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 September 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 (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 September 30, 1998
Common Stock, $.01 par value 35,544,711 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, 1997
and September 30, 1998 4
FS 1-B. Condensed Consolidated balance sheet as of Dec. 31, 1997
and September 30, 1998 5
FS 2. Condensed Consolidated Statement of Operations Three Months
ended September 30, 1997 and 1998 6
FS 3. Condensed Consolidated Statement of operations Nine Months
Ended September, 1997 and 1998 7
FS 4. Condensed Consolidated Statements of Accumulated Deficit
Dec. 31, 1997 and September 30, 1998 8
FS 5. Condensed Consolidated Statement of Cash Flows Nine Months
ended September 30, 1997 and September 30, 1998 9
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 10
1. ACCOUNTING PRINCIPLES AND BASIS OF PRESENTATION 10
2. INVENTORIES 10
3. PROPERTY AND EQUIPMENT 10
4. INTANGIBLES 11
5. BORROWINGS 11
6. COMMON AND PREFERRED STOCK 15
7. ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT 16
8. RELATED PARTY TRANSACTIONS 16
9. CONTINGENCIES 17
10. MINORITY INTEREST IN SUBSIDIARY 17
ITEM 2. MANAGEMENT DISCUSSION 19
RESULTS OF OPERATIONS 21
OTHER INFORMATION 22
MANAGEMENT'S EXPECTATIONS FOR THE FUTURE 23
PART II - OTHER INFORMATION 23
SIGNATURES 24
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, 1997 and
September 30, 1998.
2. Condensed consolidated Statements of Operations Three Months ended
September 30, 1998 and September 30, 1997.
3. Condensed consolidated Statements of Operations Nine Months ended
September 30, 1998 and September 30, 1997.
4. Condensed consolidated Statements of Accumulated Deficit as of
December 31, 1997 and September 30, 1998.
5. Condensed consolidated Statements of Cash Flows, Nine Months ended
September 30, 1998 and September 30, 1997.
6. Notes to Condensed Consolidated Financial Statements
FS 1-A. CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DEC. 31, 1997 AND
SEPTEMBER 30, 1999
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Assets Sept. 30, 1998 Dec. 31, 1997
Current assets:
Cash $ 6,410 53,710
Accounts receivable:
Trade, net of allowance for doubtful 8,175,314 4,594,566
accounts of $303,865 in 1998 and
$248,683 in 1997
Related parties 17,004 21,849
Other, principally government incentives 660,346 886,474
Notes receivable 147,761
Notes receivable from affiliates 35,702 46,414
Inventories 16,752,438 12,598,053
Prepaid expenses and other current assets
including prepaid income taxes of 368,865 132,853
$30,920 in 1998 and 1997
----------- -----------
Total current assets 26,016,079 18,481,680
----------- -----------
Property and equipment 11,216,834 6,929,771
Intangibles 4,943,348 2,788,719
Notes receivable:
Officer 145,282 115,282
Affiliates 334,250 350,679
Dues from entity in process of being acquired ----- 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 215,955 313,038
Other assets 122,032 191,330
----------- -----------
Total assets $43,054,095 30,653,874
=========== ===========
FS 1-B. CONDENSED CONSOLIDATED BALANCE SHEET AS OF DEC. 31, 1997 AND
SEPTEMBER 30, 1999
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Sept 30, 1998 Dec 31, 1997
Liabilities and Stockholders' Equity/(Deficit)
Current liabilities:
Accounts payable:
Trade (including bank overdraft of
$315,928 in 1998 and $427,329 in 1997 $ 5,235,970 6,986,501
Related parties 60,104 31,272
Accrued liabilities 2,939,402 1,759,340
Current maturities of long-term debt 7,010,065 12,833,077
Current maturities of obligations
under capital lease 66,340 -----
Income tax payable 118,093 8,225
----------- ----------
Total current liabilities 15,442,728 21,711,642
Deferred tax liability 589,585 483,868
Long-term debt 20,140,349 2,785,385
Obligation under capital lease 179,552 -----
Minority interest in subsidiary 1,760,000 1,760,000
----------- ----------
38,112,214 26,740,895
----------- ----------
Stockholders' equity/(deficit):
Preferred stock, no par value; 65 129
Equity notes received in exchange for
6,360 redeemed Class AA Preferred
stock (note 6) 6,679,290 0
Common stock, $0.005 par value;
authorized 50,000,000 shares in 1998
and 32,173,939 in 1997 (15,000,000
additional shares are committed to be
issued in 1998 pending approval by
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 (18,047,824) (16,232,695)
----------- -----------
Total stockholders' equity/(deficit) 4,941,881 3,912,979
----------- -----------
Total liabilities and stockholders'
equity/(deficit) $43,054,095 30,653,874
=========== ===========
See accompanying notes to condensed consolidated financial statements.
FS 2. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997.
COACHMAN INCORPORATED
Condensed Consolidated Statements of Operations
Three Months Ended,
Sept 30, 1998 Sept 30, 1997
Revenues:
Trade net sales $ 7,449,260 8,786,925
Other 86,136 44,330
----------- -----------
Total revenues 7,535,396 8,831,255
Costs and expenses:
Cost of goods sold 5,953,023 9,054,000
Selling, general and administrative
expenses 1,593,468 1,729,626
----------- -----------
Total costs and expenses 7,492,491 10,783,626
----------- -----------
Operating income/(loss) 42,905 (1,952,371)
----------- -----------
Other income/(expense):
Interest income ----- 7,636
Interest expense (663,615) (179,296)
Other income ----- 453,514
Gain on sale of assets ----- 5,290
----------- -----------
Other (expense), net (663,615) 287,144
----------- -----------
Income /(loss) before income taxes (620,710) (1,665,227)
Income tax expense ----- -----
----------- -----------
Net income/(loss) $ (620,710) (1,665,227)
=========== ===========
Net income/(loss) applicable to
common shares $ (693,087) (1,665,227)
=========== ===========
Average outstanding common shares 38,698,857 22,688,333
=========== ===========
Basic income/(loss) per average
outstanding common share $ (0.02) (0.07)
=========== ===========
See accompanying notes to condense consolidated financial statements.
FS 3. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED
SEPTEBMER 30, 1998 AND 1997
COACHMAN INCORPORATED
Condensed Consolidated Statements of Operations
Nine Months Ended,
Sept 30, 1998 Sept 30, 1997
Revenues:
Trade net sales $26,062,160 27,864,090
Other 129,110 84,420
----------- -----------
Total revenues 26,191,270 27,948,510
Costs and expenses:
Cost of goods sold 20,665,976 26,226,263
Selling, general and
administrative expenses 4,571,526 5,366,620
----------- -----------
Total costs and expenses 25,417,502 31,592,883
----------- -----------
Operating income/(loss) 773,768 (3,644,373)
----------- -----------
Other income/(expense):
Interest income 22,949 25,140
Interest expense (1,853,002) (892,031)
Other income 43,507 858,259
Gain on sale of assets ----- 61,936
----------- -----------
Other (expense), net (1,786,546) 53,304
----------- -----------
Loss before income taxes (1,012,779) (3,591,069)
Income tax expense 79,080 79,527
----------- -----------
Net loss $(1,091,859) (3,670,596)
=========== ===========
Net loss applicable to common shares $(1,468,791) (3,670,596)
=========== ===========
Average outstanding common shares 41,040,271 22,688,333
=========== ===========
Basic net loss per average
outstanding common share $ (0.04) (0.16)
=========== ===========
See accompanying notes to condense consolidated financial statements.
FS 4. CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED DEFICIT DEC. 31, 1997
AND SEPTEMBER 30, 1998
COACHMAN INCORPORATED AND SUBSIDIARIES
Condensed Consolidated Statement of Accumulated Deficit
Sept 30, 1998 Dec. 31, 1997
Balance at beginning $(16,232,695) (7,539,771)
Net loss (1,091,859) (8,517,647)
Dividends on preferred stock (723,270) (175,277)
------------ -----------
Balance at end $(18,047,824) (16,232,695)
============ ===========
FS 5. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
COACHMAN INCORPORATED
Condensed Consolidated Statements of Cash Flows
Nine Months Ended,
Sept 30, 1998 Sept 30, 1997
Cash flows from operating activities:
Net loss $(1,091,858) (3,670,596)
Provision for doubtful accounts 55,182 -----
Depreciation and amortization 1,212,980 1,467,321
Increase in accounts receivable (3,336,965) 605,785
Increase in inventories (4,076,396) (623,043)
Increase in prepaid expenses and
other assets (164,664) (1,779,505)
Increase/(decrease) in accounts payable
and accrued liabilities (2,333,706) 4,364,441
Increase in income tax payable 24,866 -----
Increase in deferred income tax liability 110,246 -----
----------- -----------
Net cash used in operating activities (9,600,315) 299,580
----------- -----------
Cash flows from investing activities:
Payment related to acquisition, net (80,647) -----
Collection of note receivable 147,761 -----
Collection of note receivable - affiliate ----- 235,511
Purchases of property and equipment (1,031,718) -----
Sale of marketable equity security 116,398
Loan made to officer (30,000) -----
Proceeds from officer loan repayments 27,141 -----
----------- -----------
Net cash provided/(used in) by
investing activities (967,463) 351,909
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 2,000,000 -----
Net borrowings/(principal amortization) 8,520,479 (651,677)
----------- -----------
Net cash provided by financing activities 10,520,479 (651,677)
----------- -----------
Net increase/(decrease) in cash $ (47,299) (188)
Cash, Beginning of period $ 53,709 5,541
----------- -----------
Cash, End of period $ 6,410 5,353
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, 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:
On September 21, 1998, the island was struck by a hurricane, which significantly
affected the operations. Inventories were estimated by the gross profit
method at approximately 80% cost of goods sold to net sales which was the
ratio for the six-month period ended on June 30, 1998. A claim to cover
inventory damages and business interruptions estimtaed in approximately
eight million dollars was made to the insurance company.
3. Property and Equipment
Property and equipment consists of the following:
Sept 30, 1998 Dec. 31, 1997
Land 123,500 -----
Building 1,483,500 -----
Machinery and equipment 9,767,343 8,541,991
Leasehold improvements 362,746 428,252
----------- -----------
11,737,089 8,970,243
Less accumulated depreciation
and amortization 520,255 428,252
----------- -----------
Property and equipment, net 11,216,834 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 nine-month period was $265,185 below what it would have been
if computed under the previous useful lives and salvage value estimates.
4. Intangibles
Intangibles consist of the following:
Sept 30, 1998 Dec. 31, 1997
Right of use-waste water treatment
plant, net of accumulated
amortization of $770,000 in 1998
and $560,000 in 1997 1,190,000 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 $172,495 in 1997 2,574,794 136,089
----------- -----------
4,943,348 2,788,719
=========== ===========
5. Borrowings
The following debts were outstanding:
Sept 30, 1998 Dec. 31 1997
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 173,050 135,050
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. The note is
convertible into shares of common
stock of Coachman at a rate of $0.13
per share 1,000,000 1,000,000
---------- ----------
Borrowings due to related parties 3,958,435 3,920,435
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 below) due in 2001 15,357,065 9,291,757
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 2,219,333 816,680
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) 1,397,639 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. 2,815,046 -----
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%. 10,000 10,000
Unsecured loan payable to a bank, due
in monthly installments of $5,624,
bearing interest at 10 3/4% 229,475 -----
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 bests interest at 10 1/4%. 116,759 -----
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%. 57,333 -----
Unsecured loan payable to 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%. 161,250 162,250
---------- ----------
Borrowings due to unrelated parties 23,227,979 12,698,027
---------- ----------
Total long-term debt 27,150,414 15,618,462
Less current maturities 7,010,065 12,833,077
---------- ----------
Long-term debt, excluding
current maturities 20,140,349 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), due in 2001. 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:
Amortization as a Percentage of
Payment Dates 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 that could, in the future enter into the computation of diluted
earnings/(losses) per share amount to 36,666,667 shares.
The Company recorded a current income tax expense of $19,283 and a deferred
income tax expense of $59,797 for the six months period ended September 30,
1998. The current income tax expense for the nine months period ended
September 30, 1997 amounted to $59,800.
8. Related Party Transactions
The following are transactions between the Company and subsidiaries, and
other related parties, for the nine-month periods ended September 30, 1998
and 1997.
a. 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 September 30, 1998. Coachman also holds a second mortgage on
the real estate.
b. 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 $507,240, for each of the
nine months periods ended September 30, 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 at September 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.
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 Sept. 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 DISCUSSION
Material Changes in Financial Condition.
September 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 the period, current assets increased by $7,534,399, caused by: (1) an
increase in trade receivables (net of an allowance of $303,865 for doubtful
accounts of $3,580,748; (2) an increase in inventories of $4,154,385; (3) an
increase of $236,012 in prepaid expenses and other current assets; and (4) a
decrease of $48,300 in cash, $226,128 in government incentives, $147,761 in
notes receivable from related parties and $10,712 in notes receivable from
affiliates.
Current liabilities decreased by $6,298,914 due primarily to decreases in
accounts payable trade of $1,750,531, current maturities of long term debt
of $5,823,012, accrued liabilities increased by $1,180,062, accounts payable
to related parties increased by $28,832, tax liabilities increased $24,866,
current obligations under capital lease increased $66,340. The current ratio
was 1.68:1 higher than the 1997 year-end ratio of 0.85; and approaching the
company's goal of 2:1.
During the period, total assets increased by $12,730,037 and total liabilities
increased by $11,371,319. At the end of the period assets were 1.43 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 nine month periods ended Sept. 30, 1998 compared to the same
periods of 1997. For the three months ended Sept. 30, 1998, the Corporation
had a net loss of $693,087 ($0.02 per share), compared to a net loss of
$1,665,227 ($0.07 per share) for the same period of 1997. For the nine
month period ended Sept. 30, 1998, the Corporation had a net loss of
$1,091,859 ($0.04 per share) compared to a net loss of $3,670,596 ($0.16
per share) for the same period of 1997.
Revenues decreased by $1,295,859 for the three months and decreased by
$1,029,240 for the nine months. The decrease in revenues was due primarily
to lower than anticipated production and sales during the first quarter
attributable to the capital shortage experienced during that quarter on
account of the 1997 year-end losses and decreased sales because Hurricane
Georges, discussed later.
During the nine month period ended in Sept. 30, 1998, the Corporation
experienced a reduction of $795,092 in its selling, general and administrative
expenses, compared to the same period in 1997. For the three months period
ended Sept. 30, 1998, selling, general, and administrative expenses were
reduced by $170,158 when compared to the same 1997 three months period.
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 nine month period ended Sept. 30, 1998, the Corporation experienced a
reduction of $5,562,287 in its cost of goods sold, compared to the same period
in 1997.For the three months period ended Sept. 30, 1998, cost of goods sold
were $3,100,977 less than the corresponding figure for the three months period
ended Sept. 30, 1997. Some estimates in inventory were used because of the
lack of a physical inventory at quarter end due to Hurricane Georges.
OTHER INFORMATION
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
expects 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 Hurricane Georges, many of the Corporations records were destroyed or
damaged. Management has used its best efforts in accurately recruiting them.
Although no significant changes in these financial statements are expected,
some year end adjustments may be necessary.
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 15, 1999 By: /s/ Dennis D. Bradford
Dennis D. Bradford
Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,410
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<RECEIVABLES> 9,192,231
<ALLOWANCES> 303,865
<INVENTORY> 16,752,438
<CURRENT-ASSETS> 26,016,079
<PP&E> 11,737,089
<DEPRECIATION> 520,255
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<CURRENT-LIABILITIES> 15,442,728
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<COMMON> 254,222
<OTHER-SE> 4,687,594
<TOTAL-LIABILITY-AND-EQUITY> 43,054,095
<SALES> 7,449,260
<TOTAL-REVENUES> 7,535,396
<CGS> 5,953,023
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<INCOME-CONTINUING> (620,710)
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