<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) March 31, 2000
--------------
LORACA INTERNATIONAL, INC.
---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 005-58227 87-0555751
---------------------------- -------------------- -------------------
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation Identification No.)
1601 Fifth Avenue, Suite 2320
Seattle, Washington 98101
---------------------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (206) 332-0400
--------------
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 11, 2000, Loraca International, Inc. ("Loraca" or the
"Company"), through its wholly-owned subsidiary, entered into an agreement to
acquire all of the outstanding shares of The Lexus Companies, Inc. a Texas
Corporation, ("Lexus/Texas") and its wholly-owned subsidiary, Calumet Securities
Corporation, an Indiana Corporation ("Calumet" or collectively "Lexus") pursuant
to the terms of an Agreement and Plan of Merger (the "Agreement"), as previously
discussed in the Company's Current Report on Form 8-K filed February 28, 2000.
On March 15, the parties to the Agreement executed an Amendment to the Agreement
and Plan of Merger allowing the closing of the transaction to occur as late as
April 15, 2000. On March 31, 2000, the transaction described in the Agreement
closed, at which time Loraca (through its subsidiary) paid to Lexus an aggregate
of (i) 377,778 shares of Loraca common stock, par value $0.001 per share, (the
"Loraca Common Stock"), and (ii) secured floating rate convertible subordinated
notes in the principal amount of $2.3 million (the "Notes").
The value of the consideration paid by Loraca for the Lexus/Texas stock was
based on an arm's length negotiation between the parties after considering the
perceived value of the Lexus business and its assets, the liabilities of
Lexus/Texas that are to be assumed by the subsidiary of Loraca, and the market
value of the shares of Loraca Common Stock that were delivered at Closing or
that will be issuable upon conversion of the Notes.
Loraca intends to continue operating the Calumet business in its growing
internet mortgage operation as a platform to fund and service the loans that
Loraca and its subsidiaries originate.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP
None
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
None
ITEM 5. OTHER EVENTS
None
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
None
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS
Pursuant to Item 7 of Form 8-K, filed on April 14, 2000 Loraca indicated
that it would file certain financial information no later than the date required
by Item 7 of Form 8-K. This Amendment No. 1 is filed to provide the required
financial information.
By the terms of the Agreement, Loraca through its wholly-owned subsidiary
has acquired all the outstanding shares of stock of Lexus/Texas, and its wholly-
owned mortgage banking subsidiary Calumet, from the shareholders thereof in an
exchange for an aggregate of 377,778 shares of Loraca common stock at a fair
market value of $3.75 per share at March 31, 2000 or $1,416,668 and $2.3 million
secured floating rate convertible subordinated notes ("Notes" or collectively
the "Acquisition").
The net assets were acquired by Loraca Acquisition Corporation ("LAC") a
wholly-owned subsidiary of Loraca organized under the laws of the State of
Washington, which changed its legal name to The Lexus Companies, Inc.,
("Lexus/Washington") after the simultaneous dissolution of Lexus/Texas. As a
result, Lexus/Washington became a wholly-owned, direct subsidiary of Loraca and
Calumet became a wholly-owned indirect subsidiary of Loraca. The Acquisition was
approved by the unanimous consent of the Loraca and Lexus/Washington Boards of
Directors on February 21, 2000, and is intended to qualify as a reorganization
within the meaning of Section 368(a) (2) (D) of the Internal Revenue Code of
1986, as amended. Loraca had 7,012,942 shares of common stock issued and
outstanding prior to the Acquisition and 7,390,720 shares issued and outstanding
at closing of the Acquisition.
For accounting purposes, the acquisition has been recorded under the
purchase method of accounting, which allocates the purchase price ($3,716,668)
and the related transaction expenses ($164,337) among the fair value of the
assets and liabilities acquired. After fair value adjustment, the mortgage
servicing rights have been increased by $2,316,634, with the fair value of the
remaining net assets deemed to be equal to their respective historical value.
The purchase price in excess of the resulting fair value and the related
transaction expenses have been recorded as goodwill in the amount of $3,098,499
and is amortized over a ten (10) year period.
The accompanying unaudited pro forma condensed consolidated financial
statements illustrate the effect of the acquisition on the Loraca financial
position and results of operations.
The unaudited pro forma condensed consolidated balance sheet of Loraca as
of the date presented is based on the historical balance sheet of Loraca and
assumes the acquisition took place on the stated reporting date. The unaudited
pro forma condensed consolidated statements of operations are based on the
historical statements of operations of Loraca and assume the acquisition took
place on January 1, 1999. The unaudited pro forma condensed consolidated
financial statements may not be indicative of the actual results which may have
been obtained had the acquisition occurred earlier, nor are they necessarily
indicative of future operating results.
<PAGE>
LORACA INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
P-1
Explanatory Head Note
P-2
Unaudited pro forma condensed consolidated balance sheet at March 31, 2000
P-3
Unaudited pro forma condensed consolidated statements of operations for the
three months ended March 31, 2000
P-4
Unaudited pro forma condensed consolidated statements of operations for the
year ended December 31, 1999
P-5
Notes to the unaudited pro forma condensed consolidated financial statements.
The accompanying unaudited pro forma condensed consolidated financial statements
should be read in connection with the historical financial statements of The
Lexus Companies, Inc. and Loraca International, Inc.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
<PAGE>
THE LEXUS COMPANIES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1999
(With Independent Auditors' Report Thereon)
<PAGE>
THE LEXUS COMPANIES, INC.
AND SUBSIDIARY
Table of Contents
Page
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Shareholders' Equity (Deficit) 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
<PAGE>
Independent Auditors' Report
The Board of Directors
THE LEXUS COMPANIES, INC.:
We have audited the accompanying consolidated balance sheet of THE LEXUS
COMPANIES, INC. and subsidiary ("the Company") as of December 31, 1999, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of THE LEXUS COMPANIES,
INC. and subsidiary as of December 31, 1999, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
February 18, 2000
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and short-term investments $ 380,933
Accounts receivable 367,729
First mortgage loans held for sale, net
at lower of cost or market 1,428,801
Mortgage servicing rights, net 3,135,258
Property and equipment, net 105,805
Other assets 14,529
------------
Total assets $ 5,433,055
============
Liabilities and Shareholders' Equity (Deficit)
Liabilities:
Warehouse line of credit $ 1,322,305
Notes payable to bank 5,260,659
Subordinated obligation 200,000
Accounts payable and other liabilities 247,607
------------
Total liabilities 7,030,571
============
Shareholders' equity (deficit):
Preferred stock, $100 par value, 6,737 shares authorized,
issued and outstanding 673,700
Common stock, $0.25 par value, 10,000 shares authorized,
4,000 shares issued and outstanding 1,000
Additional paid-in capital 414,141
Accumulated deficit (2,686,357)
------------
Total shareholders' equity (deficit) (1,597,516)
------------
Commitments and contingencies (notes 2 and 11)
Total liabilities and shareholders' equity (deficit) $ 5,433,055
============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Statement of Operations
Year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Income:
Servicing fees $ 1,797,173
Loan processing fees 671,461
Gain on sales of first mortgage loans held for sale 784,531
Interest 721,791
Insurance commissions 489,690
Appraisal and credit report fees 36,213
Other 131,854
-----------
Total income 4,632,713
-----------
Expenses:
Salaries and benefits 1,508,665
Occupancy 201,855
Interest 661,495
Mortgage and insurance sales commissions 345,808
Depreciation and amortization of intangible assets 445,270
Amortization of mortgage servicing rights 1,190,248
Professional fees 183,078
Office expenses 428,744
Loan expenses 225,959
Other 258,588
----------
Total expenses 5,449,710
----------
Loss before income tax benefit (816,997)
Income tax benefit 89,547
-----------
Net loss $ (727,450)
===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Statement of Shareholders' Equity (Deficit)
Year ended December 31, 1999
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Accumulated
stock stock capital deficit Total
---------- -------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $ 673,700 1,000 414,141 (1,958,907) (870,066)
Net loss -- -- -- (727,450) (727,450)
----------- --------- ---------- ----------- ------------
Balance at December 31, 1999 $ 673,700 1,000 414,141 (2,686,357) (1,597,516)
=========== ========= ========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $ (727,450)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization of intangible assets 445,270
Amortization of mortgage servicing rights 1,190,248
Origination of first mortgage loans held for sale (26,068,001)
Proceeds from sales of first mortgage loans held for sale 25,890,298
Gain on sale of first mortgage loans held for sale (784,531)
Changes in assets and liabilities:
Decrease in accounts receivable 390,364
Increase in other assets (1,397)
Decrease in accounts payable and other liabilities (132,598)
--------------
Net cash provided by operating activities 202,203
--------------
Cash flows from investing activities:
Capitalization of mortgage servicing rights (304,110)
Capital expenditures (88,284)
--------------
Net cash used in investing activities (392,394)
--------------
Cash flows from financing activities:
Net increase in warehouse line of credit 870,366
Proceeds from notes payable to bank 174,661
Payments on notes payable to bank (828,444)
Payments on subordinated obligation (400,000)
Decrease in holdback reserve (170,463)
--------------
Net cash used in financing activities (353,880)
--------------
Net decrease in cash and cash equivalents (544,071)
Cash and cash equivalents at beginning of year 925,004
--------------
Cash and cash equivalents at end of year $ 380,933
==============
Supplemental disclosures of cash flow information -
cash paid during the year for interest $ 127,170
==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
(1) Summary of Significant Accounting Policies
(a) Business
THE LEXUS COMPANIES, INC. ("LEXUS" or "Company") was incorporated on
December 27, 1993, in the State of Texas to function as a holding
company to acquire operating businesses for investment.
On January 4, 1995, Lexus purchased 100% of the capital stock of Calumet
Securities Corporation ("Calumet"), a full-service mortgage banker
providing loan origination, loan servicing and insurance services.
Calumet was incorporated on January 29, 1932, in the State of Indiana.
Calumet engages in the business to loan money secured by real property
primarily in the Midwestern United States; to act as agent for other
persons 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.
(b) Basis of Presentation
The accounting and reporting practices of the Company conform to
generally accepted accounting principles. The consolidated financial
statements include the accounts and transactions of LEXUS and its wholly
owned subsidiary, Calumet. All material intercompany transactions have
been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) First Mortgage Loans Held for Sale
First mortgage loans held for sale are stated at the lower of cost or
market value on an aggregate basis as determined by outstanding investor
commitments or, in the absence of such commitments, current investor
yield requirements calculated on an aggregate basis.
(d) Mortgage Servicing Rights
The fair value of mortgage servicing rights for capitalization and
impairment measurement purposes is determined based on quoted market
prices for comparable transactions, if available, or the present value
of expected future cash flows.
Mortgage servicing rights are amortized ratably in relation to the
associated net servicing income, over the estimated lives of the
serviced loans. The Company evaluates and measures impairment of its
servicing rights using stratifications based on the risk characteristics
of the underlying loans and management's anticipated prepayment
estimates. Management has
6
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
determined those risk characteristics to include loan type, (i.e.,
governmental and conventional) term, and interest rate. Impairment when
necessary is recognized through a valuation allowance and a charge to
operations.
(e) Covenant not to Compete and Subordinated Obligation
The covenant not to compete represented the cost of an agreement with
the previous Calumet shareholders and became fully amortized in 1999.
This amount was amortized on a straight-line basis over the estimated
effective life of the agreements. Amortization during the year ended
December 31, 1999 was $376,500 and is included in depreciation and
amortization of intangible assets in the consolidated statement of
operations. The terms of the related subordinated obligation require
LEXUS to make semiannual payments of approximately $200,000 with the
final payment due January 4, 2000. Each payment is subordinated to the
debt payments on notes payable to a bank.
(f) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation
and amortization. Amortization and depreciation of property and
equipment are computed under the straight-line method over the estimated
useful life of the respective assets or the remaining term of the
related lease for leasehold improvements. Depreciation of computer
equipment is computed on an accelerated basis over the estimated useful
life of the equipment.
(g) Income Taxes
The provision for income taxes represents the net change in the deferred
tax asset and/or liability balance at enacted statutory rates and income
taxes currently payable. Deferred tax assets or liabilities are
recognized for the estimated future tax effects attributable to
carryforwards and temporary timing differences in the recognition of
income and expense for tax and financial reporting purposes. Temporary
differences arise from differences in the book versus tax basis of the
Company's assets and liabilities which are expected to reverse at some
future date.
(h) Recognition of Revenues Related to Servicing Mortgage Loans
Mortgage servicing fee income represents fees earned for servicing first
mortgage loans owned by institutional investors. The fees are calculated
on the outstanding principal balance of loans serviced. Fees are
recorded as income when earned.
(i) Sale of Mortgage Loans
Gains and losses on the sale of mortgage loans are recognized based on
the difference between the selling price and the carrying value of the
related mortgage loans sold. Discounts from the origination of mortgage
loans are deferred and recognized as adjustments to the gain and loss
upon sale. Loan origination fees and certain direct costs associated
with originating or acquiring loans are recognized when received or
paid.
7
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
(j) Recognition of Interest
Interest is recorded as earned except where collection of interest is
not reasonably assured.
(k) Insurance Commissions
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. Insurance
commissions are recognized when earned.
(l) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
unrestricted cash on hand and in banks and investments with original
maturities of three months or less.
(2) First Mortgage Loans Held for Sale
Mortgage loans held for sale consist of fixed and adjustable-rate 5- to 30-
year mortgage loans secured by 1-4 family residences. At December 31, 1999,
the balances were comprised of the following:
Government $ 503,324
Conventional 952,918
---------------
1,456,242
Loan discounts, net (27,441)
---------------
First mortgage loans held for sale, net $ 1,428,801
===============
In the normal course of business, the Company extends commitments to
prospective borrowers to lock interest rates on loans in process ("locks").
At December 31, 1999, the Company had issued locks of approximately
$2,294,000 on loans which had not yet closed. To hedge its risk on such
locks, the Company obtains commitments to deliver loans, primarily on a best
efforts basis, to investors in the secondary market.
(3) Mortgage Servicing Rights
The following reflects mortgage servicing rights activity for the year ended
December 31, 1999:
Balance at December 31, 1998 $ 4,021,396
Additions 304,110
Amortization of mortgage servicing rights (1,190,248)
-----------------
Balance at December 31, 1999 $ 3,135,258
=================
8
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
Capitalized mortgage servicing rights are valued on a quarterly basis, using
a third party market value quote. This valuation is performed by stratifying
the servicing rights based on loan type, duration and interest rate. The
fair value of the capitalized mortgage servicing rights exceeds the recorded
book value as of December 31, 1999. No impairment reserve is necessary at
December 31, 1999.
(4) Servicing Portfolio
The Company's mortgage portfolio serviced for institutional investors at
December 31, 1999 is as follows (in thousands):
GNMA $ 79,979
FHLMC 130,076
FNMA 136,210
Others 37,060
----------
$ 383,325
----------
Funds held in trust for borrowers and investors of $3,110,000 at December
31, 1999, represent monies collected from borrowers primarily for the
payment of real estate taxes and insurance premiums applicable to mortgage
loans being serviced as well as principal and interest payments due to the
investors. These funds are not included in the Company's consolidated
financial statements.
The Company services mortgage loans in ten states. As of December 31, 1999,
the geographic distribution based on the unpaid principal balance of loans
serviced (in thousands) was as follows:
Percent of
Servicing servicing
portfolio portfolio
--------- ---------
Indiana $ 244,520 63.8%
Illinois 62,634 16.3
Missouri 69,322 18.1
Other 6,849 1.8
--------- ---------
Total $ 383,325 100.0%
========= =========
(5) Warehouse Line of Credit
Calumet has a warehouse line of credit with Bank United of Texas, FSB. The
maximum amount of borrowings under this warehouse line is $5,000,000. At
December 31, 1999, the outstanding balance was $1,322,305. The warehouse
line is collateralized by first mortgage loans held for sale. Interest on
the warehouse line is at the 30-day average LIBOR rate plus 2.25% or 6.41%
at December 31, 1999.
9
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
(6) Notes Payable to Bank
Notes payable consists of working capital and acquisition loans. Each note
requires principal and interest payments over its contractual term. The
notes bear interest at a rate of Prime, with a weighted average interest
rate at December 31, 1999 of 8.5% reduced by credits received for reciprocal
arrangements at the bank. Notes payable maturing over the next five years
and thereafter consist of:
2000 $ 828,444
2001 828,444
2002 828,444
2003 828,444
2004 828,444
2005 and thereafter 1,118,439
------------
Total $ 5,260,659
============
The notes payable contain various covenant requirements related to financial
results of Calumet. Calumet was in compliance with all debt covenants as of
December 31, 1999.
(7) Income Taxes
The Company recorded a tax benefit of $89,547 for the year ended December
31, 1999.
The tax effects of temporary differences that give rise to significant
portions of the deferred assets and deferred tax liabilities at December 31,
1999 are presented below:
Gross deferred tax assets:
Net operating loss carryforwards $ 236,679
Noncompete agreement 733,334
Charitable contributions carryforward 856
---------
Total gross deferred tax assets 970,869
Valuation allowance (406,822)
---------
Total gross deferred tax assets, net of valuation allowance 564,047
---------
Gross deferred tax liabilities:
Purchased mortgage servicing rights 295,997
Originated mortgage servicing rights 265,976
Other liabilities 2,047
---------
Total gross deferred tax liabilities 564,047
---------
Total net deferred tax liabilities $ -
=========
10
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
Management has established a valuation allowance on deferred tax assets due
to the uncertainty of realization of those assets. The federal net
operating loss carryforwards will expire in the tax year ended December 31,
2018. The state net operating loss carryforwards will expire in the tax
year ended December 31, 2013.
(8) Preferred Stock
The preferred stock is 10% cumulative, convertible at a rate of one share
of cumulative convertible preferred stock for each .0808 shares of common
stock upon demand by the holder for redemption at par value at any time
after the anniversary of the issuance date in 2000. The preferred stock has
an annual dividend rate of 10% payable cumulatively when declared by the
Board of Directors of the Company. The cumulative dividend approximates
$303,000 at December 31, 1999, and has not been declared by the Board of
Directors.
(9) Pension Plan
Calumet has a defined contribution plan for employees who are at least 20-
1/2 years of age, have been continuously employed at least six months prior
to January 1, are less than 65 years of age when first eligible, and
execute a salary reduction agreement. On September 1, 1997 the plan was
amended whereby, employees could contribute between 1% and 6% of their
annual contribution from compensation. Calumet's matching contribution is
an amount up to 6% of each participant's annual compensation based on the
employees contribution rate. The contributions are held in a trust fund for
each participant. The monies are currently invested by the participants in
various equity, fixed income, and money market funds. Contributions by
Calumet in 1999 were $170,972.
(10) Incentive Compensation Plan
The Corporation has an incentive compensation plan with a key employee.
Under the terms of the plan, the employee was issued 2% of the Company's
common stock upon execution of the agreement in 1996 and may earn up to an
additional 8% of the Company's common stock in future years based upon the
employees achievement of certain defined contributions to the Company. As
of December 31, 1999 no additional common stock had been issued to the key
employee.
(11) Financial Instruments with Off-Balance Sheet Risk
Adverse market interest rate changes between the time that a customer
receives a rate-lock commitment and the time that a fully-funded mortgage
loan is delivered to an investor can erode the value of that mortgage. To
mitigate the interest rate risk associated with the origination and sale of
mortgage loans, the Company uses forward sales contracts, on a whole loan
delivery basis. The forward sales commitments are obtained from FNMA,
FHLMC, GNMA and nationally recognized mortgage investors. Use of these
contracts protects the value of residential mortgage loans that are being
underwritten for future sale to investors in the secondary market. The
contractual amounts of off-balance sheet instruments in the form of forward
sales commitments at December 31, 1999 were $2,294,000.
11
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes in Consolidated Financial Statements
December 31, 1999
(12) Identification of Current Assets and Current Liabilities
The following schedule reflects the current asset and liability
presentation that would be appropriate if the Company prepared a classified
balance sheet as of December 31, 1999:
Assets
Cash and short-term investments $ 380,933
First mortgage loans held for sale 1,428,801
Mortgage servicing rights 832,321
Accounts receivable and other assets 382,258
-------------
Total current assets $ 3,024,313
=============
Liabilities
Warehouse line of credit $ 1,322,305
Current maturities - notes payable to bank 828,444
Current maturities - subordinated obligation 200,000
Accounts payable and other liabilities 238,468
-------------
Total current liabilities $ 2,589,217
=============
(13) Subsequent Event
On February 11, 2000, an agreement and Plan of merger was signed by and
among Loraca International, Inc., Loraca Acquisition Corporation, The LEXUS
COMPANIES, Inc. and the shareholders of the LEXUS COMPANIES, Inc. Under the
terms of the agreement, all of the issued and outstanding shares of LEXUS
preferred and common stock will be converted into a predetermined number of
shares of Loraca common stock and convertible debt. The transaction is
pending bank approval and is expected to be completed in April 2000.
12
<PAGE>
THE LEXUS COMPANIES, INC.
AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1998
(With Independent Auditors' Report Thereon)
<PAGE>
THE LEXUS COMPANIES, INC.
AND SUBSIDIARY
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Consolidated Balance Sheet 2
Consolidated Statement of Operations 3
Consolidated Statement of Shareholders' Equity (Deficit) 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors
THE LEXUS COMPANIES, INC.:
We have audited the accompanying consolidated balance sheet of THE LEXUS
COMPANIES, INC. and subsidiary ("the Company") as of December 31, 1998, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of THE LEXUS COMPANIES,
INC. and subsidiary as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
February 19, 1999
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and short-term investments $ 925,004
Accounts receivable 758,093
First mortgage loans held for sale, net
at lower of cost or market 466,427
Mortgage servicing rights, net 4,021,396
Covenant not to compete 376,500
Property and equipment, net 61,124
Other assets 135,591
--------------
Total assets $ 6,744,135
==============
Liabilities and Shareholders' Equity (Deficit)
Liabilities:
Warehouse line of credit $ 451,939
Notes payable to bank 5,914,442
Subordinated obligation 600,000
Accounts payable and other liabilities 647,820
--------------
Total liabilities 7,614,201
--------------
Shareholders' Equity (deficit):
Preferred stock, $100 par value, 6,737 shares authorized,
issued and outstanding 673,700
Common stock, $0.25 par value, 10,000 shares authorized,
4,900 shares issued and 4,000 shares outstanding 1,000
Additional paid-in capital 414,141
Accumulated deficit (1,958,907)
--------------
Total shareholders' equity (deficit) (870,066)
--------------
Commitments and contingencies (notes 2 and 11)
Total liabilities and shareholders' equity (deficit) $ 6,744,135
==============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Statement of Operations
Year ended December 31, 1998
<TABLE>
<S> <C>
Income:
Servicing fees $ 2,209,153
Loan processing fees 703,678
Gain on sales of first mortgage loans held for sale 1,323,808
Interest 711,640
Insurance commissions 480,422
Appraisal and credit report fees 50,414
Other 12,016
------------
Total income 5,491,131
------------
Expenses:
Salaries and benefits 1,717,632
Occupancy 178,604
Interest 635,537
Mortgage and insurance sales commissions 476,791
Depreciation and amortization of intangible assets 412,773
Amortization of mortgage servicing rights 1,671,358
Professional fees 233,620
Office expenses 485,813
Loan expenses 298,048
Other 323,890
------------
Total expenses 6,434,066
------------
Loss before income tax benefit (942,935)
Income tax benefit 367,036
------------
Net loss $ (575,899)
============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Statement of Shareholders' Equity (Deficit)
Year ended December 31, 1998
<TABLE>
<CAPTION>
Additional
Preferred Common paid-in Accumulated
stock stock capital deficit Total
----------- --------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 673,700 1,000 414,141 (1,383,008) (294,167)
Net loss -- -- -- (575,899) (575,899)
------------ --------- ----------- ------------- --------------
Balance at December 31, 1998 $ 673,700 1,000 414,141 (1,958,907) (870,066)
============ ========= =========== ============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
Year ended December 31, 1998
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (575,899)
Adjustments to reconcile net loss to net cash
used by operating activities:
Deferred income tax benefit (174,950)
Depreciation and amortization of intangible assets 412,773
Amortization of mortgage servicing rights 1,671,358
Origination of first mortgage loans held for sale (59,046,193)
Proceeds from sales of first mortgage loans held for sale 62,158,750
Gain on sale of first mortgage loans held for sale (1,323,808)
Changes in assets and liabilities:
Increase in accounts receivable (443,497)
Decrease in other assets 29,724
Decrease in accounts payable and other liabilities (502,532)
---------------
Net cash provided by operating activities 2,205,726
---------------
Cash flows from investing activities:
Capitalization of mortgage servicing rights (585,273)
Capital expenditures (28,132)
---------------
Net cash used in investing activities (613,405)
---------------
Cash flows from financing activities:
Net decrease in warehouse line of credit (1,761,395)
Proceeds from notes payable to bank 428,168
Payments on notes payable to bank (138,074)
Payments on subordinated obligation (400,000)
Decrease in holdback reserve (397,837)
---------------
Net cash used in financing activities (2,269,138)
---------------
Net decrease in cash and cash equivalents (676,817)
Cash and cash equivalents at beginning of year 1,601,821
---------------
Cash and cash equivalents at end of year $ 925,004
===============
Supplemental disclosures of cash flow information -
cash paid during the year for interest $ 185,859
===============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
(1) Summary of Significant Accounting Policies
(a) Business
THE LEXUS COMPANIES, INC. ("LEXUS" or "Company") was incorporated on
December 27, 1993, in the State of Texas to function as a holding
company to acquire operating businesses for investment.
On January 4, 1995, Lexus purchased 100% of the capital stock of
Calumet Securities Corporation ("Calumet"), a full-service mortgage
banker providing loan origination, loan servicing and insurance
services. Calumet was incorporated on January 29, 1932, in the State
of Indiana. Calumet engages in business to loan money secured by real
property primarily in the Midwestern United States; to act as agent
for other persons or corporations in the loaning of money upon real
property and to collect the interest and principal of 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.
(b) Basis of Presentation
The accounting and reporting practices of the Company conform to
generally accepted accounting principles. The consolidated financial
statement include the accounts and transactions of LEXUS and its
subsidiary, Calumet. All material intercompany transactions have been
eliminated in consolidation.
The preparation of financial statement in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statement and the reported amounts of income and
expenses during the reporting period. Actual results could differ from
those estimates.
(c) First Mortgage Loans Held for Sale
First mortgage loans held for sale are stated at the lower of cost or
market value on an aggregate basis as determined by outstanding
investor commitments or, in the absence of such commitments, current
investor yield requirements calculated on an aggregate basis.
(d) Mortgage Servicing Rights
The fair value of mortgage servicing rights for capitalization and
impairment measurement purposes is determined based on quoted market
prices for comparable transactions, if available, or the present value
of expected future cash flows.
6
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
Mortgage servicing rights are amortized ratably in relation to the
associated net servicing income, over the estimated lives of the
serviced loans. The Company evaluates and measures impairment of its
servicing rights using stratifications based on the risk
characteristics of the underlying loans and management's anticipated
prepayment estimates. Management has determined those risk
characteristics to include loan type, (i.e., governmental and
conventional) term, and interest rate. Impairment when necessary is
recognized through a valuation allowance and a charge to operations.
(e) Covenant not to Compete and Subordinated Obligation
The covenant not to compete represents the unamortized cost of an
agreement with the previous Calumet shareholders. This amount is being
amortized on a straight-line basis over the estimated effective life
of the agreements. The terms of the related subordinated obligation
require LEXUS to make semiannual payments of approximately $200,000
through January 4, 2000. Each payment is subordinated to the debt
payments on notes payable to banks.
(f) Property and Equipment
Property and equipment is stated at cost less accumulated depreciation
and amortization. Amortization and depreciation of property and
equipment are computed under the straight-line method over the
estimated useful life of the respective assets or the remaining term
of the related lease for leasehold improvements. Depreciation of
computer equipment is computed on an accelerated basis over the
estimated useful life of the equipment.
(g) Holdback Reserve
The holdback reserve represents an amount held in escrow relating to
an acquisition of servicing rights which is payable to the seller upon
completion of the seller's delivery obligations.
7
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
(h) Income Taxes
The provision for income taxes represents the net change in the
deferred tax asset and/or liability balance at enacted statutory rates
and income taxes currently payable. Deferred tax assets or liabilities
are recognized for the estimated future tax effects attributable to
carryforwards and temporary timing differences in the recognition of
income and expense for tax and financial reporting purposes. Temporary
differences arise from differences in the book versus tax basis of the
Company's assets and liabilities which are expected to reverse at some
future date.
(i) Recognition of Revenues Related to Servicing Mortgage Loans
Mortgage servicing fee income represents fees earned for servicing
first mortgage loans owned by institutional investors. The fees are
calculated on the outstanding principal balance of loans serviced.
Fees are recorded as income when earned.
(j) Sale of Mortgage Loans
Gains and losses on the sale of mortgage loans are recognized based on
the difference between the selling price and the carrying value of the
related mortgage loans sold. Discounts from the origination of
mortgage loans are deferred and recognized as adjustments to the gain
and loss upon sale. Loan origination fees and all direct costs
associated with originating or acquiring loans are recognized when
received or paid.
(k) Recognition of Interest
Interest is recorded as earned except where collection of interest is
not reasonably assured.
(l) Insurance Commissions
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. Insurance
commissions are recognized when earned.
(m) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include unrestricted cash on hand and in banks and investments with
original maturities of three months or less.
8
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
(2) First Mortgage Loans Held for Sale
Mortgage loans held for sale consist of fixed and adjustable-rate 5- to 30-
year mortgage loans secured by 1-4 family residences. At December 31, 1998,
the balances were comprised of the following:
<TABLE>
<S> <C>
Government $ 178,520
Conventional 288,325
-------------
466,845
Loan discounts, net (418)
-------------
First mortgage loans held for sale, net $ 466,427
=============
</TABLE>
In the normal course of business, the Company extends commitments to
prospective borrowers to lock interest rates on loans in process ("locks").
At December 31, 1998, the Company had issued locks of approximately
$1,759,000 on loans which had not yet closed. To hedge its risk on such
locks, the Company obtains commitments to deliver loans, primarily on a
best efforts basis, to investors in the secondary market.
(3) Mortgage Servicing Rights
The following reflects mortgage servicing rights activity for the year
ended December 31, 1998:
<TABLE>
<S> <C>
Balance at December 31, 1997 $ 5,107,481
Additions 585,273
Amortization of mortgage servicing rights (1,671,358)
---------------
Balance at December 31, 1998 $ 4,021,396
===============
</TABLE>
Capitalized mortgage servicing rights are valued on a quarterly basis,
using a third party market value quote. This valuation is performed by
stratifying the servicing rights based on loan type, duration and interest
rate. The fair value of the capitalized mortgage servicing rights exceeds
the recorded book value as of December 31, 1998. No impairment reserve is
necessary at December 31, 1998.
9
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
(4) Servicing Portfolio
The Company's mortgage portfolio serviced for institutional investors at
December 31, 1998 is as follows (in thousands):
<TABLE>
<S> <C>
GNMA $ 99,673
FHLMC 143,957
FNMA 174,743
Others 44,869
---------------
$ 463,242
===============
</TABLE>
Funds held in trust for borrowers and investors of $3,606,000 at December
31, 1998, represent monies collected from borrowers primarily for the
payment of real estate taxes and insurance premiums applicable to mortgage
loans being serviced as well as principal and interest payments due to the
investors. These funds are not included in the Company's consolidated
financial statements.
The Company services mortgage loans in ten states. As of December 31, 1998,
the geographic distribution based on the unpaid principal balance of loans
serviced (in thousands) was as follows:
<TABLE>
Percent of
Servicing servicing
portfolio portfolio
------------- ------------
<S> <C> <C>
Indiana $ 286,243 61.8%
Illinois 78,968 17.0
Missouri 89,708 19.4
Kentucky, Michigan, Minnesota, Ohio,
Virginia, West Virginia, and Wisconsin 8,323 1.8
-------------- -------------
Total $ 463,242 100.0%
============== =============
</TABLE>
(5) Warehouse Line of Credit
Calumet has a warehouse line of credit with Bank United of Texas, FSB. The
maximum amount of borrowings under this warehouse line is $5,000,000. At
December 31, 1998, the outstanding balance was $451,939. The warehouse line
is collateralized by first mortgage loans held for sale. Interest on the
warehouse line is at the 30-day LIBOR rate plus 2.25% or 7.80% at December
31, 1998.
10
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
(6) Notes Payable to Bank
Notes payable consists of working capital and acquisition loans. Each note
requires principal and interest payments over its contractual term. The
notes bear interest at a rate of Prime, with a weighted average interest
rate at December 31, 1998 of 7.75% reduced by credits received for
reciprocal arrangements at the bank. Notes payable maturing over the next
five years and thereafter consist of:
<TABLE>
<S> <C>
1999 $ 828,444
2000 828,444
2001 828,444
2002 828,444
2003 828,444
2004 and thereafter 1,772,222
----------------
Total $ 5,914,442
================
</TABLE>
The notes payable contain various covenant requirements related to
financial results of Calumet. Calumet was in compliance with all debt
covenants as of December 31, 1998.
(7) Income Taxes
The provision for income taxes (benefit) for the year ended December 31,
1998, is composed of the following:
<TABLE>
<S> <C>
Current:
Federal $ (141,284)
State (50,802)
-------------
(192,086)
=============
Deferred:
Federal (148,179)
State (26,771)
-------------
(174,950)
=============
Total $ (367,036)
=============
</TABLE>
Income tax benefit differs from that computed at the Federal statutory rate
of 34% for the year ended December 31, 1998 as follows:
<TABLE>
<S> <C>
Tax benefit at statutory rate $ (320,598)
State tax benefit, net of federal (51,198)
Other, net 4,760
-------------
Total $ (367,036)
=============
</TABLE>
11
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred assets and deferred tax liabilities at December
31, 1998 are presented below:
<TABLE>
<S> <C>
Gross deferred tax assets:
Net operating loss carryforwards $ 174,950
Noncompete agreement 636,750
Charitable contributions carryforward 390
--------------
Total gross deferred tax assets 812,090
--------------
Gross deferred tax liabilities:
Purchased mortgage servicing rights 452,599
Originated mortgage servicing rights 236,828
Other liabilities 25,511
--------------
Total gross deferred tax liabilities 714,938
--------------
Total net deferred tax assets $ 97,152
==============
</TABLE>
Management believes that the realization of deferred tax assets at December
31, 1998 are more likely than not, and accordingly, no valuation allowance
has been established. The federal net operating loss carryforwards will
expire in the tax year ended December 31, 2018. The state net operating
loss carryforwards will expire in the tax year ended December 31, 2013.
(8) Preferred Stock
The preferred stock is 10% cumulative, convertible at a rate of one share
of cumulative convertible preferred stock for each .0808 shares of common
stock upon demand by the holder for redemption at par value at any time
after the anniversary of the issuance date in 2000. The preferred stock has
an annual dividend rate of 10% payable cumulatively when declared by the
Board of Directors of the Company. The cumulative dividend approximates
$236,000 at December 31, 1998, and has not been declared by the Board of
Directors.
(9) Pension Plan
Calumet has a defined contribution plan for employees who are at least 20-
1/2 years of age, have been continuously employed at least six months prior
to January 1, are less than 65 years of age when first eligible, and
execute a salary reduction agreement. On September 1, 1997 the plan was
amended whereby, employees could contribute between 1% and 6% of their
annual contribution from compensation. Calumet's matching contribution is
an amount up to 6% of each participant's annual compensation based on the
employees contribution rate. The contributions are held in a trust fund for
each participant. The monies are currently invested by the participants in
various equity, fixed income, and money market funds. Contributions by
Calumet in 1998 were $203,580.
12
<PAGE>
THE LEXUS COMPANIES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1998
(10) Incentive Compensation Plan
The Corporation has an incentive compensation plan with a key employee.
Under the terms of the plan, the employee was issued 2% of the Company's
common stock upon execution of the agreement in 1996 and may earn up to an
additional 8% of the Company's common stock in future years based upon the
employees achievement of certain defined contributions to the Company. As
of December 31, 1998 no additional common stock had been issued to the key
employee.
(11) Financial Instruments with Off-Balance Sheet Risk
Adverse market interest rate changes between the time that a customer
receives a rate-lock commitment and the time that a fully-funded mortgage
loan is delivered to an investor can erode the value of that mortgage. To
mitigate the interest rate risk associated with the origination and sale of
mortgage loans, the Company uses forward sales contracts, on a whole loan
delivery basis. The forward sales commitments are obtained from FNMA,
FHLMC, GNMA and nationally recognized mortgage investors. Use of these
contracts protects the value of residential mortgage loans that are being
underwritten for future sale to investors in the secondary market. The
contractual amounts of off-balance sheet instruments in the form of forward
sales commitments at December 31, 1998 were $1,759,000.
(12) Identification of Current Assets and Current Liabilities
The following schedule reflects the current asset and liability
presentation that would be appropriate if the Company prepared a classified
balance sheet as of December 31, 1998:
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and short-term investments $ 925,004
First mortgage loans held for sale 466,427
Mortgage servicing rights 1,061,413
Covenant not to compete 376,500
Accounts receivable and other assets 771,097
--------------
Total current assets $ 3,600,441
==============
Liabilities
Warehouse line of credit $ 451,939
Current maturities - notes payable to bank 828,444
Current maturities - subordinated obligation 400,000
Accounts payable and other liabilities 477,357
--------------
Total current liabilities $ 2,157,740
==============
</TABLE>
13
<PAGE>
(b) UNAUDITED PROFORMA CONDENSED CONSOLIDIATED FINANCIAL STATEMENTS.
<PAGE>
LORACA INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Explanatory Head Note
---------------------
On April 14, 2000, Loraca issued a Press Release announcing the acquisition
of Lexus/Texas and its wholly-owned subsidiary, Calumet. The transaction
includes the acquisition of all outstanding shares of Lexus/Texas stock in
exchange for 377,778 shares of Loraca voting common stock, par value $0.001 per
share, which had a fair market value of $3.75 per share at March 31, 2000 or
$1,416,668 at closing, and the issuance of secured floating rate convertible
subordinated notes in the principal amount of $2.3 million (the "Notes"),
reflecting an aggregate value of $3,716,668.
The Notes require Loraca's direct subsidiary, Lexus/Washington to pay the
$2.3 million of principal in twelve (12) equal consecutive monthly payments of
approximately $191,667, with the first payment of principal due on the first day
of the nineteenth month subsequent to the March 31, 2000 date of closing or
October 1, 2001. The Notes also require the payment of interest on the
outstanding principal balance on a quarterly basis from March 31, 2000 to July
1, October 1, and January 1 of each year commencing July 1, 2000, at a rate
equal to the prime rate as published in The Wall Street Journal from time-to-
time, until the principal balance is paid or the Notes are converted to Loraca
common stock. The Notes also include optional and mandatory prepayment
provisions, which require Loraca to remit a mandatory prepayment amount equal to
23% of the cumulative amount of proceeds raised in all equity offerings in
excess of $5,000,000, or upon 30 days prior notice, Loraca may remit at its
option a prepayment of principal in part or in full payment of the outstanding
principal balance.
Additionally, the Note Holders are entitled, at the Holder's option at any
time on or before the payment in full of all outstanding principal, to convert
the Notes into fully paid and nonassessable shares of Loraca voting common stock
at a conversion price equal to the average closing price of Loraca common stock
for the 20 consecutive trading days ending on the fifth day preceding the date
of conversion. The Notes are subordinated to the scheduled payments of
principal and interest created by the senior obligations of Lexus as of the date
of closing and is secured by certain intangible assets of Loraca.
Loraca intends to continue operating Calumet's business and utilizing its
Seller/Servicer approvals with Fannie Mae, FHLMC and GNMA to support its
emerging business-to-business e-finance mortgage operations, as a platform to
fund and service the mortgage loans which Loraca and its subsidiaries originate.
P-1
<PAGE>
LORACA INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
Condensed
Consolidated Consolidated Consolidated
Loraca and Lexus/Texas and Pro Forma Balance
NMMC Calumet Adjustments Sheet
--------------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 5,053 $ 203,075 $ - $ 208,128
Marketable securities 3,852,476 132 - 3,852,608
Loans receivable held for resale, net 271,895 348,044 - 619,939
Prepaid expenses and accounts receivable 189,344 478,789 - 503,796
(164,337)(2) -
Mortgage servicing rights - 3,027,964 2,316,634 (1) 5,344,598
Furniture, fixtures and equipment, net 82,003 95,126 - 177,129
Capitalized leased assets, net 82,120 - - 82,120
Receivables, other 176,314 - - 176,314
Goodwill, net of amortization 396,831 - 2,934,162 (1) 3,495,330
164,337 (2)
--------------- --------------- -----------
Total assets $ 5,056,036 $ 4,153,130 $14,459,962
=============== =============== ===========
Liabilities and Shareholders' Equity
Warehouse lines of credit $ 259,925 $ 272,518 $ - $ 532,443
Notes payable to bank 8,778 5,106,408 - 5,115,186
Accounts payable and accrued liabilities 780,830 308,332 - 1,089,162
Escrow deposits 348 - - 348
Capitalized lease liabilities 96,526 - - 96,526
Notes payable to shareholder 876,514 - - 876,514
--------------- --------------- -----------
Total liabilities 2,022,921 5,687,258 7,710,179
--------------- --------------- -----------
Floating rate convertible subordinated note 2,300,000 (1) 2,300,000
payable
Shareholders' equity
Preferred stock - 673,700 (673,700)(1) -
Common stock 7,013 1,000 (1,000)(1) 7,391
378 (1)
100 (3)
(100)(4)
Additional paid-in capital 3,401,617 414,141 (414,141)(1) 4,817,907
1,416,290 (1)
1,416,568 (3)
(1,416,568)(4)
Other accumulated comprehensive income 2,159,578 - - 2,159,578
Accumulated deficit (2,535,093) (2,622,969) 2,622,969 (1) (2,535,093)
--------------- --------------- -----------
Total shareholders' equity 3,033,115 (1,534,128) 4,449,783
--------------- --------------- -----------
Total liabilities and shareholders' equity $ 5,056,036 $ 4,153,130 $14,459,962
=============== =============== ===========
</TABLE>
See notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited).
P-2
<PAGE>
LORACA INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Pro Forma
Condensed
Consolidated Consolidated Consolidated
Loraca and Lexus/Texas and Pro Forma Statements
NMMC Calumet Adjustments of Operations
--------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Servicing fees $ - $ 440,015 $ - $ 440,015
Loan processing fees - 139,993 - 139,993
Gains on sales of loans 47,734 135,972 - 183,706
Interest 24,695 117,475 - 142,170
Insurance commissions - 133,358 - 133,358
Appraisal and credit report fees - 8,356 - 8,356
Other - - - -
--------------- --------------- ----------------
Total revenues 72,429 975,169 1,047,598
--------------- --------------- ----------------
Expenses
Interest 26,494 155,034 - 181,528
Interest on subordinated notes - - 49,968 (7) 49,968
Personnel and sales commission 500,645 388,212 - 888,857
General, administration and development 1,033,958 191,435 - 1,225,393
Amortization of intangible assets 7,681 12,291 77,462 (5) 97,434
Amortization of mortgage servicing rights - 177,039 129,732 (6) 306,771
--------------- --------------- ----------------
Total expenses 1,568,778 924,011 2,749,951
--------------- --------------- ----------------
(Loss) income from operations (1,496,349) 51,158 (1,702,353)
--------------- --------------- ----------------
Other income (expense)
Dividends 809 - - 809
Gain on sale of investments 1,061,872 - - 1,061,872
--------------- --------------- ----------------
Total other income 1,062,681 - 1,062,681
--------------- --------------- ----------------
Net income (loss) before income tax benefit (433,668) 51,158 - (639,672)
Deferred tax benefit - 12,233 - 12,233
--------------- --------------- ----------------
Net income (loss) $ (433,668) $ 63,391 - $ (627,439)
=============== =============== ================
Basic and diluted net loss per share (Note 8) $ (0.06) $ (0.08)
=============== ================
Weighted average number of shares outstanding 7,012,942 7,390,720
=============== ================
</TABLE>
See notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited).
P-3
<PAGE>
LORACA INTERNATIONAL, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Pro Forma
Condensed
Consolidated Consolidated Consolidated
Loraca and Lexus/Texas and Pro Forma Statements of
NMMC Calumet Adjustments Operations
--------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Revenues
Servicing fees $ - $ 1,797,173 $ - $ 1,797,173
Loan processing fees - 671,461 - 671,461
Gains on sales of loans 113,223 784,531 - 897,754
Interest 83,661 721,791 - 805,452
Insurance commissions - 489,690 - 489,690
Appraisal and credit report fees - 36,213 - 36,213
Other - 131,854 - 131,854
--------------- --------------- ----------------
Total revenues 196,884 4,632,713 4,829,597
--------------- --------------- ----------------
Expenses
Interest 78,786 661,495 - 740,281
Interest on subordinated notes - - 184,000 (7) 184,000
Personnel and sales commission 1,511,778 1,854,473 - 3,366,251
General, administration and development 2,226,575 1,335,992 - 3,562,567
Amortization of intangible assets 56,324 407,502 309,850 (5) 773,676
Amortization of mortgage servicing rights - 1,190,248 685,724 (6) 1,875,972
--------------- --------------- ----------------
Total expenses 3,873,463 5,449,710 10,502,747
--------------- --------------- ----------------
Loss from operations (3,676,579) (816,997) (5,673,150)
--------------- --------------- ----------------
Other income (expense)
Dividends 5,924 - - 5,924
Gain on sale of investments 2,781,685 - - 2,781,685
--------------- --------------- ----------------
Total other income 2,787,609 - 2,787,609
--------------- --------------- ----------------
Net loss before income tax benefit (888,970) (816,997) - (2,885,541)
Deferred tax benefit - 89,547 - 89,547
--------------- --------------- ----------------
Net loss $ (888,970) $ (727,450) $ (2,795,994)
=============== =============== ================
Basic and diluted net loss per share (Note 8) $ (0.13) $ (0.38)
=============== ================
Weighted average number of shares outstanding 7,001,016 7,378,794
=============== ================
</TABLE>
See notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited).
P-4
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma adjustments to the unaudited condensed consolidated balance sheet
and statements of operations are as follows:
1) The issuance of 377,778 shares of Loraca common stock (par value $0.001 per
share) at market value of $3.75 per share at March 31, 2000 and
consequently $378 of common stock and $1,416,290 of additional paid in
capital were reflected and;
To reflect the issuance of $2.3 million of secured floating rate
convertible subordinated notes by Lexus/Washington a wholly owned
acquisition subsidiary of Loraca International Inc. In exchange for all the
assets and liabilities (at fair value), of Lexus/Texas and its wholly owned
subsidiary Calumet, and consequently;
i) The mortgage servicing rights were increased to its fair value by
$2,316,634 to $5,344,598 based on an independent valuation of fair
market value;
ii) Goodwill of $2,934,162 was recognized representing the excess in
purchase price over the net assets acquired;
iii) 6,737 shares of preferred stock (par value $100 per share) in the
amount of $673,700 in Lexus/Texas were retired;
iv) 4,000 shares of common stock (par value $0.25 per share) in the amount
of $1,000 in Lexus/Texas were retired;
v) Additional paid in capital in Lexus/Texas of $414,141 was eliminated;
vi) Accumulated deficit of $2,622,969 in Lexus/Texas was eliminated.
2) Transaction expenses, including legal, accounting, printing and other
costs, relating to the merger of $164,337 was recorded as goodwill.
3) Loraca's wholly-owned acquisition subsidiary, Lexus/Washington, issued
100,000 shares of common stock (par value $0.001) to Loraca International,
Inc in exchange for the assets and liabilities of Lexus/Texas and its
wholly owned subsidiary Calumet, and consequently $ 100 of common stock and
$1,416,568 of additional paid in capital was recognized by
Lexus/Washington.
4) To eliminate common stock and additional paid in capital of
Lexus/Washington, the wholly owned acquisition subsidiary of Loraca.
P-5
<PAGE>
LORACA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
5) To reflect the amortization of goodwill related to the acquisition of
Lexus/Texas, assuming a ten year life, for the year ended December 31, 1999
and for the three months ended March 31, 2000.
6) To reflect additional amortization on the fair value adjustment to the
mortgage servicing rights, amortized ratably in relation to the associated
net servicing income, over the estimated lives of the serviced loans, for
the year ended December 31, 1999 and for the three months ended March 31,
2000.
7) To reflect interest expense, assuming a weighted average prime rate of
interest associated to the $2.3 million secured floating rate convertible
subordinated notes for the year ended December 31, 1999 and for the three
months ended March 31, 2000.
8) The impact of the conversion associated to the secured floating rate
convertible subordinated notes payable, has not been reflected in diluted
loss per share, as the effect is antidilutive due to the net loss position
of the consolidated entities.
P-6
<PAGE>
(c) EXHIBITS.
The following exhibits are incorporated by reference to exhibits previously
filed with the Commission.
Exhibits. 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.
2.2** Amendment to Agreement and Plan of Merger.
23.1 Consent of Independent Auditors
99.1** Press Release dated April 14, 2000.
* Incorporated by reference to the Company's Report on Form 8-K filed February
28, 2000.
** Incorporated by reference to the Company's Report on Form 8-K filed April 14,
2000.
ITEM 8. CHANGE IN FISCAL YEAR
None
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATIONS
None
<PAGE>
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, thereto duly authorized.
LORACA INTERNATIONAL, INC.
By: /s/ Bernard A. Guy
----------------------
Bernard A. Guy
President
Date: June 13, 2000
<PAGE>
EXHIBIT INDEX
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.
2.2** Amendment to Agreement and Plan of Merger.
23.1 Consent of Independent Auditors.
99.1** Press Release dated April 14, 2000.
* Incorporated by reference to the Company's Report on Form 8-K filed February
28, 2000.
** Incorporated by reference to the Company's Report on Form 8-K filed April 14,
2000.
