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, 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 re
quired 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 ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes ____ No _____
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 March 31, 1998
Common Stock, $.01 par value 22,688,333 shares
COACHMAN INCORPORATED
AND SUBSIDIARIES
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets-
March 31, 1998 (unaudited) and December 31, 1997
Condensed Consolidated Statements of Operations-
Three months ended March 31, 1998 and 1997 (unaudited)
Condensed Consolidated Statements of Cash Flows-
Three months ended March 31, 1998 and 1997 (unaudited)
Notes to Condensed Consolidated Financial Statements
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 consolidated financial statements, in the opinion of management,
reflect all adjustments 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
Consolidated Balance Sheets as of December 31, 1997 and March 31, 1998.
Consolidated Statements of Operations Three Months ended March 31, 1998 and
1997
Consolidated Statements of Accumulated Deficit as of December 31, 1997
and March 31, 1998.
Consolidated Statements of Cash Flows Three Months ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, December 31,
Assets 1998 1997
Current assets:
Cash $ 2,673 53,710
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$284,979 in 1998 and $248,683 in 1997 7,010,559 4,594,566
Related parties 2,377 21,849
Other, principally government incentives 839,962 886,474
Notes receivable 47,761 147,761
Notes receivable from affiliates 35,702 46,414
Inventories 14,587,319 12,598,053
Prepaid expenses and other current assets,
including prepaid income taxes of $30,920
in 1998 and 1997 213,904 132,853
Total current assets 22,740,257 18,481,680
Property and equipment 11,076,292 6,929,771
Intangibles 4,861,384 2,788,719
Notes receivable:
Officer 135,282 115,282
Affiliates 349,703 350,679
Due from entity in process of being acquired 0 1,423,060
Investments in subsidiaries 60,315 60,315
Debt issue costs, net of amortization of $508,142
in 1998 and $ 444,975 in 1997 328,166 313,038
Other assets 86,144 191,330
Total assets $ 39,637,543 30,653,874
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, December 31,
Liabilities & Stockholders' Equity 1998 1997
Current liabilities:
Accounts payable:
Trade (including bank overdraft of $949,236
in 1998 and $427,329 in 1997) $ 7,869,677 6,986,501
Related parties 53,771 31,272
Accrued liabilities 3,053,779 1,759,340
Current maturities of long-term debt 16,354,866 12,833,077
Current maturities of obligations under
capital lease 66,340 0.00
Income tax payable 98,810 93,227
Deferred tax liability 26,418 8,225
Total current liabilities 27,523,661 21,711,642
Deferred tax liability 496,841 483,868
Long-term debt 6,364,091 2,785,385
Obligation under capital lease 207,662 0.00
Minority interest in subsidiary 1,760,000 1,760,000
36,352,255 26,740,895
Stockholders' equity:
Preferred stock, no par value; authorized
200,000 shares; issued and outstanding 12,901
in 1998 and 1997 129 129
Common stock, $0.005 par value; authorized
50,000,000 shares; issued and outstanding
33,072,261 in 1998 and 32,173,939 in 1997 165,362 160,870
Additional paid-in capital 19,904,858 19,744,676
Common stock and warrants committed 600,000 600,000
Accumulated deficit (17,025,060) (16,232,695)
Payments towards redemption of Class AA
Preferred Stock (360,001) (360,001)
Total stockholders' equity 3,285,288 3,912,979
Total liabilities and stockholders' equity 39,637,543 30,653,874
See accompanying notes to condensed consolidated financial statements.
COACHMAN INCORPORATED
Condensed Consolidated Statements of Operations
Three Months Ended,
March 31, March 31,
1998 1997
Revenues:
Trade net sales $ 7,131,399 8,000,371
Other 20,822 18,738
Total revenues 7,152,221 8,019,109
Costs and expenses:
Cost of goods sold 6,141,521 6,500,526
Selling, general and administrative expenses 1,316,249 1,461,208
Total costs and expenses 7,457,770 7,961,734
Operating income/(loss) (305,549) 57,375
Other income/(expense):
Interest income 12,613 11,774
Interest expense (437,762) (320,616)
Other income 19,836 177,128
Other income/(expense), net (405,313) (131,714)
Loss before income taxes (710,862) (74,339)
Income tax expense 37,503 0.00
Net loss $ (748,365) (74,339)
Net loss applicable to common shares $ (972,905) (298,288)
Average outstanding common shares 32,892,261 22,703,931
Basic loss per average outstanding common share (0.03) (0.01)
See accompanying notes to condensed consolidated financial statements.
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statement of Accumulated Deficit
March 31, December 31,
1998 1997
Accumulated deficit at beginning $ (16,232,695) (7,539,771)
Net loss (748,365) (8,517,647)
Dividends on preferred stock of subsidiary (44,000) (175,277)
Accumulated deficit at end $ (17,025,060) (16,232,695)
See accompanying notes to consolidated financial statements
COACHMAN INCORPORATED
Condensed Consolidated Statements of Cash Flows
Three Months Ended,
March 31, March 31,
1998 1997
Cash flows from operating activities:
Net loss $ (748,365) (74,339)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Provision for doubtful accounts 36,296 0
Depreciation and amortization 333,274 166,874
Decrease/(increase)in accounts receivable (2,318,313) 980,386
Increase in inventories (1,911,277) (1,324,185)
Decrease/(increase) in prepaid expenses
and other assets 26,185 (1,094,869)
Decrease/(increase) in deferred
income tax asset
Increase in due from entity in process
of being acquired
Increase in accounts payable and accrued
liabilities 408,949 1,711,300
Increase in income tax payable 5,583 0
Increase in deferred income tax liability 31,166 0
Net cash (used in)/provided
by operating activities (4,136,502) 365,167
Cash flows from investing activities:
Payment related to acquisition, net (80,647) 0
Collection of note receivable 100,000 0
Collection of note receivable - affiliate 11,688 0
Purchases of property and equipment (202,967) (100,358)
Additions to intangibles 0
Loan made to officer (20,000) 0.00
Proceeds from officer loan repayments 0.00 149,811
Net cash (used in)/provided
by investing activities (191,926) 49,453
Cash flows from financing activities:
Proceeds from issuance of preferred
and common stock, net of issuance costs
Dividends on preferred stock 0 0
Proceeds of loan from third party 0 0
Net borrowings/(principal amortization) 4,277,391 (416,741)
Net cash provided by/(used in)
financing activities 4,277,391 (416,741)
Net decrease in cash $ (51,037) (2,121)
Cash, beginning of period $ 53,710 5,541
Cash, end of period $ 2,673 3,420
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
financialstatements, 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 the
three months ended March 31, 1998 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:
March 31 December 31
1998 1997
Finished goods $ 7,766,921 7,550,433
Work-in-process 580,455 709,364
Raw materials 6,239,943 4,338,256
$14,587,319 12,598,053
(3) Property and Equipment
Property and equipment consists of the following
March 31 December 31
1998 1997
Land $ 123,500 -
Building 1,483,500 -
Machinery and equipment 9,091,446 8,541,991
Leasehold improvements 362,746 428,252
Equipment under capital lease 194,000 -
11,255,192 8,970,243
Less accumulated depreciation
and amortization 178,900 2,040,472
Property and equipment, net $11,076,292 $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 three-month period was $175,600 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 December 31
1998 1997
Right of use-waste water treatment
plant, net of accumulated amortization
of $630,000 in 1998 and $560,000 in 1997 $1,330,000 1,400,000
Tradenames, net of accumulated
amortization of $1,747,408 in 1998
and $1,710,370 in 1997 1,215,592 1,252,630
Goodwill and intellectual property,
net of accumulated amortization of $17,318
in 1998 and accumulated amortization
and impairment loss of $172,495 in 1997 2,315,792 136,089
$4,861,384 $2,788,719
(5) Borrowings
The following debts were outstanding:
Related parties: March 31 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 135,050 135,050
Promissory note due to Corporacion
Inmobiliaria Textil (Cintex) due
and payable on December 21, 2000,
bearing interest at 7%, due quarterly
(three quarters' interests 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 (three 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 (five
quarters' interest were in arrears in 1998,
four in 1997) 320,385 320,385
Borrowing due to related parties $2,920,435 $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) 13,471,680 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. 650,015 816,680
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) 1,266,667 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. 2,854,570
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 3/4% 253,433
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% 124,189
Unsecured loan payable to the Economic
Development Bank for Puerto Rico due on
May 14, 1998, bearing interest of 1% over
prime rate 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
Borrowings due to unrelated parties 19,798,522 12,698,027
Total long-term debt 22,718,957 15,618,462
Less current maturities 16,354,866 12,833,077
Long-term debt, excluding current
maturities $ 6,364,091 $ 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 March 31, 1998.
(6) 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 March 31, 1998 which
could, in the Future enter into the computation of diluted earnings/(losses) per
share amount to 15,714,286
shares.
(7) Income Tax
The Company recorded a current income tax expense of $19,283 and a deferred
income taxexpense of $59,797 for the three month period ended March 31, 1998.
The income tax expense for the three month period ended March 31, 1998 was
$177,128.
(8) Related Party Transactions
The following are transactions between the Company and subsidiaries, and other
related parties, for the three month periods ended March 31, 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 March 31, 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
$ 169,080 for each of the three month periods ended March 31, 1998
and 1997, respectively.
(9) 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
March 31, 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.
(10) 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 March 31, 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
(11) Subsequent Events
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.
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 Capital note amounting to $6,679,290
and the issuance of 2,772,450 shares of common stock of Coachman.
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Material Changes in Financial Condition.
March 31, 1998 Compared to December 31, 1997
Since its acquisition of all 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 in Olympic
Mills, its affiliates and subsidiaries. Consequently, the analysis of the
Corporation's financial condition and results of operations must focus,
primarily, in the results of operations of the above companies.
During the first quarter the company's results were adversely affected by the
1997 year end financial results. It is therefore relevant to review the factors
which led to these results, in order to better understand first quarter 1998
performance.
For the year ended December 31, 1997, the Company had a net loss of $8,517,647
due primarily to: (1) a delay in getting Lutania Mills (LM) fully operational
(LM is the textile mill in Humacao where all the knitting, bleaching and dyeing
operations were moved to due to, among other factors, environmental
requirements); (2) inability to renew the companies' major contract for brown
t-shirts with the U.S. Department of Defense; (3) substantial increase in
operating costs generated by a higher federal minimum wage and duplication of
overhead expenses due to the delay in completing the move to LM; and
(4) difficulties in implementing a market strategy intended to penetrate the
U.S. market, due to lack of adequate systems, procedures and controls geared to
that market. It is also important to point out that the results for 1997 and
the first quarter of 1998 were seriously impaired by an outdated, incomplete
and consequently deficient management information system which could not produce
financial reports with the accuracy and promptness required for cost analyses,
budgeting, and planning of a competitive strategy. This problem was addressed
as a first priority in the last quarter of 1997 and the first quarter of 1998.
Present plans call for full implementation of the new management information
system, including Y2K conversion, by September 1998.
During the last quarter of 1997 and the first of 1998, the Corporation continued
the reorganization initiated with the major management changes made in August
1997. Those changes, which were directed towards the implementation of a growth
and diversification strategy, expansion of markets, and strengthening of
management to include an updated computerized information system, were
considered to be essential in order to establish the foundations required to
overcome the operational difficulties which contributed to the results of
calendar year 1997.
Consistent with that thinking, the Corporation adopted as its business plan for
1998, an updated version of the 1997 business plan. Mainstays to the plan
were: (1) the continuation of its acquisitions program; (2) giving priority to
low labor content, quick turnaround, high quality garments; (3) moving the
Olympic Mills' Guaynabo operations to a new location; (4) completion of
conversion of the EDP system; and, (5), recruitment of experienced staff to
implement the reorganization and business plan.
In February and March 1998, and in accordance with the plan, Tifton Textiles of
Tifton, Georgia, and Laredo Apparel, Inc. of Puerto Rico were acquired in
transactions which were substantially cash neutral. During that quarter,
efforts were made to implement the new information system, in accordance with
the priority assigned to that project, considered essential in order to overcome
the difficulties, limitations and lack of adequate controls.
The main obstacles in reaching the objectives of the business plan during the
first quarter of 1998, were the lack of working capital and the liquidity
problems resulting from the 1997 losses. Both problems were partially overcome
during the first quarter through: (1) a $1,500,000 capital investment funded
in December 1997 by a private investor; (2) a government grant of $628,000;
(3) an advance of $500,000 made by the Economic Development Bank as part of a
$1,500,000 investment in subordinated capital notes approved in the last quarter
of 1997, whose closing was still pending at the end of the first quarter 1998,
and (4) an additional $1,700,000 of equipment financing granted by Congress
Credit to be repaid in three months, with an option to convert to a long term
loan extension option conditioned to the Corporation's success in raising an
additional $2,000,000 in equity investment.
The infusion of funds mentioned above proved to be insufficient, and as a result
the Corporation suffered a working capital deficiency of approximately
$3,000,000 during the first quarter of 1998, which seriously impaired its
capacity to obtain the raw materials required to fulfill its budgeted sales
objectives. Sales for the quarter were $7,152,221, a number which is
substantially below the company's potential, considering its production and
marketing capabilities. Considering the first quarter sales experience, the
ongoing working capital shortages, and the company's production and marketing
potential, the projected sales estimate for the year was reduced to $42
million.
During the period current assets increased by $4,258,577 as a result of an
increase of $2,415,993 in accounts receivable, $1,989,266 in inventories, and
$81,051 in prepaid expenses, and a decrease of $51,037 in cash, $46,512 in
government incentives and related agencies of $19,472; and $110,712 in notes
receivable. Current liabilities increased by $5,812,019 due primarily to
increases of $905,675 in accounts payable; $1,294,439 in accrued liabilities;
$3,521,789 in current maturities of long-term debt; $66,340 in current
maturities of obligations under capital lease; and $23,776 in other
liabilities. These increases funded the increase in current assets and part
of the increase in the net loss. The current ratio was 0.83:1, less than the
0.85:1 ratio as of December 1997, both of which were lower than the
Corporation's goal.
The Corporation is continuing its efforts to obtain additional equity and long-
term loans to solve the shortage of working capital and improve its liquidity
position. Reaching this objective is fundamental in order for the Corporation
to be able to purchase the raw material required to fulfill its revised 1998
sales plan.
During the period, total assets increased by $8,983,669 due primarily to an
increase of $3,957,326 in property and equipment attributable mainly to the TTI
acquisition; $2,072,665 corresponding to an increase in intangibles, and a
reduction of $1,423,060 in an amount due from TTI which was eliminated in the
process of its acquisition by the Corporation. At the end of the period assets
were 1.08 times liabilities, lower than the 1997 year ratio of 1.15:1.
Stockholders' equity decreased by $627,691 due principally to a loss of $748,365
for the quarter.
Results of Operations.
For the three months period ended March 31, 1998 the Corporation had a net loss
of $748,365; ($0.03 per share) compared to a net loss of $74,339 ($0.01 per
share) for the same period of 1997. Actual sales for the period were $866,888
less than for the same period in 1997. Although the Corporation had enough
demand for its products and production capacity to reach a higher sales volume,
which would have improved the results of operations for the quarter, the working
capital shortage made that impossible. During the quarter, the Corporation had
commitments for capital investments from the Economic Development Bank and
private investors, but they did not materialize in time for the Company to be
able to solve its working capital problems and thus finance the raw material
needed to increase production and attain a higher sales volume. In addition,
Congress Credit, as a result of the company's 1997 performance, imposed
unanticipated temporary restrictions in their financing, to be waived once
the Company obtained a new capital infusion. This action affected the
Corporation's liquidity, and further impaired its production capacity.
Despite the difficulties experienced during the quarter, Management believes
that, to the best of its knowledge, the problems experienced during the first
quarter of 1998 are surmountable, and that once the Company funds its working
capital needs, it will be in a position to utilize its production capacity at a
maximum, thus increasing its volume of sales and profitability.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued FAS
No.131,
"Disclosures about Segments of an Enterprise and Related Information". This
Statement establishes standards for reporting information about a company's
operating segments and related disclosures about its products, services,
geographic areas of operations and major customers. This Statement will be
adopted by the Company in 1998 year-end financial statements and will not impact
the Company's results of operations or financial position.
In March 1998, the American Institute of Certified Public Accountant (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which is effective for fiscal
years beginning after December 15, 1998. The Statement outlines the accounting
treatment for certain costs related to the development or purchase of software
to be used internally and requires that costs incurred during the preliminary
project and post-implementation-operation stages be expensed, and that costs
incurred during the application development stage be capitalized and amortized
over the estimated useful life of the software. Costs incurred prior to initial
application of the Statement cannot be adjusted to the amounts that would have
been capitalized had the Statement been in effect when those costs were
incurred. Adoption of this Statement is not expected to have a material impact
on the Company's results of operations or financial position.
In April 1998, the AICPA also issued SOP 98-5, "Reporting on the Costs of
Start-up Activities". SOP 98-5, which is effective for fiscal year beginning
after December 15, 1998, requires that all costs of start-up activities,
including organization costs, be expensed as incurred. The impact of adoption
of SOP 98-5 should be reported as the cumulative effect of a change in
accounting principle. Adoption of this Statement is not expected to have a
material impact on the Company's results of operations or financial position.
In June 1998, the FASB issued FAS No.133, "Accounting for Derivative instruments
and Hedging Activities" which requires all derivatives to be recognized at fair
value as either assets or liabilities on the balance sheet. Any gain or loss
resulting from changes in such fair value is required to be recognized in
earnings to the extent the derivatives are not effective as hedges. This
Statement is effective for fiscal years beginning after June 15, 1999, and is
effective for interim periods in the initial year of adoption. Adoption of
this Statement is not expected to have a material impact on the Company's
results of operations or financial position.
Forward-Looking Statements
This management's discussion and analysis of results of operations and financial
condition contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on the
current plans and expectations of Coachman Incorporated and involve risks and
uncertainties that could cause actual future events and results of operations
to be materially different from those in the forward-looking statements.
Important factors that could cause such differences include, among others,
greater than expected expenses associated with the Company's personnel needs
or activities, the competitive pricing environment applicable to the Company's
operations, changes in customers' business environments or changes in government
regulations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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 its 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)
March 11, 1999 By: /s/ Dennis D. Bradford
Dennis D. Bradford
Chairman of the Board
Chief Financial Officer
