UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to
Commission file number 0-27480
LAHAINA ACQUISITIONS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 84-1325695
--------------- --------------
(State or Other (IRS Employer
Jurisdiction of Identification No.)
Incorporation or
Organization)
5895 Windward Parkway, Suite 220
Alpharetta, Georgia 30005
(Address of Principal Executive Offices)
(770) 754-6140
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The number of outstanding shares of the Registrant's Common Stock, no
par value per share, was 16,869,627 on April 14, 2000.
Explanatory Note
This Quarterly Report on Form 10-Q/A is filed to amend certain portions of our
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000 as
filed with the Commission on May 22, 2000 to reflect certain reclassifications
and corrections of typographical errors.
<PAGE>
2
LAHAINA ACQUISITIONS, INC.
FORM 10-Q/A
INDEX
PART I. FINANCIAL INFORMATION
Page
----------
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000
and September 30, 1999 3
Consolidated Statement of Operations for the Three
and Six Months Ended March 31, 2000 4
Consolidated Statement of Stockholders' Deficit 5
Consolidated Statement of Cash Flows for the Six
Months Ended March 31, 2000 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
Financial Data Schedule 17
<PAGE>
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LAHAINA ACQUISTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
March 31, September 30,
2000 1999
--------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 226,364 $ 15,300
Restricted cash 326,464 77,352
Restricted certificates of deposit 126,607 126,249
Real estate held for sale - 3,650,000
Real estate held for development 3,589,184 2,958,143
Foreclosed real estate 593,960 593,960
Options to acquire real estate 170,913 122,893
Property and equipment, net 242,274 87,101
Goodwill, net 1,616,266 903,042
Note receivable - sale of Beachside Commons I, Inc. 2,234,919
Note receivable - sale of real estate option 900,000
Other assets 524,732 471,386
--------------- --------------
Total assets $ 10,551,683 $ 9,005,426
=============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 2,097,298 $ 1,837,328
Accrued interest payable 378,412 298,432
Notes payable - warehouse line 1,132,442 1,132,442
Notes payable 4,739,538 7,537,432
Due to related parties and stockholders 3,501,834 611,057
Deferred revenue 175,699 216,500
Other liabilities - 9,500
--------------- --------------
Total liabilities 12,025,223 11,642,691
--------------- --------------
Commitments and contingencies
Redeemable stock:
Common stock, no par value; 3,250,000 shares issued and
outstanding, entitled to redemption under certain circumstances (336,300) (92,529)
--------------- --------------
Stockholders' deficit:
Preferred series A convertible stock, 10,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, no par value, 800,000,000 shares authorized, 13,509,627 shares
issued and outstanding at March 31, 2000 and 12,967,343 shares
issued and outstanding at September 30, 1999 - -
Additional paid in capital (436,372) (1,389,431)
Accumulated deficit (700,868) (1,155,305)
--------------- --------------
(1,137,240) (2,544,736)
--------------- --------------
Total liabilities and stockholders' deficit $ 10,551,683 $ 9,005,426
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
4
LAHAINA ACQUISTIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
Three Months Six Months
Ended Ended
March 31, March 31,
2000 2000
------------------ ------------------
<S> <C> <C>
Revenue:
Mortgage brokerage services $ 2,174,126 $ 3,860,487
Real estate services 600,000 1,750,000
------------------ ------------------
Total revenue 2,774,126 5,610,487
------------------ ------------------
Operating expenses:
Broker commissions 1,800,162 3,293,619
Cost of real estate sold 136,310 195,529
Salaries and employee benefits 354,934 654,390
General and administrative 433,188 680,194
Professional expenses 162,413 302,875
Occupancy expense 39,972 78,249
Amortization of goodwill 18,264 32,777
Property taxes - 9,515
Depreciation and amortization 7,865 14,084
------------------ ------------------
Total operating expenses 2,953,108 5,261,232
------------------ ------------------
Operating income (178,982) 349,255
Other expense (income):
Other income (486,164) (661,203)
Interest expense 203,400 381,972
Other expense - 104,049
------------------ ------------------
(282,764) (175,182)
------------------ ------------------
Income before income taxes 103,782 524,437
Income tax (benefit) expense (45,000) 70,000
------------------ ------------------
Net income $ 148,782 $ 454,437
================== ==================
Basic earnings per share $ 0.01 $ 0.03
================== ==================
Diluted earnings per share $ 0.01 $ 0.03
================== ==================
Weighted average shares outstanding - basic 15,304,969 15,211,562
================== ==================
Weighted average shares outstanding - diluted 16,580,889 16,563,200
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
5
LAHAINA ACQUISTIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(unaudited)
<TABLE>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
-------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1999 12,967,343 $ - $ (1,389,431) $ (1,155,305) $ (2,544,736)
Net income - - - 454,437 454,437
Cashless exercise of options 282,284 - - - -
Stock for Purchase of Paradigm 260,000 - 901,059 - 901,059
Warrants issued in payment
of fees - - 52,000 - 52,000
-------------- -------------- -------------- --------------- --------------
Balance at March 31, 2000 13,509,627 $ - $ (436,372) $ (700,868) $ (1,137,240)
============== ============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
6
LAHAINA ACQUISTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
Six Months Ended
March 31, 2000
-----------------
<S> <C>
Net income $ 454,437
Adjustments:
Depreciation and amortization 46,862
Income relating to restructuring of convertible notes (147,438)
Income relating to forgiveness of debt (135,241)
Valuation adjustment relating to note receivable (206,862)
Gain on sale of real estate held for development (463,690)
Gain on sale of option to acquire real estate (1,090,781)
(Increase) decrease in:
Restricted cash (259,803)
Restricted certificates of deposit (358)
Real estate held for sale 600,000
Options to acquire real estate (107,239)
Other assets (141,346)
Amounts due from former shareholders of Accent Mortgage
Services, Inc. under indemnity (243,771)
(Decrease) increase in:
Accounts payable, accrued expenses and other liabilities 671,234
Accrued interest payable 166,635
Deferred revenue (40,801)
Costs associated with development of real estate (767,351)
-----------------
Net cash used in operating activities (1,665,513)
-----------------
Cash Flows from Investing Activities:
Purchase of property and equipment (14,200)
-----------------
Net cash used in investing activities (14,200)
-----------------
Cash Flows from Financing Activities:
Proceeds from the issuance of notes payable 2,030,000
Repayment of notes payable (905,000)
Increase in amounts due to related parties 765,777
-----------------
Net cash provided by financing activities 1,890,777
-----------------
Net increase in cash and cash equivalents 211,064
Cash and cash equivalents at beginning of period 15,300
-----------------
Cash and cash equivalents at end of the period $ 226,364
=================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
7
LAHAINA ACQUISTIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(continued)
<TABLE>
Six Months Ended
March 31, 2000
----------------------
<S> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 36,765
Sale of Beachside Commons I, Inc.:
Real estate held for sale $ 3,650,000
Notes payable $ (1,547,894)
Notes receivable $ (2,028,057)
Other assets and liabilities, net $ (74,049)
Sale of Real Estate Option:
Notes receivable $ (900,000)
Debt forgiveness $ 250,000
Purchase of Paradigm
Goodwill $ (746,001)
Purchase of property and equipment $ (155,058)
Issuance of common stock $ 901,059
Other financing transactions:
Notes payable $ (2,175,000)
Due to related parties and stockholders $ 2,175,000
Issuance of warrants in lieu of cash for debt issuance costs $ 52,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
8
LAHAINA ACQUISTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended March 31, 2000
(unaudited)
1. Summary of Significant Accounting Policies
Interim Reporting
The accompanying unaudited interim condensed consolidated financial
statements have been prepared by management in accordance with the accounting
policies described in the Company's Annual Report for the year ended September
30, 1999. Certain information and footnote disclosures normally found in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended September 30, 1999.
In the opinion of management, the consolidated financial statements reflect
all adjustments which are necessary to present fairly the financial position of
Lahaina Acquisitions, Inc. and subsidiaries at March 31, 2000, and the results
of operations for the three and six months ended March 31, 2000 and the cash
flows for the six months ended March 31, 2000..
2. Acquisitions and Divestitures
Sale of Beachside Commons I, Inc.
On December 30, 1999, the Company sold Beachside Commons I, Inc., a wholly
owned subsidiary, to Beachside Commons Holding, LLC. The purchase price,
$4,550,000, consisted of an assumption of $1,550,000 of debt and a $3,000,000
note, bearing interest at 6% and due December 31, 2000, from Beachside Commons
Holding, LLC. The note was recorded at a discount of $972,000 at December 30,
1999.
The note is secured solely by 675,000 shares of common stock of Lahaina
held by an escrow agent. The Company values the note based upon the lower of the
face amount of the note less the unamortized discount and the market value of
the stock held as collateral. At March 31, 2000 and December 31, 1999, the note
was valued at $2,234,919 and $1,944,877, respectively. As a result of amortizing
the discount, subject to the market value limitation noted, the Company has
recorded Other Income of $290,000 for the quarter ended March 31, 2000 and
$207,000 for the six months ended March 31, 2000.
Paradigm Purchase
On March 20, 2000, the Company completed the purchase of certain of the
assets of Paradigm Mortgage Associates, Inc., a Florida corporation for 500,000
shares of common stock of Lahaina. Under terms of the Asset Purchase Agreement,
Paradigm guaranteed that the Branch Operations acquired by the Company would
maintain a minimum monthly volume of mortgage loan originations of $19,000,000
for at least twelve of the eighteen months subsequent to the transaction. If the
Minimum Volume is not achieved in at least twelve of the eighteen months, for
every month in addition to six months that the Minimum Volume is not achieved,
Seller shall forfeit 20,000 shares. The 240,000 shares that are contingently
returnable are treated as contingently issuable shares. The purchase of these
assets is recorded at the market value of the 260,000 shares of stock ($3.47 per
share or a total of $901, 059) that are not contingently returnable with
$155,058 allocated to property and equipment and the remaining $746,000
allocated to goodwill to be amortized over 15 years. If the minimum monthly
volumes are achieved, the shares no longer at risk of being cancelled will be
recorded at the value of the stock at the issue date and goodwill will be
increased accordingly.
Paradigm agreed to reimburse the Company for transition costs associated
with integrating the operations acquired with those of the Company. These costs,
to be determined in the sole discretion of the Company, shall not exceed
$900,000 and the period involved runs to March 20, 2001. During the quarter
ended March 31, 2000, the Company identified $18,000 of such costs, which were
billed to Paradigm. The reimbursement was recorded as a reduction of the
appropriate expense and a receivable from stockholders and related parties at
March 31, 2000.
A total of 300,000 shares are held in escrow with 150,000 segregated and
specified to secure payment of indemnity claims and the performance guarantee
and 150,000 shares segregated and specified to secure payment of transition
costs claims.
<PAGE>
9
3. Notes Payable
The Company has the following notes payable at March 31, 2000:
<TABLE>
<S> <C>
Real estate indebtedness:
Note payable secured by certain parcels of land held for development, $ 2,165,595
due September 1, 2002. Interest only is payable monthly at a rate of 9.5%.
Note payable secured by certain parcels of land held for development, 992,500
due March 23, 2000. Interest only is payable quarterly at a rate of 8.25%.
Note payable secured by certain parcels of land held for development, 6,443
due March 20, 2000. Interest only is payable quarterly at a rate of 8.25%.
Note payable secured by certain parcels of land held for development, 550,000
due June 7, 2000. Interest at 18%.
--------------
Total real estate indebtedness 3,714,538
--------------
General corporate indebtedness:
8% Note payable due September 25, 2000. Company may elect to pay the note, 525,000
plus accrued interest, with stock or cash. If the note is not paid on or before
date, the Holder may require conversion. The note is secured by shares of stock
equal to the number of shares issuable upon conversion.
Note payable secured by certain parcels of real estate, due April 8, 2000 . Interest 150,000
only is payable monthly at a rate of 15%.
Note payable secured by certain parcels of real estate, due December 2, 2000 . Interest 350,000
only is payable monthly at a rate of 15%.
--------------
Total general corporate indebtedness 1,025,000
--------------
Total notes payable $ 4,739,538
==============
Due to related parties and stockholders:
9% Convertible Note, secured by a second mortgage on certain parcels of 775,000
real estate, due January 31, 2001. Interest only payable quarterly in arrears.
9% Convertible Note, secured by a second mortgage on certain parcels of 500,000
real estate, due August 18, 2001. Interest only payable quarterly in arrears.
Note payable to related party secured by certain parcels of land held for 596,057
development, due July 1, 2000. Interest only is payable quarterly at a rate of 8.25%.
Unsecured note payable to a related party, due December 31, 2000. Interest only 619,777
payable at maturity at a rate of 9% per annum.
Unsecured note payable to the majority shareholder, with no stated interest rate, 840,000
due on demand. Interest is accrued at 10.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 71,000
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 30,000
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 55,000
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 15,000
due on demand. Interest is accrued at 8.25% per annum.
--------------
Total due to related parties and stockholders $ 3,501,834
==============
</TABLE>
<PAGE>
10
4. Restructuring of Certain Debt
On February 17, 2000, the Holder of the Company's convertible notes (the
"Notes") entered into an agreement with a party related to the Company to
exchange the Notes, along with all accrued interest, accrued liquidated damages
and other features relating to the Notes, for a new security provided by the
related party. As a result, the related party has agreed to amend certain
provisions of the Notes and to waive permanently all previous accrued interest
and accrued liquidated damages pertaining to the Notes. The Company reversed
accrued interest payable and accrued liquidated damages payable totaling
$287,438 during the three-month period ended December 31, 1999, and is in
compliance with the amended terms and conditions of the Notes. The Company also
wrote-off approximately $140,000 of other assets, primarily related to the costs
of maintaining an effective registration statement on Form S-1 (or other Form)
for the shares of Lahaina common stock into which the Notes might be converted.
5. Commitments and Contingencies
In July and August 1998, Accent Mortgage Services, Inc. (AMSI) acquired
from SGE and related entities notes secured primarily by first security interest
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 that may result from the
Matrix transaction, however should the ultimate resolution be unfavorable to the
Company, any losses would be subject to the indemnification from the former AMSI
shareholders.
The Company is also subject to various litigation in the ordinary
course of business. In the opinion of management, resolution of such matters
will not have a significant effect on the financial position of the Company.
6. Segment Information
The Company operates in two business segments - Mortgage Brokerage and
Real Estate Development.
Mortgage Brokerage provides mortgage brokerage services to consumers
through a network of over 100 branch offices located in 21 states.
Real Estate development is engaged in the acquisition, development and
sale of a variety of real estate projects.
Corporate services include human resources, legal, accounting and
various unallocated overhead costs.
There are no inter-segment revenues.
<TABLE>
Three months Six months
ended ended
-------------- ---------------
March 31, 2000
-------------------------------
<S> <C> <C>
Revenues
Mortgage Brokerage $ 2,174,126 $ 3,860,487
Real Estate Development 600,000 1,750,000
Corporate - -
-------------- --------------
$ 2,774,126 $ 5,610,487
============== ==============
Operating income (loss)
Mortgage Brokerage $ 18,436 (45,744)
Real Estate Development 350,944 1,355,798
Corporate (548,362) (960,799)
-------------- --------------
$ (178,982) $ 349,255
============== ==============
Identifiable assets
Mortgage Brokerage $ 5,053,819
Real Estate Development 3,453,639
Corporate 2,044,225
--------------
$ 10,551,683
==============
</TABLE>
<PAGE>
11
7. Subsequent Events
On May 1, 2000 the U.S. Department of Housing and Urban Development issued
Mortgagee Letter 00-15 addressing "Prohibited Branch Arrangements" and providing
guidance and clarification regarding the Department's requirements for branch
offices of HUD/FHA approved mortgagees. A significant portion of the loan volume
originated and brokered by the Company's branch network would be in jeopardy if
HUD/FHA approval were lost, and the Company could be subject to HUD sanctions if
it were found to be in violation of HUD Regulations.
The Company is currently reviewing the implications of Mortgagee Letter
00-15 on its operations. At this time, management is of the opinion that its
current method of operation, coupled with certain changes that management was in
the process of instituting before the publication of Mortgagee Letter 00-15, is
in compliance with the regulations.
<PAGE>
12
ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with the
unaudited consolidated financial statements and related notes thereto included
elsewhere in this report. This Management's Discussion and Analysis of Financial
Condition and Results of Operations and other parts of this Quarterly Report on
Form 10-Q contain forward-looking statements that involve risks and
uncertainties. Those statements relate to dividends; business plans, programs
and trends; results of future operations; uses of future earnings; satisfaction
of future cash requirements; funding of future growth; acquisition plans; and
other matters. Words or phrases such as "will," "hope," "expect," "intend,"
"plan" or similar expressions are generally intended to identify forward-looking
statements. Those statements involve risks and uncertainties that could cause
actual results to differ materially from the results discussed herein. 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. Readers
are cautioned not to place undue reliance on the forward-looking statements made
in, or incorporated by reference into, this Quarterly Report on Form 10-Q or in
any document or statement referring to this Quarterly Report on Form 10-Q.
Results of Operations
THREE MONTHS ENDED March 31, 2000
Revenues
Revenues for the quarter ended March 31, 2000 totaled $2,775,000 a decrease
of $60,000 when compared to the first quarter. Revenue from Mortgage Brokerage
Services was $2,174,000, an increase of $487,000 over the previous quarter.
Mortgage Brokerage Service revenue was approximately 76.7% of total revenues for
the current quarter compared to 60.7% in the previous quarter. The Paradigm
acquisition was not completed until late March and only generated revenue from
March 20 forward. Mortgage loan volume originated and brokered by the Company's
branch operations for the quarter totaled approximately $54.4 million, with $3.8
million of this generated by the Paradigm branches. This represents an increase
over the previous quarter of 20%. Real estate revenues for the quarter were
$600,000, down approximately $550,000 from the previous quarter. Due to the type
of projects currently under development, the Company does not anticipate that
revenue from real estate activities will necessarily be consistent from period
to period.
Operating Expenses
Operating expenses for the quarter ended March 31, 2000 totaled $3,012,000,
an increase from $2,308,000 in the previous quarter. Operating expenses for the
quarter ended March 31, 2000 were 106.3% of total revenue for the period. The
principal components of operating expenses for the period were broker
commissions ($1,800,000 or 59.3% of total operating expense), salaries and
employee benefits ($355,000 or 11.8% of total operating expenses), general and
administrative expenses ($433,000 or 14.4% of total operating expenses), and
professional fees ($162,000 or 5.4% of total operating expenses).
Broker commissions ($1,800,000) are typically commissions paid by the
Company to employees at the branch offices who are responsible for originating
the loans brokered by the branch. Broker commissions in the quarter ended March
31, 2000 increased by $307,000 over the previous quarter, but as a percentage of
Mortgage Brokerage Services Revenue decreased to 82.8% for the current quarter
from 88.6% in the previous quarter.
General and administrative expense increased by $186,000 in the quarter
ended March 31, 2000, with $105,000 of the increase attributable to the
operations of the branches acquired from Paradigm. The remainder of the increase
was the result of adding infrastructure to support the growing number of branch
operations and the increased number of mortgage brokers working for the Company.
<PAGE>
13
Other Expense (Income)
Other expense (income) for the quarter ended March 31, 2000 consists of
Other Income, Interest Expense and Other Expense and is an aggregate income of
$283,000 for the quarter. It consists primarily of income from the $290,000
increase in the valuation of the note receivable created in the Beachside
Commons sale (see note 2), interest expense of $203,000, interest income of
$56,000 from Notes Receivable from the sale of Beachside and real estate
options, and miscellaneous other income items in the quarter.
Income before Income Taxes, Tax Provision, Net Income
For the quarter ended March 31, 2000, the Company's operations exclusive
of the adjustment to the value of the Beachside Commons note reflect a loss. The
tax effect of this loss reduces the income tax provision reported for the
previous quarter, generating a net tax benefit of $45,000 in the current
quarter.
Six MONTHS ENDED March 31, 2000
Revenues
Revenues for the six-month period ended March 31, 2000 aggregated
$5,610,000, with $3,860,000 (68.8%) from Mortgage Brokerage Services. Mortgage
loan volume originated and brokered by the Company's branch operations totaled
$99.6 million. Real estate revenues totaled $1,750,000, (31.2% of total
revenue). $600,000 or 37.6% of the real estate revenue is attributable to the
sale of property developed by the Company. The remaining $1,150,000 of Real
Estate Services revenue represents the sale of an option owned by the Company to
acquire property.
Operating Expenses
Operating expenses for the six-month period ended March 31, 2000 aggregated
$5,261,000, or 93.7% of total revenue for the period. The principal components
of operating expenses for the period were Broker commissions ($3,294,000 or
62.64% of total operating expenses), salaries and employee benefits ($654,000 or
12.4% of total operating expenses), general and administrative ($680,000 or
12.9% of total expenses), and professional expenses ($303,000 or 5.8% of total
operating expenses).
Broker commissions ($3,294,000) are typically commissions paid by the
Company to employees at the branch offices who are responsible for originating
the loans brokered by the branch. For the six-month period ended March 31, 2000,
Broker commissions were 85.3% of Mortgage Brokerage services revenue.
Other Expense (Income)
Other expense (income) is comprised of Other Income, Interest Expense and
Other Expense.
Other income of $175,000 for the six-month period ended March 31, 2000
consists primarily of the year to date valuation adjustment to the Beachside
Commons note ($207,000), income from the restructuring of certain of the
Company's convertible notes ($147,000), income from the elimination of accounts
payable in the Beachside transaction ($135,000), interest income on the notes
from the Beachside and real estate option sale ($55,000), and is reduced by
interest expense of $382,000.
Income before Income Taxes, Tax Provision, Net Income
For the six-month period ended March 31, 2000, the Company recorded income
tax expense of $. The sale of the stock of a subsidiary generated taxable income
significantly different from that reported for financial statement purposes.
Subsequent fluctuations in the valuation of the note receivable will result in
income or loss for financial statement purposes that result in no tax expense or
benefit.
Liquidity and Capital Resources
The Company used cash in operating activities totaling $1,666,000 for the
six-month period ended March 31, 2000. The principal component of cash generated
in operating activities was the Company's net income of $454,000. Increases in
restricted cash ($260,000), costs associated with the development of real estate
($767,000), options to acquire real estate ($107,000), and amounts due from
former shareholders of Accent Mortgage Services, Inc. ($244,000) offset cash
generated by net income, while proceeds from the sale of real estate held for
development ($600,000), increases in accounts payable and accrued expenses
($671,000), and accrued interest ($167,000) provided cash flow from operations.
<PAGE>
14
Cash provided from financing activities totaled $1,891,000 for the period,
primarily consisting of additional borrowings from non-related parties
($2,030,000) and related parties and stockholders ($766,000), partially offset
by repayments of $905,000.
The Company had $226,000 of unrestricted cash and cash equivalents at March
31, 2000.
Management's plan is to continue to attempt to restructure or refinance its
existing obligations, increase the volume of mortgage loans brokered through its
mortgage operations, develop and sell its various parcels of real estate and,
ultimately, to achieve sustainable profitability and positive cash flow.
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.
The Company entered into an arrangement on February 25, 2000 that is to
provide up to $1,500,000 of bridge loan financing. The $1,500,000 is to be
generated by the sale of Bridge Notes in one or more transactions. The Notes are
due in 210 days and bear interest at 8%. Under the terms of the Notes, the
Company has the option of paying the principal, plus accrued interest, by
issuing stock. In the event of default, the note holder may require repayment in
common stock of the Company. The value of the stock issued, if any, in payment
of the Notes is the average closing bid price of the stock for the five days
immediately prior to the Original Issue Date. At March 31, 2000 the Company had
drawn $525,000 of the $1,500,000, with another $500,000 drawn in April.
Year 2000 Readiness
The Company has not incurred any material costs nor has it experienced any
operational problems as a result of Year 2000 issues.
New Accounting Standard
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standard ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which will require that all derivative
financial instruments be recognized as either assets or liabilities on the
balance sheet. In June 1999, the FASB issued SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of SFAS No. 133, which deferred the implementation of SFAS No. 133 until June
15, 2000. SFAS No. 133 will be effective for the Company's first quarter of
fiscal 2001. The Company is evaluating the effects of the new statement and how
to implement the new requirements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company had minimal indebtedness subject to variable interest rates at the
beginning of the year, and all of this was paid off during the three-month
period ended March 31, 2000. Most of the Company's debt is relatively short term
(due within the next 24 months) and in most cases will be renegotiated. Assuming
March 31, 2000 debt levels (exclusive of stockholders and related parties) an
increase or decrease in interest rates of one percentage point would impact the
Company's interest expense by about $60,000 per year.
The following table presents the principal cash flows and related weighted
average interest rates on debt by expected maturity date as of March 31, 2000:
<TABLE>
Fair
2000 2001 2002 Total Value
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Fixed rate debt $5,933,219 $1,275,000 $2,165,595 $9,373,814 $9,373,814
Average interest rate 10.01% 9.00% 9.50% 9.76%
</TABLE>
<PAGE>
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
<TABLE>
Exhibit No. Description of Exhibit
<S> <C>
2.1 Asset Purchase Agreement dated February 25, 2000 by and among Paradigm Mortgage Associates Inc.,
its principal shareholders and Accent Acquisitions I, Co. (1)
2.2 First Amendment to Asset Purchase Agreement dated March 20, 2000 (1)
2.3 Escrow Agreement dated March 20, 2000 by and among Accent Acquisitions I, Co., and Paradigm
Mortgage Associates, Inc. and Kutak Rock LLP (1)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
March 31, 2000 and filed with the Commission on March 31, 2000.
B. Reports on Form 8-K
During the quarter ended March 31, 2000, the Company filed with the
Commission the following reports on Form 8-K:
Current Report on Form 8-K dated March 31, 2000 and filed with the Commission on
March 31, 2000, relating to the Company's acquisition of certain assets of
Paradigm Mortgage Associates, Inc.
Current Report on Form 8-K/A (Amendment No. 2) dated January 18, 2000 and filed
with the Commission on March 20, 2000 amending a previous filing relating to the
Company's sale of its wholly-owned subsidiary, Beachside Commons I, Inc.
Current Report on Form 8-K/A (Amendment No. 1) dated January 18, 2000 and filed
with the Commission on February 10, 2000, amending a previous filing relating to
the Company's sale of its wholly owned subsidiary, Beachside Commons I, Inc.
Current Report on Form 8-K dated January 18, 2000 and filed with the Commission
on January 18, 2000, relating to the Company's sale of its wholly owned
subsidiary, Beachside Commons I, Inc.
<PAGE>
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LAHAINA ACQUISITIONS, INC.
Dated: June 2, 2000 By: /s/ L. Scott Demerau
-------------------------- -------------------------------------
L. Scott Demerau
President and Chief Executive Officer
