FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended March 31, 1999
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 or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
Buchanan Office Center, 40 Road #165, Suite 212, Guaynabo, PR 00968
(Address of principal executive offices) (Zip Code)
(787) 775-1009
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) for the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ____ No __X__
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 30, 1999
Common Stock, $.01 par value 58,383,263 shares
COACHMAN INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
FS 1-A. Condensed Consolidated Balance Sheets as of Dec. 31, 1998
and March 31, 1999 4
FS 1-B. Condensed Consolidated balance sheet as of Dec. 31, 1998
and March 31, 1999 5
FS 2. Condensed Consolidated Statement of Operations Three Months
ended March 31, 1998 and 1999. 6
FS 3. Condensed Consolidated Statements of Accumulated Deficit
Dec. 31, 1897 and March 31, 1998 7
FS 5. Condensed Consolidated Statement of Cash Flows Three Months
ended March 31, 1998 and March 31, 1999 8
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 10
1. ACCOUNTING PRINCIPLES AND BASIS OF PRESENTATION 9
2. INVENTORIES 9
3. PROPERTY AND EQUIPMENT 9
4. INTANGIBLES 10
5. BORROWINGS 10
6. COMMON AND PREFERRED STOCK 13
7. RELATED PARTY TRANSACTIONS 16
ITEM 2. MANAGEMENT DISCUSSION 18
RESULTS OF OPERATIONS 18
MANAGEMENTS EXPECTATIONS FOR THE FUTURE 20
PART II - OTHER INFORMATION 20
SIGNATURES 21
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The following financial statements, in the opinion of management, reflect all
adjustments (none of which was other than a normal recurring adjustment)
necessary for a fair presentation of results of operations for such periods.
Results for interim periods should not be considered indicative of results
for a full year.
Index To Consolidated Financial Statements:
1. Condensed consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999.
2. Condensed consolidated Statements of Operations Three Months ended
March 31, 1999 and March 31, 1998.
3. Condensed consolidated Statements of Accumulated Deficit as of
December 31, 1998 and March 31, 1999.
4. Condensed consolidated Statements of Cash Flows, Six Months ended
June 30, 1999 and June 30, 1998.
5. Notes to Condensed Consolidated Financial Statements
FS 1-A. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DEC. 31, 1998 AND
MARCH 31, 1999
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Assets March 31, 1999 Dec. 31, 1998
Current assets:
Cash $ 42,267 37,965
Accounts receivable:
Trade, net of allowance for doubtful 5,125,424 5,441,656
accounts of $303,865 and $611,000
in 1998
Other, principally government incentives 2,528,685 1,769,952
Inventories 13,932,217 10,256,920
Prepaid expenses and other current assets 321,367 325,960
Deferred Tax Asset 57,293 57,293
----------- -----------
Total current assets 22,017,253 17,889,116
----------- -----------
Property and equipment 10,947,570 11,147,558
Intangibles 4,917,176 5,037,776
Investments in subsidiaries 60,315 60,315
Other assets 877,860 945,963
----------- -----------
Total assets $38,820,174 35,080,728
=========== ===========
FS 1-B. CONDENSED CONSOLIDATED BALANCE SHEET AS OF DEC. 31, 1998 AND
MARCH 31, 1999
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 1999 Dec 31, 1998
Liabilities and Stockholders' Equity/(Deficit)
Current liabilities:
Accounts payable:
Trade (including bank overdraft of
$820,227 in 1999 and $729,066
in 1998)) $ 6,296,864 5,947,512
Accrued liabilities 2,613,197 2,093,079
Current maturities of long-term debt 5,394,621 3,029,173
Current maturities of obligations
under capital lease 88,738 95,926
Income tax payable 98,490 98,490
----------- ----------
Total current liabilities 14,491,910 11,264,180
Deferred tax liability 254,993 254,993
Long-term debt 17,981,480 16,524,010
Obligation under capital lease 169,138 199,187
Minority interest in subsidiary 1,760,000 1,760,000
----------- ----------
34,657,521 30,002,370
----------- ----------
Stockholders' equity/(deficit):
Preferred stock, no par value;
authorized 200,000 shares; issued and
outstanding 6,541 in 1998 (plus 6,000
unissued) and 12,901 in 1997 125 129
Preferred stock $1.00 par value;
authorized share of 850 in 1998 and
1997; none issued
Common stock, $0.005 par value;
authorized 50,000,000 shares in 1998
and 1997; issued and outstanding
35,544,71 (plus 14,455,289 unissued)
in 1998 and 32,173,981 in 1997; 250,000 160,870
Additional paid-in capital 24,569,667 19,744,676
Common stock and warrants committed 600,000 600,000
Accumulated deficit (21,257,139) (20,341,434)
----------- -----------
Total stockholders' equity/(deficit) 4,162,653 5,078,358
----------- -----------
Total liabilities and stockholders'
equity/(deficit) $38,820,174 35,080,728
=========== ===========
See accompanying notes to condensed consolidated financial statements.
FS 2. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED
MARCH 31, 1998 AND 1999.
COACHMAN INCORPORATED
Condensed Consolidated Statements of Operations
Three Months Ended,
March 31, 1999 March 31, 1998
Net sales $ 3,484,751 7,152,221
Costs and expenses:
Cost of goods sold 2,809,270 6,141,521
Selling, general and administrative
expenses 1,028,728 1,316,249
----------- -----------
Total costs and expenses 3,837,998 7,457,770
----------- -----------
Operating income/(loss) (353,247) (305,549)
----------- -----------
Other income/(expense):
Interest expense (552,278) (437,762)
Other income (10,180) 32,449
----------- -----------
Other (expense), net (562,458) (405,313)
----------- -----------
Income /(loss) before income taxes (917,705) (710,862)
Income tax expense ----- 37,503
----------- -----------
Net income/(loss) $ (917,705) (748,365)
=========== ===========
Net income/(loss) applicable to
common shares $(1,022,555) (972,905)
=========== ===========
Average outstanding common shares 58,383,263 32,892,261
=========== ===========
Basic income/(loss) per average
outstanding common share $ (0.02) (0.03)
=========== ===========
See accompanying notes to condense consolidated financial statements.
FS 3. CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT DEC. 31, 1998
AND MARCH 31, 1999
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statement of Accumulated Deficit
March 31, 1999 Dec. 31, 1998
Balance at beginning $(20,341,434) (16,232,695)
Prior period adjustment ----- (1,177,585)
------------ -----------
Balance at Beginning Restated (20,341,434) (17,410,280)
Net loss (915,705) (2,120,639)
Dividends on preferred stock ----- (810,515)
------------ -----------
Balance at end $(21,257,139) (20,341,434)
============ ===========
FS 4. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS THREE MONTHS ENDED
MARCH 31, 1998 AND MARCH 31, 1999
COACHMAN INCORPORATED
Condensed Consolidated Statements of Cash Flows
Three Months Ended,
March 31, 1999 March 31, 1998
Cash flows from operating activities:
Net loss $ (915,705) (748,365)
Provision for doubtful accounts ----- 36,296
Depreciation and amortization 406,938 333,274
Increase in accounts receivable (425,502) (2,318,313)
Increase in inventories (3,675,927) (1,911,277)
Increase in prepaid expenses and
other assets 7,558 26,185
Liabilities 869,470 408,949
Increase in income tax payable ----- 5,583
Increase in deferred income tax liability ----- 31,166
----------- -----------
Net cash used in operating activities (3,760,168) (4,136,502)
----------- -----------
Cash flows from investing activities:
Payment related to acquisition, net ----- (80,647)
Collection of note receivable ----- 100,000
Collection of note receivable - affiliate ----- 11,688
Purchases of property and equipment (21,212) (202,967)
Loan made to officer ----- (20,000)
----------- -----------
Net cash provided/(used in) by
investing activities (21,212) (191,926)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock ----- -----
Net borrowings/(principal amortization) 3,785,682 4,277,391
----------- -----------
Net cash provided by financing activities 3,785,682 4,277,391
----------- -----------
Net increase/(decrease) in cash $ 4,302 (51,038)
Cash, Beginning of period $ 37,965 53,710
----------- -----------
Cash, End of period $ 42,267 2,672
=========== ===========
See accompanying notes to condense consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Accounting Principles and Basis of Presentation
The accompanying condensed consolidated financial statements, footnotes, and
discussions should be read in conjunction with the consolidated financial
statements, related footnotes, and discussions contained in the Company's
annual report on Form 10-K for the Fiscal Year ended December 31, 1998. In
the opinion of the Company's management, the unaudited condensed consolidated
interim financial statements reflect all adjustments necessary for a fair
presentation. Operating results for interim periods are no results that may
be expected for the fiscal year ending December 31, 1999.
2. Inventories
Inventories at March 31, 1999 and December 31, 1998 were compared as the
following:
March 31, 1999 Dec. 31, 1998
Finished Goods 7,249,584 4,968,514
Work-in-Process 442,868 330,978
Raw Materials 7,512,697 5,496,798
---------- ----------
15,205,149 16,796,290
Less provision for obsolence (757,714) (540,000)
---------- ----------
Inventory, net 14,447,435 10,562,290
========== ==========
3. Property and Equipment
Property and equipment consists of the following:
March 31, 1999 Dec. 31, 1998
Land 123,500 123,500
Building 1,483,500 1,483,500
Machinery and equipment 10,081,725 10,060,513
Leasehold improvements 432,475 432,475
----------- -----------
12,121,200 12,099,988
Less accumulated depreciation
and amortization 1,173,630 952,430
----------- -----------
Property and equipment, net 10,947,570 11,147,558
=========== ===========
On January 1998, company's management decided to take a physical inventory of
the company's property and equipment to revise the useful lives and salvage
value estimates of the existing depreciable assets acquired before December
31, 1997. As a result of this change in accounting estimate, depreciation
expense for the three-month period was $88,395 below what it would have been
if computed under the previous useful lives and salvage value estimates.
4. Intangibles
Intangibles consist of the following:
March 31, 1999 Dec. 31, 1998
Right of use-waste water treatment
plant, net of accumulated
amortization of $980,000 in 1999
and $910,000 in 1998 1,050,000 1,120,000
Trade names, net of accumulated
amortization of $1,895,558 in 1999
and $1,858,521 in 1998 1,067,443 1,104,480
Goodwill and intellectual property,
net of accumulated amortization of
$88,715 in 1999 and $75,152 in 1998 2,799,733 2,813,296
----------- -----------
4,796,576 5,037,776
=========== ===========
5. Borrowings
The following debts were outstanding:
March 31, 1999 Dec. 31 1998
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 share 1,000,000 1,000,000
6% to 9% unsecured loan payable to
various affiliates, $97,350 due on
January 1, 1999; others on demand 137,050 137,050
Promissory note due to Corporacion
Inmobiliaria Textil (Cintex) due
and payable on December 21, 2000,
bearing interest at 7%, due quarterly
(four quarters' interest were in
arrears in 1998) (two in 1997) 1,000,000 1,000,000
Promissory note to Fideicomiso Hispamer
due on December 21, 2000, interest at
7%, due quarterly (four quarters'
interest were in arrears in 1998)
(two in 1997) 465,000 465,000
Promissory note to Fideicomiso Hispamer
due and payable on December 21, 2000,
interest at 7%, due quarterly (six
quarters' interest were in arrears in
1998) (four in 1998) 320,385 320,385
10.5% unsecured note to a related party 126,706 126,706
10% unsecured note to a stockholder
director 500,000 ------
Unsecured note to a related party,
bearing interest at an annual rate
of 6% due in monthly installments
of $2738.00 90,000 90,000
Unsecured note payable in monthly
installments of $10,000 commencing
of July 1, 1998 plus interest at 1.5%
over prime due in September 1999 130,000 130,000
Unrelated parties:
Revolving loans due to Congress Credit
Corporation (Congress) pursuant to a
loan and security agreement (see
terms below) due in 2001 11,082,396 10,476,480
Unsecured note payable in three equal
quarterly installments, beginning in
January 1, 1998, with interest at
prime plus 1 1/2% 200,000 200,000
Term loan due to Congress,
collateralized by a chattel mortgage
over the Olympic Group's property due
in monthly installments of approximately
$56,000 through June 2001 1,736,001 1,902,667
6% unsecured note payable to a company,
due in monthly installments of
approximately $6,500, including
interest, with the final installment
due in June 1995. 25,000 75,000
Non-interest 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 installments
commencing in December 1997) 256,668 256,668
11.5% note payable to a bank from
Caribbean Outfitters, Inc., due in
monthly installments, including
interest, with the final installment
due in January 1997. The note is
unsecured and is guaranteed by a
stockholder board member. 9,079 9,079
13% unsecured note payable to an
unrelated party with interest and
principal due January 1998, as amended.
The note contains provisions permitting
settlement through the issuance of
Coachman common stock assuming a
conversion rate of approximately
$.15 per share 30,000 30,000
Loans payable to a bank in 34 fixed
payments of $22,168 and a final payment
of the remaining unpaid balance due on
February 5, 2001 bearing interest at
prime rate plus 1 1/4%. The loans are
collateralized with a first mortgage
on real estate, and the unsecured
guarantee of OMC-Tifton and Olympic. 2,028,175 2,048,888
Loans payable to a bank in 34 fixed
payments of $7600 and a final payment
of the remaining unpaid balance due on
February 5, 2001 bearing interest at
prime rate plus 1 1/4%. The loans
are collateralized with a first mortgage
on real estate, and the unsecured
guarantee of OMC-Tifton and Olympic. 768,929 772,120
Unsecured note payable in four monthly
installments beginning on April 27,
1998 with interest at prime rate plus 2% ----- 28,750
Unsecured loan payable to a bank, due
in monthly installments of $5,624,
bearing interest at 10 3/4% 213,473 224,567
Unsecured loan payable to a bank, due
in monthly installments of $1,199
beginning on April 15, 1998 bearing
interest at an annual rate of 7.5% 57,239 59,823
7.35% note payable to Commercial Bank
due on payable on July 26, 1999
collateralized by certificate in
deposit of a related party 200,000 200,000
Unsecured loan payable to Governmental
Development Bank of Puerto Rico
payable on 60 monthly installments
of $50,000 plus interest at an
annual rate of 7.75% 3,000,000 -----
---------- ----------
Total long-term debt 23,376,101 19,553,183
Less current maturities 5,394,621 3,029,173
---------- ----------
Long-term debt, excluding
current maturities 17,981,480 16,524,010
========== ==========
On December 21, 1995, the Olympic Group entered into a loan and security
agreement with Congress providing a maximum credit of $15,000,000. On
June 4, 1998, the loan and security agreement was amended to provide a
maximum credit of $18,000,000 for a term ending on June 2001. On August 5,
1998, a permanent increase in Olympic's credit line to $20,000,000 was
granted.
The agreement provides the followings financing arrangements and financial
accommodations:
Congress will provide revolving loans subject to certain limitations up to a
maximum amount of $17,764,000, letter of credit accommodations and a
$2,236,000 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 $90,000 while
the agreement is in effect. An unused line fee will be charged to the
Olympic Group at a rate of one half of one (0.50%) percent per annum calculated
upon the amount by which $15,500,000 exceeds the average daily principal
balance of the outstanding revolving loans and letter of credit accommodations
during the immediately preceding month. The agreement provides for a first
chatter mortgage on most of 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.
The revolving loans may be borrowed up to eighty percent (80%) of the net
amount of eligible accounts receivable, as defined, plus up to fifty percent
(50%) of the value of eligible inventory of raw materials and finished goods.
Interest is payable on the outstanding principal amount at a 4.25% 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, 1998, the Olympic Group was being
charged at 9.77%.
The agreement contains various financial and non financial covenants for
which the Olympic Group has complied except certain covenants for which a
waiver was obtained.
6. Common and Preferred Stock
During 1998, Coachman issued 2,772,450 share of its common stock in connection
with the preferred stock redemption agreement executed on May 14, 1998
between Coachman and Fideicomiso Hispamer ("Hispamer") and 598,280 shares of
its common stock in connection with the asset purchase agreement of All On
Embellishments, Inc. In addition, the Company has not issued a total of
15,000,000 shares of its common stock in relation to the $2,000,000 capital
investment of one of the Board of Director's member and 7,500,000 shares in
relation to the Hispamer Trust note of $1,000,000 issued on June 4, 1999/8,
that was to be paid on December 4, 1998 with stock issuance. Also, 300,000
shares of common stock to be issued in lieu of payment of the Laredo Apparel,
Inc. stock purchase agreement have not been issued. The issuance of these
shares of stock will require an amendment to the Articles of Incorporation
and related authorized capital, which as of December 31, 1998 amounted to
50,000,000 common shares. Accordingly the excess of 8,344,711 common shares
over the authorized shares of 50,000,000 which amounts to $1,222,624 has been
presented as additional paid-in capital as of December 31, 1998.
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
$1000 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 per
shares. 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 and June 10, 1999.
On May 14, 1998, Coachman Incorporated and Fideicomiso Hispamer ("Hispamer")
entered into a preferred stock redemption agreement in which Hispamer
redeemed 6,360 Class AA 10% cumulative preferred stock with a stated value of
$1,000 in exchange for 2,772,450 shares of common stock of Coachman and a
promissory note of $6,679,279 (including $679,279 in cumulative unpaid
dividends) having a final maturity of May 14, 2004. Hispamer continues to
hold 161 preferred shares after such redemption. In consideration for the
covenants agreed to above, Hispamer will waive the monthly redemption premium
accrued up to that date. The waiver of the 50% redemption premium accrued
as of May 14, 1998, represented a reduction in the obligations of $540,000.
In consideration of the redemption premium waived by Hispamer, Coachman
agrees to make gifts to Hispamer Trust for at least $50,000 annually during
a period of 10 years provided that in each of the said years Coachman and its
subsidiaries have complied with the payment of all of its obligations,
including the Bank Notes and the Hispamer Notes and Coachman's net income on
a consolidated basis exceeds $1,000,000. Retroactive to May 14, 1998, the
Company entered into an agreement in which the promissory note balance of
$6,679,279 was converted into 6,000 unissued shares of Class AA preferred
stock with the difference over the authorized preferred stock Class AA of
$679,279 included as additional paid-in capital as of December 31, 1998.
At December 31, 1998, 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 6,161 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; 161 preferred shares, Series AA have a liquidation
preference of $1,000 plus accrued but unpaid dividends plus a 1% cumulative
monthly premium.
The holder 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
companies, (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 lender
on a monthly basis.
Dividends, when, as 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 39, 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
opinion 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 stock were convertible at any
time prior to December 31, 1996, at the opinion 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 adjustments in certain
events. During 1998, no preferred stocks were converted to shares of common
stock. 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 dividends 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
Series A, Series B or Series C preferred stock are paid current. The sale and
transfer of all three series 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, 1998, cumulative unpaid dividends on Series A, Series B,
Series C, and Series AA preferred stock totaled approximately $313,288.
There were no Series A, Series B, and Series C redemptions during 1998, 1997
or 1996. Dividends of $18,904 in 1998 and $31,250 in 1997 were paid to a
holder of Series A preferred stock. During 1996, $360,001 has been paid to
the former owners of the Olympic Group in anticipation of the partial
redemption of Class AA Series.
On March 3, 1998, 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 $0.0005 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.
7. Related Party Transactions
In addition to the management fees, Coachman is also reimbursed for direct
administrative fee 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 $386,000 for the year
ended December 31, 1998.
Coachman, one of its subsidiaries (sold in December 15, 1998) and an officer
of Coachman are guarantors on certain debt of CIILP, collateralized by real
estate and owned by the latter. The outstanding balance of the debt amounted
to approximately $2,173,302 at December 31, 1997. Coachman also holds a
second mortgage on said real estate.
A stockholder guarantees the debt of the Olympic Group to Congress up to
$2,500,000.
During 1995, a consulting company whose president and principal stockholder
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, paid in 1997.
Until September 1998, Olympic leased 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 $395,823,
$699,000 and $852,000 for 1998, 1997 and 1996, respectively.
ITEM 2. MANAGEMENT DISCUSSION
Material Changes in Financial Condition.
March 31, 1999 Compared to December 31, 1998
Since its acquisition of the outstanding stock of Olympic Mills Corporation
"OMC" and Lutania Mills Inc. "LM" (together "Olympic Mills") on December 21,
1995, the Corporation's focus has been concentrated on Olympic Mills, its
affiliates and subsidiaries. Consequently, the analysis of the Corporation's
financial condition and results of operations that follows refers primarily
to the results of operations of these companies.
During the period, current assets increased by $4,128,137, caused by a
decrease in trade receivables (net of an allowance of $303,865 for doubtful
accounts of $316,232; offset by an increase in inventories of $3,675,297
these are normal variations caused by the nature of the Company's business.
Current liabilities increased by $3,227,730 due primarily to increases in
accounts payable trade of $349,352, current maturities of long term debt of
$2,365,448, accrued liabilities of $520,118, current obligations under
capital lease increased $7,188. The current ratio was 1.53:1 approximately
equal to the 1997 year-end eartio of 1.58:1; and approaching the Company's
goal of 2:1.
During the period, total assets increased by $3,739,289 and total liabilities
increased by $4,655,151. At the end of the period assets were 1.12 times
liabilities.
During the period the Company borrowed $500,000 from a shareholder and
director on an unsecured note.
Also, during the period the Company was advanced $3,000,000 on a loan from the
Government Development Bank of Puerto Rico. The 60-month loan bears an
interest rate of 7.75%.
RESULTS OF OPERATIONS
For three month period ended June 30, 1999 compared to the same periods of
1998. For the three months ended June 30, 1999, the Corporation had a net
loss of $1,022,555 ($0.02 per share), compared to a net loss of $972,905)
($0.03 per share) for the same period of 1998.
Revenues decreased by $3,667,650 for the period. The decrease in revenues
was due primarily to lower than anticipated production and sales during the
first quarter attributable to the capital shortage and the loss of inventory
and economic downturn in Puerto Rico caused by Hurricane Georges. The
Company is also shifting its sales and production to lower volume and
higher margin goods. This attributed for the small changes in income
compared to sales.
During the three month period ended in March 31, 1999, selling, general, and
administrative expenses were reduced by $287,521 when compared to the same
period of 1998.
A downward trend similar to the one reported above in the ratio of selling,
general and administrative expenses to trade net sales was observed in the
ratio of cost of goods sold to trade net sales during the periods under
comparison. For the three month period ended March 31, 1999, cost of goods
sold were $3,332,251 less than than the same period of 1998.
These trends are expected to continue as the Company continues to refund its
product mix.
MANAGEMENT'S EXPECTATIONS FOR THE FUTURE
It is management's opinion that the changes implemented will allow the company
to turnaround its financial results and return to profitability.
The Company will continue to move from low margin commodity goods into the
manufactur and distribution of higher margin specialty goods. This will be
done through strategic alliances and acquisitions.
Although Management is committed to do its best efforts to achieve the above,
it acknowledges that the Corporation's operations are subject to market
uncertainties and that there are no assurances that the expected results
will be attained.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Other than stated below, the Corporation is not a party to any current,
pending or threatened material legal proceedings. The Corporation's
subsidiary Caribbean Outfitters, Inc. is a party to a number of suits
related to the closing of all Retail Operations. In the opinion of
management none of these will effect the corporation.
SIGNATURES
FORM 10-Q
Pursuant to the requirements 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.
COACHMAN INCORPORATED
(Registrant)
October 14, 1999 By: /s/ Dennis D. Bradford
Dennis D. Bradford
Chief Financial Officer
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