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 June 30, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
Bucannan 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, 1998
Common Stock, $.01 par value 16,086,981 shares
COACHMAN INCORPORATED
AND SUBSIDIARIES
Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.
Financial Statements (unaudited)
Condensed Consolidated Balance Sheets-
June 30, 1998 (unaudited) and December 31, 1997
Condensed Consolidated Statements of Operations-
Six months ended June 30, 1998 and 1997
(unaudited)
Condensed Consolidated Statements of Operations-
Three months ended June 30, 1998 and 1997
(unaudited)
Condensed Consolidated Statements of Cash Flows-
Six months ended June 30, 1998 and 1997
(unaudited)
Notes to Condensed Consolidated Financial
Statements (unaudited)
Item 2.
Management's Discussion and Analysis of Results
of Operations and Financial Condition
PART
II. OTHER INFORMATION
Item 5 Other Information
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
Condensed consolidated Balance Sheets as of December 31, 1997 and June 30, 1998.
Condensed consolidated Statements of Operations Three Months ended June 30,
1998 and 1997.
Condensed consolidated Statements of Operations Six Months ended June 30, 1998
and 1997.
Condensed consolidated Statements of Accumulated Deficit as of December 31, 1997
and June 30, 1998.
Condensed consolidated Statements of Cash Flows, Six Months ended June 30, 1998
and 1997.
Notes to Condensed Consolidated Financial Statements
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30, December 31,
Assets 1998 1997
Current assets:
Cash $ 2,672 53,710
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$303,865 in 1998 and $248,683 in 1997 12,160,782 4,594,566
Related parties 17,004 21,849
Other, principally government incentives 409,845 886,474
Notes receivable 0.00 147,761
Notes receivable from affiliates 35,702 46,414
Inventories 13,292,801 12,598,053
Prepaid expenses and other current assets,
including prepaid income taxes of $30,920
in 1998 and 1997 448,014 132,853
Total current assets 26,366,820 18,481,680
Property and equipment 11,344,051 6,929,771
Intangibles 4,723,436 2,788,719
Notes receivable:
Officer 145,282 115,282
Affiliates 334,250 350,679
Due from entity in process of being acquired 0.00 1,423,060
Investments in subsidiaries 60,315 60,315
Debt issue costs, net of amortization
of $577,835 in 1998 and $ 444,975 in 1997 287,725 313,038
Other assets 122,032 191,330
Total assets 43,383,911 30,653,874
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Liabilities and Stockholders' Equity/(Deficit)
June 30, December 31,
1998 1997
Current liabilities:
Accounts payable:
Trade (including bank overdraft of $315,928
in 1998 And $427,329 in 1997) $ 4,570,153 6,986,501
Related parties 55,162 31,272
Accrued liabilities 2,554,971 1,759,340
Current maturities of long-term debt 18,767,796 12,833,077
Current maturities of obligations under
capital lease 66,340 0.00
Income tax payable 118,093 93,227
Deferred tax liability 12,754 8,225
Total current liabilities 26,145,269 21,711,642
Deferred tax liability 539,133 483,868
Long-term debt 9,170,246 2,785,385
Obligation under capital lease 206,673 0.00
Minority interest in subsidiary 1,760,000 1,760,000
37,821,321 26,740,895
Stockholders' equity/(deficit):
Preferred stock, no par value; authorized
200,000 shares; issued and Outstanding 6,541
in 1998 and 12,901 in 1997 65 129
Equity notes received in exchange for
6,360 redeemed Class AA Preferred stock (note 6) 6,679,290 0.00
Common stock, $0.005 par value;
authorized 50,000,000 shares; issued and
outstanding 35,844,711 in 1998 and 32,173,939
in 1997 (15,000,000 additional shares are
commited to be issued in 1998 pending
approval by the shareholders) 254,222 160,870
Additional paid-in capital 15,456,128 19,744,676
Common stock and warrants committed 600,000 600,000
Accumulated deficit (17,427,115) (16,232,695)
Payments towards redemption of
Class AA Preferred Stock 0.00 (360,001)
Total stockholders' equity/(deficit) 5,562,590 3,912,979
Total liabilities and stockholders'
equity/(deficit) $ 43,383,911 30,653,874
See accompanying notes to condensed consolidated financial statements.
COACHMAN INCORPORATED
Condensed Consolidated Statements of Operations
Three Months Ended,
June 30, June 30,
1998 1997
Revenues:
Trade net sales $ 11,481,501 11,076,794
Other 22,151 21,352
Total revenues 11,503,652 11,098,146
Costs and expenses:
Cost of goods sold 8,561,742 10,671,737
Selling, general and administrative expenses 1,895,809 2,175,786
Total costs and expenses 10,457,551 12,847,523
Operating income/(loss) 1,046,101 (1,749,377)
Other income/(expense):
Interest income 10,336 5,730
Interest expense (751,625) (392,119)
Other income 23,671 227,617
Gain on sale of assets 0.00 56,646
Other (expense), net (717,618) (102,126)
Income /(loss) before income taxes 328,483 (1,851,503)
Income tax expense 41,577 0
Net income/(loss) $ 286,906 (1,851,503)
Net income/(loss)
applicable to common shares $ 206,891 (2,076,285)
Average outstanding common shares $ 36,357,443 23,853,902
Basic income/(loss) per average
outstanding common share $ 0.01 (0.09)
See accompanying notes to condensed consolidated financial statements.
COACHMAN INCORPORATED
Condensed Consolidated Statements of Operations
Six Months Ended,
June 30, June 30,
1998 1997
Revenues:
Trade net sales $ 18,612,900 19,077,165
Other 42,973 40,090
Total revenues 18,655,873 19,117,255
Costs and expenses:
Cost of goods sold 14,712,953 17,172,263
Selling, general and administrative expenses 3,212,058 3,636,994
Total costs and expenses 17,925,011 20,809,257
Operating income/(loss) 730,862 (1,692,002)
Other income/(expense):
Interest income 22,949 17,504
Interest expense (1,189,387) (712,735)
Other income 43,507 404,745
Gain on sale of assets 0.00 56,646
Other (expense), net (1,122,931) (233,840)
Loss before income taxes (392,069) (1,925,842)
Income tax expense 79,080 59,800
Net loss $ (471,149) (1,985,642)
Net loss applicable to common shares $ (775,704) (2,210,424)
Average outstanding common shares $ 36,357,443 22,688,333
Basic net loss per average outstanding
common share $ (0.02) (0.10)
See accompanying notes to condensed consolidated financial statements.
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statement of Accumulated Deficit
June 30, December 31,
1998 1997
Balance at beginning $ 16,232,695) (7,539,771)
Net
income (498,771) (8,517,647)
Dividends on preferred stock of subsidiary (695,649) (175,277)
Balance at end $ (17,427,115) (16,232,695)
COACHMAN INCORPORATED
Condensed Consolidated Statements of Cash Flows
Six Months Ended,
June 30, June 30,
1998 1997
Cash flows from operating activities:
Net loss $ (471,149) (1,985,642)
Adjustments to reconcile net loss to net cash
provided used in operating activities:
Provision for doubtful accounts 55,182 0
Depreciation and amortization 748,173 1,711,823
Increase in accounts receivable (7,071,932) (1,303,037)
Increase in inventories (616,759) (1,340,762)
Increase in prepaid expenses and other assets (243,813) (1,722,795)
Decrease/(increase) in deferred income tax asset
Increase in due from entity in process of
being acquired
Increase/(decrease) in accounts payable
and accrued liabilities (3,388,896) 4,088,696
Increase in income tax payable 24,866 0
Increase in deferred income tax liability 59,794 0
Net cash used in operating activities (10,904,534) (551,717)
Cash flows from investing activities:
Payment related to acquisition, net (80,647) 0
Collection of note receivable 147,761 0
Collection of note receivable - affiliate 0.00 160,712
Purchases of property and equipment (545,986) 0.00
Additions to intangibles 0
Loan made to officer (30,000) 0.00
Proceeds from officer loan repayments 27,141 0.00
Net cash provided by/(used in)
investing activities (481,731) 160,712
Cash flows from financing activities:
Proceeds from issuance of common stock 2,000,000 0.00
Proceeds of loan from third party 0 0
Net borrowings/(principal amortization) 9,335,227 389,034
Net cash provided by financing activities 11,335,227 389,034
Net decrease in cash $ (51,038) (1,971)
Cash, beginning of period $ 53,710 5,541
Cash, end of period $ 2,672 3,570
See accompanying notes to condensed consolidated financial statements.
COACHMAN INCORPORATED
AND SUBSIDIARIES
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, 1997. 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 not necessarily indicative of
the results that may be expected for the fiscal year ending
December 31, 1998.
(2) Inventories
Inventories consist of the following:
June 30, December 31,
1998 1997
Finished goods $ 8,122,505 7,550,433
Work-in-process 575,824 709,364
Raw materials 4,594,472 4,338,256
$13,292,801 12,598,053
(3) Property and Equipment
Property and equipment consists of the following
June 30, December 31,
1998 1997
Land $ 123,500 -
Building 1,483,500 -
Machinery and equipment 9,538,105 8,541,991
Leasehold improvements 362,746 428,252
Equipment under capital lease 194,000 -
11,701,851 8,970,243
Less accumulated depreciation
and amortization 357,800 2,040,472
Property and equipment, net $ 11,344,051 $ 6,929,771
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 six-month period was $351,200 below what it
would have been if computed under the previous useful lives and
salvage value estimates.
(4) Intangibles
Intangibles consist of the following:
June 30, December 31
1998 1997
Right of use-waste water treatment
plant, net of accumulated
amortization of $700,000 in 1998 and
$560,000 in 1997 $1,260,000 $1,400,000
Trade names, net of accumulated
amortization of $1,784,446 in 1998
and $1,710,370 in 1997 1,178,554 1,252,630
Goodwill and intellectual property,
net of accumulated amortization of
$48,227 in 1998 and accumulated
amortization and impairment loss of
$172,495 in 1997 2,284,882 136,089
$4,723,436 $2,788,719
(5) Borrowings
The following debts were outstanding:
Related parties:
June 30, December 31
1998 1997
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 137,050 135,050
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
Note payable to Fideicomiso Hispamer
due on November 29, 1998, bearing
interest at 12% due monthly. This note
is convertible into shares of common
stock of Coachman at a rate of $0.13
per share 1,000,000
Borrowings due to related parties 9,982,435 2,920,435
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. - $302,129
Revolving loans due to Congress Credit
Corporation (Congress) pursuant to a
loan and security agreement (see terms
on page 8) 15,420,432 9,291,757
Unsecured note payable in three equal
quarterly installments, beginning in
January 1, 1998, with interest at prime
plus 1 1\2% 300,000 300,000
Term loan due to Congress,
collateralized by a chattel mortgage
over the Olympic Group's property due
in monthly installments. 2,386,000 816,680
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. 75,000 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) 991,668 1,873,382
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 $29,768 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. 2,843,517
Unsecured note payable to an unrelated
party, due in monthly installments of
$10,000 commencing on July 1, 1998 with
interest at prime plus 1 1\2% 150,000
Unsecured loan payable to a bank, due
in monthly installments of $5,624,
bearing interest at 10 _% 243,433
Unsecured loan payable to a bank, due
in monthly installments of $1,350 and a
final payment of the remaining unpaid
balance on September 30, 1998. The
loan bears interest at 10 1/4% 122,159
Loan payable to the Economic
Development Bank for Puerto Rico (see
terms on page 10) 500,000
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% 63,071
Unsecured loan payable to a bank
bearing interest at an annual interest
rate of 8.55% 50,000
Note payable to an unrelated party in
three monthly installments beginning
May 23, 1998. The note bears interest
at prime rate plus 2% 161,250
Borrowings due to unrelated parties 23,345,609 12,698,027
Total long-term debt 27,938,042 15,618,462
Less current maturities 18,767,796 12,833,077
Long-term debt, excluding current
maturities $ 9,170,246 $ 2,785,385
The Olympic Group has a loan and security agreement with
Congress Credit Corporation (Congress) providing a maximum
credit of $15,000,000 (presently $18,000,000). The agreement
provides the following financing arrangements and financial
accommodations:
Congress provides revolving loans subject to certain limitations
up to a maximum amount of $14,764,000, letter of credit
accommodations up to a maximum amount of $1,000,000 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 $75,000 while the agreement is in
effect. An unused line fee is charged to the Olympic Group at a
rate of .50% over the excess of $14,764,000 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' 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.
The agreement contains various financial and non-financial
covenants with which the Olympic Group has not complied as of
June 30, 1998.
On May 14, 1998, Olympic entered a term loan agreement amounting
to $1,350,000 with the Economic Development Bank for Puerto Rico
(EDB). The proceeds of the loan shall be used to repay the
interim secured loan due to EDB amounting to $500,000 while the
remaining portion will be used for working capital purposes.
The loan principal shall be amortized in quarterly installments
commencing on July 1, 2001 through its remaining term as
follows:
Payment Dates Amortization as a Percentage
of
Outstanding Balance
July 1, 2001 to April 1, 2002 30% of the debt balance on
May 31, 2001
July 1, 2002 to April 1, 2003 50% of the debt balance on
May 31, 2002
July 1, 2003 to April 1, 2004 100% of the debt balance on
May 31, 2003
Interest is payable quarterly commencing on July 1, 1998 as
follows:
Date Interest Rate
May 14, 1998 to May 14, 2001 Prime rate plus 350 basis points
May 15, 2001 to May 14, 2004 Prime rate plus 650 basis points
At the option of Olympic Mills, up to 50% of the interest
payable on the note for the first quarters can be capitalized in
a note payable to EDB due on May 14, 2004. The capitalization
note shall bear interest at 100 basis points above the interest
rate payable at such time on the note.
Coachman and various affiliates guarantee the payment of all
amounts payable to EDB under the agreement.
(6) Common and Preferred Stock
On May 14, 1998, 6,360 Class AA preferred shares of stock of
Coachman with a redemption value of $1,000 per share, plus
cumulative dividends and a redemption premium, were redeemed in
exchange for a subordinated capital note. Amounting to
$6,000,000 plus 679,290, for accumulated dividends and premium,
and the issuance of 2,772,450 shares of common stock of
Coachman.
(7) Adoption of New Accounting Pronouncement
The Company has adopted the provisions of FASB 128 for fiscal
year 1997. Under the provisions of FASB 128 the Company is
required to report earnings/(losses) per share under the
following two concepts (i) basic earnings/(losses) per share
and (ii) diluted earnings/(losses) per share. Under the diluted
earnings/(losses) per share method, the Company must consider in
the computation of earnings/(losses) per share the effect of all
dilutive common shares that were outstanding for the period,
including the number of common shares that would have been
issued and outstanding, if the stock options granted by the
Company for the period under the plan had been exercised.
Nevertheless, if the effect of considering the potential common
shares results in the computation being antidilutive then the
FASB required that the Company present basic earnings/(losses)
per share only. The Company has reported losses for both the
1998 and 1997 interim periods, therefore it does not include the
potential common shares in the computation of loss per share
since this would result in an antidilutive computation of such
loss per common share. Therefore, the Company's reported basic
and diluted earnings/(losses) per share is the same. Potential
common shares outstanding at June 30, 1998 which could, in the
future enter into the computation of diluted earnings/(losses)
per share amount to 36,666,667 shares.
(8) Income Tax
The Company recorded a current income tax expense of $19,283 and
a deferred income tax expense of $59,797 for the six month
period ended June 30, 1998. The current income tax expense for
the six month period ended June 30, 1997 amounted to $59,800.
(9) Related Party Transactions
The following are transactions between the Company and
subsidiaries, and other related parties, for the six month
periods ended June 30, 1998 and 1997.
(i) Coachman, one of its subsidiaries, and an officer are
guarantors on certain debt of Coachman Inns Income Limited
Partnership which is collateralized by real estate. The
outstanding balance of the debt amounted to approximately
$ 2,173,302 at June 30, 1998. Coachman also holds a
second mortgage on the real estate.
(ii) Olympic leases its office and manufacturing facilities
from one of Coachman's stockholders under a yearly
renewable lease agreement. Total rent expense under such
lease amounted to approximately $ 338,160, for each of the
six month periods ended June 30, 1998 and 1997,
respectively.
(10) Contingencies
During 1996 and 1995, Coachman leased retail facilities under
operating leases with varying expiration dates. 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 June 30, 1998. 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.
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.
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.
(11) 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 ($132,000 and $88,000 were
accrued at June 30, 1998 and 1997, 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
share 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
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Material Changes in Financial Condition.
June 30, 1998 Compared to December 31, 1997
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 second quarter, the Corporation managed to improve performance in two
areas that had seriously impairedits operations during the first quarter:
(1) the conversion to a new management information system was substantially
advanced resulting in improved financial control and reporting; and (2) a
capital infusion of $4,000,000 dollars was obtained which relieved part of
the working capital shortage. The capital infusion consisted of: (1) a
capital loan of $1,500,000 from the Economic Development Bank (EDB) of which
$500,0000 had been advanced in the first quarter; and (2) a $3,000,000
investment from two stockholders (Mr. Luis Rivera Siaca, $2,000,000; and
the Hispamer Trust, $1,000,000 on a note with force convertibility to common
stocks at $0.13 per share.
As part of the transaction with EDB, the Corporation, at their request,
converted $6,000,000 of Class AA Preferred stock held by Hispamer Trust into
capital notes substantially similar to those issued to the EDB, including
dividends accrued on these preferred stock up to the date of closing for
$679,289. In addition, the Hispamer Trust waived, as of the date of the
conversion, the monthly redemption premium of 1 percent of the outstanding
value of the preferred stock, and 50 percent of the redemption premium
accrued up to that date. The waiver of 50 percent of the redemption premium
accrued as of May 14, 1998 represented a reduction in accrued obligations
of $554,490 which should be repaid to Hispamer through annual gifts of $50,000
to be made, once the Corporation becomes profitable, in each year in which
its annual net profits exceed $1,000,000 . The waiver of the one per cent
monthly redemption premium represents a monthly savings of $10 per out
standing share of AA Preferred stock, for every month in which that stock
remains outstanding.
The capital infusion mentioned above satisfied Congress Credit's requirement
of additional equity capital, which had been set by Congress Credit as a c
ondition to make permanent the temporary refinancing of the equipment granted
in the previous quarter.
In addition to obtaining the capital infusion, during the quarter the
companies pursued, among others, the courses of action, intended to improve
the results of operations.
(1) Lutania Mills was downsized and reorganized with a reduction in operating
costs projected initially as $1,200,000. Additional reductions in size,
personnel and operating costs are now in process. Present plans call for a
gradual transfer of a substantial part of the textile operations to OMC-Tifton,
a recently acquired Olympic Mills subsidiary located in Tifton, Georgia,
where most production costs are lower than in Puerto Rico and productivity
is higher.
(2) The downsizing and reorganization of LM will make it possible to enter into
a contract with a multinational corporation, which is interested in leasing
part of the Lutania's premises and its bleaching and dyeing facilities.
Lutania has a state of the art, water pretreatment plant-facility for which
government permits are not easy to obtain-, making the plant attractive for
potential lessees. It is our expectation that the combination of downsized
operations with the aforementioned leasing agreement, should serve as a stop-
gap measure to overcome the losses which LM has experienced since 1996, and
which were one of the main contributors to the company's negative operating
results in 1997.
(3) A contract was signed with the government of Puerto Rico's Economic
Development Administration (Fomento) to reopen Ceiba Sportswear. This action
fits into the company's strategic plan for two principal reasons:
(a) It will make it possible to move LM's sewing and cutting operations to
Ceiba. This action is consistent with the plans to downsize LM and will
result in cost savings due to Ceiba's lower operating costs.
(b) It will make it possible to move to Ceiba the sewing of T-shirts now taking
place in Guaynabo. This is consistent with the company's plans to vacate
its present Guaynabo facility in order to comply with environmental
requirements and, at the same time, substantially reduce monthly rental
costs. It has been estimated that this move will result in savings ranging
between $600,000 and $1,000,000 despite the fact that it will be necessary
to rent warehousing and office space in the San Juan Metropolitan Area.
Additional space will be required to maintain the manufacturing of briefs
in the Guaynabo area, in order to be able to retain personnel experienced
in the manufacturing of that staple product, so as to maintain the existing
market share through a continuous flow of the product to the market.
(4) Management was strengthened through the retention of experienced production
management personnel.
The capital infusion and the implementation of the above courses of action,
contributed towards improving the results of operations for the second quarter,
as shown below. The Company's working capital woes, however, have not been
fully solved. Negotiations are taking place at present with the Commonwealth
of Puerto Rico's Government Development Bank (GDB) to obtain a long term loan
which, if granted, would improve the Corporation's working capital problems,
and provide means to finance future growth in production and sales.
During the period, current assets increased by $7,885,140, caused by: (1) an
increase in trade receivables (net of an allowance of $303,865 for doubtful
accounts) of $7,566,216; (2) an increase in inventories of $694,748; (3)
an increase of $315,161 in prepaid expenses and other current assets; and (4)
a decrease of $51,038 in cash, $476,629 in government incentives, $147,761 in
notes receivable from related parties and $10,712 in notes receivable from
affiliates.
Current liabilities increased by $5,061,790 due primarily to increases in
current maturities of long term debt of $7,047,934, accrued liabilities of
$795,631, accounts payable to related parties of $23,890, tax liabilities of
$29,395, current obligations under capital lease of $66,340, and decreases of
$2,901,400 in accounts payable. The current ratio was 0.98:1 higher than
the 1997 year-end ratio of 0.85.
During the period, total assets increased by $12,730,037 and total liabilities
increased by $11,080,426. At the end of the period assets were 1.15 times
liabilities.
On May 14, 1998, 6,360 Class AA preferred shares of Coachman stocks with a
redemption value of $1,000 per share plus cumulative dividends and a
redemption premium were exchanged for a subordinated capital note of
$6,679,290 and the issuance of 2,772,45 shares of common stock of Coachman. The
exchange was recommended by the Economic Development Bank, incidental to an
investment in subordinated capital notes granted by the institution to the
corporation. The Bank, the corporation and the senior lender Congress Credit
intended the subordinated capital notes to qualify for financial statement
presentation as a component of capital. Since this interpretation was not
accepted by the independent auditors, the Corporation is seeking alternatives
with the creditor to a amend the language of the subordinated capital notes
documents in order to convert such financial instrument into one that qualifies
as a component of capital.
Results of Operations
For three and six month periods ended June 30, 1998 compared to the same periods
of 1997.
For the three months ended June 30, 1998, the Corporation had a net income of
$286,906 ($0.01 per share), compared to a net loss of $1,851,503 ($0.08 per
share) for the same period of 1997. For the six months period ended June 30,
1998, the Corporation had a net loss of $471,149 ($0.02 per share) compared to
a net loss of $1,985,642 ($0.09 per share)or the same period of 1997.
Revenues increased by $405,506 for the three months and decreased by $461,382
for the six months. The decrease in revenues was due primarily to lower than
anticipated production and sales during the first quarter attributable to the
capital shortage, discussed earlier, experienced during that quarter on account
of the 1997 year-end losses.
During the six months period ended in June 30, 1998, the Corporation experienced
a reduction of $424,936 in its selling, general and administrative expenses,
compared to the same period in 1997. This is equivalent to a reduction of
1.8 percent in the ratio of selling, general and administrative expenses to
trade net sales for the six months period ended in June 30, 1998 vis a vis
the same ratio for the equivalent period in 1997.
For the three months period ended June 30, 1998, selling, general, and
administrative expenses were reduced by $279,977 when compared to the same
1997 three months period. This is equivalent to a reduction of 3.13 percent
in the ratio of selling, general and administrative expenses to trade net
sales for the two quarterly periods being compared.
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 six months period ended June 30, 1998, the Corporation experienced a
reduction of $2,563,508 in its cost of goods sold, compared to the same
period in 1997. This is equivalent to a reduction of 11.24 per cent in the
ratio of cost of goods sold to trade net sales for the two periods.
For the three months period ended June 30, 1998, cost of goods sold were
$2,109,995 less than the corresponding figure for the three months period
ended June 30, 1997, even though sales for the second 1998 quarter exceeded
by $404,707 sales for the corresponding 1997 quarter. Consequently, there was
a reduction of 23.79 percent in the ratio of cost of goods sold to trade net
sales in the quarter ended June 30, 1998 vis a vis the same 1997 quarter.
Management Changes
In June 1998, Mr. Luis Riviera Siaca invested $2,000,000 in the Corporation's
common stock at a price of $0.13 per share. In addition, the Hispamer Trust
invested $1,000,000 on a six months note convertible to common stock at the
same stated price on December 1998. That investment was urgently needed in
order to satisfy an equity capital requirement imposed by Congress Credit at an
earlier date as a condition to refinance the Corporations equipment and
thus alleviate temporarily the Corporation's liquidity situation. If the
equity capital had not been raised, Congress Credit would have called the loan
and the Corporation would have faced a very difficult liquidity situation.
The Hispamer Trust gave Mr. Rivera Siaca an option to buy the $1,000,000
convertible note on December 1998. If Mr. Rivera Siaca does not exercise his
option, the note will be converted to stock by the Hispamer Trust.
At the time of the aforestated investments, the following changes were made:
(1) Mr. Luis Rivera Siaca was appointed Chairman and CEO of both Coachman
and the Olympic group of companies, including Lutania.
(2) Mr. Dennis Bradford was appointed Chief Financial Officer of Coachman
(3) Dr. Alejandro Asmar become President and Chief Operating Officer the Olympic
group of companies and Lutania .
(4) Dr. Juan Aponte was appointed Managing Director. Dr. Aponte had been
appointed as Director by the Hispamer Trust, under the terms of an
agreement between Coachman and Hispamer.
It was also agreed that Mr. Rivera Siaca would appoint a member of the Board
and that an additional directors would be appointed by consensus between
Mr. Rivera Siaca and Francisco Carvajal, in his capacity as Chairman of the
Hispamer Trust.
Subsequent Events
On September 21, 1998 Puerto Rico was devastated by hurricane Georges. The
hurricane caused serious physical damages to the Olympic plants, to include
equipment and inventories particularly to the Guaynabo facility. In addition,
the Corporation suffered consequential damages because of the interruption in
the operations resulting from the said physical damages.
The losses, management believe, that are adequately covered by insurance,
except for applicable deductibles. The insurer has been processing the
claims and a settlement is expected before the end of the year.
The ultimate outcome of this situation for the quarter is still uncertain,
since it has affected the Corporation's capacity to deliver goods on a timely
basis and, furthermore, has impacted the Corporation in a period preceding
the Christmas season which, historically, has been the Corporation's best
quarter.
As a result of this situation brought about by the hurricane, the
corporation has accelerated its plans to vacate the Guaynabo premises to
downsize its Lutania operations and to sublease part of its premises, and to
better adapt its productions facilities to a new operational structure and an
updated market strategy.
In addition during the first week of October the GDB issued a commitment for
$3,000,000 in a permanent working capital loan to the company. Management
expect to close the loan late 1998 or early 1999.
Management anticipates that the long term ultimate outcome of this situation
will be the attainment of a streamlined, more efficient operation, at an
earlier date than originally with the consequential benefits to the Corporation.
Management's Expectations for the Future
It is management's opinion that the changes implemented will allow the company
to turnaround it financial results and return to profitability.
Although Management is committed to do it's 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.
Item 5. Other Information
Due to changes in the Corporation's business and management, the Board of
Directors decided to move the Corporation's principal Executive Offices to
Puerto Rico. Effective July 1, 1998, the Corporation's principal Executive
Office address is:
Bucannan Office Center, Suite 212
Guaynabo, Puerto Rico 00968
Mailing address is:
P.O. Box 1669
Guaynabo, Puerto Rico 00970
Telephone number is:
(787)-755-1009
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)
March 11, 1999 By: /s/ Dennis D. Bradford
Dennis D. Bradford
Chief Financial Officer
