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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from
_____________________________ to _________________
Commission File Number 1-9593
COACHMAN INCORPORATED
(Exact Name of registrant as specified in its charter)
Delaware 73-1244422
(State of incorporation) (I.R.S.
Employer Identification No.)
301 N.W. 63rd Street, Suite 500, Oklahoma City, OK 73116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(405) 840-4667
Securities registered pursuant to Section 12(b) Of The
Securities Exchange Act:
Title of Each Class Name of Each
Exchange on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) Of The
Securities Exchange Act:
Common stock, par value $.005 per share
(Title of class)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing re
quirements for the past 90 days. [ ] Yes[X] No
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of the voting stock
held by non-affiliates of the Registrant on March 30,
1998 was $2,843,073. As of December 31, 1997, there
were 32,173,939 shares of the Registrant's Common
Stock, $.005 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 Corporation has four
operating subsidiaries: Olympic Mills Corporation("OMC"); Lutania Mills,
Inc. ("LMI") (together "Olympic Mills"); Innkeepers, Inc. and Coachman Inns
of America, Inc. The primary business of the Corporation is the operation
of Olympic Mills.
Acquisition of Olympic Mills Corporation and Lutania Mills, Inc.
On December 21, 1995, the Corporation purchased all of the stock of
Olympic Mills but under the terms of the purchase agreement, the
acquisition was not deemed to have been consummated. On October 3, 1996;
the sellers of Olympic Mills and the Corporation agreed to modify the terms
of the original acquisition agreement. Under these new terms, the
acquisition of Olympic Mills was deemed to have been consummated for
financial reporting terms. Olympic Mills is Puerto Rico's leading producer
of knitted underwear, tee-shirts and polo shirts. OMC, a Delaware
Corporation, is a 49 year old vertical textile and apparel manufacturer and
distributor located in Puerto Rico.
LMI is a Puerto Rican corporation located in Humacao, Puerto Rico
which is an affiliate of OMC. It was in a development stage through late
1997, while completing construction including a water pretreatment plant
and evolving from a sewing operation into a vertical textile mill. The
mill began partial production in 1996. Full operations began in late 1997,
but the mill still needs some capital improvements and is producing at
under full capacity.
On October 1, 1997, the Corporation, through All-On-Embellishment,
Inc., (AOE), a subsidiary of LMI, purchased all of the accounts receivable,
inventories, machinery and intangibles of All On T-Shirts, Inc. (AOT). This
acquisition allows Olympic Mills to enter the screen printing and
embroidery businesses, an extension of the tee-shirt business.
On December 2, 1997, the Corporation purchased, through OMC, the
textile machinery and equipment, cut and sew machinery and equipment,
electronic embroidery equipment and certain other assets of Barranquitas
Knitting, Inc., a wholly owned subsidiary of Phillip Van Heusen Corp. and
Phillip Van Heusen Puerto Rico, LLC., located in Barranquitas, Puerto Rico.
These acquisitions fit within Olympic Mills' current and future
business strategy. The assets were purchased from the said owner
corporations which are not affiliated with the Corporation. The assets
purchased had been used and will continue to be used in the manufacturing
of sweaters and embellishment.
The Corporation plans to continue the strategy of acquiring through
Olympic Mills, compatible companies in the textile and apparel business in
order to diversify its products.
The Corporation, through OMC, acquired on February 22, 1998 all the
stock issued and outstanding of Laredo Apparel, Inc., a Puerto Rican
corporation. Laredo is a small operation that manufactures and markets
fashion apparel for women, men and youth in Puerto Rico.
In March 1998, OMC purchased the assets of Tifton Textiles, Inc. in
Tifton, Georgia. The purchase was through a new subsidiary organized under
the name OMC-Tifton, Inc. (OMCT). The purchasing transaction was cash
neutral. The new operation will manufacture fabric to supply the existing
807A fabric market, to sell fabric in the U.S. and to supply part of the
fabric that demand operations of OMC and its subsidiaries and affiliates in
Puerto Rico.
Spin off of Certain Subsidiaries
The Board of Directors of the Corporation is pursuing the sale or
other form of spin off of the Corporation's hotel and retail subsidiaries.
These operations no longer fit within the Corporations operation as a
textile and apparel manufacturer and distributor.
Olympic Mills
The Corporation. The Corporation operates its subsidiaries OMC and
LMI, and their respective subsidiaries hereafter referred to as Olympic
Mills.
OMC was a vertically integrated textile and apparel manufacturer and
distributor in Puerto Rico until late 1997. As of that time, it had
limited its operations to the sewing of apparel, while LMI has evolved as a
fully integrated textile mill. In addition, both OMC and LMI utilize
fabric produced by their recently acquired textile mill affiliate OMCT
which has been a supplier of fabric for OMC during the last five years.
At present, OMC is responsible for carrying out the financing,
marketing and distribution functions for all its subsidiaries (YII, BMI,
Laredo, Inc., OMCT) and for LMI and its subsidiary AOE. 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 exempt
from U.S. taxation, subject to certain limitations.
Products. Olympic Mills has five basic product lines. All cotton
knitted men's underwear, cotton and cotton blend knitted tee-shirts, cotton
and cotton blend polo shirts, acrylic fashion sweaters and non-knitted sewn
products such as pajamas and shorts. Leading trade names used by LMI and
OMC include Granar (underwear), America Projectr (underwear and sportswear)
Olympic Mills and Laredo. LMI and OMCT knit, bleach and dye most of the
knitted fabric used by Olympic Mills, while it purchases woven fabric from
outside sources.
In 1997, the product mix of Olympic Mills business was underwear
(36%), tee-shirts (31%), polo shirts (13%), panties (1%) and other products
(19%). Currently, Olympic Mills produces 4,500 dozen tee-shirts and 3,500
dozen briefs, polo shirts and other products daily.
Customers. Previous to 1997, 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 Mills' products were sold in Puerto Rico. Granar
underwear is sold to the general public through leading department stores,
retailers and discounters such as WalMartr and K-Martr. America Projectr
tee-shirts are used in the screen printing business and sold to screen
printers and distributors. America Projectr 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 1997 were Signal Apparel Company, $5,034,893
(14%), E. Mendoza & Company, $4,703,460 (13%); U.S. Department of Defense
("USDD"), $4,451,882 (12%); and Donato Stores, $1,742,212 (5%). These
customers accounted for 44% of OMC's net sales in fiscal 1997. No other
single customer accounted for more than 5% of net sales in fiscal 1997.
The loss of the sales to any of the key customers would have a material
adverse effect on OMC's results of operations as was the case with the
reduction of USDD sales in 1997. OMC has no long-term purchase contracts
or commitments with any customer other than the U.S.D.D.
During 1997, OMC produced underwear for all branches of the military
with quality and service meeting or exceeding military standards. The U.S.
Department of Defense contract provided 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.
Selling products to retail stores outside of Puerto Rico could
represent a major growth area for OMC. Present plans call for the sale of
shirts and polos imprinted by AOE in Puerto Rico, the Caribbean Basin and
the U.S. Customers would be retail stores, hotel shops and cruise ships.
A fast growing segment of the tee-shirt business is licensing. This area
is being pursued by OMC. In addition, strategic plans for 1998 call for
increased efforts to further penetrate the U.S. markets through the
manufacture of fabric by OMCT, sweaters produced by BMI and private label
underwear, sportswear 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
customers. With the acquisition of OMCT, OMC has also initiated a U.S.
based sales operation to sell its products directly to customers in the
U.S.
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. As stated above, OMC has already initiated 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
Granar underwear and America Projectr tee-shirts lines could be very
competitive in the U.S. market. The Granar brand should be familiar to a
large number of Puerto Ricans living in the United States, and OMC intends
to explore the potential of this as well as the rest of the Hispanic
market. OMC has also obtained licenses to market the Vatican Library
Collections and the "Puerto Rico Does It Better" label which should help to
enhance its market potential. It also intends to pursue other licensing
opportunities.
Competition. There are several competitors for OMC principal consumer
products. The two largest are Fruit of the Loomr and Hanesr. 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 major 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, 1997, raw material and work
in process inventory totaled $5,047,620 and finished goods inventory
totaled $7,550,433. OMC's backlog consists of confirmed, purchase orders.
At December 31, 1997, 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 nor material returns of its products.
Seasonality. The products sold to the U.S. 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 (i.e. Fleece to be
manufactured during winter months and sweaters to be delivered in fall).
Patents, Copyrights and Trademarks. OMC is the holder of a number of
copyrights and registered trademarks. Those actively used now are Granar
and America Projectr. OMC has used the trade names "Olympic Mills
Corporation" and "Olympic Mills" for 48 years in Puerto Rico and has used
them in the United States while operating a sales office in that country in
the early 1980's; however, the said trade names have not been registered in
the United States.
Employees. The Corporation currently employs 1,105 full and part-time
employees. Except as described below 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 Corporation considers relations with its employees to be
excellent. The Corporation does not have a retirement or pension program.
When OMC purchased the assets used by BMI, BMI's employees were covered by
a collective bargaining agreement with the previous employer. Under the
terms of the purchase of assets, BMI has drafted and presented a new
Collective Bargaining Agreement to the union representing these employees.
The agreement includes both economic and non-economic classes. The
approval of this agreement is pending.
Discontinued Operations
During 1995, the Corporation elected to close all of its retail
operations. These included all of the remaining Caribbean Outfittersr
stores and Back Bay Outfittersr store. These operations had not been
profitable and had contributed significant losses to the Corporation.
Caribbean Outfitters, Inc. and Back Bay Outfitters, Inc., 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. The
Corporation continues to own the right and title to the name and registered
trademark of Caribbean Outfittersr. During 1996, the Corporation sold the
right and title to the registered trademark Back Bay Outfittersr. It is
the intention of the Corporation to sell or spin off these subsidiaries
along with the Corporation's hotel subsidiaries of Innkeepers, Inc., and
Coachman Inns of America, Inc.
Item 2. Facilities
The Corporation currently leases approximately 5,900 square feet of
office space at 301 NW 63rd Street, Suite 500, Oklahoma City, Oklahoma, as
its corporate headquarters. The Board of Directors of the Corporation
approved moving its corporate headquarters to Puerto Rico, during 1998.
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
Harbor Drive adjacent to Disneyland.
OMC has been located at the present premises since 1974. The
premises, owned by a related party, in a corporation (Cintex) controlled by
the former owner, who is also a director, are located in Guaynabo, Puerto
Rico. have an area of 142,676 square feet devoted to manufacturing, sewing,
warehousing and executive offices. The lease expired on December 31, 1997
and is renewable annually. OMC has been paying the present rental rate
since 1987. However, present plans call for relocation to another smaller
facility during 1998 under more favorable terms. LMI leases and occupies a
133,000 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, 2001 while
BMI leases 99,231 square feet in Barranquitas, Puerto Rico. All three
facilities are leased from an agency of the Government of Puerto Rico. AOE
leases 2,000 square feet in Yabucoa, Puerto Rico on a short-term basis
pending relocation to the LMI premises.
Item 3. Legal Proceedings
At December 31, 1997; 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
During the fourth quarter of the fiscal year covered by this report,
no matters were submitted to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
PRICE RANGE OF COMMON STOCK
The Corporation's Common Stock is listed for trading on the OTC
Bulletin Board under the trading symbol "CINC". The following table
reflects the range of high and low bid prices, as reported by the National
Quotation Bureau, for each quarterly period during 1997. 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, 1997 $.28 .22 .35 .25
June 30, 1997 $.21 .15625 .24 .19
September 30, 1997 $.19 .17 .23 .19
December 31, 1997 $.20 .16 .23 .19
On March 31, 1998, the bid and asked price for the Common Stock, as
reported on the OTC Bulletin Board, was $.14 and $.17 per share,
respectively. As of December 31, 1997, the Corporation had approximately
693 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,
1997 1996 1995 1994 1993
Revenues $34,844,513 $35,908,536 $67,590 $119,856 $124,686
Income (loss)
from continuing
operations (8,532,036) 1,303,330 (302,492) (1,808,805) (24,127)
Net income
(loss) (8,517,647) 1,195,615 (682,034) (2,227,655) (73,273)
Basic Income
(loss) per
common share
from continuing
operations (.34) .04 (.04) (.28) (.01)
Dividends
declared per
common share -- -- -- -- --
Balance Sheet Data:
Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
1997 1996 1995 1994 1993
Working capital
(deficiency) $(3,229,962) $4,624,026 $(5,974,250) $(1,160,886) $(387,889)
Total assets 30,653,874 30,961,641 9,587,921 1,578,095 3,092,343
Long-term debt 5,029,253 5,042,555 32,975 339,196 816,155
Total
liabilities (1) 26,740,895 18,688,739 6,357,126 1,996,025 1,841,091
Stockholders'
equity
(deficit) 3,912,979 12,272,910 3,230,795 (417,930) 1,251,252
(1) $800,499 of the total liabilities at December 31, 1997 are liabilities
related to discontinued operations.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
During the past five 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 Olympic Mills. The
operation and development of Olympic Mills are the major focus of the
Corporation. 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 purchase 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 sharing vacation sales
business. During 1995, the Corporation closed the operations of Outfitters
and discontinued the retail operations thereof. The Corporation also
elected not to exercise an option to purchase the Hotel on the Cay held by
West Indies Club Limited. During 1996 and more aggressively during 1997,
the Company incoursed the U.S. market of tee-shirts and other apparel
products. Consistent with the quest for the U.S. market the Company made
several acquisitions of apparel operations during 1997 and at the beginning
of 1998. 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 discussion 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 re-negotiated the terms of the
acquisition. As a result of this re-negotiation, the acquisition 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 were 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 totaling $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 the balance of the $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.
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 receivable
of OMC. At December 31, 1997, based on collateral, the revolving credit
line balance drawn was $9,291,557. The balance of the term loan at
December 31, 1997 was $816,680.
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
$800,499 of the accounts payable, accrued liabilities, notes payable and
long term debt of the Corporation at December 31, 1997. 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, 1997 and 1996; the Corporation had current assets of
$18,481,680 and $18,270,210 respectively. Of these current assets,
$4,594,566 were net trade accounts receivable at December 31, 1997. During
1997, the average collection period for accounts receivable was 55 days.
Also included was inventory of $12,598,053 comprised of raw materials, work
in process and finished goods. During 1997, inventory turnover was 2.6
times, below the Corporation's goal of 4. At year end, Olympic Mills was
owed payments for government incentives of $886,474.
At December 31, 1997 and 1996; current liabilities were $21,711,642
and $13,646,184 respectively. Accounts payable trade accounted for
$6,986,501 at December 31, 1997, which included a bank book overdraft of
$427,329 (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 were accrued liabilities of $1,759,340 and current
maturities of long-term debt of $12,833,077.
At December 31, 1997; the Corporation had a Current Ratio of .85 times
and a Quick Ratio of .26 times. Working capital was ($3,229,962). The
management obtained commitments from a financial government institution for
$1.5 million and is seeking, from a particular investor, an additional
investment for $2 million to replenish part of the working capital loss.
Capital Resources
December 31, 1997 compared to December 31, 1996; Total assets
decreased by $307,775 from $30,961,649 to $30,653,874; Total liabilities
increased by $8,052,156 from $18,688,739 to $26,740,895and Stockholders'
equity decreased by $8,359,931 from $12,272,910 to $3,912,979.
At December 31, 1997; the book value per share of common stock was
$.12. Debt to equity was 683%. Total asset turnover was 1.14 times.
During 1996, the Corporation repaid or refinanced notes due to the
Seller 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 which
were issued in 1997, 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
decreasing debt and increasing the paid in capital of the Corporation.
At December 31, 1997; the Corporation had Property and Equipment of
$6,929,771 (net of $2,040,472 accumulated depreciation and amortization)
which secured a loan of $816,680. The Corporation also had net intangibles
of $2,788,719, which included $1,400,000 right to use waste water plant and
$1,252,630 value of trade names. Additionally, the Corporation holds notes
receivable of $962,465.
The remaining retail subsidiaries have current liabilities of $800,499
at December 31, 1997. These subsidiaries have no operations and limited
assets. During the past year, they have been successful in settling some
of their liabilities.
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 for the year ended December 31, 1997, the results of OMC and LMI are
fully consolidated, 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 bare
little resemblance to those for previous years.
For the year ended December 31, 1997, total revenues were $34,844,513
of which $34,758,812 were net trade sales. Cost of goods sold were
$32,726,045; producing a gross margin of 6%. Operating loss was $5,739,237
and net loss from continuing operations was $8,532,036. Net loss was
$8,517,647. Loss before depreciation, amortization, interest and taxes
(EBDAIT) was $3,793,791.
In order to better understand the trends in the primary business of
the Corporation the following information is being provided. Total trade
net sales of OMC were $34,758,812; $35,826,875 and $31,184,281 for 1997,
1996 and 1995 respectively. Cost of goods sold for the same periods were
$32,726,045; $28,345,459 and $28,123,195 respectively producing gross
profit margins of 5.84%, 20.88% and 9.82% for the same periods.
LMI was a development stage company in 1996. During early 1996, LMI
began limited operations. By the end of 1997, it was in full operation two
years behind schedule and with substantial cost overruns. LMI produces
goods on contract to OMC. LMI incurred a net loss of $5,046,603 for 1997.
These lead to the reserving of a tax asset created when LMI began
operations of $1,653,000.
During 1995, the Corporation elected to close all of its retail
operations and discontinue them. Retail sales were approximately $517,000,
$1,843,000 and $54,000 in 1995, 1994 and 1993 respectively. The loss from
retail operations was $601,027; $713,887 and $30,615 in 1995, 1994 and 1993
respectively. During 1997 and 1996, the loss from discontinued operations
was $14,389 and $107,715 respectively. During 1998, the Corporation will
continue to settle the liabilities of these subsidiaries. Management is
seeking to liquidate or spin off the retail subsidiaries along with the
hotel subsidiaries.
Management has identified the reasons for the 1997 operational losses
and has concluded that they are surmountable and that the Corporation has
excellent future potential. To this end the Corporation has implemented a
growth strategy in order to diversify its sources of revenue, improve
profit margins and spread operating overhead over a larger volume of sales.
During the last half of 1997 and continuing into 1998 the Corporation and
OMC have implemented a major reorganization and reengineering to streamline
operations and cut costs.
During 1997, the Corporation made strategic acquisitions of AOE and
BMI. They both expanded the Corporation's product offering and capacity.
During 1998, the Corporation will continue to seek out additional
compatible acquisitions. Two such acquisitions, which were closed during
February and March, 1998 were respectively Tifton Textiles of Tifton,
Georgia and Laredo Apparel, Inc. of Puerto Rico. The Corporation will also
pursue the sale, spin off or liquidation of its non textile operations,
during 1998.
In August, 1997 the Corporation made major changes in the management
of OMC. The changes were made to facilitate the growth and diversification
of OMC. Dennis D. Bradford, who has served as President and Chief
Executive Officer of OMC through August 1997, continues his duties as
Chairman and Chief Executive Officer of the Corporation. He will no longer
be involved in the day to day operation of Olympic Mills. Dr. Juan B.
Aponte became Chairman and Chief Executive Officer of OMC. Dr. Aponte has
been given the task of reorganizing the company to provide flexibility
needed to implement the Olympic Mills business plan, expand operations and
bolster the management. As part of the reorganization of OMC, it has
already appointed effective in April 1998, an experienced Vice President in
charge of textile operations and a Vice President in charge of sewing
operations has been recruited and will assume his responsibilities by the
end of April 1998. Also in the early part of 1998, a new fully
computerized information system is being implemented under the direction of
an experienced Vice President of Operations and should be in place by May
1998. In addition , there has been an upgrading of the internal control
and financial systems as well a reorganization of the marketing department
to include a customer's service division. Dr. Alejandro Asmar, a director
of the Corporation has assumed the duties of Chief Operating Officer of
OMC. The Corporation and Olympic Mills plan to form a financial services
subsidiary and venture capital fund. Dr. Alejandro G. Asmar, founder and
President of AGA Business and Investment Group, and the former Chief
Operating Officer of Drexel Burnham Lambert PR, will head the Financial
Services Company. He also concentrates in the merger and acquisition area,
looking for targets both in and out of Puerto Rico.
In order to address the lack of working capital and liquidity, the
Corporation has adopted the following strategies. During the fourth
quarter of 1997 and first quarter of 1998, the Corporation has obtained
commitments and/or raised an additional $3,000,000 in new capital. OMC has
also obtained grants or commitments for an estimated additional $4,500,000
from agencies of the Puerto Rican Government. In addition, OMC has
submitted a proposal for a $4,000,000 government grant to scientifically
evaluate and improve operations, marketing strategies and for product
development. Congress Credit, OMC`s primary financial institution, has
approved an increase for OMC's working lines of credit to $18,000,000 from
$13,000,000 and to provide an additional $1,700,000 of equipment financing.
Management believes that cash from operations and capital available from
other sources along with existing credit facilities will be adequate to
enable the Corporation to meet its cash flow requirements for the next
twelve (12) months.
Management believes that the Corporation and its various textile and
apparel subsidiaries have a proven competitive advantage. Along with the
changes in operations, acquisitions and financials discussed above; the
Corporation can overcome its short term lack of working capital and
liquidity and operate profitably in the future.
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. During 1996, the prices of cotton remained
relatively stable and decreased in some months.
During 1996 and 1997, the U.S. minimum wage increased $.90. These
increases, made it necessary for Olympic Mills to adjust other wages
accordingly. The first increase in the minimum wage of $.50 occurred on
October 1, 1996, however; the labor content in manufactured products did
not increased significantly. The second increase took place in 1997 and
impaired the Company's profitability since competition did not make it
possible for OMC to transfer the increase through the price mechanism.
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, 1997 and 1996 and for the
three year period ended December 31, 1997 are contained at pages F-1
through F-36 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 52 Chairman of the Board, President and
Chief Executive Officer
Catherine A. Myers 36 Secretary
Robert E. Swain 52 Director
Jay T. Edwards 65 Director
Alejandro G. Asmar 48 Director
Juan B. Aponte 68 Director
Francisco Carvajal 84 Director
Luis Rivera-Siaca 52 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 52, 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 48, 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.
Francisco Carvajal, age 84, founded the Olympic Mills Corporation in
1949, he serves as its Chairman and had served as its Chief Executive
Officer from that time until December, 1995. He also serves as President
of America Mills, Cpor A and Estampados Deportivos. Mr. Carvajal is an
active real estate developer in the San Juan area. Mr. Carvajal through
trusts he formed is active in charitable ventures in Puerto Rico and Spain.
Dr. Juan B. Aponte, age 68, Director. Dr. Aponte is a professor of
public policy in the Graduate Department of the Interamerican University of
Puerto Rico's Metropolitan Campus, and a financial and insurance consultant
to private industry and government in Puerto Rico. Dr. Aponte has served
in various legislative and governmental advisory capacities; as Associate
Professor of Insurance in full affiliation with the Wharton School of
Finance and Commerce of the University of Pennsylvania and the University
of Puerto Rico's School of Business Administration. He was the President
of the First Federal Savings Bank of Puerto Rico; and is a past member of
the Honorary Board of Editors of the Journal of Post-Keynesian Economis.
Dr. Aponte is a member of the American Academy of Actuaries, the Conference
of Consulting Actuaries and a Chartered Life Underwriter. Dr. Aponte
received a masters degree in actuarial mathematics from the University of
Michigan and a Ph.D. in applied economics from the University of
Pennsylvania. At present, he is the Chairman of the Board, and Chief
Executive Officer of Olympic Mills Corporation.
Luis Rivera Siaca, age 52, Director. Private Real Estate Investor.
Currently President and Chief Executive Officer of Excel Caribbean, Inc., a
Real Estate Development Corporation; P.S.M. Corporation engaged in metal
parts manufacturing; Empresas Rivera Siaca, Inc., real estate; Ersplas,
Inc., plastic container manufacturing; and Wall & Building Corporation, a
real estate business.
Series AA Redeemable Preferred Stock.
The holders of the Series AA Redeemable Preferred Stock of the
Corporation, Fideicomiso Hispamer, are entitles to elect two directors to
the Board of Directors of the Corporation . The Directors so named are Juan
B. Aponte and Francisco Carvajal.
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 1997 120,000.00 -0- -0- -0-
Chairman of the Board 1996 120,000.00 -0- -0- -0-
Chief Executive
Officer 1995 120,000.00 -0- -0- -0-
Juan B. Aponte 1997 120,000.00 -0- -0- -0-
Director; President
and CEO of OMC
Alejandro G. Asmar 1997 133,000.00 -0- -0- -0-
Director,
Managing Director 1996 96,000.00 -0- -0- -0-
of OMC
Ruben Sanchez 1997 130,547.20 -0- -0- -0-
Senior Vice President
of OMC 1996 112,584.00 -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.
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, 1997. No options to purchase stock were exercised by him in
the fiscal year ended December 31, 1997.
Number of Securities Value of Unexercised
Underlying Unexercised In-The Money Options
Options at FY-End(1997) at FY-End(1997)
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
Dennis D. Bradford 13,100 $2,489
__________________
(1) Based on an asked price of $.19 per share of the Corporation's
Common Stock as quoted by the OTC Electronic Bulletin Board on December
31, 1997.
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 and Address Amount and Nature of Percent of Beneficial Ownership
of Beneficial Owner Beneficial Ownership After Offering
Francisco Carvajal 11,000,000(a) 29.6%
Box 1669
Guaynabo, PR 00970
Alejandro G. Asmar 1,800,000 8.0%
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. and
Linda D. Swain 1,721,170 8.5%
1055 Bay Esplanade
Tampa, FL 34630
Jay T. Edwards 6,150 (c) *
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
Catherine Myers 20 *
301 NW 63rd, Suite 500
Oklahoma City, OK 73116
Luis Rivera Siaca 1,500,000 5%
Calle J #20
Villa Caparra
Guaynabo, PR 00966
All officers and directors
as a group (4 persons) 17,149,978 (d) 53%
*Less than 1% of the common stock outstanding at June 30, 1995.
__________________
(a) Francisco Carvajal is beneficial owner of 500,000 shares held by
Corporation Inmobiliaria Textil; and 5,500,000 shares held by Fundacion
Carvajal as Trustee of Fideicomiso Hispamer.
(b) Includes 13,100 shares of Common Stock that may be acquired upon
exercise of employee stock options previously granted under the
Corporation's 1987 Stock Option Plan.
(c) Includes 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.
(d) 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.
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. In December, 1992 the Board of Directors agreed to serve
without compensation until further notice.
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 received a fee of
1,800,000 shares of Common Stock for providing financial advisory services
with respect to the Acquisition. In 1995, AGA also received a fee of
$112,500 from OMC for arranging a loan with respect to the Acquisition.
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
redemption 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 Corporation
(unless the court determines that indemnity would nevertheless be proper
under the circumstances).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following are filed as part of this report:
1. Consolidated Financial Statements:
Reference is made to the Index to Consolidated Financial Statements
appearing on page F-1 of this report.
2. Financial Statement Schedules
All Financial Statement Schedules are omitted as they are inapplicable or
the required information is immaterial.
3. Exhibits:
3.1 Amended and Restated Certificate of Incorporation (1)
3.2 Amended and Restated By-Laws (1)
4.1 Form of Common Stock Certificate (1)
10.1 Stock Purchase and Redemption Agreement - Olympic Mills Corporation (2)
10.2 Form of Management Contract (1)
10.3 Coachman Incorporated 1987 Stock Option Plan, with Stock Option
Agreement (1)
10.4 Coachman Incorporated Employee Stock Ownership Plan with Trust
Indenture (1)
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 April 27, 1998.
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 Officer,
Dennis D. Bradford Chief Financial Officer
and Director April 28, 1998
/s/Alejandro G Asmar Director April 28, 1998
Alejandro G. Asmar
/s/Jay T. Edwards Director April 28, 1998
Jay T. Edwards
/s/Robert E. Swain Director April 28, 1998
Robert E. Swain
/s/Juan B. Aponte Director April 28, 1998
Juan B. Aponte
/s/Francisco Carvajal Director April 28, 1998
Francisco Carvajal
/s/Luis Rivera Siaca Director April 28, 1998
Luis Rivera Siaca
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 April 27, 1998.
COACHMAN INCORPORATED
By:______________________________
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
______________________________ Chairman, Chief Executive Officer,
Dennis D. Bradford Chief Financial Officer and
Director April 28, 1998
______________________________ Director April 28, 1998
Alejandro G. Asmar
______________________________ Director April 28, 1998
Jay T. Edwards
_______________________________ Director April 28, 1998
Robert E. Swain
_______________________________ Director April 28, 1998
Juan B. Aponte
_______________________________ Director April 28, 1998
Francisco Carvajal
_______________________________ Director April 28, 1998
Luis Rivera Siaca
COACHMAN INCORPORATED
Consolidated Financial Statements
December 31, 1997 and 1996
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, 1997
and 1996, and the related statements of operations, stockholders'
equity and cash flows for each of the three 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Coachman Incorporated and subsidiaries at December
31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years then ended in conformity
with generally accepted accounting principles.
S/KPMG Peat Marwick LLP
March 11, 1998
Stamp No. 1461197 of the Puerto Rico
Society of Certified Public Accountants
was affixed to the record copy of this report.
COACHMAN INCORPORATED
Consolidated Balance Sheets
December 31, 1997 and 1996
Assets
1997 1996
Current assets:
Cash $53,710 5,541
Accounts receivable:
Trade, net of allowance for
doubtful accounts of $248,683 in 1997
and $246,129 in 1996 (notes 8 and 13) 4,594,566 4,676,459
Related parties 21,849 8,764
Other, principally government incentives 886,474 1,092,995
Notes receivable 147,761 -
Notes receivable from affiliates (note 6) 46,414 42,714
Inventories (notes 3 and 8) 12,598,053 12,246,108
Investment in equity securities (note 4) - 40,000
Prepaid expenses and other current assets,
including prepaid income taxes of $30,920
in 1997 132,853 157,629
----------- ----------
Total current assets 184,481,680 18,270,210
----------- ----------
Property and equipment (notes 5 and 8) 6,929,771 6,606,225
Intangibles (note 7) 2,788,719 3,249,786
Notes receivable (note 6):
Officer 115,282 135,266
Affiliates 350,679 356,570
Due from entity in process of being
acquired (note 18) 1,423,060 -
Investments in subsidiaries 60,315 76,038
Deferred tax asset (note 9) - 1,653,000
Debt issue costs, net of amortization of
$444,975 in 1997 and $192,304 in 1996 313,038 565,709
Other assets 191,330 48,845
----------- ----------
Total assets $30,653,874 30,961,649
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable (notes 12 and 14):
Trade (including bank overdraft of
$427,329 in 1997 and $833,923 in 1996) 6,986,501 3,489,614
Related parties (note 11) 31,272 3,734
Accrued liabilities 1,759,340 1,038,524
Current maturities of long-term debt
(notes 8 and 11) 12,833,077 8,964,942
Income tax payable (note 9) 93,227 149,370
Deferred tax liability (note 9) 8,225 -
----------- ----------
Total current liabilities 21,711,642 13,646,184
Deferred tax liability (note 9) 483,868 800,475
Long-term debt (note 8) 2,785,385 2,482,080
Minority interest in subsidiary (note 17)
1,760,000 1,760,000
----------- ----------
26,740,895 18,688,739
=========== ==========
Stockholders' equity (note 10):
Preferred stock, no par value; authorized
200,000 shares; issued and outstanding
12,901 in 1997 and 12,971 in 1996 129 130
Preferred stock, $1.00 par value;
authorized 850 shares in 1997
(none in 1996; none issued - -
Common stock, $0.005 par value; authorized
50,000,000 shares in 1997 and 25,000,000
shares in 1996; issued and outstanding
32,173,939 in 1997 and 22,670,833 in 1996 160,870 113,354
Additional paid-in capital 19,744,676 18,628,319
Common stock and warrants committed (note 2) 600,000 1,435,879
Accumulated deficit (16,232,695) (7,539,771)
Net unrealized gain/(loss) on investment
in equity securities - (5,000)
Payments towards redemption of Class AA
Preferred Stock (360,001) (360,001)
----------- ----------
Total stockholders' equity 3,912,979 12,272,910
Commitments and contingencies (notes 2, 11
and 14)
Total liabilities and stockholders'equity $30,653,874 30,961,649
=========== ==========
COACHMAN INCORPORATED
Consolidated Statements of Operations
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Revenues:
Trade net sales (note 13) $34,758,812 35,826,875 -
Other 85,701 81,661 67,590
----------- ---------- ----------
Total revenues 34,844,513 35,908,536 67,590
----------- ---------- ----------
Costs and expenses:
Cost of goods sold 32,726,045 28,345,459 -
Selling, general and
administrative
expenses (note 11) 7,857,705 5,174,911 452,123
----------- ---------- ----------
Total costs and
expenses 40,583,750 33,520,370 452,123
----------- ---------- ----------
Operating
income/(loss) (5,739,237) 2,388,166 (384,533)
----------- ---------- ----------
Other income/(expense)
(note 12):
Interest income 34,707 47,692 51,675
Interest expense (1,543,413) (1,314,633) (10,558)
Other income 93,514 - 8,260
Gain on sale of marketable
equity securities 5,290 12,046 32,664
----------- ---------- ----------
Other income/
(expense), net (1,409,902) (1,254,895) 82,041
----------- ---------- ----------
Income/(loss) before
income taxes (7,149,139) 1,133,271 (302,492)
Income tax (expense)/benefit
(note 9) (1,382,897) 170,059 -
----------- ---------- ----------
Income/(loss) from
continuing operations (8,532,036) 1,303,330 (302,492)
----------- ---------- ----------
Discontinued operations
(note 12):
Income/(loss) from operation
of discontinued
retail activities 14,389 (107,715) (131,106)
Loss from discontinued
retail activities - - (248,436)
------------ ---------- ----------
Gain/(loss) from
discontinued operations 14,389 (107,715) (379,542)
------------ ---------- ----------
Net income/(loss) $ (8,517,647) 1,195,615 (682,034)
============ ========== ==========
Net income/(loss)
applicable to
common shares $ (9,415,713) 987,059 (753,442)
============ ========== ==========
Average outstanding common
shares 27,493,218 26,569,457 9,334,313
============ ========== ==========
Basic income/(loss) per
average outstanding
common share from
continuing operations (.34) .04 (.04)
=== === ===
Basic loss per average
outstanding common
share from discontinued
operations - (.01) (.05)
=== === ===
Basic net income/(loss) per
average outstanding
common share (.34) .04 (.08)
=== === ===
See accompanying notes to consolidated financial statements.
<TABLE>
COACHMAN INCORPORATED
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997 and 1996
<CAPTION>
Payments
Unrealized Towards
Common Gain/(loss) Redemption
Preferred Stock Common Common on of
Stock Common Stock Additional and Stock Stock Marketable Class AA Accumu- Total
- --------------- ------------------- Paid-in Warrants Subscribed Subscriptions Equity Preferred lated Stockholders
Shares Amount Shares Amount Capital Capital Unissued Receivable Securities Stock Deficit Equity
- --------------- ------------------- ---------- -------- ---------- ------------- ---------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Effect of change in par
value of common stock
- - - (113,354) 113,354 - - - - - - -
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 22,670,833 113,354 18,628,319 1,435,879 - - (5,000) (360,001) (7,539,771) 12,272,910
Issuance of stock in
payment of debt or
obligations
- - 2,937,188 29,372 142,378 - - - - - - 171,750
Common stock issued,
net of issuance costs
- - 1,554,352 15,543 480,000 - - - - - - 495,543
Common stock issued to former
owner of the Olympic Group
(see note 2)
- - 5,000,000 50,000 785,879 (835,879) - - - - - -
Conversion of preferred stock to
common stock and accumulated
dividends
(70) (1) 11,566 116 2,522 - - - - - - 2,637
Effect of change in par
value of common stock
- - - (47,515) 47,515 - - - - - - -
Net realized gain on investment
in equity securities
- - - - - - - - 5,000 - - 5,000
Net loss
- - - - - - - - - - (8,517,647) (8,517,647)
Dividends on Series C,
preferred stock
- - - - (2,637) - - - - - - (2,637)
Dividends on Class AA,
preferred stock
- - - - (308,050) - - - - - - (308,050)
Dividends on Series A,
preferred stock
- - - - (31,250) - - - - - - (31,250)
Dividends on preferred
stock of subsidiary
- - - - - - - - - - (175,277) (175,277)
_______ _______ __________ _______ __________ ________ __________ _____________ __________ __________ _________ _____________
Balance, December 31, 1997
12,901 $ 129 32,173,939 160,870 19,744,676 600,000 - - - (360,001)(16,232,695) 3,912,979
======= ======= ========== ======= ========== ======== ========== ============= ========== ========== ========= =============
See accompanying notes to consolidated financial statements.
COACHMAN INCORPORATED
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Cash flows from operating
activities:
Net income/(loss) $ (8,517,647) 1,195,615 (682,034)
Adjustments to reconcile net
income/(loss) to net cash
provided by/(used in) operating
activities:
Loss from discontinued retail
activities - - 248,436
Gain on sale of marketable equity
(5,290) (12,066) (32,664)
Depreciation and amortization 1,797,546 1,640,318 1,435
Decrease/(increase) in accounts
receivable 272,707 607,736 (278,933)
Decrease/(increase) in
inventories (120,804) (2,486,755) 105,918
Decrease/(increase) in prepaid
expenses and other assets (101,986) 64,341 (41,126)
Decrease/(increase) in deferred
income tax asset 1,344,618 (289,746) -
Increase in due from entity in
process of being acquired (1,423,060) - -
Increase/(decrease) in accounts
payable and accrued liabilities 5,371,640 (142,690) 233,689
Addition of interest, legal, and
other costs related to
renegotiated long-term debt - - 7,319
Increase in income tax payable (56,143) 48,172 -
___________ _________ _________
Net cash provided by/(used in)
operating activities (1,438,419) 624,925 (437,960)
___________ _________ _________
Cash flows from investing activities:
Payments related to acquisition in
progress - (297,784) (2,113,658)
Proceeds from sales of marketable
equitable securities 50,290 51,441 117,039
Dividends received from investments
in affiliated entities - - 14,600
Collection of note receivable 38,526 - 34,023
Purchases of property and equipment (494,569) (1,399,896) -
Additions to intangibles - (1,066,233) -
Proceeds from affiliate loan
repayments - 3,349 -
Loan made to officer - (7,657) -
Loan made to affiliates (36,335) - -
Proceeds from officer loan
repayments 19,984 - -
Cash acquired in acquisition of
Olympic Group (note 2) - 500 -
____________ ____________ __________
Net cash used in investing
activities (422,104) (2,716,280) (1,947,996)
____________ ____________ __________
Cash flows from financing activities:
Proceeds from issuance of preferred
and common stock,
net of issuance costs 495,543 1,910,000 2,093,593
Payment received for subscribed,
unissued stock - 100,000 291,500
Proceeds of loan from related party - - 50,550
Payments for redemption of
preferred stock - (360,001) -
Dividends on preferred stock (426,577) - -
Proceeds of loan from third party 1,302,12 - 50,000
Net borrowings/(principal payments)
on note payable and long-term debt 537,597 497,051 (32,618)
Principal payment on borrowings
from related party - (150,000) -
_____________ ___________ __________
Net cash provided by financing
activities $ 1,908,692 1,997,050 2,453,025
_____________ ___________ __________
COACHMAN INCORPORATED
Consolidated Statements of Cash Flows, Continued
Years ended December 31, 1997, 1996 and 1995
1997 1996 1995
Net increase/(decrease) in cash $ 48,169 (94,305) 67,069
Cash, beginning of year 5,541 99,846 32,777
------------ ----------- ------------
Cash, end of year $ 53,710 5,541 99,846
============ =========== ============
Supplemental disclosure of noncash
investing and financing activities:
Net unrealized gain/(loss) on
marketable equity securities $ 5,000 28,625 23,625
============ =========== ============
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
acquisition in progress $ - - 1,627,004
============ =========== ============
Common stock subscription
receivable $ - - 100,000
============ =========== ============
Conversion of debt and accrued
interest into common and
preferred stock $ 171,750 6,585,990 -
============ =========== ============
Unpaid dividends on preferred
stock of subsidiary $ 88,000 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 and accrued dividends
to common stock $ 2,637 1,932 -
============ =========== ============
Conversion of accounts
receivable to notes receivable $ 147,761 - -
============ =========== ============
Accounts receivable acquired as part
of acquisition of net
assets of All on T-Shirts, Inc. $ 145,140 - -
============ =========== ============
Inventory acquired as part of
acquisition of net assets of All
on T-Shirts, Inc. $ 231,141 - -
============ =========== ============
Unpaid acquisition price of net
assets of All on T-Shirts, Inc.,
recorded as accounts payable 239,312 - -
============ =========== ============
Fixed assets acquired as part of
acquisition of net assets of All
on T-Shirts, Inc. $ 158,503 - -
============ =========== ============
Goodwill recorded as part of
acquisition of net assets of All
on T-Shirts, Inc. $ 139,577 - -
============ =========== ============
Note payable issued as part of
acquisition of net assets of All
on T-Shirts, Inc. $ 300,000 - -
============ =========== ============
Accounts payable assumed as part
of acquisition of net assets
of All on T-Shirts, Inc. $ 260,688 - -
============ =========== ============
Fixed assets acquired from
Phillip Van Heusen on account $ 614,704 - -
============ =========== ============
Notes payable issued to The CIT
Group in settlement of
accounts payable $ 2,031,714 - -
============ =========== ============
Issuance of committed common stock
$ 835,879 - -
============ =========== ============
Funds borrowed and lent to entity
in process of being acquired $ 302,129 - -
============ =========== ============
Supplemental disclosure of cash
payments:
Interest $ 2,156,163 1,240,926 -
============ =========== ============
Income taxes $ 125,244 59,765 -
See accompanying notes to consolidated financial statements.
COACHMAN INCORPORATED
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Organization and Summary of Significant Accounting
Policies
(a)Organization
Coachman Incorporated (Coachman) was incorporated on
February 5, 1985. During 1995, 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.
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, during
1996 and 1997, the U.S. Department of Defense.
(b)Principles of Consolidation
The accompanying 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 1997
and 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 on the 1996
net income since Caribbean Outfitters N.V. (Aruba) did
not operate during that year. The 1995 consolidated
financial statements have been retroactively restated
for the change, which resulted in a decrease in the net
loss for 1995 of $614,286 ($.07 per share).
All significant intercompany balances and transactions
have been eliminated in consolidation.
(c)Inventories
Inventories are stated at the lower of cost (first-in,
first-out method) or market.
(d)Investment Securities
Investment securities at December 31, 1996 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 No. 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.
(e)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 lease 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 is
eliminated from the respective accounts and gains or
losses on disposition are reflected in the consolidated
statement of operations.
(f)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.
Amortization expense for each of the years ended
December 31, 1997, 1996 and 1995 is summarized as
follows:
Year Amount
1997 $ 428,150
==========
1996 $ 416,928
==========
1995 $ 23,367
==========
Goodwill, which represents the excess of the purchase
price over fair value of net assets acquired, is
amortized on a straight-line basis over the expected
periods to be benefited, generally 10 years. The
Company assesses the recoverability of this intangible
asset by determining whether the amortization of the
goodwill balance over its remaining life can be
recovered through undiscounted operating future cash
flows of the acquired assets. The amount of goodwill
impairment, if any, is measured based on projected
discounted operating cash flows using a discount rate
reflecting the Company's average cost of funds. The
assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are
not achieved.
(g)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).
(h)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.
(i)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.
(j)Income/(Loss) Per Common Share
Basic income/(loss) per common share amounts are
computed by dividing net income/(loss) amounts affected
for redeemable preferred stock dividends ($898,066 in
1997 and $208,556 in 1996) by the weighted average
outstanding number of common shares including, in 1997,
the committed common shares of stock to the former
owners of the assets acquired by All on Embellishments,
Inc. (see note 18) and in 1996 the committed common
shares of stock to the former owners of the Olympic
Group (see note 2). The computation of diluted earnings
per share, which would assume the conversion of the
preferred stock of Coachman and Olympic and the exercise
of the warrants issued in 1996 in connection with the
Olympic Group acquisition, is not presented in 1997 and
1995 as the effect of the conversion of the preferred
stock and warrants issued by Coachman and the preferred
stock issued by Olympic is antidilutive. The preferred
stock of Olympic is convertible, at the option of the
holder, at a conversion ratio based upon 80% of the
average price of Coachman common stock for the twenty
trading days prior to the conversion. In 1996, the
assumed conversion of this stock did not produce any
dilution in basic earnings per share. Undeclared
preferred stock dividends of $380,562, $171,813 and
$71,408 were considered in determining net basic
income/(loss) applicable to common shares in 1997, 1996
and 1995, respectively.
(k)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.
(l)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 did not have a material
impact on Coachman's financial position, results of
operations, or liquidity.
(m)Fair Value of Financial Instruments
Coachman's financial instruments consist of cash,
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 accounts and notes
receivable, approximate fair value due to the short-term
nature of these instruments. The carrying value of
notes payable approximates fair value due to the
interest rates approximating the prevailing market rates
at December 31, 1997.
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,
1997. 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, 1997 approximates its book
value due to the interest rates approximating the
prevailing market rates at December 31, 1997.
(n)Financial Instruments and Concentrations of Credit Risk
Financial instruments that may potentially subject the
Company to concentrations of credit risk consist of
accounts and notes receivable. The majority of the
Company's business is with customers located in Puerto
Rico and the continental United States, and as such, the
Company is subject to the economies of such territories.
The Company performs credit evaluations before extending
credit to customers and generally does not require
collateral from its customers. The Company estimates an
allowance for doubtful accounts based on economic and
credit risk factors associated with the individual
customers. Actual results could differ from those
estimates.
(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.
(p)Year 2000
During 1997 the Company developed a plan to deal with
the Year 2000 problem and began converting its computer
systems to be Year 2000 compliant. The plan provides
for the conversion efforts to be completed during 1998.
The Year 2000 problem is the result of computer programs
being written using two digits rather than four to
define the applicable year. The estimated total cost of
the project is approximately $78,000.
(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 was 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:
Pro Forma
Effect of
Coachman Olympic Coachman
Actual Group Pro Forma
Revenues $ 67,590 31,184,281 31,251,871
Expenses 452,123 31,149,771 31,601,894
__________ ___________ __________
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
========== =========== ==========
Basic 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, (these shares of
stock were subsequently issued during 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 were
given accounting recognition as of December 31, 1996, since
members of the Board of Directors of Coachman owned
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 was 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 were
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 as of December 31, 1997 and 1996 and
for the years then ended, concerning the relationship
between Coachman and the Olympic Group:
Consolidating Balance
Sheets -December 31,
1997
Coachman Olympic Combined Elimina Consoli
Incorporated Group Balance tion dated
Entries Balance
Assets:
Cash $ 2,910 50,800 53,710 - 53,710
Receivables, net 30,525 5,598,276 5,628,801 - 5,628,801
Inventories 12,598,053 12,598,053 - 12,598,053
Equipment and
improvements, net 1,090 6,928,681 6,929,771 - 6,929,771
Intangibles, net - 2,788,719 2,788,719 - 2,788,719
Investments in
subsidiaries 6,245,511 - 6,245,511 (6,185,196) 60,315
Due from affiliates
and officers 814,504 2,507,380 3,321,884 (1,364,600) 1,957,284
Debt issue costs - 313,038 313,038 - 313,038
Other assets - 281,569 281,569 42,614 324,183
----------- --------- ---------- --------- ----------
$ 7,094,540 31,066,516 38,161,056 (7,507,182) 30,653,874
=========== ========= ========== ========= ==========
Liabilities and equity:
Accounts payable and
other current
liabilities 2,612,109 7,622,831 10,234,940 (1,364,600) 8,870,340
Borrowings 551,258 15,067,204 15,618,462 - 15,618,462
Deferred tax liability
18,194 473,899 492,093 - 492,093
----------- --------- ---------- --------- ----------
Total liabilities 3,181,561 23,163,934 26,345,495 (1,364,600) 24,980,895
liabilities
Minority interest - 1,760,000 1,760,000 - 1,760,000
Equity 3,912,979 6,142,582 10,055,561 (6,142,582) 3,912,979
----------- --------- ---------- --------- ----------
$ 7,094,540 31,066,516 38,161,056 (7,507,182) 30,653,874
=========== ========= ========== ========= ==========
Consolidating Statements of Operations -
Year ended December 31, 1997
Revenues:
Net sales $ - 34,758,812 34,758,812 - 34,758,812
Interest and other
revenues 218,900 14,700 233,600 - 233,600
Equity in net losses
of subsidiaries (8,764,219) (8,764,219) 8,764,219 -
----------- --------- ---------- --------- ----------
(8,545,319 34,773,512 26,228,193 8,764,219 34,992,412
----------- --------- ---------- --------- ----------
Costs and expenses:
Cost of goods sold - 32,726,045 32,726,045 - 32,726,045
Selling, general and
administrative
expenses 514,063 7,343,642 7,857,705 - 7,857,705
Interest and other
expenses 27,991 1,515,422 1,543,413 - 1,543,413
----------- --------- ---------- --------- ----------
542,054 41,585,109 42,127,163 - 42,127,163
----------- --------- ---------- --------- ----------
(9,087,373)(6,811,597)(15,898,970) 8,764,219 (7,134,751)
Income taxes
(expense)/benefit 394,449 (1,777,345) (1,382,896) - (1,382,896)
----------- --------- ---------- --------- ----------
Net loss $(8,692,924)(8,588,942)(17,281,866) 8,764,219 (8,517,647)
=========== ========= ========== ========= ==========
COACHMAN INCORPORATED
Notes to Financial Statements
</TABLE>
<TABLE>
Consolidating Balance
Sheets -
December 31, 1996
<CAPTION>
Coachman Olympic Combined Elimination Consolidated
Incorporated Group Balance Entries Balance
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 4,471 800 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 14,988,711 - 14,988,711 (14,912,673 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
____________ __________ __________ __________ __________
$ 15,771,998 31,662,233 47,434,231 (16,472,582) 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 12,272,910 14,912,673 27,185,583 (14,912,673) 12,272,910
____________ __________ __________ __________ __________
$ 15,771,998 31,662,233 47,434,231 (16,472,582) 30,961,649
============ ========== ========== ========== ==========
Consolidating Statements of Operations -
Year ended December 31, 1996
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 1,852,105 - 1,852,105 ( 1,852,105) -
____________ __________ __________ __________ __________
1,993,504 35,826,875 37,820,379 ( 1,852,105) 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
1,383,731 1,493,930 2,877,661 ( 1,852,105) 1,025,556
Income taxes (expense)/benefit (224,858) 394,917 170,059 - 170,059
____________ __________ __________ __________ __________
Net income $ 1,158,873 1,888,847 3,047,720 ( 1,852,105) 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.
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, 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
prior to 1995. 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.
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 financial statements have been
restated to reflect this change in consolidation policy.
(3) Inventories
Inventories at December 31, 1997 and 1996 were comprised
of the following:
1997 1996
Finished goods $ 7,550,433 7,068,082
Work-in-process 709,364 736,257
Raw materials 4,338,256 4,441,769
----------- ----------
$12,598,053 12,246,108
=========== ==========
(4) Investment in Equity Securities
The aggregate fair value of the investment in equity
securities at December 31, 1996 amounted to $40,000. Gross
unrealized holding gains/(losses) amounted to approximately
$(5,000) for the year ended December 31, 1996. In 1997 and
1996, the Company sold available-for-sale securities with a
share value of $40,000 and $39,000, respectively, for
approximately $50,290 and $51,000 and had a realized gain of
approximately $10,290 and $12,000, respectively.
(5) Property and Equipment
Property and equipment at December 31, 1997 and 1996 consist
of the following:
1997 1996
Machinery and equipment $ 8,541,991 7,548,828
Leasehold improvements 428,252 266,483
----------- ---------
8,970,243 7,815,311
=========== =========
Less accumulated
depreciation and
amortization 2,040,472 1,209,086
----------- ---------
Property and equipment, net $ 6,929,771 6,606,225
=========== =========
(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.
Notes receivable-affiliates consist of the following at
December 31, 1997 and 1996:
1997 1996
Coachman Inns Income Limited
Partnership (CIILP) $ 359,081 397,607
Other 38,012 1,677
--------- -------
397,093 399,284
Less current maturities 46,414 42,714
--------- -------
$ 350,679 356,570
========= =======
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 $34,707, $38,000 and $41,000 in 1997, 1996 and
1995, respectively.
(7) Intangibles
Intangibles (all relating to the Olympic Group) at December
31, 1997 consist of the following:
1997 1996
Right of use-waste water treatment
plant, net of accumulated
amortization of $560,000 in 1997 $ 1,400,000 1,680,000
and $280,000 in 1996
Tradenames, net of accumulated
amortization of $1,710,370 in 1,252,630 1,400,780
1997 and $1,562,220 in 1996
Goodwill and intellectual property
net of accumulated amortization
and impairment loss of $172,495
in 1997 and $18,778 in 1996 (see
note 18) 136,089 169,006
----------- ---------
Intangible, net $ 2,788,719 3,249,786
=========== =========
(8) Borrowings
The following debts were outstanding at December 31, 1997
and 1996:
1997 1996
Related parties:
Unsecured term loans payable to a
stockholder director and a
relative, due on December 5, 1999,
with interest at 10%. These loans
are convertible, at the option of
the creditors, into shares of stock
of Coachman at a rate of $0.20 per $ 1,000,000 -
share
Unsecured note payable to a
stockholder director, due on
demand. Interest accrued at New - 154,150
York prime rate plus 2%
6% to 9% unsecured loan payable to
various affiliates, $97,350 in 1997
due on January 1, 1999; others on 135,050 122,550
demand
Promissory note due to Corporacion
Inmobiliaria Textil (Cintex) due
and payable on December 21, 2000,
bearing interest at 7%, due 1,000,000 1,000,000
quarterly (two quarters' interest
were in arrears in 1997)
Promissory note to Fideicomiso
Hispamer due on December 21, 2000,
interest at 7%, due quarterly (two 465,000 465,000
quarters' interest were in arrears
in 1997)
Promissory note to Fideicomiso
Hispamer due and payable on
December 21, 2000, interest at 7%,
due quarterly (four quarters' 320,385 320,385
interest were in arrears in 1997)
Unrelated parties:
Term loan due on March 1, 1998,
guaranteed by Olympic Mills
Corporation. The proceeds of this
loan were lent by Coachman to
Tifton Mills, Inc. (see note 18c) 302,129 -
----------- ---------
Balance carried forward $ 3,222,564 2,062,085
=========== =========
1997 1996
Balance brought forward $ 3,222,564 2,062,085
----------- ---------
Revolving loans due to Congress
Credit Corporation (Congress)
pursuant to a loan and security 9,291,757 7,921,018
agreement (see terms on next page)
Unsecured note payable in three equal
quarterly installments, beginning
in January 1, 1998, with interest 300,000 -
at prime plus 1 1/2%
Term loan due to Congress,
collateralized by a chattel
mortgage over the Olympic Group's
property due in monthly 816,680 1,333,340
installments of approximately
$56,000 through December 1998
6% unsecured note payable to a
company, due in monthly
installments of approximately
$6,500, including interest, with 75,000 75,000
the final installment due in June
1995 (a)
Noninterest bearing unsecured note
payable to The CIT Group/Commercial
Services, Inc., due in installments
($131,714 on February 13, 1998, and
$1,900,000 in twelve monthly 1,873,382 -
installments commencing in December
1997)
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 9,079 25,579
unsecured and is guaranteed by a
stockholder board member (b)
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 30,000 30,000
rate of approximately $.15 per ----------- ----------
share
12,395,898 9,384,937
----------- ----------
Total long-term debt 15,618,462 11,447,022
Less current maturities 12,833,077 8,964,942
---------- ----------
Long-term debt, excluding current
maturities $ 2,785,385 2,482,080
=========== ==========
(a)Required payments under the unsecured note have not been
made by Coachman through December 1997. This note is
past due.
(b)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. Payments against the outstanding principal
have been made by the stockholder board member guarantor
and are reflected as accounts payable - related parties.
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 rate of 4% 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. The term loan due to
Congress is 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.
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 1987, 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 75%
license
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,
1997, 1996 and 1995, consists of the following:
1997 1996 1995
Current income tax
expense $ (38,279) (129,919) -
Deferred income tax
(expense)/benefit (1,344,618) 299,978 -
----------- ---------- ----------
Income tax
(expense)/benefit
net $(1,382,897) 170,059 -
=========== ========== ==========
The income tax effect of the temporary differences
comprising the deferred income tax (expense)/benefit for the
years ended December 31, 1997 and 1996 is as follows:
1997 1996
Net operating loss
carryforward of
Lutania Mills, Inc. $(1,653,000) 635,000
Undistributed earnings of
Olympic and Yabucoa,
and other miscellaneous 308,382 (335,022)
----------- -------
$(1,344,618) 299,978
=========== =======
The benefit of the net operating loss carryforwards have
been fully reserved at December 31, 1997 in view of existing
uncertainties as to their realization ($1,653,000), net of
reductions of the tax on undistributed earnings of Olympic
and Yabucoa ($325,157) and other miscellaneous temporary
differences ($16,775). A tax rate of 39%
was used for the valuation reserve related to the net
operating loss carryforwards of Lutania. The calculation
of the temporary difference arising from the undistributed
earnings of Olympic and Yabucoa was made using a rate of 10%
which is the applicable statutory rate for exempt companies.
The other miscellaneous temporary differences were tax
effected using the effective tax rate of 4 1/4%.
During 1997, Lutania applied for income and other tax
exemptions under the provisions of the Puerto Rico Tax
Incentives Act of 1987, as amended, and is awaiting approval
from the local taxing authorities. Management believes that
Lutania will receive the necessary approvals for the tax
exemption.
Coachman also has a deferred tax asset comprised primarily
of income tax net operating loss carryforwards. 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 $113,000, $171,000 and
$312,000, in 1997, 1996 and 1995, respectively.
Consolidated income tax expense for the years ended December
31, 1997, 1996 and 1995 differed from the amounts computed
by applying the statutory rates as a result of the
following:
1997 1996 1995
Computed "expected" tax $ - 390,000 -
expense
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 and Lutania's net
operating losses fully
provided in allowance 1,653,000 186,000 -
Income tax effect on
undistributed earnings of (308,382) 335,000 -
subsidiaries
Tax effect on nondeductible
difference on asset basis - 244,000 -
Other 38,279 (85,000) -
----------- ----------- --------
Actual income tax
expense/(benefit) 1,382,897 (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, 1997.
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, Coachman may
continue to claim the credit provided by Section 936 for the
next 10 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, 1997, Coachman has net operating loss
carryforwards of approximately $11,571,632 which, if unused,
will expire between the years 1999 and 2004. No deferred
tax asset related to these carryforwards has been recognized
in the accompanying consolidated balance sheets, since its
ultimate realization is uncertain.
At December 31, 1997, Lutania has the following net
operating loss carryforwards available to offset taxable
income, if any:
Year Amount
1999 $ 489,915
2000 467,109
2001 484,260
2002 1,024,407
2003 1,627,654
2004 5,046,602
-----------
$ 9,139,947
===========
Upon the granting of tax exemption to Lutania by the Puerto
Rico Taxing Authorities, the net available net operating
loss carryforward must be utilized over a shorter period,
presently estimated to expire in 2000. Net operating loss
carryforward not utilized by 2000 will no longer be
available to offset income of Lutania.
(10) Common and Preferred Stock
During 1997, Coachman issued 1,554,352 shares of its common
stock for $495,543 through a private placement, and
2,937,188 shares of its common stock in payment of services
owed to certain employees ($12,600) and brokerage fees
amounting to $129,778 related to private stock offerings.
During 1997, Coachman also issued 11,566 shares of
its common stock in exchange for 70 shares of preferred
shares of its stock plus accrued interests of $2,637.
Additionally, 5,000,000 shares of common stock, originally
committed to the former owner of the Olympic Group, were
issued during 1997.
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 1996 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 was given accounting recognition
as of December 31, 1996.
At December 31, 1997, 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), 3,221 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 1997, 70 shares of
Series C were converted to 11,566 shares of common stock.
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, 1997, cumulative unpaid dividends on Series
A, Series B, Series C and Series AA preferred stock totaled
approximately $686,400. There were no Series A, Series B,
Series C, and Series AA redemptions during 1997, 1996, or
1995, although $360,001 have been paid to the former owners
of the Olympic Group in anticipation of the partial
redemption of Class AA Series. During 1997, $31,250 in
dividends were paid to a holder of Series A preferred stock.
On March 3, 1997, the stockholders of Coachman approved an
increase in the number of authorized common shares of stock
to 50,000,000 and a decrease in par value to $0.005 per
share. The effect of this transaction was reflected
retroactive to 1996 in the accompanying financial
statements.
Additionally, 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. Reimbursements of these
expenses were approximately $377,000, $353,000 and $313,000
for the years ended December 31, 1997, 1996, and 1995,
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 $2,173,302 at December 31, 1997.
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, 1996.
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 $699,000 and $852,000 in 1997 and
1996, respectively.
(12) Discontinued Operations
The results of the retail sales segment have been reported
as discontinued operations in the accompanying consolidated
statements of 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 $14,444, $6,000, and $280,000, in 1997, 1996
and 1995, respectively. As of December 31, 1996, the assets
of the retail sales segment were insignificant. The
liabilities of the retail sales segment as of December 31,
1997, include approximately $529,053, $175,867 and $95,579
included in accounts payable, accrued liabilities, and
borrowings, respectively.
The 1997, 1996 and 1995 consolidated statement of operations
include an income and a (loss) from operations of
discontinued retail operations of $14,389, ($107,715) and
($131,106), respectively, and a loss from discontinued
retail activities of $248,436 in 1995. The loss from
discontinued 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
During 1997, sales to three customers accounted for
$14,186,000 and during the year ended December 31, 1996
sales to two customers accounted for $18,541,000. Accounts
receivable from those customers amounted to $1,811,000 and
$2,993,000 at December 31, 1997 and 1996, respectively.
(14) Commitments and Contingencies
During 1996 and 1995, 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
1995 and 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
$79,150 for current and past due rent at December 31, 1997.
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, 1997, 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.
At December 31, 1997, the Company is involved in certain
other claims and legal actions arising in the ordinary
course of business. In the opinion of management, the
ultimate disposition of these matters will not have a
material adverse effect on the Company's financial position,
results of operations or liquidity.
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's
subsidiary manages. As a general partner, Coachman's
subsidiary may be exposed to liability with respect to
claims asserted against the partnership.
Olympic, Yabucoa, Barranquitas and Lutania lease offices and
operating facilities under operating leases.
Rent expense under all noncancellable operating leases for
the years ended December 31, 1997, 1996, and 1995 is
summarized as follows:
Year Amount
1997 $ 996,000
============
1996 $ 919,000
============
1995 $ 413,000
============
Following is a summary of future minimum lease payments
under operating leases at December 31, 1997:
Year Amount
1998 $ 933,536
1999 303,568
2000 250,922
2001 173,652
2002 173,652
Thereafter 1,035,666
-----------
Total minimum lease payments $ 2,870,996
===========
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, Coachman is
presently not in a position to estimate the amount, if any,
by which such assessment may be overstated. In the event
that Coachman is required to pay any part of the
aforementioned assessment, Hispamer Trust, as previous
principal co-owner and principal beneficiary in the sale of
Coachman, agrees to hold Coachman 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, 1997,
1996 and 1995, 33,550 options were exercisable with an
average exercise price of $.26. No options were exercised
during 1997, 1996, or 1995.
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 1997, the
Olympic Group received or was entitled to subsidies
amounting to $909,000 which have been reflected as a
reduction of cost of goods sold in the accompanying
consolidated statements of operations.
(17) Minority Interest in Subsidiary
During 1997 and 1996, Olympic issued 2,000 and 68,400
shares, respectively, 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 ($88,000 and $36,743 were accrued at December
31, 1997 and 1996, respectively). 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.
(18) Acquisitions
(a) Pursuant to the terms of an agreement to purchase
assets, Olympic Mills Corporation acquired, on December
12, 1997, selected manufacturing assets from a nonrelated
third party for $614,704, with the understanding that
Olympic would continue operating a sweater manufacturing
operation which the seller had previously operated. As
part of the agreement the seller agreed to buy a
stipulated minimum production over a two-year period
commencing in 1998. The purchase price of the
manufacturing assets is to be paid as follows:
On January 12, 1998
At the rate of .99 cents for every sweater sold to the
seller, up to the amount of the debt.
(b) Pursuant to the terms of an agreement to purchase
assets and rights, All on Embellishments, Inc. (a wholly-
owned subsidiary of Lutania Mills, Inc.) purchased
selected net assets as follows:
Trade receivables $ 145,139
Inventory 231,141
Machinery and equipment 158,503
Goodwill and intellectual property 265,217
Less:
Trade payables assumed (including a debt
to the Olympic Group of approximately
$252,000 (260,688)
---------
Net assets acquired $ 539,312
=========
The aforementioned acquisition is to be paid as follows:
$300,000 in a note payable in three quarterly statements
beginning on January 1, 1998, with interest at prime rate plus
1 1/2%.
$239,312 in shares of common stock of Coachman
(based on assessed value of $0.40 per share or a
total of 598,280 shares at the date of the
acquisition). The stock of Coachman was quoted
at nineteen cents a share, representing a
liability of $113,673. The difference between
the stated value of the debt to the seller and
the fair value of the stock committed to be
tendered ($125,639) was reduced from the amount
of goodwill.
(c) Pursuant to the terms of an asset purchase agreement
dated February 20, 1998, between Tifton Textiles, Inc.,
and Tifton Sportswear, Inc. (`Tifton"), suppliers to the
Olympic Group, and OMC-Tifton, Inc. ("OMC-Tifton"), a
Georgia corporation organized on February 4, 1998 as a
wholly-owned subsidiary of Olympic, OMC-Tifton acquired,
in March 1998, from Tifton selected manufacturing assets
for $5,065,233 paid for with the proceeds of two loans
for $2,771,274 ($2,074,252 to OMC-Tifton, and $702,023 to
Olympic) ("the acquisition loans") and the assumption of
loans and liabilities for the remaining balance.
The assets acquired were as follows:
Land, land improvements, building, office equipment,
machinery, vehicles and leasehold improvements with a book value
of approximately $1,900,000, and an appraised value of
approximately $3.8 million;
Inventories, whose book value was estimated at approximately
$459,000;
Receivables, estimated at approximately $33,000.
The acquisition loan granted to OMC-Tifton referred to
above is payable in 34 fixed payments of $22,168 with a
balloon payment of the balance due as the 35th payment,
estimated to be $1,894,362. The acquisition loan granted
to Olympic is payable in 34 fixed payments of $7,600 and
a balloon payment of the balance due as the 35th payment
estimated at $741,387. Both acquisition loans bear
variable interest, at prime rate plus 1 1/4%, and are
collateralized (as to the first loan) with a first
mortgage on real estate, and the unsecured guarantee of
OMC-Tifton and Olympic.
Of the liabilities assumed, two were loans aggregating
$377,439 which were assumed by OMC-Tifton and modified as
follows:
$253,581 due in 58 equal monthly installments of $5,624 of
principal and interest;
$124,859 due in six monthly installments of $1,350 each, and
one final balloon payment of all principal and interest, then
owing on September 30, 1998.
Included within the liabilities of Tifton assumed by OMC-
Tifton are approximately $1,423,000 trade payables and a
loan payable to Olympic and Coachman, which although due
on a current basis by their terms, are not expected to be
collected within calendar year 1998, and consequently,
have been classified as a noncurrent receivable in the
accompanying financial statements.
(d) Pursuant to the terms of a Stock Purchase Agreement
dated February 23, 1998, Olympic acquired the stock of a
company known as Laredo Apparel, Inc. (a small operation
that manufactures and markets fashion apparel in Puerto
Rico) (Laredo) for an amount initially set at $400,000,
due and payable, as follows:
$92,000 at closing, which amount was funded with the cash
balance owned by Laredo;
$8,000 within 30 days of the agreement;
$150,000 in 15 consecutive, equal monthly installments of
$10,000 each, commencing on July 1, 1998, together with interest
on the declining balance thereof at the rate of 1 1/2% over prime;
300,000 shares of common stock of Coachman at an assumed
market value of $.50 per share.
The purchase price is subject to adjustments under
conditions in the Stock Purchase Agreement.
(19) Liquidity
At December 31, 1997, the Company had current assets of
$18,481,680 and current liabilities of $21,711,642 for a net
deficit in working capital of $3,229,962. The Company has
initiated specific actions to: (a) improve its future cash
flows through additional financing under terms that
accommodate its projected future cash flow requirements, (b)
increase its production facilities through the acquisition
of selected manufacturing assets from nonrelated third
parties, (c) maximize the utilization of existing
facilities, and thus, (d) increase sales and improve its
results of operations.
Subsequent to December 31, 1997, Congress Credit, OMC's
principal lender, increased the Company's revolving line of
credit to $18 million from $13 million and approved an
overadvance of $1,680,000 in the term loan, to be repaid by
May 27, 1998 from reloading of the term loan up to
$2,236,000, subject to an additional $2 million
capitalization (should the additional capital not be raised,
the overadvance would be repaid over a term to be agreed
upon). Additionally, the Economic Development Bank for
Puerto Rico approved, subsequent to December 31, 1997, a
Capitalization Loan (a credit facility
similar to preferred stock) in the amount of $1,500,000
repayable over a six-year period. Furthermore, incentives
approximating $4,500,000 have been approved coincident with
the acquisition of assets referred to in note 18(a). These
subsidies are intended to principally subsidize the
Company's new payroll requirements for a period of
approximately two years.
(20) Fourth-Quarter Adjustments
During the course of the fourth quarter ended December 31,
1997, the Company fully reserved the deferred tax asset
related to the net operating losses previously incurred by
Lutania ($1,653,000) as a result of the significant losses
incurred during 1997. The reserve which was established for
the net operating losses of Lutania would have been more
appropriately recorded by the end of the Company's third
quarter, inasmuch as the factors that gave rise to
establishing such reserve were present by the end of such
third quarter. Had the Company recorded this reserve by the
end of its third quarter losses reported to the Company's
shareholders for the third quarter in 1997 and for the nine-
month period then ended would have changed as follows:
As Reported Restated
Quarter Nine Quarter Nine
months months
Net loss affected by
dividends on
preferred stock $ ( 1,665,227) ( 3,670,596) ( 3,542,940) ( 5,997,013)
============= ========== ========== ==========
Basic net loss per
average
outstanding common $ (0.07) (0.16) (0.14) (0.23)
share ============= ========== ========== ==========
Average outstanding
common shares 22,688,333 22,688,333 25,988,464 25,988,464
============= ========== ========== ==========
</TABLE>
