<PAGE> 1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF EARLIEST EVENT REPORTED: AUGUST 23, 1999
LAHAINA ACQUISITIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
COLORADO 0-27480 84-1325695
(STATE OF OTHER JURISDICTION OF (COMMISSION FILE (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) NO.) IDENTIFICATION NO.)
(770) 754-6140
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME OF FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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<PAGE> 2
ITEM 1. NOT APPLICABLE
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Incorporated by reference to Item 2 of Lahaina Acquisitions, Inc.'s
Current Report on Form 8-K, dated August 23, 1999, as filed with
the Securities and Exchange Commission on September 7, 1999.
ITEMS 3 THROUGH 6. NOT APPLICABLE
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements
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<PAGE> 3
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
-3-
<PAGE> 4
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; 325,000 shares issued and outstanding
entitled to redemption under certain circumstances 70,577
-----------
STOCKHOLDERS' DEFICIT:
Common stock (no par value; 100,000,000 shares authorized, 1,000,100
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
-4-
<PAGE> 5
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 852,500
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,
120,000 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 120,000 shares calculated as the consideration
paid in excess of $1 million divided by $1 million. The
120,000 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.
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<PAGE> 6
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 362,600 shares of its common stock, plus the assumption
of certain outstanding debt and other liabilities. The stock
was valued at $580,160 or $1.60 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 145,000 shares of the Company's common stock.
The 145,000 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 50,000
of the 145,000 shares.
The remaining 95,000 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>
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<PAGE> 7
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 10,000 shares of common stock. The
Company recorded the option at $16,000 or $1.60 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 40,000 shares of common stock.
The Company recorded the option at $64,000 or $1.60 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 60,000 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
-7-
<PAGE> 8
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.
-8-
<PAGE> 9
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.
-9-
<PAGE> 10
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>
-10-
<PAGE> 11
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
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<PAGE> 12
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
-12-
<PAGE> 13
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.
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.
-13-
<PAGE> 14
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
-14-
<PAGE> 15
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.
-15-
<PAGE> 16
ACCENT MORTGAGE SERVICES, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- -----------------------------------------------------------------------------
<S> <C>
REVENUES
Brokerage services $ 560,097
Interest income 9,188
- -----------------------------------------------------------------------------
569,285
- -----------------------------------------------------------------------------
OTHER EXPENSES
Brokerage services expense 323,222
Interest expense 30,986
Provision for losses 50,000
Administrative and general 386,878
Loss on disposal of property and equipment 167,645
- -----------------------------------------------------------------------------
958,731
- -----------------------------------------------------------------------------
NET LOSS $ (389,446)
=============================================================================
</TABLE>
See accompanying notes to financial statements.
-16-
<PAGE> 17
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.
-17-
<PAGE> 18
ACCENT MORTGAGE SERVICES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1999
- -----------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (389,446)
- -----------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:-
Depreciation 16,568
Loss on disposal of property and equipment 167,645
Changes in assets and liabilities:
Accrued interest receivable 47,959
Other assets (1,500)
Accrued interest payable (34,835)
Other liabilities 35,135
- -----------------------------------------------------------------------------
230,972
- -----------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (158,474)
- -----------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to related company (189,523)
Proceeds from sale of mortgages 2,199,119
Purchase of certificates of deposit (2,354)
Proceeds from sale of equipment 13,500
- -----------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,020,742
- -----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution 500,000
Loans from stockholders 2,794
Decrease in lines of credit (2,855,222)
Proceeds from notes payable 528,891
Principal payments on notes payable (23,526)
- -----------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (1,847,063)
- -----------------------------------------------------------------------------
NET INCREASE IN CASH 15,205
CASH AND CASH EQUIVALENTS, beginning of period 66,050
- -----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 81,255
=============================================================================
</TABLE>
See accompanying notes to financial statements.
-18-
<PAGE> 19
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.
-19-
<PAGE> 20
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.
-20-
<PAGE> 21
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>
-21-
<PAGE> 22
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.
-22-
<PAGE> 23
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.
-23-
<PAGE> 24
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>
-24-
<PAGE> 25
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.
-25-
<PAGE> 26
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.
-26-
<PAGE> 27
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
-27-
<PAGE> 28
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.
-28-
<PAGE> 29
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
-29-
<PAGE> 30
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.
-30-
<PAGE> 31
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.
-31-
<PAGE> 32
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.
-32-
<PAGE> 33
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.
-33-
<PAGE> 34
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.
-34-
<PAGE> 35
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.
-35-
<PAGE> 36
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.
-36-
<PAGE> 37
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.
-37-
<PAGE> 38
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.
-38-
<PAGE> 39
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.
-39-
<PAGE> 40
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>
-40-
<PAGE> 41
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.
-41-
<PAGE> 42
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.
-42-
<PAGE> 43
(b) Pro Forma Financial Statements
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, and (iv)
other Accent acquisitions. 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 acquirer of Lahaina as
its stockholders will receive the largest portion of the voting rights in the
combined corporation.
The Unaudited Pro Forma Condensed Balance Sheet gives effect to the
acquisitions as if they had occurred on June 30, 1999. The Unaudited Pro Forma
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 January 1, 1998.
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 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 combined
financial statements should be read in conjunction with the other financial
statements and notes thereto included elsewhere in this Form 8-K/A.
The pro forma adjustments have been adjusted to reflect the 10 for 1 exchange
ratio for shares issued by Lahaina to shareholders of Accent.
-43-
<PAGE> 44
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA 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 $ -- $ 166,516
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 -- 82,839 1,320,326
Due from related parties and stockholders 40,000 -- -- 40,000
Other assets 283,323 211,251 (152,500) 342,074
----------- ----------- ----------- -----------
Total assets $ 4,117,302 $ 3,204,311 $ 678,540 $ 8,000,153
=========== =========== =========== ===========
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 -- 1,169,046
Other liabilities 1,500 9,000 -- 10,500
----------- ----------- ----------- -----------
Total liabilities 5,739,565 2,874,294 -- 8,613,859
----------- ----------- ----------- -----------
Redeemable stock 70,577 -- -- 70,577
Stockholders' equity (deficit):
Common stock -- 37,382 (37,382) --
Convertible preferred stock -- 428,823 (428,823) --
Additional paid-in capital (1,571,840) 544,070 464,487 (563,283)
Retained earnings (deficit) (121,000) (680,258) 680,258 (121,000)
----------- ----------- ----------- -----------
Total stockholders' equity (deficit) (1,692,840) 330,017 678,540 (684,283)
----------- ----------- ----------- -----------
Total liabilities and stockholders' equity (deficit) $ 4,117,302 $ 3,204,311 $ 678,540 $ 8,000,153
=========== =========== =========== ===========
</TABLE>
THE ACCENT GROUP, INC.
UNAUDITED PRO FORMA 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>
-44-
<PAGE> 45
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA 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 $ 1,101,448 $ 62,158 $ -- $ 1,163,606
Cost of Revenues -- -- -- --
---------- ---------- ---------- ----------
Gross profit 1,101,448 62,158 -- 1,163,606
Selling, general and
administrative expenses 1,701,989 347,119 (150,000)(B) 1,959,108
60,000 (C)
Amortization of goodwill 61,874 -- 4,142 (D) 66,016
Other (income) expense:
Interest expense 328,762 78,406 -- 407,168
Interest income (56,530) -- -- (56,530)
---------- ---------- ---------- ----------
Net loss $ (934,647) $ (363,367) $ 85,858 $(1,212,156)
=========== ========== =========== ===========
</TABLE>
THE ACCENT GROUP, INC.
UNAUDITED PRO FORMA 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 $ -- $ 1,101,448 $ -- $ 1,101,448
Cost of Revenues -- -- -- --
---------- ---------- ----------- ---------
Gross profit -- 1,101,448 -- 1,101,448
Selling, general and
administrative expenses 25,000 1,668,259 8,730 (E) 1,701,989
Amortization of goodwill -- -- 61,874 (D) 61,874
Other (income) expense:
Interest expense -- 171,698 157,064 (F) 328,762
Interest income -- (56,530) -- (56,530)
---------- ---------- ----------- ---------
Net loss $ (25,000) $ (681,979) $ (227,668) $ (934,647)
========== ============ =========== ===========
</TABLE>
-45-
<PAGE> 46
LAHAINA ACQUISITIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ACCENT PRO FORMA
PRO FORMA (A) LAHAINA ADJUSTMENTS PRO FORMA
COMBINED HISTORICAL (NOTE 4) COMBINED
-------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 1,211,246 $ -- $ -- $ 1,211,246
Cost of Revenues -- -- -- --
----------- --------- ---------- -----------
Gross profit 1,211,246 -- -- 1,211,246
Selling, general and
administrative expenses 2,385,496 46,078 300,000(C) 2,731,574
Amortization of goodwill 82,499 -- 5,523(D) 88,022
Other (income) expense:
Interest expense 465,672 -- -- 465,672
Interest income (92,997) -- -- (92,997)
Other, net -- -- -- --
----------- --------- ---------- -----------
Net loss $(1,629,424) $ (46,078) $ (305,523) $(1,981,025)
=========== ========= ========== ===========
</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 $ -- $ 1,211,246 $ -- $ 1,211,246
Cost of Revenues -- -- -- --
--------- ----------- ----------- -------------
Gross profit -- 1,211,246 -- 1,211,246
Selling, general and
administrative expenses -- 2,373,856 11,640 (E) 2,385,496
Amortization of goodwill -- -- 82,499 (D) 82,499
Other (income) expense:
Interest expense -- 262,417 203,255 (F) 465,672
Interest income -- (92,997) -- (92,997)
Other, net -- -- -- --
--------- ----------- ----------- -------------
Net loss $ -- $(1,332,030) $ (297,394) $ (1,629,424)
========= =========== ========== =============
</TABLE>
-46-
<PAGE> 47
LAHAINA ACQUISITIONS, INC.
NOTES TO UNAUDITED PRO FORMA 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. ("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 COMBINED BALANCE SHEET ADJUSTMENTS
The pro forma combined balance sheet adjustments related to the acquisition of
Lahaina by Accent reflects the purchase of Lahaina 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 $152,500 for a total purchase price of $1,161,057. After the
allocation of purchase price to the fair market value of the real estate
($748,201) the remaining the excess purchase price over the fair market value
of the assets and liabilities acquired was recorded as goodwill ($82,839). 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.
The following table summarizes unaudited pro forma 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
-47-
<PAGE> 48
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 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 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 increase in property tax expense associated with the
undeveloped real estate contributed to Accent by its majority
shareholder.
(F) 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.
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 $.07 and $.12, respectively. The number of
shares used in computing basic and diluted net loss per share (16,217,343) 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
assumes the transactions occurred on January 1, 1998.
ITEMS 8 and 9. NOT APPLICABLE
-48-
<PAGE> 49
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lahaina Acquisitions, Inc.
(REGISTRANT)
By: /s/ L. Scott Demerau
----------------------------------
September 30, 1999 Name: L. Scott Demerau
Title: President
-49-
