================================================================================
UNITED STATES
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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________TO_________.
COMMISSION FILE NUMBER 000-27585
LORACA INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 87-0555751
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1601 FIFTH AVENUE, SUITE 2320, SEATTLE, WASHINGTON 98101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(206) 332-0400
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
5600 WYOMING BOULEVARD, N.E., SUITE 150, ALBUQUERQUE, NEW MEXICO 87109
(FORMER ADDRESS)
---------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
Indicate by a 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 [ ]
Number of shares outstanding of the registrant's common stock as of November
10, 2000: 15,584,038
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<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
For the Quarter Ended SEPTEMBER 30, 2000
INDEX
Part I. Financial Information
Item 1. Financial Statements PAGE
----
a) Consolidated Balance Sheets
as of December 31, 1999 and September 30, 2000 (Unaudited)..........4
b) Consolidated Statements of Operations and Comprehensive Income
(Loss) for the Three and Nine Months Ended September 30, 1999
and 2000 (Unaudited)................................................5
c) Consolidated Statements of Stockholders' Equity
for the Nine Months Ended September 30, 2000 (Unaudited)............6
c) Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1999 and 2000 (Unaudited)...7
d) Notes to Financial Statements.......................................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................13
Part II. Other Information
Item 1. Legal Proceedings.............................................19
Item 5. Other Information.............................................21
Item 6. Exhibits and Reports on Form 8-K..............................22
Signature...................................................................21
________________________________________________________________________________
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
________________________________________________________________________________
Page 3
<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 2000
1999 (UNAUDITED)
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ............................................................. $ 155,072 $ 67,517
Marketable securities ................................................................. 6,367,541 459,564
Loans receivable held for sale, net ................................................... 1,315,301 320,742
Prepaid expenses and accounts receivable .............................................. 58,785 571,049
Mortgage servicing rights, net ........................................................ -- 4,335,122
Furniture, fixtures and equipment, net ................................................ 51,153 143,079
Capitalized leased assets, net ........................................................ 98,023 56,650
Receivables, other .................................................................... 26,782 3,000
Goodwill, net of amortization of $56,324 (1999) and $175,329 (2000) ................... 404,512 3,335,788
------------------ ------------------
Total assets .......................................................................... $ 8,477,169 $ 9,292,511
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Warehouse lines of credit ............................................................. $ 1,288,797 $ 244,032
Notes payable to bank ................................................................. 25,762 4,639,326
Accounts payable ...................................................................... 397,150 803,643
Accrued liabilities ................................................................... 162,463 63,562
Escrow deposits ....................................................................... 298 --
Capitalized lease liabilities ......................................................... 102,252 195,050
Note payable to stockholder ........................................................... 859,568 854,657
------------------ ------------------
Total liabilities ..................................................................... 2,836,290 6,800,270
------------------ ------------------
Floating rate convertible subordinated note payable ................................... -- 2,300,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock:
Par value - $.001 per share; 50,000,000 shares authorized; 7,003,047 (1999)
and 7,390,876 (2000) shares issued and outstanding ............................... 7,003 7,391
Additional paid-in-capital ......................................................... 3,292,409 4,817,907
Other accumulated comprehensive income (Loss) ...................................... 4,442,892 (957)
Accumulated deficit ................................................................ (2,101,425) (4,632,100)
------------------ ------------------
Total stockholders' equity ............................................................ 5,640,879 192,241
------------------ ------------------
Total liabilities and stockholders' equity ............................................ $ 8,477,169 $ 9,292,511
================== ==================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
________________________________________________________________________________
Page 4
<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
and Comprehensive Income (Loss)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Servicing fees .................................................. $ -- $ 324,456 $ -- $ 1,108,316
Loan processing fees ............................................ -- 167,064 -- 276,812
Gain on sales of mortgage loans held for sale ................... 24,953 91,597 103,887 238,336
Interest income ................................................. 13,954 102,830 50,626 236,632
Insurance commissions ........................................... -- 96,917 -- 217,534
Appraisal and credit report fees ................................ -- 11,545 -- 17,253
Other ........................................................... -- 1,249 -- 2,573
----------- ----------- ----------- -----------
Total revenue ................................................... 38,907 795,658 154,513 2,097,456
----------- ----------- ----------- -----------
EXPENSES:
Interest expense ................................................ 14,909 118,109 67,668 360,628
Interest on subordinated notes .................................. -- 55,838 -- 109,570
Personnel and commission expense ................................ 427,841 761,287 1,037,108 2,055,472
General, administrative and development expense ................. 470,703 531,492 1,161,895 2,503,453
Amortization of intangible assets ............................... -- 82,534 -- 175,567
Amortization of mortgage servicing rights ....................... -- 343,620 -- 1,069,644
----------- ----------- ----------- -----------
Total expenses .................................................. 913,453 1,892,880 2,266,671 6,274,334
----------- ----------- ----------- -----------
Loss from operations ............................................... (874,546) (1,097,222) (2,112,158) (4,176,878)
----------- ----------- ----------- -----------
OTHER INCOME
Dividends ....................................................... 988 655 5,690 15,145
Gain on sale of investments ..................................... -- 149,306 2,387,123 1,631,058
----------- ----------- ----------- -----------
Total other income .............................................. 988 149,961 2,392,813 1,646,203
----------- ----------- ----------- -----------
Net income (loss) .................................................. (873,558) (947,261) 280,655 (2,530,675)
----------- ----------- ----------- -----------
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during period ......... (695,513) (231,275) 1,172,764 (4,443,849)
----------- ----------- ----------- -----------
Comprehensive income (loss) ........................................ $(1,569,071) $(1,178,536) $ 1,453,419 $(6,974,524)
=========== =========== =========== ===========
Basic and diluted net income (loss) per share ...................... $ (0.13) $ (0.13) $ 0.04 $ (0.35)
=========== =========== =========== ===========
Weighted average number of shares outstanding ...................... 7,000,000 7,390,876 7,000,000 7,261,599
=========== =========== =========== ===========
</TABLE>
________________________________________________________________________________
Page 5
<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------- OTHER
NUMBER ADDITIONAL ACCUMULATED
OF PAID-IN COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL INCOME DEFICIT TOTALS
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 2000 .............. 7,003,047 7,003 3,292,409 4,442,892 (2,101,425) 5,640,879
Common stock issued ................... 387,829 388 1,469,877 -- -- 1,470,265
Issuance of warrants for service ...... -- -- 55,621 -- -- 55,621
Net unrealized holding losses on
marketable securities .............. -- -- -- (4,443,849) -- (4,443,849)
Net loss .............................. -- -- -- -- (2,530,675) (2,530,675)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE, September 30, 2000 ........... 7,390,876 $ 7,391 $ 4,817,907 $ (957) $ (4,632,100) $ 192,241
============ ============ ============ ============ ============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
________________________________________________________________________________
Page 6
<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents 1999 2000
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................................................................... $ 280,655 $ (2,530,675)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ...................................................... 69,827 1,010,039
Gain on disposition of investments ................................................. (2,387,123) (1,631,057)
Non-cash equity issuance in exchange for service ................................... -- 109,219
Decrease (increase) in assets and liabilities:
Proceeds from sale of loans originated for sale .................................. 8,957,189 14,727,746
Originations of loans held for sale .............................................. (8,243,360) (13,385,143)
Receivables ...................................................................... (3,963) 23,782
Prepaid expenses ................................................................. (35,098) (93,475)
Increase (decrease) in:
Accounts payable ................................................................. 98,801 93,991
Accrued liabilities .............................................................. (44,315) (94,731)
Escrow deposits .................................................................. (7,345) (298)
Capital lease liabilities ........................................................ 117,825 92,798
--------------- ---------------
Total adjustments ..................................................................... (1,477,562) 852,871
--------------- ---------------
Net cash used by operating activities .................................................... (1,196,907) (1,677,804)
--------------- ---------------
Cash flows from investing activities:
Purchase of marketable securities ..................................................... (715,125) --
Proceeds from sale of marketable securities ........................................... 2,322,562 3,095,317
Purchase of furniture, fixtures and equipment ......................................... (196,324) (151,138)
Capitalization of originated mortgage servicing rights ................................ -- (60,169)
Proceeds from the sale of mortgage servicing rights ................................... -- 430,886
Business acquisitions, net of cash acquired ........................................... -- 90,391
--------------- ---------------
Net cash provided by investing activities ................................................ 1,411,113 3,405,287
--------------- ---------------
Cash flows from financing activities:
Warehouse lines of credit and other borrowings, net ................................... (717,733) (1,317,283)
Net borrowing (payments) on stockholder's note payable ................................ 499,108 (4,912)
Principal payments on other borrowings ................................................ (50,257) (492,843)
Overdraft coverage .................................................................... 18,781 --
--------------- ---------------
Net cash used by financing activities .................................................... (250,101) (1,815,038)
--------------- ---------------
Net increase (decrease) in cash .......................................................... (35,895) (87,555)
Cash and cash equivalents, beginning of period ........................................... 35,895 155,072
--------------- ---------------
Cash and cash equivalents, end of period ................................................. $ -- 67,517
--------------- ---------------
</TABLE>
________________________________________________________________________________
Page 7
<PAGE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In March 2000, the Company acquired all of the outstanding shares of The Lexus
Companies, Inc. and its wholly-owned subsidiary, Calumet Securities Corporation
for 377,778 shares of the Company's common stock valued at $1,416,668,
$2,300,000 in floating rate convertible subordinated notes, and $104,337 in
acquisition costs. Assets acquired and liabilities assumed consisted of the
following:
AMOUNT
----------
Cash and cash equivalents $ 203,074
Marketable securities 132
Loans receivable held for sale, net 348,044
Prepaid expenses and accounts receivable 418,789
Mortgage servicing rights 5,344,598
Furniture, fixtures and equipment 95,126
Goodwill 3,098,499
Warehouse lines of credit 272,518
Notes payable to bank 5,106,407
Accounts payable 308,332
==========
In February 2000, pursuant to the Company's contract with its technology
developer, 4,427 and 5,624 shares of common stock at $5.4375 and $5.25 per
share, respectively, were issued to pay consulting fees of $24,072 and $29,526,
respectively.
In March 2000, the Company issued 5-year warrants to purchase 70,707 shares of
the Company's common stock at a strike price of $5.10 per share. In addition,
the Company issued 5-year warrants to purchase 1,010 shares of the Loraca
Acquisition Corp. common stock at a strike price of $33.14 per share. The Loraca
Acquisition Corporation is an entity created to acquire The Lexus Companies,
Inc. and its wholly-owned subsidiary, Calumet Securities Corporation. The
Company owns all the outstanding shares of Loraca Acquisition Corporation, which
changed its name to The Lexus Companies, Inc., a Washington corporation
("Lexus/Washington") simultaneously with the closing and dissolution of the
Lexus Companies, Inc., a Texas corporation ("Lexus/Texas"). The Company owns all
the outstanding shares of the Loraca Acquisition Corporation. The warrants were
issued to a Bank One, Kentucky, NA ("Bank One") in connection with services
related to the acquisition of The Lexus Companies, Inc. and its wholly-owned
subsidiary, Calumet Securities Corporation. The terms of the warrant agreements
permit Bank One to exercise the warrants in either the Company or
Lexus/Washington, but not both. Therefore, upon the exercise of warrants of
either the Company or Lexus/Washington, the reciprocal warrants would be
automatically canceled. In connection with these issuances, the Company recorded
an expense of $55,621.
Interest paid in the nine months ended September 30, 1999 and 2000 totaled
$67,668 and $365,938, respectively.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
________________________________________________________________________________
Page 8
<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Financial Statements
September 30, 2000
(Unaudited)
Note 1. Description of Business
Loraca International, Inc. was incorporated on March 11, 1996 as a Nevada
corporation, which changed its name to Loraca International, Inc. ("Loraca") in
May 1998. The Company was formed to engage in the development of an
internet-based technology for business-to-business e-finance transactions and
the acquisition of financial service companies. The Company was considered a
development stage company as defined under the Statement of Financial Accounting
Standards (SFAS) No. 7 until February 23, 1998 when it acquired NMMC, Inc., an
originator and seller of non-traditional mortgage products on a wholesale basis,
formerly New Mexico Mortgage Company, Inc., a wholly-owned subsidiary of Loraca.
Subsequent to December 31, 1998, the Company closed NMMC's California and New
Mexico sales and processing branches. The Company is originating and selling
mortgage products in selected states from its offices in Oregon. During the
first quarter of 2000, the Company moved its headquarters to Seattle,
Washington.
On March 31, 2000, the Company acquired all of the outstanding shares of The
Lexus Companies, Inc., a Texas Corporation ("Lexus/Texas") and its wholly-owned
mortgage banking and insurance subsidiary, Calumet Securities Corporation
("Calumet"). The Lexus/Texas shares were acquired through the Company's
wholly-owned direct subsidiary, Loraca Acquisition Corporation, a Washington
Corporation, whose name was changed to The Lexus Companies, Inc., a Washington
Corporation ("Lexus/Washington") simultaneous with the closing and dissolution
of Lexus/Texas. Lexus/Washington was created as a holding company to acquire
operating businesses for investment.
Calumet is a full-service mortgage banker providing loan origination, loan
servicing and insurance services to its customers. Calumet was incorporated on
January 29, 1932 in the State of Indiana to engage in the business to loan money
secured by real property, to act as agent for Fannie Mae, Freddie Mac, Ginnie
Mae, HUD, VA, private investors and/or corporations in the loaning of money upon
real property and to collect the interest and principal on such loans and to
perform such other acts and duties incident to such loans as shall be requested
of it; and to purchase, own, hold, lease, mortgage, pledge, sell and dispose of
real estate on its own behalf or on behalf of others. In addition, Calumet
operates an insurance agency, which provides homeowners, life, automobile,
mortgage protection and other types of personal and commercial insurance
products to its mortgage customers and the general public.
Note 2. Basis of Presentation
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information in accordance with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. All material intercompany transactions have been eliminated
in consolidation. Operating results for the three and nine months ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. The accompanying unaudited
financial statements should be read in conjunction with the financial statements
and the notes thereto included in the Company's report to the Securities and
Exchange Commission on Form 10-K, for the year ended December 31, 1999.
________________________________________________________________________________
Page 9
<PAGE>
Note 3. Reclassifications
Certain reclassifications have been made for consistent financial statement
presentation.
Note 4. Composition of Certain Balance Sheet Accounts
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1999 2000
--------------- ---------------
<S> <C> <C>
Marketable securities, available for sale:
Equity securities, at cost ........................................................... $ 1,532,095 $ 75,551
Gross unrealized gain/(loss) on equity securities .................................... 4,408,347 (43,086)
--------------- ---------------
Equity securities, at fair market value .............................................. 5,940,442 32,465
Mortgage-backed security, at fair market value ....................................... 427,099 427,099
--------------- ---------------
$ 6,367,541 $ 459,564
=============== ===============
</TABLE>
Note 5. Equity Transactions
In February 2000, pursuant to the Company's contract with its technology
developer, 4,427 and 5,624 shares of common stock at $5.4375 and $5.25 per
share, respectively, were issued to pay consulting fees of $24,072 and $29,525,
respectively.
In March 2000, the Company issued 5-year warrants to purchase 70,707 shares of
the Company's common stock at a strike price of $5.10 per share. In addition,
the Company issued 5-year warrants to purchase 1,010 shares of the Loraca
Acquisition Corp. common stock at a strike price of $33.14 per share. The Loraca
Acquisition Corporation is an entity created to acquire The Lexus Companies,
Inc. of Texas ("Lexus/Texas") and its wholly owned subsidiary, Calumet
Securities Corporation. The Company owns all the outstanding shares of Loraca
Acquisition Corporation, which changed its name to The Lexus Companies, Inc., a
Washington corporation ("Lexus/Washington") simultaneously with the closing and
dissolution of Lexus/Texas. The warrants were issued to a bank in connection
with services related to the acquisition of Lexus/Texas and its wholly-owned
subsidiary, Calumet Securities Corporation. The warrants were issued to Bank
One, Kentucky; NA ("Bank One") in connection with services related to the
acquisition of Lexus/Texas and Calumet Securities Corporation. The terms of the
warrant agreements permit Bank One to exercise the warrants in either the
Company or Lexus/Washington, but not both. Therefore, upon the exercise of
warrants of either the Company or Lexus/Washington, the reciprocal warrants
would be automatically canceled in connection with these issuances, the Company
recorded an expense of $55,621.
In March 2000, the Company acquired all of the outstanding shares of
Lexus/Texas, Inc. and its wholly-owned subsidiary, Calumet Securities
Corporation for 377,778 shares of Loraca common stock valued at $1,416,667,
$2,300,000 in floating rate convertible subordinated notes, and $104,337 in
acquisition costs.
On June 1, 2000, the Company issued warrants, which expire on June 5, 2003 for
the purchase of 12,000 shares of Loraca Common stock at a strike price of $2.50
per share subject to the terms and conditions of the warrant agreement. The
warrants were issued to Xpede, Inc., a technology services provider in
connection with its contract for services to the Company in the development and
support of its technology.
________________________________________________________________________________
Page 10
<PAGE>
Note 6. Acquisition of The Lexus Companies, Inc. and its wholly-owned
subsidiary, Calumet Securities Corporation
On March 31, 2000, the Company acquired all of the outstanding shares of
Lexus/Texas and its wholly-owned subsidiary, Calumet Securities Corporation.
Calumet Securities Corporation is a full-service mortgage origination, servicing
and insurance agency, headquartered in the Midwestern region for over 68 years.
It is an approved seller/servicer for FNMA, FHLMC, GNMA and is an approved
lender by FHA and VA.
The aggregate consideration for the acquisition was approximately $3,821,005,
which consisted of 377,778 shares of the Company's common stock, with a market
value of $1,416,668, floating rate convertible subordinated notes in the
principal amount of $2,300,000, and $104,337 of acquisition costs. The
acquisition of Lexus/Texas and its subsidiary, Calumet Securities Corporation,
has been accounted for using the purchase method of accounting.
The intangible component of the consideration for this transaction, which
includes goodwill and purchased intangibles, will be amortized on a
straight-line basis over ten years.
The following table reflects unaudited consolidated pro forma results of
operations of the Company and Lexus/Texas and its subsidiary, Calumet Securities
Corporation, as if the acquisition had taken place at the beginning of each
period presented. Such pro forma amounts are not necessarily indicative of what
the actual consolidated results of operations might have been if the
acquisitions had been effective at the beginning of the respective periods. The
pro forma information does not include any one-time charges for
transaction-related costs relating to the acquisition of Lexus/Texas and its
subsidiary, Calumet Securities Corporation.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
1999 2000 1999 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue ............................................ $ 1,030,306 $ 810,470 $ 3,717,422 $ 2,112,268
Net loss ........................................... (1,333,411) (947,261) (438,893) (2,530,675)
=============== =============== =============== ===============
Basic and diluted net loss
Per share ...................................... $ (0.19) $ (0.13) $ (0.06) $ (0.35)
=============== =============== =============== ===============
</TABLE>
Note 7. Legal Proceedings
**
Regional Investors, Inc. v. NMMC, Inc., Second Judicial District Court,
Bernalillo County, New Mexico No. CIV-99 07120.
A lawsuit was filed on July 15, 1999, in the Second Judicial District Court,
Bernalillo County, New Mexico against NMMC by Regional Investors, Inc.
("Regional"). The complaint alleges that, in connection with a residential
mortgage loan sold by NMMC to Regional, NMMC failed to repurchase a mortgage
upon demand as required by Regional's Correspondent Agreement with NMMC.
Regional is seeking monetary relief in the approximate amount of $43,362. The
Company believes that Regional's claims are without merit and intends to defend
vigorously against the action.
Note 8. Commitments and Contingencies
In April 2000, the Company entered into a lease for additional office space
located in Seattle, Washington. The additional office space consists of 3,425
square feet costing approximately $7,900 per month through April 30, 2002.
________________________________________________________________________________
Page 11
<PAGE>
Note 9. Income Taxes
As of December 31, 1999, for federal income tax purposes, the Company had
approximately $2,048,000 in net operating loss carryforwards that expire
beginning in fiscal 2019. The annual utilization of the operating loss
carryforward may be significantly limited due to the adverse resolution, if any,
with respect to the loss carryover provisions of Internal Revenue Code Section
382 in connection with certain stock issuances by the Company.
Note 10. Subsequent Events
In October, 2000, the Company entered into a transaction with its Chief
Executive Officer, Ronald R, Baca, in which the Company exchanged 2,239,318
shares of Loraca common stock in full satisfaction of the shareholder note
payable to Mr. Baca representing the outstanding principal and unpaid interest
of approximately $909,722, at a price per share of approximately $0.4062. The
transaction resulted in an increase in total stockholders' equity equal to
amount due of $909,722.
On October 31, 2000 the Company received a capital contribution from Mr. Baca
which approximated $950,000 in exchange for 2,338,461 shares of Loraca common
stock and 2,338,461 in Loraca stock warrants, each at an exercise price of
$0.4062.
On October 31, 2000 the Company received a capital contribution from an
unaffiliated minority shareholder which approximated $250,000 in exchange for
615,384 shares of Loraca common stock at an exercise price of $0.4062.
On October 20, 2000, the Company acquired all the outstanding capital stock of
HomeLoan, Inc. and subsidiaries (collectively HomeLoan), a Delaware corporation,
with its headquarters in Dallas, Texas. HomeLoan operates a conforming mortgage
loan origination platform with a retail, netbranch and wholesale origination
network established throughout the United States. The aggregate consideration
was equal to $3,093,600, which consisted of 3,000,000 shares of Loraca common
stock, in exchange for all of the outstanding capital stock of HomeLoan. The
purchase price is subject to book value adjustment according to the Agreement
and Plan of Merger. However, in no event shall more than 286,000 shares of
Loraca common stock be issued as a result of the adjustment. The financial
information pertaining to the HomeLoan acquisition will be subsequently provided
in a Form 8k filing.
________________________________________________________________________________
Page 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
General
The Company's revenues are derived primarily from the origination, sale and
servicing of mortgage loans. As a mortgage banker which originates both
conforming and nonprime mortgage loans on a retail and wholesale basis, the
Company generates income through loan origination fees, discount points, fees
charged for processing, documentation preparation, underwriting and other
miscellaneous services. With respect to the loans that it sells, the Company
generates revenues from net premium income and interest income. Net premium
income consists of the net gain on the sale of mortgage loans and mortgage
servicing rights sold to secondary market investors. This net gain is recognized
at the time funds are received based on the difference in the secondary market
value of the loans and the related servicing rights sold minus the carrying
value of the mortgage loans. The carrying value includes loan related expenses,
consisting of fees paid to third parties for appraisal, credit reports, other
third party charges related to the closing and funding of the mortgage loans.
Interest income consists of the interest the Company receives on the mortgage
during the period prior to sale. In addition, the Company generates servicing
fee income and insurance commissions through its wholly owned indirect
subsidiary, Calumet Securities Corporation. The servicing fee income represents
fees earned for servicing mortgage loans owned by institutional investors. The
fees are calculated on the outstanding principal balance of the mortgage loans
serviced. Fees are recorded as income when earned. Insurance commissions are
calculated on the premiums charged to the insured and are recognized when
earned. Included in accounts receivable and payable are premiums receivable from
insureds and related payables to underwriters. These receivables and payables
are recorded when the policies are billed.
The Company's costs and expenses consist largely of the following:
o Interest paid under its warehouse credit lines and term loan
facilities.
o Salaries, commissions and benefits paid to employees.
o General and administrative expenses such as occupancy costs, office
expenses and professional services.
o Depreciation and amortization expense related principally to the
Company's facilities, computers, software and technology development,
mortgage servicing rights and goodwill associated with its
acquisitions.
o Reserves for potential loan repurchase demands and premium recapture
from the Company's investors, where appropriate.
Seasonality and Rates
Mortgage loan originations are typically at their lowest level during the first
and fourth calendar quarters primarily due to a reduced level of home buying
activity during the winter months. Mortgage loan originations generally increase
beginning in March and continuing through October. As a result, the Company's
earnings may be lower in the first and fourth quarters than in the second and
third quarters. Further, the Company's expenses may vary quarter to quarter
based on fluctuations in the volume of loans it originates. In addition,
economic and interest rate cycles also impact the mortgage industry, where
mortgage loan volume typically falls in rising interest rate environments,
conversely servicing assets decrease when borrowers accelerate refinancing of
existing loans in decreasing interest rate environments. During such periods,
refinancing loan volume decreases as higher interest rates provide reduced
economic incentives for borrowers to refinance their existing mortgages.
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Results of Operations
For the three and nine months ended September 30, 2000 compared to the three and
nine months ended September 30, 1999:
The Company's results of operations for the three and nine months ended
September 30, 2000 includes the operating results of Loraca International, Inc.
and its wholly-owned direct subsidiaries NMMC, Inc. and Loraca Acquisition
Corporation. The operating results also include the revenue and expenses of
Lexus/Texas and Calumet (collectively "Lexus/Texas") for only the period from
April 1, 2000 to September 30, 2000 for the nine month period ended September
30, 2000 pursuant to the purchase method of accounting, based on the
consummation of the Lexus/Texas acquisition on March 31, 2000.
Revenues
Revenues for the three months ended September 30, 2000 increased $756,751 or
1,945% to $795,658 as compared to $38,907 for the three months ended September
20, 1999. Revenues for the nine months ended September 30, 2000 increased
$1,942,943 or 1,257% to $2,097,456 as compared to $154,513 for the nine months
ended September 30, 1999. The increase for the three and nine months ended
September 30, 2000 resulted from the acquisition of Lexus/Texas and its
wholly-owned mortgage banking and insurance subsidiary, Calumet Securities
Corporation ("Calumet"). For the nine-month period ended September 30, 2000,
total revenue for Lexus/Texas, was $1,984,838 as compared to $2,413,602 for the
same period ended September 30,1999. Included within the Lexus/Texas revenue for
the nine months ended September 30, 2000, is a $30.2 million bulk sale of
servicing assets, which generated $468,924 of revenue.
Expenses
Total expenses for the three months ended September 30, 2000 increased $979,427
or 107% to $1,892,880 as compared to $913,453 for the comparable period in 1999.
Total expenses increased $4,007,663 or 177% to $6,274,334 for the nine months
ended September 30, 2000 as compared to $2,266,671 for the nine months ended
September 30, 1999. The principal components of this increase for the three and
nine months ended September 30, 2000, respectively, were in the operating
expenses associated with the acquisition of Lexus/Texas on March 31,2000, which
contributed to the increase in the amount of $1,221,968 and $2,902,375,
respectively. The increase in total expenses for the three months ended
September 30, 2000 were offset by a decrease in the personnel, commissions, and
administrative expenses of Loraca and NMMC which approximated $273,630 after
moving it's subprime origination platform in Portland,OR to its operating
platform at Calumet's facility in Schererville, Indiana. Personnel, commissions
and administrative expenses for Loraca and NMMC during the nine months ended
September 30,2000 increased $996,423 as a result of the Company's effort to
develop its web-based technology, incurring professional fees of $365,148, an
increase in travel costs of $398,662 to execute its acquisition stratergy, and
an increase in personnel expenses to expand its key management of $130,356.
However, for the three month period ended September 30, 2000, total expenses
before depreciation and amortization decreased $693,129 as compared to the three
months ended September 30,2000, reflecting cost reductions created by
consolidating the operations of NMMC and Lexus/Texas.
For the nine-month period ending September 30, 2000, Lexus/Texas incurred total
operating expenses of $2,902,375, which includes depreciation of $18,957,
amortization of mortgage servicing rights of $1,074,348 and the amortization of
intangible assets of $149,708, in total $1,243,013. The Lexus/Texas amortization
of mortgage servicing rights includes the bulk sale of mortgage servicing assets
in the second quarter of 2000, which increased amortization expense by $430,886,
reflecting amortization from recurring servicing activity of $643,462. Operating
expenses before depreciation and amortization for Lexus/Texas decreased by
$156,134 or 9% for the nine month comparative period from September 30, 1999 to
September 30, 2000, as a result of reducing its personnel costs, salesmen
commissions, servicing expenses, and a decrease in interest expense. During the
nine months ended September 30, 2000, in an effort to reduce overhead and
consolidate its operations, the Company moved its headquarters to Seattle,
Washington which resulted in closure costs related to the operations in Lake
Oswego, Oregon and Albuquerque, New Mexico. In addition to the expenditures the
Company incurred travel costs, to establish operations in Seattle, Washington.
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<PAGE>
Other Income
Other income for the three months ended September 30, 2000, was $149,961, an
increase of $148,973 compared to $988 for the comparable period in 1999. The
increase was primarily due to the gain on sale of marketable securities which
approximated $149,306, during the three months ended September 30, 2000,
liquidated for the purpose of generating working capital resources. Other income
was $1,646,203 for the nine months ended September 30, 2000, a decrease of
$746,610 compared to $2,392,813 for the nine months ended September 30, 1999.
The decrease for the nine month period was primarily attributable to fewer sales
of the Company's marketable securities and lower gains on the sale of
investments, reflecting a decrease in the gain on sale of investments of
$756,065 during the nine months ended September 30, 2000.
Net Results
As a result, the Company reported a net loss of $947,261 or $0.13 per share for
the three months ended September 30, 2000, as compared to a net loss of $873,558
or $0.13 per share for the three months ended September 30, 1999, which included
depreciation, amortization of mortgage servicing rights and intangible assets of
$453,383, as compared to $28,640 for the comparable period in 1999, reflecting
loss before depreciation and amortization of $493,878 for the three months ended
September 30, 2000, as compared to $844,918 for the three months ended September
30, 1999. The Company reported a net loss of $2,530,675 or $0.35 per share for
the nine months ended September 30, 2000, as compared to net income of $280,655
or $0.04 per share for the nine months ended September 30, 1999, which included
depreciation, amortization of mortgage servicing rights and intangible assets of
$1,394,831, as compared to $70,827 for the comparable period 1999, reflecting a
loss before depreciation and amortization of $1,135,844 for the nine months
ended September 30, 2000, as compared to earnings before depreciation and
amortization of $351,482 in the comparable period in 1999. The decrease in loss
before depreciation and amortization of $351,040 for the three months ended
September 30, 2000 is primarily due to the reduction in personnel, commissions
and administrative expenses associated with the operational consolidation of
NMMC into the Calumet operating facility. The Company's increase in loss before
depreciation and amortization of $1,487,326 for the nine months ended September
30, 2000 was primarily related to the decrease in gains on the sale of
marketable securities attributable to fewer sales, representing a reduction of
$756,065, the increase in personnel, general and administrative expenses to
further develop the Company's web-based technology, recruit experienced
management and to further execute its acquisition strategy to expand the loan
origination network of the Company, which aggregated $1,056,738, offset by the
generation of net income before depreciation and amortization from the
Lexus/Texas acquisition of $325,477.
Liquidity and Capital Resources
Operating Cash Flow
For the nine months ended September 30, 2000, the Company had used $1,677,804
for operating activities, compared to the cashflow used of $1,196,907 for the
comparable period in 1999. The Company has historically operated on a negative
cash flow basis due primarily to the development stage costs and operating
expenses that exceeded the limited revenues from NMMC's loan origination
business. During the nine months ended September 30, 2000, the Company generated
net income before depreciation and amortization of $325,477 from its indirect
subsidiary Lexus/Texas, a recently acquired mortgage loan origination and
servicing platform. The operating cash flow from Lexus/Texas was offset by
expenses incurred pursuant to moving the Company's headquarters to Seattle,
Washington, the consolidation of NMMC into Lexus/Texas, the development of the
Company's new business initiatives, and the pursuit of additional revenue
generating acquisition candidates.
As a result of the investing and financing activities, the Company generated net
cashflow of $1,590,249 to fund its operating cash requirements for the nine
months ended September 30, 2000 as compared to $1,161,012 for the comparable
period in 1999, resulting in cash and cash equivalents of $67,517 as of
September 30,2000.
Currently, the Company's primary cash requirements include the funding of (1)
mortgage originations pending their sale, (2) interest expense on its warehouse
and other financings and (3) ongoing personnel, administrative, development and
other operating expenses. The Company must be able to sell and service loans and
obtain adequate credit facilities and other sources of funding in order to
achieve positive operating cash flows and to maintain the ability to originate,
purchase and service loans.
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<PAGE>
The Company continues to expect a significant use of cash as it pursues various
business initiatives, and will require additional capital resources in the
fourth quarter to be able to fund its business. Any material unforeseen increase
in expenses or reductions in revenue will significantly accelerate the Company's
need for additional capital.
Management is aggressively pursuing additional working capital resources, which
if secured will be utilized to complete the execution of its business
strategies. Additionally, the Company has implemented an aggressive effort to
reduce current operating costs throughout its businesses, as it has reduced its
total operating expenses before depreciation and amortization during three
months ended September 30, 2000 by ($692,129) as compared to the three months
ended June 30, 2000. Additionally, the Company is pursuing revenue-generating
opportunities within its existing platform to improve profitability and
operating cash flow. If additional funding is not available to the Company on
economically reasonable terms, the Company may need to curtail or cease certain
operations. There can be no assurance that financing will be available in
amounts or on terms acceptable to the Company, if at all, a situation which
would have a material adverse affect on the Company.
Warehouse Financing and Other Borrowings
The Company relies upon warehouse financing facilities to support its loan
origination prior to sale. The Company borrows money on a short-term basis
through warehouse lines of credit during the period from loan origination to the
sale of loans to third party investors. The Company has relied upon a limited
number of lenders to provide the primary credit facilities for its loan
originations. As of September 30, 2000, the Company had a $5 million warehouse
line of credit with The Provident Bank with a variable rate of interest, which
may be terminated at any time by The Provident Bank, and a $5 million warehouse
line of credit with Bank United of Texas, FSB, which matures on May 31, 2001.
The Company also has a working capital line of credit of $400,000, which matures
on June 1, 2001, a term note for approximately $4.3 million, which requires
monthly principal payments of $69,037 plus interest at a prime rate with a
maturity date of November 1, 2005, each with Bank One, Kentucky NA, and a line
of credit with Montgomery Bank and Trust for $250,000, which matures on January
31, 2001. The total advances outstanding as of September 30, 2000 on the working
capital lines of credit approximate $609,000 and $244,000 on the warehouse lines
of credit.
The Company is required to comply with various operating and financial covenants
as provided in the agreements described above which are customary for agreements
of their type. The continued availability of funds provided to the Company under
these agreements is subject to the Company's continued compliance with these
covenants. As of September 30, 2000, the Company is in compliance with its
operating and financial covenants.
Transactions with Affiliates
From time to time, the Company's Chief Executive Officer, Ronald R. Baca, has
made loans to the Company and NMMC in order to fund the Company's working
capital needs, including payroll and other office expenses. In consideration of
Mr. Baca's capital contributions, the Company issued to Mr. Baca an unsecured
demand promissory note dated as of December 31, 1998 in the amount of $701,737
and bearing interest at the rate of 8% per annum. During 1999, the Company made
additional net borrowings from Mr. Baca in the amount of $157,831, which
included the transfer to Mr. Baca in May 1999 of 41,000 shares of the common
stock of ZiaSun Technologies, Inc., a publicly traded corporation ("ZiaSun"),
with a market value of $645,750. As of September 30, 2000, the outstanding
balance of the note was $854,657.
Transactions Involving Capital Stock
In late 1999, the Company hired the services of J. A. Young Co., an application
service provider, to develop an e-commerce mortgage website. The terms of the
agreement include the partial payment of services rendered by the issuance of
the Company's common stock. During the nine months ended September 30, 2000, the
Company issued a total of 10,051 shares of common stock to J. A. Young Co. to
pay for $53,598 of consulting fees.
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<PAGE>
On June 1, 2000, the Company issued warrants, which expire on June 5, 2003 for
the purchase of 12,000 shares of Loraca Common stock at a strike price of $2.50
per share subject to the terms and conditions of the warrant agreement. The
warrants were issued to Xpede, Inc., a technology services provider in
connection with its contract for services to the Company in the development and
support of its technology.
Sales of Marketable Securities
During the nine months ended September 30, 2000, the Company sold 400,650 shares
of ZiaSun Common Stock, generating a gain on sale of $1,631,058. As of September
30, 2000, the Company held 850 shares of ZiaSun common stock with an approximate
market value of $1,568. In addition, the Company held an investment in a
mortgage-backed security with a fair market value of approximately $427,099 and
holds 5,860 shares of restricted stock in the Hartcourt Companies, Inc. with an
approximate fair market value of $30,897. The Company may liquidate additional
investment securities, as needed, to fund its working capital needs.
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FORWARD-LOOKING STATEMENTS
Statements contained herein that are not based on historical fact, including
without limitation statements containing the words "believes," "may," "will,"
"estimate," "continue," "anticipates," "intends," "expects" and words of similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause the actual results, events or developments to be materially different
from any future results, events or developments expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
o the expectation that the Company will be successful in raising
additional capital resources;
o the expectation that the Company will see a growth in revenues and
positive net income;
o the ability to increase customer awareness of the Company's Web site;
o the ability to increase our customer base,
o technology changes and the continued acceptance of the Internet;
o general economic and business conditions;
o competition;
o the ability to attract and retain qualified personnel;
o liability and other claims asserted against the Company; and
o and other factors referenced in this and other Company filings with the
Securities and Exchange Commission.
Given these uncertainties, readers are cautioned not to place undue reliance on
such forward-looking statements. The Company disclaims any obligation to update
any such factors or to publicly announce the result of any revisions to any of
the forward-looking statements contained herein to reflect future results,
events or developments.
Additional information on other risk factors which could affect the Company's
financial results are included in the Company's Annual Report for the fiscal
year ended December 31, 1999 on Form 10-K, and other Company reports and
statements on file with the Securities and Exchange Commission.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Regional Investors, Inc. v. NMMC, Inc., Second Judicial District Court,
Bernalillo County, New Mexico No. CIV-99 07120.
A lawsuit was filed on July 15, 1999, in the Second Judicial District Court,
Bernalillo County, New Mexico against NMMC by Regional Investors, Inc.
("Regional"). The complaint alleges that, in connection with a residential
mortgage loan sold by NMMC to Regional, NMMC failed to repurchase a mortgage
upon demand as required by Regional's Correspondent Agreement with NMMC.
Regional is seeking monetary relief in the approximate amount of $43,362. The
Company believes that Regional's claims are without merit and intends to defend
vigorously against the action.
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5: Other Information
In October, 2000, the Company entered into a transaction with its Chief
Executive Officer, Ronald R, Baca, in which the Company exchanged 2,239,318
shares of Loraca common stock in full satisfaction of the shareholder note
payable to Mr. Baca representing the outstanding principal and unpaid interest
of approximately $909,722, at a price per share of approximately $0.4062. The
transaction resulted in an increase in total stockholders' equity equal to
amount due of $909,722.
On October 31, 2000 the Company received a capital contribution from Mr. Baca
which approximated $950,000 in exchange for 2,338,461 shares of Loraca common
stock and 2,338,461 in Loraca stock warrants, each at an exercise price of
$0.4062.
On October 31, 2000 the Company received a capital contribution from an
unaffiliated minority shareholder which approximated $250,000 in exchange for
615,384 shares of Loraca common stock at an exercise price of $0.4062.
On October 20, 2000, the Company acquired all the outstanding capital stock of
HomeLoan, Inc. and subsidiaries (collectively HomeLoan), a Delaware corporation,
with its headquarters in Dallas, Texas. HomeLoan operates a conforming mortgage
loan origination platform with a retail, netbranch and wholesale origination
network established throughout the United States. The aggregate consideration
was equal to $3,093,600, which consisted of 3,000,000 shares of Loraca common
stock, in exchange for all of the outstanding capital stock of HomeLoan. The
purchase price is subject to book value adjustment according to the Agreement
and Plan of Merger. However, in no event shall more than 286,000 shares of
Loraca common stock be issued as a result of the adjustment. The financial
information pertaining to the HomeLoan acquisition will be subsequently provided
in a Form 8k filing.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Listing.
See Exhibit Index, below.
(b) Reports on Form 8-K
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Seattle, Washington, on the _______
day of November 2000.
LORACA INTERNATIONAL, INC.
By: /s/ BERNARD A. GUY
--------------------------------------
Bernard A. Guy
President and Acting Chief
Financial Officer
(Principal Financial and
Accounting Officer)
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LORACA INTERNATIONAL, INC.
EXHIBIT INDEX
September 30, 2000
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1* Agreement and Plan of Merger dated as of February 11, 2000 by and among
Loraca International, Inc., Loraca Acquisition Corp., The Lexus
Companies, Inc. and the Shareholders of The Lexus Companies, Inc.
3.1** Articles of Incorporation of Loraca International, Inc., as amended.
3.2** Amended and Restated Bylaws of Loraca International, Inc.
27.1 Financial Data Schedule.
* INCORPORATED BY REFERENCE TO CURRENT REPORT ON FORM 8-K, FILED WITH THE
COMMISSION ON FEBRUARY 28, 2000, (FILE NO. 000-27585).
** INCORPORATED BY REFERENCE TO THE COMPANY'S REGISTRATION STATEMENT ON FORM
10 (FILE NO. 000-27585), EFFECTIVE ON DECEMBER 9, 1999.
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