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, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securi-
ties 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 Ex-
change Act:
Title of Each Class Name of Each Exchange
on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) Of The Securities Ex-
change 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 requirements 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,
1996, there were 22,670,833 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 incorporated on
February 5, 1985, under the Laws of the State of Delaware. The
Corporation sold shares to the public on August 13, 1987. The Corpora-
tion has seven 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.
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 has become
the primary business of the Corporation. On October 3, 1996; the sellers
of Olympic Mills and the Corporation agreed to modify the terms of the
acquisition agreement. Under these new terms, the acquisition of Olympic
Mills has been deemed to have been consummated for financial reporting
terms.
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 of Olympic Mills Corporation. Olympic
Mills is Puerto Rico's leading producer of knitted underwear, tee-shirts and
polo shirts. Trade names owned by OMC are Grana underwear, America
Project (Registered) 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 tee-shirts and 2,000 dozen
briefs, polo shirts and other products daily. OMC operates a cutting,
sewing and distribution facility in Guaynabo, Puerto Rico and a subsidiary
of OMC, Yabucoa Industries, Inc. ("YII") operates a cutting and sewing
operation in Yabucoa, Puerto Rico. LMI operates a vertical textile mill in
Humacao, Puerto Rico. These facilities, along with outside suppliers, are
sufficient to supply the current sales and future expansion.
LMI, a Puerto Rico corporation was a development stage company
during 1995 which was completing the construction and beginning
operation of a vertical textile mill in Humacao, Puerto Rico. Early in 1996
the mill began production with full operations scheduled for 1997.
Olympic Mills
Olympic Mills, wholly owned subsidiaries of the Corporation, are a
vertically integrated textile and apparel manufacturer in Puerto Rico. OMC
is Puerto Rico's leading manufacturer of underwear, tee-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 partially not subject to U.S. taxation, subject to certain
limitations. OMC is ranked 82nd in Caribbean Business' "Top 200 Puerto
Rican Companies." 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 tee-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 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 1996, the product mix of Olympic Mills business was underwear
59%, tee-shirts 24%, polo shirts 13%, panties 1% and other products 3%.
Currently, Olympic Mills produces 3,000 dozen tee-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 operation 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, the
majority of Olympic Mill's products were sold in Puerto Rico. Grana
(Registered) underwear is sold to the general public through leading
department stores, retailers and discounters such as WalMart (Registered)
and K-Mart (Registered). America Project (Registered) tee-shirts are sold to
screen printers who distribute printed shirts to retailers. America Project
(Registered) 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.
Significant customers in 1996 were the U.S. Department of Defense and
E. Mendoza & Co. These customers accounted for 39% and 12.9% of
OMC's net sales in fiscal 1996, respectively. No other single customer
accounted for more than 5% of OMC's net sales in fiscal 1996. 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. Depart-
ment of Defense.
During 1996, OMC produced underwear for all branches of the
military with quality and service meeting or exceeding 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 terminated by the Department of
Defense at any time.
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 concentrate on business in Puerto Rico. Re-entering
the U.S. market directly or through strategic alliances present a significant
opportunity for growth. The primary business being the production of
"Private Label" underwear, sports wear and tee-shirts.
Marketing. At the present time, OMC is marketing its consumer
products in Puerto Rico through two channels of distribution. One is
through an in-house sales staff of six which handles direct sales, and the
other is through its distributors. In the United States, OMC markets its
products through commission representatives or directly to larger custom-
ers.
In the past, OMC has used limited advertising in promoting brand
awareness. The existing core business is supplying quality underwear and
tee-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. In
addition to "Private Label" manufacturing, OMC believes that both the
Grana (Registered) underwear and America Project tee-shirts lines could be
very competitive in the U.S. market. The Grana 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
opportunities in Puerto Rico and 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 competitive 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 five 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 maintains an inventory of both raw
materials and finished goods. At December 31, 1996, raw material and
work in process inventory totaled $5,178,026 and finished goods inventory
totaled $7,068,032. OMC's backlog consists of confirmed purchase orders.
At December 31, 1996, OMC had approximately $4,500,000 of unfilled
customer orders for goods. 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. Olympic Mills is
pursuing sales in the United States which will offset this seasonality (ie.
Fleece to be manufactured during winter months).
Patents, Copyrights and Trademarks. OMC is the holder of a number
of copyrights and registered trademarks. Those actively used now are
Grana and America Project . 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. The Corporation employs 1,068 full and part-time
employees. The Corporation does not have a collective bargaining
agreement covering any of its employees, nor has it ever experienced any
material labor disruption, and is not aware of any efforts or plans to
organize its employees. The Corporation contributes part of the cost of
medical and life insurance coverage for eligible employees. The Corpora-
tion considers relations with its employees to be excellent. The Corpora-
tion 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
(Registered) stores and Back Bay Outfitters (Registered) 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 corporations which owned these stores, have
considerable debt and virtually no assets. In October, 1996, Caribbean
Outfitters, NV, was put under control of the Court of Aruba and it is no
longer controlled by the Corporation nor is it liable for outstanding
obligations estimated at $900,000. The Corporation continues to own the
right and title to the name and registered trademark of Caribbean Outfitters
(Registered). During 1996, the Corporation sold the right and title to the
registered trademark Back Bay Outfitters (Registered).
Item 2. Facilities
The Corporation currently leases approximately 5,900 square feet of
office space at 301 N.W. 63rd Street, Suite 500, Oklahoma City, Oklaho-
ma, as its corporate headquarters. The current rate is $11.00 per square
feet on a lease which expires March 31, 2000.
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, 1997 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 is negotiating to relocate
to another facility on more favorable terms. LMI, also leases and occupies
a 147,000 square foot manufacturing facility in Humacao, Puerto Rico
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 (both facilities are leased from an agency of the Government of
Puerto Rico).
Item 3. Legal Proceedings
At December 31, 1996; there were no material legal proceedings
pending against the Corporation; Olympic Mills Corporation; Lutania
Mills, Inc.; Innkeepers, Inc.; or Coachman Inns of America, Inc. The
subsidiaries of Caribbean Outfitters, Inc. and Back Bay Outfitters, Inc.
have a number of claims relating to the discontinued retail operations. The
Corporation feels that it is not liable for any of these claims and will
vigorously defend itself against any claims to the contrary.
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 Stock-
holder 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 1996. 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, 1996 $.25 .1875 .4375 .25
June 30, 1996 $.21875 .21875 .40625 .3125
September 30, 1996 $.4375 .3125 .5625 .4375
December 31, 1996 $.375 .25 .46875 .375
On March 31, 1997, the bid and asked price for the Common Stock,
as reported on the OTC Bulletin Board, was $.25 and $.3125 per share,
respectively. As of December 31, 1996, the Corporation had approximately
680 holders of record 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,
1996 1995 1994 1993 1992
Revenues $35,908,536 $67,590 $119,856 $124,686 $134,528
Income (loss)
from
continuing
operations 1,303,330 (302,492) (1,808,805) (24,127) 277,408
Net income
(loss) 1,195,615 (682,034) (2,227,655) (73,273) 420,315
Income (loss)
per common
share from
continuing
operations .04 (.04) (.28) (.01) .07
Dividends declared
per common share -- -- -- -- --
Balance Sheet Data:
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1996 1995 1994 1993 1992
Working capital
(deficiency) $4,624,026 $(5,974,250) $(865,849) $(387,889) $(58,903)
Total assets 30,961,649 9,587,921 1,578,095 3,092,343 1,142,393
Long-term debt 5,042,555 32,975 339,196 816,155 36,156
Total liabilities 18,688,739 6,357,126 1,770,988 1,841,091 149,119
Stockholders'
equity
(deficit) 12,272,910 3,230,795 (122,893) 1,251,252 993,274
(1) Should be read in conjunction with the Consolidated Financial
Statements and notes thereto.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
During the past four 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 (together "Olympic Mills").
The operation and development of Olympic Mills will become the major focus
of the Corporation for the foreseeable future. During 1991, the Corporation
was primarily in the hotel management 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 adventure travel gear,
clothing and equipment. The Corporation also purchased the West Indies
Resort Company and the West Indies Club Limited, thus entering the time share
vacation sales business. During 1995, the Corporation closed the operations
of Outfitters and discontinued the retail operations thereof. The Corpora-
tion 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 difficult. The purpose of this discus-
sion will be to clarify these significant changes and supply forward
looking information about the Corporation's planned activity (although
there can be no assurance that these activities will meet expectations).
Liquidity
On December 21, 1995; the Corporation acquired all of the
outstanding stock of OMC and LMI. The transaction was determined to
be an acquisition in progress for accounting purposes, in 1995, and was
accounted for under the equity method of accounting. On October 3,
1996; the Sellers of Olympic Mills and the Corporation renegotiated the
terms of the acquisition. As a result of this re-renegotiation, the acqui-
sition was considered to have been consummated as of October, 1996
for financial reporting purposes. The year end balance sheets of the
Corporation, OMC and LMI are consolidated as a result.
The Corporation originally closed the acquisition of all of the
issued and outstanding stock of OMC and its affiliate 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 had a guaranteed public trading price of $2.50 per
share after 2 years from issuance, with additional shares being issued if
the price was lower. The Sellers were Corporacion Inmobiliaria Textil
("Cintex"), a Puerto Rico corporation; Fideicomiso Hispamer
("Hispamer"), a Puerto Rico trust; OM Acquisition Corp. ("OM"), a
Delaware corporation; Olympic Holding Corp. ("Holding"), a Puerto
Rico corporation and Estampados Deportivos ("ED"), a Puerto Rico
corporation (collectively "the Sellers"). Under the Agreement, 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 placement and
$250,974 in funds of the Corporation.
On October 3, 1996; the Corporation and the Sellers agreed that
the balances of the $4,448,826 and $1,785,200 notes and accrued
interest of $436,977 were settled with the issuance of 6,521 shares of
Class AA Redeemable Preferred Stock to the Sellers by the Corporation.
This stock has a redemption price of $1,000 per share, which increases
1% each month that the stock is outstanding, and a dividend rate of
$100 per year.
Additionally, the Corporation and the Sellers agreed to settle the
common stock price guarantee through the payment of an additional
$1,250,000 cash and the commitment to issue an additional 5,000,000
shares of common stock and warrants to purchase an additional
5,000,000 shares of common stock at $.50 per share which were valued
at .12 cents each.
In order to complete the acquisition, the Corporation 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, 1996, the availability,
based on collateral, of the revolving credit line was $9,547,804 and the
balance drawn was $7,921,018; leaving an excess availability of
$1,626,786. The balance of the term loan at December 31, 1996 was
$1,333,340.
In addition to the above, OMC issued notes to the Sellers of
$1,000,000 and $465,000 due December 21, 2000 at a rate of 7%.
During 1996, OMC issued an additional note to the Sellers of $320,000
on similar terms.
During 1995, the Corporation elected to close all of its retail
operations. The subsidiaries which own the operations accounted for
$865,436 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.
During 1996, Caribbean Outfitters, N.V. was put under court control in Aruba.
It is no longer consolidated in the corporations financial statements or
controlled by the Corporation.
At December 31, 1996 and 1995; the Corporation had current
assets of $18,270,210 and $349,901 respectively. The increase was due
primarily to the consolidation of Olympic Mills. Of these current
assets, $4,676,459 were net accounts receivable. During 1996, the
average collection period for accounts receivable was 47.64 days. Also
included was inventory of $12,246,108 comprised of raw materials,
work in process and finished goods. During 1996, inventory turnover
was 2.31 times, below the Corporation's goal of 4. At year end, Olym-
pic Mills was owed payments for government incentives of $1,092,995.
At December 31, 1996 and 1995; current liabilities were
$13,646,184 and $6,324,151 respectively. Accounts payable trade at
December 31, 1996 accounted for $3,489,614, which included a bank
book overdraft of $833,923 (Olympic Mills operates with a zero balance
account, whereby funds are drawn on the revolving credit line as checks
are presented for payment). Also included in 1996 were accrued
liabilities of $1,038,524 and current maturities of long-term debt of
$8,964,942.
At December 31, 1996; the Corporation had a Current Ration of
1.33 times and a Quick Ratio of .44 times. Working capital was
$4,624,026; which management believes is sufficient to meet all of the
Corporation's current obligations.
Capital Resources
December 31, 1996 compared to December 31, 1995; Total
assets increased by $21,373,728 from $9,587,921 to $30,961,649; Total
liabilities increased by $12,331,613 from $6,357,126 to $18,688,739 and
Stockholders' equity increased by $9,042,115 from $3,230,795 to
$12,272,910. All of these increases were caused primarily by the
consolidation of the financial statements of the Corporation, OMC and
LMI.
At December 31, 1996; the book value per share of common
stock was $.54. Debt to stockholders equity was 152.28%. Total asset
turnover was 1.16 times.
During 1996, the Corporation repaid or refinanced notes due to
the Seller of Olympic Mills and at the same time settled the price
guarantee of the 6,000,000 shares of Common Stock owned by the
Sellers. This was accomplished through the agreement to issue an
additional 5,000,000 shares of Common Stock, Warrants to purchase
5,000,000 shares of Common Stock for $.50 per share, the issuance by
the Corporation of 6,521 shares of Series AA Preferred Stock and the
payment of $1,250,000 in cash. The cash payment was funded by the
sale of Common Stock of the Corporation and Series A Preferred Stock
of OMC. This transaction had the effect of temporarily decreasing debt
and increasing the paid in capital of the Corporation.
At December 31, 1996; the Corporation had Property and Equip-
ment of $6,606,225 (net of $1,209,086 accumulated, depreciation and
amortization) which secured a loan of $1,333,340. The Corporation
also had Intangibles of $3,249,786, which included $1,680,000 right to
use waste water plant and $1,400,780 value of tradenames. Additionally,
the Corporation holds notes receivable of $534,550.
The remaining retail subsidiaries have current liabilities of
$865,436. These subsidiaries have no operations and limited assets.
During the past year, they have been successful in settling some of their
liabilities.
On October 17, 1996; Caribbean Outfitters, N.V. was placed
under the jurisdiction of a trustee by the Court of Justice in First In-
stance of Aruba. Due to this lack of control, its financial statements are
not consolidated with those of the Corporation. On advice of council,
the Corporation understands that it has no legal responsibility for the
liabilities of Caribbean Outfitters, N.V.
Results of Operations
The acquisition of OMC and LMI by the Corporation was
considered to have been consummated, for financial reporting purposes,
as of October, 1996. The results of operations of OMC and LMI for
the year ended December 31, 1996 have been consolidated with those of
the Corporation as though such acquisition had occurred at the beginning of
the year. Due to this consolidation, the results of operations for
1996 bear little resemblance to those for 1995 and 1994.
For the year ended December 31, 1996, total revenues were
$35,908,536 of which $35,826,875 were net trade sales. Cost of goods
sold were $28,345,459; producing a gross margin of 20.88%. Operating
income was $2,388,166 or 6.66% of total revenues and net income from
continuing operations was $1,303,330 or 3.63% of total revenues. Net
income was $1,195,615, a net profit margin of 3.33%. Earnings before
depreciation, amortization, interest and taxes (EBDAIT) were
$3,980,507. For the year, the Corporation produced a return on assets
of 3.86% and a return on stockholders equity of 9.74%.
In order to better understand the trends in the primary business
of the Corporation the following information is being provided. Total
net sales of Olympic Mills were $35,826,875; $31,184,281 and
$25,839,901 for 1996, 1995 and 1994 respectively. Cost of goods sold
for the same periods were $28,930,919; $26,224,992 and $23,209,536
respectively producing gross profit margins of 20.88%, 15.90% and
19.78% for the same periods. The changes in cost of goods sold and
gross margins can be attributed to the change in product mix, lower raw
material costs and a more efficient operation.
THE FOLLOWING PROJECTIONS WERE PREPARED BY MANAGEMENT OF THE CORPORATION
AND HAVE NOT BEEN REVIEWED BY INDEPENDENT SOURCES TO THE EXTENT POSSIBLE
THE PROJECTIONS ARE BASED ON AN EXAMINATION AND ANALYSIS OF HISTORICAL
RESULTS AND POTENTIAL NEW BUSINESS. THERE CAN BE NO ASSURANCE THAT THE
RESULTS CAN BE OR WILL BE ACHIEVED.
These Projected Results of Operations are based on the following
assumptions:
1. Sales efforts in the U.S. Market are successful.
2. Capacity is increased by the completion of the facility at LMI.
3. Prices remain constant.
4. Minimum wage increases are included.
5. No increases in efficiencies.
6. Existing financial ratios are maintained.
7. Start up costs to open new markets are budgeted.
8. Sales are based on current product mix.
Year 1997 1998 1999
Total Income $ 46,100,000 $ 60,439,000 $ 80,195,000
Cost of Sales 35,234,000 46,673,000 62,327,000
Expenses 7,824,000 9,311,000 12,300,000
Pre tax income 3,042,000 4,455,000 5,568,000
Taxes 113,000 155,000 209,000
Net Income 2,929,000 4,300,000 5,579,000
LMI was a development stage company in 1996. During early
1996, LMI began limited operations. By the end of the second quarter
of 1997, it should be in full operation. LMI produces goods on contract
to OMC. LMI incurred a net loss of $1,498,116 for 1996. The
additional capacity provided by LMI should increase the revenues of
OMC.
During 1995, the Corporation elected to close all of its retail
operations and discontinue them. Retail sales were approximately
$517,000 and $1,843,000 in 1995 and 1994 respectively. The loss
from retail operations was $601,027 and $713,887 in 1995 and 1994
respectively. During 1996, the loss from discontinued operations was
$107,715. During 1997, the Corporation will continue to settle the
liabilities of these subsidiaries. If the liabilities cannot be settled,
management will seek to liquidate the retail subsidiaries.
Impact of Inflation
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 and 1996, major contracts were negotiated with escalation
clauses for increases in cotton prices. The increase in the
minimum wage caused an adverse affect on the cost of the products of
Olympic Mills. During 1996, the prices of cotton remained relatively
stable and decreased in some months.
During 1996 and 1997, the U.S. minimum wage will increase
$.90. In addition to these increases, OMC is increasing all wages a like
amount over four years. During 1996, the first increase in the minimum
wage of $.50 occurred, however; the labor content in manufactured
products has not increased significantly. This is due to increased
efficiencies and lower employee turnover.
The Corporation's hotel operations have not been adversely
affected by inflation. Revenues have kept up with the increase in costs.
Item 8. Financial Statements and Supplementary Data
Financial Statements as of December 31, 1996 and 1995 and for
the three year period ended December 31, 1996 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 51 Chairman of the Board,
President and
Chief Executive Officer
Catherine A. Myers 36 Secretary
Robert E. Swain 51 Director
Jay T. Edwards 64 Director
Alejandro G. Asmar 47 Director
The following is a brief description of the business experience
during the past five years of each of the above-named persons:
Dennis D. Bradford, age 51, 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 inception on February 5, 1985. Mr. Bradford serves as President
and Chief Executive Officer of Olympic Mills Corporation. 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 leisure 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 delegate to the 1986 White House Conference on
Small Business. He is a graduate of the University of Tulsa with a BSBA
degree in Economics.
Catherine A. Myers, age 36, 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 is a graduate of Oklahoma State University.
Robert E. Swain, age 51, has been a Director of the Company
since December 14, 1993 and was President from December, 1993 until
December 31, 1994. Mr. Swain is engaged in the investment and real
estate business. Mr. Swain served as president of American Landmark
Homes, Inc. from 1994 until 1996. Mr. Swain founded Caribbean
Outfitters, Inc. and has been its President, Chief Executive Officer and
Director since its inception in 1989. Prior to founding Caribbean
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 64, 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 President, 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 and Chairman of
the Natural Resource Education Foundation. General Edwards is a
graduate of the United States Military Academy, West Point, New York.
He received a Master of Science Degree in Aeronautical Engineering
from Texas A & M University, and a Master of Science Degree in
Management from George Washington University.
Alejandro G. Asmar, Phd., age 47, Director. Dr. Asmar is
President of the merchant banking firm AGA Associates, Inc. (formerly
AGA & Associates) and serves as managing Director of OMC. From
1984 to 1988, Dr. Asmar was with Drexel Burnham Lambert, 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 Insurance
Co. and from 1977 to 1982 was Senior Vice President, Finance of First
Federal Savings & Loan Association of Puerto Rico. Dr. Asmar served
as an Independent Consultant, Assistant Professor, Director, Department
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 Puerto Rico and the University of Pennsylvania,
The Wharton School, where he received a Ph.D. in Business and Applied
Economics and a MA in Finance.
Series AA Redeemable Preferred Stock.
The holders of the Series AA Redeemable Preferred Stock of
the Corporation, Fideicomiso Hispamer, are entitled to elect two direc-
tors to the Board of Directors of the Corporation. At this time they
have not done so.
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 1996 120,000.00 -0- -0- -0-
Chairman of the Board 1995 120,000.00 -0- -0- -0-
Chief Executive Officer 1994 81,666.70 -0- -0- -0-
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. Bradford entered into a three year
Management Agreement, dated December 3, 1996, with the Corporation.
Mr. Bradford's current salary with the Company under the terms of his
employment agreement is $156,000 per year with an annual evaluation
by the Compensation Committee.
Dr. Asmar is a principal in AGA Associates, Inc. which is
employed as a consultant to OMC. During 1996, AGA was paid
$96,000 in consulting fees by OMC. During 1997, AGA Associates,
Inc., will be paid a consulting fee of $ 140,400 for advice and council
to OMC.
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, 1996. No options to purchase stock were exercised by
him in the fiscal year ended December 31, 1996.
Number of Securities Value of Unexercised
Underlying Unexercised In-The Money Options
Options at FY-End(1995) at FY-End(1996)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
Dennis D. Bradford 13,100 $6,550
__________________
(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, 1996.
The employment contract also provides for additional bonus
compensation based on the annual net income of the Corporation as
determined by the Board of Directors. The compensation committee of
the Board of Directors is empowered to increase base salaries for 1998
and beyond 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 Directors 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 Corporation 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 establish any such plans
in the future in its sole discretion.
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 investment power as well as all securities which may be
acquired through the exercise of currently available conversion, warrant
or option rights. Unless otherwise indicated, each such person possesses
sole voting and investment power with respect to the shares owned by
him.
Name & Address of Beneficial Amount and Nature of % of Beneficial Ownership
Owner After Offering Beneficial Ownership
Francisco Carvajal 6,000,000(a)(c) 29.6%
Box 1669
Guaynabo, PR 00970
Dennis D. Bradford 1,122,638 (b) 7.5%
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
Robert E. & 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) 2,849,978 (e) 16%
*Less than 1% of the common stock outstanding at December 31, 1996.
(a) Francisco Carvajal is beneficial owner of 500,000 shares held by
Corporacion 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) Does not include 5,000,000 shares to be issued during 1997.
(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 17,800 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.
(f) Dr. Alejandro G. Asmar will be issued 1,800,000 shares during 1997, to
settle amounts due to AGA Associates, Inc.
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
During 1991 and 1993, the Corporation loaned $109,958 to
Dennis D. Bradford and received as collateral 1,109,513 shares of the
Corporation's Common Stock owned by Mr. Bradford.
Dr. Alejandro G. Asmar, a director of the Corporation, is the
president and principal in AGA Associates, Inc. which acted as a
financial advisor to the Corporation in the acquisition of Olympic Mills.
AGA will receive a fee of $440,000 in stock for providing 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
Acquisition. AGA also receives an on going fee of $12,500 per month
and reimbursement for some expenses 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 provide 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 fiduciary duty as a director.
Such limitation on a director's liability is subject to the following
statutory 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 Corporation,
and with respect to any criminal action or proceeding, 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 Corpora-
tion (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.
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, Oklahoma, on July 31, 1997.
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 July 31, 1997
Dennis D. Bradford Officer, Chief Financial Officer
and Director
/s/Alejandro G Asmar Director July 31, 1997
Alejandro G. Asmar
/s/Jay T. Edwards Director July 31, 1997
Jay T. Edwards
/s/Robert E. Swain Director July 31, 1997
Robert E. Swain
COACHMAN INCORPORATED
Consolidated Financial Statements
December 31, 1996, 1995 and 1994
With Independent Auditors' Report Thereon
Independent Auditors' Report
The Board of Directors and Stockholders
Coachman Incorporated and Subsidiaries:
We have audited the consolidated balance sheets of Coachman
Incorporated and subsidiaries (Coachman) as of December 31, 1996 and
1995, and the related statements of operations, stockholders' equity and
cash flows for the years 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 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 1996 and 1995 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Coachman Incorporated and subsidiaries at December 31, 1996
and 1995, and the results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting
principles.
/s/KPMG
PEAT MARWICK LLP
March 21, 1997
Stamp No. 1410682 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
Independent Auditors' Report
The Board of Directors and Stockholders
Coachman Incorporated and Subsidiaries
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Coachman Incorporated and Subsidiaries
(Coachman) for the year ended December 31, 1994. 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. Theose 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 opion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of Coachman Incorporated and Subsidiaries for the year ended
December 31, 1994, in conformity with generally accepted accounting
principles.
/s/Sartain Fischbein & Co.
SARTAIN FISCHBEIN & CO.
June 8, 1995
COACHMAN INCORPORATED
Consolidated Balance Sheets
December 31, 1996 and 1995
Assets
1996 1995
Current assets:
Cash and cash equivalents $ 5,541 99,846
Accounts receivable:
Trade, net of allowance for doubtful
accounts of $246,129 in 1996
(notes 8 and 13) 4,676,459 922
Related parties 8,764 99,636
Other, principally government incentives 1,092,995 -
Notes receivable from affiliates (note 6) 42,714 35,702
Inventories (note 3) 12,246,108 -
Investment in equity securities (note 4) 40,000 108,000
Prepaid expenses and other current assets 157,629 5,795
----------- ---------
Total current assets 18,270,210 349,901
----------- ---------
Property and equipment (note 5) 6,606,225 2,252
Intangibles (note 7) 3,249,786 -
Notes receivable (note 6):
Officer 135,266 127,609
Affiliates 356,570 402,633
Acquisition in progress (note 2) - 8,629,488
Investments in subsidiaries (note 4) 76,038 76,038
Deferred tax asset (note 9) 1,653,000 -
Debt issue costs, net of amortization
of $192,304 565,709 -
Other assets 48,845 -
----------- ----------
Total assets $30,961,649 9,587,921
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable (notes 12 and 14):
Trade (including bank overdraft of
$833,923 in 1996) 3,489,614 822,994
Related parties (note 11) 3,734 1,822
Accrued liabilities 1,038,524 629,577
Current maturities of long-term debt
(notes 8 and 11) 8,964,942 4,869,758
Income tax payable (note 9) 149,370 -
----------- ----------
Total current liabilities 13,646,184 6,324,151
Deferred tax liability (note 9) 800,475 -
Long-term debt (note 8) 2,482,080 32,975
Minority interest in subsidiary (note 17) 1,760,000 -
----------- ----------
18,688,739 6,357,126
----------- ----------
Stockholders' equity (note 10):
Preferred stock, $.01 par value;
authorized 200,000 shares; issued
and outstanding 12,971 in 1996 and
7,250 in 1995 130 73
Common stock, $.01 par value;
authorized 25,000,000 shares; issued
and outstanding 22,670,833 in 1996
and 20,265,100 in 1995 226,708 202,651
Additional paid-in capital 18,514,965 11,411,589
Common stock and warrants committed
(note 2) 1,435,879 -
Common stock subscribed, unissued - 391,500
Common stock subscriptions receivable - (100,000)
Deficit (7,539,771) (8,698,643)
Net unrealized gain/(loss) on investment
in equity securities (5,000) 23,625
Payments towards redemption of Class AA
Preferred Stock (360,001) -
----------- ----------
Total stockholders' equity 12,272,910 3,230,795
Commitments and contingencies
(notes 2, 11 and 14)
----------- ----------
Total liabilities and stockholders' equity $30,961,649 9,587,921
See accompanying notes to consolidated financial statements.
COACHMAN INCORPORATED
Consolidated Statements of Operations
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Revenues:
Trade net sales (note 13) $35,826,875 - -
Other 81,661 67,590 119,856
----------- ---------- ----------
Total revenues 35,908,536 67,590 119,856
----------- ---------- ----------
Costs and expenses:
Cost of goods sold 28,345,459 - -
Selling, general and administrative
expenses (note 11) 5,174,911 452,123 554,464
Impairment of goodwill and other assets - - 1,483,870
----------- ---------- ----------
Total costs and expenses 33,520,370 452,123 2,038,334
----------- ---------- ----------
Operating income/(loss) 2,388,166 (384,533) (1,918,478)
----------- ---------- ----------
Other income/(expense) (note 12):
Interest income 47,692 51,675 52,384
Interest expense (1,314,633) (10,558) (5,354)
Other income - 8,260 62,643
Gain on sale of marketable equity
securities 12,046 32,664 -
----------- ---------- ----------
Other income/(expense), net (1,254,895) 82,041 109,673
----------- ---------- ----------
Income/(loss) before income taxes 1,133,271 (302,492) (1,808,805)
Income tax benefit (note 9) 170,059 - -
----------- ---------- ----------
Income/(loss) from continuing
operations 1,303,330 (302,492) (1,808,805)
----------- ---------- ----------
Discontinued operations (note 12):
Loss from operation of discontinued
retail activities (107,715) (131,106) (418,850)
Loss from discontinuing retail
activities - (248,436) -
----------- ---------- ----------
Loss on discontinued operations (107,715) (379,542) (418,850)
----------- ---------- ----------
Net income/(loss) $ 1,195,615 (682,034) (2,227,655)
=========== ========== ==========
Net income/(loss) applicable
to common shares $ 987,059 (753,442) (2,289,939)
=========== ========== ==========
Average outstanding common shares 26,569,457 9,334,313 6,616,750
=========== ========== ==========
Income/(loss) per average outstanding
common share from continuing operations $ .04 (.04) (.28)
======= ==== ====
Loss per average outstanding common
share from discontinued operations $ (.01) (.05) (.07)
====== ==== ====
Net income/(loss) per average outstanding
common share $ .04 (.08) (.35)
====== ==== ====
See accompanying notes to consolidated financial statements.
<TABLE>
COACHMAN INCORPORATED
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1996, 1995 and 1994
<CAPTION>
Unrealized
Gain/ Payments
(Loss) Towards
Common on Redemption
Stock Common Common Investment of
Preferred Stock Common Stock Additional and Stock Stock in Class AA Retained Total
- --------------- ------------------ Paid-in Warrants Subscribed Subscriptions Equity Preferred Earnings/ Stockholders'
Shares Amount Shares Amount Capital Capital Unissued Receivable Securities Stock (Deficit) Equity
- ------ ------ ---------- ------- ---------- --------- ---------- ------------- ---------- --------- ----------- -------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 16,085 443,323 - - - - - - 459,408
Preferred stock issued, net of issuance costs
4,750 48 - - 454,992 - - - - - - 455,040
Net unrealized loss on investment in equity securities
- - - - - - - - (60,938) - - (60,938)
Net loss
- - - - - - - - - - (2,227,655) (2,227,655)
- ------ ------ ---------- ------- ---------- --------- ---------- ------------- ---------- --------- ----------- -------------
Balance, December 31, 1994
4,750 48 7,421,000 74,210 7,819,458 - - - - - (8,016,609) (122,893)
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 investment in equity securities
- - - - - - - - 23,625 - - 23,625
Net loss
- - - - - - - - - - (682,034) (682,034)
- ------ -------- ---------- ------- ---------- --------- ---------- ----------- ------------ --------- ---------- ----------
Balance, December 31, 1995
7,250 73 20,265,100 202,651 11,411,589 - 391,500 (100,000) 23,625 - (8,698,643) 3,230,795
Collection of common stock subscriptions
- - - - - - - 100,000 - - - 100,000
Issuance of subscribed common stock
- - 1,125,000 11,250 380,250 - (391,500) - - - - -
Issuance of stock in payment of debt or obligations
6,521 65 650,000 6,500 6,579,425 - - - - - - 6,585,990
Payments towards redemption of Class AA
Preferred Stock
- - - - - - - - - (360,001) - (360,001)
Common stock issued, net of issuance costs
- - 437,500 4,375 145,625 - - - - - - 150,000
Conversion of preferred stock to common stock
(800) (8) 193,233 1,932 (1,924) - - - - - - -
Common stock and warrants committed
- - - - - 1,435,879 - - - - - 1,435,879
Net unrealized loss on investment in equity securities
- - - - - - - - (28,625) - - (28,625)
Net income
- - - - - - - - - - 1,195,615 1,195,615
Dividends on preferred stock of subsidiary
- - - - - - - - - - (36,743) (36,743)
- ------ -------- ---------- ------- ---------- ---------- -------- ------------ ------------ --------- ---------- ----------
Balance, December 31, 1996
12,971 $ 130 22,670,833 226,708 18,514,965 1,435,879 - - (5,000) (360,001) (7,539,771) 12,272,910
See accompanying notes to consolidated financial statements
COACHMAN INCORPORATED
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Cash flows from operating activities:
Net income/(loss) $ 1,195,615 (682,034) (2,227,655)
Adjustments to reconcile net income/
(loss) to net cash provided by/
(used in) operating activities:
Loss from discontinuing
retail activities - 248,436 -
Gain on sale of marketable equity
securities (12,066) (32,664) -
Impairment of goodwill and other assets - - 1,483,870
Depreciation and amortization 1,640,318 1,435 121,536
Write-off of deferred revenue - - (25,626)
Impairment of accounts receivable-
related parties - - 1,449
Decrease/(increase) in accounts
receivable 607,736 (278,933) (10,263)
Decrease/(increase) in inventory (2,486,755) 105,918 106,336
Decrease/(increase) in prepaid
expenses and other current assets 64,341 (41,126) 27,758
Increase in deferred taxes (289,746) - -
Increase/(decrease) in accounts
payable and accrued liabilities (142,690) 233,689 79,315
Addition of interest, legal, and
other costs related to
renegotiated long-term debt - 7,319 -
Increase in income tax payable 48,172 - -
----------- ---------- -----------
Net cash provided by/(used in)
operating activities 624,925 (437,960) (443,280)
----------- ---------- -----------
Cash flows from investing activities:
Payments related to acquisition in
progress (297,784) (2,113,658) -
Proceeds from sales of marketable
equity securities 51,441 117,039 -
Dividends received from investments
in affiliated entities - 14,600 -
Proceeds from collection of note receivable - 34,023 54,705
Purchases of property and equipment (1,399,896) - (43,631)
Additions to intangibles (1,066,233) - -
Proceeds from affiliate loan repayments 3,349 - -
Loan made to officer (7,657) - -
Proceeds from officer loan repayments - - 17,308
Increase in other assets - - (36,479)
Cash acquired in acquisition of Olympic
Group (note 2) 500 - -
---------- ---------- -----------
Net cash used in investing
activities (2,716,280) (1,947,996) (8,097)
---------- ---------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred and
common stock, net of issuance costs 1,910,000 2,093,593 260,000
Payment received for subscribed,
unissued stock 100,000 291,500 -
Proceeds of loan from related party - 50,550 68,771
Payments for redemption of preferred stock (360,001) - -
Proceeds of loan from third party - 50,000 -
Principal payments on note payable and
long-term debt 497,051 (32,618) (19,586)
Principal payment on borrowings from
related party (150,000) - -
---------- ---------- -----------
Net cash provided by financing
activities $1,997,050 2,453,025 309,185
---------- ---------- -----------
COACHMAN INCORPORATED
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
Net increase/(decrease) in cash and
cash equivalents $ (94,305) 67,069 (142,192)
Cash and cash equivalents,
beginning of year 99,846 32,777 174,969
----------- ----------- -----------
Cash and cash equivalents,
end of year $ 5,541 99,846 32,777
=========== =========== ===========
Supplemental disclosure of noncash investing
and financing activities:
Net unrealized gain/(loss) on
marketable equity securities $ 28,625 23,625 (60,938)
========== ============ ===========
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 -
========== ============ ===========
Conversion of short and long-term
debt and accrued interest into
common and preferred stock $6,585,990 - 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
========== ============ ===========
Unpaid dividends on preferred stock
of subsidiary $ 36,743 - -
========== ============ ===========
Warrants issued related to
acquisition of Olympic Group $ 600,000 - -
========== ============ ===========
Issuance of Coachman's common
stock related to acquisition of
Olympic Group $ 835,879 - -
========== ============ ===========
Issuance of subscribed common stock $ 391,500 - -
========== ============ ===========
Conversion of accrued interest due
to stockholder to equity $ 436,970 - -
========== ============ ===========
Conversion of preferred stock
to common stock $ 1,932 - -
========== ============ ===========
Supplemental disclosure of cash payments
Interest $1,240,926 - 3,223
========== ============ ===========
Income taxes $ 59,765 - -
========== ============ ===========
See accompanying notes to consolidated financial statements.
COACHMAN INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(1) Organization and Summary of Significant Accounting Policies
(a) 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 (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).
Since December 21, 1995, Coachman has been actively involved in the
management of Olympic Mills Corporation and its subsidiary, Yabucoa
Industries, Inc. and Lutania Mills, Inc. (collectively called the Olympic
Group) (see note 2) as well as in the process of raising the necessary
financing to complete the acquisition of the Olympic Group. The Olympic
Group operates three textile manufacturing plants in Puerto Rico engaged
in the manufacture and sale of underwear, tee-shirts, sportswear and
pajamas. Sales of the Olympic Group are made primarily to residents of
Puerto Rico and the U.S. Department of Defense.
(b) Principles of Consolidation
The accompanying 1995 and 1994 consolidated financial statements
include the accounts of Coachman and its wholly-owned subsidiaries,
Resorts of the Americas, Inc., Innkeepers, Inc., Coachman Inns of
America, Inc., Caribbean Outfitters, Inc. and Back Bay Outfitters, Inc.
The 1996 consolidated financial statements also include its wholly-owned
subsidiaries, Olympic Mills Corporation and Lutania Mills, Inc.
The accompanying consolidated financial statements exclude the accounts
of Caribbean Outfitters N.V. (Aruba), which was declared bankrupt by the
Court of Justice in First Instance of Aruba on October 17, 1996 and placed
under the jurisdiction of a trustee. Caribbean Outfitters N.V. (Aruba) is a
wholly-owned subsidiary of Caribbean Outfitters, Inc. Management
understands, with the advice of Coachman's legal counsel, that it has no
legal responsibility over the liabilities of Caribbean Outfitters N.V.
(Aruba). Coachman has concluded that the loss of controlling financial
interest over Caribbean Outfitters N.V. (Aruba) precludes its
consolidation. The change in consolidation policy did not have an effect
over the 1996 net income since Caribbean Outfitters N.V. (Aruba) did not
operate during that year. The consolidated financial statements for 1995
and 1994 have been retroactively restated for the change, which resulted in
a decrease in the net loss for 1995 of $614,286 ($.07 per share) and a
decrease in the net loss for 1994 of $295,037 ($.04 per share).
All significant intercompany balances and transactions have been
eliminated in consolidation.
(c) Cash Equivalents
For purposes of the consolidated statements of cash flows, Coachman
considers all highly liquid instruments with original maturities of three
months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
(e) Investment Securities
Investment securities at December 31, 1996 and 1995 consist of equity
securities, which are accounted for in accordance with 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, net of the related tax effect, on available-for-sale
securities are excluded from earnings and are reported as a separate
component of stockholders' equity until realized. Realized gains and
losses from the sale of available-for-sale securities are determined on a
specific identification basis. A decline in the fair value of any available-
for-sale security below cost that is deemed to be other than temporary
results in a reduction in carrying amount to fair value. The impairment is
charged to earnings and a new cost basis for the security is established.
Dividend income is recognized when earned.
(f) 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 of Coachman's equipment and improvements
are as follows:
Useful Life
Machinery and equipment 3 to 10 years
Leasehold improvements the lesser of 10 years
or leasehold term
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 consolidated statement of operations.
(g) Intangibles
The right of use-waste water treatment plant represents costs attributed to
Lutania's right to use a waste water treatment plant constructed by the
Puerto Rico government to be used exclusively by Lutania on leased
government property. This intangible is being amortized by the straight-
line method over the remaining lease term of 7 years. Tradenames
represent the portion of the purchase price attributable to this intangible
asset at the acquisition date and was being amortized by the straight-line
method over 7 years. In 1994, approximately $1,330,000 related to a
previously acquired subsidiary was charged to operations based on
management's evaluation of future operations and the uncertainty of future
revenues.
Amortization expense for each of the years ended December 31, 1996,
1995 and 1994 is summarized as follows:
Year Amount
1996 $ 416,928
1995 $ 23,367
1994 $ 1,388,900
(h) Debt Issue Costs
Debt issue costs relate to those costs associated with the issuance of debt.
These deferred costs are amortized using the straight-line method over
three to five years. Coachman charged to operations the deferred costs in
1995 related to the operations which were discontinued in December 1995
(see note 2).
(i) Income Taxes
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 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. 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.
(j) 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.
(k) Income/(Loss) Per Common Share
Income/(loss) per common share amounts are computed by dividing net
income/(loss) amounts affected for redeemable preferred stock dividends
($36,743 in 1996) by the weighted average outstanding number of
common shares including the committed common shares of stock to the
former owners of the Olympic Group (see note 2). 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 and the exercise of the warrants issued in 1996 in connection with
the Olympic Group acquisition, is not presented as the effect of the
conversion of the preferred stock and warrants issued by Coachman and
the preferred stock issued by Olympic is antidilutive. Undeclared
preferred stock dividends of $171,813, $71,408 and $62,284 were
considered in determining net income/(loss) applicable to common shares
in 1996, 1995 and 1994, respectively.
(l) Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of
Coachman adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. Adoption
of this Statement did not have a material impact on Coachman's financial
position, results of operations, or liquidity.
(m) Commitments and Contingencies
Liabilities for loss contingencies, including environmental remediation
costs, arising from claims, assessments, litigation, fines and penalties, and
other sources are recorded when it is probable that a liability has been
incurred and the amount of the assessment and/or remediation can be
reasonably estimated. The costs for a specific clean-up site are discounted
if the aggregate amount of the obligation and the amount and timing of the
cash payments for that site are fixed or reliably determinable generally
based upon information derived from the remediation plan for that site.
Recoveries from third parties which are probable of realization are
separately recorded, and are not offset against the related environmental
liability, in accordance with Financial Accounting Standards Board
Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, Environmental Remediation
Liabilities. SOP 96-1 was adopted by Coachman on January 1, 1997 and
requires, among other things, environmental remediation liabilities to be
accrued when the criteria of SFAS No. 5, Accounting for Contingencies,
have been met. The SOP also provides guidance with respect to the
measurement of the remediation liabilities. Such accounting is consistent
with Coachman's current method of accounting for environmental
remediation costs and, therefore, adoption of this new Statement will not
have a material impact on Coachman's financial position, results of
operations, or liquidity.
(n) Fair Value of Financial Instruments
The Coachman's financial instruments consist of cash and cash
equivalents, accounts receivable, notes receivable, other assets, accounts
payable, accrued liabilities, income tax payable, 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, 1996.
The fair value of investments in equity securities is based on quoted
market prices at the reporting date for those or similar investments.
It is not practicable to determine the fair value of accounts payable and
accrued liabilities. In most instances, carrying amount approximates fair
value because these financial instruments mature and should be collected
or paid within six months after December 31, 1996. However, there are
certain liabilities that relate to the discontinued operations of Coachman
(see note 12). Coachman is past due on payment 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.
The fair value of long-term debt 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, 1996 approximates its book value due to
the interest rates approximating the prevailing market rates at December
31, 1996.
(o) 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, Inc.
On December 21, 1995, Coachman acquired all of the outstanding
common stock of Olympic Mills Corporation (Olympic) and Lutania
Mills, Inc. (Lutania), an affiliate of Olympic then in development stage
(collectively called the Olympic Group) (the Olympic Acquisition) for
$2,000 in cash. 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 terms
entitled the former owner of Olympic and Lutania to have veto power
over all transactions over $100,000 until the note was paid off.
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 was
collateralized by a pledge of the shares of Olympic by Coachman.
Furthermore, contingent consideration based on the 1995 net earnings of
the Olympic Group was to be paid to an entity related to the former owner
($297,784 were paid in 1996), 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
($320,385 were accrued in 1996). Additionally, Coachman was
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 was determined in 1995 to be an acquisition in progress,
and had been accounted for under the equity method of accounting. It was
considered an acquisition in progress because the current operating control
of the Olympic Group remained with the former owner, and a promissory
note issued in connection with the acquisition in the amount of
$1,785,200, which was due July 15, 1996, was secured by the stock of
Olympic. Operations of the Olympic Group from December 21, 1995,
through December 31, 1995, were insignificant and were, therefore,
excluded from the 1995 consolidated statement of operations of
Coachman. Following are pro forma (unaudited) 1995 consolidated
results assuming the Olympic Acquisition had been consummated on
January 1, 1995:
Proforma
Effect of
Coachman Olympic Coachman
Actual Group Pro Forma
----------------------------------------
Revenues $ 67,590 31,184,281 31,251,871
Expenses 452,123 31,149,771 1,601,894
--------- ---------- ----------
Operating income/(loss) (384,533) 34,510 (350,023)
Other income, net of
other expenses 82,041 253,965 336,006
Income tax benefit - 266,750 266,750
--------- ---------- ----------
Net earnings/(loss)
from continuing operations $(302,492) 555,225 252,733
========= ========== ==========
Net earnings/(loss)
per share from
continuing operations $ (.04) .05 .01
======= === ===
Summarized financial information of the Olympic Group as of and for the
year ended December 31, 1995, are as follows:
Total assets $ 23,465,776
Total liabilities 14,619,836
------------
Stockholders' equity $ 8,845,940
============
Net sales $ 31,184,281
============
Net income $ 555,225
============
During 1996, Coachman was unable to meet the payments due on the
notes at July 15, 1996 ($6,010,914). In October 1996, the former owner of
the Olympic Group and Coachman renegotiated the terms of the
acquisition and in November 1996, agreed as follows:
(a) The payment of the $4,448,826 and the balance of the $1,785,200 notes
(after a $150,000 payment) (which were in default) and accrued interest
amounting to $436,977 was settled with the issuance of 6,521 Class AA
Redeemable Preferred Stock of Coachman with a par value of $0.01 per
share, a stated value of $1,000, and cumulative dividends of $100 per
annum, payable quarterly. The payment of the dividends on this stock is
guaranteed by the pledge of the shares of the Olympic Group.
(b) To settle the obligation by Coachman to issue additional shares of its
common stock up to a market value of $15,000,000, the former owner of
the Olympic Group received:
$1,250,000 in cash, all of which had been obtained by the Olympic Group
through the private sale of preferred shares of stock of its own and
were lent to Coachman,
The commitment by Coachman to issue 5,000,000 additional shares of
Coachman's common stock, the approval of which was confirmed by
Coachman's shareholders on March 3, 1997, and,
. The commitment by Coachman to issue warrants to purchase 5,000,000
additional shares of Coachman's common stock, at $0.50 each share over
a period of five years, the approval of which was confirmed by
Coachman's shareholders on March 3, 1997. These warrants have been
appraised at a value of $600,000.
While the issuance of the additional shares of common stock and warrants
required shareholders' approval, they have been given accounting
recognition as of December 31, 1996, since members of the Board of
Directors of Coachman own sufficient number of shares of Coachman's
common stock to carry an affirmative vote on this matter and were
committed to do so at December 31, 1996.
While Coachman depends on the cash flow of the Olympic Group to meet
its redeemable preferred stock dividend payments, the Olympic Group
must rely on permission from a secured lender to make cash available to
Coachman for those purposes. During 1996, Coachman was able to avail
itself of cash generated by the Olympic Group to satisfy specific
obligations under the terms of the Olympic Group acquisition agreement
and anticipates that it may avail itself of future cash which the Olympic
Group may generate to satisfy the contracted obligations with the former
owner.
As a result of the aforementioned changes to the original Olympic Group
acquisition agreement, the acquisition of Olympic and Lutania by
Coachman is considered to have been consummated as of October 1996
for financial reporting purposes. The results of operations of Olympic and
Lutania for the entire year ended December 31, 1996 have been
consolidated with those of Coachman as though such acquisition had
occurred at the beginning of the year.
Following is consolidating condensed financial information of Coachman
and the Olympic Group, which provides more complete information
concerning the relationship between Coachman and the Olympic Group:
Consolidating Balance Sheets
Coachman Olympic Combined Elimination Consolidated
Incorporated Group Balance Entries Balance
------------ ---------- ---------- ----------- ------------
Assets:
Cash and cash
equivalents $ 4,741 800 5,541 - 5,541
Receivables, net 25,873 5,807,454 5,833,327 (55,109) 5,778,218
Inventories - 12,246,108 12,246,108 - 12,246,108
Equipment and
improvements, net 1,089 6,605,136 6,606,225 - 6,606,225
Intangibles, net 169,006 3,080,780 3,249,786 - 3,249,786
Investments in
subsidiaries 15,025,453 - 15,025,453 (14,949,415) 76,038
Due from affiliates
and officers 534,550 1,504,800 2,039,350 (1,547,514) 491,836
Debt issue costs - 565,709 565,709 - 565,709
Other assets 48,028 1,851,446 1,899,474 42,714 1,942,188
----------- ---------- ---------- ----------- ----------
$15,808,740 31,662,233 47,470,973 (16,509,324) 30,961,649
=========== ========== ========== =========== ==========
Liabilities and equity:
Accounts payable
and other current
liabilities 2,679,167 3,561,984 6,241,151 (1,559,909) 4,681,242
Borrowings 407,279 11,039,743 11,447,022 - 11,447,022
Deferred tax
liability 412,642 387,833 800,475 - 800,475
----------- ---------- ---------- ----------- ----------
Total liabilities 3,499,088 14,989,560 18,488,648 (1,559,909) 16,928,739
Minority interest - 1,760,000 1,760,000 - 1,760,000
Equity 12,309,652 14,912,673 27,222,325 (14,949,415) 12,272,910
----------- ---------- ---------- ----------- ----------
$15,808,740 31,662,233 47,470,973 (16,509,324) 30,961,649
=========== ========== ========== =========== ==========
Consolidating Statements of Operations
Revenues:
Net sales $ - 35,826,875 35,826,875 - 35,826,875
Interest and
other revenues 141,399 - 141,399 - 141,399
Equity in net
earnings of
subsidiaries 1,888,847 - 1,888,847 (1,888,847) -
----------- ---------- ---------- ---------- ----------
2,030,246 35,826,875 37,857,121 (1,888,847) 35,968,274
----------- ---------- ---------- ---------- ----------
Costs and expenses:
Cost of goods sold - 28,345,459 28,345,459 - 28,345,459
Selling, general
and administrative
expenses 470,040 4,704,871 5,174,911 - 5,174,911
Interest and
other expenses 139,733 1,282,615 1,422,348 - 1,422,348
----------- ---------- ---------- ---------- ----------
609,773 34,332,945 34,942,718 - 34,942,718
----------- ---------- ---------- ---------- ----------
1,420,473 1,493,930 2,914,403 (1,888,847) 1,025,556
Income taxes
(expense)/
benefit (224,858) 394,917 170,059 - 170,059
----------- ---------- ---------- ---------- ----------
Net income $ 1,195,615 1,888,847 3,084,462 (1,888,847) 1,195,615
=========== ========== ========== ========== ==========
The purchase price of the acquisition, which has been "pushed-down" to
the individual financial statements of the Olympic Group, was allocated to
the assets acquired based on their estimated fair value and resulted in the
recognition of goodwill of $187,784.
In 1995, the purchase price had not been allocated to the assets of Olympic
as the transaction was deemed an acquisition in progress and was
accounted for as a deposit.
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 other revenues 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 for all of the
outstanding common stock of Caribbean.
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.
As stated in note 1, during 1996 Coachman lost its controlling financial
interest over Caribbean Outfitters N.V. (Aruba), a wholly-owned
subsidiary of Caribbean Outfitters, Inc., and therefore, is precluded from
consolidation. The 1995 and 1994 financial statements have been restated
to reflect this change in consolidation policy.
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) Inventories
Inventories at December 31, 1996 were comprised of the following:
Finished goods $ 7,068,082
Work-in-process 736,257
Raw materials 4,441,769
-------------
$ 12,246,108
(4) Investment in Equity Securities
The aggregate fair value of the investment in equity securities at
December 31, 1996 and 1995 amounted to $40,000 and $108,000,
respectively. Gross unrealized holding gains/(losses) amounted to
approximately $(5,000) and $24,000 for the years ended December 31,
1996 and 1995, respectively. In 1996 and 1995, the Company sold
available-for-sale securities with a share value of $39,000 and $84,000,
respectively, for approximately $51,000 and $117,000 and a realized gain
of approximately $12,000 and $33,000, respectively.
(5) Property and Equipment
Property and equipment at December 31, 1996 and 1995 consist of the
following:
1996 1995
Machinery and equipment $ 7,548,828 246,878
Leasehold improvements 266,483 -
----------- -------
7,815,311 246,878
Less accumulated depreciation
and amortization 1,209,086 244,626
----------- -------
Property and equipment, net $ 6,606,225 2,252
=========== =======
(6) Notes Receivable
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 payable annually and is collateralized
by 1,109,498 restricted shares of Coachman's common stock. No
payments on the note have been received since the inception of the note in
1993.
Notes receivable-affiliates consist of the following at December 31, 1996
and 1995:
1996 1995
Coachman Inns Income Limited
Partnership (CIILP) $ 397,607 436,658
Other 1,677 1,677
---------- -------
399,284 438,335
Less current maturities 42,714 35,702
---------- -------
$ 356,570 402,633
========== =======
Coachman is co-general partner in CIILP and advanced $505,000 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 $38,000, $41,000 and $44,000 in 1996, 1995 and 1994,
respectively.
(7) Intangibles
Intangibles (all relating to the Olympic Group) at December 31, 1996
consist of the following:
Right of use-waste water treatment plant,
net of accumulated amortization of
$250,000 in 1996 $ 1,680,000
Tradenames, net of accumulated amortization
of $148,150 in 1996 1,400,780
Goodwill, net of accumulated
amortization of $18,778 in 1996 169,006
-----------
Intangibles, net $ 3,249,786
===========
(8) Borrowings
The following debts were outstanding at December 31, 1996 and 1995:
1996 1995
Related parties:
8% note payable to former shareholders
of Olympic Mills Corporation, due in
July 1996 (a). $ - 4,448,826
Unsecured note payable to a stockholder
director, due on demand. Interest
accrued at New York prime rate plus
2%. 154,150 154,150
6% unsecured loan payable to various
affiliates, due on demand. 122,550 107,550
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 -
Promissory note to Fideicomiso
Hispamer due and payable on
December 21, 2000, interest at 7%,
due quarterly. 320,385 -
---------- ---------
Balance carried forward $2,062,085 4,710,526
---------- ---------
1996 1995
Balance brought forward $2,062,085 4,710,526
Unrelated parties:
Revolving loans due to Congress Credit
Corporation (Congress) pursuant to
a loan and security agreement. 7,921,018 -
Term loan due to Congress,
collateralized by a chattel mortgage
over the Olympic Group's property. 1,333,340 -
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 (b). 75,000 75,000
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 (d). 25,579 37,207
9% unsecured note payable due in April 1996. - 50,000
13% unsecured note payable to an unrelated
party with interest and principal due
January 1998, as amended. 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
---------- ---------
9,384,937 192,207
---------- ---------
Total long-term debt 11,447,022 4,902,733
Less current maturities 8,964,942 4,869,758
---------- ---------
Long-term debt, excluding current
maturities $2,482,080 32,975
(a) The Olympic Mills Corporation note was contributed to the capital of the
Olympic Mills Corporation in connection with the acquisition discussed in
note 2.
(b) Required payments under the unsecured note have not been made by
Coachman through December 1996. This note is past due.
(c) 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. In August
1996, a Circuit Court rendered a final judgment and ordered the payment
of principal and interest. The judgment bears interest at the rate of 10%
per annum until paid.
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 $1,000,0000 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.
At December 31, 1996, the Olympic Group had a term loan due to
Congress, amounting to $1,333,340, which is payable in equal monthly
installments of approximately $56,000 through December 1998,
collateralized by a chattel mortgage over the Olympic Group's property.
Interest is payable on the outstanding principal amount at a 4% annual
interest rate over Congress's cost of borrowing Section 936 of the U.S.
Internal Revenue Code funds in the commercial paper market or 2% over
prime rate, whichever is less. At December 31, 1996, the Olympic Group
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 Olympic Group has complied except certain covenants for
which a waiver was obtained.
(9) Income Taxes
The provision for income taxes is calculated separately for 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 provisions of the Puerto Rico Industrial Incentives Act of 1978, as
amended, Olympic has been granted partial tax exemption from the
payment of Puerto Rico income, property and municipal license taxes for a
period of 10 years ending in January 2003 at the following rates:
Income 90%
Property and municipal license 75%
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 license
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 license 60%
The income tax benefit for the years ended December 31, 1996, 1995 and
1994, consists of the following:
1996 1995 1994
Current income tax expense $ (129,919) - -
Deferred income tax benefit 299,978 - -
---------- ------ ------
Income tax benefit, net $ 170,059 - -
========== ====== ======
The income tax effect of the temporary difference comprising the deferred
income tax benefit for the year ended December 31, 1996 relates to net
operating loss carryforwards of Lutania ($635,000) net of the tax on the
undistributed earnings of Olympic ($335,022). A tax rate of 39% was
used for the calculation of the income tax effect of the temporary
differences arising from the net operating loss carryforward benefits of
Lutania. The calculation of the temporary difference arising from the
undistributed earnings was calculated using a tax rate of ten percent which
is the applicable statutory tax rate for exempt companies.
Coachman has a deferred tax asset 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 reserved for the deferred tax assets through
a valuation allowance. The valuation allowance was increased by
$171,000, $312,000 and $499,000, in 1996, 1995 and 1994, respectively.
Consolidated income tax expense for the years ended December 31, 1996,
1995 and 1994 differed from the amounts computed by applying the
statutory rates as a result of the following:
1996 1995 1994
Computed "expected" tax expense $ 390,000 - -
Increase (reduction) in income
taxes resulting from:
Tax reduction resulting from
Puerto Rico Industrial
Incentives Tax grants (1,240,000) - -
Deferred tax asset related to
Coachman's net operating
losses fully provided in
allowance 186,000 - -
Income tax effect on
undistributed earnings of
subsidiaries 335,000 - -
Tax effect on nondeductible
difference on asset basis 244,000 - -
Other (85,000) - -
---------- ------ ------
Actual income tax benefit $ (170,000) - -
Olympic 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. 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 year ended
December 31, 1996.
For taxable years beginning after December 31, 1995, the Small Business
Job Protection Act (approved on August 20, 1996) imposed new
limitations on the Section 936 credit allowed to a U.S. Corporation for
U.S. tax on income earned in Puerto Rico. Under this new legislation, the
Company may continue to claim the credit provided by Section 936 for the
next ten years or up to years beginning in 2005. Also, effective July 1,
1996, the credit for qualified investment possession source income will no
longer be allowed for subsequent taxable years.
At December 31, 1996, Coachman has net operating loss carryforwards of
approximately $3,976,000 which, if unused, will expire between the years
2001 and 2011.
At December 31, 1996, Lutania has the following net operating loss
carryforwards available to offset taxable income, if any:
Year Amount
1998 $ 144,777
1999 489,915
2000 467,109
2001 484,260
2002 1,024,407
2003 1,627,654
----------
$4,238,122
It is expected that Lutania will apply for income and other tax exemption
during 1997. Upon the granting of such tax exemption, the net available
net operating loss carryforward must be utilized over a shorter period,
presently estimated to expire in 1999. Net operating loss carryforward not
utilized by 1999 will no longer be available to offset income of Lutania.
(10) Common and Preferred Stock
During 1996, Coachman issued 1,562,500 shares of its common stock for
approximately $541,000 through private placements; 1,125,000 of these
shares had been subscribed for but unissued at December 31, 1995.
Coachman had received $291,500 in 1995 related to the subscribed,
unissued shares and had recorded a subscription receivable of $100,000
for the remaining amount to be received for the shares (collected in 1996).
During 1996, Coachman issued 650,000 shares of its common stock in
payment of a note payable in the amount of $50,000 plus $14,000 of
accrued interest.
During 1996, Coachman issued to the former shareholders of the Olympic
Group, 6,521 Class AA Redeemable Preferred Shares of Stock with a par
value of $0.01 per share, a stated value of $1,000 and the right to
cumulative dividends of $100 per annum, payable quarterly (the payment
of such dividends is guaranteed by the pledge of the shares of the Olympic
Group), and agreed to issue, subject to shareholders' approval, 5,000,000
of common stock and warrants to acquire 5,000,000 additional shares of
common stock at $0.50 each share. Such warrants were appraised at $0.12
per share, and expire in five years. The required shareholder's approval
was obtained on March 3, 1997; however, since members of the Board of
Directors and certain stockholders of Coachman owned sufficient shares
of stock of Coachman at December 31, 1996, to carry an affirmative vote
the committed consideration has been given accounting recognition as of
December 31, 1996.
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 private placements to raise capital
needed for the acquisition in progress discussed in note 2 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, 1996, preferred stock includes 2,500 shares of
Coachman's 6% Cumulative Convertible Redeemable Series A preferred
stock (Series A), 659 shares of Coachman's 14% Cumulative Convertible
Redeemable Series B preferred stock (Series B), 3,291 shares of
Coachman's 12% Cumulative Convertible Redeemable Series C preferred
stock (Series C) and 6,521 shares of Coachman's Class AA Redeemable
Preferred Stock. Stated values are $100, $115, $115 and $1,000 for Series
A, Series B, Series C and Series AA, respectively, and Series A, B and C
have a liquidation preference of $100 plus accrued but unpaid dividends
per share, and Series AA have a liquidation preference of $1,000 plus
accrued but unpaid dividend plus a 1% cumulative monthly premium. The
holders of the Class AA preferred shares have the right to elect two
directors of Coachman at least up to and until the stock is fully redeemed.
Coachman and Olympic are committed to apply funds obtained from the
following sources to redeem the Series AA preferred stock: (a) total
proceeds, net of issuing costs, from the offering of equities of either
Company, (b) receipt of any net funds as part of an equipment refinancing
loan to Coachman and the Olympic Group except that, any amount
required to finance new equipment or working capital for operations, may
be utilized for such purpose with the consent of the holder of the Series
AA, and (c) any excess availability from a secured line of credit and
approved by such secured lender on a monthly basis.
Dividends, when, as, and if declared by the board of directors, will be at
the annual rate of $6.00, $16.10, $13.80 and $100 per share for the Series
A, Series B, Series C and Series AA 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, and payable quarterly for Series AA.
Any or all four 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, $115, and $1,000 per share for the Series
A, Series B, Series C, and Series AA preferred stock, respectively, plus
accrued and unpaid dividends to the redemption date plus a 1% monthly
cumulative redemption premiums in the case of the Series AA.
The Series A, Series B, and Series C preferred stocks were 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. During 1996, 5 shares of Series A and 3 of
Series C were converted to 193,233 shares of common stock.
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 became 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.
At December 31, 1996, cumulative unpaid dividends on Series A, Series
B, Series C and Series AA preferred stock totaled approximately
$305,500. There were no Series A, Series B, Series C, and Series AA
redemptions during 1996, 1995, or 1994, although $360,001 have been
paid to the former owners of the Olympic Group in anticipation of the
partial redemption of Class AA Series.
On March 3, 1997, the stockholders of Coachman approved a reverse
stock split of Coachman's common stock on a one (1) share for five (5)
share basis and to increase or maintain the Corporation's authorized
common stock at 50,000,000 shares, par value $0.005, at such time as
Coachman's common stock is accepted for listing on a national market.
(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 consolidated statements of operations are
net of allocated direct charges. Reimbursement of these expenses were
approximately $353,000, $313,000 and $314,000 for the years ended
December 31, 1996, 1995, and 1994, 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, 1996. Coachman also holds a second mortgage on the real estate (see
note 8).
A stockholder guarantees the debt of the Olympic Group to Congress up to
$2,500,000 (see note 8).
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
received a fee of $440,000 in Coachman common stock and cash, payable
in 1997. The fee is included in other accrued liabilities at December 31,
1995 and 1996. During 1994 Coachman paid approximately $30,000 to a
consulting company whose owner is related to one of Coachman's
stockholders.
Olympic leases its office and manufacturing facilities from one of
Coachman's stockholders under a yearly renewable lease agreement.
Total rent expense under such leases amounted to approximately $852,000
in 1996.
(12) Discontinued Operations
The results of the retail sales segment have been reported as discontinued
operations in the accompanying consolidated statements of operations.
The 1994 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
$6,000, $280,000, and $1,789,000, in 1996, 1995 and 1994, respectively.
As of December 31, 1996 and 1995, the assets of the retail sales segment
were insignificant. The liabilities of the retail sales segment as of
December 31, 1996, include approximately $525,000, $183,000 and
$430,000 included in accounts payable, accrued liabilities, and
borrowings, respectively.
The 1996 and 1995 consolidated statement of operations includes a loss
from operations of discontinued retail operations of $107,000 and
$131,000, respectively, and a loss from discontinuing retail activities of
$248,000 in 1995. 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.
(13) Major Customers
Sales to two customers accounted for $18,541,000 during the year ended
December 31, 1996. Accounts receivable from those customers amounted
to $2,933,000 at December 31, 1996.
(14) Commitments and Contingencies
During 1996, 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
$155,000 for current and past due rent at December 31, 1996. 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 12, at December 31, 1996, 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.
Yabucoa and Lutania leases offices and operating facilities under
operating leases.
Rent expense under all noncancellable operating leases for the years ended
December 31, 1996, 1995, and 1994 is summarized as follows:
Year Amount
1996 $ 919,000
=========
1995 $ 413,000
=========
1994 $ 536,000
=========
Following is a summary of future minimum lease payments under its
operating leases at December 31, 1996:
Year Amount
1997 $ 122,808
1998 126,950
1999 129,916
2000 77,270
----------
Total minimum lease payments $ 456,944
Olympic and Cintex (a stockholder of Coachman) 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 objects 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.
(15) 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, 1996 and 1995, 33,550 options were exercisable with an
average exercise price of $.26. No options were exercised during 1996,
1995, or 1994.
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 were not exercisable and were canceled
by December 31, 1996.
(16) Incentive Contracts
The Olympic Group has entered into various contracts with agencies and
instrumentalities of the Commonwealth of Puerto Rico pursuant to which
it receives stipulated sums as a form of subsidy to compensate for labor
training costs and other costs incidental to its operations. During 1996, the
Olympic Group received or was entitled to subsidies amounting to
$963,000 which have been reflected as cost of goods sold in the
accompanying consolidated statements of operations.
(17) Minority Interest in Subsidiary
During 1996, Olympic issued 68,400 shares of 10% cumulative
convertible preferred stock for $1,760,000 through a private placement.
These shares were offered at $25 per share and pay quarterly dividends at
a fixed annual rate of $2.50 per share beginning December 31, 1996 which
are cumulative from the date of issue ($36,743 were accrued at December
31, 1996 and paid in 1997). The preferred shares have a liquidation
preference of $25 per share plus accrued and unpaid dividends. The
preferred shares are convertible at the option of the holder at any time after
the first nine months into shares of common stock of Coachman at a
conversion ratio based upon 80% of the average price of Coachman
common stock for the twenty trading days prior to such conversion for
each share of preferred stock valued at $25 per share, unless earlier
redeemed. The preferred share may be redeemed by Olympic at the
following rates:
Amount per Share
After one year $ 27.50
After two years 26.25
After three years 25.50
After four years 25.00
After five years 25.00
After five years, the preferred share holders have the right to require the
redemption of their preferred stock by Olympic at $25 per share plus
accrued and unpaid dividends.
</TABLE>
