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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999
REGISTRATION NO. 333-74607
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
POST EFFECTIVE AMENDMENT NO. 1
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LAHAINA ACQUISITIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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COLORADO 6512 84-1325695
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(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
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5895 WINDWARD PARKWAY, SUITE 220
ALPHARETTA, GEORGIA 30005
(770) 754-6140
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
L. SCOTT DEMERAU, PRESIDENT AND CHIEF EXECUTIVE OFFICER
LAHAINA ACQUISITIONS, INC.
5895 WINDWARD PARKWAY, SUITE 220
ALPHARETTA, GEORGIA 30005
(770) 754-6140
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ELIZABETH H. NOE, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
600 PEACHTREE STREET, NE
SUITE 2400
ATLANTA, GA 30308
(404) 815-2400
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this
Registration Statement as determined by the selling shareholders.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE> 2
PROSPECTUS
LAHAINA ACQUISITIONS, INC.
2,100,000 Shares of Common Stock
This is a registration of up to 2,100,000 shares of Common Stock of Lahaina
Acquisitions, Inc. ("Lahaina" or "the Company") either issued to or to be issued
to, and sold by, holders of warrants and convertible notes of the Company upon
conversion of these securities. To date, certain of these securities have been
converted into 249,843 shares of Common Stock. The initial note and warrant
holders are identified in this prospectus as the selling shareholders. Lahaina
will not receive any money from the sale of the Common Stock.
The Common Stock may be sold by the selling shareholders in several ways. See
"Plan of Distribution" starting on page 31.
There is no fixed price for the sale of the Common Stock. The selling price will
be based on the market price of the Common Stock at the time sales are made.
The Common Stock is currently quoted on the OTC Bulletin Board under the symbol
"LAHA". Lahaina intends to apply to list the Common Stock on NASDAQ/AMEX
at the time the criteria for listing on NASDAQ/AMEX are met.
THE PURCHASE OF THE COMMON STOCK CARRIES WITH IT A HIGH DEGREE OF RISK, SUCH AS
LOSS OF THE ENTIRE PURCHASE PRICE. SEE "RISK FACTORS".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated October 21, 1999.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary may not contain all the information that is important
to you. You should carefully review the information appearing elsewhere in this
prospectus, in particular the "Risk Factors" section and the Consolidated
Financial Statements and Notes thereto. The Summary Financial and Other Data
is at the end of the prospectus summary.
Except where noted in the text, all information in the text of this
prospectus assumes the conversion or exercise of the following securities
pursuant to their applicable terms of conversion or exercise. See "Terms of
Conversion; Terms of Exercise":
- the Company's convertible note dated as of December 7, 1998, as
amended to date, (the "Note") issued to GCA Strategic Investment Fund Limited
("GCA") in the aggregate principal amount of $775,000;
- the Company's convertible note dated as of August 19, 1999 (the
"Second Note") issued to GCA in the aggregate principal amount of $500,000;
- the Company's warrant to purchase 200,000 shares of Common Stock dated
as of January 19, 1999 issued to GCA (the "GCA Warrant"); and
- the Company's warrant to purchase 50,000 shares of Common Stock dated
as of August 19, 1999 issued to GCA (the "Second GCA Warrant").
The Form S-1 Registration Statement of which this prospectus is a part has
been prepared to register for resale certain securities acquired in connection
with that certain Securities Purchase Agreement between the Company and GCA
dated December 7, 1998 and that certain Securities Purchase Agreement between
the Company and GCA dated August 19, 1999. Except where noted in the text,
references to "Lahaina Acquisitions, Inc.", "Lahaina" or the "Company" include
Lahaina Acquisitions, Inc. and its consolidated subsidiaries.
THE COMPANY
Lahaina is a multi-state provider of mortgage brokerage services to
consumers and also operates a diversified multi-state real estate services
organization. The Company's operations consist of a mortgage financing
division, Accent Mortgage Services, Inc. ("AMSI"), and a real estate development
division, Accent Real Estate Group ("ARG").
AMSI is a HUD approved residential mortgage lender, providing mortgage
brokerage services to consumers through several traditional branch offices
located primarily in the Atlanta, Georgia metropolitan area. AMSI recently
began recruiting activities aimed at adding additional mortgage brokerage
operations to its branch operations, utilizing a concept called "Net Branch",
and as of the date of this prospectus has recruited more than 160 of these Net
Branches. Under the Net Branch concept, AMSI recruits mortgage brokerage
professionals to originate mortgage loans under AMSI's license in those states
where AMSI is licensed to provide mortgage brokerage services. All fees
associated with originating and closing mortgage loans are forwarded to AMSI,
from which AMSI then distributes the appropriate commissions (net of AMSI's
fees). AMSI provides training and substantial marketing and administrative
support to its Net Branches. ARG is a diversified multi-state real estate
services organization engaged in the acquisition, development and sale of a
wide variety of real estate projects.
The Company did not conduct an active business until December 14, 1998 when
it purchased all of the outstanding stock of Beachside Commons I, Inc.
("Beachside") from Mongoose Investments, LLC ("Mongoose"). Beachside is the
owner of a commercial real estate development located in Fernandina Beach,
Florida on Amelia Island. At the time of the purchase, Beachside's assets
consisted of two buildings and unimproved real estate, leases to tenants in the
buildings and minimal operating capital.
On August 23, 1999, LAHA No. 1, Inc. ("LAHA 1"), a wholly-owned subsidiary
of the Company, merged with The Accent Group, Inc. ("Accent"), an Atlanta based
real estate development and mortgage origination and financing entity (the
"Merger"). The Merger was completed pursuant to an Agreement and Plan of Merger
dated July 21, 1999 (the "Merger Agreement"). The Merger was accounted for as a
reverse acquisition as Accent's shareholders obtained a majority interest in the
Company and Accent's management team replaced the Company's previous management
team.
The Company's new management has significant experience in both mortgage
brokerage operations as well as real estate development, and intends to
capitalize on opportunities in these markets. The Company is aggressively
marketing its Net Branch concept in efforts to increase its share of the
domestic market for mortgage origination, and also intends to pursue a strategy
of continued investment in selected real estate development projects. Further,
the Company intends to continue evaluating potential acquisitions in order to
increase its size of operation and value.
2
<PAGE> 4
THE OFFERING
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Common Stock offered(1)....................................... 2,100,000 Shares
Common Stock to be outstanding after the offering(2).......... 18,067,500 Shares
Use of proceeds............................................... The Common Stock will be sold by certain selling
shareholders listed in this prospectus. The Company
will receive no money from the Offering.
OTC Bulletin Board symbol .................................... "LAHA"
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(1) The shares offered represent (i) 48,990 shares of Common Stock issued to LKB
Financial, LLC ("LKB") in a cashless exercise on August 11, 1999 of the
Company's warrant to purchase 60,000 shares of Common Stock dated as of
December 7, 1998 ("First LKB Warrant"); (ii) 8,520 shares of Common Stock
issued to LKB in a cashless exercise on August 11, 1999 of the Company's
warrant to purchase 15,000 shares of Common Stock dated January 19, 1999
("Second LKB Warrant"); (iii) 25,000 shares of Common Stock issued to GCA in
connection with the exercise on May 11, 1999 of a right to purchase shares
dated November 4, 1998 ("GCA Right"); (iv) 146,667 shares of Common Stock
issued to GCA on June 30, 1999 in connection with the conversion of a
$300,000 GCA credit line dated January 19, 1999; (v) 20,666 shares of Common
Stock issued to GCA in payment of fees related to delays in filing the
Registration Statement on March 26, 1999; (vi) 885,714 shares of Common
Stock to be issued upon conversion of the Note; (vii) 300,000 shares of
Common Stock to be issued upon conversion of the Second Note; (viii) 200,000
shares of Common Stock issued upon exercise of the GCA Warrant; (ix) 50,000
shares of Common Stock to be issued upon exercise of the Second GCA Warrant;
and (x) 414,443 shares of Common Stock to meet any additional share issuance
requirement arising from fluctuations in exercise prices or additional fees
and penalties to be paid in Common Stock. For purposes of this prospectus
the Company has estimated the number of shares of Common Stock issuable upon
conversion of the Note and the Second Note and the exercise of the GCA
Warrant and the Second GCA Warrant. The actual number of shares of Common
Stock issuable pursuant to the Note, the Second Note, the GCA Warrant and
the Second GCA Warrant will be determined at the time of conversion or
exercise. See "Terms of Conversion; Terms of Exercise."
(2) Includes conversion of the Company's Series A Preferred Stock into 415,000
shares of Common Stock in connection with the Merger and the 2,100,000
shares described in (1) above.
SUMMARY RISK FACTORS
A purchaser of Common Stock must consider the following risk factors
before purchasing Common Stock. The Common Stock is a highly speculative
investment and a purchaser could lose all of the money spent on purchasing the
Common Stock. See "Risk Factors" for a complete discussion of the relative
risks.
- Success of the mortgage brokerage services division is contingent upon
interest rates and general economic conditions;
- The Company can give no assurance that its business strategy to recruit
additional mortgage brokerage operations to its net branch operations
will be successful;
- The Company's mortgage brokerage services division is subject to the
rules and regulations of various federal, state and local regulatory
agencies in connection with the mortgage process. Regulatory and legal
requirements are subject to change and may become more restrictive, thus
making compliance more difficult and costly for the Company;
- Competition for mortgage brokerage services is fierce;
- Success of the real estate division is contingent upon general
economic conditions;
- The Company's real estate division is subject to federal, state and
local regulations and is required to comply with various federal,
state and local environmental, zoning, land use, land sale and other
laws and regulations which govern its operations. These regulations
are subject to change and may become more restrictive, thus making
compliance more difficult and costly for the Company;
- If the Company has owned, managed or operated real property which
contained certain hazardous or toxic substances, it may be subject
to possible environmental liabilities;
- Competition in the real estate market, particularly in the metropolitan
Atlanta, Georgia area, is fierce;
- The Company has a limited operating history from which to evaluate its
business prospects;
- The Company's business plan requires additional financing and that
financing may not be available upon terms acceptable to the Company.
Terms of additional financing may require the Company to issue
additional Common Stock or Preferred Stock or debt, any of which could
reduce the value of the shares of Common Stock;
- L. Scott Demerau is the beneficial owner of approximately 38.8% of the
outstanding shares of Common Stock of the Company and when combined with
the common stock held by Accent Associates, LLC and Kingdom Generals,
LLC, entities controlled by relatives of Demerau, he controls 53% of
the outstanding common stock. Demerau may exercise control over many
significant decisions of the Company. This centralized control may have
an adverse effect on the market price of the Common Stock;
- The number of shares available for active trading is limited and thus
the price of the Common Stock may rise and fall dramatically upon the
trading of a relatively small number of shares. A purchase of the shares
of Common Stock should not be made unless the purchaser can afford to
lose the entire amount of the purchase price.
3
<PAGE> 5
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
On August 23, 1999, Lahaina merged with Accent in a merger accounted for as a
reverse acquisition. For financial statement presentation purposes, Accent has
been identified as the accounting acquiror. The following unaudited summary pro
forma combined financial data present certain data for the Company, as adjusted
for: (i) the acquisition of Accent by Lahaina, (ii) consummation of Accent's
acquisition of the outstanding capital stock of AMSI, (iii) the contribution of
certain real estate and options to acquire real estate to Accent by the majority
stockholder, (iv) other Accent acquisitions, and (v) the exercise or conversion
of the remaining warrants and convertible notes into 1,850,157 shares of the
Company's Common Stock. The Summary Pro Forma Combined Statement of Operations
Data and Summary Pro Forma Combined Balance Sheet Data should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements and notes
thereto and the historical financial statements of the predecessor companies and
notes thereto included elsewhere in this Prospectus.
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Pro Forma Combined
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Year Ended Nine Months
September 30, Ended June 30,
1998 1999
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Statement of Operations Data:
Revenues(1) $ 1,211,246 $ 1,245,161
Selling, general and administrative expenses 2,685,496 2,314,210
Amortization of goodwill 92,155 69,116
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Loss from operations (1,566,405) (1,138,165)
Other expense, net 372,675 436,190
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Net loss $ (1,939,080) $ (1,574,355)
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Net loss per share, basic and diluted $ (0.11) $ (0.09)
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Shares used in computing pro forma
basic and diluted net loss per share 18,067,500 18,067,500
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(1) Amounts are net of brokerage services expense.
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Pro Forma
Combined
June 30, 1999
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Balance Sheet Data:
Total assets $ 8,360,902
Total debt $ 6,451,233
Total liabilities $ 8,029,621
Stockholders' equity $ 260,704
Total liabilities and stockholders' equity $ 8,360,902
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SUMMARY PREDECESSOR FINANCIAL DATA
The following table presents summary predecessor financial data for Lahaina and
AMSI on a historical basis for the periods indicated. The financial information
for Lahaina for the period from inception to December 7, 1999 and the nine
months ended June 30, 1999 is derived from the financial statements of Lahaina
(formerly known as Beachside Commons I, Inc.) included elsewhere in this
prospectus. The financial information for AMSI for the years ended December 31,
1998 and 1997 and the six month periods ended June 30, 1999 and 1998 are derived
from the financial statements of AMSI included elsewhere in this prospectus. The
results for the interim periods are not necessarily indicative of the results
for the full fiscal year or any future period. Interim results reflect all
adjustments, which are in the opinion of management, necessary to a fair
statement of these results.
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Period from Nine Month
September 25, Interim
1998 (date of Period Ended
inception) to June 30,
December 7, 1998 1999
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Lahaina Acquisitions, Inc.:
(formerly known as Beachside Commons I, Inc.)
Revenues $ -- $ 143,713
Selling, general and administrative expenses 5,278 702,221
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Loss from operations (5,278) (558,508)
Other expense, net 15,288 204,646
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Net loss before income taxes $(20,566) $(763,154)
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Six Month
Interim
Periods Ended
Fiscal Years Ended December 31, June 30,
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1994 1995 1996 1997 1998 1998 1999
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Accent Mortgage Services, Inc.:
Revenues (1) $ 265,996 $ 629,854 $1,039,172 $1,082,090 $ 1,211,246 $ 631,518 $ 236,875
Selling, general and administrative expenses 225,870 541,857 911,947 1,231,261 2,373,856 723,183 436,878
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Income (loss) from operations 40,126 87,997 127,225 (149,171) (1,162,610) (91,665) (200,003)
Other (income) expense, net (1,770) 5,290 11,143 19,236 169,420 65,133 189,443
--------- --------- ---------- ---------- ----------- --------- ---------
Net income (loss) before income taxes $ 41,896 $ 82,707 $ 116,082 $ (168,407) $(1,332,030) $(156,798) $(389,446)
========= ========= ========== ========== =========== ========= =========
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(1) Amounts are net of brokerage services expense.
4
<PAGE> 6
RISK FACTORS
A purchase of the Common Stock offered pursuant to this prospectus
involves a high degree of risk. A purchaser could lose all of his or her
investment in the purchase price. In addition to the other information in this
prospectus, a purchaser must carefully consider the following risk factors in
evaluating whether to purchase the shares of Common Stock offered pursuant to
this prospectus. This prospectus contains forward-looking statements that
address, among other things, the Company's business strategy, use of proceeds,
projected capital expenditures, liquidity, possible business relationships,
possible effects of competition and inherent risks in investment in real estate.
These statements may be found under "Prospectus Summary," "Risk Factors," "Use
of Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" as well as in the prospectus generally.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of any number of factors, including
risks associated with future acquisitions (such as quality of projects acquired,
financing costs and profitability of operations), fluctuations in operating
results, variations in stock prices, political and economic climates,
competition, risks of operations, regulatory agencies' policies, financing
difficulties and difficulties in integrating newly-acquired businesses, in
addition to the risk factors set forth below and elsewhere in this prospectus.
The cautionary statements made in this prospectus should be read as being
applicable to all forward-looking statements wherever they appear in this
prospectus.
MORTGAGE BROKERAGE SERVICES RISKS
IF INTEREST RATES RISE OR GENERAL ECONOMIC CONDITIONS DETERIORATE, IT COULD
HARM OUR BUSINESS
The Company will likely originate fewer mortgage loans if interest
rates rise. In periods of rising interest rates, demand for mortgage loans
typically declines. During those periods, the Company will likely originate
fewer mortgage loans and its revenues will decline. Demand for refinancing
mortgages declines more significantly than for new home purchase mortgages
during periods of rising interest rates. The Company's mortgage business would
be adversely affected by declining economic conditions in those states where it
originates mortgage loans, particularly in their residential real estate
markets.
AMSI HAS BEGUN A NEW BUSINESS STRATEGY CALLED "NET BRANCH". IF THIS STRATEGY IS
UNSUCCESSFUL, IT COULD HARM OUR BUSINESS
The Company, which has been primarily involved in providing mortgage
brokerage services to consumers through several traditional branch offices
located in the metropolitan Atlanta, Georgia area, has begun to aggressively
recruit additional mortgage brokerage operations to its branch operations. This
approach to providing mortgage brokerage services is referred to as the "Net
Branch" concept. The Company believes that the implementation of the Net Branch
concept will increase its share of the domestic market for mortgage origination.
However, the Company may not be successful in its attempts to recruit new Net
Branch offices, nor may the Net Branch concept be successful.
IF WE DO NOT COMPLY WITH MORTGAGE BANKING RULES AND REGULATIONS OR OTHER
REGULATORY REQUIREMENTS, OUR BUSINESS MAY BE HARMED
The Company's mortgage business is subject to the rules and regulations
of various federal, state and local regulatory agencies in connection with
originating, processing, underwriting and selling mortgage loans. These rules
and regulations, among other things, impose licensing obligations on the
Company, prohibit discrimination, establish underwriting guidelines and mandate
disclosures and notices to borrowers. The Company is also required to comply
with each regulatory entity's financial requirements. If the Company does not
comply with these rules, regulations and requirements, the regulatory agencies
may restrict its ability to originate mortgage loans. Regulatory and legal
requirements are subject to change and may become more restrictive, making
compliance more difficult or expensive or otherwise restricting the Company's
ability to conduct its business as it is now conducted. As of June 30, 1999, the
Company's wholly owned subsidiary, AMSI, was not in compliance with the
Department of Housing and Urban Development ("HUD") net worth requirements. As
of September 21, 1999, the Company took corrective action to resolve this
matter. The Company believes that it is currently in material compliance with
all applicable laws and regulations to which it is currently subject. However,
no assurance can be given that the costs of future compliance will not be
significant or that the Company is in fact in compliance with all applicable
laws and regulations.
THE MARKET IN WHICH WE OPERATE IS INTENSELY COMPETITIVE AND ACTIONS BY
COMPETITORS COULD HARM OUR BUSINESS
The Company competes with other mortgage brokerage companies, many of
which are larger, are more experienced and have greater financial resources than
the Company. Accordingly, the Company may not be able to successfully compete in
the mortgage brokerage market. Competitors may be able to respond more quickly
to take advantage of new or changing opportunities, technologies and customer
requirements. They also may be able to undertake more extensive promotional
activities, offer more attractive terms to borrowers and adopt more aggressive
pricing policies.
REAL ESTATE DEVELOPMENT RISKS
IF THE REAL ESTATE INDUSTRY OR GENERAL ECONOMIC CONDITIONS DETERIORATE, IT COULD
HARM OUR BUSINESS
Real estate markets are cyclical in nature and highly sensitive to
changes in national and regional economic conditions, including, among other
factors, levels of employment and discretionary disposable income, consumer
confidence, available financing and interest rates. A downturn in the economy in
general or in the market for residential or commercial real estate could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, concentration in a given region may increase
the Company's susceptibility to an economic downturn. Most of the real estate
owned or held by the Company is located in the southeastern United States, thus
increasing the Company's susceptibility to the economic conditions of the
southeast.
IF THE REAL ESTATE INDUSTRY OR GENERAL ECONOMIC CONDITIONS DETERIORATE IN
METROPOLITAN ATLANTA, GEORGIA AND FERNANDINA BEACH, FLORIDA, IT COULD HARM OUR
BUSINESS
The majority of the Company's real estate is located in and around the
metropolitan Atlanta, Georgia area and Fernandina Beach, Florida. There are
substantial risks associated with a large investment in real estate. These
include the following risks:
- real property may decline in value due to changing market and economic
conditions;
- development and carrying costs may exceed anticipated costs;
- there may be delays in bringing inventories to market due to, among
other things, changes in regulations, adverse weather conditions or
changes in the availability of development financing on terms
acceptable to the Company; or
- interest rates may increase which will adversely affect the ability of
the Company to sell their properties.
WE ARE SUBJECT TO CERTAIN REGULATIONS RELATED TO REAL ESTATE, AND IF WE DO NOT
COMPLY OUR BUSINESS MAY BE HARMED
The Company's real estate business is subject to certain federal, state
and local regulations and is required to comply with various federal, state and
local environmental, zoning, land use, land sales, licensing and other laws and
regulations which govern its operations. Existing or future regulations may have
a material adverse impact on the Company's operations by, among other things,
imposing additional compliance costs and delaying the period in which the
development projects are brought to market. The Company believes that it is in
material compliance with all applicable laws and regulations to which it is
currently subject. However, no assurance can be given that the costs of future
compliance will not be significant or that the Company is in fact in compliance
with all applicable laws and regulations. In addition, there can be no assurance
that laws and regulations applicable to the Company in any specific jurisdiction
will not be revised or that other laws or regulations will not be adopted which
could increase the Company's costs of compliance or prevent the Company from
marketing or selling its properties. Any failure of the Company to comply with
applicable laws or regulations or any increase in the costs of compliance could
have a material adverse effect on the Company's business, operating results and
financial condition.
IF OUR INVENTORY IS FOUND TO BE ENVIRONMENTALLY CONTAMINATED OUR BUSINESS MAY BE
HARMED
Under various federal, state and local laws, ordinances and
regulations, the current or previous owner, manager or operator of real property
may be liable for the costs of removal or remediation of certain hazardous or
toxic substances located on or in, or emanating from, such property, as well as
related costs of investigation and property damage. These laws often impose
liability without regard to whether the owner, manager or operator knew of, or
was responsible for, the presence of the hazardous or toxic substances. The
Company believes that it is in compliance in all material respects with all
federal state and local laws, ordinances and regulations regarding hazardous or
toxic substances, but no assurance can be given that hazardous or toxic
substances will not be found on its property or properties that it previously
owned.
THE MARKET IN WHICH WE OPERATE IS INTENSELY COMPETITIVE AND ACTIONS BY
COMPETITORS COULD HARM OUR BUSINESS
The real estate industry is highly competitive. The Company competes
with builders, developers and others for the acquisition of desirable properties
and financing. Many of the Company's competitors are larger and possess greater
financial, marketing, personnel and other resources than the Company. Although
the Company believes it can effectively compete in its market areas, no
assurances can be given as to the Company's future ability to locate, develop
and sell attractive properties in the market in which it wishes to operate.
Further, the entrance of high profile and well-established operators into the
Company's market areas may have a material adverse effect on the Company's
operations.
GENERAL BUSINESS RISKS
WE HAVE A LIMITED OPERATING HISTORY AND THEREFORE HISTORICAL RESULTS MAY NOT BE
INDICATIVE OF FUTURE PERFORMANCE
As described in this prospectus under the heading "BUSINESS", prior to
December 1998 the Company did not conduct an active business, and its sole
activity was seeking an acquisition partner. The merger with Accent resulted in
a change of control of the Company and a change in the Company's management. The
Company has a limited operating history, and its historical results of
operations are not useful as a basis for predicting future operating results of
the Company. No assurance can be given that the future operations of the Company
will be successful.
WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDING TO PURSUE OUR STRATEGIES WHICH
MAY HARM OUR BUSINESS
The Company anticipates the need for additional capital as it pursues
its business strategy of implementing the Net Branch concept in its mortgage
services division and of continuing its investment in selected real estate
development projects. The Company expects to raise additional capital through a
combination of new debt issuances and equity sales, from private as well as
public sources. Issuance of new debt and/or the sale of equity will likely have
a dilutive effect on the Company and its shareholders. Implementation of the
Company's strategy and its business plans is contingent upon the availability of
such funding sources. No assurance can be given that the Company will be able to
raise debt or equity capital, at terms that are acceptable to the Company, or at
all, in order to fund its operations as set forth above.
THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS MAY HARM THE TRADING
PRICE OF OUR COMMON STOCK
Because the Company has a limited operating history, it lacks
sufficient historical operating data on which to base its future operating
results and financial performance. General economic conditions, as well as
competition from other competing businesses, may adversely affect the Company's
performance. Because of these and other factors, the Company's financial
performance may fluctuate from period to period, which could result in a
material fluctuation in the trading price of the Company's common stock.
ONE INDIVIDUAL HAS SUBSTANTIAL CONTROL OVER US AND MAY MAKE DECISIONS THAT
ARE NOT IN THE BEST INTEREST OF OTHER STOCKHOLDERS
L. Scott Demerau, individually, through his wife and in his capacity
as a controlling owner of Eutopean Enterprises, LLC, acquired up to
approximately a 38.8% interest in the outstanding Common Stock of the Company
prior to the conversion of the Note and the Second Note, and the exercise of
the GCA Warrant and the Second GCA Warrant. When Demerau's stock is combined
with that held by Accent Associates, LLC and Kingdom Generals, LLC, entities
controlled by relatives of Demerau, Demerau will control approximately 53% of
the outstanding Common Stock of the Company. Demerau is also the Chief
Executive Officer and President of the Company. Therefore, the control of the
Company is highly centralized and many significant decisions, including the
election of members of the Board of Directors and the outcome of corporate
actions requiring shareholder approval, such as mergers and other changes of
corporate control, going private transactions and other extraordinary
transactions and the terms thereof, will be subject to the approval of Demerau.
This centralized control could have an adverse effect on the market price of
the Company's Common Stock.
5
<PAGE> 7
WE ARE DEPENDENT ON A LIMITED NUMBER OF KEY PERSONNEL, AND THE LOSS OF THESE
INDIVIDUALS COULD HARM OUR BUSINESS
The Company has new management. The corporate staff will initially
consist of 25 people, including L. Scott Demerau, its Chief Executive Officer
and President, William A. Thurber, its Executive Vice President-Finance and
Treasurer, Betty Sullivan, its Executive Vice President-Administration and
Secretary, Sherry Sagemiller, its Assistant Secretary, a support staff,
accounting staff, marketing staff and real estate development staff. Richard P.
Smyth, a former executive officer of the Company, as principal of Gator Glory,
LLC, and Gerald F. Sullivan will act as consultants to the Company. Other staff
will be added as qualified personnel are recruited, although it is anticipated
that the staff will not increase in the near term.
If Mr. Demerau should die or become incapacitated, the Company could
face financial and operating difficulties pending the hiring of a new Chief
Executive Officer and President.
WE MAY MAKE ACQUISITIONS, WHICH ENTAILS RISKS THAT COULD HARM OUR BUSINESS
6
<PAGE> 8
Inability of management to adequately manage the operations of the business may
subject the business of the Company to certain risks, in addition to those
commonly found in a growing company. These risks include:
- obtaining additional financing;
- providing adequate working capital to pay salaries for personnel
hired to acquire and develop properties before revenue from the
properties is sufficient to pay their salaries;
- the inability of management to recognize potential problems before they
become serious problems;
- the lack of sufficient experience in the staff to solve problems once
they are identified; and
- the risk from competitors.
ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD PARTY ACQUISITION OF US DIFFICULT
Certain provisions of the Company's Amended and Restated Articles of
Incorporation and bylaws could make it difficult for a third party to acquire,
and could discourage a third party from attempting to acquire control of the
Company. Certain of these provisions allow the Company to issue Preferred Stock
with rights senior to those of the Common Stock without any further vote or
action by the shareholders and impose various procedural and other requirements
which could make it more difficult for shareholders to effect certain corporate
actions. These charter provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock
or Preferred Stock and may have the effect of delaying or preventing a change in
control of the Company. The issuance of Preferred Stock also could decrease the
amount of earnings and assets available for distribution to the holders of
Common Stock or could adversely affect the rights and powers, including voting
rights, of the holders of the Common Stock.
WE WILL NOT RECEIVE ANY FUNDS FROM THIS SALE, ACCORDINGLY WE WILL NEED TO RAISE
MONEY, FAILURE TO DO SO COULD HARM OUR BUSINESS
None of the money from the sale of the Common Stock will be paid to the
Company. Accordingly, the Company will need to raise money from profits and
other sources to fund operations and capital expenditures. See "Future
Funding Plans; Financial Constraints."
7
<PAGE> 9
OUR BUSINESS OPERATIONS MAY BE INTERRUPTED IF WE EXPERIENCE UNEXPECTED YEAR 2000
PROBLEMS
Many existing computer systems and software products do not properly
recognize dates after December 31, 1999. This Year 2000 problem could result in
data corruption, system failures or disruptions of operations. We are subject to
potential Year 2000 problems affecting our products and services, our internal
systems, and the systems of third parties on whom we rely. We believe that the
technology underlying our products and services is Year 2000 compliant. However,
we may discover errors or defects in our internal systems that may be
unresolvable or that may result in material costs to us. Internal Year 2000
problems could negatively affect our business, operating results and financial
condition.
We use third-party equipment, software and content that may not be Year
2000 compliant. Although we have received assurances from third parties that
they are Year 2000 compliant, we do not independently verify their Year 2000
compliance. If third parties on whom we rely are not Year 2000 compliant, our
business could be adversely affected later this year.
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we encounter Year 2000 problems. The cost of
developing and implementing a contingency plan may itself by material, and we
cannot assure you that our contingency plans will be adequate. For more
information on how we are addressing the Year 2000 problem, see "Management's
Discussion and Analysis--Year 2000 Readiness."
OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR BUSINESS
The Company's success and ability to compete is not dependent upon its
proprietary systems and technology. However, the Company uses software and other
intellectual property provided by third parties and could be brought into
litigation involving the software or other intellectual property. The expense of
such litigation and an adverse judgment could have a material adverse effect on
the Company's business or financial condition.
THERE HAS BEEN NO SIGNIFICANT PUBLIC MARKET FOR OUR COMMON STOCK, AND THE PRICE
OF OUR COMMON STOCK MAY BE VOLATILE
Prior to the Offering, there has been no significant public market for
the Company's Common Stock although the Company's Common Stock is quoted on the
OTC Bulletin Board on an occasional trade basis. There can be no assurance that
an active trading market will develop or be sustained or that the market price
of the Common Stock will not decline. Even if an active trading market does
develop, the market price of the shares of Common Stock is likely to be highly
volatile and could be subject to wide fluctuations in response to factors such
as actual or anticipated variations in the Company's revenues, earnings and cash
flow, changes in financial estimates by securities analysts, adoption of new
accounting standards affecting the Company's business, general market conditions
and other factors.
Further, the stock markets, and in particular the Nasdaq National
Market, have experienced extreme price and volume fluctuations that have
particularly affected the market prices of equity securities of many small
capitalization companies and that often have been unrelated or disproportionate
to the operating performance of such companies. These broad market factors and
market fluctuations, as well as general economic, political and market
conditions such as recessions and interest rate or international currency
fluctuations, may adversely affect the market price of the Common Stock. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. Such litigation, if instituted, could result in substantial
costs and a diversion of management's attention and resources, which would have
a material adverse effect on the Company's business, results of operations and
financial condition.
THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK INTO THE PUBLIC MARKET MAY
HARM THE MARKET PRICE OF OUR COMMON STOCK
Sale of substantial numbers of shares of Common Stock in the public
market could adversely affect the market price of the Common Stock and make it
more difficult for the Company to raise funds through equity offerings in the
future. The 2,100,000 shares offered hereby will be eligible for immediate sale
in the public market without restriction.
In addition, the Company may need to register shares of Common Stock
when required as a condition to future financings.
8
<PAGE> 10
THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE MAY HARM THE
BOOK VALUE OF THE OUTSTANDING SHARES OF COMMON STOCK
To the extent the future funding requirements of the Company require
the issuance of convertible securities or securities or debt having a priority
to the shares of Common Stock, the shares of Common Stock may suffer a decline
in book value. See "Dilution."
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE
The Company intends to retain all future earnings for use in the
development of its business. The Company has never paid and does not currently
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. See "Dividend Policy."
9
<PAGE> 11
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
of Common Stock offered hereby. The Company received $775,000 upon the sale of
the Note and $500,000 upon sale of the Second Note. See "Business -- Overview."
The Company will require additional financing in the future to finance
continuing growth. No assurance can be given that such financing will be
available on favorable terms or at all. See "Management's Discussion" and
"Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common
Stock. The Company currently intends to retain all of its future earnings, if
any, for use in its business and therefore does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
CAPITALIZATION
The following table sets forth the debt and the capitalization of the
Company at June 30, 1999: (i) on a pro forma basis to give effect to the Merger;
and (ii) as further adjusted to reflect the conversion of the Note and the
Second Note and exercise of the GCA Warrant and the Second GCA Warrant into an
assumed maximum of 1,850,157 shares of Common Stock. This table should be read
in conjunction with the Unaudited Pro Forma Combined Financial Statements of the
Company and the notes thereto included elsewhere in this document.
<TABLE>
<CAPTION>
Pro Forma Combined
June 30, 1999
-----------------------------
As
Adjusted
Prior to for
Conversion/ Conversion/
Exercise Exercise
----------- -----------
<S> <C> <C>
Notes payable and other debt $ 6,451,233 $ 6,451,233
=========== ===========
Convertible note $ 775,000 $ -
=========== ===========
Redeemable common stock, no par value, 3,250,000
shares issued and outstanding $ 70,577 $ 70,577
=========== ===========
Stockholders' equity (deficit)
Preferred Series A Convertible Stock, no par value,
10,000,000 shares authorized, none issued or
outstanding $ - $ -
Common Stock, no par value, 800,000,000 shares
authorized, 16,217,343 shares issued and
outstanding, pro forma; and 18,067,500 issued - -
and outstanding, as adjusted
Additional paid-in capital (563,283) 381,704
Retained deficit (121,000) (121,000)
----------- -----------
Total stockholder's equity (deficit) (684,283) 260,704
----------- -----------
Total capitalization $ 6,612,527 $ 6,782,514
=========== ===========
</TABLE>
10
<PAGE> 12
DILUTION
The deficit in pro forma tangible net book value of the Company as of
June 30, 1999 was approximately $2.1 million, or $0.13 per share after giving
effect to the Merger. The deficit in pro forma tangible book value per share
represents the Company's pro forma net tangible assets less its total
liabilities, divided by the number of shares of Common Stock to be outstanding
after giving effect to the Merger. After giving effect to the conversion of the
Note, the Second Note and applicable warrants into an assumed 1,850,157 shares,
the Company's deficit in pro forma net tangible book value as of June 30, 1999
would have been approximately $1.1 million or $0.06 per share. This represents
an immediate increase in pro forma net tangible book value of approximately
$0.07 per share to existing stockholders and an immediate dilution of
approximately $0.75 per share to the selling shareholders. The following table
illustrates this pro forma dilution per share:
<TABLE>
<S> <C> <C>
Assumed selling shareholders price per share(1) $ 0.69
Pro forma deficit in net tangible book value as of June 30, 1999 $ (0.13)
Increase in pro forma net tangible book value attributable
to selling shareholders 0.07
------------
Pro forma deficit in net tangible book value after the Offering (0.06)
----------
Dilution to selling shareholders $ 0.75
==========
</TABLE>
(1) Price computed as the face amount of the Note ($775,000) and the face
amount of the Second Note ($500,000) divided by the number of shares issued
in conjunction with the conversion of such notes (1,185,714), the exercise
of the related warrants (250,000 shares) and the 414,443 contingency shares.
The following table summarizes, on a pro forma basis as of June 30, 1999, the
number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company, and the average price per share paid by
existing shareholders and to be paid by the new investors (using the average
assumed selling shareholder price per share).
<TABLE>
<CAPTION>
TOTAL
CONSIDERATION AVERAGE
SHARES PURCHASED PAID PRICE PER SHARE
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) 16,217,343 89.8% $ (1,014,296) N/A $(0.06)
Selling shareholders 1,850,157 10.2% 1,275,000 100.00% $ 0.69
---------------------------------------------------------------------
Total 18,067,500 100.00% $ 260,704 100.00% $ 0.01
=====================================================================
</TABLE>
(1) Total consideration for the existing shareholders represents the combined
stockholders' equity before the conversion of the Note and the Second Note
and the exercise of the related warrants.
11
<PAGE> 13
TERMS OF CONVERSION; TERMS OF EXERCISE
Note
GCA, as the sole holder of the Note for $775,000, may convert up to 50%
of the outstanding principal amount of the Note at a price per share of Common
Stock equal to the lesser of (i) $0.875 (the average bid of the Common Stock for
the 20 days prior to December 7, 1998) or (ii) an amount determined based on a
formula ("Formula Price") F/P, where F = the principal amount of the Note being
converted plus accrued and unpaid interest thereon through the date of
conversion plus default interest, if any, on such interest, and P = the product
of 85% multiplied by the average of the five consecutive DWASP for the Common
Stock for the five trading days ending on the day prior to the date of
conversion (subject, in each case, to equitable adjustments for stock splits,
stock dividends or rights offerings by the Company relating to the Company's
securities or the securities of any subsidiary of the Company, combinations,
recapitalization, reclassifications, extraordinary distributions and similar
events). The term "DWASP" means, as of any date, the daily-weighted average
sales price on the NASDAQ Market as reported by Bloomberg or, if the NASDAQ
Market is not the principal trading market for such security, the daily-weighted
average sales price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the daily-weighted average sales price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if no daily-weighted average sales
price is reported for such security by Bloomberg, then the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the DWASP cannot be calculated for
such security on such date on any of the foregoing bases, the DWASP of such
security on such date shall be the fair market value as mutually determined by
the Company and the holder of the Note being converted for which the calculation
of the closing bid price is required in order to determine the Conversion Price
of such Note. The balance of the outstanding principal amount of the Note is
convertible into Common Stock at a price per share of $0.875. For purposes of
this prospectus, the Company has assumed that the entire Note will be converted
to Common Stock pursuant to these provisions.
Management believes that the conversion price of the note was at or above market
value at the date of issuance.
The First LKB Warrant
The First LKB Warrant to purchase 60,000 shares of Common Stock was
exercised by the holder on August 11, 1999 in a cashless exercise for 48,990
shares of Common Stock. The exercise price was $0.91875 per share.
Management believes that the exercise price of the warrant was at or above
market value at the date of issuance.
The Second LKB Warrant
The Second LKB Warrant to purchase 15,000 shares of Common Stock was
exercised by the holder on August 11, 1999 in a cashless exercise for 8,520
shares of Common Stock. The exercise price was $2.88 per share.
Management believes that the exercise price of the warrant was at or
above market value at the date of issuance.
The GCA Warrant
The GCA Warrant may be exercised for 100,000 shares of Common Stock for
a price of $2.60 per share and for 100,000 shares of Common Stock for a price of
$2.19 per share. The GCA Warrant has a term of five years beginning January 19,
1999.
Management believes that the exercise price of the warrant was at or
above market value at the date of issuance.
The GCA Right
The GCA Right was exercised for 25,000 shares on May 11, 1999. The GCA
Right was issued to GCA by the Company in connection with a convertible note in
the aggregate principal amount of $25,000 dated as of November 4, 1998 which
was subsequently amended to become a part of the Note.
Management believes that the exercise price of the right was at or
above market value at the date of issuance.
The Second Note
GCA, as the holder of the Second Note, may convert at any time from and
after August 19, 1999, the principal amount of the Second Note or any portion
of such principal amount, into that number of shares of Common Stock equal to
the sum of (1) the principal amount of the Second Note to be converted in such
conversion plus (2) accrued and unpaid interest, if any, on such principal
amount at the interest rates provided in the Second Note to the Conversion Date
(as defined in the Second Note) plus (3) Default Interest, if any (as defined
in the Second Note), on the interest referred to in the immediately preceding
clause (2) plus (4) at GCA's option, any amounts owed to it pursuant to the
Second Note, or the Securities Purchase Agreement dated as of August 19, 1999
(the "Securities Purchase Agreement") by and between the Company and GCA,
divided by $3.50.
Management believes that the conversion price of the note was at or
above market value at the date of issuance.
The Second GCA Warrant
The Second GCA Warrant may be exercised for 50,000 shares of Common Stock
for a purchase price per share of Common Stock initially equal to 102% of the
simple average of the weighted average sales price as published by Bloomberg of
the Common Stock on the NASDAQ Stock Market or, if the NASDAQ Market is not the
principal trading market for such security, the simple average sales price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the simple average sales price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, for the ten completed trading days immediately preceding
August 19, 1999 (the "Purchase Price"); provided however that the Purchase Price
shall be adjusted pursuant to Article XI of the Securities Purchase Agreement,
attached as an exhibit hereto.
Management believes that the exercise price of the warrant was at or
above market value at the date of issuance.
12
<PAGE> 14
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
On August 23, 1999, Lahaina merged with Accent in a merger accounted for as a
reverse acquisition. For financial statement presentation purposes, Accent has
been identified as the accounting acquiror. The following unaudited selected pro
forma combined financial data present certain data for the Company, as adjusted
for: (i) the acquisition of Accent by Lahaina, (ii) consummation of Accent's
acquisition of the outstanding capital stock of AMSI, (iii) the contribution of
certain real estate and options to acquire real estate to Accent by the majority
stockholder, (iv) other Accent acquisitions, and (v) the conversion of the
remaining warrants and convertible notes into 1,850,157 shares of the Company's
Common Stock. The Selected Pro Forma Combined Statement of Operations Data and
Selected Pro Forma Combined Balance Sheet Data were derived from and should be
read in conjunction with the Unaudited Pro Forma Combined Financial Statements
and notes thereto and the historical financial statements of the predecessor
companies and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma Combined
--------------------------------
Year Ended Nine Months
September 30, Ended June 30,
1998 1999
------------- --------------
<S> <C> <C>
Statement of Operations Data:
Revenues(1)........................................... $ 1,211,246 $ 1,245,161
Selling, general and administrative expenses.......... 2,685,496 2,314,210
Amortization of goodwill.............................. 92,155 69,116
------------- -------------
Loss from operations................................ (1,566,405) (1,138,165)
Other expense, net.................................... 372,675 436,190
------------- -------------
Net loss.............................................. $ (1,939,080) $ (1,574,355)
============= =============
Net loss per share, basic and diluted................. $ (0.11) $ (0.09)
============= =============
Shares used in computing pro forma
basic and diluted net loss per share................ 18,067,500 18,067,500
============= =============
Pro Forma
Combined
June 30, 1999
-------------
Balance Sheet Data:
Total assets................................... $ 8,360,902
Total debt..................................... $ 6,451,233
Total liabilities.............................. $ 8,029,621
Stockholders' equity........................... $ 260,704
Total liabilities and stockholders' equity..... $ 8,360,902
</TABLE>
- --------------------
(1)Amounts are net of brokerage services expense.
SELECTED PREDECESSOR OPERATING DATA
The following table presents selected predecessor financial data for Lahaina and
AMSI on a historical basis for the periods indicated. The financial information
for Lahaina for the period from inception to December 7, 1999 and for the nine
months ended June 30, 1999 is derived from the financial statements of Lahaina
(formerly known as Beachside Commons I, Inc.) included elsewhere in this
prospectus. The financial information for AMSI for the years ended December 31,
1998 and 1997 and the six month periods ended June 30, 1999 and 1998 are derived
from the financial statements of AMSI included elsewhere in this prospectus. The
results for the interim periods are not necessarily indicative of the results
for the full fiscal year or any future period. Interim results reflect all
adjustments, which are in the opinion of management, necessary to a fair
statement of these results.
<TABLE>
<CAPTION>
Period from Nine Month
September 25, 1999 Interim
(date of inception) Period Ended
to December 7, 1998 June 30, 1999
------------------- -------------------
<S> <C> <C>
Lahaina Acquisitions, Inc.:
(formerly known as Beachside Commons I, Inc.)
Revenues $ -- $ 143,713
Selling, general and administrative expenses 5,278 702,221
-------- ---------
Loss from operations (5,278) (558,508)
Other expense, net 15,288 204,646
-------- ---------
Net loss before income taxes $(20,566) $(763,154)
======== =========
Six Month
Interim
Periods Ended
Fiscal Years Ended December 31, June 30,
----------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Accent Mortgage Services, Inc.:
Revenues(1) $ 265,996 $ 629,854 $ 1,039,172 $ 1,082,090 $ 1,211,246 $ 631,518 $ 236,875
Selling, general and administrative
expenses 225,870 541,857 911,947 1,231,261 2,373,856 723,183 436,878
--------- -------- ---------- ----------- ----------- --------- ----------
Loss from operations 40,126 87,997 127,225 (149,171) (1,162,610) (91,665) (200,003)
Other (income) expense, net (1,770) 5,290 11,143 19,236 169,420 65,133 189,443
--------- --------- ----------- ----------- ----------- --------- ----------
Net income (loss) before income taxes $ 41,896 $ 82,707 $ 116,082 $ (168,407) $(1,332,030) $(156,798) $ (389,446)
========= ========= =========== =========== =========== ========= ==========
</TABLE>
- --------------------
(1) Amounts are net of brokerage services expense.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of Lahaina and certain predecessor companies should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this prospectus. This discussion contains forward-looking
statements based on current expectations that involve risks and uncertainties.
Actual results and the timing of certain events may differ significantly from
those projected in such forward-looking statements due to a number of factors,
including those set forth in the section entitled "RISK FACTORS" and elsewhere
in this prospectus.
OVERVIEW
The Company was formed with the intent to actively seek, locate, evaluate,
structure and complete mergers with or acquisitions of private companies,
partnerships or sole proprietorships. Through a series of transactions described
further below, the Company has acquired additional assets, primarily in the form
of real estate and a mortgage financing entity, and is now operational. The
Company's operations now consist of a mortgage financing division ("AMSI") and a
real estate development division ("ARG").
THE TRANSACTIONS
On December 14, 1998, the Company purchased all of the outstanding stock of
Beachside from Mongoose. The purchase was deemed effective as of December 7,
1998. Beachside is the owner of a commercial real estate development located in
Fernandina Beach, FL on Amelia Island. At the time of purchase, Beachside's
assets consisted of two buildings and unimproved real estate, tenant leases and
minimal operating capital.
The purchase was accounted for as a reverse acquisition with Beachside
being identified as the accounting acquiror in accordance with Staff Accounting
Bulletin No. 97 (SAB 97). The acquisition was accounted for using the
historical cost basis of the acquired company, Lahaina, as it was a shell
company at December 7, 1998.
On August 23, 1999, LAHA NO. 1, a wholly owned subsidiary of the Company,
merged with and into Accent, an Atlanta, GA based real estate development and
mortgage financing entity. Accent was formed through a series of transactions on
July 9, 1999. These transactions included contributions of land and options to
acquire land to Accent by Accent's majority shareholder, as well as the
acquisition of Accent Mortgage Services, Inc. ("AMSI"), a mortgage brokerage
operation. The Merger has been accounted for as a reverse acquisition, as
Accent's shareholders obtained a majority interest in the Company and Accent's
management team replaced Lahaina's management team.
14
<PAGE> 16
RESULTS OF OPERATIONS -- LAHAINA HISTORICAL
The following table sets forth the operating results for Lahaina
(formerly known as Beachside Commons I, Inc.) for the period from September 24,
1998 (date of inception) to December 7, 1998 and for the nine months ended June
30, 1999.
<TABLE>
<CAPTION>
For the period
from September 25, 1998
(date of inception) Nine Months Ended
to December 7, 1998 June 30, 1999
----------------------- -------------------
<S> <C> <C>
Revenues $ -- $ 143,713
Selling, General & Administrative Expenses 5,278 702,221
Interest Expense and Other - Net 15,288 204,646
-------- ---------
Operating Loss $(20,566) $(763,154)
======== =========
</TABLE>
FOR THE NINE MONTHS ENDED JUNE 30, 1999
Revenues
Revenues for the nine months ended June 30, 1999 totaled $143,713,
compared with $0 for the comparable period in 1998. The principal source of
Lahaina's revenues during the period was lease rental revenue relating to its
retail property, Beachside. Prior to December 7, 1998, Lahaina did not conduct
an active business, and therefore did not generate revenue from any business
operations until December 7, 1998.
Expenses
Expenses for the nine months ended June 30, 1999 totaled $906,867, of
which $702,221 represents operating and administrative expenses and $204,646
represents net interest expense. Operating and administrative expenses
principally represent expenses associated with operating the Beachside property
and certain merger expenses. Interest expense principally relates to mortgage
loans relating to Beachside, as well as interest on loans provided for working
capital.
Operating Loss
Lahaina reported an operating loss of $(763,154) for the nine month
period ended June 30, 1999.
15
<PAGE> 17
RESULTS OF OPERATIONS - ACCENT MORTGAGE SERVICES HISTORICAL
The following table sets forth the operating results for AMSI for the years
ended December 31, 1996, 1997 and 1998 and for the nine months ended June 30,
1998 and 1999.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
---------------------------------------- -------------------------
1996 1997 1998 1998 1999
---------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Revenue(1) $1,039,172 $1,082,090 $ 1,211,246 $ 631,518 $ 236,875
Selling, General &
Administrative Expenses 911,947 1,231,261 2,373,856 723,183 436,878
Interest Expense and
Other - Net 11,143 19,236 169,420 65,133 189,443
---------- ---------- ----------- --------- ---------
Operating Income (Loss) $ 116,082 $ (168,407) $(1,332,030) $(156,798) $(389,446)
========== ========== =========== ========= =========
</TABLE>
(1) Revenues are net of brokerage services expense.
FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED WITH 1996
Revenues
AMSI generated revenues of $1,082,090 for the year ended December 31, 1997
compared with $1,039,172 for the 1996 period, representing an increase of
$42,918 (or 4.1%). The increase in revenues is primarily attributable to an
increase in loan origination volume.
Expenses
Selling, general and administrative expenses totaled $1,231,261 for the
year ended December 31, 1997 compared with $911,947 for the 1996 period,
representing an increase of $319,314 (or 35.0%). The increase in selling,
general and administrative expenses is primarily attributable to expenses
associated with efforts to grow the business. Interest expense and other - net
totaled $19,236 for the year ended December 31, 1997 compared with $11,143 for
the comparable 1996 period, representing an increase of $8,093 (or 72.6%). This
increase is primarily attributable to higher borrowing levels in 1997 as
compared with 1996.
Operating Income (Loss)
AMSI recorded a net operating loss of $168,407 for the year ended
December 31, 1997 compared with operating income of $116,082 for the comparable
1996 period.
FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED WITH 1997
Revenues
AMSI generated revenues of $1,211,246 for the year ended December 31, 1998
compared with $1,082,090 for the year ended December 31, 1997, representing an
increase of $129,156 (or 11.9%). This increase in revenue is primarily
attributable to an increase in the volume of mortgage loans originated through
AMSI's branch operations.
Expenses
Selling, general and administrative expenses totaled $2,373,856, as
compared with $1,231,261 for the comparable period in 1997, representing an
increase of $1,142,595 (or 92.8%). The principal components of selling, general
and administrative expenses for the year ended December 31, 1998 were Provision
for Losses ($853,056) and General and Administrative expenses ($1,520,800). The
provision for loan losses is due to a large portfolio of loans that were
purchased during 1998. After the loans were purchased, it was determined that
the loans had also been sold to others by the seller. For comparable 1997
period, the principal component of operating expenses was General and
Administrative expense. Interest expense and Other - Net totaled $19,236 for the
year ended December 31, 1998, versus $169,420 for the comparable period in 1997.
The increase in interest expense is due to increased borrowings under the
warehouse lines of credit during 1998.
Operating Loss
AMSI recorded a net operating loss of $1,332,030 for the year ended
December 31, 1998, compared with a net operating loss of $168,407 for the
comparable period in 1997.
FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH 1998
Revenues
For the six month period ended June 30, 1999, AMSI generated total
revenues of $236,875, principally related to brokerage service operations. For
the six month period ended June 30, 1998, AMSI generated total revenues of
$631,518. Total revenues decreased by $394,643, principally the result of a
lower volume of mortgage loan originations.
Expenses
Selling, general and administrative expenses totaled $436,878, compared
with $723,183 in the comparable period in 1998, representing a decrease of
$286,305. The principal components of operating expenses for the six month
period ended June 30, 1999 were Provision for Losses ($50,000), and General and
Administrative expenses ($386,878). The principal component of operating
expenses for the comparable period in 1998 was General and Administrative
expense. A decrease of $286,305 in General and Administrative expense
represented the most significant change during the period. The decrease is
primarily due to consulting fees of approximately $240,000 which were paid
during the first six months of 1998 but not in 1999. Interest expense and other
- - net totaled $65,133 for the six months ended June 30, 1998, versus $189,443
for the comparable period in 1999. The increase is primarily due to the loss on
disposal of property and equipment ($167,645) that occurred during 1999.
Operating Loss
AMSI recorded a net operating loss of $389,446 for the six month period
ended June 30, 1999 as compared with a net operating loss of $156,798 for the
comparable period in 1998.
LIQUIDITY AND CAPITAL RESOURCES -- PROFORMA
Historically, the Company and its subsidiaries have not generated positive
cash flow. The Company expects to generate positive cash flow to fund short-term
operations through sales of real estate inventory as well as through refinancing
existing real estate.
The Company intends to generate long-term cash flow by growing its Net
Branch operations and through the development and sale of real estate inventory.
The Company believes that net cash flow from operations, sales of real
estate, and refinancing existing debt will be sufficient to fund the Company's
expected working capital needs, debt service requirements and planned capital
expenditures for at least the next 12 months.
The Company intends to pursue selected acquisition opportunities. The
timing or success of any acquisition efforts is unpredictable. Accordingly, the
Company is unable to accurately estimate its expected capital commitments.
Funding for future acquisitions will likely come from a combination of
additional borrowings and the issuance of additional equity.
LIQUIDITY AND CAPITAL RESOURCES -- LAHAINA HISTORICAL
For the nine months ended June 30, 1999, Lahaina used $353,451 in net
cash in operating activities, the most significant amount of which related to
its operating loss. Lahaina's capital expenditures for the period totaled
$33,955, principally related to improvements at Beachside. Funds were provided
principally from borrowings as well as the issuance of common stock. At June 30,
1999, Lahaina had total indebtedness of $2,325,000, consisting of a mortgage
loan on its Beachside property of $1,550,000 and a convertible note totaling
$775,000, and its cash position at June 30, 1999 totaled $60,261.
LIQUIDITY AND CAPITAL RESOURCES -- ACCENT MORTGAGE SERVICES HISTORICAL
AMSI used $62,597 of net cash in operating activities during the year ended
December 31, 1998, the most significant portion of which resulted from its
operating loss. Net cash used in investing activities totaled $2,952,084, the
most significant portion of which resulted from the purchase of mortgage loans.
Capital expenditures for the period totaled $125,066, and proceeds from the sale
of investments totaled $185,175. Net cash provided from financing activities
totaled $3,057,575, principally consisting of an increase in borrowings on lines
of credit of $2,901,600. AMSI's cash position totaled $66,050 at December 31,
1998, and its total indebtedness was $4,909,212.
For the six months ended June 30, 1999, AMSI used $158,474 in cash flow
from its operating activities, the most significant amount of which related to
its net operating loss. Net cash provided by investing activities totaled
$2,020,742 for the six month period, the most significant portion of which
relates to the sale of mortgages. Proceeds from the sale of the fixed assets for
the period totaled $13,500. Net cash used in financing activities totaled
$1,847,063 for the six month period, the most significant portion of which
resulted from a decrease in AMSI's line of credit, offset by proceeds from notes
payable of $528,891 and capital contributions of $500,000. At June 30, 1999,
AMSI had total indebtedness of $2,562,149, and its cash position at June 30,
1999 totaled $81,255.
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YEAR 2000 READINESS
The "Year 2000" issue is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000 is
approached and reached. These problems arise from hardware and software unable
to distinguish dates in the "2000's" from dates in the "1900's" and from other
sources such as the use of special codes and conventions in software that make
use of a date field. We recognize the need to ensure our operations will not be
adversely affected by Year 2000 software failures.
We have reviewed our internal management information and other critical
business systems to identify any Year 2000 problems. All such systems were
vendor supplied with no significant modifications. Consequently, we have
communicated with the external vendors that supply us with material software and
information systems and with significant suppliers to determine their Year 2000
readiness. Based on our vendors' representations, we believe that the
third-party hardware and software we use is Year 2000 compliant although we have
not performed any operational tests on these systems.
To date, we have not incurred any material costs directly associated
with Year 2000 compliance efforts. As discussed above, we do not expect the
total cost of Year 2000 problems to be material to our business, financial
condition and operating results. During the months prior to the century change,
however we will continue to evaluate any new versions of software and
information systems provided by third parties and any new infrastructure systems
that we may acquire, to determine whether they are Year 2000 compliant. Despite
our current assessment, we may not identify and correct all significant Year
2000 problems on a timely basis. If the representations made by our various
vendors regarding Year 2000 compliance are inaccurate, additional Year 2000
compliance efforts may involve significant time and expense and unremediated
problems could harm our business.
FORWARD LOOKING STATEMENTS
Certain statements in this statement contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933,
Section 21E of the Securities Exchange Act of 1934 and the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may be identified by
the context of the statement and generally arise when the Company is discussing
its beliefs, estimates or expectations. These statements are not guarantees of
future performance and involve a number of risks and uncertainties. Actual
results and outcomes may differ materially from what is expressed or forecast
in such forward-looking statements. The principal risks and uncertainties that
may affect the Company's actual performance and results of operations include
the following: general economic conditions and interest rates; adverse weather;
changes in property taxes and energy costs; changes in federal income tax laws
and federal mortgage financing programs; governmental regulation; changes in
governmental and public policy; changes in economic conditions specific to one
or more of the Company's markets and businesses; competition; availability of
raw materials; and unexpected operations difficulties. Other risks and
uncertainties may also affect the outcome of the Company's actual performance
and results of operations.
RECENT ACCOUNTING PRONOUNCEMENTS
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 established standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and net
unrealized gains (losses) on securities and is presented in the consolidated
statements of shareholders' equity and comprehensive income. The Statement
requires only additional disclosures in the consolidated financial statements;
it does not affect the Company's consolidated balance sheets or statements of
operations. The adoption of SFAS No. 130 has had no effect on the Company's
consolidated financial statements.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No. 131 established
standards for the way that a public enterprise reports information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997, and requires restatement of earlier
periods presented. The adoption of SFAS No. 131 has not had a significant
impact on the Company's consolidated financial statements.
DERIVATIVES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting standards
for derivative instruments, including derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company does not currently engage in derivative or
hedging activities. If the Company engages in derivative or hedging activities
in the future, it will apply SFAS No. 133. The FASB has issued SFAS No. 137
delaying the effective date of Statement No. 133 to fiscal years beginning after
June 15, 2000. At this time, the Company does not anticipate any material impact
from the adoption of this standard.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES
In October 1998, the Financial Accounting Standards Board issued SFAS No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise." SFAS No. 134 amends SFAS No. 65, "Accounting for Certain Mortgage
Banking Securities," to require that after an entity that is engaged in mortgage
banking activities has securitized mortgage loans that are held for sale, it
must classify the resulting retained mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. This statement is effective for the first fiscal quarter beginning
after December 15, 1998, with earlier application encouraged. The adoption of
this standard has not had a material impact on the Company's consolidated
financial statements.
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<PAGE> 19
CHANGE IN ACCOUNTANTS
In February, 1999, the Registrant reported that Millward and Co.
("Millward"), who had served as principal accountant to audit the financial
statements of the Registrant, resigned from its engagement with the Registrant.
The Registrant also reported that, following such resignation, the Board of
Directors of the Registrant approved the engagement of Bearden & Smith
("Bearden") as the Registrant's principal accountant and replacement for
Millward. Prior to such time, Bearden had provided accounting consulting
services to the Registrant relating to the preparation of historical financials
for a recently acquired subsidiary. Notwithstanding the approval by the
Registrant's Board of Directors of the engagement of Bearden as principal
accountant, Bearden continued to provide solely accounting consulting services
to the Registrant. The role of principal accountant for the Registrant was
ultimately filled by Kenneth R. Walters, P.A. ("Walters"), who was initially
engaged with approval of the Board of Directors to provide auditing services
with respect to fiscal 1998 financial statements of the Registrant in connection
with the filing of a registration statement by the Registrant. During 1999, with
the approval of the Board of Directors of the Registrant, Walters has continued
to act as principal accountant and replacement for Millward. Walters did not
prepare or review the financial statements of the Registrant for the quarter
ended June 30, 1999.
Millward's report on the Registrant's financial statements for each of
the last two years did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Registrant's two most recent fiscal years and the subsequent
interim period preceding the resignation of Millward, there were no
disagreements with Millward on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreement(s), if not resolved to the satisfaction of Millward, would have
caused it to make a reference to the subject matter of the disagreement(s) in
connection with its report.
Millward did not advise the Registrant during the Registrant's two most
recent fiscal years or during the subsequent interim period preceding Millward's
resignation:
(a) that the internal controls necessary for the Registrant to
develop reliable financial statements did not exist;
(b) that information had come to its attention that had led it to
no longer be able to rely on management's representations, or
that had made it unwilling to be associated with the financial
statements prepared by management;
(c) of the need to expand significantly the scope of its audit, or
that information had come to its attention during the two most
recent fiscal years or any subsequent interim period that if
further investigated might (i) materially have impacted the
fairness or reliability of either: a previously issued audit
report or the underlying financial statements, or the
financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report or (ii) have
caused it to be unwilling to rely on management's
representations or be associated with the Registrant's
financial statements; or
(d) that information had come to its attention that it had
concluded materially impacts the fairness or reliability of
either (i) a previously issued audit report or the underlying
financial statements, or (ii) the financial statements issued
or to be issued covering the fiscal period(s) subsequent to
the date of the most recent financial statements covered by an
audit report.
Millward was authorized by the Registrant to respond fully to inquiries
of Bearden.
During the two most recent fiscal years and during the interim period
prior to engaging Walters, neither the Registrant nor anyone on its behalf
consulted Walters regarding either: (a) the application of accounting principles
to a specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Registrant's financial statements, and
neither a written report nor oral advice was provided to the Registrant that
Walters concluded was an important factor considered by the Registrant in
reaching a decision as to an accounting, auditing or financial reporting issue;
or (b) any matter that was the subject of either a disagreement or any other
event described above.
On September 17, 1999, Walters who had served as principal accountant
to audit the financial statements of the Company, resigned from his engagement
with the Company. Following such resignation, the Board of Directors of the
Company approved the engagement of Deloitte & Touche LLP ("Deloitte") as the
Company's principal accountant and replacement for Walters. The Board approved
the engagement of Deloitte because it had the resources needed to serve the
Company as its business grows.
Walters' report on the Company's financial statements for each of
the last two years did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the Company's two most recent fiscal years and the subsequent
interim period preceding the resignation of Walters, there were no disagreements
with Walters on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of Walters, would have caused it to make a
reference to the subject matter of the disagreement(s) in connection with its
report.
Walters did not advise the Company during the Company's two most
recent fiscal years or during the subsequent interim period preceding Walters'
resignation:
(a) that the internal controls necessary for the Company to
develop reliable financial statements did not exist;
(b) that information had come to its attention that had led it
to no longer be able to rely on management's representations,
or that had made it unwilling to be associated with the
financial statements prepared by management;
(c) of the need to expand significantly the scope of its audit,
or that information had come to its attention during the two
most recent fiscal years or any subsequent interim period
that if further investigated might (i) materially have
impacted the fairness or reliability of either: a previously
issued audit report or the underlying financial statements,
or the financial statements issued or to be issued covering
the fiscal period(s) subsequent to the date of the most
recent financial statements covered by an audit report or
(ii) have caused it to be unwilling to rely on management's
representations or be associated with the Company's financial
statements; or
(d) that information had come to its attention that it had
concluded materially impacts the fairness or reliability of
either (i) a previously issued audit report or the underlying
financial statements, or (ii) the financial statements issued
or to be issued covering the fiscal period(s) subsequent to
the date of the most recent financial statements covered by
an audit report.
Walters was authorized by the Company to respond fully to inquiries
of Deloitte.
Except such advice as has been provided by Deloitte in connection with
auditing services related to the preparation of historical financials for the
Company's recently acquired subsidiary, during the two most recent fiscal years
and during the interim period prior to engaging Deloitte, neither the Company
nor anyone on its behalf consulted Deloitte regarding either: (a) the
application of accounting principles to a specified transaction, either
completed or proposed; or the type of audit opinion that might be rendered on
the Company's financial statements, and neither a written report nor oral advice
was provided to the Company that Deloitte concluded was an important factor
considered by the Company in reaching a decision as to an accounting, auditing
or financial reporting issue; or (b) any matter that was the subject of either a
disagreement or any other event described above.
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<PAGE> 20
BUSINESS
GENERAL
Lahaina is a multi-state provider of mortgage brokerage services to
consumers and also operates a diversified multi-state real estate services
organization. The Company's operations consists of a mortgage financing
division, AMSI, and a real estate development division, ARG.
AMSI is a HUD approved residential mortgage lender, providing mortgage
brokerage services to consumers through several traditional branch officers
located primarily in the Atlanta, Georgia metropolitan area. AMSI recently began
recruiting activities aimed at adding additional mortgage brokerage operations
to its branch operations, utilizing a concept called "Net Branch", and as of
the date of this prospectus has recruited more than 160 of these net branches.
ARG is a diversified multi-state real estate services organization engaged in
the acquisition, development and sale of a wide variety of real estate projects.
BACKGROUND
The Company was incorporated under Colorado law in April 1989 for the
purpose of acquiring an interest in one or more business opportunities or
ventures. Prior to December 14, 1998, the Company did not conduct an active
business.
On December 14, 1998, the Company purchased all of the outstanding
stock of Beachside from Mongoose. The purchase was deemed effective as of
December 7, 1998. Beachside is the owner of a commercial real estate
development located in Fernandina Beach, Florida on Amelia Island. At the time
of the purchase, Beachside's assets consisted of two buildings and unimproved
real estate, tenant leases and minimal operating capital.
The purchase was accounted for as a reverse acquisition with
Beachside being identified as the accounting acquiror in accordance with Staff
Accounting Bulletin No. 97 (SAB 97). The acquisition was accounted for using
the historical cost basis of the acquired company, Lahaina, as it was a shell
company at December 7, 1998.
On August 23, 1999, LAHA 1, a wholly-owned subsidiary of the Company,
merged with Accent, an Atlanta, Georgia based real estate development and
mortgage financing entity. The merger was accounted for as a reverse acquisition
with Accent being the accounting acquiror in accordance with SAB 97. Prior to
the Merger, there were 1,321,500 shares of no par value per share Accent common
stock issued and outstanding (the "Accent Common Stock"). The Accent Common
Stock was issued in exchange for the contribution to Accent of (i) certain
parcels of real property owned by the holder of such shares (ii) options to
purchase certain parcels of real estate, (iii) 100% interest in AMSI and (iv)
consulting fees incurred in connection with the Merger. Upon the closing of the
Merger, each share of Accent Common Stock was surrendered to the Company and the
Company issued a total of 13,251,000 shares of Common Stock to the prior holders
of Accent Common Stock. Of the 13,251,000 shares of Common Stock issued,
4,301,000 were issued and released immediately to their holders. The remaining
8,950,000 shares of Common Stock were issued subject to the certain conditions
of release as set forth in the Merger Agreement included as an exhibit in the
registration statement of which this prospectus is a part, and are currently
being held by the Company.
The conditions of release were designed to ensure that no shareholder
received shares of Common Stock until they had fully conveyed the consideration
for the Accent Common Stock. To date, conditions of release of such shares have
been satisfied or waived with respect to a total of 5,600,000 of the 8,950,000
shares of Common Stock. The conditions of release of the remaining 3,350,000
shares of Common Stock have not, as of the date of this prospectus, been
satisfied. There is no guarantee that the remaining shares will ever be
released.
In transactions related to the Merger, the Company redeemed 1,910,000
shares of Preferred Stock held by the then-majority shareholder Richard P. Smyth
for 415,000 shares of Common Stock, entered into consulting agreements with each
of Gerald F. Sullivan and Gator Glory, LLC, a limited liability company managed
by Smyth, and issued the Second Note. The proceeds of the Second Note were used
to finance the payment of the Company's accounts payables incurred through the
date of the Merger.
CHANGE IN CONTROL AND MANAGEMENT
A change of control of the Company has occurred as a result of the
Merger. L. Scott Demerau, directly, through his wife and through his ownership
of Eutopean Enterprises, LLC, controls approximately 38.8% of the Company's
issued and outstanding shares. When Demerau's shares are combined with those
held by Accent Associates, LLC, and Kingdom Generals, LLC, entities controlled
by relatives of Demerau, Demerau will control approximately 53% of the Company's
issued and outstanding Common Stock. It is currently estimated that the
conversion of the Note and the Second Note and the exercise of the GCA Warrant
and the Second GCA Warrant will result in an additional 1,300,000 to 1,700,000
shares of Common Stock being issued. According to the current estimates, the
Note is convertible into 885,714 shares of Common Stock, the Second Note is
convertible into 300,000 shares of Common Stock, the GCA Warrant is exerciseable
for up to 200,000 shares of Common Stock and the Second GCA Warrant is
exerciseable for up to 50,000 shares of Common Stock. See "Terms of Conversion;
Terms of Exercise." On March 25, 1999, GCA exercised its right for 25,000 shares
of Common Stock and was issued 20,666 shares of Common Stock in payment of fees
related to delays in prior registrations. On June 30, 1999, the GCA Line of
Credit was converted into 146,667 shares of Common Stock. On August 11, 1999,
the First LKB Warrant was exercised for 48,990 shares of Common Stock and the
Second LKB Warrant was exercised for 8,520 shares of Common Stock. Thus, after
the conversion of all of the convertible securities, it is likely that Demerau
will remain in control of the Company for the foreseeable future.
CHANGE IN BOARD OF DIRECTORS
The board of directors of the Company, as well as the Company's
management, has changed as a result of the merger with Accent. All previous
directors of the Company have resigned as a result of the merger with Accent,
but prior to their resignation they elected L. Scott Demerau, Sherry Sagemiller,
Betty M. Sullivan and Bart Siegel as directors of the Company.
Each of the directors above, with the exception of Bart Siegel are
employees of the Company. Management of the Company's operations has been
transferred to the Atlanta, GA based Accent management group.
STRATEGY
The Company's management has significant experience in both mortgage
brokerage operations as well as real estate development, and intends to
capitalize on opportunities in these markets. According to the Mortgage Bankers
Association of America (MBAA), the market for mortgage origination in the United
States exceeded $1.5 trillion in 1998, and is expected to reach approximately
$1.3 trillion in 1999. The Company is aggressively marketing its Net Branch
concept in an effort increase its share of the domestic market for mortgage
origination. The Company also intends to pursue a strategy of continued
investment in selected real estate development projects. Further, the Company
intends to continue evaluating potential acquisitions in order to increase its
size of operation and value.
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<PAGE> 21
OPERATIONS
As a result of the merger with Accent, the Company has acquired
additional assets, primarily in the form of real estate and a mortgage financing
entity, and is now operational. The Company's operations consist of a mortgage
financing division and a real estate development division.
ACCENT MORTGAGE SERVICES (AMSI)
AMSI is a HUD approved residential mortgage lender providing mortgage
brokerage services to consumers through several traditional branch offices
located primarily in the Atlanta, GA metropolitan area. As of June 30, 1999,
AMSI was not in compliance with HUD net worth requirements. As of September 21,
1999, the Company took corrective action to resolve this matter. The Company
believes that it is currently in material compliance with all applicable laws
and regulations to which it is currently subject. AMSI recently began recruiting
activities aimed at adding additional mortgage brokerage operations to its
branch operations, utilizing a concept called "Net Branch". Under the Net Branch
concept, AMSI recruits mortgage brokerage professionals to originate mortgage
loans under AMSI's license in those states where AMSI is licensed to provide
mortgage brokerage services. All fees associated with originating and closing
mortgage loans are forwarded to AMSI, from which AMSI then distributes the
appropriate commissions (net of AMSI's fees). AMSI provides training and
substantial marketing and administrative support to its Net Branches. Net
Branches utilize AMSI's senior level of licensing, along with AMSI's access to a
broader range of funding sources, to originate larger numbers of loans than they
might otherwise be capable of originating.
AMSI Net Branches actively solicit the origination of a variety of
types of residential mortgage loans, through personal contact as well as via the
Internet. Interested consumers are encouraged to submit a pre-qualification
application via a Net Branch website, after which a loan officer will establish
personal contact. AMSI loan officers guide consumers through the entire process
of obtaining a mortgage loan, from the initial application to the final closing
of the mortgage loan. AMSI has established relationships with more than 200
potential funding sources, providing a wide variety of mortgage financing
options for consumers.
AMSI provides substantial marketing and administrative support to its
Net Branches, including access to a proprietary Internet site for generating
loan application information, communicating with the Company's corporate office,
access to loan origination software, and receiving accounting information
relating to loan origination activity. Additionally, AMSI provides a senior
level of licensing under which its Net Branches may originate mortgage loans.
As of this date AMSI has recruited more than 160 new Net Branches, and
is presently licensed to originate mortgage loans in 21 states. AMSI intends to
pursue licenses in additional states.
The market for the origination of mortgage loans is rapidly evolving,
and competition for borrowers is intense and is expected to increase
significantly in the future. There can be no assurance that AMSI's competitors
and potential competitors will not develop services and products that are equal
or superior to those of AMSI or that achieve greater market acceptance than its
products and services.
AMSI also offers an interim financing product to the manufactured
housing industry. The manufactured housing industry is experiencing significant
growth due to certain affordability factors associated with this type of
housing. AMSI's interim financing product is designed to bridge the period of
time between the date that a housing unit is shipped to its permanent site and
the date that permanent mortgage financing is closed and funded. Interim
financing allows the manufactured housing dealer to receive a staged revenue
stream during the process. AMSI also offers permanent mortgage financing
services to this industry.
ACCENT REAL ESTATE GROUP (ARG)
ARG is a diversified multi-state real estate services organization
engaged in the acquisition, development and sale of a wide variety of real
estate projects. As a result of the formation of Accent, and the Company's
subsequent merger with Accent and exercise of options to acquire land, the
Company now owns land or options to acquire land, and has assumed and/or issued
associated indebtedness. The Company may assume additional indebtedness should
it choose to exercise the remaining options. A number of the Company's
development-ready projects are now in various stages of development, including:
SWISS AIR ESTATES - a lakefront gated residential community
located at Lake Sidney Lanier, just north of metropolitan Atlanta, Georgia. This
property consists of 12 estate-sized lots priced from $500,000 to more than
$900,000. The property is zoned and is under development.
CASTLEBERRY RESIDENTIAL COMMUNITY - The Company holds an option to
acquire a 33 acre parcel in Cumming, Georgia. The Company intends to develop a
multi-family residential townhouse community. Plans call for the development and
sale of approximately 197 mid-level townhomes in the $150,000 price range. The
property is zoned, and the project is in the design phase.
PEACHTREE INDUSTRIAL BOULEVARD - a commercial/industrial tract totaling
approximately 50 acres located on Peachtree Industrial Boulevard in Fulton
County, Georgia. This tract is in the design stages, and plans call for
development of an industrial park.
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<PAGE> 22
ATHENS, TENNESSEE - The Company holds an option to acquire land in
Athens, Tennessee. Plans call for the development of an upscale residential
modular home community totaling approximately 65 lots on a 40 acre tract.
Beachside, an oceanfront mixed use commercial development located in
Fernandina Beach, FL on Amelia Island is a part of the Company's consolidated
holdings. Amelia Island is an international tourist destination, and is growing
rapidly. The property consists of a retail building and an oceanfront building
lot suitable for development. The Company has listed the retail building for
sale, and is presently evaluating the feasibility for development of the tract
of land.
Effective September 21, 1999, the stock of Beachside was transferred
from the Company to AMSI. Accordingly, it remains a part of the Company's
consolidated holdings.
In addition to the properties listed above, Demerau holds redeemable
common stock relating to options to purchase three family entertainment centers
located in Roswell, Georgia, Cocoa Beach, Florida and Pensacola, Florida. Such
options are to be delivered to the Company by Demerau. Release of the redeemable
Common Stock to Demerau is contingent upon delivery of the options on or before
July 9, 2000. The entertainment centers consist of miniature golf and game
facilities.
ARG competes with commercial developers, real estate companies and
other real estate owners for development and acquisition opportunities in all of
its market areas. Certain of these competitors may have greater capital and
other resources than those of the Company. ARG's management believes that ARG is
able to compete effectively for development and acquisition opportunities in its
selected markets.
FACILITIES
The Company's operations are principally located in a multi-level
office building in Alpharetta, Georgia, a suburb of Atlanta. The Company
occupies approximately 9,000 square feet of office space under a lease that
expires in August 2004. Annual rent associated with this office space is
approximately $158,000 including utilities.
GOVERNMENT REGULATION
The Company's mortgage brokerage services division and its real estate
development division are subject to various laws and regulations. AMSI is
subject to federal, state and local regulatory agencies in connection with
originating, processing, underwriting and selling mortgage loans. These rules
and regulations, among other things impose licensing obligations on AMSI,
prohibit discrimination, establish underwriting guidelines and mandate
disclosures and notices to borrowers. ARG is required to comply with various
federal, state and local environmental, zoning, land use, licensing and other
laws and regulations which govern its operations. Existing regulations may have
a material adverse impact on the Company's operations by, among other things,
imposing additional compliance costs and delaying the period in which mortgages
may be processed or real estate projects may be brought to market.
To date, the Company has not expended significant resources on lobbying
or related government affairs issues but may be required to do so in the future.
EMPLOYEES
As of the date of this prospectus, the Company employees 25 people
within its corporate division and has approximately 300 Net Branch employees.
21
<PAGE> 23
LEGAL PROCEEDINGS
The Company is party, from time to time, to various legal proceedings.
On July 29, 1999 Company settled a claim arising out of the construction
phase of the Beachside project in the total amount of $15,250.
MARKET INFORMATION
COMMON STOCK
The Company's Common Stock has been traded over-the-counter on the
bulletin board operated by the National Association of Securities Dealers, Inc.
under the symbol "LAHA." The following table sets forth the high and low closing
bid of the Company's Common Stock for each quarter during the past two fiscal
years. The prices reflect inter-dealer quotations without retail mark-ups, mark
downs and commissions, and do not necessarily represent actual transactions. The
Company's securities began trading in August 1996. Since the foregoing date, the
high bid has been $6.750 the low bid has been $0.031.
<TABLE>
<CAPTION>
Period High Low
------- ----- -----
<S> <C> <C>
Fiscal 1997
First quarter..................................................... 0.875 0.875
Second quarter.................................................... 0.875 0.875
Third quarter..................................................... 0.875 0.875
Fourth quarter.................................................... 0.875 0.875
Fiscal 1998
First quarter...................................................... 3.250 0.875
Second quarter..................................................... 3.250 0.875
Third quarter...................................................... 3.250 0.875
Fourth quarter..................................................... 1.500 0.875
Fiscal 1999
First Quarter...................................................... 4.000 0.031
Second Quarter .................................................... 4.000 1.500
Third Quarter ..................................................... 4.625 0.500
Fourth Quarter ................................................... 6.750 3.125
Fiscal 2000
First Quarter (through October 20, 1999)........................... 5.00 3.625
</TABLE>
On December 14, 1998, the closing bid on the Common Stock was $0.50. On
August 23, 1999 the closing bid on the stock was $5.00. On October 20, 1999, the
closing bid on the Common Stock was $4.625.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and Directors of the Company as of October 5, 1999.
<TABLE>
<CAPTION>
OFFICERS AND DIRECTORS AGE POSITION
<S> <C> <C>
L. Scott Demerau (2) ................ 39 Chief Executive Officer,
President and Director
William A. Thurber................... 45 Executive Vice President - Finance
and Treasurer
Betty Sullivan (1),(2)............... 49 Executive Vice President - Administration,
Secretary and Director
Bart Siegel (1),(2).................. 51 Director
Sherry Sagemiller (2)................ 46 Assistant Secretary and Director
</TABLE>
- ----------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
22
<PAGE> 24
L. Scott Demerau was elected as a director, the Chief Executive Officer
and President of the Company effective August 23, 1999. Mr. Demerau holds a B.A.
from the University of Port Huron, Michigan. Mr. Demerau began his
entrepreneurial career in 1986 by forming a family entertainment center company,
Mountasia. Mountasia held an Initial Public Offering in 1993 and merged with
Malibu Entertainment Worldwide in 1994 where he served as Chairman, President
and CEO until 1997. From 1997 to 1999, Mr. Demerau served as a consultant to
Malibu. Mr. Demerau has served as a director of Malibu since 1993.
Betty M. Sullivan was elected as a director, the Executive Vice
President - Administration and Secretary of the Company effective August 23,
1999. She is a graduate of the American Institute of Banking, Louisiana State
University. Ms. Sullivan was Assistant Vice President with Sun Banks of Florida
from 1968 to 1980. She was owner and operator of two Sonny's Real Pit BarBQ
Restaurants, and four Athletic Attic Sporting Goods Stores from 1981 to 1986.
She was employed with Malibu Entertainment Worldwide (formerly Mountasia) as
Vice President of Operations, Vice President of Human Relations, Vice President
of Investors Relations and Secretary from 1987 to 1999.
William A. Thurber was elected Executive Vice President - Finance and
Treasurer of the Company effective September 28, 1999. From 1997 until June
1999, Mr. Thurber served as Treasurer of Vanstar Corporation, a NYSE technology
services company. From 1992 to 1997, Mr. Thurber served as Assistant Treasurer
and Director of Finance for John H. Harland Company, a NYSE financial printing
company. Mr. Thurber was also employed by Harland from January 1988 until
November 1988. From 1989 to 1992, Mr. Thurber served as Vice President for a
unit of NationsBank Corporation. From November 1988 until March 1989, Mr.
Thurber served as Chief Financial Officer of StarTouch Communications, Inc., a
telecommunications company. From 1981 to 1988, Mr. Thurber was employed by
Contel Corporation, a NYSE telecommunications company. From 1977 to 1981, Mr.
Thurber was employed by Grumman Corporation, a NYSE aerospace defense
contractor. Mr. Thurber holds an MBA Degree in Corporate Finance from Hofstra
University, as well as a BS Degree in Accounting from New York Institute of
Technology.
Bart Siegel was elected as a director of the Company effective August
23, 1999. Mr. Siegel holds a B.S. from the Virginia Commonwealth University.
Mr. Siegel is the owner and President of Allen Enterprises, a manufacturing,
technology, product development and technical service industry. He has also
served as Chief Operations Officer for Oak Brook Management, a management and
operational reporting company for over twenty diverse companies from 1995 to the
present. Mr. Siegel also serves as a strategic partner for the Institute of
Financial Management.
Sherry Sagemiller was elected as a director and the Assistant
Secretary of the Company effective August 23, 1999. Ms. Sagemiller was employed
as a legal assistant for real estate law firms from 1976 to 1982. She was the
assistant to the President of Washington Mortgage & Development Co. from 1982
to 1988. Ms. Sagemiller was Director of Marketing for Sagemiller & Associates,
Inc. from 1988 to January 1990. She was President/Owner of Accent Mortgage
Services, Inc. from February 1990 to July 1996. She is currently the manager of
an Accent Mortgage Services branch in Cumming, Ga.
The Board of Directors is authorized to have five members; however, as
of the date of this prospectus, there are only four directors. One director is
to be appointed within 60 days of August 19, 1999 by mutual consent of L. Scott
Demerau and Richard P. Smyth.
DIRECTOR COMPENSATION
The Company's non-employee Directors currently receive $1,000 per
meeting attended in person and $500 per attended telephonic meeting for service
on the Company's Board of Directors or any committee thereof.
Officers of the Company are appointed by the Board of Directors and
serve at its discretion. The Company has amended its bylaws to provide for the
indemnification of Directors and officers to the fullest extent authorized,
permitted or allowed by law.
EXECUTIVE COMPENSATION
None of the Company's executives have received any compensation in the
last three fiscal years.
STOCK OPTIONS OR OTHER INCENTIVE COMPENSATION PLANS
Accent, a wholly-owned subsidiary of the Company, has a stock option
plan, the Accent 1999 Stock Option Plan, which was adopted prior to the Merger
(the "Plan"). All directors, employees and key consultants of Accent and any
subsidiary or affiliate of Accent are eligible to participate in the Plan. Under
the terms of the Plan, not more than 200,000 shares of Accent Common Stock shall
be issued, and not more than 20,000 shares of Accent Common Stock may be made
subject to the options to any individual in the aggregate in any one fiscal year
of Accent. The Plan is attached as an exhibit to the Registration Statement on
Form S-1 of which this prospectus is a part.
As of the date of this prospectus, Accent has granted a total of
40,000 options, with not more than 10,000 options granted to any one
individual. The Company is currently evaluating whether to adopt the Plan, and,
in the event such action is deemed to be in the best interest of the Company,
how to convert the stock subject to the options from Accent Common Stock to
Common Stock of the Company.
23
<PAGE> 25
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the Board of Directors or compensation
committee of any other company, nor has such interlocking relationship existed
in the past. The Compensation Committee of the Board of Directors currently
consists of Bart Siegel, Betty Sullivan and Sherry Sagemiller.
EMPLOYMENT AGREEMENTS
The Company has no employment agreements at this time. The Company has
consulting agreements with each of Gerald F. Sullivan and Gator Glory, LLC, a
company that has employed Richard P. Smyth. Such consulting agreements are filed
as Exhibits in the registration statement of which this prospectus is a part.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Articles of Incorporation limits the
liability of Directors to the maximum extent permitted by Colorado law. Colorado
law provides that a corporation's articles of incorporation may contain a
provision eliminating or limiting the personal liability of a director for
monetary damages for breach of their fiduciary duties as Directors, except for
liability (i) for any breach of their duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 7-108-403 of the Colorado Business Corporation Act or (iv) for any
transaction from which the director derived an improper personal benefit.
The Company's Amended and Restated Articles of Incorporation provides
that the Company shall pay for or reimburse the reasonable expenses incurred by
a director who is a party to a proceeding in advance of final disposition of the
proceeding, including reasonable expenses incurred by a director in connection
with the enforcement of this indemnification provision if: (i) the director
furnishes to the Company a written affirmation of the director's good faith
belief that he or she has met the standard of conduct described in Section
7-109-102 of the Colorado Business Corporation Act; (ii) the director furnishes
to the Company a written undertaking, executed personally or on the director's
behalf to repay the advance if it is ultimately determined that he or she did
not meet the standard of conduct and (iii) a determination is made that the
facts then known to those making the determination would not preclude
indemnification under Article 109 of the Colorado Business Corporation Act.
The Company's Restated bylaws provide that the Company shall indemnify
its Directors and officers and may indemnify its employees and agents to the
fullest extent permitted by law. The Company believes that indemnification under
its Restated bylaws covers at least negligence and gross negligence on the part
of indemnified parties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
CERTAIN TRANSACTIONS
On December 14, 1998, the Company purchased all of the outstanding
stock of Beachside from Mongoose in exchange for 1,250,000 newly issued shares
of Common Stock of the Company, 1,910,000 newly issued shares of Series A
Preferred Stock of the Company and $667,500 in cash. The purchase was effective
as of December 7, 1998. The purchase was accounted for as a reverse acquisition.
Beachside was determined to be the accounting acquiror for financial statement
purposes in accordance with Staff Accounting Bulletin No. 97. The assets and
liabilities of Lahaina were recorded at its historical cost basis as it was a
shell company at December 7, 1998. Beachside is the owner of a commercial real
estate development located in Fernandina Beach, Florida on Amelia Island. As a
result of this transaction, Mongoose became the Company's largest shareholder
and Richard P. Smyth, the Managing Member of Mongoose, became the Chief
Executive Officer, Treasurer and a Director of the Company and served in such
capacity until the Merger.
On February 2, 1999, 1st Southern, a mortgage brokerage operation
owned by the son of a consultant and former Vice-Chairman, Secretary and
director of the Company issued a promissory note for up to $75,000 to the
Company. To date, 1st Southern has borrowed $62,000 of the promissory note.
The Company has an option to acquire 1st Southern. Should the acquisition be
completed, the total consideration given would be the outstanding amount of
the loan.
On June 30, 1999, the Company entered into a Purchase and Sale
Agreement with Mongoose, the Company's then-majority shareholder, pursuant to
which the Company sold and Mongoose purchased all of the assets and capital
stock of JP Concepts, Inc. owned by the Company. The Company redeemed 60,000
shares of Common Stock held by Mongoose in connection with the transaction.
24
<PAGE> 26
On June 30, 1999 the Company borrowed $40,000 from Scott Demerau,
interest free and the Company re-paid the debt in full on July 12, 1999. Also,
on September 3, 1999 and September 15, 1999 the Company borrowed $20,000 and
$45,000 respectively, interest free from Mr. Demerau. The Company repaid
$50,000 to Mr. Demerau on September 17, 1999 and currently owes a balance of
$15,000.
On July 9, 1999, Accent Holdings, Inc. AMSI, Accent, Sherry Sagemiller
and Jon Andersen entered into a Property Contribution Agreement pursuant to
which Sherry Sagemiller and the other former AMSI shareholders jointly and
severally indemnified Accent and AMSI against losses incurred by Accent or AMSI
as a result of certain action or inaction by the indemnifying parties. At
July 9, 1999, the indemnifying parties owed Accent $257,423 under the indemnity.
In addition, the indemnifying parties assumed from AMSI the obligation to repay
certain notes payable to banks in the amount of $247,821. Such notes continue
to be collateralized by $125,435 of certificates of deposit owned by AMSI.
Sherry Sagemiller was elected a director of the Company in connection with the
Merger.
For purposes of this prospectus the Company has estimated the number
of shares of Common Stock issuable upon conversion of the Note and the Second
Note and the exercise of the GCA Warrant and the Second GCA Warrant. The actual
number of shares of Common Stock issuable pursuant to the Note, the Second
Note, the GCA Warrant and the Second GCA Warrant will be determined at the time
of conversion or exercise. See "Terms of Conversion; Terms of Exercise."
25
<PAGE> 27
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth the beneficial ownership of the
Company's Common Stock and the Series A Preferred Stock as of October 5, 1999,
as adjusted to reflect the conversion/exercise of the shares of Common Stock
offered by the Selling Shareholders of (i) each person known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's directors and (iii) all of the Company's officers and directors as a
group. The number of shares that may actually be sold by each of the selling
shareholders will be determined by such shareholder and may depend upon a number
of factors, including, among other things, the market price of the Common Stock.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SHARES BENEFICIALLY OWNED*
PRIOR TO CONVERSION
-------------------------------------------------- COMMON
NUMBER PERCENT SHARES
----------------------------- ------------------- OFFERED
COMMON SERIES A COMMON SERIES A FOR
BENEFICIAL OWNER PREFERRED PREFERRED SALE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
L. Scott Demerau 6,297,000(2) -- 38.8% -- --
8645 Swiss Air Road
Gainesville, GA 30506
- -------------------------------------------------------------------------------------------------
Julia Demerau 6,297,000(2) -- 38.8% -- --
8645 Swiss Air Road
Gainesville, GA 30506
- -------------------------------------------------------------------------------------------------
Accent Associates, LLC 1,400,000 -- 8.6% -- --
7310 Pine Valley Road
Cumming, GA 30041
- -------------------------------------------------------------------------------------------------
Eutopean Enterprises, LLC 1,200,000 -- 7.4% -- --
8645 Swiss Air Road
Gainesville, GA 30506
- -------------------------------------------------------------------------------------------------
Kingdom Generals, LLC 850,000 -- 5.2% -- --
7310 Pine Valley Road
Cumming, GA 30041
- -------------------------------------------------------------------------------------------------
Sherry Sagemiller 833,330(3) -- 5.1% -- --
1460 Squire Lane
Cumming, GA 30041
- -------------------------------------------------------------------------------------------------
GCA Strategic Investment 1,628,047(4) -- 9.2% -- 1,628,047(4)
Fund Limited
Mechanics Building
12 Church Street
Hamilton HM 11 Bermuda
- -------------------------------------------------------------------------------------------------
LKB Financial, LLC 57,510(5)(6) -- .4% -- 57,510(5)(6)
106 Colony Park Drive
Suite 900
Cumming, GA 30040
- -------------------------------------------------------------------------------------------------
L. Scott Demerau 6,297,000 -- 38.8% -- --
Betty Sullivan -- -- -- -- --
Sherry Sagemiller 833,330 -- 5.1% -- --
Bart Siegel -- -- -- -- --
All directors and officers 7,130,330 -- 44.0% -- --
as a group (5 people)
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHARES BENEFICIALLY OWNED*
AFTER THE OFFERING(1)
--------------------- --------------------
NUMBER PERCENT
--------------------- --------------------
COMMON SERIES A COMMON SERIES A
BENEFICIAL OWNER PREFERRED PREFERRED
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
L. Scott Demerau 6,297,000(2) -- 38.8% --
8645 Swiss Air Road
Gainesville, GA 30506
- --------------------------------------------------------------------------------
Julia Demerau 6,297,000(2) -- 38.8% --
8645 Swiss Air Road
Gainesville, GA 30506
- --------------------------------------------------------------------------------
Accent Associates, LLC 1,400,000 -- 8.6% --
7310 Pine Valley Road
Cumming, GA 30041
- --------------------------------------------------------------------------------
Eutopean Enterprises, LLC 1,200,000 -- 7.4% --
8645 Swiss Air Road
Gainesville, GA 30506
- --------------------------------------------------------------------------------
Kingdom Generals, LLC 850,000 -- 5.2% --
7310 Pine Valley Road
Cumming, GA 30041
- --------------------------------------------------------------------------------
Sherry Sagemiller 833,330(3) -- 5.1% --
1460 Squire Lane
Cumming, GA 30041
- --------------------------------------------------------------------------------
GCA Strategic Investment (4) -- -- -- --
Fund Limited
Mechanics Building
12 Church Street
Hamilton HM 11 Bermuda
- --------------------------------------------------------------------------------
LKB Financial, LLC (5)(6) -- -- -- --
106 Colony Park Drive
Suite 900
Cumming, GA 30040
- --------------------------------------------------------------------------------
L. Scott Demerau 6,297,000 -- 38.8% --
Betty Sullivan -- -- -- --
Sherry Sagemiller 833,330 -- 5.1% --
Bart Siegel -- -- -- --
All directors and officers 7,130,330 -- 44.0% --
as a group (5 people)
- --------------------------------------------------------------------------------
</TABLE>
- ------------------------------------
* For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13(d)-3 of the Securities Exchange Act of
1934, as amended, under which, in general, a person is deemed to be the
beneficial owner of a security if such person has or shares the power to vote or
to direct the voting of the security or the power to dispose or to direct the
disposition of the security, or if such person has the right to acquire
beneficial ownership of the security within sixty days of October 21, 1999.
(1) The shares beneficially owned after the Offering are calculated assuming the
sale of all shares offered by the Selling Shareholders pursuant to this
Offering.
(2) Includes 1,200,000 shares of Common Stock which are held in escrow by the
Company pursuant to the Merger Agreement. These shares will be released upon
the satisfaction of certain conditions involving the full conveyance of the
consideration for the Accent Common Stock. No assurance can be given that
these shares will ever be released.
(3) Includes 766,666 shares of Common Stock which are held in escrow by the
Company pursuant to the Merger Agreement. These shares will be released upon
the satisfaction of certain conditions involving the full conveyance of the
consideration for the Accent Common Stock. No assurance can be given that
these shares will ever be released.
(4) Represents an estimate of the number of shares of Common Stock into which
the Note and the Second Note will be converted, an estimate of the number of
shares of Common Stock to be issued upon exercise of the GCA Warrant and the
Second GCA Warrant. Represents shares of Common Stock issued as fees related
to delays in filing the Registration Statement, upon the exercise of the GCA
right and upon the conversion of the GCA Line of Credit. This does not
include the 414,443 shares being registered to meet any additional share
issuance requirement.
(5) Represents shares of Common Stock issued upon exercise of the First and
Second LKB Warrants.
(6) The Company has engaged LKB to provide specific financial advisory services
for one year beginning January 19, 1999.
26
<PAGE> 28
DESCRIPTION OF CAPITAL STOCK
As of October 5, 1999, there were 16,217,343 shares of Common Stock
outstanding held of record by approximately 191 shareholders. Upon the closing
of the Offering, the outstanding shares of Common Stock will consist of
18,067,500 shares assuming that the remaining notes and warrants convert to
1,850,157 shares.
As of October 5, 1999, the Company has 3,350,000 shares held in escrow
which are subject to the certain conditions of release as set forth in the
Merger Agreement included as an exhibit included as an exhibit in the
registration statement of which this prospectus is a part, and are currently
being held by the Company.
COMMON STOCK
The Company is authorized to issue a total of 800,000,000 shares of no
par value per share Common Stock. Holders of Common Stock are entitled to one
vote per share in all matters to be voted on by the shareholders. Subject to the
preferences of the Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available for payment. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
shares of Preferred Stock then outstanding, if any. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued in connection with the Offering will be
fully paid and non-assessable.
PREFERRED STOCK
Pursuant to the Company's Amended and Restated Articles of
Incorporation, the Board of Directors has the authority, without further action
by the shareholders, to issue up to 10,000,000 shares of Preferred Stock in one
or more series and to fix the designations, powers, preferences, privileges, and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common Stock. The Board of
Directors, without shareholder approval, can issue Preferred Stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock could thus be
issued quickly with terms calculated to delay or prevent a change in control of
the Company or make removal of management more difficult. Additionally, the
issuance of Preferred Stock may have the effect of decreasing the market price
of the Common Stock, and may adversely affect the voting and other rights of the
holders of Common Stock. No shares of Series A Preferred Stock are currently
outstanding. Although the Company has no current plans to issue any additional
shares of the Preferred Stock, such shares may be issued in connection with
subsequent acquisitions or financings.
TERMS OF SERIES A PREFERRED STOCK
In connection with its acquisition of Beachside, the Company authorized
and issued shares of Series A Preferred Stock. The rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock are set forth below.
DIVIDEND PROVISIONS
Subject to the rights of any series of Preferred Stock that may from
time to time come into existence, the holders of shares of Series A Preferred
Stock are entitled to receive dividends out of any assets legally available
therefor, prior and in preference to any declaration or payment of any dividend
(payable other than in Common Stock or other securities and rights convertible
into or entitling the holder thereof to receive, directly or indirectly,
additional shares of Common Stock of the Company) on the Common Stock of this
Corporation, at the rate of $0.095 per share, per annum (as adjusted for any
stock splits, stock dividends, recapitalizations or the like), payable when, as,
and if declared by the Board of Directors. Such dividends will be cumulative.
The holders of the outstanding Series A Preferred Stock can waive any dividend
preference that such holders shall be entitled to receive upon the affirmative
vote or written consent of the holders of a majority of the Series A Preferred
Stock.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, subject to the rights of any series of
Preferred Stock that may from time to time come into existence, the holders of
Series A Preferred Stock are entitled to receive, prior and in preference to any
distribution of any of the assets of the
27
<PAGE> 29
Company to the holders of Common Stock by reason of their ownership thereof, an
amount per share equal to the sum of $1.00 for each outstanding share of Series
A Preferred Stock (the "Series A Liquidation Price"), plus declared but unpaid
dividends on such share (subject to adjustment of such fixed dollar amounts for
any stock splits, stock dividends, combinations, recapitalizations or the like).
Upon completion of this distribution all of the remaining assets of the Company
available for distribution to shareholders shall be distributed among the
holders of Series A Preferred Stock and Common Stock pro rata based on the
number of shares of Common Stock held by each holder (assuming full conversion
of all shares of Series A Preferred Stock).
Liquidation, dissolution or winding up of the Company shall be deemed
to be occasioned by, or to include (unless the holders of a majority of the
Series A Preferred Stock then outstanding shall determine otherwise), (i) the
acquisition of the Company by another entity by means of any transaction or
series of related transactions (including, without limitation, any
reorganization, merger or consolidation) that results in the transfer of fifty
percent or more of the outstanding voting power of the Company; or (ii) a sale
of all or substantially all of the assets of the Company; In any of such events,
if the consideration received by the Company is other than cash, its value will
be deemed its fair market value determined as set forth in Amended and Restated
Articles of Incorporation of the Company.
REDEMPTION
The Series A Preferred Stock is redeemable only at the election of
the Board of Directors of the Company upon 20 days notice to the holders of
Series A Preferred Stock at a price per share equal to the Series A Liquidation
Price plus accrued (whether or not declared) but unpaid dividends on each such
share.
CONVERSION
Each share of Series A Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, and until 5:00 p.m. Eastern Time of the day fixed for its redemption (the
"Conversion Rights"), at the office of the Company or any transfer agent for
such stock, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Series A Liquidation Price by the
Conversion Price applicable to such share in effect on the date the certificate
is surrendered for conversion. The initial Conversion Price per share for shares
of Series A Preferred Stock shall be $1.00, subject to adjustment as set forth
in the Company's Amended and Restated Articles of Incorporation.
AUTOMATIC CONVERSION
Each share of Series A Preferred Stock shall automatically be converted
into shares of Common Stock at the Conversion Price at the time in effect for
such Series A Preferred Stock immediately upon the earlier of (i) the Company's
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-l or Form SB-2 under the
Securities Act of 1933, as amended, the public offering price of which was not
less than $10.00 per share (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) and $10,000,000 in the aggregate or (ii) the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.
VOTING RIGHTS
The holder of each share of Series A Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Series A
Preferred Stock could then be converted, and with respect to such vote, except
as set forth in the following paragraph, such holder (i) shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, (ii) shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Company, and (iii) shall be entitled to vote,
together with holders of Common Stock, with respect to any question upon which
holders of Common Stock have the right to vote. Fractional votes shall not,
however, be permitted and any fractional voting rights available on an
as-converted basis shall be rounded to the nearest whole number (with one-half
being rounded upward).
The holders of shares of Series A Preferred Stock shall be entitled to
elect one director of the Company at each annual election of Directors. The
holders of Series A Preferred Stock and Common Stock (voting together as a
single class and not as separate series, and on an as-converted basis) shall be
entitled to elect any remaining Directors of the Company.
28
<PAGE> 30
Subject to the rights of any series of Preferred Stock that may from
time to time come into existence, so long as any shares of Series A Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of a
majority of the Series A Preferred Stock then outstanding voting together as a
single class:
(i) sell, convey, or otherwise dispose of all or substantially all of
its property or business or merge into or consolidate with any other corporation
(other than a wholly-owned subsidiary corporation) or effect any transaction or
series of related transactions in which more than fifty percent of the voting
power of the Company is disposed of;
(ii) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any share or shares of Preferred Stock or
Common Stock; provided, however, that this restriction shall not apply to the
repurchase of shares of Common Stock from employees, officers, Directors,
consultants or other persons performing services for this Corporation or any
subsidiary pursuant to agreements under which this Corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment;
(iii) amend the Company's Articles of Incorporation or bylaws;
(iv) declare or pay any dividends on any shares of capital stock;
(v) do any act or thing which would result in taxation of the holders
of shares of the Series A Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended); or
(vi) authorize or issue, or obligate itself to issue, any other equity
security, including any other security convertible into or exercisable for any
equity security having a preference over, or being on a parity with, the Series
A Preferred Stock with respect to dividends, liquidation or voting.
REGISTRATION RIGHTS
Pursuant to agreements between the Company and the holder (the
"Holder") of the Note and the Second Note the shares of Common Stock into which
the notes are convertible, (the "Registrable Securities"), can be registered for
sale under the Act. If the Company proposes to register any of its securities
under the Act, either for its own account or for the account of the Holder
exercising registration rights, the Holder is entitled to notice of such
registration and is entitled to include shares of Registrable Securities
therein. Additionally, the Holder is also entitled to certain demand
registration rights pursuant to which they may require the Company to file a
registration statement under the Act at the Company's expense with respect to
their shares of Registrable Securities, and the Company is required to use its
commercially reasonable best efforts to effect such registration. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration.
The Holder claims $50,500 in fees related to delays in filing the
Registration Statement through September 13, 1999 and claims it is entitled to
additional fees under the terms of the Note and the Second Note for each
additional day which the Registration Statement is not declared effective.
Management believes it has a reasonable basis to dispute such fees and intends
to enter into negotiations with the Holder to mitigate its damages.
LIMITATION OF DIRECTOR AND OFFICER LIABILITY
The Company's Amended and Restated Articles of Incorporation and bylaws
contain certain provisions relating to the limitation of liability and
indemnification of Directors and officers. The Company's Amended and Restated
Articles of Incorporation provide that Directors of the Company may not be held
personally liable to the Company or its shareholders for a breach of fiduciary
duty, except for liability (i) for any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 7-108-403 of the Colorado Business Corporation Act, relating to
prohibited dividends, distributions and repurchases or redemptions of stock,
(iv) for any transaction from which the director derives an improper benefit. In
addition, the Company's Amended and Restated Articles of Incorporation and
bylaws provide that the Company shall indemnify Directors and officers to the
fullest extent authorized by Colorado law.
29
<PAGE> 31
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
Corporate Stock Transfer Corporation, Republic Plaza, 370 17th Street, Suite
2350, Denver, Colorado, 80202. Its telephone number for such purposes is (303)
595-3300.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, the Company has an aggregate of 16,217,343
shares of Common Stock outstanding and an additional 1,850,157 shares of Common
Stock reserved for issuance upon the conversion of the Note and the Second Note
and the exercise of the GCA Warrant and the Second GCA Warrant. Upon completion
of the Offering, the Company will have outstanding an aggregate of 18,067,500
shares of Common Stock, assuming the full conversion of the Note and the Second
Note and exercise of the GCA Warrant and the Second GCA Warrant into 1,850,157
shares. Assuming the sale of all shares of Common Stock offered hereby, the
2,100,000 shares sold in the Offering will be freely tradeable without
restriction or further registration under the Act, except that any shares held
or purchased by "affiliates" of the Company, as that term is defined in Rule 144
of the Securities Act ("Affiliates"), may generally only be sold in compliance
with the limitations of Rule 144 described below. Scott Demerau constitutes an
Affiliate of the Company, thus the 6,297,000 shares of Common Stock he currently
owns, together with any shares he acquires in the future, will be subject to
these limitations.
In general, under Rule 144 as currently in effect, any holder of
securities who is an Affiliate of the issuer is entitled to sell within any
three-month period a number of shares that does not exceed the greater of: (i)
one percent of the number of shares of Common Stock then outstanding (which will
equal approximately 180,675 shares immediately after the Offering); or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and notice
requirements and to the availability of current public information about the
Company. The above described provisions of Rule 144, together with an additional
one year holding period requirement, also apply to "restricted securities"
defined under Rule 144 as securities issued in a private offering by a publicly
traded company. Any shares of Common Stock issued upon conversion of the Note or
the Second Note or the exercise of the GCA Warrant or the Second GCA Warrant
would constitute, and the other shares currently held by the Selling
Shareholders constitute, restricted securities under Rule 144 and must be sold
in compliance with the above described limitations unless and until sold
pursuant to this prospectus in the Offering.
PLAN OF DISTRIBUTION
Sales of the shares may be made from time to time by the selling
shareholders, or, subject to applicable law, by pledgees, donees, distributees,
transferees or other successors in interest. Such sales may be made on the OTC
Bulletin Board, in another over-the-counter market, on a national securities
exchange (any of which may involve crosses and block transactions), in privately
negotiated transactions or otherwise or in a combination of such transactions at
prices and at terms then prevailing or at prices related to the then current
market price, or at privately negotiated prices. In addition, any shares covered
by this prospectus which qualify for sale pursuant to Section 4(l) of the
Securities Act or Rule 144 promulgated thereunder may be sold under such
provisions rather than pursuant to this prospectus. Without limiting the
generality of the foregoing, the shares may be sold in one or more of the
following types of transactions: (a) a block trade in which the broker-dealer so
engaged will attempt to sell the shares as agent but may position and resell a
portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this prospectus; (c) an exchange distribution in accordance
with the rules of such exchange; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers, and (e) face-to-face
transactions between sellers and purchasers without a broker-dealer. In
effecting sales, brokers or dealers engaged by the selling shareholders may
arrange for other brokers or dealers to participate in the resales.
In connection with distributions of the shares or otherwise, the
selling shareholders may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with selling shareholders. The selling shareholders may also sell shares
short and deliver the shares to close out such short positions. The selling
shareholders may also enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the shares
registered hereunder, which the broker-dealer may resell pursuant to this
prospectus. The
30
<PAGE> 32
selling shareholders may also pledge the shares registered hereunder to a broker
or dealer and upon a default, the broker or dealer may effect sales of the
pledged shares pursuant to this prospectus.
Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from selling shareholders in amounts to be
negotiated in connection with the sale. Such brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales and any such
commission, discount or concession may be deemed to be underwriting discounts or
commissions under the Securities Act.
Information as to whether underwriters who may be selected by the
selling shareholders, or any other broker-dealer, is acting as principal or
agent for the selling shareholders, the compensation to be received by
underwriters who may be selected by the selling shareholders, or any
broker-dealer, acting as principal or agent for the selling shareholders and the
compensation to be received by other broker-dealers, in the event the
compensation of such other broker-dealers is in excess of usual and customary
commissions, will, to the extent required, be set forth in a supplement to this
prospectus (the "Prospectus Supplement"). Any dealer or broker participating in
any distribution of the shares may be required to deliver a copy of this
prospectus, including the Prospectus Supplement, if any, to any person who
purchases any of the shares from or through such dealer or broker.
The Company has advised the selling shareholders that during such time
as they may be engaged in a distribution of the shares included herein they are
required to comply with Regulation M promulgated under the Exchange Act. With
certain exceptions, Regulation M precludes any selling shareholders, any
affiliated purchasers and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the Common Stock.
It is anticipated that the selling shareholders will offer all of the
shares for sale. Further, because it is possible that a significant number of
shares could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a depressive effect on the market price of the Company's
Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby was passed
upon for the Company by Paul, Hastings, Janofsky & Walker LLP, Atlanta, Georgia.
Mongoose made a gift of 100,000 shares of the Company's Common Stock to a
partner of Paul, Hastings, Janofsky & Walker, LLP, effective as of December 7,
1998.
EXPERTS
Beachside Commons I, Inc. (currently known as Lahaina Acquisitions,
Inc.) financial statements as of and for the period from inception
(September 25, 1998) to December 7, 1998 appearing in this prospectus and
Registration Statement have been audited by Kenneth R. Walters, PA, independent
public accountants, and are included herein in reliance upon the authority of
said firm as experts in giving said report. AMSI's financial statements for the
period ended June 30, 1999 and the years ended December 31, 1998 and 1997
appearing in this prospectus and Registration Statement have been audited by
Holland Shipes Vann, P.C., independent public accountants, and are included
herein upon the authority of said firm as experts in giving said report.
The consolidated balance sheet of The Accent Group, Inc. and
subsidiaries as of July 9, 1999 included in this prospectus has been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and is included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission (the "Commission"), Washington, D.C. This
prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete and in each instance reference is made to the copy of
such contract
31
<PAGE> 33
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to such Registration Statement, exhibits and schedules. A copy
of the Registration Statement may be inspected by anyone without charge at the
Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549,
the New York Regional Office located at 7 World Trade Center, 13th Floor, New
York, NY 10048, and the Chicago Regional Office located at Northwestern Atrium
Center, 500 West Madison Street, Chicago, IL 60661, and copies of all or any
part thereof, including any exhibit thereto, may be obtained from the Commission
upon the payment of certain fees prescribed by the Commission.
In addition, the Company files annual, quarterly and special reports,
proxy statements and other information with the Commission. You may read and
copy any documents the Company files at the Commissions public reference rooms
in Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. The Company's filings are also available to the public from the
Commission's website at http://www.sec.gov.
32
<PAGE> 34
LAHAINA ACQUISITIONS, INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Basis of Presentation............................................................ F-2
Unaudited Pro Forma Condensed Combined Balance Sheet of
Lahaina Acquisitions, Inc, as of June 30, 1999................................... F-3
Unaudited Pro Forma Condensed Combined Balance Sheet of
The Accent Group, Inc, as of June 30, 1999....................................... F-3
Unaudited Pro Forma Condensed Combined Statement of Operations of
Lahaina Acquisitions,Inc, for the nine months ended June 30, 1999................ F-4
Unaudited Pro Forma Condensed Combined Statement of Operations of
The Accent Group, Inc, for the nine months ended June 30, 1999................... F-4
Unaudited Pro Forma Condensed Combined Statement of Operations of
Lahaina Acquisitions, Inc., for the year ended September 30, 1998................ F-5
Unaudited Pro Forma Condensed Combined Statement of Operations of
The Accent Group, Inc., for the year ended September 30, 1998.................... F-5
Notes to Unaudited Pro Forma Combined Financial Statements....................... F-6
</TABLE>
INDEX TO PREDECESSOR FINANCIAL STATEMENTS
LAHAINA ACQUISITIONS, INC.
(formerly known as Beachside Commons I, Inc.)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors................................................... F-8
Consolidated Balance Sheets...................................................... F-9
Consolidated Statements of Operations............................................ F-10
Consolidated Statement of Changes in Shareholders' Equity........................ F-11
Consolidated Statements of Cash Flows............................................ F-12
Notes to Consolidated Financial Statements....................................... F-13
</TABLE>
THE ACCENT GROUP, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors................................................... F-23
Consolidated Balance Sheet of The Accent Group, Inc.............................. F-24
Notes to Consolidated Balance Sheet of The Accent Group, Inc..................... F-25
</TABLE>
ACCENT MORTGAGE SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors as of and for the six months ended June 30,1999... F-34
Balance Sheets of Accent Mortgage Services, Inc.................................. F-35
Statements of Operations of Accent Mortgage Services, Inc........................ F-36
Statement of Changes in Shareholders' Equity (Deficit) of Accent Mortgage
Services, Inc.................................................................... F-37
Statements of Cash Flows of Accent Mortgage Services, Inc........................ F-38
Notes to Financial Statements of Accent Mortgage Services, Inc................... F-39
Report of Independent Auditors as of and for the years ended
December 31, 1998 and 1997....................................................... F-49
Balance Sheets of Accent Mortgage Services, Inc.................................. F-50
Statements of Operations of Accent Mortgage Services, Inc........................ F-51
Statement of Changes in Shareholders' Equity (Deficit) of Accent Mortgage
Services, Inc.................................................................... F-52
Statements of Cash Flows of Accent Mortgage Services, Inc........................ F-53
Notes to Financial Statements of Accent Mortgage Services, Inc................... F-54
</TABLE>
F-1
<PAGE> 35
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following unaudited pro forma condensed combined financial statements give
effect to the following transactions: (i) the acquisition of The Accent Group,
Inc. ("Accent") by Lahaina Acquisitions, Inc. ("Lahaina"), (ii) consummation of
Accent's acquisition of the outstanding capital stock of Accent Mortgage
Services, Inc. ("AMSI"), (iii) the contribution of certain real estate and
options to acquire real estate to Accent by the majority stockholder, (iv) other
Accent acquisitions, and (v) the conversion or exercise of the Note, the Second
Note and related warrants into 1,850,157 shares of the Company's Common Stock.
The acquisitions of AMSI and Lahaina will be accounted for using the purchase
method of accounting and the contributions of real estate and options to acquire
real estate from the majority shareholder will be accounted for at the majority
shareholder's cost basis due to common ownership and control. In accordance with
the provisions of Staff Accounting Bulletin No. 97, Accent is deemed to be the
accounting acquiror of Lahaina as its stockholders will receive the largest
portion of the voting rights in the combined corporation.
The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the
acquisitions as if they had occurred on June 30, 1999. The Unaudited Pro Forma
Condensed Combined Statements of Operations for the nine months ended June 30,
1999 and the year ended September 30, 1998 gives effect to these transactions as
if they had occurred on October 1, 1997.
The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised as additional information becomes
available. The pro forma condensed combined financial data does not purport to
represent what Lahaina's financial position or results of operations would
actually have been if such transactions in fact had occurred on those assumed
dates and are not necessarily representative of Lahaina's financial position or
results of operations for any future period. Since Lahaina, Accent and AMSI were
not under common control or management, historical combined results may not be
comparable to, or indicative of, future performance. The unaudited pro forma
condensed combined financial statements should be read in conjunction with the
other financial statements and notes thereto included elsewhere in the
prospectus.
F-2
<PAGE> 36
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED HISTORICAL ADJUSTMENTS PRO FORMA
ACCENT LAHAINA (note 3) COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 106,255 $ 60,261 $ 500,000 $ 666,516
Restricted cash -- 31,000 -- 31,000
Restricted certificates of deposit 125,435 -- -- 125,435
Loans receivable 531,692 -- -- 531,692
Mortgage loans held for sale, net 499,150 -- -- 499,150
Real estate held for sale -- 2,901,799 748,201 3,650,000
Land held for development 700,000 -- -- 700,000
Foreclosed real estate 593,960 -- -- 593,960
Goodwill 1,237,487 -- 144,839 1,382,326
Due from related parties and stockholders 40,000 -- -- 40,000
Other assets 283,323 211,251 (353,751) 140,823
----------- ----------- ----------- -----------
Total assets $ 4,117,302 $ 3,204,311 $ 1,039,289 $ 8,360,902
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable $ 2,103,943 $ 1,550,000 $ -- $ 3,653,943
Due to related parties and stockholders 636,057 -- -- 636,057
Notes payable-convertible debt -- 775,000 (775,000) --
Note payable-warehouse line 1,632,342 -- -- 1,632,342
Note payable-stage funding line 528,891 -- -- 528,891
Accrued interest payable 208,080 -- -- 208,080
Accounts payable and accrued expenses 628,752 540,294 190,762 1,359,808
Other liabilities 1,500 9,000 -- 10,500
----------- ----------- ----------- -----------
Total liabilities 5,739,565 2,874,294 (584,238) 8,029,621
----------- ----------- ----------- -----------
Redeemable stock 70,577 -- -- 70,577
Stockholders' equity (deficit):
Common stock -- -- -- --
Convertible preferred stock -- -- -- --
Additional paid-in capital (1,571,840) 1,093,171 860,373 381,704
Retained earnings (deficit) (121,000) (763,154) 763,154 (121,000)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (1,692,840) 330,017 1,623,527 260,704
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity (deficit) $ 4,117,302 $ 3,204,311 $ 1,039,289 $ 8,360,902
=========== =========== =========== ===========
</TABLE>
THE ACCENT GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ACCENT MORTGAGE ADJUSTMENTS COMBINED
ACCENT SERVICES, INC. (note 3) ACCENT
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 25,000 $ 81,255 $ -- $ 106,255
Restricted certificates of deposit -- 125,435 -- 125,435
Loans receivable -- 531,692 -- 531,692
Mortgage loans receivable, net -- 499,150 -- 499,150
Land held for development -- -- 700,000 700,000
Foreclosed real estate -- 593,960 -- 593,960
Goodwill -- -- 1,237,487 1,237,487
Due from related parties and stockholders 10,477 29,523 -- 40,000
Other assets 329,523 206,300 (252,500) 283,323
----------- ----------- ----------- -----------
Total assets $ 365,000 $ 2,067,315 $ 1,684,987 $ 4,117,302
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Notes payable $ -- $ 247,821 $ 1,856,122 $ 2,103,943
Due to related parties and stockholders 40,000 153,094 442,963 636,057
Note payable-warehouse line -- 1,632,342 -- 1,632,342
Note payable-stage funding line -- 528,891 -- 528,891
Accrued interest payable -- 208,080 -- 208,080
Accounts payable and accrued expenses 350,000 278,752 -- 628,752
Other liabilities -- 1,500 -- 1,500
----------- ----------- ----------- -----------
Total liabilities 390,000 3,050,480 2,299,085 5,739,565
----------- ----------- ----------- -----------
Redeemable common stock -- -- 70,577 70,577
Stockholders' deficit:
Common stock -- 60,000 (60,000) --
Additional paid-in capital -- 624,595 (2,196,435) (1,571,840)
Retained earnings (deficit) (25,000) (1,667,760) 1,571,760 (121,000)
----------- ----------- ----------- -----------
Total stockholders' deficit (25,000) (983,165) (684,675) (1,692,840)
----------- ----------- ----------- -----------
Total liabilities and stockholders' deficit $ 365,000 $ 2,067,315 $ 1,684,987 $ 4,117,302
=========== =========== =========== ===========
</TABLE>
F-3
<PAGE> 37
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine months ended June 30, 1999
<TABLE>
<CAPTION>
ACCENT PRO FORMA
PRO FORMA LAHAINA ADJUSTMENTS PRO FORMA
COMBINED(A) HISTORICAL (NOTE 4) COMBINED
------------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues(1) $ 1,101,448 $ 143,713 $ -- $ 1,245,161
Selling, general and
administrative expenses 1,701,989 702,221 (150,000)(B) 2,314,210
60,000 (C)
Amortization of goodwill 61,874 -- 7,242 (D) 69,116
Other (income) expense:
Interest expense 328,762 204,646 (40,688)(E) 492,720
Interest income (56,530) -- -- (56,530)
---------- ---------- ---------- ----------
Net loss $ (934,647) $ (763,154) $ 123,446 $(1,574,355)
=========== ========== =========== ===========
</TABLE>
THE ACCENT GROUP, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the nine months ended June 30, 1999
<TABLE>
<CAPTION>
PRO FORMA ACCENT
ACCENT MORTGAGE ADJUSTMENTS PRO FORMA
ACCENT SERVICES, INC. (NOTE 4) COMBINED (A)
---------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues(1) $ -- $ 1,101,448 $ -- $ 1,101,448
Selling, general and
administrative expenses 25,000 1,668,259 8,730 (F) 1,701,989
Amortization of goodwill -- -- 61,874 (D) 61,874
Other (income) expense:
Interest expense -- 171,698 157,064 (G) 328,762
Interest income -- (56,530) -- (56,530)
---------- ---------- ----------- ---------
Net loss $ (25,000) $ (681,979) $ (227,668) $ (934,647)
========== ============ =========== ===========
</TABLE>
(1) Revenues are net of brokerage services expense.
F-4
<PAGE> 38
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACCENT PRO FORMA
PRO FORMA LAHAINA ADJUSTMENTS PRO FORMA
COMBINED (A) HISTORICAL (NOTE 4) COMBINED
-------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues(1) $ 1,211,246 $ -- $ -- $ 1,211,246
Selling, general and
administrative expenses 2,385,496 -- 300,000(C) 2,685,496
Amortization of goodwill 82,499 -- 9,656(D) 92,155
Other (income) expense:
Interest expense 465,672 -- -- 465,672
Interest income (92,997) -- -- (92,997)
Other, net -- -- -- --
----------- --------- ---------- -----------
Net loss $(1,629,424) $ -- $ (309,656) $(1,939,080)
=========== ========= ========== ===========
</TABLE>
THE ACCENT GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
PRO FORMA ACCENT
ACCENT MORTGAGE ADJUSTMENTS PRO FORMA
ACCENT SERVICES, INC. (NOTE 4) COMBINED (A)
--------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues(1) $ -- $ 1,211,246 $ -- $ 1,211,246
Selling, general and
administrative expenses -- 2,373,856 11,640 (F) 2,385,496
Amortization of goodwill -- -- 82,499 (D) 82,499
Other (income) expense:
Interest expense -- 262,417 203,255 (G) 465,672
Interest income -- (92,997) -- (92,997)
Other, net -- -- -- --
--------- ----------- ----------- -------------
Net loss $ -- $(1,332,030) $ (297,394) $ (1,629,424)
========= =========== ========== =============
</TABLE>
(1) Revenues are net of brokerage services expense.
F-5
<PAGE> 39
LAHAINA ACQUISITIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1-GENERAL
Lahaina was founded in 1989 to seek, investigate and, if warranted, acquire an
interest in one or more business opportunities or ventures.
The historical financial statements reflect the financial position and results
of operations of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons
I, Inc.) ("Lahaina"), The Accent Group, Inc. ("Accent"), and Accent Mortgage
Services, Inc. ("AMSI") and were derived from the respective historical
financial statements where indicated. The periods included in these financial
statements for Lahaina are as of June 30, 1999 and for the year ended September
30, 1998 and for the nine months ended June 30, 1999. The periods included in
these financial statements for Accent are as of June 30, 1999 and for the period
from May 5, 1999(date of inception) to June 30, 1999. The periods included in
these financial statements for AMSI are as of June 30, 1999 and for the year
ended December 31, 1998 and the nine months ended June 30, 1999. The audited
historical financial statements included elsewhere herein have been included in
accordance with Securities and Exchange Commission Regulation S-X Rule 3-05.
NOTE 2-ACQUISITIONS
The acquisitions of both Lahaina and AMSI will be accounted for using the
purchase method of accounting with Accent being treated as the accounting
acquirer of Lahaina in accordance with Staff Accounting Bulletin No. 97 and APB
16. The assignment of fair values to assets acquired and liabilities assumed for
Lahaina and AMSI are preliminary and subject to revision based on final
determination of the fair values of properties acquired.
The contributions by the majority shareholder of Accent which related to its
formation were recorded at the majority shareholder's cost basis due to common
ownership and control.
NOTE 3-UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS
The following table summarizes unaudited pro forma condensed combined balance
sheet adjustments related to (i) the acquisition of Lahaina by Accent (Merger
Adjustments) and (ii) the Conversion of the Note, the Second Note and the
exercise of the related warrants into Common Stock of the Company (Conversion
Adjustments):
<TABLE>
<CAPTION>
Total
Merger Conversion Pro Forma
Adjustments(A) Adjustments(B) Adjustments
-------------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ 500,000 $ 500,000
Restricted cash -- -- --
Restricted certificates of deposit -- -- --
Loans receivable -- -- --
Mortgage loans held for sale, net -- -- --
Land held for development 748,201 -- 748,201
Foreclosed real estate -- -- --
Goodwill 144,839 -- 144,839
Due from related parties and stockholders -- -- --
Other assets (214,500) (139,251) (353,751)
--------- --------- ----------
Total assets $ 678,540 $ 360,749 $1,039,289
========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable $ -- $ -- $ --
Due to related parties and stockholders -- -- --
Note payable-convertible debt -- (775,000) (775,000)
Note payable-warehouse line -- -- --
Note payable-stage funding line -- -- --
Accrued interest payable -- -- --
Accounts payable and accrued expenses -- 190,762 190,762
Other liabilities -- -- --
--------- --------- ----------
Total liabilities -- (584,238) (584,238)
--------- --------- ----------
Redeemable stock -- -- --
Stockholders' equity:
Common stock -- -- --
Convertible preferred stock -- -- --
Additional paid-in capital (84,614) 944,987 860,373
Retained earnings 763,154 -- 763,154
--------- --------- ----------
Total stockholders' equity 678,540 944,987 1,623,527
--------- --------- ----------
Total liabilities and stockholders' equity $ 678,540 $ 360,749 $1,039,289
========= ========= ==========
</TABLE>
(A) Reflects the acquisition of Lahaina by Accent consisting of 2,966,343
shares of Common Stock valued at $0.34 per share based on an
independent valuation of Accent just prior to the merger with Lahaina
and acquisition expenses of $152,000 for a total purchase price of
$1,161,057. After writing off an uncollectible receivable of $62,000
and the allocation of purchase price to the fair market value of the
real estate ($748,201), the remaining excess purchase price over the
fair market value of the assets and liabilities acquired was recorded
as goodwill ($144,839). The assignment of fair values to assets and
liabilities for Lahaina is preliminary and subject to revision based on
final determination of the fair values of assets and liabilities
acquired.
(B) Reflects the conversion of the Note ($775,000), the conversion and
related proceeds from the Second Note ($500,000), and the exercise of
the related warrants for a total of 1,850,157 shares of Common Stock.
Also reflects the write-off of capitalized registration costs
($139,251) and the accrual of additional registration costs ($190,762)
which is recorded as a reduction of additional paid-in capital.
The following table summarizes unaudited pro forma condensed combined balance
sheet adjustments related to (i) Accent's acquisition of AMSI, (ii) the
contribution of assets by the majority shareholder of Accent, and (iii) other
Accent acquisitions and is adjusted for the 10 for 1 exchange of common stock
between Accent and Lahaina:
<TABLE>
<CAPTION>
TOTAL
PRO FORMA
PROFORMA ADJUSTMENTS ADJUSTMENTS
------------------------------------------------ --------------
(A) (B) (C) (D)
----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ -- $ -- $ -- $ -- $ --
Restricted certificates of deposit -- -- -- -- --
Loans receivable -- -- -- -- --
Mortgage loans receivable, net -- -- -- -- --
Land held for development 700,000 -- -- -- 700,000
Foreclosed real estate -- -- -- -- --
Goodwill -- 1,237,487 -- -- 1,237,487
Due from related parties and stockholders -- -- -- -- --
Other assets -- (332,500) 80,000 -- (252,500)
----------- ----------- ------- -------- -----------
Total assets $ 700,000 $ 904,987 $80,000 $ -- $ 1,684,987
=========== =========== ======= ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Notes payable $ 2,103,943 $ (247,821) $ -- $ -- $ 1,856,122
Due to related parties and stockholders 596,057 (153,094) -- -- 442,963
Notes payable-warehouse line -- -- -- -- --
Note payable - stage funding line -- -- -- -- --
Accrued interest payable -- -- -- -- --
Accounts payable and accrued expenses -- -- -- -- --
Other liabilities -- -- -- -- --
----------- ----------- ------- -------- -----------
Total liabilities 2,700,000 (400,915) -- -- 2,299,085
----------- ----------- ------- -------- -----------
Redeemable stock -- (25,423) -- 96,000 70,577
Stockholders' deficit:
Common stock -- (60,000) -- -- (60,000)
Additional paid-in capital (2,000,000) (276,435) 80,000 -- (2,196,435)
Retained earnings -- 1,667,760 -- (96,000) 1,571,760
----------- ----------- ------- -------- -----------
Total stockholders' deficit (2,000,000) 1,331,325 80,000 (96,000) (684,675)
----------- ----------- ------- -------- -----------
Total liabilities and stockholders' deficit $ 700,000 $ 904,987 $80,000 $ -- $ 1,684,987
=========== =========== ======= ======== ===========
</TABLE>
(A) Reflects the contribution of real estate and options to acquire real
estate from the majority shareholder in exchange for 8,525,000 shares
of Common Stock. Accent's basis in the real estate and options to
acquire real estate is recorded at the majority shareholder's basis
($700,000). Accent also assumed
F-6
<PAGE> 40
LAHAINA ACQUISITIONS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Continued)
notes payable related to the real estate of $2.7 million. The basis in
the real estate and options contributed less the debt assumed is a
reduction in additional paid-in capital ($2.0 million).
(B) Reflects the purchase of AMSI, consisting of 3,626,000 shares of Common
Stock valued at $0.16 per share (a total of $580,160) based on an
independent valuation of Accent on July 9, 1999, and acquisition
expenses of $172,500 for a total estimated purchase price of $752,660,
resulting in an excess purchase price over the fair value of assets and
liabilities acquired of $1,237,487. In conjunction with the
transaction, deal costs of $160,000 that had been capitalized by AMSI
in other assets were written off and the former shareholders of AMSI
have assumed the notes payable of AMSI ($400,915). The Company is also
indemnified, by the former shareholders of AMSI, against any accounts
payable or other liabilities assumed by the Company that were recorded
or arise in the future that relate to periods prior to the date of
acquisition. The former shareholders have pledged 1,450,000 shares of
Common Stock against the indemnity. The pledged Common Stock valued at
$0.16 per share (a total of $232,000) has been recorded by the Company
as Redeemable Common Stock as it is redeemable by Accent for conditions
which are not solely within the control of Accent. The amount due under
the indemnity at June 30, 1999 ($257,423) has been recorded as a
reduction of Redeemable Common Stock.
The assignment of fair values to assets acquired and liabilities
assumed for AMSI is preliminary and subject to revision based on final
determination of the fair values of assets and liabilities acquired.
(C) Reflects the purchase of two options to acquire real estate, for
500,000 shares of Common Stock valued at $0.16 per share (a total of
$80,000) based on an independent valuation of Accent on July 9, 1999.
(D) Reflects the issuance of 600,000 shares of Common Stock valued at
$0.16 per share (a total of $96,000) based on an independent valuation
of Accent on July 9, 1999. The Common Stock was issued to consultants
in exchange for services provided and is recorded as consulting
expense of the combined group upon the formation of Accent. The Common
Stock has been recorded as Redeemable Common Stock as it is redeemable
by Accent for conditions which are not solely within the control of
Accent.
NOTE 4-UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT ADJUSTMENTS
The following proforma adjustments are not adjusted for their income tax effect
as none of the entities had profitable operations during these periods. At June
30, 1999, AMSI had NOL carryforwards of approximately $551,000.
(A) Reflects the Pro Forma Condensed Combined Income Statement of Accent
following its acquisition of AMSI.
(B) Reflects the elimination of merger related expenses that were included
in Lahaina's income statement.
(C) Reflects the increase in compensation expense related to the terms of
the new consulting agreements with former employees of Lahaina.
(D) Reflects the amortization of goodwill to be recorded as a result of the
acquisition of AMSI and Lahaina by Accent over a 15-year estimated
life. The amortization is based on the preliminary assignment of fair
values of assets acquired and liabilities assumed and is subject to
revision based on final determination of the fair values of assets
acquired and liabilities assumed.
(E) Reflects the decrease in interest expense as a result of the conversion
of the convertible notes into shares of common stock.
(F) Reflects the increase in property tax expense associated with the
undeveloped real estate contributed to Accent by its majority
shareholder.
(G) Reflects the increase in interest expense associated with long-term
debt assumed by Accent that encumbers undeveloped real estate
contributed to Accent by its majority shareholder net of a decrease in
interest expense for AMSI loans assumed or forgiven by former AMSI
Shareholders. Also reflects the decrease in interest expense following
the conversion of the convertible notes to Common Stock.
NOTE 5-NET LOSS PER SHARE
The proforma net loss per share for the nine months ended June 30, 1999 and the
year ended September 30, 1998 was $.09 and $.11, respectively. The number of
shares used in computing basic and diluted net loss per share (18,067,500) is
based on the outstanding shares of Lahaina before the merger (2,966,343) and the
shares issued in conjunction with the Accent Merger (13,251,000) and (1,850,157)
shares issued from the assumed conversion of the convertible notes and exercise
of the warrants and assumes the transactions occurred on January 1, 1998.
F-7
<PAGE> 41
To the Board of Directors
Lahaina Acquisitions, Inc.
Alpharetta, GA
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of BEACHSIDE COMMONS I, INC.
(currently known as LAHAINA ACQUISITIONS, INC.) as of December 7, 1998, and the
related statements of operations, changes in stockholder's equity, and cash
flows for the period from inception, September 25, 1998, to December 7, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of BEACHSIDE COMMONS I, INC.
(currently known as LAHAINA ACQUISITIONS, INC.) as of December 7, 1998, and the
results of its operations and its cash flows for the period then ended, in
conformity with generally accepted accounting principles.
/s/ KENNETH R. WALTERS, P.A.
- ------------------------
Fernandina Beach, FL
October 14, 1999
F-8
<PAGE> 42
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 7,
(unaudited) 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 60,261 $ -
Accounts receivable - 17,281
Prepaid Expenses 10,000 -
Escrow Funds 31,000 30,000
----------- ----------
Total Current Assets 101,261 47,281
Fixed Assets
Land 400,000 400,000
Building 2,434,289 2,403,623
Equipment 150,279 143,738
Accumulated Depreciation (82,769) (24,389)
----------- ----------
Total Fixed Assets 2,901,799 2,922,972
Other assets
Offering costs and reserve 139,251 --
Notes receivable 62,000 --
----------- ----------
Total other assets 201,251 --
----------- ----------
TOTAL ASSETS $3,204,311 $2,970,253
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current Liabilities
Accounts Payable $ 540,294 $ 4,250
Security Deposits Payable 9,000 9,000
---------- ----------
Total Current Liabilities 549,294 13,250
---------- ----------
Long-term Debt
Notes Payable 2,325,000 1,730,000
---------- ----------
Total Long-term Debt 2,325,000 1,730,000
---------- ----------
TOTAL LIABILITIES 2,874,294 1,743,250
STOCKHOLDERS' EQUITY
Common stock, no par value, 800,000,000
shares authorized, 2,493,833 and 500
shares issued and outstanding at
June 30, 1999 and December 7, 1998,
respectively - -
Preferred Series A Convertible Stock,
10,000,000 shares authorized, 1,910,000
and none shares issued and outstanding
at June 30, 1999 and December 7, 1998,
respectively - -
Additional Paid-In Capital 1,093,171 1,247,569
Accumulated Deficit (763,154) (20,566)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 330,017 1,227,003
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,204,311 $2,970,253
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 43
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
Nine months ended from September 25, 1998
June 30, 1999 (date of inception)
(unaudited) to December 7, 1998
------------------- -----------------------
<S> <C> <C>
Rent Revenue $ 143,713 $ --
--------- --------
Operating Expenses 702,221 5,278
--------- --------
Operating Loss (558,508) (5,278)
Interest Expense (204,646) (15,288)
--------- --------
Net Loss $(763,154) $(20,566)
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 44
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Series A
Common Stock Convertible Stock Additional Total
-------------------- --------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
--------- --------- --------- --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 25, 1998 -- $ -- -- $ -- $ -- $ -- $ --
Issuance of Common Stock 500 500 -- -- -- -- 500
Non-Cash Capital Contributions -- -- -- -- 1,247,069 -- 1,247,069
Net loss -- -- -- -- -- (20,566) (20,566)
--------- ----- --------- ---- ---------- --------- ----------
Balance at December 7, 1998 500 500 -- -- 1,247,069 (20,566) 1,227,003
Adjustment for Merger -- (500) -- -- 500 -- --
--------- ----- --------- ---- ---------- --------- ----------
Balance at December 7, 1998, as adjusted 500 -- -- -- 1,247,569 (20,566) 1,227,003
Cash distribution -- -- -- -- (667,500) -- (667,500)
Issuance of common and preferred stock
for acquired company 2,246,000 -- 1,910,000 -- (7,065) -- (7,065)
Issuance of common stock 307,333 -- -- -- 607,867 -- 607,867
Repurchase and retirement of
common stock (60,000) -- -- -- (87,700) -- (87,700)
Net loss -- -- -- -- -- (742,588) (742,588)
--------- ----- --------- ---- ---------- --------- ----------
Balance at June 30, 1999 (unaudited) 2,493,833 $ -- 1,910,000 $ -- $1,093,171 $(763,154) $ 330,017
========= ===== ========= ==== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 45
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE NINE SEPTEMBER 25, 1998
MONTHS ENDED (DATE OF INCEPTION)
SEPTEMBER 30, TO DECEMBER 7,
1999 1998
(Unaudited)
----------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (763,154) $ (20,566)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 58,380 3,252
Expenses paid on behalf of the company by the majority
shareholder 11,538 11,538
(Increase) decrease in:
Accounts receivable (10,000) --
Prepaid expenses 18,835 1,526
Escrow funds (1,000) --
Notes payable (62,000) --
Offering costs (139,251) --
Increase in accounts payable 533,201 4,250
---------- ----------
Net cash used in operating activities (353,451) --
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES -- capital
expenditures (33,955) --
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of notes payable 1,172,867 --
Proceeds from the issuance of common stock 30,000 --
Cash distribution (667,500) --
Repurchase and retirement of common stock (87,700) --
---------- ----------
Net cash provided by financing activities 447,667 --
---------- ----------
Net increase in cash 60,261 --
Cash at beginning of period -- --
---------- ----------
Cash at end of period $ 60,261 --
========== ==========
Supplemental cash flow information:
Cash paid during the period for interest $ 204,646 $ 15,288
========== ==========
Cash paid during the period for income taxes $ -- $ --
========== ==========
Supplemental disclosure of non-cash items
Non-cash capital contributions by majority stockholder 1,247,569 1,247,569
========== ==========
Purchase of Lahaina Acquisitions, Inc. $ (7,065) $ --
========== ==========
Conversion of line of credit into common stock $ 277,500 $ --
========== ==========
Conversion of loan to majority stockholder into additional
paid-in capital $ 135,367 $ --
========== ==========
Assumption of debt by majority stockholder $ 165,000 $ --
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 46
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
NOTES TO FINANCIAL STATEMENTS
December 7, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
BEACHSIDE COMMONS I, INC. ("the Company"), was incorporated under the laws of
the State of Florida on September 25, 1998. The Company's intent at December 7,
1998 was to operate and further develop a commercial real estate property in
the resort area of Amelia Island, Florida.
The commercial property owned by the Company was purchased and developed by
Mongoose Investments, LLC (Mongoose) a limited liability company formed under
the laws of the state of Georgia. On September 25, 1998, BEACHSIDE COMMONS I,
INC. was incorporated under the laws of the State of Florida as a wholly-owned
subsidiary of Mongoose. On November 13, 1998, the commercial real estate
property was transferred from Mongoose to the Company. On December 14, 1998,
Lahaina Acquisitions, Inc. (Lahaina) completed the acquisition of all of the
outstanding stock of Beachside Commons I, Inc. from Mongoose. The acquisition
was effective as of December 7, 1998. Since Lahaina, Mongoose and the Company
were at that time under the common control of Richard P. Smyth, the assets were
recorded at historical cost.
The December 7, 1998 financial statements represent the accounts of Beachside
Commons I, Inc. and are prior to the merger with Lahaina.
CASH EQUIVALENTS
The Company considers all short-term investments purchased with a maturity of
three months or less to be cash equivalents. There were no cash equivalents at
December 7, 1998.
FISCAL YEAR
The Company's fiscal year-end is September 30.
PROPERTY AND EQUIPMENT/DEPRECIATION
The Company depreciates buildings and equipment on the straight-line method
based on their estimated useful lives which range from five to twenty years.
Depreciation expenses for the period was $3,252.
ACCOUNTS PAYABLE-CASH BOOK BALANCE
As of December 7, 1998, the Company had checks outstanding in excess of book
balances totaling $4,250, which have been classified as accounts payable.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, (SFAS 130), requires that total comprehensive income be reported in the
financial statements. Comprehensive income is equal to the net loss for the
period ended December 7, 1998.
F-13
<PAGE> 47
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
NOTES TO FINANCIAL STATEMENTS
December 7, 1998
NOTE 2-ESCROW FUNDS
The Company was involved in legal proceedings and $30,000 was being held in
escrow at December 7, 1998. The Company is party from time-to-time in various
legal proceedings. In the opinion of management, there are no matters which
might have a material impact on the Company's financial position or results of
operations.
NOTE 3-LONG TERM DEBT
<TABLE>
<S> <C>
Note payable to Pacific Coast Investment Company
(secured by a first mortgage on the Beachside Commons
property), at an interest rate of 15% payable in monthly
installments of interest only. The entire principal is due
and payable November 11, 2003. $1,550,000
Note payable to GCA Strategic Investment Fund, Ltd. (1),
(secured by a second mortgage on the Beachside Commons
property), at an interest rate of 9%, maturing
January 31, 2001 with interest payable quarterly in arrears
on the last day of March, June, September and December of
each year until the maturity date. 25,000
Notes payable, others, consists of three notes, at an interest rate
of 18% payable on demand, from individuals in the amounts
of $85,000, $50,000, and $20,000. 155,000
----------
$1,730,000
==========
</TABLE>
All long-term debt is reported at fair value. The notes payable on demand are
recorded as long-term debt due to subsequent events.
F-14
<PAGE> 48
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
NOTES TO FINANCIAL STATEMENTS
December 7, 1998
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
----------- ------
<S> <C>
1999 $ -0-
2000 -0-
2001 25,000
2002 -0-
2003 1,550,000
</TABLE>
NOTE 4-CAPITAL CONTRIBUTIONS
Some expenses were paid on behalf of the Company by the stockholder. Those
amounts have been recorded as additional paid-in capital.
NOTE 5-RELATED PARTY TRANSACTIONS
Included in Note 3-LONG-TERM DEBT are two notes payable to Nancy E. Smyth
totaling $70,000. Mrs. Smyth is married to the majority stockholder of Lahaina.
F-15
<PAGE> 49
LAHAINA ACQUISITIONS, INC.
(FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.)
NOTES TO FINANCIAL STATEMENTS
December 7, 1998
NOTE 8 - SUBSEQUENT EVENTS
On December 14, 1998, the Company was acquired by Lahaina Acquisitions, Inc.
("Lahaina"). Lahaina issued 1,250,000 shares of common stock and 1,910,000
shares of preferred stock and paid $667,500 for the Company. The acquisition
was accounted for as a reverse acquisition. The Company was determined to be
the accounting acquiror for financial statement purposes in accordance with
Staff Accounting Bulletin No. 97. The assets and liabilities of Lahaina were
recorded at its historical cost basis as it was a shell company at December 7,
1998.
On August 23, 1999 Lahaina completed its merger with The Accent Group, Inc.
("Accent") the merger was accounted for as a reverse acquisition with Accent
being the accounting acquiror in accordance with Staff Accounting Bulletin No.
97 (SAB 97). Lahaina issued 13,251,000 Shares of common stock to shareholders
of Accent in exchange for all of the outstanding common stock of Accent.
F-16
<PAGE> 50
Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(formerly known as Beachside Commons I, Inc.)
for the Nine Months Ended June 30, 1999
(Unaudited)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As discussed further in Note M, Lahaina Acquisitions, Inc. ("Lahaina")
acquired Beachside Commons I, Inc. ("Beachside") (collectively, the "Company")
on December 7, 1998. The purchase was accounted for as a reverse acquisition,
whereby Beachside was determined to be the accounting acquiror in accordance
with Staff Accounting Bulletin No. 97 (SAB 97). The assets and liabilities of
Lahaina were recorded at the historical cost basis as it was a shell company
at December 7, 1998.
This summary of significant accounting policies is presented to assist in
understanding the Company's financial statements. The financial statements and
notes are representations of the Company's management, who are responsible for
their integrity and objectivity. 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 revenues and expenses
during the period. Actual results could differ from those estimates. All
adjustments have been made that, in the opinion of management, are necessary
for a fair statement of the results of the interim period. Other than the
acquisition of Beachside Commons I, Inc. ("Beachside") described in Note O, all
adjustments made have been of a normal and recurring nature. These accounting
policies conform to generally accepted accounting principles and have been
applied in the preparation of the financial statements.
REGISTRANT'S ACTIVITIES AND OPERATING CYCLE
Lahaina Acquisitions, Inc. (the "Company") is engaged in real estate
development and property management. The Company's fiscal year ends September
30.
The Registrant's financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and liquidation of liabilities in the
normal course of business.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Registrant and
its wholly owned subsidiary, Beachside. All significant intercompany accounts
and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity of three
months or less to be cash equivalents for the purpose of determining cash
flows.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation is provided by
straight-line methods for financial reporting and accelerated methods for income
tax purposes over estimated useful lives, which range from 5 to 39.5 years.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable includes a $10,000 advance against accrued salary to a
director.
NOTE C - NOTES RECEIVABLE
Notes receivable were reduced from the prior period as a result of the purchase
of a note due from a customer, whose balance was $87,700 at March 31, 1999 and
approximately $200,000 at June 30, 1999 which was purchased from the Company
through the Redemption of 60,000 shares of the Registrant's Common Stock. The
purchaser was Mongoose Investments, LLC. ("Mongoose"), the largest shareholder
of the Company. The managing member of Mongoose is Richard P. Smyth, who is
also the Company's Chairman and CEO. The purchase of the notes was part of the
sale of the assets of JP Concepts, Inc. ("JP Concepts") a restaurant operation
located at Beachside Commons, which was purchased by the Registrant on April 1,
1999, through the issuance of 20,000 shares of Common Stock and a note payable
from the Registrant of $10,000.
The operation was not deemed to be important to the Registrant based on the
Registrant's pending merger with The Accent Group, Inc. ("Accent"), was not
profitable, and was not expected to achieve profitability in the near term.
Included in the amounts owed to the Company by JP Concepts were amounts due
for rent at Beachside Commons through September 1999. Mongoose has agreed to
assume all responsibilities of the existing lease between JP Concepts and
Beachside. The Board of Directors of the Company has deemed this transaction
to be more favorable to the Company than any other third party transaction
which it may have considered with regard to the disposition of the JP Concepts
assets.
F-17
<PAGE> 51
Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(formerly known as Beachside Commons I, Inc.)
for the Nine Months Ended June 30, 1999
(Continued)
Other Notes Receivable are detailed below:
<TABLE>
<S> <C>
An operating loan to 1st Southern Mortgage ("1st Southern"), secured by
security interest in outstanding stock, due through December 31, 1999,
bearing interest at 10% per annum. $62,000
</TABLE>
NOTE D - OFFERING COSTS - RESERVE
Offering costs reserve consists of costs incurred in preparation of the S-1
Registration Statement filing in the amount of $139,251. Upon completion of the
S-1 Registration Statement, these costs will be charged against the equity
accounts. If the S-1 Registration Statement is abandoned, these costs will be
expensed as administrative costs. Management expects the shares involved in the
S-1 Registration Statement to be issued during the Company's fiscal fourth
quarter, at which time this reserve would be eliminated.
NOTE E - MERGER COSTS
Expenses charged against earnings during this quarter include costs associated
with the planned merger with Accent, include legal, travel and consulting costs
related to the transaction in the amount of approximately $150,000.
NOTE F - NOTES PAYABLE - CONVERSION OF LINE OF CREDIT
During the period the Company converted its working capital loan from GCA
Strategic Investment Fund Limited into shares of the Company's Common Stock.
The Company issued 146,667 shares in consideration of an outstanding balance
of approximately $300,000 or $2.05 per share, including accrued interest and
fees.
NOTE G - NOTES PAYABLE - REDUCTION BY SHAREHOLDER
As of June 30, 1999, for no additional consideration, the Company's largest
shareholder has agreed to assume three notes payable, whose balance at June 30,
1999 was approximately $165,000, including principal and accrued interest.
Further, the Company's largest shareholder has waived the obligations of the
Company to repay its line of credit with the Company whose balance at
June 30, 1999 was approximately $135,000. These transactions resulted in a
reduction of liabilities of approximately $300,000.
NOTE H - LONG-TERM DEBT
Long-term debt at June 30, 1999, consisted of the following:
<TABLE>
<S> <C>
Note payable to Pacific Coast Investment Company (secured by a first mortgage
on the Beachside Commons property), at an interest rate of 15% payable in
monthly installments of interest only. The entire principal is due and
payable November 11, 2003. $1,550,000
</TABLE>
F-18
<PAGE> 52
Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(formerly known as Beachside Commons I, Inc.)
for the Nine Months Ended June 30, 1999
(Continued)
<TABLE>
<S> <C>
Note payable to GCA Strategic Investment Fund, Ltd.(1), dated December 4, 1998
(secured by a second mortgage on the Beachside Commons property), and
a $25,000 note payable to GCA Strategic Investment Fund, Ltd. dated
November 4, 1998, both at an interest rate of 9%, maturing January 31, 2001
with interest payable quarterly in arrears on the last day of March, June, $ 775,000
September and December of each year until the maturity date. See Note M -
Significant Events
----------
$2,325,000
==========
</TABLE>
(1) These notes include certain provisions, including issuance of warrants and
conversion to common stock.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30 Amount
----------- ------
<S> <C>
1999 -0-
2000 -0-
2001 775,000
2002 -0-
2003 1,550,000
</TABLE>
NOTE H - STOCKHOLDERS' EQUITY
The components of stockholders' equity are as follows:
F-19
<PAGE> 53
Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(formerly known as Beachside Commons I, Inc.)
for the Nine Months Ended June 30, 1999
(Continued)
Preferred stock consists of 9.5% cumulative preferred stock of no par value
with a liquidation value at $1.00 per share for each outstanding share of
Series A Preferred Stock. There are 10,000,000 shares of Series A Preferred
Stock authorized with 1,910,000 shares issued and outstanding at June 30,
1999. This stock may be converted into Common Stock of the Company at $1.00
per share, or 1,910,000 shares, at the option of the holder.
Common stock is voting stock with no par value. There are 800,000,000 shares
authorized with 2,493,833 shares issued and outstanding at June 30, 1999.
NOTE I - RELATED PARTY TRANSACTIONS
Included in current debt is a loan from the Company to 1st Southern for
$62,000. The Company has an option to acquire. 1st Southern, which is
currently owned by the son of the Company's Vice Chairman. The Vice Chairman
of 1st Southern is a director of the Company. Should the acquisition be
completed, the total consideration given would be the outstanding amount of
this loan.
During the quarter the Company acquired, then disposed of, the assets of JP
Concepts, a restaurant operation and tenant in the Company's Beachside
Commons project. The assets were sold to the Company's largest shareholder,
Mongoose. See Note "C".
JP Concepts was responsible for approximately 50% of the Company's revenues
during this quarter.
NOTE J - INCOME TAXES
The Company has net operating loss carry-forwards of approximately $316,000
which are available to offset future taxable income. The loss carry-forwards
expire $8,000 in 2016, $46,000 in 2017, $53,000 in 2018 and $209,000 in 2019. A
valuation has been established in the full amount of the deferred tax benefit
resulting from the net operating loss carry-forwards for each of the periods
ending June 30, 1999.
F-20
<PAGE> 54
Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(formerly known as Beachside Commons I, Inc.)
for the Nine Months Ended June 30, 1999
(Continued)
NOTE K - LEGAL PROCEEDINGS
The Company is party from time to time to various legal proceedings. In the
opinion of management, there are no matters which might have a material impact
on the Company's financial position or results of operations.
NOTE L - RESERVE FOR DOUBTFUL ACCOUNTS
The Company has not taken any reserves for its accounts receivable or notes
receivable at this time, though it may change this policy in the future based on
its experiences with respect to collections.
NOTE M - SIGNIFICANT EVENTS
As a result of the Company's merger on December 14, 1998 the Company became a
holding company with an operating subsidiary.
Acquisition Transaction
On December 14, 1998, the Company purchased all of the outstanding stock of
Beachside from Mongoose. The purchase was deemed effective as of December 7,
1998. Beachside is the owner of a commercial real estate development located on
Fernandina Beach, Florida in the resort area of Amelia Island, Northeast
Florida.
The Company paid the following for the Beachside stock: 1,250,000 newly
issued shares of Common Stock of the Registrant; 1,910,000 newly issued shares
of Series A of Preferred Stock, of the Registrant which shares are convertible
into 1,910,000 shares of Common Stock; and $667,500 in cash, which was a portion
of the $750,000 borrowed in connection with this transaction by the Registrant
under the Original Note, before amendment.
At the same time, Mongoose purchased 750,000 shares of Common Stock from Paxford
Investments, Ltd., ("Paxford") an existing shareholder of the Company, for
$300,000.
As a result of the above transactions, a change in the control of the Company
occurred in that Mongoose owns 1,715,000 shares of the 2,493,833 shares of
Common Stock outstanding on June 30, 1999 or approximately 70% of such shares.
Mongoose could own an additional 1,910,000 shares of Common Stock upon
conversion of its Series A Preferred Stock. It is currently estimated that the
conversion of the convertible debenture and the exercise of the warrants will
result in an additional 1,200,000 to 2,100,000 shares of Common Stock being
issued. According to current estimates, the convertible debenture as amended
will convert into 885,714 shares of Common Stock. The warrant attached to the
line of credit is exercisable for 200,000 shares of Common Stock, the warrant
issued December 4, 1998 is exercisable for 60,000 shares of Common Stock, the
warrant attached to the convertible debenture is exercisable for 15,000 shares
of Common Stock and the Right is exercisable for 25,000 shares of Common Stock.
Thus, after conversion of all convertible securities, it is likely that Mongoose
will remain in the control of the Company for the foreseeable future. The
Managing Member of Mongoose is Richard P. Smyth.
The assets of Beachside consist of two buildings and unimproved real estate,
leases to tenants in the buildings and minimal operating capital. The
F-21
<PAGE> 55
Notes to Consolidated Financial Statements
of Lahaina Acquisitions, Inc.
(a Development Stage Company)
for the Nine Months Ended June 30, 1999
(Continued)
property is subject to (1) a first mortgage securing a loan in the amount of
$1,550,000 bearing interest at 15% per annum, principal and interest payable and
due December 1, 2001, and (2) a second mortgage in favor of GCA securing
repayment of the Note. Once the Note is converted to Common Stock the second
mortgage will be released. The Company intends to continue operating the
developed portion of the Beachside property and intends to initiate and complete
the development of the currently undeveloped portion of the Beachside property
when appropriate financing can be obtained.
Bridge Funding
In order to raise the cash portion of the purchase price for the Beachside
stock, the Registrant borrowed $750,000 from GCA. The costs associated with the
transaction were the payment of an $82,500 consulting fee to affiliates of the
Fund and the issuance of a Warrant to purchase 60,000 shares of Common Stock to
LKB Financial, LLC in satisfaction of amounts owed to it for broker/finder
services in connection with the transaction.
The Company has received additional operating loans from GCA Strategic
Investment Fund, Ltd. in the form of three ninety-day convertible notes that
total $300,000. The notes include up-front charges totaling $48,000. The charges
expensed during the nine months ended June 30, 1999 totaled $52,500, including
discounted amounts. On June 1, 1999 the Company converted this Note into 146,667
shares of Common Stock. (See Note F.)
Acquisitions and Dispositions During the Period
As of March 31, 1999, the Registrant had agreements for the acquisition of three
companies: Klein Real Estate Services ("KRES"), JP Concepts and 1st Southern. On
June 30, 1999, and in other subsequent press releases the Company has announced
its plans to merge with Accent, an Atlanta, GA based Real Estate and Mortgage
Financing concern. On July 21, 1999, the Company announced it had entered into a
definitive Merger Agreement, subject to final board approval. The merger became
final on August 23, 1999.
The assets of JP Concepts were acquired on April 1, 1999 for the consideration
of 20,000 shares of the Registrant's Common Stock and a note payable to JP
Concept's shareholder in the amount of $10,000. On June 30, 1999, the same
assets, including accrued rent due to the Registrant, were sold to Mongoose for
the contribution of 60,000 shares of the Company's Common Stock.
The assets of KRES were acquired on April 1, 1999 for the consideration of
20,000 shares of the Registrant's Common Stock and a note payable to the manager
of KRES in the amount of $10,000. On June 30, 1999, based on a change of
direction in the Registrant the Registrant's entered into an agreement with the
former owner of KRES to terminate the transaction. The consideration given
included the payment of $30,000, and reimbursement of normal expenses of
approximately $5,000 and salaries due as of June 30, 1999.
F-22
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
The Accent Group, Inc.
We have audited the accompanying consolidated balance sheet of The Accent
Group, Inc. and subsidiaries (the "Company") as of July 9, 1999. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the consolidated financial position of the Company at July 9, 1999 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
September 13, 1999, except for note 9
which is as of September 21, 1999
F-23
<PAGE> 57
THE ACCENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JULY 9, 1999
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents $ 296,255
Restricted certificates of deposit 125,435
Loans receivable 531,692
Mortgage loans held for sale, net --
Real estate held for development 700,000
Foreclosed real estate 593,960
Options to acquire real estate 80,000
Due from related parties and stockholders 100,000
Goodwill 1,171,651
Other assets 190,689
-----------
Total assets $ 3,789,682
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES:
Notes payable $ 2,103,943
Due to related parties and stockholders 886,057
Note payable-warehouse line 1,132,442
Note payable-stage funding line 528,891
Accrued interest payable 130,362
Accounts payable and accrued expenses 630,250
-----------
Total liabilities 5,411,945
-----------
REDEEMABLE STOCK:
Common stock, no par value; 3,250,000 shares issued and outstanding
entitled to redemption under certain circumstances 70,577
-----------
STOCKHOLDERS' DEFICIT:
Common stock (no par value; 100,000,000 shares authorized, 10,001,000
shares issued and outstanding) --
Additional paid-in capital (1,571,840)
Accumulated deficit (121,000)
-----------
Total stockholders' deficit (1,692,840)
-----------
Total liabilities and stockholders' deficit $ 3,789,682
===========
</TABLE>
See notes to Consolidated Balance Sheet
F-24
<PAGE> 58
THE ACCENT GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
1. FORMATION
The Accent Group, Inc. (the "Company") was formed on July 9, 1999
through a series of transactions (the "Formation Transactions") as
follows:
- The majority stockholder and his family contributed land and
options to acquire land to the Company and the Company assumed
$2,700,000 in related notes payable in exchange for 8,525,000
shares of common stock. Due to common ownership and control,
the contributed land and options were recorded by the Company
at the majority stockholder and his family's cost basis
($700,000). Of the shares issued to the majority stockholder,
1,200,000 shares are contingent upon the majority stockholder
delivering options to acquire three family entertainment
centers located in Roswell, Georgia, Cocoa Beach, Florida and
Pensacola, Florida (collectively the "Family Facilities"). In
the event the majority stockholder fails to make available for
acquisition by the Company any one or more of the Family
Facilities for a total consideration (including the assumption
of all debts) not in excess of $1 million by July 9, 2000, the
majority stockholder will forfeit and convey to the Company,
(i) 60% of the contingent shares in the event the Roswell
facility is not made available for acquisition, (ii) 35% of
the contingent shares in the event the Cocoa Beach facility is
not made available for acquisition, (iii) 5% of the contingent
shares in the event the Pensacola facility is not made
available for acquisition. If the majority stockholder makes
any one or more of the Family Facilities available for
acquisition for a cost in excess of $1 million and fails to
contribute to the capital of the Company cash or other
consideration equal to the amount of such excess, then the
majority stockholder shall forfeit and convey to the Company a
fraction of the 1,200,000 shares calculated as the
consideration paid in excess of $1 million divided by $1
million. The 1,200,000 shares of common stock has been
recorded as redeemable common stock as it is redeemable by the
Company for conditions outlined above, which are not solely
within the control of the Company.
F-25
<PAGE> 59
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
- The Company acquired Accent Mortgage Services, Inc. ("AMSI")
for 3,626,000 shares of its common stock, plus the assumption
of certain outstanding debt and other liabilities. The stock
was valued at $580,160 or $0.16 per share based on an
independent appraisal of the Company's stock at the date of
formation. For the purposes of securing certain of the AMSI
shareholders' performance under the obligations imposed under
the purchase agreement, certain of the AMSI shareholders' have
pledged 1,450,000 shares of the Company's common stock. The
1,450,000 shares of common stock has been recorded as
redeemable common stock as it is redeemable by the Company for
conditions which are not solely within the control of the
Company. If AMSI either (i) during the one year period ending
July 9, 2000 fails to produce $500,000 or more of total
pre-tax income including an allocation of the Company's
overhead or (ii) during the two year period ending July 9,
2001, fails to produce $1.5 million or more of total pre-tax
income including an allocation of the Company's overhead, then
certain of the AMSI shareholders shall forfeit 500,000 of the
1,450,000 shares.
The remaining 950,000 pledged shares are pledged to secure
obligations against an indemnity provided to the Company by
certain of the AMSI shareholders. These shares will remain
pledged until the Company is satisfied that all obligations of
certain of the AMSI shareholders have been fully satisfied. At
July 9, 1999, the former AMSI shareholders owed the Company
$257,423 under the indemnity, which has been recorded as a
reduction of the redeemable common stock. In addition, such
shareholders assumed from AMSI the obligation to repay certain
notes payable to banks in the amount of $247,821 such notes
continue to be collateralized by $125,435 of certificates of
deposit owned by AMSI.
The assignment of fair values to assets acquired and
liabilities assumed for AMSI is preliminary and subject to
revision based on the resolution of certain pre-acquisition
contingencies.
The Company applied the purchase method of accounting to this
acquisition and "pushed down" its basis in the acquired
assets and liabilities to AMSI. The net purchase price
allocated consisted of common stock valued at $580,160 and
professional costs associated with the acquisition of
$172,500, net of $257,423 due under the indemnity from the
former AMSI Shareholders. Values assigned to the assets
and liabilities of AMSI is as follows:
<TABLE>
<S> <C>
Cash and cash equivalents $ 246,255
Certificates of deposit 125,435
Loans receivable 531,692
</TABLE>
F-26
<PAGE> 60
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
<TABLE>
<S> <C>
Foreclosed real estate 593,960
Goodwill 1,171,651
Other assets 33,666
Due to related parties and stockholders, net (135,477)
Note payable-warehouse line (1,132,442)
Note payable-stage funding line (528,891)
Other liabilities (410,612)
-----------
$ 495,237
===========
</TABLE>
- The Company acquired an option to purchase certain real estate
located in Tennessee for 100,000 shares of common stock. The
Company recorded the option at $16,000 or $0.16 per share
based on an independent appraisal of the fair value of the
Company's stock at the date of formation. In the event the
Company does not exercise the option to acquire real estate,
the shares will be returned to the Company.
- The Company acquired an option to purchase certain real estate
located in Atlanta, Georgia for 400,000 shares of common
stock. The Company recorded the option at $64,000 or $0.16 per
share based on an independent appraisal of the fair value of
the Company's stock at the date of formation. In the event the
Company does not exercise the option to acquire real estate,
the shares will be returned to the Company.
- The Company issued 600,000 shares of common stock to two
consulting firms that aided the Company in structuring the
formation of the Company. The Company has recorded the
issuance of the shares as consulting expense at $1.60 per
share. If on or before July 1, 2001 either (i) the common
stock of the Company is not being traded in a public market at
a price-to-projected earnings (as determined by the Board of
Directors) multiple of at least 15 or (ii) the Company has not
received capital contributions or financings in connection
with the new capital stock issuances and sales totaling more
than $7.5 million ($1,015,000 being procured by the consulting
firms), then the consulting firms will forfeit and convey to
the Company all of its stock. The common stock
F-27
<PAGE> 61
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
has been recorded as redeemable common stock as it is redeemable by the
Company for conditions which are not solely within the control of the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - The Company was formed in 1999 to acquire a
mortgage brokerage company and certain tracts of land. The
Company is closely held with the majority stockholder and his
family controlling approximately 65% of the outstanding
voting common stock at July 9, 1999.
As a result of the acquisitions and contributions, the
Company, through its subsidiaries, will provide mortgage
brokerage services to individuals and will develop real
estate for sale.
Principles of Consolidation - The consolidated balance sheet
of the Company includes the accounts of their respective
wholly owned subsidiaries. All intercompany transactions and
balances have been eliminated in consolidation.
Basis of presentation - The consolidated balance sheet has
been prepared in conformity with generally accepted
accounting principles and with general practices in the
mortgage brokerage and real estate industries. In preparing
the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported
amounts in the consolidated financial statements. Actual
results could differ significantly from those estimates.
Cash and cash equivalents - The Company considers its
highly-liquid investments with maturities of three months or
less to be cash equivalents.
Restricted certificate of deposit - The Company has pledged
certificates of deposit to secure certain indebtedness of former
AMSI shareholders.
Loans receivable - The loans receivable represent short-term
stage financing on manufactured housing. The purpose of the
loan is to provide financing until the manufactured housing
is in place and is then repaid through permanent financing.
The loans are for a term of less than 90 days and are secured
by the manufactured house.
F-28
<PAGE> 62
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
Mortgage loans held for sale - Mortgage loans originated and
intended for sale in the secondary market are carried at the
lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation
allowance by charges to income.
Concentration and credit risk - The Company is subject to
concentration of credit risk with respect to the portfolio of
mortgages receivable as changes in the economic environment
might adversely impact the borrowers ability or willingness to
repay such mortgages. Additionally, the value of such
mortgages can be impacted by fluctuations in interest rates
and the credit markets.
Valuation of real estate - The Company has adopted Statement
of Financial Accounting Standard No. 121 ("SFAS No. 121"),
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. This statement requires
that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired,
the impairment to be recognized is measured by the amount by
which the carrying amount exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Foreclosed real estate - Foreclosed real estate is reported
at the lower of cost or fair value less estimated disposal
costs, determined on the basis of current appraisals,
comparable sales, and other estimates of value obtained
principally from independent sources.
Goodwill - Goodwill represents the excess of the purchase
price over the fair market value of the assets and
liabilities of Accent Mortgage Services, Inc. which was
acquired by the Company on July 9, 1999. The goodwill is
amortized using the straight-line method over a period of 15
years.
Income taxes - The Company has adopted the provisions of
SFAS 109, "Accounting for Income Taxes", which requires the
use of the asset and liability approach in accounting for
income taxes.
Fair value of financial instruments - The provisions of
Statement of Financial Accounting Standards ("SFAS") 107
Disclosure About Fair Value of Financial Instruments, require
the disclosure of fair value information about both on and off
balance sheet financial instruments where it is practicable to
estimate such values of its financial instruments. For certain
instruments that are short-term in nature, such as cash and
cash equivalents, carrying values approximate fair value.
Loans receivable are recently executed and short-term in
nature, therefore carrying values approximate fair value.
Management has estimated that the fair value for the loans
issued under notes payable (see Note 5) and the warehouse line
and loan agreement (see Note 5) approximates carrying value.
F-29
<PAGE> 63
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
3. MORTGAGE LOANS HELD FOR SALE
Mortgage loans held for sale at July 9, 1999 consist of a pool of
non-performing loans that were purchased by AMSI in July and August
1998 from SGE Mortgage Funding Corp. ("SGE"). Many of the loans that
were acquired were also sold by SGE to other institutions, thereby,
putting the ownership of the loans in question. Management believes
that the collection of these amounts is unlikely and therefore a
valuation allowance of $845,591, representing AMSI's investment, has
been recorded against these loans.
4. STOCK OPTIONS
The Company has adopted the 1999 Stock Option Plan which is open to
participation of all directors, employees and key consultants to the
Company or any subsidiary or affiliate of the Company. Under the terms
of the plan, not more than 200,000 shares of Accent are available to be
optioned and not more than 20,000 shares of Accent may be subject to
options granted to any one individual in the aggregate in any one
fiscal year of Accent. Options are granted at not less than fair market
value of the underlying stock at date of grant and vest ratably over a
three year period. Such options expire five years from date of grant.
Compensation expense will be recorded for grants to non-employees,
directors and consultants. Employee stock options will be accounted for
under APB 25 using the intrinsic value method. No compensation expense
will be recorded for employee options.
Options for 40,000 shares have been granted on July 9, 1999 at a price
of $3.40 per share. Such price was determined to be fair market value
at the date of the Company's merger with Lahaina as described in Note
9. No options were exercisable on July 9, 1999.
Had the Company adopted FAS 123, "Accounting for Stock-Based
Compensation" and recognized stock options on a fair value basis, such
options would have no significant value using the minimum value
methodology in the Black-Scholes model.
5. NOTES PAYABLE
The Company has the following notes payable at July 9, 1999:
<TABLE>
<S> <C>
Note payable to a bank secured by certain
parcels of the land held for development.
The note bears interest 8.25% and is payable
quarterly. The principal balance is due in
full on March 23, 2000. $ 992,500
Note payable to a bank secured by certain parcels of the land
held for development. The note bears interest at a rate 75
basis points above the lender's prime rate (8.75% at July 9,
1999) and is payable quarterly. The principal balance
is due in full on March 1, 2000. 255,000
Note payable to a bank secured by certain
parcels of the land held for development.
The note bears interest 8.25% and is payable
quarterly. The principal balance is due in
full on March 30, 2002. 456,443
</TABLE>
F-30
<PAGE> 64
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
<TABLE>
<S> <C>
Note payable to an investment bank secured by certain parcels
of the land held for development. The note bears interest
8.25% and is payable quarterly. The principal balance is due
in full on June 1, 2000. 400,000
-----------
Total notes payable $ 2,103,943
===========
Note payable to a related party secured by certain parcels of
the land held for development. The note bears interest 8.25%
and is payable quarterly. The principal balance is due in
full on July 1, 2000. $ 596,057
Unsecured note payable to the majority stockholder.
The note has no stated interest rate and is due by
July 31, 1999. 40,000
Unsecured note payable to a related party. The note bears
Interest at a rate of 10% and is due on November
6, 1999 250,000
-----------
Due to related parties and stockholders $ 886,057
===========
</TABLE>
Scheduled maturities on notes payable and due to related parties and
stockholders as of July 9, 1999 are as follows:
<TABLE>
<CAPTION>
Calendar Year:
<S> <C>
1999 $ 290,000
2000 2,243,557
2001 --
2002 456,443
-----------
$ 2,990,000
===========
</TABLE>
At July 9, 1999, the Company had $1,132,442 outstanding under a
$2,000,000 warehouse line. The warehouse line bears interest at a rate
equal to 11.75% and is payable monthly. The warehouse line is secured by
the underlying mortgages originated using proceeds from draws on the
warehouse line and foreclosed real estate. The warehouse line was
suspended as of July 9, 1999 due to violation of certain debt covenants
and failure to repurchase or otherwise remove aged loans pursuant to the
line of credit agreement. The
F-31
<PAGE> 65
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(CONTINUED)
Company intends to cure the default by liquidating certain assets to
repay the line of credit.
On January 15, 1999, AMSI entered into a revolving Loan Agreement (the
"Agreement") with Accent Partners I, L.L.L.P. (a related party) for
the purpose of making short term loans to consumers for the purpose of
financing the purchase of real property, installation of improvements
and the purchase of a manufactured home as part of an "on-your-lot"
program for the acquisition of manufactured homes. The revolving loan
is repaid as permanent financing is obtained. At July 9, 1999
outstanding loans totaled $528,891. In addition AMSI pays a loan fee
equal to 1.25% of each borrowing made under this Agreement at the time
of such borrowing. Interest accrues on the unpaid principal amount of
loans outstanding at a rate per annum which is 1% above the Prime Rate
(8% at July 9, 1999).
6. REDEEMABLE COMMON STOCK
The Company has issued common stock during the Formation Transactions
that is subject to redemption at the Company's option under certain
circumstances for reasons beyond the Company's control, as described
in Note 1.
7. INCOME TAXES
The Company files a consolidated tax return with its subsidiaries and
allocates income tax benefits and expenses based upon the income or
loss of each company computed on a stand-alone basis.
Temporary differences that give rise to deferred tax assets and
liabilities at July 9, 1999 consist of net operating loss carry
forwards, expense accruals, the allowance for loan losses and the use
of accelerated depreciation methods. Net deferred taxes at July 9,
1999 was a deferred tax asset of $745,000 which was offset by a
valuation allowance as the Company has not demonstrated the sustained
profitability necessary to record such asset.
8. COMMITMENTS AND CONTINGENCIES
In July and August 1998, AMSI acquired from SGE Mortgage Funding Corp.
and related entities notes secured primarily by first security
interests in residences. The selling entity (SGE) has been placed in
receivership by Order of the Superior Court of Tift County, Georgia.
The receiver is charged with the responsibility of settling competing
claims, if any, to loans made and sold by SGE. Many of the loans
acquired by the Company from SGE were later sold to Matrix Bank for a
total purchase price of $623,032. Matrix Bank contends some of the
loans are subject to competing claims or are non-performing assets, and
has demanded that the Company reacquire these loans. The Company is
negotiating with Matrix to resolve these issues, however, the ultimate
resolution is unknown at this time. The Company has not provided for
any loss which may result from the Matrix transaction.
At July 9, 1999, AMSI was not in compliance with Department of Housing
and Urban Development (HUD) net worth requirements. The Company is
taking corrective action; however, the ultimate resolution of the
matter and the effects it may have on the Company's operations are not
known.
The Company is also subject to various litigation in the ordinary
course of business. In the opinion of management, resolution of such
matters
F-32
<PAGE> 66
THE ACCENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED BALANCE SHEET
AS OF JULY 9, 1999
(Continued)
will not have a significant effect on the financial position of the
Company.
9. SUBSEQUENT EVENTS
On July 21, 1999, the Company entered into an Agreement and Plan of
Merger with Lahaina Acquisitions, Inc. ("Lahaina") whereby all
shareholders of the Company would receive 10 shares of common stock of
Lahaina in exchange for each share of the Company's common stock. The
shares outstanding and related amounts have been adjusted to show the
10 for 1 exchange.
On August 23, 1999, the Company completed the merger with Lahaina.
The merger was accounted for as a reverse acquisition as the Company's
shareholders obtained a majority interest in Lahaina and the Company's
management team replaced Lahaina's management team.
On September 21, 1999, the Company contributed to AMSI, its subsidiary,
a subsidiary of Lahaina, a sister company, which owned an investment
real estate property on Amelia Island, Florida. Such transfer was made
to cure the deficit in net worth at AMSI and achieve compliance under
the HUD net worth regulations for mortgage companies.
F-33
<PAGE> 67
INDEPENDENT AUDITORS' REPORT
To the Stockholder and
Board of Directors of
Accent Mortgage Services, Inc.
We have audited the accompanying balance sheet of Accent Mortgage Services,
Inc. as of June 30, 1999 and the related statements of operations,
stockholder's equity (deficit) and cash flows for the six months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Accent Mortgage Services, Inc.
as of June 30, 1999 and the results of its operations and its cash flows for
the six months then ended in conformity with generally accepted accounting
principles.
HOLLAND SHIPES VANN, P.C.
Atlanta, Georgia
September 9, 1999, except for Note 12
as to which the date is September 21, 1999
F-34
<PAGE> 68
ACCENT MORTGAGE SERVICES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
JUNE 30, 1999
- -----------------------------------------------------------------------------
<S> <C>
ASSETS
Mortgage portfolio, net $ 1,030,842
Restricted certificates of deposit 125,435
Cash and cash equivalents 81,255
Accrued interest receivable 12,634
Property and equipment, less accumulated depreciation 32,166
Foreclosed real estate 593,960
Due from related company 189,523
Other assets 1,500
- -----------------------------------------------------------------------------
$ 2,067,315
=============================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
LIABILITIES
Lines of credit $ 1,632,342
Notes payable 776,713
Due to stockholders 153,094
Accrued interest payable 208,080
Other liabilities 280,251
- -----------------------------------------------------------------------------
3,050,480
- -----------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
- -----------------------------------------------------------------------------
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, no par value, 1,000,000 shares
authorized; 400,000 shares issued and outstanding 60,000
Additional paid-in capital 624,595
Accumulated (deficit) (1,667,760)
- -----------------------------------------------------------------------------
(983,165)
- -----------------------------------------------------------------------------
$ 2,067,315
=============================================================================
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE> 69
ACCENT MORTGAGE SERVICES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
- -----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Brokerage services $ 560,097 $1,429,869
Interest income 9,188 45,369
- -----------------------------------------------------------------------------
569,285 1,475,238
- -----------------------------------------------------------------------------
OTHER EXPENSES
Brokerage services expense 323,222 798,351
Interest expense 30,986 110,502
Provision for losses 50,000 --
Administrative and general 386,878 723,183
Loss on disposal of property and equipment 167,645 --
- -----------------------------------------------------------------------------
958,731 1,632,036
- -----------------------------------------------------------------------------
NET LOSS $ (389,446) $ (156,798)
=============================================================================
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE> 70
ACCENT MORTGAGE SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Additional Total
Common Paid-in Accumulated Stockholder's
Stock Capital (Deficit) Equity (Deficit)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 60,000 $ 124,595 $(1,278,314) $(1,093,719)
Net loss for the six months
ended June 30, 1999 (389,446) (389,446)
Capital contribution 500,000 500,000
- ---------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1999 $ 60,000 $ 624,595 $(1,667,760) $ (983,165)
=========================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE> 71
ACCENT MORTGAGE SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
- ------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999 1998
- ------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (389,446) $ (156,798)
- ------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:-
Depreciation 16,568 18,514
Gain on sale of investments -- (31,218)
Loss on disposal of property and equipment 167,645 --
Changes in assets and liabilities:
Accrued interest receivable 47,959 (5,908)
Other assets (1,500) 73,548
Accrued interest payable (34,835) --
Other liabilities 35,135 --
- ------------------------------------------------------------------------------------------------
230,972 54,936
- ------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (158,474) (101,862)
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to related company (189,523) --
Proceeds from sale of mortgages 2,199,119 33,302
Proceeds from sale of investments -- 185,175
Purchase of certificates of deposit (2,354) --
Proceeds from sale of equipment 13,500 --
- ------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,020,742 218,477
- ------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 500,000 --
Loans from stockholders 2,794 15,304
Decrease in lines of credit (2,855,222) (9,489)
Proceeds from notes payable 528,891 --
Principal payments on notes payable (23,526) (138,749)
- ------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,847,063) (132,934)
- ------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 15,205 (16,319)
CASH AND CASH EQUIVALENTS, beginning of period 66,050 23,156
- ------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 81,255 $ 6,837
================================================================================================
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE> 72
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
1. ORGANIZATION Accent Mortgage Services, Inc. (AMSI) was
AND SUMMARY OF incorporated in the State of Georgia on August 21,
SIGNIFICANT 1991. The Company engages in residential and
ACCOUNTING commercial brokerage services and in the purchase
POLICIES and sale of mortgages. The Company provides these
services primarily to residential mortgage customers
in the Southeastern United States. In 1999, the
Company expanded its services to include net branch
brokerage services, which allows outside agents to
broker loans utilizing the Company's licenses, and
provide short-term stage financing for modular home
purchasers. At June 30, 1999, the Company was a
wholly-owned subsidiary of Accent Holdings, Inc.
Effective July 9, 1999, Accent Holdings, Inc. exchanged
400,000 shares of Accent Mortgage Services, Inc. for
362,000 shares of common stock of The Accent Group,
Inc., thereby making AMSI a wholly-owned subsidiary of
The Accent Group. The Accent Group, Inc. then entered
into a reverse merger with Lahaina Acquisitions, Inc.
In connection with the merger, shareholders of The
Accent Group received 86% of the common stock of
Lahaina. The Accent Group, Inc. is now the surviving
parent of AMSI.
MANAGEMENT The preparation of financial statements in conformity
ESTIMATES with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
MORTGAGE Mortgage loans are held for sale and are carried at
PORTFOLIO the lower of cost or fair value with any unrealized
losses included in current period earnings.
The accrual of interest on mortgages is discontinued
when the mortgages become delinquent for 90 days or
more. Any accrued interest on delinquent mortgages is
charged against current-period interest income.
Subsequent interest income on such mortgages is
recognized only to the extent that cash payments are
received.
F-39
<PAGE> 73
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
ALLOWANCE FOR The allowance for losses is based on an analysis of
LOSSES the mortgage portfolio. The analysis considers credit
profile factors such as mortgage characteristics and
actual and expected loss experience. Increases in
the allowance are charged to the provision for
losses. Reductions in the allowance result from
charge-offs, net of recoveries. In management's
judgment, the allowance is adequate to provide for
expected losses.
PROPERTY AND Property and equipment are recorded at cost.
EQUIPMENT Depreciation is provided utilizing the straight-line
method over the estimated useful lives of the
individual assets, which are generally five to seven
years. Depreciation expense totaled $16,568 for the
six months ended June 30, 1999.
CASH AND CASH The Corporation considers highly liquid investment
EQUIVALENTS instruments with an original maturity of three months
or less to be "cash equivalents." Cash equivalents
are carried at cost, which approximates market
value.
CREDIT RISK Concentration of credit risk with respect to the
Company's mortgages receivable exists since
borrowers are susceptible to changes in economic
conditions that could affect their ability to meet
their obligations. Additionally, the Company
maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits.
INCOME TAXES Income taxes are accounted for under the asset and
liability method. Deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing
assets and liabilities and their respective tax
basis and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that
includes the enacted date.
FORECLOSED Foreclosed real estate is carried at the lower of
REAL ESTATE cost or estimated fair value less estimated costs
to sell.
F-40
<PAGE> 74
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
2. MORTGAGE The Company's mortgage portfolio represents mortgages
PORTFOLIO closed either directly from borrowers or purchased
from other lenders. Mortgages receivable at June 30,
1999 consist of the following:
<TABLE>
<S> <C>
Principal of mortgages securing lines of credit $ 1,244,279
Stage funding 531,692
Principal of other mortgages 944,828
Less: Purchase discounts (844,366)
--------------------------------------------------------------------------
1,876,433
Less: Allowance for losses (845,591)
--------------------------------------------------------------------------
$ 1,030,842
==========================================================================
</TABLE>
F-41
<PAGE> 75
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
3. PROPERTY AND Property and equipment at June 30, 1999 are summarized
EQUIPMENT as follows:
<TABLE>
<S> <C>
Furniture and fixtures $ 13,825
Office equipment 26,269
------------------------------------------------------
40,094
Less: Accumulated depreciation (7,928)
------------------------------------------------------
$ 32,166
======================================================
</TABLE>
4. 401(K) PROFIT Effective January 1, 1998, the Company established a
SHARING PLAN 401(k) profit sharing plan covering substantially all
of its employees. Effective June 30, 1999, the
Plan was terminated and all eligible employees
became 100% vested. The Company made contributions
of $953 in 1999.
F-42
<PAGE> 76
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
5. LINES OF CREDIT Lines of credit at June 30, 1999 consist of the
following:
<TABLE>
<S> <C>
$7,000,000 warehouse line of credit,
payable on demand, bearing interest
at prime plus 2%, secured primarily
by mortgages receivable $ 499,900
$2,000,000 warehouse line of credit,
bearing interest at prime plus 2%,
maturing October 1998, secured
primarily by mortgages receivable
and guaranteed by a principal share-
holder of Accent Holdings, Inc. 1,132,442
--------------------------------------------------------------------------
$ 1,632,342
==========================================================================
</TABLE>
The Company is currently in default on its
$2,000,000 line of credit. The loan agreement
requires the Company to maintain certain net worth
requirements. Additionally, the agreement requires
mortgages to be removed as loan security from the
line within 90 days after advances are made on the
related mortgages. The Company is in violation of
both of these provisions. Management is currently
negotiating with the lender to cure the defaults.
F-43
<PAGE> 77
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
6. NOTES PAYABLE Notes payable at June 30, 1999 are summarized as
follows:
<TABLE>
<S> <C>
Note payable to bank in monthly
principal and interest payments of
$5,144 and a final balloon payment
of $167,780 in August 1999. The
note bears interest at 8.5% and is
secured by accounts receivable,
equipment and certificates of
deposit totaling $125,435 $ 170,831
Note payable to bank; interest rate
of 8.5%; maturing August 1999;
secured by a $107,000 certificate of
deposit of a shareholder's family
member 75,000
Equipment note; monthly payments
of $175, bearing interest at 10%,
paid July, 1999 1,991
Notes payable to affiliated company,
bearing interest at prime
plus 1%, maturing December 2001,
secured by stage funding mortgage
receivables 528,891
------------------------------------------------------------------------
$ 776,713
========================================================================
</TABLE>
F-44
<PAGE> 78
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
7. INCOME TAXES The Company files a consolidated tax return with its
parent, Accent Holdings, Inc., and allocates income
tax benefits and expense based on the income or loss
of each company.
Temporary differences that give rise to significant
portions of deferred tax assets and liabilities at
June 30, 1999 consist of net operating loss
carryforwards, expense accruals, the allowance for
losses and the use of accelerated tax depreciation
methods. Net deferred taxes at June 30, 1999 include
the following components:
<TABLE>
<S> <C>
Deferred tax assets $ 745,000
Valuation allowance (743,000)
-------------------------------------------------------------------------
2,000
Deferred tax liabilities (2,000)
-------------------------------------------------------------------------
Net deferred taxes $ -0-
=========================================================================
</TABLE>
At June 30, 1999, the Company has net operating loss
carryforwards for tax purposes of approximately
$551,000, which are available to offset future
taxable income through 2019.
F-45
<PAGE> 79
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
8. OPERATING LEASE The Company leases office space under a noncancelable
lease classified as an operating lease. Future minimum
obligations are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------------------
<S> <C>
2000 $ 158,276
2001 161,619
2002 166,468
2003 171,407
2004 176,587
Thereafter 29,576
-----------------------------------------------------------------------
$ 863,933
=======================================================================
</TABLE>
Rental expense totaled $30,991 at June 30, 1999 and
is included in administrative and general expenses.
9. RELATED PARTY During 1999, Accent Holdings, Inc. made a capital
TRANSACTIONS contribution of $500,000 to the Company.
At June 30, 1999, shareholders of Accent Holdings,
Inc. have made non-interest bearing advances
totaling $153,094 to the Company.
During June 1999, the Company made $189,523 in
non-interest bearing advances to The Accent Group,
Inc.
In 1999, the Company borrowed $528,891 from Accent
Partners, a partnership of Accent Holdings, Inc. and
one of its shareholders. The funds were used to
finance stage funding mortgage receivables totaling
$531,692 at June 30, 1999.
F-46
<PAGE> 80
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
10. COMMITMENTS In July and August 1998, the Company purchased mortgage
AND notes from SGE Mortgage Funding Corp. Subsequent to the
CONTINGENCIES purchases, the Superior Court of Tift County, Georgia,
placed SGE in receivership and charged the receiver
with the responsibility of settling competing claims
to loans made and sold by SGE. Many of the loans
acquired by the Company from SGE were later sold to
Matrix Bank for $623,032. Matrix Bank contends some
of the loans are subject to competing claims or are
nonperforming assets, and has demanded that the
Company reacquire these loans. The Company is
negotiating with Matrix to resolve these issues,
however, the ultimate resolution is unknown at this
time. The Company has not provided for losses which
may result from the Matrix transaction.
At June 30, 1999, the Company was not in compliance
with Department of Housing and Urban Development
(HUD) net worth requirements. The Company is taking
corrective action; however, the ultimate resolution
of the matter and the effects it may have on the
Company's operations are not known.
The Company is involved in several lawsuits and
regulatory issues arising in the normal course of
business. In the opinion of management, no material
loss will result from settlement of these issues.
11. SUPPLEMENTAL The Company paid interest of $65,821 during the six
CASH FLOW months ended June 30, 1999.
INFORMATION
F-47
<PAGE> 81
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(Continued)
12. SUBSEQUENT As mentioned in Note 1, effective July 9, 1999,
EVENTS Accent Holdings, Inc. exchanged 400,000 shares of
Accent Mortgage Services, Inc. for 362,000 shares of
common stock of The Accent Group, Inc., thereby
making AMSI a wholly-owned subsidiary of The Accent
Group. The Accent Group, Inc. then entered into a
reverse merger with Lahaina Acquisitions, Inc. In
connection with the merger, shareholders of The
Accent Group, Inc. received 86% of the common stock
of Lahaina. The Accent Group, Inc. is now the
surviving parent of AMSI.
In order to alleviate the Company's deficit in
stockholder's equity, on September 21, 1999, The
Accent Group transferred a subsidiary, Beachside
Commons I, Inc. into the Company. Beachside Commons
I, Inc.'s principal holding is real estate.
Management estimates that the net value of the
Company is approximately $1,700,000.
Additionally, in the merger referred to above, the
Company was relieved of stockholder loans totaling
approximately $153,000 at June 30, 1999. The loans
were transferred to additional paid-in capital.
The effect of the two transactions is to increase net
worth by approximately $1,853,000 and brings the
Company into compliance with the net worth
requirements of both HUD and its line of credit which
is in default.
F-48
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
To the Stockholder and
Board of Directors of
Accent Mortgage Services, Inc.
We have audited the accompanying balance sheets of Accent Mortgage Services,
Inc. as of December 31, 1998 and 1997 and the related statements of operations,
stockholder's equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Accent Mortgage Services, Inc.
as of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Holland Shipes Vann, P.C.
Atlanta, Georgia
September 9, 1999, except for
Note 13, as to which the date
is September 21, 1999
F-49
<PAGE> 83
ACCENT MORTGAGE SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
=========== ==========
December 31, 1998 1997
=========== ==========
<S> <C> <C>
ASSETS
Mortgage portfolio, net $ 3,823,921 $1,658,900
Investments, held to maturity 153,957
Restricted certificates of deposit 123,081 121,500
Cash and cash equivalents 66,050 23,156
Accrued interest receivable 60,593 25,446
Property and equipment, less accumulated depreciation 229,879 141,841
Other assets 73,548
----------- ----------
$ 4,303,524 $2,198,348
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
LIABILITIES
Lines of credit $ 4,487,564 $1,585,964
Notes payable 271,348 355,268
Due to stockholders 150,300 35,000
Accrued interest payable 242,915 26,719
Other liabilities 245,116 81,681
----------- ----------
5,397,243 2,084,632
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT)
Common stock, no par value, 1,000,000 shares
authorized; 400,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 124,595
Retained earnings (deficit) (1,278,314) 53,716
----------- ----------
(1,093,719) 113,716
----------- ----------
$ 4,303,524 $2,198,348
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE> 84
ACCENT MORTGAGE SERVICES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
=========== ===========
Year Ended December 31, 1998 1997
=========== ===========
<S> <C> <C>
REVENUES
Brokerage services $ 2,783,098 $1,910,837
Interest and investment income 92,997 42,902
----------- ----------
2,876,095 1,953,739
----------- ----------
EXPENSES
Brokerage services expense 1,571,852 828,747
Interest expense 262,417 62,138
Provision for losses 853,056
Administrative and general 1,520,800 1,231,261
----------- ----------
4,208,125 2,122,146
----------- ----------
NET LOSS $(1,332,030) $ (168,407)
=========== ==========
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE> 85
ACCENT MORTGAGE SERVICES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
======== =========== ========= ================
Additional Retained Total
Common Paid-in Earnings Stockholder's
Stock Capital (Deficit) Equity (Deficit)
======== =========== ========== ================
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $60,000 $ 222,123 $ 282,123
1997 net loss (168,407) (168,407)
------- --------- ----------- -----------
BALANCE, December 31, 1997 60,000 53,716 113,716
1998 net loss (1,332,030) (1,332,030)
Capital contribution $ 124,595 124,595
------- --------- ----------- -----------
BALANCE, December 31, 1998 $60,000 $ 124,595 $(1,278,314) $(1,093,719)
======= ========= =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE> 86
ACCENT MORTGAGE SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
=========== ============
Year Ended December 31, 1998 1997
=========== ============
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,332,030) $ (168,407)
----------- -----------
Adjustments to reconcile net loss to net cash
used in operating activities:-
Depreciation 37,028 25,936
Amortization of discount (13,898)
Provision for losses 845,591
Gain on sale of investments (31,218)
Changes in assets and liabilities:
Accrued interest receivable (35,147) (25,446)
Other assets 73,548 16,455
Accrued interest payable 216,196 26,719
Other liabilities 163,435 33,283
----------- -----------
1,269,433 63,049
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (62,597) (105,358)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgages, net (3,010,612) (960,000)
Acquisition of property and equipment (125,066) (62,229)
Purchase of investments and certificates of deposit (1,581) (165,394)
Proceeds from sale of investments 185,175
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,952,084) (1,187,623)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 124,595
Borrowings on notes payable 75,000 492,979
Loans from stockholders 115,300 35,000
Increase in lines of credit 2,901,600 901,042
Principal payments on notes payable (158,920) (165,045)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,057,575 1,263,976
----------- -----------
NET INCREASE (DECREASE) IN CASH 42,894 (29,005)
CASH AND CASH EQUIVALENTS, beginning of year 23,156 52,161
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 66,050 $ 23,156
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE> 87
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION Accent Mortgage Services, Inc. (AMSI) was incorporated
AND SUMMARY OF in the State of Georgia on August 21, 1991. The Company
SIGNIFICANT engages in residential and commercial brokerage
ACCOUNTING services and in the purchase and sale of mortgages. The
POLICIES Company provides these services primarily to mortgage
customers in the Southeastern United States. At
December 31, 1998, the Company was a wholly-owned
subsidiary of Accent Holdings, Inc.
Effective July 9, 1999, Accent Holdings, Inc. exchanged
400,000 shares of Accent Mortgage Services, Inc. for
362,000 shares of common stock of The Accent Group,
Inc., thereby making AMSI a wholly-owned subsidiary of
The Accent Group. The Accent Group, Inc. then entered
into a reverse merger with Lahaina Acquisitions, Inc. In
connection with the merger, shareholders of The Accent
Group received 86% of the common stock of Lahaina. The
Accent Group, Inc. is now the surviving parent of AMSI.
MANAGEMENT The preparation of financial statements in conformity
ESTIMATES with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
MORTGAGE Mortgage loans are held for sale and are carried at
PORTFOLIO the lower of cost or fair value with any unrealized
losses included in current period earnings.
The accrual of interest on mortgages is discontinued
when mortgages become delinquent for 90 days or
more. Any accrued interest on delinquent mortgages
is charged against current-period interest income.
Subsequent interest income on such mortgages is
recognized only to the extent that cash payments are
received.
INVESTMENTS Nonmortgage investments are classified as
held-to-maturity and are carried at historical cost,
adjusted for unamortized discount or premium.
Interest income is recognized on an accrual basis.
F-54
<PAGE> 88
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
ALLOWANCE FOR The allowance for losses is based on an analysis of
LOSSES the mortgage portfolio. The analysis considers
credit profile factors such as mortgage
characteristics and actual and expected loss
experience. Increases in the allowance are charged
to the provision for losses. Reductions in the
allowance result from charge-offs, net of
recoveries. In management's judgment, the allowance
is adequate to provide for expected losses.
PROPERTY Property and equipment are recorded at cost.
AND Depreciation is provided utilizing the straight-line
EQUIPMENT method over the estimated useful lives of the
individual assets, generally five to seven years.
Depreciation expense totaled $37,028 (1998) and
$25,936 (1997).
CASH AND CASH The Corporation considers highly liquid investment
EQUIVALENTS instruments with an original maturity of three
months or less to be "cash equivalents." Cash
equivalents are carried at cost, which approximates
market value.
CREDIT RISK Concentration of credit risk with respect to the
Company's mortgages receivable exists since
borrowers are susceptible to changes in economic
conditions that could affect their ability to meet
their obligations. Additionally, the Company
maintains its cash in bank deposit accounts which,
at times, may exceed federally insured limits.
INCOME TAXES Income taxes are accounted for under the asset and
liability method. Deferred tax assets and
liabilities are recognized for the future tax
consequences attributable to differences between the
financial statement carrying amounts of existing
assets and liabilities and their respective tax
basis and operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the
years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that
includes the enacted date.
F-55
<PAGE> 89
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
2. MORTGAGE The Company's mortgage portfolio represents mortgages
PORTFOLIO closed either directly from borrowers or purchased
from other lenders. Mortgages receivable consist of
the following:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------
<S> <C> <C>
Principal of mortgages securing
lines of credit $ 4,626,154 $1,658,900
Principal of other mortgages 944,828
Less: Purchase discounts (901,470)
----------------------------------------------------------------------
4,669,512 1,658,900
Less: Allowance for losses (845,591)
----------------------------------------------------------------------
$ 3,823,921 $1,658,900
======================================================================
</TABLE>
3. INVESTMENTS Investments classified as held-to-maturity consisted
of U. S. Government zero coupon bonds with an
amortized cost of $153,957 at December 31, 1997 and
a market value of $182,233. The bonds were sold in
1998 resulting in a realized gain of $31,218.
F-56
<PAGE> 90
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
4. PROPERTY AND Property and equipment are summarized as follows:
EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------
<S> <C> <C>
Automobiles $ 24,160 $ 24,160
Furniture and fixtures 34,631 29,080
Office equipment 173,973 129,624
Leasehold improvements 89,206 14,040
----------------------------------------------------------------------
321,970 196,904
Less: Accumulated depreciation (92,091) (55,063)
----------------------------------------------------------------------
$ 229,879 $ 141,841
======================================================================
</TABLE>
5. 401(K) PROFIT Effective January 1, 1998, the Company established a
SHARING PLAN 401(k) profit sharing plan covering substantially
all of its employees. Effective June 30, 1999, the
Plan was terminated and all eligible employees
became 100% vested. The Company made contributions
of $5,664 in 1998 to the Plan.
F-57
<PAGE> 91
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
6. LINES OF CREDIT Lines of credit consist of the following:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------------------------
<S> <C> <C>
$7,000,000 warehouse line of credit,
payable on demand, bearing interest
at prime plus 2%, secured primarily
by mortgages receivable $ 3,220,875
$2,000,000 warehouse line of credit,
bearing interest at prime plus 2%,
maturing October 1998, secured
primarily by mortgages receivable
and guaranteed by a principal share-
holder of Accent Holdings, Inc. 1,266,689 $1,585,964
---------------------------------------------------------------------------
$ 4,487,564 $1,585,964
===========================================================================
</TABLE>
The Company is currently in default on its
$2,000,000 line of credit. The loan agreement
requires the Company to maintain certain net worth
requirements. Additionally, the agreement requires
mortgages receivable to be removed as loan security
within 90 days after advances are made on the
related mortgages. The Company is in violation of
both of these provisions. Management is currently
negotiating with the lender to cure the defaults.
F-58
<PAGE> 92
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
7. NOTES PAYABLE Notes payable are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------------------------------
<S> <C> <C>
Note payable to bank in monthly principal and
interest payments of $5,144 and a final
balloon payment of $167,780 in August 1999.
The note bears interest at 8.5% and is
secured by accounts receivable, equipment and
certificates of deposit totaling $123,081
(1998) and $121,500 (1997) $ 194,357 $ 236,481
Margin demand loan payable, secured
by investments, interest paid monthly
at variable rates 109,233
Note payable to bank; interest rate of 8.5%;
maturing August 1999; secured by a $107,000
certificate of deposit of a shareholder's
family member 75,000
Equipment notes; monthly payments of $175
(1998) and $3,700 (1997), bearing interest at
rates from 9 1/2% to 17.99%, maturing June
1998 to April 1999, secured by office equipment 1,991 9,554
------------------------------------------------------------------------------------
$ 271,348 $ 355,268
====================================================================================
</TABLE>
8. INCOME TAXES The Company files a consolidated tax return with its
parent, Accent Holdings, Inc., and allocates income
tax benefits and expense based on the income or loss
of each company.
F-59
<PAGE> 93
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
Temporary differences that give rise to significant
portions of deferred tax assets and liabilities at
December 31, 1998 and 1997 consist of net operating
loss carryforwards, expense accruals, the allowance
for losses and the use of accelerated tax
depreciation methods. Net deferred taxes at December
31, 1998 and 1997 include the following components:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------
<S> <C> <C>
Deferred tax assets $ 593,000 $ 67,000
Valuation allowance (575,000) (51,000)
-------------------------------------------------------------
18,000 16,000
Deferred tax liabilities (18,000) (16,000)
-------------------------------------------------------------
Net deferred taxes $ -0- $ -0-
=============================================================
</TABLE>
At December 31, 1998, the Company has net operating
loss carryforwards for tax purposes of approximately
$210,000, which are available to offset future
taxable income through 2018.
9. OPERATING LEASE The Company leases office space under a
noncancelable lease classified as an operating
lease. Future minimum obligations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
<S> <C>
1999 $110,307
2000 159,629
2001 164,441
2002 169,343
2003 174,410
Thereafter 103,517
------------------------------------------------------------
$881,647
============================================================
</TABLE>
F-60
<PAGE> 94
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
Rental expense totaled $54,333 (1998) and $26,657
(1997) and is included in administrative and general
expenses.
10. RELATED PARTY The Company received advances from and paid expenses on
TRANSACTIONS behalf of several affiliated companies. During 1998,
the parent company, Accent Holdings, Inc.,
contributed net advances of $124,595 to the capital
of The Company.
Shareholders of Accent Holdings, Inc. made
non-interest bearing advances totaling $150,300
(1998) and $35,000 (1997) to the Company.
The Company paid consulting fees of $74,482 in 1998
to a company related through common ownership to one
of the shareholders of Accent Holdings, Inc.
11. COMMITMENTS In July and August 1998, the Company purchased mortgage
AND notes from SGE Mortgage Funding Corp. Subsequent to the
CONTINGENCIES purchases, the Superior Court of Tift County, Georgia,
placed SGE in receivership and charged the receiver
with the responsibility of settling competing claims
to loans made and sold by SGE. Many of the loans
acquired by the Company from SGE were later sold to
Matrix Bank for $623,032. Matrix Bank contends some of
the loans are subject to competing claims or are
nonperforming assets, and has demanded that the
Company reacquire these loans. The Company is
negotiating with Matrix to resolve these issues,
however, the ultimate resolution is unknown at this
time. The Company has not provided for losses which
may result from the Matrix transaction.
Subsequent to December 31, 1998, the Company determined
it was not in compliance with Department of Housing and
Urban Development (HUD) net worth requirements. The
Company is taking corrective action; however, the
ultimate resolution of the matter and the effects it may
have on the Company's operations are not known.
F-61
<PAGE> 95
ACCENT MORTGAGE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(Continued)
The Company is involved in several lawsuits and
regulatory issues arising in the normal course of
business. In the opinion of management, no material
loss will result from settlement of these issues.
12. SUPPLEMENTAL The Company paid interest of $46,221 (1998) and
CASH FLOW $35,419 (1997). The Company paid income taxes of
INFORMATION $29,830 in 1997.
13. SUBSEQUENT As mentioned in Note 1, effective July 9, 1999,
EVENTS Accent Holdings, Inc. exchanged 400,000 shares of
Accent Mortgage Services, Inc. for 362,000 shares of
common stock of The Accent Group, Inc., thereby
making AMSI a wholly-owned subsidiary of The Accent
Group. The Accent Group, Inc. then entered into a
reverse merger with Lahaina Acquisitions, Inc. In
connection with the merger, shareholders of The
Accent Group, Inc. received 86% of the common stock
of Lahaina. The Accent Group, Inc. is now the
surviving parent of AMSI.
In order to alleviate the Company's deficit in
stockholder's equity, on September 21, 1999, The
Accent Group transferred a subsidiary Beachside
Commons I, Inc. into the Company. Beachside Commons
I, Inc.'s principal holding is real estate.
Management estimates that the net value of the
Company is approximately $1,700,000.
Additionally, in the merger referred to above, the
Company was relieved of the stockholder loans
totaling approximately $153,000 at June 30, 1999.
The loans were transferred to additional paid-in
capital.
The effect of the two transactions is to increase
net worth by approximately $1,853,000 and brings the
Company into compliance with the net worth
requirements of both HUD and its line of credit
which is in default.
F-62
<PAGE> 96
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................... 2
Risk Factors......................................... 5
Use of Proceeds...................................... 10
Dividend Policy...................................... 10
Capitalization....................................... 10
Dilution...............................................11
Terms of Conversion; Terms of Exercise............... 12
Selected Unaudited Pro Forma Combined
Financial Data..................................... 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations...... 14
Change in Accountants................................ 19
Business............................................. 20
Management........................................... 23
Certain Transactions................................. 25
Principal and Selling Shareholders................... 27
Description of Capital Stock......................... 28
Shares Eligible for Future Sale...................... 31
Plan of Distribution................................. 31
Legal Matters........................................ 32
Experts.............................................. 32
Additional Information............................... 32
Index to Financial Statements........................ F-1
</TABLE>
- ----------------
UNTIL NOVEMBER 30, 1999 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
===============================================================================
===============================================================================
2,100,000 SHARES
LAHAINA ACQUISITIONS, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
===============================================================================
OCTOBER 21, 1999
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the Common Stock being registered, all of which will be paid by the
Registrant. All amounts are estimates except the registration fee.
<TABLE>
<S> <C>
Registration fee.......................................... $ 1,021.65
Blue Sky fees and expenses................................ 5,000.00
Accounting fees and expenses.............................. 98,000.00
Legal fees and expenses................................... 55,000.00
Transfer agent and registrar fees......................... 1,000.00
Printing and engraving expenses........................... 30,000.00
Miscellaneous expenses.................................... 740.35
Total........................................... $190,762.00
- ----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 7-109-102 and 7-109-107 of the COLORADO Law ("Colorado Law") and
Article 7 of the Company's Amended and Restated Articles of Incorporation
provide for indemnification of the Company's Directors and officers in a variety
of circumstances which may include liabilities under the Act. Article 7 provides
that unless otherwise determined by the Board of Directors of the Company, the
Company shall indemnify to the full extent permitted by the laws of Colorado as
from time to time in effect, the persons described in Sections 7-109-102 and
7-109-107 of Colorado Law.
The general effect of the provisions in the Company's Amended and Restated
Articles of Incorporation and Colorado Law is to provide that the Company shall
indemnify its Directors and officers against all liabilities and expenses
actually and reasonably incurred in connection with the defense or settlement of
any judicial or administrative proceedings in which they have become involved by
reason of their status as corporate Directors or officers, if they acted in good
faith and in the reasonable belief that their conduct was neither unlawful (in
the case of criminal proceedings) nor inconsistent with the best interests of
the Company. With respect to legal proceedings by or in the right of the Company
in which a director or officer is adjudged liable for improper performance of
his duty to the Company or another enterprise which such person served in a
similar capacity at the request of the Company, indemnification is limited by
such provisions to that amount which is permitted by the court.
The Company intends to maintain officers' and Directors' liability insurance
which will insure against liabilities that officers and Directors of the Company
may incur in such capacities.
Reference is made to the Proposed Form of Underwriting Agreement filed as
Exhibit 1 which provides for indemnification of the Directors and officers of
the Company signing the Registration Statement and certain controlling persons
of the Company against certain liabilities, including those arising under the
Act in certain instances, of the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Company's inception, the Company has made the following sales of
securities that were not registered under the Act:
1. As of December 7, 1998, the Company issued and sold 1,910,000 shares
of Series A Preferred Stock in a private placement for an aggregate
consideration of all the Common Stock of Beachside. In connection with such
transaction, the Company issued (i) 1,250,000 shares of Common Stock to
Mongoose, (ii) the Note convertible
II-1
<PAGE> 98
into 885,714 shares to GCA in exchange for $775,000 in cash, (iii) the GCA
Warrant exercisable for 100,000 shares of Common Stock for a purchase price of
$2.60 and 100,000 shares of Common Stock for a purchase price of $2.19 (iv)
25,000 shares of Common Stock issued upon the exercise of the GCA Right, (v)
48,990 shares of Common Stock issued upon the exercise of the First LKB Warrant
and (vi) 8,520 shares of Common Stock issued upon the exercise of the Second LKB
Warrant; and (vii) 146,667 shares of Common Stock issued upon the conversion of
the $300,000 GCA credit line. The term of the Second LKB Warrant will begin at
the closing date and continue through five years from the closing date. Such
Sales of Series A Preferred Stock and Common Stock were made in reliance on the
exemption from registration provided by Section 4(2) of the Act.
2. On August 19, 1999, the Company authorized the issuance of 13,251,000
shares of Common Stock in exchange for certain properties supplied by Accent in
the Merger. In connection with the financing of the Merger, the Company issued
the Second Note, convertible into approximately 145,000 to 300,000 shares of
Common Stock and the Second GCA Warrant for 50,000 shares of Common Stock for a
purchase price as set forth in Terms of Conversion; Terms of Exercise.
3. [Reserved]
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
- ------ ----------- -----
<S> <C> <C>
2.1 Stock Purchase Agreement dated December 3, 1998, by and between Lahaina Acquisitions, Inc.
and Mongoose Investments, LLC (1) .....................................................................
2.2 Common Stock Purchase Warrant in the amount of 60,000 shares to be issued by Lahaina
Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on December 20, 2003 (1)..............
2.3 Agreement and Plan of Merger dated July 21, 1999 by and among Lahaina Acquisitions, Inc.,
LAHA No. 1, Inc., Mongoose Investments, LLC, The Accent Group, Inc. and Accent Mortgage Services, Inc.
(the "Plan of Merger") (4)(6)..........................................................................
3.1 Amended and Restated Articles of Incorporation (2).....................................................
3.2 Bylaws of the Company (2)..............................................................................
4.1 Securities Purchase Agreement dated December 7, 1998, by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund Limited (1) ....................................................
4.2 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund
Limited, in the principal amount of $750,000 (1) ......................................................
4.3 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund, Ltd. Amending 9% Convertible Note (3).......................................
4.4 Registration Rights Agreement dated December 7, 1998, by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund Limited (1).....................................................
4.5 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund, Ltd. Confirming conversion of $25,000 Beachside Commons Note (3)............
4.6 Working Capital Line dated January 19, 1999, by and between Lahaina Acquisitions, Inc. and
GCA Strategic Investment Fund, Ltd. (3)...............................................................
4.7 Form of Stock Certificate (2)..........................................................................
4.8 Securities Purchase Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc., and GCA
Strategic Investment Fund Limited (6)..................................................................
4.9 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund Limited, in
the principal amount of $500,000 (6)....................................................................
4.10 Registration Rights Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund Limited (6)..................................................................
4.11 Common Stock Purchase Warrant in the amount of 50,000 shares to be issued by Lahaina Acquisitions, Inc.
and purchased by GCA Strategic Investment Fund Limited, expiring on August 19, 2004. (6)...............
4.12 Pledge Agreement dated August __, 1999 by and among Mongoose Investments, LLC, Richard P. Smyth and
GCA Strategic Investment Fund Limited (6)..............................................................
5.1+ Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP...........................................
10.1 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and
LKB Financial LLC (3)..................................................................................
10.2 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina
Acquisitions, Inc. (3).................................................................................
10.3 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal amount
of $85,000. This note was transferred to Lahaina Acquisitions, Inc. On December 7, 1998. (3)..........
10.4 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount
of $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. (3)..........
10.5+ 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount
of $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998 (5)...........
10.6+ Right to receive 25,000 shares of Common Stock in consideration for entering into promissory note
in the principal amount of $25,000 (5).................................................................
10.7 Settlement and Release Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and
Sherry Klein (6).......................................................................................
10.8 Purchase and Sale Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and Mongoose
Investments, LLC (6)...................................................................................
10.9 GCA Consent to Agreement and Plan of Merger dated August 19, 1999 by and between Lahaina
Acquisitions, Inc. and GCA Strategic Investment Fund, Limited (6)......................................
10.10 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gerald F.
Sullivan (6)...........................................................................................
10.11 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gator Glory,
LLC (6)................................................................................................
10.12 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
Richard P. Smyth (6)...................................................................................
10.13 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
Gerald F. Sullivan (6).................................................................................
10.14 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
Sidney E. Brown (6)....................................................................................
10.15 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
D. Nelson Lester (6)...................................................................................
10.16 Escrow Agreement dated August 16, 1999 by and among Lahaina Acquisitions, Inc., LAHA No. 1, Inc.,
Mongoose Investments, LLC, The Accent Group, Inc., Accent Mortgage Services, Inc. and Altman, Kritzer &
Levick, P.C. (6).......................................................................................
10.17 Escrow Agreement dated August 19, 1999 by and among Lahaina Acquisitions, Inc., GCA Strategic
Investment Fund Limited and Kim T. Stephens, Esq. (6)..................................................
10.18 Second Mortgage on Beachside Commons in the principal amount of $500,000 (6)...........................
10.19 1999 Accent Stock Option Plan..........................................................................
23.1 Consent of Paul, Hastings, Janofsky and Walker LLP (included in Exhibit 5.1)...........................
23.2 Consent of Kenneth R. Walters, P.A.....................................................................
23.3 Consent of Deloitte and Touche LLP.....................................................................
23.4 Consent of Holland Shipes Vann, P.C....................................................................
24.1 Power of Attorney (included on the signature page to this registration statement)......................
99.1 Form of Press Release dated December 24, 1998(1).......................................................
</TABLE>
+Previously filed
(1) Incorporated by reference to the Company's Current Report on Form 8-K,
filed December 28, 1998.
(2) Incorporated by reference to the Registration Statement on Form 10,
filed December 29, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q, Filed February 25, 1999.
(4) Exhibits and Schedules to the Plan of Merger are available from the
company upon request.
(5) Incorporated by reference to the First Amendment to the Company's
Registration Statement on Form S-1 filed March 26, 1999.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
filed September 7, 1999.
II-2
<PAGE> 99
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS
(a) The Company hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (ss.230.424(b) of this
chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 100
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Atlanta, State of Georgia, on
October 21, 1999.
Lahaina Acquisitions, Inc.
By:/s/ L. Scott Demerau
---------------------------------
L. Scott Demerau
Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints L. Scott Demerau as his or her true and
lawful attorney-in-fact and agent, with full power of substitution and
re-substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any other regulatory authority, granting
unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ L. Scott Demerau
----------------------------------- Director October 21, 1999
L. Scott Demerau
/s/ Betty Sullivan
----------------------------------- Director October 21, 1999
Betty Sullivan
/s/ Bart Siegal
----------------------------------- Director October 21, 1999
Bart Siegal
/s/ Sherry Sagemiller
----------------------------------- Director October 21, 1999
Sherry Sagemiller
</TABLE>
II-4
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE
<S> <C> <C>
2.1 Stock Purchase Agreement dated December 3, 1998, by and between Lahaina Acquisitions, Inc.
and Mongoose Investments, LLC (1) .....................................................................
2.2 Common Stock Purchase Warrant in the amount of 60,000 shares to be issued by Lahaina
Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on December 20, 2003 (1) .............
2.3 Agreement and Plan of Merger dated July 21, 1999 by and among Lahaina Acquisitions, Inc.,
LAHA No. 1, Inc., Mongoose Investments, LLC, The Accent Group, Inc. and Accent Mortgage Services, Inc.
(the "Plan of Merger") (4)(6)..........................................................................
3.1 Amended and Restated Articles of Incorporation (2).....................................................
3.2 Bylaws of the Company (2)..............................................................................
4.1 Securities Purchase Agreement dated December 7, 1998, by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund Limited (1) ....................................................
4.2 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund
Limited, in the principal amount of $750,000 (1) ......................................................
4.3 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund, Ltd. Amending 9% Convertible Note (3).......................................
4.4 Registration Rights Agreement dated December 7, 1998, by and between Lahaina Acquisitions,
Inc. and GCA Strategic Investment Fund Limited (1) ....................................................
4.5 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund, Ltd. Confirming conversion of $25,000 Beachside Commons Note (3)............
4.6 Working Capital Line dated January 19, 1999, by and between Lahaina Acquisitions, Inc. and
GCA Strategic Investment Fund, Ltd. (3)...............................................................
4.7 Form of Stock Certificate (2)..........................................................................
4.8 Securities Purchase Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc., and GCA
Strategic Investment Fund Limited (6)..................................................................
4.9 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund Limited, in
the principal amount of $500,000 (6)....................................................................
4.10 Registration Rights Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA
Strategic Investment Fund Limited (6)..................................................................
4.11 Common Stock Purchase Warrant in the amount of 50,000 shares to be issued by Lahaina Acquisitions, Inc.
and purchased by GCA Strategic Investment Fund Limited, expiring on August 19, 2004. (6)...............
4.12 Pledge Agreement dated August __, 1999 by and among Mongoose Investments, LLC, Richard P. Smyth and
GCA Strategic Investment Fund Limited (6)..............................................................
5.1+ Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP...........................................
10.1 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and
LKB Financial LLC (3)..................................................................................
10.2 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina
Acquisitions, Inc. (3).................................................................................
10.3 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal amount
of $85,000. This note was transferred to Lahaina Acquisitions, Inc. On December 7, 1998. (3)..........
10.4 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount
of $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. (3)..........
10.5+ 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount
of $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998...............
10.6+ Right to receive 25,000 shares of Common Stock in consideration for entering into promissory
note in the principal amount of $25,000................................................................
10.7 Settlement and Release Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and
Sherry Klein (6).......................................................................................
10.8 Purchase and Sale Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and Mongoose
Investments, LLC (6)...................................................................................
10.9 GCA Consent to Agreement and Plan of Merger dated August 19, 1999 by and between Lahaina
Acquisitions, Inc. and GCA Strategic Investment Fund, Limited (6)......................................
10.10 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gerald F.
Sullivan (6)...........................................................................................
10.11 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gator Glory,
LLC (6)................................................................................................
10.12 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
Richard P. Smyth (6)...................................................................................
10.13 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
Gerald F. Sullivan (6).................................................................................
10.14 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
Sidney E. Brown (6)....................................................................................
10.15 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and
D. Nelson Lester (6)...................................................................................
10.16 Escrow Agreement dated August 16, 1999 by and among Lahaina Acquisitions, Inc., LAHA No. 1, Inc.,
Mongoose Investments, LLC, The Accent Group, Inc., Accent Mortgage Services, Inc. and Altman, Kritzer &
Levick, P.C. (6).......................................................................................
10.17 Escrow Agreement dated August 19, 1999 by and among Lahaina Acquisitions, Inc., GCA Strategic
Investment Fund Limited and Kim T. Stephens, Esq. (6)..................................................
10.18 Second Mortgage on Beachside Commons in the principal amount of $500,000 (6)...........................
10.19 1999 Accent Stock Option Plan..........................................................................
23.1 Consent of Paul, Hastings, Janofsky and Walker LLP (included in Exhibit 5.1)...........................
23.2 Consent of Kenneth R. Walters, P.A. ....................................................................
23.3 Consent of Deloitte & Touche LLP........................................................................
23.4 Consent of Holland Shipes Vann, P.C. ...................................................................
24.1 Power of Attorney (included on the signature page to this registration statement)......................
99.1 Form of Press Release dated December 24, 1998(1).......................................................
+ Previously filed
(1) Incorporated by reference to the Company's Current Report on Form 8-K,
filed December 28, 1998.
(2) Incorporated by reference to the
Registration Statement on Form 10, filed December 29, 1995.
(3) Incorporated by reference to the Company's Quarterly Report on Form
10-Q, filed February 25, 1999.
(4) Exhibits and Schedules to the Plan of Merger are available from the
company upon request.
(5) Incorporated by reference to the First Amendment to the Company's
Registration Statement on Form S-1 filed March 26, 1999.
(6) Incorporated by reference to the Company's Current Report on Form 8-K
filed September 7, 1999.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 10.19
THE ACCENT GROUP, INC.
1999 STOCK OPTION PLAN
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
1999 STOCK OPTION PLAN.......................................1
1999 STOCK OPTION PLAN.......................................2
THE ACCENT GROUP, INC........................................2
1999 STOCK OPTION PLAN......................................2
</TABLE>
<PAGE> 2
THE ACCENT GROUP, INC.
1999 STOCK OPTION PLAN
ARTICLE I
DEFINITIONS
As used herein, the following terms have the following meanings unless
the context clearly indicates to the contrary:
1.1 "Award" shall mean a grant of Restricted Stock or an SAR.
1.2 "Board" shall mean the Board of Directors of the Company.
1.3 "Cause" (i) with respect to the Company or any subsidiary or
affiliate which employs the recipient of an Award or Option
(the "recipient") or for which such recipient primarily
performs services, the commission by the recipient of an act
of fraud, embezzlement, theft or proven dishonesty, or any
other illegal act or practice (whether or not resulting in
criminal prosecution or conviction), or any act or practice
which the Committee shall, in good faith, deem to have
resulted in the recipient's becoming unbondable under the
Company's, the subsidiary's or the affiliate's fidelity bond;
(ii) the willful engaging by the recipient in misconduct
which is deemed by the Committee, in good faith, to be
materially injurious to the Company, any subsidiary, or any
affiliate, monetarily or otherwise, including, but not
limited, improperly disclosing trade secrets or other
confidential or sensitive business information and data about
the Company or any subsidiaries or affiliates and competing
with the Company or its subsidiaries and affiliates, or
soliciting employees, consultants or customers of the Company
in violation of law or any employment or other agreement to
which the recipient is a party; or (iii) the willful and
continued failure or habitual neglect by the recipient to
perform his or her duties with the Company or the subsidiary
or affiliate substantially in accordance with the operating
and personnel policies and procedures of the Company or the
subsidiary or affiliate generally applicable to all their
employees. For purposes of this Plan, no act or failure to
act by the recipient shall be deemed be "willful" unless done
or omitted to be done by recipient not in good faith and
without reasonable belief that the recipient's action or
omission was in the best interest of the Company and/or the
subsidiary or affiliate. Notwithstanding the foregoing, if
the recipient has entered into an employment agreement that
is binding as of the date of employment termination, and if
such employment agreement defines "Cause," then the
definition of "Cause" in such agreement shall apply to the
recipient in this Plan. "Cause" under either (i), (ii) or
(iii) shall be determined by the Committee.
<PAGE> 3
1.4 "Change in Control" shall mean any occurrence by which any
"person" (as such term is used in sections 13(d) and 14(d) of
the Exchange Act), other than any person who is a shareholder
of the Company on or before the Effective Date, by the
acquisition or aggregation of securities is or becomes the
beneficial owner, directly or indirectly, of securities of
the Company representing 50 percent or more of the combined
voting power of the Company's then outstanding securities
ordinarily (and apart from rights accruing under special
circumstances) having the right to vote at elections of
directors (the "Base Capital Stock"); except that any change
in the relative beneficial ownership of the Company's
securities by any person resulting solely from a reduction in
the aggregate number of outstanding shares of Base Capital
Stock, and any decrease thereafter in such person's ownership
of securities, shall be disregarded until such person
increases in any manner, directly or indirectly, such
person's beneficial ownership of any securities of the
Company.
1.5 "Code" shall mean the United States Internal Revenue Code of
1986, including effective date and transition rules (whether
or not codified). Any reference herein to a specific section
of the Code shall be deemed to include a reference to any
corresponding provision of future law.
1.6 "Committee" shall mean a committee of at least two Directors
appointed from time to time by the Board, having the duties
and authority set forth herein in addition to any other
authority granted by the Board. In selecting the Committee,
the Board shall consider (i) the benefits under Section
162(m) of the Code of having a Committee composed of "outside
directors" (as that term is defined in the Code) for certain
grants of Options to highly compensated executives, and (ii)
the benefits under Rule 16b-3 of having a Committee composed
of either the entire Board or a Committee of at least two
Directors who are Non-Employee Directors for Options granted
to or held by any Section 16 Insider. At any time that the
Board shall not have appointed a committee as described
above, any reference herein to the Committee shall mean the
Board.
1.7 "Company" shall mean The Accent Group, Inc., a Georgia
corporation.
1.8 "Effective Date" shall mean July __, 1999.
1.9 "Director" shall mean a member of the Board and any person
who is an advisory or honorary director of the Company if
such person is considered a director for the purposes of
Section 16 of the Exchange Act, as determined by reference to
such Section 16 and to the rules, regulations, judicial
decisions, and interpretative or "no-action" positions with
respect thereto of the Securities and Exchange Commission, as
the same may be in effect or set forth from time to time.
1.10 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
2
<PAGE> 4
Any reference herein to a specific section of the Exchange
Act shall be deemed to include a reference to any
corresponding provision of future law
1.11 "Exercise Price" shall mean the price at which an Optionee
may purchase a share of Stock under a Stock Option Agreement.
1.12 "Fair Market Value" on any date shall mean (i) the closing
sales price of the Stock, regular way, on such date on the
national securities exchange having the greatest volume of
trading in the Stock during the thirty-day period preceding
the day the value is to be determined or, if such exchange
was not open for trading on such date, the next preceding
date on which it was open; (ii) if the Stock is not traded on
any national securities exchange, the average of the closing
high bid and low asked prices of the Stock on the
over-the-counter market on the day such value is to be
determined, or in the absence of closing bids on such day,
the closing bids on the next preceding day on which there
were bids; or (iii) if the Stock also is not traded on the
over-the-counter market, the fair market value as determined
in good faith by the Board or the Committee based on such
relevant facts as may be available to the Board, which may
include opinions of independent experts, the price at which
recent sales have been made, the book value of the Stock, and
the Company's current and future earnings.
1.13 "Grantee" shall mean a person who is an Optionee or a person
who has received an Award of Restricted Stock or an SAR.
1.14 "Incentive Stock Option" shall mean an option to purchase any
stock of the Company, which complies with and is subject to
the terms, limitations and conditions of Section 422 of the
Code and any regulations promulgated with respect thereto
1.15 "Non-Employee Director" shall have the meaning set forth in
Rule 16b-3 under the Exchange Act, as the same may be in
effect from time to time, or in any successor rule thereto,
and shall be determined for all purposes under the Plan
according to interpretative or "no-action" positions with
respect thereto issued by the Securities and Exchange
Commission.
1.16 "Officer" shall mean a person who constitutes an officer of
the Company for the purposes of Section 16 of the Exchange
Act, as determined by reference to such Section 16 and to the
rules, regulations, judicial decisions, and interpretative or
"no-action" positions with respect thereto of the Securities
and Exchange Commission, as the same may be in effect or set
forth from time to time.
1.17 "Option" shall mean an option, whether or not an Incentive
Stock Option, to purchase Stock granted pursuant to the
provisions of Article VI hereof.
3
<PAGE> 5
1.18 "Optionee" shall mean a person to whom an Option has been
granted hereunder.
1.19 "Permanent and Total Disability" shall have the same meaning
as given to that term by Code Section 22(e)(3) and any
regulations or rulings promulgated thereunder.
1.20 "Plan" shall mean The Accent Group, Inc. 1999 Stock Option
Plan, the terms of which are set forth herein.
1.21 "Purchasable" shall refer to Stock which may be purchased by
an Optionee under the terms of this Plan on or after a
certain date specified in the applicable Stock Option
Agreement.
1.22 "Qualified Domestic Relations Order" shall have the meaning
set forth in the Code or in the Employee Retirement Income
Security Act of 1974, or the rules and regulations
promulgated under the Code or such Act.
1.23 "Reload Option" shall have the meaning set forth in Section
6.8 hereof.
1.24 "Restricted Stock" shall mean Stock issued, subject to
restrictions, to a Grantee pursuant to Article VII hereof.
1.25 "Restriction Agreement" shall mean the agreement setting
forth the terms of an Award, and executed by a Grantee as
provided in Section 7.1 hereof.
1.26 "SAR" means a stock appreciation right, which is the right to
receive an amount equal to the appreciation, if any, in the
Fair Market Value of a share of Stock from the date of the
grant of the right to the date of its payment, all as
provided in Article VIII hereof.
1.27 "SAR Price" means the base value established by the Committee
for an SAR on the date the SAR is granted and which is used
in determining the amount of benefit, if any, paid to a
Grantee.
1.28 "Section 16 Insider" shall mean any person who is subject to
the provisions of Section 16 of the Exchange Act, as provided
in Rule 16a-2 promulgated pursuant to the Exchange Act.
1.29 "Stock" shall mean the common stock, no par value per share,
of the Company or, in the event that the outstanding shares
of Stock are hereafter changed into or exchanged for shares
of a different stock or securities of the Company or some
other entity, such other stock or securities.
4
<PAGE> 6
1.30 "Stock Option Agreement" shall mean an agreement between the
Company and an Optionee under which the Optionee may purchase
Stock hereunder, a sample form of which is attached hereto as
Exhibit A (which form may be varied by the Committee in
granting an Option).
ARTICLE II
THE PLAN
2.1 Name. This Plan shall be known as "The Accent Group, Inc.
1999 Stock Option Plan."
2.2 Purpose. The purpose of the Plan is to advance the interests
of the Company, its subsidiaries, its affiliates that perform
services for the Company and its subsidiaries, and its
shareholders by affording certain employees and Directors of
the Company and its subsidiaries and affiliates, as well as
key consultants and advisors to the Company or any subsidiary
or affiliate, an opportunity to acquire or increase their
proprietary interests in the Company. The objective of the
issuance of the Options and Awards is to promote the growth
and profitability of the Company, its subsidiaries and its
affiliates because the Grantees will be provided with an
additional incentive to achieve the Company's objectives
through participation in its success and growth and by
encouraging their continued association with or service to
the Company.
2.3 Effective Date. The Plan shall become effective on July __,
1999.
2.4 Shareholder Approval. If shareholder approval is required by
the Code for Incentive Stock Options and such shareholder
approval has not been obtained (or is not obtained within 12
months thereof), any Incentive Stock Options issued under the
Plan shall automatically become options which do not qualify
as Incentive Stock Options.
ARTICLE III
PARTICIPANTS
The class of persons eligible to participate in the Plan shall consist
of all persons whose participation in the Plan the Committee determines to be
in the best interests of the Company which shall include, but not be limited
to, all Directors and employees, including but not limited to executive
personnel, of the Company or any subsidiary or affiliate, as well as key
consultants and advisors to the Company or any subsidiary or affiliate.
5
<PAGE> 7
ARTICLE IV
ADMINISTRATION
4.1 Duties and Powers of the Committee. The Plan shall be
administered by the Committee. The Committee shall select one
of its members as its Chairman and shall hold its meetings at
such times and places as it may determine. The Committee
shall keep minutes of its meetings and shall make such rules
and regulations for the conduct of its business as it may
deem necessary. The Committee shall have the power to act by
unanimous written consent in lieu of a meeting, and to meet
by telephone. In administering the Plan, the Committee's
actions and determinations shall be binding on all interested
parties. The Committee shall have the power to grant Options
or Awards in accordance with the provisions of the Plan and
may grant Options and Awards singly, in combination, or in
tandem. Subject to the provisions of the Plan, the Committee
shall have the discretion and authority to determine those
individuals to whom Options or Awards will be granted and
whether such Options shall be accompanied by the right to
receive Reload Options, the number of shares of Stock subject
to each Option or Award, such other matters as are specified
herein, and any other terms and conditions of a Stock Option
Agreement or Restriction Agreement. The Committee shall also
have the discretion and authority to delegate to any Officer
its powers to grant Options or Awards under the Plan to any
person who is an employee of the Company but not an Officer
or Director. To the extent not inconsistent with the
provisions of the Plan, the Committee may give a Grantee an
election to surrender an Option or Award in exchange for the
grant of a new Option or Award, and shall have the authority
to amend or modify an outstanding Stock Option Agreement or
Restriction Agreement, or to waive any provision thereof,
provided that the Grantee consents to such action.
4.2 Interpretation; Rules. Subject to the express provisions of
the Plan, the Committee also shall have complete authority to
interpret the Plan, to prescribe, amend, and rescind rules
and regulations relating to it, to determine the details and
provisions of each Stock Option Agreement, and to make all
other determinations necessary or advisable for the
administration of the Plan, including, without limitation,
the amending or altering of the Plan and any Options or
Awards granted hereunder as may be required to comply with or
to conform to any federal, state, or local laws or
regulations.
4.3 No Liability. Neither any member of the Board nor any member
of the Committee shall be liable to any person for any act or
determination made in good faith with respect to the Plan or
any Option or Award granted hereunder.
4.4 Majority Rule. A majority of the members of the Committee
shall constitute a quorum, and any action taken by a majority
at a meeting at which a quorum is present, or any action
taken without a meeting evidenced by a writing executed by
6
<PAGE> 8
all the members of the Committee, shall constitute the action
of the Committee.
4.5 Company Assistance. The Company shall supply full and timely
information to the Committee on all matters relating to
eligible persons, their employment, death, retirement,
disability, or other termination of employment, and such
other pertinent facts as the Committee may require. The
Company shall furnish the Committee with such clerical and
other assistance as is necessary in the performance of its
duties.
ARTICLE V
SHARES OF STOCK SUBJECT TO PLAN
5.1 Limitations. Subject to any antidilution adjustment pursuant
to the provisions of Section 5.2 hereof, the maximum number
of shares of Stock that may be issued hereunder shall be
200,000, and not more than 20,000 shares of Stock may be made
subject to Options to any individual in the aggregate in any
one fiscal year of the Company, such limitation to be applied
in a manner consistent with the requirements of, and only to
the extent required for compliance with, the exclusion from
the limitation on deductibility of compensation under Section
162(m) of the Code. The number of shares of Stock available
for issuance hereunder shall automatically increase on the
first trading day each calendar year beginning January 1,
2000, by an amount equal to ten percent (10%) of the shares
of Stock outstanding on the trading day immediately preceding
January 1; but in no event shall any such annual increase
exceed 100,000 shares (subject to adjustment under Section
5.2). Any or all shares of Stock subject to the Plan may be
issued in any combination of Incentive Stock Options,
non-Incentive Stock Options, Restricted Stock, or SARs, and
the amount of Stock subject to the Plan may be increased from
time to time in accordance with Article X, provided that the
total number of shares of Stock issuable pursuant to
Incentive Stock Options may not be increased to more than
500,000 (other than pursuant to anti-dilution adjustments and
the annual increase provided above) without shareholder
approval. Shares subject to an Option or issued as an Award
may be either authorized and unissued shares or shares issued
and later acquired by the Company. The shares covered by any
unexercised portion of an Option or Award that has terminated
for any reason (except as set forth in the following
paragraph), or any forfeited portion of an Option or Award,
and shares tendered for cashless exercise and withheld for
taxes may again be optioned or awarded under the Plan, and
such shares shall not be considered as having been optioned
or issued in computing the number of shares of Stock
remaining available for option or award hereunder.
If Options are issued in respect of options to
acquire stock of any entity
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<PAGE> 9
acquired, by merger or otherwise, by the Company (or any
subsidiary of the Company), to the extent that such issuance
shall not be inconsistent with the terms, limitations and
conditions of Code Section 422 or Rule 16b-3 under the
Exchange Act, the aggregate number of shares of Stock for
which Options may be granted hereunder shall automatically be
increased by the number of shares subject to the Options so
issued; provided, however, that the aggregate number of
shares of Stock for which Options may be granted hereunder
shall automatically be decreased by the number of shares
covered by any unexercised portion of an Option so issued
that has terminated for any reason, and the shares subject to
any such unexercised portion may not be optioned to any other
person.
5.2 Antidilution.
(a) If (1) the outstanding shares of Stock are changed
into or exchanged for a different number or kind of
shares or other securities of the Company or any
other entity by reason of merger, consolidation,
reorganization, recapitalization, reclassification,
combination or exchange of shares, or stock split or
stock dividend, (2) any spin-off, spin-out or other
distribution of assets materially affects the price
of the Company's stock, or (3) there is any
assumption and conversion to the Plan by the Company
of an acquired company's outstanding option grants,
then:
(iii) the aggregate number and kind of shares of
Stock for which Options or Awards may be
granted hereunder shall be adjusted
proportionately by the Committee; and
(iv) the rights of Optionees (concerning the
number of shares subject to Options and the
Exercise Price) under outstanding Options
and the rights of the holders of Awards
(concerning the terms and conditions of the
lapse of any then-remaining restrictions),
shall be adjusted proportionately by the
Committee.
(b) In the event of an anticipated Change in Control or
the Company shall be a party to any reorganization,
involving merger, consolidation, or acquisition of
the stock or substantially all the assets of the
Company, the Board or the Committee, in its
discretion, may:
(i) notwithstanding other provisions hereof,
declare that all Options granted under the
Plan shall become exercisable immediately
notwithstanding the provisions of the
respective Stock Option Agreements
regarding exercisability, that all such
Options shall terminate 90 days after the
Committee gives written notice of the
immediate right to exercise all such
Options and of the decision to
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terminate all Options not exercised within
such 90-day period, and that all
then-remaining restrictions pertaining to
Awards under the Plan shall immediately
lapse; and/or
(ii) notify all Grantees that all Options or
Awards granted under the Plan shall be
assumed by the successor corporation or
substituted on an equitable basis with
options or restricted stock issued by such
successor corporation.
(c) If the Company is to be liquidated or dissolved in
connection with a reorganization described in
Section 5.2(b), the provisions of such Section shall
apply. In all other instances, the adoption of a
plan of dissolution or liquidation of the Company
shall, notwithstanding other provisions hereof,
cause all then-remaining restrictions pertaining to
Awards under the Plan to lapse, and shall cause
every Option outstanding under the Plan to terminate
to the extent not exercised prior to the adoption of
the plan of dissolution or liquidation by the
shareholders, provided that, notwithstanding other
provisions hereof, the Committee may declare all
Options granted under the Plan to be exercisable at
any time on or before the fifth business day
following such adoption notwithstanding the
provisions of the respective Stock Option Agreements
regarding exercisability.
(d) The adjustments described in paragraphs (a) through
(c) of this Section 5.2, and the manner of their
application, shall be determined solely by the Board
or the Committee, and any such adjustment may
provide for the elimination of fractional share
interests; provided, however, that any adjustment
made by the Board or the Committee shall be made in
a manner that will not cause an Incentive Stock
Option to be other than an Incentive Stock Option
under applicable statutory and regulatory
provisions. The adjustments required under this
Article V shall apply to any successors of the
Company and shall be made regardless of the number
or type of successive events requiring such
adjustments.
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ARTICLE VI
OPTIONS
6.1 Types of Options Granted. The Committee may, under this Plan,
grant either Incentive Stock Options or Options which do not
qualify as Incentive Stock Options. Within the limitations
provided in this Plan, both types of Options may be granted
to the same person at the same time, or at different times,
under different terms and conditions, as long as the terms
and conditions of each Option are consistent with the
provisions of the Plan. Without limitation of the foregoing,
Options may be granted subject to conditions based on the
financial performance of the Company or any other factor the
Committee deems relevant.
6.2 Option Grant and Agreement. Each Option granted hereunder
shall be evidenced by minutes of a meeting or the written
consent of the Committee and by a written Stock Option
Agreement executed by the Company and the Optionee. The terms
of the Option, including the Option's duration, time or times
of exercise, exercise price, whether the Option is intended
to be an Incentive Stock Option, and whether the Option is to
be accompanied by the right to receive a Reload Option, shall
be stated in the Stock Option Agreement. No Incentive Stock
Option may be granted more than ten years after the earlier
to occur of the Effective Date or the date the Plan is
approved by the Company's shareholders.
Separate Stock Option Agreements may be used for
Options intended to be Incentive Stock Options and those not
so intended, but any failure to use such separate agreements
shall not invalidate, or otherwise adversely affect the
Optionee's interest in, the Options evidenced thereby.
6.3 Optionee Limitation. The Committee shall not grant an
Incentive Stock Option to any person who, at the time the
Incentive Stock Option is granted:
(a) is not an employee of the Company or any of its
subsidiaries; or
(b) owns or is considered to own stock possessing at
least 10% of the total combined voting power of all
classes of stock of the Company or any of its parent
or subsidiary corporations; provided, however, that
this limitation shall not apply if at the time an
Incentive Stock Option is granted the Exercise Price
is at least 110% of the Fair Market Value of the
Stock subject to such Option and such Option by its
terms would not be exercisable after five years from
the date on which the Option is granted.
6.4 $100,000 Limitation. Except as provided below, the Committee
shall not grant an Incentive Stock Option to, or modify the
exercise provisions of outstanding Incentive Stock Options
held by, any person who, at the time the Incentive Stock
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Option is granted (or modified), would thereby receive or
hold any Incentive Stock Options of the Company and any
parent or subsidiary of the Company, such that the aggregate
Fair Market Value (determined as of the respective dates of
grant or modification of each option) of the stock with
respect to which such Incentive Stock Options are exercisable
for the first time during any calendar year is in excess of
$100,000 (or such other limit as may be prescribed by the Code
from time to time); provided that the foregoing restriction on
modification of outstanding Incentive Stock Options shall not
preclude the Committee from modifying an outstanding
Incentive Stock Option if, as a result of such modification
and with the consent of the Optionee, such Option no longer
constitutes an Incentive Stock Option; and provided that, if
the $100,000 limitation (or such other limitation prescribed
by the Code) described in this Section 6.4 is exceeded, the
Incentive Stock Option, the granting or modification of which
resulted in the exceeding of such limit, shall be treated as
an Incentive Stock Option up to the limitation and the excess
shall be treated as an Option not qualifying as an Incentive
Stock Option.
6.5 Exercise Price. The Exercise Price of the Stock subject to
each Option shall be determined by the Committee. Subject to
the provisions of Section 6.3(b) hereof, the Exercise Price
of an Incentive Stock Option shall not be less than the Fair
Market Value of the Stock as of the date the Option is
granted (or in the case of an Incentive Stock Option that is
subsequently modified, on the date of such modification).
6.6 Exercise Period. The period for the exercise of each Option
granted hereunder shall be determined by the Committee, but
the Stock Option Agreement with respect to each Option
intended to be an Incentive Stock Option shall provide that
such Option shall not be exercisable after the expiration of
ten years from the date of grant (or modification) of the
Option. In addition, no Incentive Stock Option granted under
the Plan shall be exercisable prior to shareholder approval
of the Plan.
6.7 Option Exercise.
(a) Unless otherwise provided in the Stock Option
Agreement or Section 6.6 hereof, an Option may be
exercised at any time or from time to time during
the term of the Option as to any or all full shares
which have become Purchasable under the provisions
of the Option, but not at any time as to less than
100 shares unless the remaining shares that have
become so Purchasable are less than 100 shares. The
Committee shall have the authority to prescribe in
any Stock Option Agreement that the Option may be
exercised only in accordance with a vesting schedule
during the term of the Option.
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<PAGE> 13
(b) An Option shall be exercised by (i) delivery to the
Company at its principal office a written notice of
exercise with respect to a specified number of
shares of Stock and (ii) payment to the Company at
that office of the full amount of the Exercise Price
for such number of shares in accordance with Section
6.7(c). If requested by an Optionee, an Option may
be exercised with the involvement of a stockbroker
in accordance with the federal margin rules set
forth in Regulation T (in which case the
certificates representing the underlying shares will
be delivered by the Company directly to the
stockbroker).
(c) The Exercise Price is to be paid in full in cash
upon the exercise of the Option and the Company
shall not be required to deliver certificates for
the shares purchased until such payment has been
made; provided, however, that in lieu of cash, all
or any portion of the Exercise Price may be paid by
tendering to the Company shares of Stock duly
endorsed for transfer and owned by the Optionee, or
by authorization to the Company to withhold shares
of Stock otherwise issuable upon exercise of the
Option, in each case to be credited against the
Exercise Price at the Fair Market Value of such
shares on the date of exercise (however, no
fractional shares may be so transferred, and the
Company shall not be obligated to make any cash
payments in consideration of any excess of the
aggregate Fair Market Value of shares transferred
over the aggregate Exercise Price); provided
further, that the Board may provide in a Stock
Option Agreement (or may otherwise determine in its
sole discretion at the time of exercise) that, in
lieu of cash or shares, all or a portion of the
Exercise Price may be paid by the Optionee's
execution of a recourse note equal to the Exercise
Price or relevant portion thereof, subject to
compliance with applicable state and federal laws,
rules and regulations.
(d) In addition to and at the time of payment of the
Exercise Price, the Optionee shall pay to the
Company in cash the full amount of any federal,
state, and local income, employment, or other
withholding taxes applicable to the taxable income
of such Optionee resulting from such exercise.
However, in the discretion of the Committee any
Stock Option Agreement may provide that all or any
portion of such tax obligations, together with
additional taxes not exceeding the actual additional
taxes to be owed by the Optionee as a result of such
exercise, may, upon the irrevocable election of the
Optionee, be paid by tendering to the Company whole
shares of Stock duly endorsed for transfer and owned
by the Optionee, or by authorization to the Company
to withhold shares of Stock otherwise issuable upon
exercise of the Option, in either case in that
number of shares having a Fair Market Value on the
date of exercise equal
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to the amount of such taxes thereby being paid, and
subject to such restrictions as to the approval and
timing of any such election as the Committee may
from time to time determine to be necessary or
appropriate to satisfy the conditions of the
exemption set forth in Rule 16b-3 under the Exchange
Act, if such rule is applicable.
(e) The holder of an Option shall not have any of the
rights of a shareholder with respect to the shares
of Stock subject to the Option until such shares
have been issued and transferred to the Optionee
upon the exercise of the Option.
6.8 Reload Options.
(a) The Committee may specify in a Stock Option
Agreement (or may otherwise determine in its sole
discretion) that a Reload Option shall be granted,
without further action of the Committee, (i) to an
Optionee who exercises an Option (including a Reload
Option) by surrendering shares of Stock in payment
of amounts specified in Sections 6.7(c) or 6.7(d)
hereof, (ii) for the same number of shares as are
surrendered to pay such amounts, (iii) as of the
date of such payment and at an Exercise Price equal
to the Fair Market Value of the Stock on such date,
and (iv) otherwise on the same terms and conditions
as the Option whose exercise has occasioned such
payment, subject to such other conditions or terms
as the Committee shall specify at the time such
exercised Option is granted.
(b) Unless provided otherwise in the Stock Option
Agreement, a Reload Option may not be exercised by
an Optionee (i) prior to the end of a one-year
period from the date that the Reload Option is
granted, and (ii) unless the Optionee retains
beneficial ownership of the shares of Stock issued
to such Optionee upon exercise of the Option
referred to above in Section 6.8(a)(i) for a period
of one year from the date of such exercise.
6.9 Nontransferability of Option. No Option shall be transferable
by an Optionee other than by will or the laws of descent and
distribution or, in the case of Options other than Incentive
Stock Options, pursuant to a Qualified Domestic Relations
Order, and no Option shall be transferable by an Optionee who
is a Section 16 Insider prior to shareholder approval of the
Plan. During the lifetime of an Optionee, Options shall be
exercisable only by such Optionee (or by such Optionee's
guardian or legal representative, should one be appointed).
6.10 Termination of Employment or Service. The Committee shall
have the power to specify, with respect to the Options
granted to a particular Optionee, the effect upon such
Optionee's right to exercise an Option of termination of such
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<PAGE> 15
Optionee's employment or service under various circumstances,
which effect may include immediate or deferred termination of
such Optionee's rights under an Option, or acceleration of
the date at which an Option may be exercised in full;
provided, however, that in no event may an Incentive Stock
Option be exercised after the expiration of ten years from
the date of grant thereof. Unless a Stock Option Agreement
specifically provides otherwise, in the event the recipient
of an Option or Award is terminated from his or her
employment or other service to the Company or its
subsidiaries for Cause, Options and Awards, whether vested or
unvested, granted to such person shall terminate immediately
and shall not thereafter be exercisable.
6.11 Employment Rights. Nothing in the Plan or in any Stock Option
Agreement shall confer on any person any right to continue in
the employ of the Company or any of its subsidiaries, or
shall interfere in any way with the right of the Company or
any of its subsidiaries to terminate such person's employment
at any time.
6.12 Certain Successor Options. To the extent not inconsistent
with the terms, limitations and conditions of Code Section
422 and any regulations promulgated with respect thereto, an
Option issued in respect of an option held by an employee to
acquire stock of any entity acquired, by merger or otherwise,
by the Company (or any subsidiary of the Company) may contain
terms that differ from those stated in this Article VI, but
solely to the extent necessary to preserve for any such
employee the rights and benefits contained in such
predecessor option, or to satisfy the requirements of Code
Section 424(a).
6.13 Effect of Change in Control. The Committee may determine, at
the time of granting an Option or thereafter, that such
Option shall become exercisable on an accelerated basis in
the event that a Change in Control occurs with respect to the
Company (and the Committee shall have the discretion to
modify the definition of a Change in Control in a particular
Option Agreement). If the Committee finds that there is a
reasonable possibility that, within the succeeding six
months, a Change in Control will occur with respect to the
Company, then the Committee may determine that all
outstanding Options shall be exercisable on an accelerated
basis.
ARTICLE VII
RESTRICTED STOCK
7.1 Awards of Restricted Stock. The Committee may grant Awards of
Restricted Stock, which shall be governed by a Restriction
Agreement between the Company and the Grantee. Each
Restriction Agreement shall contain such restrictions, terms,
and conditions as the Committee may, in its discretion,
determine, and may
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require that an appropriate legend be placed on the
certificates evidencing the subject Restricted Stock. Shares
of Restricted Stock granted pursuant to an Award hereunder
shall be issued in the name of the Grantee as soon as
reasonably practicable after the Award is granted, provided
that the Grantee has executed the Restriction Agreement
governing the Award, the appropriate blank stock powers, and,
in the discretion of the Committee, an escrow agreement and
any other documents which the Committee may require as a
condition to the issuance of such shares. If a Grantee shall
fail to execute the foregoing documents within any time
period prescribed by the Committee, the Award shall be void.
At the discretion of the Committee, shares issued in
connection with an Award may be held by the Company for the
account of the Grantee or deposited together with the stock
powers with an escrow agent designated by the Committee.
Unless the Committee determines otherwise and as set forth in
the Restriction Agreement, upon issuance of the shares, the
Grantee shall have all of the rights of a shareholder with
respect to such shares, including the right to vote the
shares and to receive all dividends or other distributions
paid or made with respect to the shares. Unless the Committee
determines otherwise, not more than 20,000 shares of
Restricted Stock may be awarded to any individual in the
aggregate in any one fiscal year of the Company, such
limitation to be applied in a manner consistent with the
requirements of, and only to the extent required for
compliance with, the exclusion from the limitation on
deductibility of compensation under Section 162(m) of the
Code.
7.2 Non-Transferability. Until any restrictions upon Restricted
Stock awarded to a Grantee shall have lapsed in a manner set
forth in Section 7.3, such shares of Restricted Stock shall
not be transferable other than by will or the laws of descent
and distribution, or pursuant to a Qualified Domestic
Relations Order, nor shall they be delivered to the Grantee.
7.3 Lapse of Restrictions. Restrictions upon Restricted Stock
awarded hereunder shall lapse at such time or times and on
such terms and conditions as the Committee may, in its
discretion, determine at the time the Award is granted or
thereafter.
7.4 Termination of Employment. The Committee shall have the power
to specify, with respect to each Award granted to any
particular Grantee, the effect upon such Grantee's rights
with respect to such Restricted Stock of the termination of
such Grantee's employment under various circumstances, which
effect may include immediate or deferred forfeiture of such
Restricted Stock or acceleration of the date at which any
then-remaining restrictions shall lapse.
7.5 Treatment of Dividends. At the time an Award of Restricted
Stock is made the Committee may, in its discretion, determine
that the payment to the Grantee of
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any dividends, or a specified portion thereof, declared or
paid on such Restricted Stock shall be (i) deferred until the
lapsing of the relevant restrictions and (ii) held by the
Company for the account of the Grantee until such lapsing. In
the event of such deferral, there shall be credited at the
end of each year (or portion thereof) interest on the amount
of the account at the beginning of the year at a rate per
annum determined by the Committee. Payment of deferred
dividends, together with interest thereon, shall be made upon
the lapsing of restrictions imposed on such Restricted Stock,
and any dividends deferred (together with any interest
thereon) in respect of Restricted Stock shall be forfeited
upon any forfeiture of such Restricted Stock.
7.6 Delivery of Shares. Except as provided otherwise in Article
IX below, within a reasonable period of time following the
lapse of the restrictions on shares of Restricted Stock, the
Committee shall cause a stock certificate to be delivered to
the Grantee with respect to such shares and such shares shall
be free of all restrictions hereunder.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 SAR Grants. The Committee, in its sole discretion, may grant
to any Grantee an SAR. The Committee may impose such
conditions or restrictions on the exercise of any SAR as it
may deem appropriate, including, without limitation,
restricting the time of exercise of the SAR to specified
periods as may be necessary to satisfy the requirements of
Rule 16b-3. Unless the Committee determines otherwise, an SAR
providing for not more than 20,000 equivalent shares of Stock
may be awarded to any individual in the aggregate in any one
fiscal year of the Company, such limitation to be applied in
a manner consistent with the requirements of, and only to the
extent required for compliance with, the exclusion from the
limitation on deductibility of compensation under Section
162(m) of the Code.
8.2 Determination of Price. The SAR Price shall be established by
the Committee in its sole discretion. The SAR Price shall not
be less than 100% of the Fair Market Value of the Stock on
the date the SAR is granted for an SAR issued in tandem with
an Incentive Stock Option.
8.3 Exercise of an SAR. Upon exercise of an SAR, the Grantee
shall be entitled, subject to the terms and conditions of
this Plan and the Agreement, to receive the excess for each
share of Stock being exercised under the SAR of (i) the Fair
Market Value of such share of Stock on the date of exercise
over (ii) the SAR Price for such share of Stock.
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8.4 Payment for an SAR. At the sole discretion of the Committee,
the payment of such excess shall be made in (i) cash, (ii)
shares of Stock, or (iii) a combination of both. Shares of
Stock used for this payment shall be valued at their Fair
Market Value on the date of exercise of the applicable SAR.
8.5 Status of an SAR under the Plan. Shares of Stock subject to
an Award of an SAR shall be considered shares of Stock which
may be issued under the Plan for purposes of Section 5.1
hereof, unless the Agreement making the Award of the SAR
provides that the exercise of such SAR results in the
termination of an unexercised Option for the same number of
shares of Stock.
8.6 Termination of Employment. The Committee shall have the power
to specify, with respect to each SAR granted to any
particular Grantee, the effect upon such Grantee's rights
with respect to such SAR of the termination of such Grantee's
employment under various circumstances, which effect may
include immediate or deferred forfeiture of such SAR or
acceleration of the date at which any then-remaining
restrictions shall lapse.
8.7 No Shareholder Rights. The Grantee shall have no rights as a
shareholder with respect to an SAR. In addition, no
adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property)
or distributions or rights except as provided in Section 5.2
hereof.
ARTICLE IX
STOCK CERTIFICATES
The Company shall not be required to issue or deliver any certificate
for shares of Stock purchased upon the exercise of any Option granted hereunder
or any portion thereof, or deliver any certificate for shares of Restricted
Stock granted hereunder, prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which the Stock is then listed;
(b) The completion of any registration or other qualification of
such shares which the Committee shall deem necessary or
advisable under any federal or state law or under the rulings
or regulations of the Securities and Exchange Commission or
any other governmental regulatory body;
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency or body which the
Committee shall determine to be necessary or advisable; and
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(d) The lapse of such reasonable period of time following the
exercise of the Option as the Board from time to time may
establish for reasons of administrative convenience.
Stock certificates issued and delivered to Grantees shall bear such
restrictive legends as the Company shall deem necessary or advisable pursuant
to applicable federal and state securities laws.
ARTICLE X
TERMINATION AND AMENDMENT
10.1 Termination and Amendment. The Board may at any time
terminate the Plan, and may at any time and from time to time
and in any respect amend the Plan; provided, however, that
the Board (unless its actions are approved or ratified by the
shareholders of the Company within twelve months of the date
that the Board amends the Plan) may not amend the Plan to:
(a) Increase the total number of shares of Stock
issuable pursuant to Incentive Stock Options, except
as contemplated in Sections 5.1 and 5.2;
(b) Change the class of employees eligible to receive
Incentive Stock Options that may participate in the
Plan; or
(c) Otherwise materially increase the benefits accruing
to recipients of Incentive Stock Options under the
Plan.
10.2 Effect on Grantee's Rights. No termination, amendment, or
modification of the Plan shall affect adversely a Grantee's
rights under a Stock Option Agreement or Restriction
Agreement without the consent of the Grantee or his legal
representative.
ARTICLE XI
RELATIONSHIP TO OTHER COMPENSATION PLANS
The adoption of the Plan shall not affect any other stock option,
incentive, or other compensation plans in effect for the Company or any of its
subsidiaries; nor shall the adoption of the Plan preclude the Company or any of
its subsidiaries from establishing any other form of incentive or other
compensation plan for employees or Directors of the Company or any of its
subsidiaries.
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ARTICLE XII
MISCELLANEOUS
12.1 Replacement or Amended Grants. At the sole discretion of the
Committee, and subject to the terms of the Plan, the
Committee may modify outstanding Options or Awards or accept
the surrender of outstanding Options or Awards and grant new
Options or Awards in substitution for them. However, no
modification of an Option or Award shall adversely affect a
Grantee's rights under a Stock Option Agreement or
Restriction Agreement without the consent of the Grantee or
his legal representative.
12.2 Forfeiture for Competition. If a Grantee provides services to
a competitor of the Company or any of its subsidiaries,
whether as an employee, officer, director, independent
contractor, consultant, agent, or otherwise, such services
being of a nature that can reasonably be expected to involve
the skills and experience used or developed by the Grantee
while an employee of the Company or subsidiary, then that
Grantee's rights under any Options outstanding hereunder
shall be forfeited and terminated, and any shares of
Restricted Stock held by such Grantee subject to remaining
restrictions shall be forfeited, subject in each case to a
determination to the contrary by the Committee.
12.3 Plan Binding on Successors. The Plan shall be binding upon
the successors and assigns of the Company.
12.4 Singular, Plural; Gender. Whenever used herein, nouns in the
singular shall include the plural, and the masculine pronoun
shall include the feminine gender.
12.5 Headings, etc., No Part of Plan. Headings of Articles and
Sections hereof are inserted for convenience and reference;
they do not constitute part of the Plan.
12.6 Interpretation. With respect to Section 16 Insiders,
transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under
the Exchange Act. To the extent any provision of the Plan or
action by the Plan administrators fails to so comply, it
shall be deemed void to the extent permitted by law and
deemed advisable by the Plan administrators.
* * * * *
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Exhibit A
Form of Stock Option Agreement
THE ACCENT GROUP, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of
this ____ day of ________________, 1999, by and between THE ACCENT GROUP, INC.,
a Georgia corporation (the "Company"), and ______________________________ (the
"Optionee").
WHEREAS, effective as of ___________ __, 1999 the Board of Directors
of the Company adopted a stock option plan known as "The Accent Group, Inc.
1999 Stock Option Plan" (the "Plan"), and recommended that the Plan be approved
by the Company's shareholders; and
WHEREAS, effective as of ___________ __, 1999 the shareholders of the
Company adopted the Plan; and
WHEREAS, the Committee has granted the Optionee a stock option to
purchase the number of shares of the Company's common stock as set forth below,
and in consideration of the granting of that stock option the Optionee intends
to remain in the employ of the Company; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows.
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the
Plan are incorporated herein by reference and made a part
hereof. A copy of the Plan has been delivered to, and receipt
is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions,
limitations and conditions stated herein, the Company hereby
evidences its grant to the Optionee, not in lieu of salary or
other compensation, of the right and option (the "Option") to
purchase all or any part of the number of shares of the
Company's Common Stock, no par value (the "Stock"), set forth
on Schedule A attached hereto and incorporated herein by
reference. The Option shall be exercisable in the amounts and
at the time specified on Schedule A. The Option shall expire
and shall not be
i
<PAGE> 22
exercisable on the date specified on Schedule A or on such
earlier date as determined pursuant to Section 8, 9, or 10
hereof. Schedule A states whether the Option is intended to
be an Incentive Stock Option.
3. Purchase Price. The price per share to be paid by the
Optionee for the shares subject to this Option (the "Exercise
Price") shall be as specified on Schedule A, which price
shall be an amount not less than the Fair Market Value of a
share of Stock as of the Date of Grant (as defined in Section
11 below) if the Option is an Incentive Stock Option.
4. Exercise Terms. The Optionee must exercise the Option for at
least the lesser of 100 shares or the number of shares of
Purchasable Stock as to which the Option remains unexercised.
In the event this Option is not exercised with respect to all
or any part of the shares subject to this Option prior to its
expiration, the shares with respect to which this Option was
not exercised shall no longer be subject to this Option.
5. Option Non-Transferable. No Option shall be transferable by
an Optionee other than by will or the laws of descent and
distribution or, in the case of non-Incentive Stock Options,
pursuant to a Qualified Domestic Relations Order, and no
Option shall be transferable by an Optionee who is a Section
16 Insider prior to shareholder approval of the Plan. During
the lifetime of an Optionee, Options shall be exercisable
only by such Optionee (or by such Optionee's guardian or
legal representative, should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised by
the Optionee, or by the Optionee's administrators, executors
or personal representatives, by a written notice (in
substantially the form of the Notice of Exercise attached
hereto as Schedule B) signed by the Optionee, or by such
administrators, executors or personal representatives, and
delivered or mailed to the Company as specified in Section 14
hereof to the attention of the President or such other
officer as the Company may designate. Any such notice shall
(a) specify the number of shares of Stock which the Optionee
or the Optionee's administrators, executors or personal
representatives, as the case may be, then elects to purchase
hereunder, (b) contain such information as may be reasonably
required pursuant to Section 12 hereof, and (c) be
accompanied by (i) a certified or cashier's check payable to
the Company in payment of the total Exercise Price applicable
to such shares as provided herein, (ii) shares of Stock owned
by the Optionee and duly endorsed or accompanied by stock
transfer powers having a Fair Market Value equal to the total
Exercise Price applicable to such shares purchased hereunder,
or (iii) a certified or cashier's check accompanied by the
number of shares of Stock whose Fair Market Value when added
to the amount of the check equals the total Exercise Price
applicable to such shares purchased hereunder. Upon receipt
of any such notice and accompanying payment, and subject to
the terms hereof, the
ii
<PAGE> 23
Company agrees to issue to the Optionee or the Optionee's
administrators, executors or personal representatives, as the
case may be, stock certificates for the number of shares
specified in such notice registered in the name of the person
exercising this Option.
7. Adjustment in Option. The number of shares subject to this
Option, the Exercise Price and other matters are subject to
adjustment during the term of this Option in accordance with
Section 5.2 of the Plan.
8. Termination of Employment.
(a) Except as otherwise specified in Schedule A hereto,
in the event of the termination of the Optionee's
employment with the Company or any of its
subsidiaries, other than a termination that is
either (i) for Cause, (ii) voluntary on the part of
the Optionee and without written consent of the
Company, or (iii) for reasons of death or disability
or retirement, the Optionee may exercise this Option
at any time within 90 days after such termination to
the extent of the number of shares which were
Purchasable hereunder at the date of such
termination.
(b) Except as specified in Schedule A attached hereto,
in the event of a termination of the Optionee's
employment that is either (i) for Cause or (ii)
voluntary on the part of the Optionee and without
the written consent of the Company, this Option, to
the extent not previously exercised, shall terminate
immediately and shall not thereafter be or become
exercisable.
(c) Unless and to the extent otherwise provided in
Exhibit A hereto, in the event of the retirement of
the Optionee at the normal retirement date as
prescribed from time to time by the Company or any
subsidiary, the Optionee shall continue to have the
right to exercise any Options for shares which were
Purchasable at the date of the Optionee's retirement
(provided that, on the date which is three months
after the date of retirement, the Options will
become void and unexercisable unless on the date of
retirement the Optionee enters into a noncompete
agreement with National Environmental Contracting
Company and continues to comply with such noncompete
agreement). This Option does not confer upon the
Optionee any right with respect to continuance of
employment by the Company or by any of its
subsidiaries. This Option shall not be affected by
any change of employment so long as the Optionee
continues to be an employee of the Company or one of
its subsidiaries.
9. Disabled Optionee. In the event of termination of employment
because of the Optionee's becoming a Disabled Optionee, the
Optionee (or his or her personal representative) may exercise
this Option, within a period ending on the earlier of
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<PAGE> 24
(a) the last day of the one year period following the
Optionee's death or (b) the expiration date of this Option,
to the extent of the number of shares which were Purchasable
hereunder at the date of such termination.
10. Death of Optionee. Except as otherwise set forth in Schedule
A with respect to the rights of the Optionee upon termination
of employment under Section 8(a) above, in the event of the
Optionee's death while employed by the Company or any of its
subsidiaries or within three months after a termination of
such employment (if such termination was neither (i) for
cause nor (ii) voluntary on the part of the Optionee and
without the written consent of the Company), the appropriate
persons described in Section 6 hereof or persons to whom all
or a portion of this Option is transferred in accordance with
Section 5 hereof may exercise this Option at any time within
a period ending on the earlier of (a) the last day of the one
year period following the Optionee's death or (b) the
expiration date of this Option. If the Optionee was an
employee of the Company at the time of death, this Option may
be so exercised to the extent of the number of shares that
were Purchasable hereunder at the date of death. If the
Optionee's employment terminated prior to his or her death,
this Option may be exercised only to the extent of the number
of shares covered by this Option which were Purchasable
hereunder at the date of such termination.
11. Date of Grant. This Option was granted by the Board of
Directors of the Company on the date set forth in Schedule A
(the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges
that the issuance of capital stock of the Company is subject
to limitations imposed by federal and state law and the
Optionee hereby agrees that the Company shall not be
obligated to issue any shares of Stock upon exercise of this
Option that would cause the Company to violate law or any
rule, regulation, order or consent decree of any regulatory
authority (including without limitation the Securities and
Exchange Commission) having jurisdiction over the affairs of
the Company. The Optionee agrees that he or she will provide
the Company with such information as is reasonably requested
by the Company or its counsel to determine whether the
issuance of Stock complies with the provisions described by
this Section 12.
13. Restriction on Disposition of Shares. The shares purchased
pursuant to the exercise of an Incentive Stock Option shall
not be transferred by the Optionee except pursuant to the
Optionee's will, or the laws of descent and distribution,
until such date which is the later of two years after the
grant of such Incentive Stock Option or one year after the
transfer of the shares to the Optionee pursuant to the
exercise of such Incentive Stock Option.
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<PAGE> 25
14. Miscellaneous.
(a) This Agreement shall be binding upon the parties
hereto and their representatives, successors and
assigns.
(b) This Agreement is executed and delivered in, and
shall be governed by the laws of, the State of
Georgia.
Any requests or notices to be given hereunder shall
be deemed given, and any elections or exercises to
be made or accomplished shall be deemed made or
accomplished, upon actual delivery thereof to the
designated recipient, or three days after deposit
thereof in the United States mail, registered,
return receipt requested and postage prepaid,
addressed, if to the Optionee, at the address set
forth below and, if to the Company, to the executive
offices of the Company at 5895 Windward Parkway,
Suite 220, Alpharetta, Georgia 30005
(d) This Agreement may not be modified except in writing
executed by each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
THE ACCENT GROUP, INC. OPTIONEE
By:
------------------------- --------------------------
Its:
-------------------------
Name:
--------------------
Attest: Address:
----------------------- ------------------
------------------
Its: ------------------
------------------
v
<PAGE> 26
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
THE ACCENT GROUP, INC.
AND
-----------------------------
Dated:
---------------
1. Number of Shares Subject to Option: shares.
2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option.
3. Option Exercise Price: $ per share.
4. Date of Grant:
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares
on or after the date hereof
( ) Options are exercisable with respect to the number
of shares indicated below on or after the date
indicated next to the number of shares:
No. of Shares Vesting Date
6. Option Exercise Period:
Check One:
( ) All options expire and are void unless exercised on
or before , ______________.
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
No. of Shares Expiration Date
7. Effect of Termination of Employment of Optionee (if different from
that set forth in Sections 8, 9 and 10 of the Stock Option Agreement):
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<PAGE> 27
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies The Accent Group, Inc. (the "Company")
of this election to exercise the undersigned's stock option to purchase
_________ shares of the Company's common stock, $.01 par value (the "Common
Stock"), pursuant to the Stock Option Agreement (the "Agreement") between the
undersigned and the Company dated ________________. Accompanying this Notice is
(1) a certified or a cashier's check in the amount of $ __________ payable to
the Company, and/or (2) __________ shares of the Company's Common Stock
presently owned by the undersigned and duly endorsed or accompanied by stock
transfer powers, having an aggregate Fair Market Value (as defined in The
Accent Group Inc. 1999 Stock Option Plan) as of the date hereof of
$____________, such amounts being equal, in the aggregate, to the purchase
price per share set forth in Section 3 of the Agreement multiplied by the
number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 5.2 of the Agreement).
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_____ day of ______________, _______.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR,
EXECUTOR OR PERSONAL
REPRESENTATIVE]
Name:
Position (if other than Optionee):
vii
<PAGE> 1
EXHIBIT 23.2
October 21, 1999
To the Board of Directors
LAHAINA ACQUISITIONS, INC.
5895 Windward Parkway Suite 200
Alpharetta, GA 30005
We hereby consent to the inclusion in this Registration Statement on Form S-1 of
our report dated October 14, 1999 on our audit of the financial statements of
Beachside Commons I, Inc. (currently known as Lahaina Acquisitions, Inc.). We
also consent to the reference to our firm under the caption "Experts."
Sincerely,
/s/ Kenneth R. Walters
KENNETH R. WALTERS, P.A.
Fernandina Beach, Florida
<PAGE> 1
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-74607 of Lahaina Acquisitions, Inc. on Form S-1 of our report dated
September 13, 1999, except for note 9 which is as of September 21, 1999, related
to the consolidated balance sheet of The Accent Group, Inc. and subsidiaries as
of July 9, 1999, appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
- -----------------------------
Atlanta, Georgia
October 21, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement on Form
S-1 of our reports dated September 9, 1999 on our audits of the financial
statements and financial statement schedules of Accent Mortgage Services, Inc.
We also consent to the reference to our Firm under the caption "Experts."
/s/ Holland Shipes Vann, P.C.
-------------------------------------
Holland Shipes Vann, P.C.
Atlanta, Georgia
October 21, 1999
