================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2004
( ) 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: 0-19471
COACH INDUSTRIES GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada 91-1942841
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9600 W. Sample Road, Suite 505, Coral Springs, Florida 33065
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 531-1174
--------------
Copies of all communications, including all communications sent to the
agent for service, should be sent to:
Joseph I. Emas, Attorney at Law
1224 Washington Avenue
Miami Beach, Florida 33139
Telephone: 305.531.1174
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. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE SHARES OUTSTANDING AS OF August 2, 2004
--------------------------------------------------------------------------------
Common Stock, $0.001 par value 11,321,445
COACH INDUSTRIES GROUP, INC.
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated condensed balance sheets at June 30, 2004
and December 31, 2003
Consolidated condensed statements of operations for the three
and six months ended June 30, 2004 and 2003 Consolidated condensed
statements of cash flows for the six months ended June 30, 2004 and 2003
Notes to consolidated condensed financial statements for the three and
six months ended June 30, 2004 and 2003
Item 2. Management's Discussion and Analysis of Financial Conditions
and Results of Operations
Item 3. Controls and Procedures
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
------------
COACH INDUSTRIES GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
June 30,
2004 December 31,
(Unaudited) 2003
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 945 $ 91,565
Accounts receivable, net ............................ 417,980 12,939
Supply inventory .................................... 2,717,046 1,310,483
Due from related party accounts receivable .......... 736,341 31,593
Prepaid expenses and other current assets ........... 237,950 57,680
----------- -----------
Total current assets ........................ 4,110,262 1,504,260
----------- -----------
PROPERTY AND EQUIPMENT, net ........................... 776,768 901,865
GOODWILL .............................................. 2,186,595 2,186,595
----------- -----------
$ 7,073,625 $ 4,592,720
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ............... $ 1,184,514 $ 367,670
Related party accounts payable ...................... -- 305,739
Deferred rent ....................................... 100,800 115,200
Warranty reserve .................................... 31,872 20,535
Customer deposits ................................... 101,500 230,273
Accrued wages ....................................... 193,570 32,921
Note payable - related parties ...................... 1,043,797 613,659
Line of credit ...................................... 346,352 --
----------- -----------
Total current liabilities ................... 3,002,405 1,685,997
----------- -----------
OTHER LIABILITIES:
Convertible notes payable - related party ............. 1,100,580 --
----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock $0.001 par value; 50,000,000 shares
authorized; 11,171,445 and 9,785,531 shares issued and
outstanding, respectively ............................. 11,171 9,785
Additional paid in capital ............................ 6,940,685 5,360,228
Restricted stock - unearned compensation .............. (474,583) --
Accumulated deficit .................................. (2,786,633) (1,743,290)
Treasury stock, 1.6 million shares at cost ............ (720,000) (720,000)
----------- -----------
Total shareholders' equity .................. 2,970,640 2,906,723
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ............ $ 7,073,625 $ 4,592,720
=========== ===========
The accompanying notes are an integral part of these financial statements.
1
COACH INDUSTRIES GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
For the Three Months Ended For the Six Months Ended
June 30, (Unaudited) June 30, (Unaudited)
-------------------------- --------------------------
2004 2003 2004 2003
----------- ----------- ----------- -----------
REVENUES ................... $ 4,947,847 $ 208,377 $ 9,131,811 $ 208,377
COST OF GOODS SOLD
4,395,559 197,934 7,679,874 197,934
----------- ----------- ----------- -----------
GROSS PROFIT ............. 552,288 10,443 1,451,937 10,443
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and Administrative 462,950 141,970 888,135 141,970
Research and development ... -- -- 747,665 --
Amortization of deferred
compensation ............... 383,917 -- 383,917 --
Sales and marketing ...... 93,328 78,487 281,205 78,487
Rent ..................... 43,033 133,000 141,315 133,000
Interest expense ........... 33,454 -- 52,352 --
----------- ----------- ----------- -----------
Total operating expenses .. 1,016,682 353,457 2,494,589 353,457
----------- ----------- ----------- -----------
Loss before income taxes ... (464,394) (343,014) (1,042,652) (343,457)
----------- ----------- ----------- -----------
Income taxes ............... -- -- -- --
----------- ----------- ----------- -----------
NET LOSS ................... $ (464,394) $ (343,014) $(1,042,652) $ (343,014)
=========== =========== =========== ===========
Basic and diluted net
(loss) per share:
Net loss per share ........ $ (0.07) $ (0.32) $ (0.13) $ (0.36)
=========== =========== =========== ===========
Basic and diluted weighted
average common shares
outstanding ................ 8,185,531 1,088,159 8,185,531 960,110
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
2
COACH INDUSTRIES GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
2004 2003
----------- -----------
Net loss .......................................... $(1,042,652) $ (343,014)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization ................... 93,087 --
Amortization of deferred compensation .......... 383,917 --
Warranty expense ................................ 31,436 --
Charges to warranty reserve ..................... (20,099) --
Changes in operating assets and liabilities:
Accounts receivable ........................... (405,041) (90,609)
Related party accounts, net ................... (274,610) (7,818)
Inventory ..................................... (1,406,563) (488,376)
Prepaid expenses and other .................... (180,270) (89,140)
Accounts payable and accrued expenses ......... 977,498 553,607
Customer deposits ............................. (128,773) (12,500)
----------- -----------
Net cash used in operating
Activities ............................ (1,972,073) (477,850)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reimbursement of leasehold improvements ............. 93,000 --
Acquisition of fixed assets ........................ (75,390) (1,150)
----------- -----------
Net cash provided by investing activities 17,610 (1,150)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock .......................... (95,000) --
Cash contribution ................................... -- 479,000
Proceeds from convertible debt - related party ...... 1,612,491 --
Borrowings from line of credit ...................... 346,352 --
----------- -----------
Net cash provided by financing
Activities ............................ 1,863,843 479,000
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS
(90,620) --
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
91,565 --
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............ $ 945 $ --
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
COACH INDUSTRIES GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
For the Three and Six Months Ended June 30, 2004 and 2003
1. Background
Overview
Coach Industries Group, Inc. ("Coach" or the "Company") is a holding company
which manufactures luxury limousines, specialty vehicles and limousine buses and
sells financial services and products related to its business through its
various operating subsidiaries. We currently have three subsidiaries. Commercial
Transportation Manufacturing Corporation ("CTMC") focuses on manufacturing
specialty vehicles and limousine buses. Springfield Coach Industries
Corporation, Inc. ("SCB"), SCB focuses on manufacturing Lincoln Town Car
limousines and Ford Excursion limousines and Coach Financial Services ("CFS"),
CFS provides financial services to the transportation industry, through lease
financing and providing other financial products to the industry.
History
On June 1, 2000, pursuant to an Agreement and Plan of Business Combination,
dated as of April 14, 2000, PAN International Gaming, Inc., a Nevada corporation
("PAN"), purchased all of the issued and outstanding capital stock of
SearchHound.com 2000, Ltd., a Nevada corporation, from their 22 record holders
for an aggregate of 50,373 shares of its common stock, which was approximately
71% of the issued and outstanding shares of PAN International Gaming, Inc. The
amount of consideration paid and received was negotiated by the parties to the
Plan of Business Combination. On June 6, 2000, after the merger, PAN changed its
name to SearchHound.com, Inc. ("Searchhound")
Pursuant to a Stock Purchase Agreement, dated as of May 4, 2000, effective July
11, 2000, Searchhound purchased all of the issued and outstanding capital stock
of SoloSearch.com, Inc., a Missouri corporation ("SoloSearch"), from Cohen
Capital Technologies, L.L.C., a Missouri limited liability company, Kirk C.
Reivich, an individual, and October Capital, L.L.C., a Missouri limited
liability company, for an aggregate of 18,097 shares of common stock and an
aggregate of $300,000 in cash. The foregoing transaction resulted in the
issuance of 20.3% of the issued and outstanding shares of PAN. The amount of
consideration paid and received was negotiated by the parties to the Stock
Purchase Agreement.
Prior to June 1, 2000, SearchHound was not engaged in substantial operating
activities and there were no revenues or business operations. In 2002,
Searchound's Board of Directors changed its strategy due to poor operating
conditions and operating results in its primary businesses coupled with
difficulties in raising capital through debt and equity sources. The Board of
Directors adopted the new strategy during 2002, which committed to the disposal
of all of its current assets and businesses and to seek a merger or acquisition
candidate with better financial resources. By early 2003, the Board of Directors
of Searchhound had successfully disposed of all of the assets and all of the
liabilities of the company.
On August 22, 2003, the Company held its Annual Meeting of Shareholders, whereby
the shareholders voted to amend the Articles of Incorporation to change the name
of the company from Searchound.com to Coach Industries Group, Inc.
General
Through our subsidiaries, we manufacture luxury limousines, specialty vehicles
and limousine buses and sell financial products including financing for luxury
limousines, commercial fleets and high-end automobiles and we intend to begin
offering an array of financial services, such as specialty lines of insurance
products. Coach's principal executive offices are located in Coral Springs,
Florida. We are one of seven limousine manufacturers in the limousine
manufacturing industry operating under agreements with Ford Motor Company and
General Motors Corporation. The Company's long-term strategy is to offer an
array of specialty vehicles and limousines and to expand our financial services
to existing customers, other limousine operators and others outside of the
limousine business. The Company will actively pursue acquisition candidates that
can support the expansion of these products and financial services.
On September 1, 2003, we acquired CTMC through a reverse merger. Coach issued 3
million shares of common stock to CTMC in a stock for stock exchange. CTMC's
principal executive offices are located in Bohemia, New York. CTMC's operation
consists of manufacturing, selling and servicing specialty vehicles, limousine
buses and to a lesser extent, Lincoln Town Cars. The operation is housed in a
30,000 square foot manufacturing facility with approximately 27 employees
involved in the direct manufacture of the various modified chassis. CTMC
manufactures its vehicles pursuant to a Quality Vehicle Modifier Agreement with
Ford Motor Company.
4
On December 31, 2003, Coach, through SCB, newly formed wholly owned subsidiary,
acquired certain assets and liabilities from Springfield Coach Builders, Inc.
("Springfield"). The acquisition was valued at $2.66 million based on 2 million
shares of common stock, at $1.33 per share, the closing market price on November
6, 2003. SCB's executive offices are located in Springfield, Missouri.
After our acquisition of Springfield, we determined that the production of the
various vehicles previously manufactured by Springfield and CTMC needed to be
segregated to eliminate any duplication of production processes at the CTMC and
SCB facilities. CTMC personnel have extensive depth of knowledge in prototype
development, modification and engineering of specialty vehicles, such as the
Chrysler Sprinter and the General Motors' Hummer H2. Accordingly, since January
2004, SCB manufactures the Lincoln Town Car limousines, which represent
approximately ninety percent (90%) of the limousine market and the Ford
Excursion limousines. CTMC manufactures our specialty vehicles and limousine
buses.
SCB manufactures its vehicles pursuant to a Quality Vehicle Modifier Agreement
with Ford Motor Company and a Cadillac Master CoachBuilder Agreement with
General Motors Corporation. SCB, because of its Midwest location, provides us
with the opportunity to economically support customers located in the
Midwestern, Southeastern and Western region of the United States. SCB's
Midwestern location also provides the Company significant operating expense
advantages due to lower labor and occupancy costs. SCB's operations consists of
manufacturing, selling and servicing Lincoln Town Cars and Ford Excursions
Limousines The operations is housed in a 45,000 square foot manufacturing
facility with 38 employees involved in the direct manufacture of the modified
chassis.Management believes that the acquisition of Springfield enabled the
Company's to use its existing sales force, engineering expertise and management
to enter the Midwestern and Western United States limousine markets. Coach was
able to assume the existing lease for the manufacturing facility in Springfield,
Missouri, which increased its manufacturing capacity and reduced the cost of
distribution in those markets.
2. Summary of Significant Accounting Policies
Principles of Consolidation
Effective September 1, 2003, the Company has restated its consolidated balance
sheet, consolidated statement of operations and consolidated statement of cash
flows in conjunction with the reverse merger with CTMC. The accompanying
financial statements include the accounts of the Company from September 1, 2003,
and its wholly owned subsidiaries CTMC from January 8, 2003 (inception) and SCB,
effective December 31, 2003. CTMC was formed on January 8, 2003 (inception),
however they did not commence operations until April 1, 2003, thus, no activity
has been presented for the three months ended March 31, 2003.
All significant inter-company balances and transactions have been eliminated.
5
Restatement of Financial Statements
The Company, after careful consideration and review, has elected to change the
accounting treatment of the transaction between the Company and CTMC. (the
"Transaction") and accordingly restate the financial statements. Originally, the
Transaction was accounted for as a business combination that resulted in
recording goodwill, an intangible asset, of approximately $490,000. After
further investigation and consideration, the Company has concluded that the
accounting treatment of this Transaction as a reverse merger more accurately
reflects the nature of this transaction. The primary factor influencing the
accounting treatment change for this Transaction is that the Company, Coach
Industries Group, Inc. had no operations prior to the Transaction. The
accounting impact of treating this Transaction as a reverse merger instead of a
business combination is an elimination of approximately $490,000 of goodwill and
a reduction of Additional Paid - in Capital by the same amount.
Interim Financial Statements
The interim financial statements presented herein have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission ("SEC").
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations. The interim financial statements should be read in
conjunction with the Company's annual financial statements, notes and accounting
policies included in the Company's annual report on Form 10-KSB for the year
ended December 31, 2003 as filed with the SEC. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) which are
necessary to provide a fair presentation of financial position as of June 30,
2004 and the related operating results and cash flows for the interim period
presented have been made. The results of operations, for the period presented
are not necessarily indicative of the results to be expected for the year.
3. RELATED PARTY TRANSACTIONS
The Company has related party payables at December 31, 2003 to a related party
of $305,739. This balance, as well as additional cash funding during the period
were reclassified to convertible debt - related party as of June 30, 2004.
As of June 30, 2004, the Company has a receivable of approximately $425,000 due
from a related party for salaries, rent, materials and reimbursement of
leasehold improvements.
The Company has related party payables - convertible at June 30, 2004 and
December 31, 2003 to a related party of $1.1 million and zero, respectively.
These balances outstanding were for funding operating shortfalls as well as
expenses associated with Coach. In an effort to conserve cash resources the
outstanding balances were transferred to convertible debt as of June 30, 2004.
During the three months ended June 30, 2004, $817,650 of these notes were
converted into 711,000 shares of common stock as well as an equivalent amount of
warrants, with an exercise price of $2.50 per share. The remaining balance of
the convertible notes will be converted into common stock and warrants during
the third quarter of 2004. The conversion price is based on the lowest stock
price during the second quarter, or 85% of the five day average prior to
conversion.
4. Floor Plan Lines of Credit
On June 1, 2004, the Company signed an agreement with Ford Motor Company,
whereby, pending certain additional authorizations, the Company would receive a
$2.0 million floor plan line of credit, solely for the purchase of chassis
inventory.
4. Equity
On May 19, 2004, the Company entered into a Purchase Agreement, with Fusion
Capital pursuant to which Fusion Capital has agreed to purchase, subject to
Coach's rights to reduce or suspend these purchases and terminate the agreement
with Fusion Capital at any time, on each trading day, $12,500 of our common
stock up to an aggregate purchase amount up to $6.0 million. The $6.0 million of
common stock is to be purchased over a twenty four (24) month period, subject to
a three (3) month extension or earlier termination at the discretion of the
Company The Company issued Fusion Capital 244,900 commitment shares, valued
$389,342, pursuant to this agreement. These shares are recorded as restricted
stock on the Statement of Financial Condition.
6
5. Subsequent Event
As of August 26, 2003, the Company reserved 1.6 million shares, valued at $0.45
cents per share, for the purpose of using as agreed consideration for a
potential transaction. The shares shall vest on the effective date of the
aforementioned potential transaction. The shares are issued and classified as
treasury stock as of June 30, 2004 and December 31, 2003. On May 7, 2004, the
Company signed a letter of intent to acquire all the common stock of Go
Commercial Leasing Corporation. The deal is valued at $720,000. Effective July
9, 2004, the Company consummated this transaction and issued 423,529 common
shares valued at $1.70, the stated market value on the date of close.
On July 8, 2004, the Company announced the formation of CFS which is intended to
provide financial services to the luxury limousine industry and the high-end
automobile industry at that time. Go Commercial was merged into CFS through a
reverse merger, in a stock for stock exchange.
On August 6, 2004, the company signed a letter of intent to acquire Corporate
Development Services, Inc., and its affiliated companies, whereby the company
will issue a combination of stock and cash . The final terms of the agreement
are contingent upon various factors, including completion of due diligence. The
acquisition is anticipated to close during the third quarter.
On August 7, 2004, the Company signed an agreement with GE Commercial
Distribution Finance Corporation, whereby pending certain additional
authorizations, the Company would receive a $2.0 million floor plan line of
credit, solely for the purchase of chassis inventory.
7
Forward-Looking Statements
The following discussion contains, in addition to historical information,
forward-looking statements regarding Coach Industries, Group, Inc. (the
"Company", "CIGI" or "Coach"), that involve risks and uncertainties. The
Company's actual results could differ materially. For this purpose, any
statements contained in this Report that are not statements of historical fact
may be deemed to be forward-looking statements. Without limiting the generality
of the foregoing, words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the negative or
other variations thereof or comparable terminology are intended to identify
forward-looking statements. Factors that could cause or contribute to such
difference include, but not limited to, history of operating losses and
accumulated deficit; possible need for additional financing; competition;
dependence on management; risks related to proprietary rights; government
regulation; and other factors discussed in this report and the Company's other
filings with the Securities and Exchange Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Summary Overview and Overall Business Strategy
Coach Industries Group, Inc. Overview and Business Strategy
Coach is a holding company which, through its subsidiaries, manufactures luxury
limousines, specialty vehicles and limousine buses and sells financial services
and products related to its business through its various operating subsidiaries.
The Company's long-term strategy is to offer and expand our array of specialty
vehicles and limousines and to offer financial services to existing customers as
well as other limousine operators. The Company will actively pursue acquisition
candidates that can support the expansion of these products and financial
services. We currently have three subsidiaries.
In September 2003, Coach acquired Commercial Transportation Manufacturing
Corporation ("CTMC") through a reverse merger. CTMC is a New York corporation.
Its principal executive offices are located in Bohemia, New York. CTMC focuses
on manufacturing specialty vehicles and limousine buses.
In December 2003, the Company formed Springfield Coach Industries Corporation,
Inc. ("SCB"), by acquiring certain assets and assuming certain liabilities from
Springfield Coach Builders, Inc. ("Springfield"). SCB is a Missouri corporation.
Its principal executive offices are located in Springfield, Missouri. SCB
focuses on manufacturing Lincoln Town Car limousines and Ford Excursion
limousines.
Annually, the limousine manufacturing industry generates approximately $400
million in revenues through the sale of luxury limousines, specialty vehicles
and limousine buses to approximately 14,000 limousine operators located
throughout the United States. These limousine operators are located in the
following regions of the United States: 59% in the Northeast, 16% in the
Southeast, 11% in the Midwest and 14% in the West. The Company's facilities are
strategically located to economically service the limousine market. SCB, because
of its Midwest location, provides the Company with the opportunity to
economically support customers located in the Midwestern, Southeastern and
Western region of the United States. SCB's Midwestern location also provides the
Company significant operating expense advantages due to lower labor and
occupancy costs. CTMC's New York presence allows the Company to support the
lucrative Northeastern market. CTMC personnel have extensive depth of knowledge
in prototype development, modification and engineering of specialty vehicles,
such as the Chrysler Sprinter and the General Motors Hummer H2. In January 2004,
the Company made a strategic decision to focus SCB on manufacturing the Lincoln
Town Car limousines, which represent approximately ninety percent (90%) of the
market, and the Ford Excursion limousines and for CTMC to focus on specialty
vehicles and limousine buses.
After our acquisition of Springfield in December 2003, we determined that the
production of the various vehicles needed to be segregated as to eliminate any
duplication of production processes at the CTMC and SCB facilities. Based on the
manufacturing changes described above and our focus on specialty vehicle sales
and production, the Company plans on expending $1.25 million on research and
development during the next twelve months, in addition to the $747,665 already
incurred for the six months ended June 30, 2004.
8
The business strategy of the Company is to further diversify product lines and
develop innovative design, engineering and manufacturing expertise in order to
be the premiere luxury limousine manufacturer in the marketplace. The Company
sells its custom limousine chassis to limousine operators throughout the United
States. The Company markets its limousines through tradeshows, print advertising
and direct marketing to limousine operators. The Company is focusing on certain
custom niches within its geographical markets and believes that opportunities
for growth remain strong for modified limousine chassis. The Company's two major
suppliers are Ford Motor Company and General Motors Corporation, which provide
the chassis for the Lincoln Town Car and the Cadillac products that the Company
then manufactures into a modified vehicle under the QVM and CMC agreements. The
Company believes that their relationship with these major suppliers is in good
standing at this time and that the supply of chassis inventory is adequate to
meet our operating needs.
The Company believes that it can best carry out its long-term business plan and
obtain optimal financial flexibility by using a combination of borrowings under
the Company's credit facilities, as well as internally and externally generated
equity capital, as sources of expansion capital. We believe this gives us a
competitive advantage from other manufacturers in our industry who do not have
access to these capital markets.
The Company has signed agreements both with Ford Motor Company and GE Commercial
Distribution Finance Corporations for $2.0 million lines of credit for the
purchase of chassis inventory. The agreements have not been put in place at this
time however, so the purchase of chassis inventory has been and will continue to
be made through related party funding arrangements. We believe that the line of
credit with the supplier will be adequate to meet the funding requirements for
the manufacturing facilities. In addition, the Company is negotiating with
various lenders to provide floor plan financing for non-conforming chassis
purchases and for vehicles that are built as showroom models. This will enable
the sales force to present completed vehicles to their prospects in locations
outside of the factory. In addition, Company has established a $1.6 million
floor plan line of credit with a local dealership in New York. The dealership
funds the purchase of chassis inventory, interest free for 90 days. The balance
outstanding at June 30, 2004 was $346,352. Currently all chassis outstanding on
the line of credit are under 90 days, thus no interest has been accrued for
these chassis.
Liquidity and Capital Resources. The Company has historically satisfied its
operating cash requirements primarily through private placements of restricted
stock, the issuance of debt securities, issuance of common stock to satisfy
balances currently outstanding, operating cash flow and cash funding from
related parties, as required.
The Company has incurred losses from operations for the period from January 8,
2003 (inception) through December 31, 2003 of $1.7 million and a net loss of
$1.0 million for the six months ended June 30, 2004. The Company has acquired
certain assets and liabilities of Springfield effective December 31, 2003. The
Company anticipates that its cash requirements will continue to increase as it
continues to expend substantial resources to build its infrastructure, develop
its business plan and establish its sales and marketing network operations,
customer support and administrative organizations. The Company currently
anticipates that its available cash resources and cash generated from operations
will be sufficient to meet its presently anticipated working capital and capital
expenditure requirements for the next twelve months. If the Company is unable to
maintain profitability, or seeks further expansion, additional funding will
become necessary. There can be no assurances that the Company can realize
sufficient revenues to satisfy its business plan and further, there can be no
assurance that alternative sources of financing can be procured on behalf of the
Company.
The Company acquired certain assets and liabilities of Springfield effective
December 31, 2003 and at that time determined that the production of the various
vehicles needed to be segregated to eliminate any duplication of production
processes at both facilities. CTMC personnel have extensive depth of knowledge
in prototype development, modification and engineering of specialty vehicles,
such as the Chrysler Sprinter and the General Motors' Hummer H2. In January
2004, the Company made a strategic decision to focus SCB on manufacturing the
Lincoln Town Car limousines and the Ford Excursion limousines and for CTMC to
focus on specialty vehicles and limousine buses. Based on these manufacturing
changes and focus CTMC on specialty vehicles, the Company, intends to expend
$2.0 million on research and development during the next twelve months, of which
$747,665 has been incurred for the six months ended June 30, 2004.
In addition, the Company may incur expenses during the next twelve months due to
the conversion of payables into common stock, funded by related parties to
assist the Company's working capital requirements. The related party payable
will be converted for warrants and common stock based on the lowest stock price
during the second quarter. See further discussion below. Effective December 31,
2003, the Company, through its wholly owned subsidiary, SCB, a Missouri
corporation, consummated the acquisition of certain assets and liabilities of
Springfield.
9
As of August 26, 2003, the Company reserved 1.6 million shares, valued at $0.45
cents per share, for the purpose of using as agreed consideration for a
potential transaction. The shares shall vest on the effective date of the
aforementioned potential transaction. The shares are issued and classified as
treasury stock as of June 30, 2004 and December 31, 2003. On May 7, 2004, the
Company signed a letter of intent to acquire all the common stock of Go
Commercial Leasing Corporation. The deal is valued at $720,000. Effective July
9, 2004, the Company consummated this transaction and issued 423,529 common
shares valued at $1.70, the stated market value on the date of close.
The Company has related party payables - convertible at June 30, 2004 and
December 31, 2003 to a related party of $1.1 million and zero, respectively.
These balances outstanding were for funding operating shortfalls as well as
expenses associated with Coach. In an effort to conserve cash resources the
outstanding balances were transferred to convertible debt as of June 30, 2004.
During the three months ended June 30, 2004, $817,650 of these notes were
converted into 711,000 shares of common stock as well as an equivalent amount of
warrants, with a exercise price of $2.50 per share. The remaining balance of the
convertible notes will be converted into common stock during the third quarter
of 2004. The conversion price is based on the lowest stock price during the
second quarter, or 85% of the five day average prior to conversion.
Financial Condition - June 30, 2004 compared to December 31, 2003
Current Assets
Cash and cash equivalents. Cash and cash equivalents decreased from $91,565 at
December 31, 2003 to $945 at June 30, 2004, the decrease is primarily due to the
operations of CTMC and SCB utilizing cash resources to fund operations.
Total current assets. Total current assets increased from $1.5 million at
December 31, 2003 to $4.1 million at June 30, 2004, an increase of $3.4 million,
primarily as a result of the Company acquiring CTMC through a reverse merger and
the acquisition of certain assets and liabilities of Springfield. The Company
has increased operations during the six months ended June 30, 2004, thus
increasing accounts receivable, net to $417,980, accounts receivable - related
parties to $736,341 and supply inventory to $2.7 million compared to December
31, 2003 of $12,939, $31,593 and $1.3 million, respectively. Revenues for the
six months ended June 30, 2004 were $9.1 million compared to $1.1 million for
the year ended December 31, 2003, thus increasing the receivable and inventory
balances.
Goodwill. At December 31, 2003 and June 30, 2004, goodwill was $2.2 million,
specifically related to the acquisition of certain assets and liabilities of
Springfield, effective December 31, 2003. The acquisition was valued at $2.66
million based on 2 million shares of common stock, at $1.33 per share, the
closing market price on November 6, 2003. Management believes that the
acquisition of certain assets and liabilities of Springfield enabled the
Company's entree into the Midwestern and Western United States Markets through
the Company's existing sales force, engineering expertise and management. The
Company was able to assume the existing lease for the manufacturing facility in
Springfield, MO which increased our manufacturing capacity and reduced the cost
of distribution in those markets.
Liabilities
Accrued wages. Accrued wages increased from $32,921 at December 31, 2003 to
193,570 at June 30, 2004, the increase is primarily due to the accrued wages
relating to the operations of CTMC, SCB and Coach.
Accounts payable and other accrued expenses. Accounts payable increased from
$367,670 at December 31, 2003 to $1.2 million at June 30, 2004, the increase is
primarily relating to the operations of CTMC and SCB. Both of these companies
were fully operational for the six months ended June 30, 2004.
Customer deposits. Customer deposits decreased from $230,273 at December 31,
2003 to $101,500 at June 30, 2004. The customer deposits reflected the full
costs of those cars that were not delivered until January 2004, primarily at
CTMC.
Related party payable. Related party payable decreased from $305,739 at December
31, 2003 to zero at June 30, 2004, a decrease of $305,739. The decrease related
to the reclassification of this balance to - convertible debt.
Notes payable-related parties. Notes payable-related parties increased from
$613,659 at December 31, 2003, to $1.0 million at June 30, 2004, the increase
is, primarily relating to the acquisition of certain assets and liabilities of
Springfield. The notes payable - related parties is funding the purchase of
chassis for the business.
Line of credit. The line of credit increased from zero at December 31, 2003 to
$346,352 at June 30, 2004, primarily related to a line of credit established by
CTMC with a local dealership for the purchase of chassis for production.
Total current liabilities. Total current liabilities increased from $1.7 million
at December 31, 2003 to $3.0 million at June 30, 2004,. The increase is
primarily attributed to operations of both CTMC and SCB, offset by the
reclassification of related party payables to a convertible status.
Related party payable - convertible. Related party payable - convertible
increased from zero at December 31, 2003 to $1.1 million at June 30, 2004. The
increase relates to the reclassification of the $305,739 outstanding at December
31, 2003 from related party payable to convertible debt. The additional increase
in the balance relates to cash funding needs at CTMC and SCB as well as expenses
funded by the related party for operating expenses of Coach, offset by the
conversion discussed above.
10
Results of Operations - For the Three Months Ended June 30, 2004 compared to
June 30, 2003
Effective September 1, 2003, the Company has restated its consolidated balance
sheet, consolidated statement of operations and consolidated statement of cash
flows in conjunction with the reverse merger with CTMC. The accompanying
financial statements include the accounts of the Company from September 1, 2003,
and its wholly owned subsidiaries CTMC from January 8, 2003 (inception) and SCB,
effective December 31, 2003. CTMC was formed on January 8, 2003 (inception),
however they did not commence operations until April 1, 2003, thus, no activity
has been presented for the three months ended March 31, 2003.
Gross revenues. Gross revenues were $4.9 million for the three month period
ended June 30, 2004 compared to $208,377 for the three months ended June 30,
2003, the increase is directly related to the Company's acquisition of CTMC
through a reverse merger effective September 1, 2003 and the Company acquiring
certain assets and liabilities of Springfield effective December 31, 2003. Gross
revenues for the period reflect revenues for both CTMC and SCB for the three
months ended June 30, 2004.
Costs of goods sold. Costs of goods sold were $4.4 million for the three months
ended June 30, 2004 compared to $197,934 for the three months ended June 30,
2003, primarily as a result of the Company acquiring CTMC through a reverse
merger effective September 1, 2003 and acquiring certain assets and liabilities
of Springfield effective December 31, 2003. The costs of goods sold for the
three months ended June 30, 2004 reflect costs for both CTMC and SCB.
Operating expenses. Operating expenses were $1.0 million for the three months
ended June 30, 2004 compared to $353,457 for the three months ended June 30,
2003 specifically related to the operations of CTMC, SCB and Coach as described
below.
General and administrative expenses were $462,950 for the three months ended
June 30, 2004 compared to $141,970 for the three months ended June 30, 2003, the
increase is primarily due to the operations of CTMC, Coach and SCB. The general
and administrative expenses for 2003, only reflect CTMC for the period, as they
began operations during 2003 and the operations are reflected through the
reverse merger.
Amortization of deferred compensation was $383,917 for the three months ended
June 30, 2004 compared to zero for the same period in 2004. The Company issued
stock for past and future consulting services. The Company issued 505,000 shares
of restricted common stock, with a value of $858,500 to these consultants, to be
earned over a period of up to one year. Sales and marketing expenses for the
three months ended June 30, 2004 were $93,328 compared to $78,487 for the same
period in 2003. The 2004 period reflect the operations of both CTMC and SCB.
Rent expense for the three months ended June 30, 2004 was $43,033 compared to
$133,000 for the three months ended June 30, 2003. Rent expense is specifically
attributed to the plant facilities in Springfield, Missouri and Bohemia, New
York. During 2004, the Company subleased some of the office space and reflected
a reduction in rent of $56,000.
Interest expense for the three months ended June 30, 2004 was $33,454 compared
to zero for the same period in 2003. Interest expense is directly attributed to
the line of credit and floor plan facilities due a related party. The interest
represents interest paid on these facilities for limousine chassis, held over 90
days.
Net Loss. Net loss was $464,394 for the three months ended June 30, 2004
compared to $343,014 for the same period in 2003, primarily due to amortization
of deferred compensation discussed above, offset by gross profit earned on the
sale of modified chassis..
11
Results of Operations - For the Six Months Ended June 30, 2004 compared to June
30, 2003
Effective September 1, 2003, the Company has restated its consolidated balance
sheet, consolidated statement of operations and consolidated statement of cash
flows in conjunction with the reverse merger with CTMC. The accompanying
financial statements include the accounts of the Company from September 1, 2003,
and its wholly owned subsidiaries CTMC from January 8, 2003 (inception) and SCB,
effective December 31, 2003. CTMC was formed on January 8, 2003 (inception),
however they did not commence operations until April 1, 2003, thus, no activity
has been presented for the three months ended March 31, 2003.
Gross revenues. Gross revenues were $9.1 million for the six month period ended
June 30, 2004 compared to $208,377 for the six months ended June 30, 2003, the
increase is directly related to the Company's acquisition of CTMC through a
reverse merger effective September 1, 2003 and the Company acquiring certain
assets and liabilities of Springfield effective December 31, 2003. Gross
revenues for the period reflect revenues for both CTMC and SCB for the six
months ended June 30, 2004.
Costs of goods sold. Costs of goods sold were $7.7 million for the six months
ended June 30, 2004 compared to $197,934 for the six months ended June 30, 2003,
primarily as a result of the Company acquiring CTMC through a reverse merger
effective September 1, 2003 and acquiring certain assets and liabilities of
Springfield effective December 31, 2003. The costs of goods sold for the six
months ended June 30, 2004 reflect costs for both CTMC and SCB.
Operating expenses. Operating expenses were $2.5 million for the six months
ended June 30, 2004 compared to $353,457 for the six months ended June 30, 2003
specifically related to the operations of CTMC, SCB and Coach as described
below.
General and administrative expenses were $888,135 for the six months ended June
30, 2004 compared to $141,970 for the six months ended June 30, 2003, the
increase is primarily due to the operations of CTMC, Coach and SCB. The general
and administrative expenses for 2003, only reflect CTMC for the period, as they
began operations during 2003 and the operations are reflected through the
reverse merger.
Research and development expenses for the six months ended June 30, 2004 were
$747,665. After the acquisition of certain assets and liabilities of Springfield
on December 31, 2003, we determined that the production of the various vehicles
needed to be segregated to eliminate any duplication of production processes at
the SCB and CTMC facilities. CTMC personnel have extensive depth of knowledge in
prototype development, modification and engineering of specialty vehicles, such
as the Chrysler Sprinter and the General Motors' Hummer H2. Accordingly, in
January 2004, the Company made a strategic decision for SCB to manufacture the
Lincoln Town Car limousines and the Ford Excursion limousines and for CTMC to
manufacture specialty vehicles and limousine buses.
Amortization of deferred compensation was $383,917 for the six months ended June
30, 2004 compared to zero for the same period in 2004. The Company issued stock
for past and future consulting services. The Company issued 505,000 shares of
restricted common stock, with a value of $858,500 to these consultants, to be
earned over a period of up to one year.
Sales and marketing expenses for the six months ended June 30, 2004 were
$281,205 compared to $78,487 for the same period in 2003. The 2004 period
reflect the operations of both CTMC and SCB. In addition, both CTMC and SCB
attended a tradeshow in February, the 2004 period reflects approximately
$100,000 in expense, directly related to the tradeshow, The 2003 period reflect
the attendance at the tradeshow for CTMC only.
Rent expense for the six months ended June 30, 2004 was $141,315 compared to
$133,000 for the six months ended June 30, 2003. . Rent expense is specifically
attributed to the plant facilities in Springfield, Missouri and Bohemia, New
York. During 2004, the Company subleased some of the office space and reflected
a reduction in rent of $56,000.
Interest expense for the six months ended June 30, 2004 was $52,352 compared to
zero for the same period in 2003. Interest expense is directly attributed to the
line of credit and floor plan facilities due a related party. The interest
represents interest paid on these facilities for limousine chassis, held over 90
days.
Net Loss. Net loss was $1.0 million for the three months ended June 30, 2004
compared to $343,014 for the same period in 2003, primarily due to amortization
of deferred compensation and research and development expense discussed above.
12
ACCOUNTING POLICIES SUBJECT TO ESTIMATION AND JUDGMENT
Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. When preparing our financial statements, we make estimates and
judgments that affect the reported amounts on our balance sheets and income
statements, and our related disclosure about contingent assets and liabilities.
We continually evaluate our estimates, including those related to revenue,
allowance for doubtful accounts, reserves for income taxes, and litigation. We
base our estimates on historical experience and on various other assumptions,
which we believe to be reasonable in order to form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily ascertained from other sources. Actual results may deviate from these
estimates if alternative assumptions or condition are used.
ITEM 3. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's Principal Executive Officer and Principal Financial Officer. Based
upon that evaluation, the Principal Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
the Company's disclosure obligations under the Exchange Act.
CHANGES IN INTERNAL CONTROLS
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect those controls since the most
recent evaluation of such controls.
13
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act.
31.2 Certification of Principal Financial and Accounting Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act.
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act.
32.2 Certification of Principal Financial and Accounting Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act.
B. Reports on Form 8-K
On May 19, 2004, Coach Industries Group, Inc. and Fusion Capital Fund II, LLC, a
Chicago-based institutional investor and entered into a $6.0 million Common
Stock Purchase Agreement.
On June 2, 2004, Coach Industries Group, Inc. announced the appointment of Susan
Weisman as Chief Financial Officer of the corporation effective June 1, 2004.
No other reports on Form 8-K were filed during the quarter ended June 30, 2004,
for which this report is filed.
14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Coach Industries Group, Inc.
August 16, 2004 /s/ Francis O'Donnell
-------------------------------
Francis O'Donnell,
Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
August 16, 2004 /s/ Susan Weisman
-------------------------------
Susan Weisman,
Chief Accounting Officer
(PRINCIPAL ACCOUNTING OFFICER)
15