SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
Form 10-Q
x QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
o 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: 2-98277C
THE COLONEL'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation or organization)
|
38-3262264
(I.R.S. employer identification no.)
|
| |
|
5550 Occidental Highway, Tecumseh, Michigan
(Address of principal executive offices)
|
49286
(Zip code)
|
(517) 423-4800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the
Act: Common Stock, $0.01 Par Value
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Number of shares of the registrant's Common Stock, $0.01
par value, outstanding as of November 5, 1999: 24,518,326
PART I
FINANCIAL INFORMATION
| ITEM 1. |
FINANCIAL STATEMENTS |
The financial
statements required under Item 1 of Part I are set forth in Appendix A
to this Report on Form 10-Q and are herein incorporated by reference.
ITEM 2. MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
The Colonel's
International, Inc. (the "Company") has four subsidiaries: The Colonel's Truck Accessories,
Inc. ("CTA"), The Colonel's Rugged Liner, Inc. ("CRL"), Brainerd International Raceway, Inc.
("BIR"), and The Colonel's, Inc. ("The Colonel's").
The Colonel's
Truck Accessories, Inc. CTA manufactures and sells pickup truck
bedliners and tail gate covers through a distributor network. In 1997,
CTA began to acquire retail outlet stores to sell its manufactured items
and other truck accessories that it purchases from third parties to wholesale
sub-distributors and dealerships. These retail outlet stores offer installation
services and direct sales to retail customers. CTA markets through these
various methods to sell CTA's manufactured bedliners and other truck accessories.
The Colonel's
Rugged Liner, Inc. CRL was incorporated in 1998 in connection with
the acquisition by merger of four Pennsylvania corporations: Rugged Liner,
Inc., Triad Management Group, Inc., Aerocover, Inc. and Ground Force, Inc.
(collectively, the "Rugged Liner Companies"). In this transaction, which
was consummated in April 1998, each of the Rugged Liner Companies merged
with and into CRL, with CRL being the surviving corporation. CRL, which
is located in Uniontown, Pennsylvania, manufactures non-skid bedliners
and bed mats, as well as ground lowering kits for sport utility vehicles
("SUVs") and three piece sliding tonneau covers for pickup trucks. CRL also
markets its products through CTA's retail outlet stores. CRL, as successor
to the Rugged Liner Companies, concentrates its efforts on export bedliner
sales, and domestic ground effects, tonneau cover and bed mat sales.
The Colonel's Brainerd International Raceway, Inc. BIR operates
a motor sports facility located approximately six miles northwest of Brainerd,
Minnesota. Substantially all of BIR's revenues are obtained from motor
sports racing events at the racetrack. BIR schedules racing and other events
held at the racetrack during weekends in May through September of each
year. Approximately 60% of BIR's sales and 70% of its profit result from
BIR's contract with the National Hot Rod Association for the national race
at the BIR race facility. The loss of the national race with the NHRA would
immediately impact the income potential of BIR. In 1998, BIR's name was
changed from Brainerd International Raceway, Inc. to The Colonel's Brainerd
International Raceway, Inc. to better reflect the racetrack's affiliation
with the Company and its products.
The Colonel's,
Inc.; Major Sale of Assets. The Colonel's was organized in 1982 and began producing and selling plastic bumpers and facias in 1983. By 1996, The Colonel's had grown through acquisitions and normal expansion to two manufacturing plants, five
distribution warehouses and a network of independent distributors that sold The Colonel's products throughout the United States, Canada, Mexico and the District of Columbia.
-2-
Last year,
substantially all of the assets of The Colonel's used
in its bumper production operations were sold to AutoLign Manufacturing Group, Inc.
pursuant to an Asset Purchase Agreement. This transaction was completed
on December 17, 1998. The sale consisted of substantially all of The Colonel's
inventory, machinery and equipment, accounts receivable and certain other assets.
AutoLign also assumed certain liabilities, such as accounts payable and
purchase commitments. Certain real estate and transportation equipment
that was not part of the sale remains with The Colonel's.
Purchase of Trader's
In May 1999,
CTA purchased the assets of Trader's LLC, a nationally known catalog retailer
of truck accessories, for $461,000 in cash and the assumption of $114,000
in liabilities. Trader's has a 42,000 square foot facility in Whittier,
California.
Sale/Consolidation of Stores
During June
1999, CTA sold its Pomona, California store and consolidated its Baldwin
Park, California store with its new Trader's store. It also consolidated
its Roswell, New Mexico and Ruidoso, New Mexico stores with its El Paso,
Texas store. In July 1999 CTA sold stores in Santa Clara, California
and Upland, California. CTA also merged its Los Angeles, California store
and the Rugged Liner warehouse in California into its new Trader's location
in Whittier, California and merged its Franklin, Tennessee store into its
Nashville, Tennessee store. The Wexford, Pennsylvania store was closed
in August 1999. Proceeds from the sale of stores totaled approximately
$180,000, predominantly for the sale of inventory. Revenue
for the locations sold or consolidated with other stores was approximately
$3,742,000 for the first nine months of 1999.
The Company
has entered into an agreement to sell the inventory and certain assets
of its Eastern Off Road stores which are comprised of the Uniontown, Pennsylvania
warehouse and store and stores in Pittsburgh, Pennsylvania; Greensburg,
Pennsylvania; Morgantown, West Virginia; Glen Burnie, Maryland; and Norfolk,
Virginia. The purchase price is estimated at $900,000, subject to adjustment
upon taking a physical inventory. The sum of $50,000 will be held in escrow
to resolve discrepancies. Sales for the Eastern Off Road stores for the
nine months ending September 30, 1999 were approximately $2,165,000.
The Company
does not expect an adverse impact on continuing operations due to cost
reductions and greater efficiencies associated with these activities. Proceeds
received on sales have been and will be used to help meet ongoing cash requirements of the
Company.
Discontinued Operations and Financial Statement Presentation
As noted above,
in December 1998, the Company sold its bumper manufacturing operations
to AutoLign. Thus, the comparative financial statements and the results
of operations have had previous years comparatives adjusted for discontinued
operations. The financial statements set
forth in Appendix A and the discussion below represent continuing operations
only. Also, see Note 13 to the financial statements set forth in Appendix A.
Liquidity and Capital Resources
The Company's
consolidated current assets decreased from $30,725,000 at December 31,
1998 to $15,736,000 at September 30, 1999. This decrease primarily relates
to capital expenditures made during this period for which the Company paid
cash and the advance of $5,175,000 cash to the majority
-3-
shareholder for a long-term note receivable. The Company's consolidated current liabilities
decreased from $13,628,000 at December 31, 1998 to $13,331,000 at September
30, 1999. This primarily relates to a $734,000 decrease in income tax payable, a $165,000
decrease in accounts payable and a $662,000 incerase in accrued expenses, attributable to the accrual of interest associated with the unpaid balance of the Company's 1998 Federal income tax liability.
Cash decreased
by $16,392,000 from the year end 1998 to September 30, 1999 due to acquisitions
of land and buildings, machinery and equipment, including an aircraft; racetrack
and concession improvements and grandstand additions; pay-offs of small
vehicle loans; and a loan advanced to the majority shareholder. The cash
balance was unusually high at the end of 1998 because of the sale of the
Company's bumper operations, which was completed in December 1998.
Accounts receivable
decreased by approximately $532,000, from $3,072,000 at year end to $2,541,000
at September 30, 1999. The Company's subsidiaries continue to offer to their customers early
payment discounts and incentives for prompt payments.
Notes receivable at September 30, 1999 increased by $5,272,000 over December 31, 1998, due to a note from the majority shareholder. This note is secured with a personal guarantee and calls for
monthly principal and interest payments. The financial statements included in Appendix A reflect payments on this note through June 1999. The July installment payment on the note was made after the end of the third quarter. Installments due on this note
after July have not yet been paid. Additional demand notes of $1,401,000 and $200,000 from the majority shareholder (which bear 8% interest) were outstanding as of September 30, 1999. Demand has been made on the $200,000 note, the principal and interest
of which was paid in full after the end of the third quarter. Interest on the $1,401,000 note is accrued through September 30, 1999 and was paid after the end of the third quarter. The majority shareholder and affiliated entities are in the process of
mortgaging certain of their property and have informed the Company that they intend to have financing in place within the next thirty days, at which time they will pay the debt they owe to the Company in full. During the third quarter of 1999, the Company
also established a land contract receivable. See Note 4 to the financial statements included in Appendix A.
Inventories increased by approximately $507,000 between December 31, 1998 and September 30, 1999, rising from $6,088,000 to $6,595,000, primarily as a result of the openings of additional retail
stores.
Prepaid expenses
decreased by $47,000 between December 31, 1998 and September 30, 1999.
The Company's prepaid expenses include advance rent payments and the last
month's rent for leased facilities. Security deposits are recorded
in deposits while the advance and last month's rent is recorded in prepaid
expenses.
Net deferred
taxes at December 31, 1998 of $1,042,000 decreased to $1,032,000 as of September
30, 1999.
Property, plant
and equipment increased by approximately $7,175,000 from December 31, 1998
to September 30, 1999, primarily due to the purchase of the Company's new
headquarters in Tecumseh, Michigan for $4,150,000, investment in land and
a building for $1,159,000, the purchase and refurbishment of an airplane
for $1,283,000, track and concession building improvements of $460,000,
bleacher additions of $603,000, and the purchase of production presses
for $855,000. These increases were offset by deprecation for the period
of $2,019,000. The Company's subsidiaries also disposed of certain land,
building, and production presses with a combined carrying value of $311,000,
recognizing a gain of $201,000.
-4-
An account
receivable from a related party of $261,000 was established in the third
quarter of 1999. The amount was subsequently paid in October 1999. See
Note 3 to the financial statements set forth in Appendix A.
Deferred compensation
decreased by $72,000 from year end 1998 to the end of the third quarter
of 1999, due to normal payments.
Deposits on
tools and machinery decreased by approximately $144,000 at September 30,
1999 compared to December 31, 1998, mainly due to the transfer of deposits
to tools and equipment that were put into service during the period.
Goodwill decreased
by approximately $442,000 from December 31, 1998 to September 30, 1999,
as a result of amortizing this goodwill over a seven-year period. The balance
in goodwill at September 30, 1999 was $3,727,000.
Liabilities and Equity
Accounts payable
decreased from $3,077,000 at December 31, 1998 to $2,909,000 at September
30, 1999, as a result of normal accounts payable activity.
Accrued expenses increased from $1,144,000 at December 31, 1998 to $1,807,000 at September 30, 1999, primarily due to interest associated with the late filing of the Company's 1998 corporate
income tax return. See Note 15 to the financial statements included in Appendix A.
Income taxes
payable decreased from $8,221,000 at December 31, 1998 to $7,488,000 at
September 30, 1999, primarily due to payments made.
Outstanding Loans
With the proceeds
of the December 1998 sale of The Colonel's assets described above, the
Company paid off its bank line of credit. The Company has suspended its
credit facilities with its current lending institution until the Company
deems it necessary to reopen borrowings. Interest paid during 1998 on a
monthly basis was at prime and was secured by all the Company's assets,
principally accounts receivable and inventory. BIR entered into a term
loan in August 1999 in the amount of $403,000. This loan is secured
by a permanent grandstand addition and requires annual principal payments
of $100,675, plus 9% interest, through 2003. BIR also has a term loan of $250,000 which is secured by property. The loan requires quarterly interest payments of 2% above the prime rate and a single principal payment of $50,000 each year through 2004.
In 1995, The
Colonel's leased $2,689,000 worth of equipment under a six-year equipment
lease agreement that calls for monthly payments of $41,000 and includes
an option to purchase the equipment for $1.00 upon expiration of the lease
term. The payment amounts under the lease represent principal payments,
with interest at rates between 7.5 and 8.75 percent. In 1996, The Colonel's
leased additional equipment in the amount of $3,744,000, structured in
the same manner noted as above. The balance on this leased equipment at
June 30, 1999 was $3,832,000.
The Company
believes that it will be able to satisfy ongoing cash requirements for
the next 12 months and thereafter with cash flows from operations and the
collection of notes receivable outstanding from the majority shareholder,
supplemented by borrowing arrangements that may be necessary from time
to time.
-5-
Results of Continuing Operations
Revenues from continuing operations were $11,330,000 for the quarter ended September 30, 1999, compared to $10,323,000 for the same period in 1998. The $1,007,000 growth in 1999 was primarily due
to the addition and acquisition of sixteen new factory warehouse/stores during 1997 and 1998. CTA was started in 1996 and has grown through acquisitions of retail outlet warehouses. CTA's revenues for the quarter ended September 30, 1999 were $6,896,000,
compared to $5,406,000 for the same period in 1998. Revenues for CRL, which was acquired in April 1998, decreased from $2,063,000 for the quarter ended September 30, 1998 to $1,498,000 for the quarter ended September 30, 1999. See Note 13 to the financial
statements included in Appendix A.
Revenues for the first nine months of 1999 were $8,280,000 greater than the same period in 1998, rising from $21,861,000 to $30,141,000. CTA's revenues increased from $14,665,000 for the nine
months ended September 30, 1998 to $21,183,000 for the nine months ended September 30, 1999. CRL's revenues increased from $3,954,000 (revenues prior to acquisition of CRL in April 1998 not included) for the nine months ended September 30, 1998 to
$5,675,000 for the same period in 1999. See "Sale/Consolidation of Stores" above and Note 13 to the financial statements included in Appendix A.
Cost of sales for the third quarters of 1999 and 1998 were 83% and 68%, respectively. Cost of sales for the first nine months of 1999 and 1998 were 84% and 74%, respectively. The Company has been
selling at lower gross margins in an effort to establish market share.
Selling, general and administrative expenses increased from 18% of sales in the third quarter of 1998 to 26% of sales in the third quarter of 1999. Selling, general and administrative expenses
increased from 18% of sales for the first nine months of 1998 to 26% of sales for the same period in 1999. These increases were partly the result of increased costs associated with the set-up, administration and promotion of additional retail stores.
Additionally, goodwill amortization increased in connection with the acquisition of CRL in April of 1998.
Interest expense increased from $221,000 for the third quarter of 1998 to $576,000 for the third quarter of 1999. This increase was due to the assessment of $498,000 interest by the Internal
Revenue Service (see Note 15 to the financial statements included in Appendix A), offset by the Company's ability to pay off the vehicle financing during the first quarter of 1999 and the reduction of debt amounts, resulting in lower interest expenses.
Interest expense increased from $627,000 for the nine months ending September 30, 1998 to $813,000 for the same period in 1999 due to the same factors.
Interest income increased in the third quarter of September 1999 by $85,000 over 1998 because of short term investment of excess cash and interest earned on notes receivable from the majority
shareholder. Interest income increased from $73,000 for the nine months ending September 30, 1998 to $504,000 for the same period in 1999 due to the same factors.
Rental income was $156,000 in the third quarter of 1999 and $424,000 for the nine months ending September 30, 1999, primarily due to the rental of production space at the Company's
headquarters in Tecumseh, Michigan to a third party. There was no rental income in 1998.
The Company
disposed of certain land, building and production presses with a combined
carrying of $311,000 recognizing a gain on sale of $201,000 in the third
quarter 1999, which is included in other income.
-6-
Results from continuing operations showed a loss of $1,936,000 for the nine months ended September 30, 1999, compared to income of $670,000 for the same period in 1998. Results from continuing
operations showed a loss of $674,000 for the third quarter of 1999, compared to income of $624,000 for the third quarter of 1998. These differences are primarily the result of lower gross margin and the increases in selling, general and administrative
expenses discussed above.
Market Risk Disclosure
The Company
from time to time purchases products from outside the United States. The
Company usually pays for its purchases in U.S. Dollars. These purchases
are based on the foreign countries' economic conditions and because the
Company markets and sells its products throughout the world, it could be
affected by a weak economic condition associated with a foreign entity.
Other than the term loans described above and the other items described in Note 8 to the financial statements included in Appendix A, the Company currently has no outstanding borrowings. When the
Company borrows money in the future, it may be exposed to changes in interest rates. The Company's interest rates are usually based on the prime rate. If this rate changes there could be an adverse effect on the Company's cash flow and profits. The
Company's loss from continuing operations during the first three quarters of 1999 may have an effect on its ability to borrow funds from lending institutions on favorable terms.
The Company
deals in a marketplace that generally has been favorably changing over
the past five years. The SUV market has increased in the last five years.
More new SUVs and trucks are now sold in the United States than new automobiles.
While this trend has generally had a positive impact on the Company, any
change in the buying habits of consumers could have an adverse effect on
the Company. Because the Company invests up front money in tooling to manufacture
parts for certain vehicle models, any downward trend in sales of such
models would change the product mix analysis and drive the Company's costs
higher.
Effects of Inflation
The Company
believes that the relatively moderate inflation rate over the last few
years has not had a significant impact on the Company's revenues or profitability.
The Company does not expect inflation to have any near-term material effect
on the sales of its products, although there can be no assurance that such
an effect will not occur in the future.
New Accounting Standards
In June 1998,
the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133") which is effective for fiscal years
beginning after June 15, 2000. This statement standardizes the accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts, by recognition of these items as assets and liabilities
in the statement of financial position and measurement at fair value. The
Company will adopt this statement effective January 1, 2001, as required.
The impact of SFAS No. 133 on the Company's financial position and results
of operations has not yet been determined.
-7-
Year 2000 Readiness Disclosure
With respect
to the Company's computer systems, the Company continues to implement changes
designed to provide accurate date recognition and data processing with
respect to the year 2000, including modifying existing computer programs
and converting to new programs. The Company has examined all of its computer
systems that it believes are affected by the year 2000 problem and believes
that all of the systems have been adequately upgraded or replaced. This
study has included all of the computer systems that are used to operate
the Company's accounting, billing and customers systems, inventory control,
purchasing and payroll, alarm systems, and machine controls.
With respect
to the Company's machinery and other equipment, the Company's management
has met with representatives of the primary manufacturer of such equipment
and has been assured that the equipment will not experience any material
system interruptions or failures as a result of the year 2000 issue. While
the Company has no reason to believe that the manufacturer's statements
are incorrect, the Company has not undertaken an independent investigation
of the year 2000 readiness of all of its machinery and other equipment.
The Company
has surveyed many of its significant suppliers and customers to determine
the extent to which the Company may be vulnerable to a failure by any of
these third parties to remediate their own year 2000 problems. Based on
these surveys, the Company believes that these third parties have satisfactory
plans in place to address the year 2000 problem. The Company does not have
any computer or other data links with its customers, suppliers or others.
To date, the
Company has spent approximately $270,000 to address the year 2000 issue
and estimates that it will additionally spend less than $10,000 before
year end. Such costs are being expensed as incurred and are not expected
to have a material impact on the Company's results of operations, liquidity
or financial position. The projected costs of year 2000 modifications and
the projected date on which the Company believes it will complete the project
are management's best estimates, based on a variety of assumptions. There
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated.
Management
does not expect any material disruptions to the Company's operations arising
from the failure of the Company's computer systems or other equipment to
properly handle the year 2000 issue. In most cases, the Company's inventories
of products should be sufficient to support sales for some period of time
following any such failure. If such problems were to continue for an extended
period of time, however, they could have a material impact on the Company's
results of operations, liquidity and financial position. In addition, the
Company could face potential adverse effects if external systems, such
as telephone lines or electrical service, were rendered inoperable due
to the year 2000 issue. Furthermore, while as noted above certain third
parties have stated that they are year 2000 compliant or will be in the
near future, there can be no assurances that such third parties will not
experience year 2000 problems of their own, thereby disrupting the Company's
operations.
The Company intends to finalize a Year 2000 contingency prior to the end of the year.
This Year 2000
Readiness Disclosure is based in part on and repeats information supplied
by outside sources, including the Company's customers and suppliers. Although
the Company has no reason to believe that this information is inaccurate,
the Company is not the source of this information and in most cases has
not independently verified its accuracy.
-8-
Subsequent Event
As discussed
in Note 15 to the financial statements included in Appendix A,
the Company recently received a notice from the Internal Revenue Service
assessing penalties of $2,442,000 and interest of approximately $574,000 arising out
of the Company's failure to timely file its 1998 corporate tax return and
pay the taxes associated with that return. While the Company intends to
dispute this assessment, an unfavorable outcome could materially adversely
affect the Company's financial position and results of operations. See Note 15 to the financial statements included in Appendix A.
Forward-Looking Statements
With the exception
of historical matters, the matters discussed in this report, particularly
descriptions of the Company's plans to develop the business of CTA, contain
forward-looking statements that are based on management's beliefs, assumptions,
current expectations, estimates and projections about the industries in
which the Company operates, the economy, and about the Company itself.
Words such as "anticipates," "believes," "estimates," "expects," "intends,"
"is likely," "plans," "predicts," "projects," variations of such words
and similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions ("Future Factors") that are difficult
to predict with regard to timing, extent, likelihood and degree of occurrence.
Therefore, actual results and outcomes may materially differ from what
may be expressed or forecasted in such forward-looking statements. Furthermore,
the Company undertakes no obligation to update, amend or clarify forward-looking
statements, whether as a result of new information, future events or otherwise.
Future Factors
include, but are not limited to, uncertainties relating to changes in demand
for the Company's products or trucks and SUVs; the cost and availability
of inventories, raw materials and equipment to the Company; the degree
of competition by the Company's competitors; changes in government and
regulatory policies; and changes in economic conditions. These matters
are representative of the Future Factors that could cause a difference
between an ultimate actual outcome and a forward-looking statement.
Item 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See the discussion
under "Market Risk Disclosure" in Item 2 above, which is herein incorporated
by reference.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information contained in Note 10 to the financial statements included in Appendix A is herein incorporated by reference.
ITEM 6. EXHIBITS AND REPORTS
ON FORM 8-K.
(a) Exhibits.
The following exhibits are filed as part of this report.
- -9-
Exhibit
Number |
|
Description |
| |
|
|
| 2.1 |
|
Agreement and Plan of Merger between
The Colonel's, Inc. and Brainerd Merger Corporation and joined in by Brainerd
International, Inc. Incorporated by reference from Exhibit A to the Proxy
Statement of Brainerd International, Inc. for the Annual Meeting of Shareholders
of Brainerd International, Inc. held on November 21, 1995. |
| |
|
|
| 2.2 |
|
Agreement and Plan of Reorganization
among Brainerd International, Inc. and The Colonel's Holdings, Inc. Incorporated
by reference from Exhibit D to the Proxy Statement of Brainerd International,
Inc. for the Annual Meeting of Shareholders of Brainerd International,
Inc. held on November 21, 1995. |
| |
|
|
| 2.3 |
|
Amended and Restated Asset Purchase
Agreement by and between Colonel's Acquisition Corp. (later renamed AutoLign
Manufacturing Group, Inc.), The Colonel's International, Inc., The Colonel's,
Inc. and Donald J. Williamson dated November 23, 1998. Incorporated by
reference to Appendix A to the Company's Definitive Proxy Statement filed
with the Securities and Exchange Commission on December 7, 1998. |
| |
|
|
| 2.4 |
|
First Amendment to Amended and
Restated Asset Purchase Agreement by and between AutoLign Manufacturing
Group, Inc. (formerly known as Colonel's Acquisition Corp.), The Colonel's
International, The Colonel's, Inc. and Donald J. Williamson dated December
17, 1998. Incorporated by reference to Exhibit 2(b) to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on December
30, 1998. |
| |
|
|
| 2.5 |
|
Agreement and Plan of Merger by
and among The Colonel's International, Inc., The Colonel's Rugged Liner,
Inc., Rugged Liner, Inc., Triad Management Group, Inc., Aerocover, Inc.,
Ground Force, Inc., and certain shareholders of the foregoing, dated March
13, 1998. Incorporated by reference to Exhibit 2(a) to the Company's Current
Report on Form 8-K dated May 8, 1998. |
| |
|
|
| 2.6 |
|
First Amendment to Agreement and
Plan of Merger, by and among The Colonel's International, Inc., The Colonel's
Rugged Liner, Inc., Rugged Liner, Inc., Triad Management Group, Inc., Aerocover,
Inc., Ground Force, Inc., and certain shareholders of the foregoing, dated
April 23, 1998. Incorporated by reference to Exhibit 2(b) to the Company's
Current Report on Form 8-K dated May 8, 1998. |
| |
|
|
| 3.1 |
|
Articles of Incorporation of the
Company, as amended. Incorporated by reference from Exhibit 3.1 to the
Company's Report on Form 10-Q for the period ended March 31, 1997. |
| |
|
|
| 3.2 |
|
Bylaws of the Company, as amended.
Incorporated by reference from Exhibit 3.2 to the Company's Report on Form
10-Q for the period ended March 31, 1997. |
| |
|
|
| 27 |
|
Financial Data Schedule. |
(b) Reports on
Form 8-K. The Company did not file any reports on Form 8-K during
the quarter ended September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: November 22, 1999 |
THE COLONEL'S INTERNATIONAL, INC.
By: /s/ Gregory Strzynski
Gregory Strzynski
Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer of the Company) |
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APPENDIX A
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
| |
September 30,
1999
(unaudited)
|
|
December 31,
1998
(audited)
|
| ASSETS |
|
|
|
| |
| CURRENT ASSETS: |
|
|
|
| Cash |
$ 1,911,314
|
|
$ 18,303,097
|
| Accounts receivable - trade
(net of allowance |
|
|
|
| for doubtful
accounts of $988,000 and $1,048,000 |
|
|
|
| at June
30, 1999 and December 31, 1998, |
|
|
|
|
respectively) |
2,540,602
|
|
3,072,330
|
| Notes receivable from majority
shareholder (Note 2) |
1,965,503
|
|
1,600,787
|
| Account receivable - related
party (Note 3) |
260,524
|
|
-
|
| Land contract receivable
(Note 4) |
9,188
|
|
-
|
| Inventories (Note 5) |
6,595,226
|
|
6,088,332
|
| Prepaid expense |
475,767
|
|
522,793
|
| Deferred taxes - current |
1,031,586
|
|
1,042,000
|
| Current portion of deferred
compensation |
70,194
|
|
95,667
|
| Federal income taxes receivable |
875,805
|
|
--
|
| |
|
|
|
|
Total current assets |
15,735,709
|
|
30,725,006
|
| |
|
|
|
| PROPERTY, PLANT, AND EQUIPMENT
- - Net (Note 6) |
24,104,210
|
|
16,929,227
|
| |
|
|
|
| OTHER ASSETS: |
|
|
|
| Note receivable from majority
shareholder (Note 2) |
4,906,788
|
|
-
|
| Land contract receivable
(Note 4) |
125,812
|
|
-
|
| Long-term portion of deferred
compensation |
127,400
|
|
173,678
|
| Deposits |
102,019
|
|
246,044
|
| Goodwill |
3,726,853
|
|
4,168,589
|
| Other |
3,548
|
|
180,349
|
|
Total other assets |
8,992,420
|
|
4,768,660
|
| |
|
|
|
| TOTAL ASSETS |
$ 48,832,339
|
|
$ 52,422,893
|
A-1
| |
September 30,
1999
(unaudited)
|
|
December 31,
1998
(audited)
|
| LIABILITIES & SHAREHOLDERS'S
EQUITY |
|
|
|
| |
| CURRENT LIABILITIES: |
|
|
|
| Current portion of long-term
obligations (Note 8) |
$ 1,057,155
|
|
$ 1,089,138
|
| Accounts payable - trade |
2,909,139
|
|
3,077,409
|
| Accrued expenses (Note
7) |
1,806,610
|
|
1,144,370
|
| Current portion of deferred
compensation |
70,194
|
|
95,667
|
| Income taxes payable (Note
15) |
7,488,246
|
|
8,221,895
|
| |
|
|
|
|
Total current liabilities |
13,331,344
|
|
13,628,479
|
| |
|
|
|
| LONG-TERM OBLIGATIONS, NET OF |
|
|
|
| CURRENT PORTION (Note 8) |
3,482,548
|
|
3,942,686
|
| LONG-TERM PORTION OF DEFERRED |
|
|
|
| COMPENSATION |
127,400
|
|
173,678
|
| |
|
|
|
| DEFERRED TAXES - LONG-TERM |
1,271,414
|
|
1,191,000
|
| |
|
|
|
| SHAREHOLDERS'S EQUITY: |
|
|
|
| Common stock: 35,000,000
shares authorized |
|
|
|
| at $0.01
par value 24,631,832 issued |
246,318
|
|
246,318
|
| Additional paid-in-capital |
9,230,911
|
|
9,230,911
|
| Retained earnings |
22,073,493
|
|
24,009,821
|
| Less common stock redeemed,
113,506 shares (Note 12) |
(931,089
|
) |
--
|
| |
|
|
|
|
Total shareholders' equity |
30,619,633
|
|
33,487,050
|
| |
|
|
|
| TOTAL LIABILITIES & SHAREHOLDER'S
EQUITY |
$ 48,832,339
|
|
$ 52,422,893
|
A-2
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
| |
Nine Months Ending
September 30
|
|
Three Months Ending
September 30
|
|
| |
|
|
|
|
|
|
|
|
| |
1999
|
|
1998
|
|
1999
|
|
1998
|
|
| SALES |
$ 30,140,798
|
|
$ 21,860,695
|
|
$ 11,329,922
|
|
$ 10,323,303
|
|
| |
|
|
|
|
|
|
|
|
| COST OF SALES |
25,315,132
|
|
16,099,410
|
|
9,363,082
|
|
7,004,009
|
|
| |
|
|
|
|
|
|
|
|
| GROSS PROFIT |
4,825,666
|
|
5,761,285
|
|
1,966,840
|
|
3,319,294
|
|
| |
|
|
|
|
|
|
|
|
| SELLING, GENERAL AND |
|
|
|
|
|
|
|
|
| ADMINISTRATIVE EXPENSES |
7,814,129
|
|
4,155,946
|
|
2,915,760
|
|
1,867,876
|
|
| |
|
|
|
|
|
|
|
|
| INCOME (LOSS) FROM |
|
|
|
|
|
|
|
|
| OPERATIONS |
(2,988,463
|
) |
1,605,339
|
|
(948,920
|
) |
1,451,418
|
|
| |
|
|
|
|
|
|
|
|
| OTHER INCOME (EXPENSE): |
|
|
|
|
|
|
|
|
| Interest
expense |
(812,647
|
) |
(626,880
|
) |
(576,274
|
) |
(221,168
|
) |
| Interest
income |
503,890
|
|
73,238
|
|
146,803
|
|
62,117
|
|
| Rental
income |
423,760
|
|
-
|
|
155,972
|
|
-
|
|
| Other |
268,128
|
|
(25,442
|
) |
252,179
|
|
352
|
|
| |
|
|
|
|
|
|
|
|
|
Other income (expense) net |
383,131
|
|
(579,084
|
) |
(21,320
|
) |
(158,699
|
) |
| |
|
|
|
|
|
|
|
|
| INCOME (LOSS) FROM |
|
|
|
|
|
|
|
|
| CONTINUING OPERATIONS |
|
|
|
|
|
|
|
|
| BEFORE
INCOME TAX |
|
|
|
|
|
|
|
|
|
BENEFIT (EXPENSE) |
(2,605,332
|
) |
1,026,255
|
|
(970,240
|
) |
1,292,719
|
|
| |
|
|
|
|
|
|
|
|
| Income Tax Benefit (Expense) |
669,004
|
|
(356,558
|
) |
295,940
|
|
(668,302
|
) |
| |
|
|
|
|
|
|
|
|
| INCOME (LOSS) FROM |
|
|
|
|
|
|
|
| CONTINUING OPERATIONS |
(1,936,328
|
) |
669,697
|
|
(674,300
|
) |
624,417
|
|
| |
|
|
|
|
|
|
|
|
| DISCONTINUED OPERATIONS: |
|
|
|
|
|
|
|
|
|
Income (loss) from Discontinued |
|
|
|
|
|
|
|
|
Operations, Net of Tax |
--
|
|
1,816,020
|
|
--
|
|
(79,886
|
) |
| |
|
|
|
|
|
|
|
|
| NET (LOSS) INCOME |
$ (1,936,328
|
) |
$ 2,485,717
|
|
$ (674,300
|
) |
$ 544,531
|
|
| |
|
|
|
|
|
|
|
|
| BASIC AND DILUTED EARNINGS |
|
|
|
|
|
|
|
|
| PER SHARE
(Note 9) |
|
|
|
|
|
|
|
|
| From
continuing operations |
$(0.08
|
) |
$ 0.03
|
|
$(0.03
|
) |
$ 0.03
|
|
| Income
from discontinued operations |
$ 0.00
|
|
$ 0.07
|
|
$ 0.00
|
|
$ (0.01
|
) |
| |
|
|
|
|
|
|
|
|
| Net Income |
$(0.08
|
) |
$ 0.10
|
|
$(0.03
|
) |
$ 0.02
|
|
A-3
THE COLONEL'S INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| |
|
Nine Months Ending
September 30
|
|
| |
|
|
|
|
|
| |
|
1999
|
|
1998
|
|
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
| |
|
|
|
|
|
| Net (Loss) Income |
|
$ (1,936,328
|
) |
$ 2,485,717
|
|
| |
|
|
|
|
|
| Adjustments to reconcile net income
(loss) to net cash |
|
|
|
|
|
| provided
by operating activities: |
|
|
|
|
|
| Income
from discontinued operations |
|
--
|
|
(1,816,020
|
) |
| Depreciation
and amortization |
|
2,566,366
|
|
1,887,601
|
|
| Deferred
tax provision |
|
90,828
|
|
294,644
|
|
|
(Gain) Loss in sale of property |
|
(201,270
|
) |
--
|
|
| |
|
|
|
|
|
| Changes in assets and liabilities
that provided (used) cash |
|
|
|
|
|
| |
|
|
|
|
|
| Accounts
receivable |
|
531,728
|
|
(2,085,336
|
) |
| Inventories |
|
(506,894
|
) |
(3,643,950
|
) |
| Prepaid
expenses |
|
47,026
|
|
18,356
|
|
| Federal
income taxes receivable |
|
(875,805
|
) |
--
|
|
| Other
assets |
|
(83,723
|
) |
74,550
|
|
| Accounts
payable |
|
(168,269
|
) |
1,276,366
|
|
| Accrued
expenses |
|
662,239
|
|
(290,231
|
) |
| Goodwill |
|
(105,995
|
) |
--
|
|
| Income taxes payable |
|
(733,649
|
) |
496,965
|
|
| |
|
|
|
|
|
| Net cash
used in continuing operations |
|
(713,746
|
) |
(1,301,338
|
) |
| Net cash
provided by discontinued operations |
|
--
|
|
5,988,985
|
|
| |
|
|
|
|
|
| Net cash
(used in) provided by operating activities |
|
(713,746
|
) |
4,687,647
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
| |
|
|
|
|
|
| Acquisitions
of consolidated subsidiaries, net of cash required |
|
--
|
|
(5,082,150
|
) |
| Expenditures
for property, plant and equipment |
|
(9,504,494
|
) |
(616,062
|
) |
| Proceeds
from sale of property and equipment |
|
512,146
|
|
--
|
|
| Net change
in deposits |
|
144,025
|
|
(1,674,744
|
) |
| Additions
to notes receivable-related party |
|
(5,398,169
|
) |
--
|
|
| Payments
received on notes receivable-related party |
|
126,665
|
|
--
|
|
| Land
contract receivable |
|
(135,000
|
) |
--
|
|
| Payment
to stockholder for deposit on land |
|
--
|
|
(48,406
|
) |
| Net cash
used in continuing investing activities |
|
(14,254,827
|
) |
(7,421,362
|
) |
| |
|
|
|
|
|
| Net cash
used in discontinued investing activities |
|
--
|
|
(1,286,954
|
) |
| |
|
|
|
|
|
| Net cash
used in investing activities |
|
(14,254,827
|
) |
(8,708,316
|
) |
A-4
| |
|
|
|
|
|
| |
|
|
|
|
|
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
| |
|
|
|
|
|
| Net borrowings
(payments) under notes payable |
|
--
|
|
450,132
|
|
| Proceeds
from long-term obligations |
|
402,700
|
|
5,887,430
|
|
| Principal
payments on long-term debt |
|
(326,821
|
) |
(2,067,172
|
) |
| Principal
payments on obligations under capital leases |
|
(568,000
|
) |
(673,132
|
) |
| Common
stock redeemed |
|
(931,089
|
) |
--
|
|
| |
|
|
|
|
|
| Net cash
(used in) provided by financing activities |
|
(1,423,210
|
) |
3,597,258
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| NET (DECREASE) IN CASH |
|
$ (16,391,783
|
) |
$ (423,411
|
) |
| |
|
|
|
|
|
| CASH , BEGINNING OF PERIOD |
|
18,303,097
|
|
1,723,652
|
|
| |
|
|
|
|
|
| CASH, END OF PERIOD |
|
$ 1,911,314
|
|
$ 1,300,241
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| SUPPLEMENTAL SCHEDULES OF NONCASH |
|
|
|
|
|
| FINANCING AND INVESTING
ACTIVITIES: |
|
|
|
|
|
| |
|
|
|
|
|
| Future inventory credits issued |
|
|
|
|
|
|
in connection with acquisitions (Note 14) |
|
$
- -
|
|
$ 513,223
|
|
| |
|
|
|
|
|
| Common
stock issued in connection with the acquisition |
|
|
|
|
|
| of the
Rugged Liner Companies (Note 14) |
|
$
- -
|
|
$ 3,677,619
|
|
A-5
THE COLONEL'S INTERNATIONAL, INC.
Notes to Consolidated Financial Statements (Unaudited)
| Note 1 |
BASIS OF PRESENTATION |
| |
|
| |
The financial information included
herein is unaudited; however such information reflects all adjustments
(consisting solely of normal recurring adjustments) that are, in the opinion
of management, necessary for a fair presentation of the results of operations,
financial position and cash flows for the periods presented. |
| |
|
| |
The results of operations for
the nine months ended September 30, 1999 are not necessarily indicative
of the results expected for the full year. |
| |
|
| |
In June 1997, the Financial Accounting
Standards Board (FASB) issued Statements of Financial Accounting Standards
(SFAS) No. 130, "Reporting Comprehensive Income," which is effective for
fiscal years beginning after December 15, 1997. The statement changes the
reporting of certain items currently reported in the shareholders' equity
section of the balance sheet and establishes standards for reporting of
comprehensive income and its components in a full set of general purpose
financial statements. For all periods presented, comprehensive income (loss)
equals net income (loss). |
| |
|
| Note 2 |
NOTES RECEIVABLE FROM
MAJORITY SHAREHOLDER |
| |
|
| |
During the first quarter of 1999, a note receivable from the majority shareholder of $5,175,000 was established. The note requires monthly payments of $43,976, including principal and interest at 8.0%, through
February 2005, at which time the unpaid balance is due. These financial statements reflect payments on this note through June 1999. The July installment payment on the note was made after the end of the third quarter. Installments due on this note after
July have not yet been paid. Additional demand notes of $1,401,000 and $200,000 from the majority shareholder (which bear 8% interest) were outstanding as of September 30, 1999. Demand has been made on the $200,000 note, the principal and interest of
which was paid in full after the end of the third quarter. Interest on the $1,401,000 note, which was due on November 13, 1999, is accrued through September 30, 1999 and was paid after the end of the third quarter. The majority shareholder and affiliated
entities are in the process of mortgaging certain of their property and have informed the Company that they intend to have financing in place within the next thirty days, at which time they will pay the debt they owe to the Company in full. |
| |
|
| Note 3 |
ACCOUNT RECEIVABLE - RELATED
PARTY |
| |
|
| |
During the third quarter of 1999,
the Company paid payroll and related expenses in the amount of $260,524
on behalf of a related party. This amount was paid in full after the close
of the third quarter. |
| |
|
A-6
| Note 4 |
LAND CONTRACT RECEIVABLE |
| |
|
| |
During the third quarter of 1999,
a land contract receivable of $135,000 was established in connection with
the sale of land and a building. The land contract requires monthly payments
of $1,638 including principal and interest at 8% through 2009. |
| |
|
| Note 5 |
INVENTORIES |
| |
Inventories are summarized as
follows: |
September 30,
|
|
December 31,
|
| |
|
1999
|
|
1998
|
| |
|
(unaudited)
|
|
(audited)
|
| |
Finished products |
$ 6,038,026
|
|
$ 5,701,017
|
| |
Raw materials |
557,200
|
|
387,315
|
| |
|
|
|
|
| |
Total inventories |
$ 6,595,226
|
|
$ 6,088,332
|
| Note 6 |
PROPERTY, PLANT AND EQUIPMENT |
| |
|
| |
Property, plant and equipment
is summarized by major classification as follows: |
| |
September 30,
1999
(unaudited)
|
|
December 31,
1998
(audited)
|
|
| Land and improvements |
$ 5,926,217
|
|
$ 3,276,217
|
|
| Track |
1,798,702
|
|
1,781,299
|
|
| Buildings |
4,740,198
|
|
1,201,433
|
|
| Leasehold improvements |
241,413
|
|
751,642
|
|
| Bleachers & fencing |
1,512,916
|
|
755,662
|
|
| Equipment |
10,803,212
|
|
9,623,859
|
|
| Transportation equipment |
2,348,845
|
|
1,246,535
|
|
| Furniture & fixtures |
957,670
|
|
853,624
|
|
| Tooling |
3,775,126
|
|
3,483,510
|
|
| Total |
32,104,299
|
|
22,973,781
|
|
| Less
accumulated depreciation |
(8,000,089
|
) |
(6,044,554
|
) |
| |
|
|
|
|
| Net property, plant and equipment |
$ 24,104,210
|
|
$ 16,929,227
|
|
| Note 7 |
ACCRUED EXPENSES |
| |
|
| |
Accrued expenses consist of the
following: |
| |
|
September 30,
|
|
December 31,
|
| |
|
1999
|
|
1998
|
| |
|
(unaudited)
|
|
(audited)
|
| |
Accrued interest |
$ 515,184
|
|
--
|
| |
Accrued settlements |
398,000
|
|
$ 562,663
|
| |
Accrued taxes |
--
|
|
203,726
|
| |
Accrued wages and related taxes |
393,505
|
|
--
|
| |
Other |
499,921
|
|
377,981
|
| |
|
|
|
|
| |
|
|
|
|
| |
Total |
$ 1,806,610
|
|
$ 1,144,370
|
A-7
| Note 8 |
LONG TERM OBLIGATIONS |
| |
|
| |
Long term obligations consists
of the following: |
| |
|
September 30,
|
|
December 31,
|
|
| |
|
1999
|
|
1998
|
|
| |
|
(unaudited)
|
|
(audited)
|
|
| |
|
|
|
|
|
| |
Term loan, annual installments
of $100,675 plus interest at |
|
|
|
|
| |
9% through May 2003.
Secured by related asset |
$ 402,700
|
|
-
|
|
| |
Mortgage payable to a bank, interest
at the bank's prime |
|
|
|
|
| |
rate plus 2% (effective
rate of 10.25% at September 30, 1999), |
|
|
|
|
| |
annual principal
payments of $50,000 plus interest due quarterly, |
|
|
|
| |
through September
2004. Secured by underlying property. |
250,000
|
|
300,000
|
|
| |
Capital lease obligations through
December 2002; |
|
|
|
|
| |
monthly installments
include interest at rates between |
|
|
|
|
| |
7.5% and 8.75%, collateralized
by the related machinery |
|
|
|
|
| |
and equipment. |
3,831,655
|
|
4,399,655
|
|
| |
Capital lease obligation through
March 1999; monthly |
|
|
|
|
| |
installments of $15,987
including interest at 8.5% |
--
|
|
47,594
|
|
| |
Vehicle Financing |
--
|
|
136,245
|
|
| |
Other |
55,348
|
|
148,330
|
|
| |
Total |
4,539,703
|
|
5,031,824
|
|
| |
|
|
|
|
|
| |
Less current portion |
(1,057,155)
|
|
(1,089,138)
|
|
| |
|
|
|
|
|
| |
Long-term portion |
$ 3,482,548
|
|
$ 3,942,686
|
|
| Note 9 |
EARNINGS PER SHARE |
| |
|
| |
In accordance with SFAS 128, basic
earnings per share for September 30, 1999 and 1998 is calculated as net
income divided by the weighted average number of common shares outstanding.
Diluted earnings per share was calculated as net income divided by the
weighted average number of common shares outstanding increased by the number
of additional common shares that would have been outstanding if the dilutive
shares had been issued. Due to the small number of additional potentially
dilutive shares, there was no material effect on earnings per share, therefore
basic and diluted earnings per share are the same. |
| |
|
| Note 10 |
LITIGATION |
| |
|
| |
The Company is a defendant in a lawsuit now pending in U.S. District Court for the Southern District of California alleging breach of contract, fraud, unfair trade practices and unfair business practices in
connection with a distribution agreement between the Company and the plaintiff. The Court has dismissed all of the unfair labor practice and unfair trade practice claims with prejudice. The plaintiff recently offered to settle the case for $150,000
which amount was rejected by the Company. The Company has filed a counterclaim alleging breach of agreement and breach of the covenant of good faith and fair dealing and trade libel. The Company is vigorously defending the action and prosecuting its
counterclaim. |
| |
|
| |
No material developments in the
litigation discussed in the Company's Report on Form 10-K for the year
ended December 31, 1998 occurred during the third quarter of 1999. |
| |
|
A-8
| Note 11 |
ENVIRONMENTAL |
| |
|
| |
Subsequent to the close of the third quarter, the Company received $122,000 out of the environmental escrow fund established in 1998 in connection with the sale of The Colonel's assets to AutoLign. |
| |
|
| |
No other material developments in the environmental matters discussed in the Company's Report on Form 10-K for the year ended December 31, 1998 occurred during the third quarter of 1999. |
| |
|
| Note 12 |
REDEEMED COMMON STOCK |
| |
|
| |
Pursuant to the Merger Agreement
between the Company and the Rugged Liner Companies, on March 6, 1999, the
shareholders of the Rugged Liner Companies exercised 25% of their put option.
Consequently, the Company redeemed 113,506 of their shares at $8.20 per
share for a total redemption price of $931,089. |
| |
|
| Note 13 |
SEGMENTS OF BUSINESS |
| |
|
| |
In 1998 the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of
an Enterprise and Related Information," which established standards for
reporting information about operating segments and requires selected information
about operating segments in interim financial reports issued to stockholders.
The statement also establishes standards for related disclosures about
products and services, geographic areas, and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-maker is its Chief Executive Officer. |
| |
|
| |
The Company's reportable segments
are strategic business units that offer different products and services.
The business units have been divided into two reportable segments; the
manufacturing plants in Owosso, Michigan and Union Town, Pennsylvania,
and sale of these bedliners and other truck accessories throughout the
country ("Truck Accessories"), and operation of a multi-purpose motor sports
facility in Brainerd, Minnesota ("Raceway"). |
| |
|
| |
The Company evaluates performance
based on stand-alone product segment operating income. Intersegment sales
and transfers, interest income and expenses are not significant. Reportable
segments for 1999 and 1998 have been restated to exclude the "bumper segment"
which was discontinued during 1998. |
| |
|
A-9
| |
Financial information segregated
by reportable product segments is as follows: |
| |
|
Nine Months Ending
September 30
(unaudited)
|
|
Three Months Ending
September 30
(unaudited)
|
| |
|
|
|
|
|
|
|
|
| |
|
1999
|
|
1998
|
|
1999
|
|
1998
|
| |
Sales: |
|
|
|
|
|
|
|
| |
Truck |
|
|
|
|
|
|
|
| |
Accessories |
$ 26,858,678
|
|
$ 18,619,578
|
|
$ 8,393,388
|
|
$ 7,468,772
|
| |
Raceway |
3,282,120
|
|
3,241,117
|
|
2,936,534
|
|
2,854,531
|
| |
Sub-Total |
30,140,798
|
|
21,860,695
|
|
11,329,922
|
|
10,323,303
|
| |
Discontinued |
|
|
|
|
|
|
|
| |
Operations |
--
|
|
21,473,232
|
|
--
|
|
6,969,784
|
| |
Total |
$ 30,140,798
|
|
$ 43,333,927
|
|
$ 11,329,922
|
|
$ 17,293,087
|
| |
|
|
|
|
|
|
|
|
| |
Income From |
|
|
|
|
|
|
|
| |
Operations: |
|
|
|
|
|
|
|
| |
Truck |
|
|
|
|
|
|
|
| |
Accessories |
(2,684,148
|
) |
1,430,709
|
|
(1,438,454
|
) |
653,521
|
| |
Raceway |
(304,315
|
) |
174,630
|
|
489,534
|
|
797,897
|
| |
Sub-Total |
(2,988,463
|
) |
1,605,339
|
|
(948,920
|
) |
1,451,418
|
| |
Discontinued |
|
|
|
|
|
|
|
| |
Operations |
--
|
|
2,770,554
|
|
--
|
|
118,875
|
| |
Total |
$ (2,988,463
|
) |
$ 4,375,893
|
|
$ (948,920
|
) |
$ 1,570,293
|
| Note 14 |
ACQUISITIONS |
| |
|
| |
During 1998, the Company acquired inventory of $1,281,000, accounts receivable of $219,000, property of $974,000, other assets of $42,000, debt of $432,000, accounts payable of $359,000 and other liabilities of
$47,000 in seven separate purchases. The total cash paid for the assets was approximately $1,265,000. In addition to cash paid, the Company provided the seller with future credits for the purchase of $513,000 of the Company's inventory. Goodwill of
approximately $100,000 has been recorded as a result of these acquisitions, and is being amortized over seven years. The acquisitions have been accounted for under the purchase method and, accordingly, the results of operations are included in the
consolidated operating results since the date of acquisition. These acquisitions were made for the purpose of expanding CTA. |
| |
|
| |
Also, during the second quarter of 1998, the Company acquired the Rugged Liner Companies. The acquisition has been accounted for under the purchase method, and accordingly the results of operations are included in
the consolidated operating results since the date of acquisition. The allocation of the purchase price to the net assets acquired resulted in the Company acquiring inventory of $899,000, accounts receivable of $1,052,000, property of $2,389,000, other
assets of $109,000, debt of $13,000, accounts payable of $575,000 and other liabilities of $150,000. The total cash, stock (454,027 shares), and other consideration paid for assets, exclusive of the liabilities assumed, was $7,908,000. Goodwill of
approximately $4,197,000 has been recorded as a result of this acquisition and is being amortized over seven years. In accordance with the Asset Purchase Agreement each share of buyer's common stock issued to the shareholders of the Rugged Liner
Companies is subject to the right to require the Company to redeem such shares up to 25% annually beginning in 1999 and ending in 2002. The |
A-10
| |
redemption price is not to be less than the per share price of $8.20 as initially calculated on the purchase date. |
| |
|
| Note 15 |
SUBSEQUENT EVENTS |
| |
|
| |
The Company has received a notice from the Internal Revenue Service regarding the Company's failure to timely file its 1998 corporate income tax return and timely pay the taxes associated with that return. The IRS
has assessed penalties of $2,442,000 and interest of approximately $574,000 on a tax liability of approximately $8,488,000. While the Company is vigorously contesting these penalties, it is unknown at this time whether the Company will be successful in
this dispute. The effect of the penalties has not been reflected in these financial statements, although interest of approximately $498,000 has been accrued in the Company's September 30, 1999 financial statements. |
| |
|
| |
The Company is making monthly payments of $500,000 toward its outstanding tax liability and to date has paid a total of $875,000. The Company is in the process of selling unneeded assets to raise capital funds. In
addition, the majority shareholder and affiliates are remortgaging certain property and have informed the Company that they intend to pay the debt owed to the Company in full within the next thirty days. See Note 2. |
|
|
| |
The Company has entered into an
agreement to sell the inventory and certain assets of its Eastern Off Road
stores compromised of the Uniontown, Pennsylvania warehouse and store;
and stores in Pittsburgh, Pennsylvania; Greensburg, Pennsylvania; Morgantown,
West Virginia; Glen Burnie, Maryland; and Norfolk, Virginia. The purchase
price is estimated at $900,000 subject to adjustment upon taking a physical
inventory for the Eastern Off Road stores. The sum of $50,000 will be held
in escrow to resolve discrepancies. Sales for the Eastern Off Road stores for
the nine months ending September 30, 1999 were approximately $2,165,000. |
A-11
EXHIBIT INDEX
Exhibit
Number |
Description |
| |
|
| 2.1 |
Agreement and Plan of Merger between
The Colonel's, Inc. and Brainerd Merger Corporation and joined in by Brainerd
International, Inc. Incorporated by reference from Exhibit A to the Proxy
Statement of Brainerd International, Inc. for the Annual Meeting of Shareholders
of Brainerd International, Inc. held on November 21, 1995. |
| |
|
| 2.2 |
Agreement and Plan of Reorganization
among Brainerd International, Inc. and The Colonel's Holdings, Inc. Incorporated
by reference from Exhibit D to the Proxy Statement of Brainerd International,
Inc. for the Annual Meeting of Shareholders of Brainerd International,
Inc. held on November 21, 1995. |
| |
|
| 2.3 |
Amended and Restated Asset Purchase
Agreement by and between Colonel's Acquisition Corp. (later renamed AutoLign
Manufacturing Group, Inc.), The Colonel's International, Inc., The Colonel's,
Inc. and Donald J. Williamson dated November 23, 1998. Incorporated by
reference to Appendix A to the Company's Definitive Proxy Statement filed
with the Securities and Exchange Commission on December 7, 1998. |
| |
|
| 2.4 |
First Amendment to Amended and
Restated Asset Purchase Agreement by and between AutoLign Manufacturing
Group, Inc. (formerly known as Colonel's Acquisition Corp.), The Colonel's
International, The Colonel's, Inc. and Donald J. Williamson dated December
17, 1998. Incorporated by reference to Exhibit 2(b) to the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on December
30, 1998. |
| |
|
| 2.5 |
Agreement and Plan of Merger by
and among The Colonel's International, Inc., The Colonel's Rugged Liner,
Inc., Rugged Liner, Inc., Triad Management Group, Inc., Aerocover, Inc.,
Ground Force, Inc., and certain shareholders of the foregoing, dated March
13, 1998. Incorporated by reference to Exhibit 2(a) to the Company's Current
Report on Form 8-K dated May 8, 1998. |
| |
|
| 2.6 |
First Amendment to Agreement and
Plan of Merger, by and among The Colonel's International, Inc., The Colonel's
Rugged Liner, Inc., Rugged Liner, Inc., Triad Management Group, Inc., Aerocover,
Inc., Ground Force, Inc., and certain shareholders of the foregoing, dated
April 23, 1998. Incorporated by reference to Exhibit 2(b) to the Company's
Current Report on Form 8-K dated May 8, 1998. |
| |
|
| 3.1 |
Articles of Incorporation of the
Company, as amended. Incorporated by reference from Exhibit 3.1 to the
Company's Report on Form 10-Q for the period ended March 31, 1997. |
| |
|
| 3.2 |
Bylaws of the Company, as amended.
Incorporated by reference from Exhibit 3.2 to the Company's Report on Form
10-Q for the period ended March 31, 1997. |
| |
|
| 27 |
Financial Data Schedule. |
A-12
