with Stock Option
Agreement (1)
10.4 Coachman Incorporated Employee Stock Ownership Plan with Trust
Indenture (1)
16.1 Letter regarding Changes in Certifying Accountants (3)
21.1 Subsidiaries of the Registrant
The Corporation has wholly owned subsidiaries, Innkeepers, Inc.;
Coachman Inns of America, Inc.; Caribbean Outfitters, Inc.; COVI, Inc.;
Caribbean Outfitters, N.V.; Caribbean Outfitters, N.V. Aruba; Back Bay
Outfitters, Inc.; Olympic Mills Corporation and Lutania Mills, Inc.
27.1 Financial Data Schedule
(b)(1) Previously filed as Exhibit to Registration Statement #33-15082.
(2) Previously filed as Exhibit to Form 8-K/A dated December 21, 1995.
(3) Previously filed as Exhibit to Form 8-K/A dated March 25, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page
Independent Auditors' Report F-2
Independent Auditors' Report F-3
Consolidated Balance Sheets, December 31, 1995 and 1994 F-4
Consolidated Statements of Operations, Years ended December 31, 1995,
1994, and 1993 F-6
Consolidated Statements of Stockholders' Equity (Deficit), Years ended
December 31, 1995, 1994, and 1993 F-7
Consolidated Statements of Cash Flows, Years ended December 31, 1995,
1994, and 1993 F-8
Notes to Consolidated Financial Statements F-10
All financial statement schedules are omitted, as the required information is
inapplicable, immaterial, or the information is presented in the consolidated
financial statements or related notes.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Coachman Incorporated and Subsidiaries:
We have audited the consolidated balance sheet of Coachman Incorporated and
subsidiaries (Coachman) as of December 31, 1995, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the year then
ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based 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 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 audit
provides a reasonable basis for our opinion.
In our opinion, the 1995 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Coachman
Incorporated and subsidiaries as of December 31, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Coachman will continue as a going concern. As shown in the accompanying
consolidated financial statements, Coachman and its subsidiaries have suffered
recurring losses from operations, have a working capital deficiency of
approximately $6.5 million at December 31, 1995, and have not generated cash
from operations sufficient to pay their obligations when due. As discussed
in note 7, a subsidiary of Coachman is in default on several notes and bonds and
management of Coachman is seeking to renegotiate the terms of certain debt or
settle the debt for less than its face amount. Also, as discussed in note 2,
Coachman has future commitments related to an acquisition in progress. These
conditions raise substantial doubt about Coachman s ability to continue as a
going concern. Management's plans in regard to these matters are described
in note 13. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should Coachman be unable to continue as a going concern.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
April 5, 1996
F-2
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Coachman Incorporated and Subsidiaries
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheet of Coachman
Incorporated and Subsidiaries as of December 31, 1994, and the related
consolidated statements of operations, stockholders' equity (deficit), and
cash flows for each of the two years ended December 31, 1994. 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 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 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 Coachman Incorporated and Subsidiaries as of December 31, 1994,
and the consolidated results of their operations and their cash flows for
each of the two years ended December 31, 1994 in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As shown in
the accompanying consolidated financial statements, the Company has suffered
recurring losses from operations, has a working capital deficiency and has
not generated cash from operations sufficient to pay their obligations when
due. As discussed in note 7, Caribbean Outfitters is in default on several
notes and bonds. These conditions raise substantial doubt about Coachman's
ability to continue as a going concern. Management's plans in regard to
these matters are described in note 13. The consolidated financial
statements do not include any adjustments relating to the recoverability
and classification of asset carrying amounts or the amount and classification
of liabilities that might result should the Company be unable to continue
as a going concern.
Sartein Fischbein & Co.
June 8, 1995
F-3
COACHMAN INCORPORATED
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets
1995 1994
Current assets:
Cash and cash equivalents $ 99,846 32,777
Accounts receivable:
Trade 922 25,317
Related parties 99,636 2,658
Notes receivable from affiliates 35,702 35,702
Inventory -- 228,855
Marketable equity securities 108,000 168,750
Other current assets 5,795 1,884
----------- ----------
Total current assets 349,901 495,943
----------- ----------
Property and equipment, net of accumulated
depreciation of $244,626 in 1995 and
$320,145 in 1994 2,252 309,105
Notes receivable:
Officer 127,609 120,386
Affiliates 402,633 436,656
Acquisition in progress 8,629,488 --
Investments in affiliated entities and
other assets 76,038 90,638
Deferred costs, net of accumulated
amortization of $19,936 in 1994 -- 23,367
Deposits -- 67,345
Other assets -- 34,655
----------- ----------
Total assets $ 9,587,921 1,578,095
=========== ==========
See accompanying notes to consolidated financial statements.
F-4
Liabilities and Stockholders'
Equity (Deficit) 1995 1994
Current liabilities:
Accounts payable:
Trade $ 822,994 657,127
Related parties 1,822 1,771
Accrued liabilities:
Rent 138,870 48,400
Interest 301,491 195,128
Other 535,859 114,279
Notes payable:
Related parties 4,710,526 211,150
Other 125,000 139,189
Current maturities of long-term debt 596,912 289,785
------------ ----------
Total current liabilities 7,233,474 1,656,829
------------ ----------
Long-term debt 32,975 339,196
Stockholders' equity (deficit):
Preferred stock, $.01 par value;
authorized 200,000 shares; issued
and outstanding 7,250 in 1995
and 4,750 in 1994 73 48
Common stock, $.01 par value; authorized
25,000,000 shares; issued and
outstanding 20,265,100 in 1995
and 7,421,000 in 1994 202,651 74,210
Additional paid-in capital 11,411,589 7,819,458
Common stock subscribed, unissued 391,500 --
Common stock subscriptions receivable (100,000) --
Accumulated deficit (9,607,966) (8,311,646)
Net unrealized gain on marketable
equity securities 23,625 --
---------- ----------
Total stockholders' equity (deficit) 2,321,472 (417,930)
Commitments and contingencies (notes 2, 11, 12, and 13)
---------- ----------
Total liabilities and stockholders'
equity (deficit) $ 9,587,921 1,578,095
============ ==========
F-5
COACHMAN INCORPORATED
Consolidated Statements of Operations
Years ended December 31, 1995, 1994, and 1993
1995 1994 1993
Revenues:
Management fees from affiliates $ 65,297 67,076 124,686
Time-share commissions 2,293 52,780 --
------------ ----------- -----------
67,590 119,856 124,686
------------ ----------- -----------
Expenses:
Time-share commission expenses 6,372 55,840 --
General and administrative 444,316 494,125 237,554
Depreciation and amortization 1,435 4,499 7,417
Impairment of goodwill and
other assets -- 1,483,870 --
----------- ----------- -----------
452,123 2,038,334 244,971
----------- ----------- -----------
Operating loss (384,533) (1,918,478) (120,285)
Other income (expenses):
Interest income 51,675 52,384 84,888
Interest expense (10,558) (5,354) (7,380)
Other income 8,260 62,643 18,650
Gain on sale of marketable
equity securities 32,664 -- --
----------- ------------ -----------
82,041 109,673 96,158
----------- ------------ -----------
Loss from continuing operations (302,492) (1,808,805) (24,127)
Discontinued operations:
Loss from operation of
discontinued retail activities (601,027) (713,887) (49,146)
Loss from discontinuing retail
activities (392,801) -- --
----------- ------------ -----------
Net loss on discontinued
operations (993,828) (713,887) (49,146)
----------- ------------ -----------
Net loss $(1,296,320) (2,522,692) (73,273)
=========== ============ ===========
Net loss applicable to
common shares $(1,367,722) (2,584,976) (73,273)
Average outstanding common shares 9,334,313 6,616,750 3,895,833
=========== =========== ===========
Net loss per average outstanding
common share from continuing
operations $ (.04) (.28) (.01)
Net loss per average outstanding
common share from discontinued
operations $ (.11) (.11) (.01)
Net loss per average outstanding
common share $ (.15) (.39) (.02)
See accompanying notes to consolidated financial statements.
F-6
<TABLE>
<CAPTION>
COACHMAN INCORPORATED
Consolidated Statements of Stockholders' Equity (Deficit)
Years Ended December 31, 1995, 1994, and 1993
Net
Unrealized
Gain(Loss)
Common Common On Total
Additional Stock Stock Marketable Stockholders'
- -------------- -------------------- Paid-in Subscribed, Subscriptions Equity Accumulated Equity
Shares Amount Shares Amount Capital Unissued Receivable Securities Deficit (Deficit)
- ------ ------ ---------- ------ ---------- ----------- ------------- ---------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992,
-- $ -- 3,812,500 $ 38,125 6,741,143 -- -- (70,313) (5,715,681) 993,274
Common stock issued, net of issuance costs
-- -- 2,000,000 20,000 180,000 -- -- -- -- 200,000
Net unrealized gain on
marketable equity securities
-- -- -- -- -- -- -- 131,251 -- 131,251
Net loss
-- -- -- -- -- -- -- -- (73,273) (73,273)
- ------ ------ ---------- ------- ---------- ------- -------- ------- ---------- ---------
Balance, December 31, 1993
-- -- 5,812,500 58,125 6,921,143 -- -- 60,938 (5,788,954) 1,251,252
Common stock issued, net of issuance costs
-- -- 1,608,500 16,085 443,232 -- -- -- -- 459,408
Preferred stock issued, net of issuance costs
4,750 48 454,992 -- -- -- -- 455,040
Net unrealized gain on marketable equity securities
-- -- -- -- -- -- -- (60,938) -- (60,938)
Net loss
-- -- -- -- -- -- -- -- (2,522,692) (2,522,692)
- ------ ------ ---------- ------- ---------- ------- -------- ------- ---------- ----------
Balance, December 31, 1994
4,750 48 7,421,000 74,210 7,819,458 -- -- -- (8,311,646) (417,930)
Common stock issued, net of issuance costs
-- -- 12,844,100 128,441 3,374,656 -- -- -- -- 3,503,097
Common stock subscribed, unissued
-- -- -- -- -- 391,500 -- -- -- 391,500
Common stock subscriptions receivable
-- -- -- -- -- -- (100,000) -- -- (100,000)
Preferred stock issued, net of issuance costs
2,500 25 -- -- 217,475 -- -- -- -- 217,500
Net unrealized gain on current marketable equity securities
-- -- -- -- -- -- -- 23,625 -- 23,625
Net loss
-- -- -- -- -- -- -- -- (1,296,320) (1,296,320)
- ------ ------ ---------- -------- ---------- ------- -------- -------- ---------- ----------
Balance, December 31, 1995
7,250 $ 73 20,265,100 $202,651 11,411,589 391,500 (100,000) 23,625 (9,607,966) 2,321,472
===== ==== ========== ======== ========== ======= ======== ======== ========== ==========
See accompanying notes to consolidated financial statements.
F-7
</TABLE>
COACHMAN INCORPORATED
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1994, and 1993
1995 1994 1993
Cash flows from operating activities:
Net loss $(1,296,320) (2,522,692) (73,273)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Loss from discontinuing retail
activities 392,801 -- --
Gain on sale of marketable
equity securities (32,664) -- --
Impairment of goodwill and
other assets -- 1,483,870 --
Depreciation and amortization 1,435 121,536 11,717
Write-off of deferred revenue -- (25,626) --
Impairment of accounts
receivable-related parties -- 1,449 --
Increase in accounts receivable (72,583) (10,263) (40,103)
Decrease (increase) in inventory 228,855 106,336 (43,367)
(Increase) decrease in other
current assets (3,911) 27,758 2,844
Increase in accrued interest on
notes receivable-officer (7,223) -- --
Increase (decrease) in accounts
payable and accrued liabilities 344,331 374,352 (51,362)
Addition of interest, legal,
and other costs related to
renegotiated long-term debt 7,319 -- --
----------- ---------- --------
Net cash used in operating
activities (437,960) (443,280) (193,544)
----------- ---------- --------
Cash flows from investing activities:
Payments related to acquisition
in progress (2,113,658) -- --
Proceeds from sales of marketable
equity securities 117,039 -- --
Dividends received from investments
in affiliated entities 14,600 -- --
Proceeds from collection of note
receivable 34,023 54,705 402,920
Purchases of property and equipment -- (43,631) (3,413)
Loan made to officer -- -- (85,000)
Proceeds from officer loan repayments -- 17,308 --
Increase in other assets -- (36,479) --
---------- ---------- --------
Net cash (used in) provided by
investing activities (1,947,996) (8,097) 314,507
---------- ---------- --------
Cash flows from financing activities:
Proceeds from issuance of preferred
and common stock, net of
issuance costs 2,093,593 260,000 --
Payment received for subscribed,
unissued stock 291,500 -- --
Capital contributions received -- -- 50,000
Proceeds of loan from related party 50,550 68,771 --
Proceeds of loan from third party 50,000 -- --
Principal payments on note payable
and long-term debt (32,618) (19,586) --
---------- ---------- --------
Net cash provided by financing
activities 2,453,025 309,185 50,000
---------- ---------- --------
Net increase (decrease) in cash
and cash equivalents 67,069 (142,192) 170,963
Cash and cash equivalents,
beginning of year 32,777 174,969 4,006
Cash and cash equivalents,
end of year $ 99,846 32,777 174,969
============ ========== ========
(Continued)
F-8
COACHMAN INCORPORATED
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1995, 1994, and 1993
1995 1994 1993
Supplemental disclosure of noncash
investing and financing activities:
Net unrealized gain on
marketable equity securities $ 23,625 (60,938) 131,251
========== ======= =========
Accrued liability related to
acquisition in progress $ 440,000 -- --
========== ======= =========
Issuance of note payable related
to acquisition in progress $4,448,826 -- --
========== ======= =========
Issuance of common stock related
to acquisition in progress $1,627,004 -- --
========== ======= =========
Common stock subscription
receivable $ 100,000 -- --
========== ======= =========
Purchase of Caribbean Outfitters,
Inc. common stock through the
issuance of common stock $ -- -- 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 --
========== ======= =========
Cash payments for interest $ -- 3,223 4,125
========== ======= =========
See accompanying notes to consolidated financial statements.
F-9
COACHMAN INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1995, 1994, and 1993
(1) Organization and Summary of Significant Accounting Policies
Organization
Coachman Incorporated (Coachman) was incorporated on February 5,
1985. During 1995 and 1994, Coachman's primary business segment was
retail sales of leisure wear which resulted from an acquisition in late 1993
(see note 2). As discussed in note 3, Coachman discontinued its retail
operations in 1995. Coachman has also managed lodging properties in the
United States since its inception and received commissions from the sale
of time-share units in the Virgin Islands in 1995 and 1994 as a result of
an acquisition in 1994 (see note 2).
Basis of Presentation and Principles of Consolidation
The accompanying financial statements include the accounts of Coachman
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, Coachman
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using the first in, first out method.
Investments
Coachman adopted the provisions of Statement of Financial Accounting
Standards (Statement) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1993. Under Statement 115,
all of Coachman's equity securities are classified as available-for-sale.
Available-for-sale securities are recorded at fair value. Unrealized holding
gains and losses on available-for-sale securities are excluded from earnings
and are reported as a separate component of stockholders' equity (deficit)
until realized. A decline in the fair value of any available-for-sale security
below cost that is deemed other than temporary is charged to operations
resulting in the establishment of a new cost basis for the security.
Dividend income is recognized when earned. Realized gains and losses
for securities classified as available-for-sale are included in earnings as of
the trade date. The cost of securities sold is determined by the specific
identification method.
As a result of adopting Statement 115, Coachman adjusted its investment
in marketable equity securities to fair value at December 31, 1992, with
recognition of the adjustment reflected as a separate component of
stockholders' equity (deficit).
Investments in affiliated entities are accounted for by use of the equity
method, and investments in other assets are carried at cost.
F-10
Property and Equipment
Property and equipment are stated at cost and consist principally of office
equipment at December 31, 1995, and retail store equipment at December
31, 1994. Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets which range from 3 to 7 years.
Repairs and maintenance are expensed as incurred; however, major
improvements are capitalized.
Income Taxes
Effective January 1, 1993, Coachman adopted Statement No. 109,
"Accounting for Income Taxes." The cumulative effect of the change in
accounting principle was not material and was included in determining the
net loss for 1993.
Under Statement 109, income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statements 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 a change in tax rates is
recognized in income in the period that includes the enactment date.
Management Fees
Coachman recognizes management fees from the management of an
affiliated hotel in San Antonio, Texas. Management fees are based on a
percentage of hotel gross revenue.
Goodwill
Goodwill represents the excess of purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over the expected
periods to be benefited, generally 25 years. Amortization expense charged
to operations in 1994 and 1993 was approximately $43,000 and $4,000,
respectively. In 1994, the remaining balance of approximately $1,330,000
was charged to operations based on management's evaluation of future
operations and the uncertainty of future revenues.
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. Coachman charged to operations the remaining deferred
costs in 1995, as the related retail operations were discontinued in
December 1995 (see note 3).
Loss Per Common Share
Loss per common share amounts are computed by dividing net loss
amounts increased for redeemable preferred stock dividends by the
weighted average outstanding number of common shares. The
computations exclude consideration of certain stock options considered
common stock equivalents as their effect is antidilutive. Coachman's
Series A, Series_B, and Series C cumulative convertible redeemable
preferred stock were not common stock equivalents at issuance. The
computation of fully diluted earnings per share, which would assume the
conversion of the preferred stock, is not presented as the effect of the
conversion of the preferred stock is antidilutive. Undeclared preferred
stock dividends of $71,408 and $62,284 were considered in determining
net loss applicable to common shares in 1995 and 1994, respectively.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 amounts to
conform to the 1995 presentation.
Fair Value of Financial Instruments
Coachman's financial instruments consist of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, accrued liabilities,
notes payable, and long-term debt. The carrying values of cash and cash
equivalents and accounts receivable approximate fair value due to the
short-term nature of these instruments. The carrying value of notes
receivable and notes payable approximates fair value due to the interest
rates approximating the prevailing market rates at December 31, 1995.
It is not practicable to determine the fair value of accounts payable,
accrued liabilities, and long-term debt. The majority of these liabilities
relate to the discontinued operations of Coachman (see note 3). Coachman
is past due on payment of a large portion of accounts payable and accrued
liabilities and is in default on portions of the long-term debt. Management
currently intends to settle these obligations for amounts less than the face
amounts.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from those estimates.
(2) Acquisitions
Olympic Mills Corporation and Lutania Mills
On December 21, 1995, Coachman acquired all of the outstanding
common stock of Olympic Mills Corporation (Olympic) and Lutania Mills
(Lutania), an affiliate of Olympic in development stage (collectively called
the Olympic Group) (the Olympic Acquisition) for $2,000 in cash. The
Olympic Group operates a textile manufacturing plant in Puerto Rico
which produces underwear and pajamas. Concurrent with and as an
integral part of the Olympic Acquisition, Coachman contributed to the
capital of Olympic the following:
-- $2,000,000 in cash;
-- 6,000,000 shares of Coachman common stock; and
-- A promissory note for $4,448,826 due on July 15, 1996. The note
bears no interest for the first 30 days after issuance; however, any
principal payments made after 30 days will bear interest at a rate
of 8% per annum. While there is any balance
F-11
outstanding on the note, Coachman will apply the net proceeds from
the issuance of any shares of its stock to the payment of principal
and interest under the note and the previous ultimate owner of
Olympic and Lutania will remain chairman of the board of directors
of Olympic and will have veto power over all transactions over
$100,000.
As part of the Olympic Acquisition, certain amounts due from Olympic to
the former owner amounting to $3,570,000 plus accrued interest, and
96,405 preferred shares of Olympic, each with a par value of $100, owned
by entities related to the former Olympic shareholder, were paid or
acquired by Olympic for $5,458,460 in cash, deferred payment notes
amounting to $4,225,714, the assignment of the 6,000,000 shares of
Coachman contributed by Coachman to Olympic, the assignment of
accounts receivable from an affiliate of Olympic amounting to $1,716,392,
and the assignment of the $4,448,826 promissory note contributed by
Coachman to Olympic. One of the deferred payment notes is
collateralized by a pledge of the shares of Olympic by Coachman.
Furthermore, contingent consideration based on the 1995 net earnings of
the Olympic Group is to be paid to an entity related to the former owner,
as well as a future payment of up to $1,000,000 conditioned upon the
obtainment of certain grants requested by the Olympic Group, which
amount would be due five years after the conditional payment becomes
fixed and the corresponding notes are issued. Additionally, Coachman is
committed to issue additional shares of its common stock as of the second
anniversary date of the Olympic Acquisition sufficient for the entities
currently owning the 6,000,000 shares of common stock issued as part of
the Olympic Acquisition to own shares of Coachman having a value of
$15 million at such anniversary date.
This transaction has been determined to be an acquisition in progress and
has been accounted for under the equity method of accounting. It is
considered an acquisition in progress because the current operating control
of the Olympic Group remains with the former owner, and a promissory
note issued in connection with the acquisition in the amount of
$1,785,200, which is due July 15, 1996, is secured by the stock of
Olympic. Operations of the Olympic Group from December 21, 1995,
through December 31, 1995, were insignificant and are, therefore,
excluded from the 1995 consolidated statement of operations of Coachman.
Following are pro forma (unaudited) 1995 results assuming the Olympic
Acquisition had been consummated on January 1, 1995:
Pro Forma
Coachman Effect of Coachman
Historical Olympic Group Pro Forma
---------- ------------- ---------
Revenues $ 67,590 -- 67,590
Expenses 452,123 -- 452,123
---------- --------- --------
Operating loss (384,533) -- (384,533)
---------- --------- --------
Other income (expenses) 82,041 (335,172) (253,131)
Equity in earnings of the
Olympic Group -- 555,225 555,225
---------- --------- --------
Net earnings (loss) from
continuing operations $ (302,492) 220,053 (82,439)
========== ========= ========
Net earnings (loss) per share
from continuing operations $ (.04) .03 (.01)
F-13
Summarized financial information of the Olympic Group as of and for the
year ended December 31, 1995, are as follows:
Total assets $ 28,970,482
Total liabilities 15,786,867
Stockholders' equity 13,183,615
Net sales 31,184,281
Net income 555,225
The purchase price has not been allocated to the assets of Olympic as the
transaction is an acquisition in progress and has been accounted for under
the equity method of accounting.
West Indies Resort Company and West Indies Club Limited
Effective July 1, 1994, Coachman issued 300,000 shares of its common
stock for all of the outstanding common stock of West Indies Resort
Company (WIRC). WIRC 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 marketed and sold
time-share units on behalf of Legend for the Hotel On the Cay, a resort
property located in St. Croix, Virgin Islands. WIRC earned commissions
equal to 45% of the sales price of each time-share unit sold. For the year
ended December 31, 1995, and six months ended December 31, 1994,
respectively, WIRC recognized approximately $2,300 and $52,800 in
commissions, which has been included in time-share commissions in the
accompanying statements of operations. The sales and marketing
agreement expired October 1, 1995.
Effective July 1, 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 had entered into an asset
purchase option agreement with Legend to purchase the assets of the Hotel
On the Cay for $2,000,000, subject to reductions based on time-share sales
activity in accordance with the agreement. The asset purchase option
agreement expired unexercised October 1, 1995.
The acquisitions of WIRC and WICL were 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 value and resulted in the recognition of goodwill of
approximately $260,000, which was charged to operations in 1994.
Caribbean Outfitters, Inc.
Effective December 16, 1993, Coachman acquired Caribbean Outfitters,
Inc. (Caribbean) and its wholly owned subsidiaries in a tax-free merger
with Coachman's wholly owned subsidiary, COI Acquisition, Inc.
Caribbean operated a chain of four retail clothing stores specializing in
men's and women's sports apparel located in Aruba (2), Bonaire, and St.
Croix. Coachman issued 2,000,000 shares of its common stock with a fair
market value of $200,000 and assumed all of Caribbean's liabilities for all
of the outstanding common stock of Caribbean.
F-14
As part of the merger agreement, the former Caribbean stockholders had
the right to receive as a contingent stock earn-out additional shares of
Coachman common stock based on increased store locations and
cumulative revenues from operations of Caribbean. No contingent shares
were issued in 1994. The Coachman retail operations, including
Caribbean, were discontinued in 1995 (see note 3), and as such no
contingent shares were issued in 1995 and none are expected to be issued
in future periods.
The acquisition was considered a tax-free merger under Internal Revenue
Code section 368(a)(2)(D). 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 approximately $1,020,000,
which was charged to operations in 1994.
Florida Stores
During April 1994, Back Bay Outfitters, Inc., a wholly owned subsidiary
of Coachman, acquired the assets and assumed the liabilities of a retail
store located in Florida. In addition, a wholly owned subsidiary of
Caribbean acquired the assets of a retail store in St. Thomas in May 1994.
The transactions were accounted for as purchases and, accordingly, the
consolidated financial statements include the results of operations of the
stores since the acquisition dates. The purchase price of the acquisitions
was allocated to the assets acquired based on their fair value and resulted
in goodwill of approximately $95,000, which was charged to operations
in 1994.
(3) Discontinued Operations
The results of the retail sales segment have been reported as discontinued
operations in the accompanying consolidated statements of operations.
Prior year financial statements have been reclassified to present the retail
sales segment as discontinued operations. All of the retail stores were
closed prior to December 31, 1995, except one, which was closed in
March 1996.
Revenues applicable to the discontinued operations were approximately
$517,000, $1,843,000, and $54,000 in 1995, 1994, and 1993,
respectively. As of December 31, 1995, the assets of the retail sales
segment were insignificant. The liabilities of the retail sales segment as
of December 31, 1995, include approximately $823,000, $442,000,
$337,000, and $600,000 included in accounts payable, accrued liabilities,
notes payable, and current maturities of long-term debt, respectively.
The 1995 consolidated statement of operations includes a loss from
operations of discontinued retail operations of $601,027 and a loss from
discontinuing retail activities of $392,801. The loss from discontinuing
retail activities primarily consists of the impairment of assets related to the
retail sales segment. Coachman intends to settle the liabilities related to
the retail sales segment for amounts less than the face amounts.
(4) Notes Receivable-Officer
Notes receivable-officer is a $110,000 note due December
2003 plus accrued interest. The note bears an interest rate
of 6% with interest and principal of approximately $15,000
F-15
payable annually and is collateralized by 1,109,498 restricted
shares of Coachman common stock. No payments on the note have
been received since the inception of the note in 1993.
(5) Notes Receivable-Affiliates
Notes receivable-affiliates consist of the following at December 31:
1995 1994
Coachman Inns Income Limited Partnership (CIILP) $ 436,658 472,358
Other 1,677 --
--------- -------
438,335 472,358
Less current maturities 35,702 35,702
--------- -------
$ 402,633 436,656
========= =======
Coachman is co-general partner in CIILP and 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 on this note of
approximately $41,000, $44,000, and $58,000 in 1995, 1994, and 1993,
respectively.
(6) Marketable Equity Securities
The aggregate fair value of the marketable equity securities amounted to
$108,000, $168,750, and $229,688, including gross unrealized holding
gains of approximately $24,000, $-0 , and $60,938 at December 31,
1995, 1994, and 1993, respectively. In 1995, the Company sold half of
the securities available-for-sale for approximately $117,000 and realized
a gain of approximately $33,000.
(7) Notes Payable and Long-Term Debt
Notes payable consist of the following at December 31:
1995 1994
8% note payable to Olympic Mills Corporation,
due in July 1996 (1). $ 4,448,826 --
Summary judgment awarded by court with
interest at 12%, due on demand (2). -- 64,189
6% unsecured note payable to a company, due
in monthly installments of approximately
$6,500, including interest, with the final
installment due in June 1995 (3). 75,000 75,000
Unsecured note payable to a stockholder
director, due on demand. Interest accrued
at New York prime rate plus 2%. 154,150 154,150
F-16
1995 1994
6% unsecured notes payable to various
affiliates, due on demand. $ 107,550 57,000
9% unsecured note payable to unrelated
party, due in April 1996. 50,000 --
----------- -------
$ 4,835,526 350,339
(1) The Olympic Mills Corporation note was contributed to the capital of
the Olympic Mills Corporation in connection with the acquisition
in progress discussed in note 2.
(2) The summary judgment includes amounts awarded by court decree to an
individual for outstanding amounts advanced and other costs incurred.
The debt was settled during 1995.
(3) Required payments under the unsecured note have not been made by
Coachman through December 1995. The holder of the note and Coachman
are currently renegotiating the terms of the note.
Long-term debt consists of the following at December 31:
1995 1994
12% note payable to Aruba Bank, Ltd. from
Caribbean Outfitters, N.V. (CONV), a wholly
owned subsidiary of Caribbean. The note was
secured by certain equipment, furniture, and
fixtures of Caribbean (4). $ 86,680 86,680
11.5% note payable to a bank from Caribbean,
due in monthly installments, including interest,
with the final installment due in January 1997.
The note is unsecured and is guaranteed by a
stockholder board member (5). 37,207 29,888
14% CONV bearer bonds, with interest payable
annually on April 1 (6). 260,000 260,000
12% CONV bearer bonds, with interest payable
semiannually on March 31 and September 30 (6). 188,000 188,000
12% CONV bearer bonds, with interest payable
semiannually on March 31 and September 30 (6). 28,000 28,000
13% unsecured note payable to an unrelated party
with interest and principal due January 1997.
The note contains provisions permitting settlement
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
-------- -------
629,887 628,981
Less current maturities 596,912 289,785
-------- -------
$ 32,975 339,196
========= =======
F-17
(4) No principal or interest payments were made on the 12% note to Aruba
Bank, Ltd. in 1995 or 1994. The note is past due. Coachman continues
to accrue interest on the outstanding principal balance.
(5) The note payable to a bank was in default at December 31, 1994. The
bank had first priority on a retail store's inventory and property and
equipment. In 1995, the bank received the assets of the store. The
bank and Coachman also renegotiated the terms of the note in 1995
which extended the note to January 1997 and increased the interest
rate to 11.5%. The new note is unsecured.
(6) The 14% and 12% CONV bearer bonds have varying maturity dates. A
number of the bonds matured in 1994 and 1995, and have not been paid
by CONV, Caribbean, or Coachman. In addition, neither Coachman, CONV,
nor Caribbean have met the required interest payment obligations
related to the bonds. However, interest has been accrued on the
outstanding principal balance. The bonds were originally secured by
certain inventory, furniture, fixtures, equipment, and accounts
receivable of Caribbean, which were disposed of during 1995. These
bonds are included in current maturities of long-term debt. Coachman
intends to settle these obligations in future periods for amounts less
than the face amounts.
(8) Income Taxes
As discussed in note 1, Coachman adopted Statement 109 as of January 1,
1993. The cumulative effect of the change in accounting for income taxes
was not material and is included in determining the net loss for 1993.
The net deferred tax assets at December 31 are as follows:
1995 1994
Deferred tax assets $ 1,301,000 989,000
Deferred tax asset valuation allowance (1,301,000) (989,000)
------------ --------
Net deferred tax asset $ -- --
============ ========
The deferred tax asset is comprised primarily of income tax net operating
loss carryforwards. Based on the results of Coachman's operations,
management does not believe that it is more likely than not that it will be
able to realize the benefit of the net operating loss carryforwards and other
deductions before they begin to expire. Therefore, Coachman has fully
allowed for the deferred tax assets through a valuation allowance.
There is no income tax benefit as a result of Coachman allowing for 100%
of the deferred tax assets. The valuation allowance was increased by
$312,000, $499,000, and $490,000 in 1995, 1994, and 1993, respectively.
At December 31, 1995, Coachman has net operating loss carryforwards
of approximately $3,200,000 which, if unused, will expire between the
years 2003 and 2010.
(9) Common and Preferred Stock
During 1995, Coachman issued 12,844,100 shares of its
common stock for approximately $3,500,000 and 2,500 shares
of its preferred stock for approximately $218,000 through
F-18
private placements to raise capital needed for the
acquisition in progress discussed in note2 and other corporate
purposes. A portion of the shares issued were accompanied by warrants,
all of which were exercised by December 31, 1995.
At December 31, 1995, 1,125,000 shares of Coachman's common stock
were subscribed but unissued. Coachman received $391,500 in 1995
related to the subscribed, unissued shares, and has recorded a subscription
receivable of $100,000 for the remaining amount to be received for the
shares.
During 1994, Coachman issued 1,608,500 shares of its common stock for
approximately $460,000 and 4,800 shares of its preferred stock for
approximately $455,000 through private placements to raise capital for the
retail sales operations.
At December 31, 1995, preferred stock includes 3,000 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,
Series B, and Series C, respectively, and all three series have a liquidation
preference of $100 plus accrued but unpaid dividends per share.
Dividends, when, as, and if declared by the board of directors, will be at
the annual rate of $6.00, $16.10, and $13.80 per share for the Series A,
Series B, and Series C preferred stock, respectively, payable in semiannual
installments on June 30 and December 31 of each year, commencing on
December 31, 1994, for the Series A preferred stock and commencing on
June 30, 1994, for the Series B and Series C preferred 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 per share for the Series A,
Series B, and Series C preferred stock, respectively, plus accrued and
unpaid dividends to the redemption date.
The Series A, Series B, and Series C preferred 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, Series B, or Series C preferred stock, respectively, subject to
adjustment in certain events.
The Series A, Series B, and Series C preferred 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, Series B, or Series_C preferred 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, Series B, or Series C preferred stock are paid
current. The sale and transfer of all three series of preferred stock are
restricted. The right to elect 20% of the members of Coachman's board
of directors will become effective in 1996 as no dividends have been paid
since issuance of the preferred stock in 1994.
The Series A preferred stock is senior to the Series B and Series C
preferred stock issues. All preferred stock is senior to Coachman's
common stock with respect to dividends and on liquidation or dissolution.
F-19
At December 31, 1995, cumulative unpaid dividends on Series A, Series
B, and Series C preferred stock totaled approximately $134,000. There
were no Series A, Series B, or Series C redemptions during 1995, 1994,
or 1993.
(10) Employees Incentive Stock Option Plans
On March 30, 1987, Coachman adopted an Employees Incentive Stock
Option Plan (the Plan). The Plan provides for the granting of options to
purchase shares of Coachman's common stock by certain officers,
directors, and employees of Coachman upon terms and conditions
(including price, exercise date, number of shares, and vesting period)
determined by the Compensation Committee (the Committee) appointed by
the board of directors which administers the plan. The exercise price
specified by the Committee may not be less than 100% of the fair market
value, as defined, of Coachman's common stock as of the date of the
grant. At December 31, 1995 and 1994, 33,550 options were exercisable
with an average exercise price of $.26. No options were exercised during
1995, 1994, or 1993.
No accounting is made with respect to these incentive stock options until
such time as they are exercised, at which time the proceeds in excess of
the par value of the shares issued will be added to additional paid-in
capital.
In December 1993, Coachman granted to three Coachman officers
nonqualified 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 price 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. During
1995, two of the 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. In addition, as discussed in note 3,
Coachman discontinued its retail sales segment in 1995, including
Caribbean. As a result, the remaining stock options granted in 1993 to
purchase a total of 400,000 shares are not exercisable and will be canceled
by December 31, 1996.
(11) Related Party Transactions
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 $313,000,
$314,000, and $564,000 for the year ended December 31, 1995, 1994,
and 1993, respectively.
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 $2,200,000 at December
31, 1995. Coachman also holds a second mortgage on the real estate (see
note 5).
During 1995 a consulting company whose president and principal
is a director of Coachman provided financial advisory services
to Coachman in conjunction with the Olympic Acquisition. The
consulting company will receive a fee of $440,000 in
F-20
Coachman common stock and cash, payable in 1996. The fee is
included in other accrued liabilities at December 31, 1995.
During 1994 Coachman paid approximately $30,000 to a consulting
company whose owner is related to one of Coachman's stockholders.
(12) Commitments and Contingencies
Minimum future rental payments under noncancellable operating leases for
office space and equipment at December 31, 1995, are as follows:
$74,000 in 1996 and $14,000 in 1997.
Rental expense was approximately $413,000, $536,000, and $44,000 in
1995, 1994, and 1993, respectively.
During 1995 and 1994, Coachman leased retail facilities under operating
leases with varying expiration dates. As discussed in note 3, Coachman
discontinued its retail sales segment in 1995. All of the retail stores were
closed in 1994 and 1995, except one, which was closed in March 1996.
Some of the lease expiration dates were subsequent to the dates of the
store closings. As such, Coachman or its subsidiaries may be liable for
future accelerated rent. Coachman has accrued approximately $139,000
for current and past due rent at December 31, 1995. No amounts have
been recorded for future accelerated rent.
Coachman is a defendant in a lawsuit filed by the landlord of a closed
store for nonpayment of rents. The suit asks for past due rent of
approximately $56,000 and accelerated rents of approximately $351,000,
plus attorney fees and costs. Coachman believes the claim is without
merit and intends to vigorously defend its position. Coachman has accrued
approximately $34,000 related to this claim.
As discussed in note 3, at December 31, 1995, Coachman has liabilities
recorded related to the discontinued retail sales segment. These liabilities
include accounts payable, accrued liabilities, notes payable, and long-term
debt. Some of these liabilities are in various stages of dispute and/or
litigation, as well as default. Coachman intends to settle these obligations
in future periods for amounts less than the face amounts.
Coachman's wholly owned subsidiary, Coachman Inns of America, Inc.,
serves as a general partner in a partnership owning one lodging property
which another Coachman subsidiary manages. As a general partner,
Coachman's subsidiary may be exposed to liability with respect to claims
asserted against the partnership.
Coachman has an employment agreement with an officer that commits
Coachman to employ the officer through December 31, 1996. Should the
officer be terminated, under certain conditions, the officer is entitled to
severance pay in the amount of the salary to be paid during the following
24-month period after the officer is terminated or the number of months
remaining in the employment period, whichever is less. The agreement
stipulates that bonus compensation shall be paid to the officer 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.
(13) Going Concern
As shown in the accompanying financial statements, Coachman
has incurred losses of $1,296,320, $2,522,692, and $73,273
in 1995, 1994, and 1993, respectively. At December 31, 1995,
Coachman's current liabilities exceeded its current assets by
F-21
$6,483,573, and a subsidiary of Coachman was in default on
several notes, bonds, and interest payments. These factors create
an uncertainty about Coachman's ability to continue as a going concern.
During 1995, Coachman initiated the acquisition discussed in note 2.
Coachman intends to complete the acquisition of the Olympic Group in
1996 by raising additional cash equity through issuance of its common and
preferred stock. Amounts payable to the former owner of the Olympic
Group aggregate $9.2 million of which $4.5 million is due in 1996.
If necessary, management could sell its marketable equity securities and
receive cash of approximately $100,000 from the sale based on the value
of the securities at December 31, 1995. Due to the fact that a substantial
portion of accounts payable, accrued liabilities, notes payable, and long-
term debt are owed by Caribbean, which has no operations and limited
assets, that subsidiary could seek bankruptcy court protection from its
creditors while negotiating for the settlement of its liabilities.
The ability of Coachman to continue as a going concern is dependent on
the settlement of certain of its liabilities for less than face amounts and the
payment of liabilities incurred in connection with the acquisition of the
Olympic Group. The consolidated financial statements do not include any
adjustments that might be necessary if Coachman is unable to continue as
a going concern.
OLYMPIC MILLS CORPORATION, SUBSIDIARY AND AFFILIATE
Combined Financial Statements
December 31, 1995, 1994 and 1993
With Independent Auditors' Report Thereon
Independent Auditors' Report
The Board of Directors
Olympic Mills Corporation:
We have audited the accompanying combined balance sheets of Olympic Mills
Corporation, subsidiary and affiliate as of December 31, 1995 and 1994, and the
related combined statements of operations and retained earnings, and cash flows
for each of the three years ended December 31, 1995. 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Olympic
Mills Corporation its subsidiary and affiliate as of December 31, 1995 and
1994, and the results of their combined operations and their combined cash
flows for each of the years in the three-year period ended December 31, 1995
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
March 14, 1996
Stamp No. 1308576 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
OLYMPIC MILLS CORPORATION, SUBSIDIARY AND AFFILIATE
Combined Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Current assets:
Cash (note 4) $ 500 800
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $340,111 in 1995 and
$319,574 in 1994 (notes 4 and 11) 5,087,883 4,577,559
Other 1,161,811 531,390
----------- ----------
6,249,694 5,108,949
Due from affiliates (note 8) -- 55,976
Inventories (notes 2 and 4) 9,759,353 8,358,664
Prepaid expenses 198,512 299,814
Prepaid income taxes (note 6) 17,094 3,025
----------- ----------
Total current assets 16,225,153 13,827,228
Equipment and improvements, net
(notes 3, 4, 5 and 8) 4,599,815 4,941,904
Intangibles (note 5):
Leasehold rights, net of accumulated
amortization of $548,766 in 1995
and $488,351 in 1994 55,378 115,793
Tradenames, net of accumulated amortization
of $1,414,070 in 1995 and $1,265,920 in 1994 1,548,930 1,697,080
Goodwill, net of accumulated amortization of
$3,784,907 in 1995 and $3,413,322 in 1994 5,504,706 5,876,291
Debt issue costs 255,900 --
Other assets, including advances to affiliated
company of $914,329 in 1994 (note 8) 48,815 937,300
Deferred tax assets, net (note 6) 731,785 450,534
----------- ----------
$ 28,970,482 27,846,130
============ ==========
Liabilities and Stockholder s Equity
Current liabilities:
Notes payable (note 4) 8,545,880 2,605,388
Accounts payable (including bank overdraft
of $391,834 in 1995) 2,656,991 1,651,743
Accrued expenses 1,017,798 1,921,346
Income tax payable (note 6) 101,198 103,697
------------ ----------
Total current liabilities 12,321,867 6,282,174
Due to preferred and common shareholders
(note 5) -- 3,570,400
Class A redeemable preferred stock, $100 par
value. Authorized, issued and outstanding
96,405 shares (notes 7 and 8) -- 9,640,500
Long-term notes payable (note 4) 3,465,000 --
----------- ----------
15,786,867 19,493,074
----------- ----------
Stockholder's equity (notes 7 and 10):
Common stock, $10 par value. Authorized,
issued and outstanding 100 shares (note 4) 1,000 1,000
Additional paid-in capital 9,502,384 1,426,554
Retained earnings 3,680,231 6,925,502
----------- ----------
Total stockholder's equity 13,183,615 8,353,056
Commitments (notes 8 and 9)
------------ ----------
$ 28,970,482 27,846,130
============ ==========
See accompanying notes to combined financial statements.
OLYMPIC MILLS CORPORATION, SUBSIDIARY AND AFFILIATE
Combined Statements of Operations and Retained Earnings
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Net sales (note 11):
Trade $ 31,184,281 25,839,901 20,853,870
Affiliated company (note 8) -- 3,091,018 2,759,741
------------ ---------- ----------
Total net sales 31,184,281 28,930,919 23,613,611
Cost of goods sold 26,224,992 23,209,536 17,265,011
------------ ---------- ----------
Gross profit 4,959,289 5,721,383 6,348,600
Selling, general and administrative
expenses 4,924,779 4,582,790 4,405,301
------------ ---------- ----------
Operating income 34,510 1,138,593 1,943,299
------------ ---------- ----------
Other income/(expense) (note 8):
Interest expense net, including
interest income of $46,249 in
1995 and $62,112 in 1994 from
affiliated company (871,983) (614,464) (694,052)
Reversal of loss contingency reserve 1,125,948 1,125,948 --
------------ ---------- ----------
Other income/(expense), net 253,965 511,484 (694,052)
------------ ---------- ----------
Earnings before income taxes 288,475 1,650,077 1,249,247
Income tax benefit (notes 1 and 6) 266,750 19,005 38,148
------------ ---------- ----------
Net earnings 555,225 1,669,082 1,287,395
Retained earnings at beginning of year 6,925,502 5,256,420 3,969,025
Dividends on preferred stock (3,800,496) -- --
------------ ---------- ----------
Retained earnings at end of year $ 3,680,231 6,925,502 5,256,420
============= ========== ==========
See accompanying notes to combined financial statements.
OLYMPIC MILLS CORPORATION, SUBSIDIARY AND AFFILIATE
Combined Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Cash flows from operating activities:
Net earnings $ 555,225 1,669,082 1,287,395
Adjustments to reconcile net earnings
to net cash provided by/(used in)
operating activities:
Depreciation and amortization 1,132,339 1,015,364 1,008,002
Deferred income taxes (281,251) (102,744) (100,790)
Reversal of loss contingency reserve (1,125,948) (1,125,948) --
Changes in assets and liabilities:
Accounts receivable (1,140,745) (2,080,303) 561,435
Due from affiliates 55,976 354,913 186,185
Inventories (1,400,689) 385,104 (1,486,357)
Prepaid expenses 101,302 (121,180) (7,791)
Prepaid income taxes (14,069) (3,025) --
Other assets (827,907) 6,499 --
Accounts payable 1,005,248 1,127,589 (502,935)
Accrued expenses 687,400 292,010 (881,632)
Income tax payable (2,499) (29,740) (260,448)
---------- ---------- ----------
Total adjustments (1,810,843) (281,461) (1,484,331)
---------- ---------- ----------
Net cash provided by/(used in)
operating activities (1,255,618) 1,387,621 (196,936)
---------- ---------- ----------
Cash flows used in investing activities
- capital expenditures (210,100) (859,553) (273,329)
---------- ---------- ----------
Cash flows from financing activities:
Net borrowings under line-of-credit
agreement 5,181,703 (528,068) 467,382
Capital contribution by Coachman
Incorporated 2,000,000 -- --
Acquisition and redemption of
preferred shares of stock (3,673,260) -- --
Payment in partial liquidation of
notes payable to affiliates (1,785,200) -- --
Deferred debt issuance costs (255,900) -- --
Other payments (1,925) -- --
---------- ---------- ----------
Net cash provided by/(used in)
financing activities 1,465,418 (528,068) 467,382
---------- ---------- ----------
Net change in cash (300) -- (2,883)
---------- ---------- ----------
Cash at beginning of year 800 800 3,683
---------- ---------- ----------
Cash at end of year $ 500 800 800
=========== ========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 209,159 133,417 254,115
=========== ========== ==========
Income taxes paid $ 19,070 116,504 286,000
=========== ========== ==========
Noncash Transactions
As part of the acquisition of the Company s common stock by
Coachman Incorporated and the concurrent payment or refinancing
of certain notes due to certain affiliates, and the reaquisition
and redemption of the $100 preferred shares of stock, certain
noncash transactions were entered into as follows:
Assignment of an account receivable
from an affiliate $ 1,716,392
===========
Assignment of 6,000,000 shares of
Coachman Incorporated received
by the Company as a capital
contribution $ 1,627,004
===========
Assignment of a promissory note
received from Coachman
Incorporated as a capital
contribution $ 4,448,826
===========
Deferred payment notes issued in
partial or total payment of the
preferred shares of stock and
related dividends $ 1,975,514
===========
Deferred payment note issued
for an equal amount note $ 1,785,200
===========
Deferred payment note issued for
accrued, but unpaid interest $ 465,000
===========
See accompanying notes to combined financial statements.
OLYMPIC MILLS CORPORATION, SUBSIDIARY AND AFFILIATE
Notes to Combined Financial Statements
December 31, 1995, 1994 and 1993
(1) Organization and Significant Accounting Policies
Organization
The accompanying combined financial statements include the accounts of
Olympic Mills Corporation, its wholly-owned subsidiary, Yabucoa
Industries, Inc. and Lutania Mills, Inc. (an affiliate)
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, Corporaci n 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 Corp. (BAC). Bruce Acquisition
Corp. had 100% control over OM Acquisition Corp. and ED Acquisition
Corp. OM Acquisition Corp. possessed the remaining outstanding common
stock of Olympic Mills Corporation until December 21, 1995. On that date,
BAC, ED Acquisition Corp. and OM Acquisition Corp. were merged into
Estampados Deportivos, Inc. (an affiliate). 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 cut and saw
manufacturing plant which produces underwear, polo shirts and pajamas that
are sold exclusively to the Company. Lutania Mills, Inc. (Lutania) is a
company in development stage which will operate a textile manufacturing
plant. These companies are referred to hereafter as the Olympic group.
On December 21, 1995, all of the outstanding stock of the Company and
Lutania was acquired by Coachman Incorporated (Coachman) from
Estampados and Olympic Holding Corporation. Concurrent with and as an
integral part of the acquisition by Coachman, Coachman contributed to the
capital of the Company the following:
-- $2,000,000 cash
-- 6,000,000 shares of Coachman Incorporated's common stock, and
-- A promissory note for $4,448,826 due on July 15, 1996. This note bears
no interest for the first 30 days after issuance, however, any
principal payments made after 30 days of issuance will bear
interest at the rate of 8% per annum. While there is any balance
outstanding on this note, Coachman will apply the net proceeds from
the issuance of any shares of its stock to the payment of principal
and interest due under the note. Additionally, as long as there
are any amounts due under the promissory note, the previous
ultimate owner of the Company, Mr. Francisco Carvajal, will remain
Chairman of the Board of Directors of the Company and will have
veto power over all transactions over $100,000.
As part of the Company's acquisition, certain amounts due by the Company
to Cintex and Fideicomiso Hispamer (an affiliate) amounting to $3,570,000
plus accrued interest, and 96,405 preferred shares of the Company, each
with a par value of $100, owned by Cintex and Hispamer, were acquired by
the Company for $5,458,460 in cash, deferred payment notes amounting to
$4,225,714, the assignment of the 6,000,000 shares of Coachman
contributed by Coachman to the Company, the assignment of an account
receivable from an affiliate of the Company amounting to $1,716,392, and
the assignment of the $4,448,826 promissory note referred to above. One
of the deferred payment notes is collateralized by the pledge of the shares
of the Olympic group. Furthermore, a payment based on the 1995
combined earnings of the Olympic group, was to be made (no such payment
is estimated to be due), as well as a future payment of up to $1,000,000
conditioned upon the obtention of certain grants requested by the Olympic
group, which amount would be due five years after the conditional payment
becomes fixed and the corresponding notes are issued.
Additionally, Coachman is committed to issue additional shares of its
common stock as of the second anniversary date of the acquisition sufficient
for the entities related to Mr. Francisco Carvajal owning the 6,000,000
shares of common stock issued as part of the acquisition to own shares of
Coachman having a value of $15 million at such anniversary date.
The payment of the note payable to Cintex and the acquisition of the
preferred shares owned by it were funded with the proceeds of the
$2,000,000 capital contribution by Coachman, net borrowings of $2,852,000
and the collection of amounts due from Lutania of $608,385. Additionally,
an account receivable from an affiliate amounting to $1,716,392 was
assigned to Cintex, notes aggregating to $1,975,514 were issued and
500,000 of the 6,000,000 shares of Coachman received as a capital
contribution, with a recorded book value of $135,584, were assigned to
Cintex. The amount paid by the Company in excess of the face value of the
$1,785,200 note due to Cintex and the par value of the 39,276 shares of
$100 preferred shares of stock ($3,574,392) was accounted for as a dividend
on the preferred shares of stock.
The transaction with Hispamer did not involve an immediate cash payment
but, rather, the issuance of a deferred payment note, the assignment of the
$4,448,826 note referred to above and the assignment of the remaining
5,500,000 shares of Coachman received by the Company as a capital
contribution, which had a recorded book value of $1,491,420. The excess
of the face and recorded values of these instruments over the par value of
the 57,129 shares of $100 preferred shares of stock was recorded as a
dividend on said preferred stock.
The shares of stock of Coachman received by the Company as a contribution
to its capital were accounted for at their estimated market value diluted by
the issuance of said additional shares of stock.
Significant Accounting Policies:
(a) Investment in Yabucoa Industries, Inc.
The combined financial statements include the accounts of the
Olympic group. All significant intercompany balances and
transactions have been eliminated in the combination, 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. The estimated useful lives (in years) of the Company's
equipment and improvements are as follows:
Useful Life
Machinery and equipment 2.5 to 15
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
or retired are eliminated from the respective accounts and gains or
losses on disposition are reflected in the combined 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. Deferred debt issuance costs represent
expenses incurred in the restructuring of the Congress Credit
Corporation financing agreement and will be amortized over a period
of three years.
Amortization expense for the Company for each of the years ended
December 31, 1995, 1994 and 1993 is summarized as follows:
1995 $ 580,150
1994 580,148
1993 580,149
(e) Income Taxes
Under the asset and liability method of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes,
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.
(f) Fair Value of Financial Instruments
The fair value information of financial instruments in the
accompanying financial statements was determined as follows:
Cash
The carrying amount approximates fair value because of the
short-term nature of this instrument.
Receivables, Due from Affiliates, Inventories, Prepayments,
Other Assets, Accounts Payable, Accrued Expenses and Income Tax
Payable
The carrying amount approximates fair value because these
financial instruments mature and should be collected or paid
within six months after December 31.
Notes Payable
The fair value of the notes payable is estimated based on the
discounted cash flows for the same or similar issues under
current rates offered to the Company for debt of the same
remaining maturity. The fair value of the long-term debt at
December 31, 1995 approximates its book value because of the
proximity of the issuance date and December 31, 1995.
(g) Reclassifications
Certain amounts in the 1994 financial statements have been
reclassified to conform them to the 1995 presentation.
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(2) Inventories
Inventories as of December 31 were comprised of the following:
1995 1994
Finished goods $ 4,419,314 4,754,195
Work-in-process 424,025 462,406
Raw materials 4,671,914 3,142,063
----------- ---------
$ 9,515,253 8,358,664
=========== =========
(3) Equipment and Improvements
Equipment and improvements as of December 31 consist of the following:
1995 1994
Machinery and equipment $ 7,749,644 7,572,155
Leasehold improvements 196,903 164,292
----------- ---------
7,946,547 7,736,447
Less accumulated depreciation
and amortization 3,346,732 2,794,543
----------- ---------
Equipment and improvements,
net $ 4,599,815 4,941,904
=========== =========
(4) Borrowings
The following debts were outstanding at December 31, 1995 and 1994:
1995 1994
Notes payables:
Note payable to Corporacion Inmobiliaria
Textil (Cintex), due and payable upon
receipt of sums due to the Company by
a governmental instrumentality under a
Special Incentives for Infrastructure
Contract. The note is interest free if
repaid within thirty days after issuance,
otherwise, interest accrues at 8% $ 603,589 --
Note payable to Corporacion Inmobiliaria
Textil (Cintex), due and payable ninety
days from the date of issue, bearing
interest at the rate of eleven hundredths
of one percent per day 370,000 --
Note payable to Fideicomiso Hispamer, due
on July 15, 1996, bearing interest at the
rate of 12% if paid at maturity (at 8% if
paid prior to the maturity date),
collateralized by the pledge of the common
shares of stock of the Company 1,785,200 --
Revolving loans due to Congress Credit
Corporation pursuant to a loan and
security agreement. 5,787,091 2,605,388
---------- ---------
$8,545,880 2,605,388
========== =========
Long-Term Debt:
Term loans due to Congress Credit Corporation
(Congress), collateralized by a chattel
mortgage over the Companies' property 2,000,000 --
Promissory note due to Corporacion
Inmobiliaria Textil (Cintex) due and
payable on December 21, 2000, bearing
interest at 7%, due quarterly 1,000,000 --
Promissory note to Fideicomiso Hispamer
due on December 21, 2000, interest at
7% due quarterly 465,000 --
---------- ---------
$3,465,000 --
On December 21, 1995, the Olympic group entered into a loan and security
agreement with Congress Credit Corporation (Congress) providing a
maximum credit of $15,000,000. The agreement provides the following
financing arrangements and financial accommodations.
Congress will provide revolving loans subject to certain limitations up to a
maximum amount of $13,000,000, letter of credit accommodations up to a
maximum amount of $1,000,000 and a $2,000,000 term loan. The Olympic
group shall pay Congress a letter of credit fee at an annual 4% rate over the
daily outstanding balance of the letter of credit accommodations and an
annual facility fee of $75,000 while the agreement is in effect. An unused
line fee will be charged to the Olympic group at a rate of .50% over the
excess of $13,000,000 over the average principal balance of the outstanding
revolving loans and letter of credit accommodations. The agreement
provides for a first chattel mortgage on all the equipment owned by the
Olympic group and a lien upon its intangible assets, cash and investments,
inventory and eligible receivables.
Interest is payable on the outstanding principal amount at a 4% annual
interest rate over Congress's cost of borrowing 936 fund in the commercial
paper market or 2% over prime rate, whichever is less. At December 31,
1995, the Company was being charged at 2% over prime rate pending the
filing of certain documentation on 936 funds.
The agreement contains various financial and nonfinancial covenants for
which the Company has complied except certain convenants for which a
waiver was obtained.
(5) Due to Preferred and Common Shareholders
Due to preferred and common shareholders at December 31, 1994 consisted
of the following:
-- 12% promissory note payable to the Hispamer
Trust on October 1, 2000 $ 1,785,200
-- 12% promissory note payable to Cintex on
October 1, 2000 1,785,200
-----------
Total $ 3,570,400
===========
Promissory notes payable were secured by a first mortgage on the equipment
and improvements of the Companies. The note payable to Cintex was paid
in cash on December 21, 1995. The note payable to Hispamer was
refinanced on December 21, 1995 and is presently due on July 15, 1996 at
12% (see note 5).
(6) Income Taxes
The provision for income taxes is calculated separately for the each of the
companies 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 Olympic group adopted Statement of Financial
Accounting Standard No. 109 as of January 1, 1993. The income tax
benefit for the years ended December 31, 1995, 1994 and 1993, which is
from Puerto Rico, consists of the following:
1995 1994 1993
Current income tax expense $ 14,501 83,739 62,642
Deferred income tax benefit (281,251) (102,744) (100,790)
---------- -------- --------
Income tax benefit, net $ (266,750) (19,005) (38,148)
========== ======== ========
The income tax effect of the temporary difference comprising the deferred
income tax benefit for the years ended December 31, 1995, 1994 and 1993
relates to net operating loss carryforwards of Lutania and the
undistributed earnings of Yabucoa, the latter at a tax rate of ten
percent which is the applicable statutory tax rate for exempt subsidiaries.
Combined income tax expense for the years ended December 31, 1995, 1994
and 1993 differed from the amounts computed by applying the statutory
rates applicable in Puerto Rico as a result of the following:
1995 1994 1993
Computed "expected" tax expense $ 129,814 742,535 562,161
Tax reduction resulting from
Industrial Incentives Tax Grant (116,832) (668,282) (505,945)
Other permanent and other
differences 1,519 9,486 6,426
--------- -------- --------
$ 14,501 83,739 62,642
========== ======== ========
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 "Economic
Activity Limitation", no federal tax liability results for the years
ended December_31, 1995 and 1994.
At December 31, 1995, Lutania has the following net operating loss
carryforwards available to offset taxable income, if any:
Year
1998 $ 144,777
1999 489,915
2000 467,109
2001 484,260
2002 399,938
------------
$ 1,985,999
============
(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. The preferred shares of stock were acquired
by the Company on December 21, 1995 and redeemed (see note 1).
(8) Transactions with Related Parties
During the years ended December 31, 1995, 1994 and 1993, sales to
Estampados amounted to approximately $2,300,000, $3,091,000 and
$2,760,000, respectively.
Hispamer Trust, a beneficiary trust (the "Trust") created by Francisco
Carvajal Narvaez and his family under the laws of the Commonwealth of
Puerto Rico and under the administration of Central Hispano Puerto Rico
held 57,129 shares of the Company's Preferred Stock and 6,871 shares of
Estampados Class A Preferred Stock. The Trust also held a $2,000,000
promissory note issued by the Company and Yabucoa, secured by the
Company s and Yabucoa s equipment and improvements. The preferred
shares of stock were acquired by the Company on December 21, 1995 and
redeemed (see note 1).
The Company advanced $701,999 and $513,561 during 1995 and 1994,
respectively, to an affiliate in development stage and charged interest of
$46,249 in 1995 and $62,112 in 1994.
The Company allocated insurance expense of approximately $96,761 in
1995, $167,239 in 1994 and $114,636 in 1993 to affiliated companies.
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 $742,000 in 1995, $682,000 in 1994 and
$676,000 in 1993.
The Company, together with Estampados and other affiliates, guaranteed the
repayment of a $1,000,000 loan granted by a commercial bank to America
Mills C. por A., an affiliate. This loan contained certain covenants which
were not met as of December 31, 1995 and 1994. Mr. Francisco Carvajal
has agreed with the Company to satisfy all future payments, if any, to be
made by the Company in the event of default by America Mills C. por A.
(9) Commitments and Contingencies
On September 23, 1993, the U.S. Environmental Protection Agency issued
a complaint and notice of opportunity for hearing against the Company for
alleged violation of Section 313 of the Emergency Planning and Community
Right to Know Act ("ECPRA"). This complaint alleged eleven different
violations and proposed a total penalty of $187,000. The parties have
agreed to settle the claims for $70,000, which payment shall be made in
two installments, the first of which shall be satisfied 45 days after
executing the settlement. The Company has accrued the $70,000 at
December 31, 1995 and it is included in accrued expenses in the
accompanying balance sheet.
Yabucoa and Lutania 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, 1995, 1994 and 1993 is
summarized as follows:
1995 $ 801,474
1994 735,526
1993 723,590
Following is a summary of future minimum lease payments by Yabucoa
under its noncancellable operating lease at December 31, 1995:
1996 $ 59,474
1997 59,474
1998 59,474
1999 59,474
2000 29,737
----------
Total minimum lease payments $ 267,633
==========
Lutania has entered into a lease agreement covering its manufacturing
facilities. The conditions of this agreement stipulate annual rents varying
from $1.50 to $2.75 per square feet (135.500 square feet in total) upon the
satisfactory construction of a waste water treatment plant acceptable to the
Puerto Rico Aqueduct and Sewer Authority or upon the occupation of more
than 50% of the available manufacturing space whichever occurs first. The
agreement is for a 10 year period commencing on June 1, 1994. Since none
of the conditions previously mentioned have been fulfilled, Lutania has not
and is not presently paying nor accruing any rent.
The Company and Cintex have been assessed approximately $822,000 by the
Puerto Rico Aqueduct and Sewer Authority for excess waste discharges
dating back to January 1989 up to November 1995. Management intends
to object the reasonableness of this assessment; however, the Company is
presently not in a position to estimate the amount, if any, by which such
assessment may be overstated. In the event that the Company is required
to pay any part of the aforementioned assessment, Hispamer Trust, as
previous principal co-owner and principal beneficiary in the sale of the
Company agrees to hold the Company harmless for any such payment,
subject to a deductible of $50,000.
(10) Changes in Capital Structure
The Company is contemplating a private placement offering of 240,000
shares of Series A 10% cumulative convertible preferred stock with a
minimum limit of 180,000 shares. The preferred stock will be offered at
$25 per share with quarterly dividends payable at a fixed annual rate of
$2.50 per share beginning June 30, 1996. The preferred stock will have
liquidation preference of $25 per share plus accrued and unpaid interest.
The preferred stock will be convertible at the option of the holder at any
time after the first year, unless, earlier redeemed, into shares of common
stock of Coachman Incorporated, the parent of the Company ("Coachman")
at a conversion ratio of 40 shares of Coachman common stock for each
share of preferred stock. The preferred stock may be redeemed by the
Company after two years at $26.25 per share, after three years at $26 per
share, after four years at $25.50 per share and after five years at $25 per
share, plus accrued and unpaid dividends. After five years, a preferred
stock holder has the right to require the redemption of his preferred stock
by the Company at $25.00 per share plus accrued and unpaid dividends.
Contingent upon the successful sale of the preferred stock being offered, the
Certificate of Incorporation will be amended, to increase the aggregate
number of authorized shares of common and preferred stock to 4,500,000
and 500,000, respectively. The amended Certificate of Incorporation will
provide for the exchange of $100 par value common and preferred stock for
new shares of $.01 common and preferred stock, respectively. It is
anticipated that a final decision as to these matters may be taken by the
latter part of April 1996 or during the month of May 1996.
(11) Major Customers
Sales to three customers accounted for $17,923,840, $14,181,657 and
$8,646,529 during the years ended December 31, 1995, 1994 and 1993,
respectively. Accounts receivable from those customers were $2,839,029
and $2,329,228 at December 31, 1995 and 1994, respectively.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized, in
Oklahoma City, on May 13, 1996.
COACHMAN INCORPORATED
By: /s/ Dennis D. Bradford
Dennis D. Bradford, Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant.
Signature Title Date
/s/ Dennis D. Bradford Chairman, Chief Executive May 13, 1996
Dennis D. Bradford Officer, Chief Financial
Officer and Director
/s/ Alejandro G. Asmar Director May 13, 1996
Alejandro G. Asmar
/s/ Jay T. Edwards Director May 13, 1996
Jay T. Edwards
/s/ Robert E. Swain Director May 13, 1996
Robert E. Swain
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