UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to ___
Commission file number 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 17,965,763 on August 7, 2000.
<PAGE>
LAHAINA ACQUISITIONS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Page
---------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 3
Consolidated Statement of Operations for the Nine 4
Months Ended June 30, 2000
Consolidated Statement of Stockholders' Deficit 5
Consolidated Statement of Cash Flows for the Nine 6
Months Ended June 30, 2000
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Financial Data Schedule 18
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
June 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 24,274 $ 15,300
Restricted cash 490,298 77,352
Restricted certificates of deposit 126,607 126,249
Real estate held for sale - 3,650,000
Real estate held for development 3,286,145 2,958,143
Foreclosed real estate 593,960 593,960
Mortgage loans held for sale, net - -
Options to acquire real estate 408,353 122,893
Property and equipment, net 221,384 87,101
Goodwill, net 1,588,995 903,042
Note receivable - sale of Beachside Commons I, Inc. 2,107,353 -
Note receivable - sale of real estate option 915,750 -
Note receivable - sale of lots 600,000 -
Other assets 854,383 471,386
--------------- --------------
Total assets $ 11,217,502 $ 9,005,426
=============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 2,232,349 $ 1,837,328
Accrued interest payable 478,374 298,432
Notes payable - warehouse line 1,090,587 1,132,442
Notes payable 5,298,817 7,537,432
Due to related parties and stockholders 2,882,488 611,057
Deferred revenue 200,249 216,500
Other liabilities - 9,500
--------------- --------------
Total liabilities 12,195,364 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 (377,001) (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,
13,603,263 shares issued and outstanding at June 30, 2000
and 12,967,343 shares issued and outstanding at
September 30, 1999 - -
Additional paid in capital (168,141) (1,389,431)
Accumulated deficit (428,220) (1,155,305)
--------------- --------------
(596,361) (2,544,736)
--------------- --------------
Total liabilities and stockholders' deficit $ 11,217,502 $ 9,005,426
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
Three Months Nine Months
Ended Ended
June 30, June 30,
2000 2000
------------------ -------------------
<S> <C> <C>
Revenue:
Mortgage brokerage services $ 2,893,131 $ 6,753,618
Real estate services 2,000,000 3,750,000
------------------ ------------------
Total revenue 4,893,131 10,503,618
------------------ ------------------
Operating expenses:
Broker commissions 2,502,567 5,796,186
Cost of real estate sold 498,086 693,615
Salaries and employee benefits 614,548 1,268,938
General and administrative 275,517 965,226
Professional expenses 178,927 481,802
Occupancy expense 39,410 117,659
Amortization of goodwill 27,271 60,048
Depreciation and amortization 19,727 33,811
------------------ ------------------
Total operating expenses 4,156,053 9,417,285
------------------ ------------------
Operating income 737,078 1,086,333
------------------ ------------------
Other (expense) income:
Other income (expense) (72,058) 485,094
Interest expense (191,870) (573,842)
------------------ ------------------
(263,928) (88,748)
------------------ ------------------
Income before income taxes 473,150 997,585
Income tax expense 192,500 262,500
------------------ ------------------
Net income $ 280,650 $ 735,085
================== ==================
Basic earnings per share $ 0.02 $ 0.06
================== ==================
Diluted earnings per share $ 0.02 $ 0.04
================== ==================
Weighted average shares outstanding - basic 13,557,769 13,226,360
================== ==================
Weighted average shares outstanding - diluted 18,306,917 17,874,252
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LAHAINA ACQUISITIONS, 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 - - - 735,085 735,085
Cashless exercise of options 325,920 - - - -
Options exercised 50,000 - 17,500 - 17,500
Stock for Purchase of Paradigm 260,000 - 901,059 - 901,059
Warrants issued in payment
of fees - - 302,731 - 302,731
-------------- -------------- -------------- --------------- --------------
Balance at June 30, 2000 13,603,263 $ - $ (168,141) $ (420,220) $ (588,361)
============== ============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
Nine Months
Ended
June 30,
2000
---------------
<S> <C>
Cash Flows from Operating Activities:
Net income $ 735,085
Adjustments:
Depreciation and amortization 93,859
Income relating to restructuring of convertible notes (147,438)
Income relating to forgiveness of debt (135,241)
Valuation adjustment relating to note receivable (34,296)
Gain on sale of real estate held for development (1,965,604)
Gain on sale of option to acquire real estate (1,090,781)
Interest income accrued on notes related to real estate sales (60,750)
Proceeds from sale of real estate held for development 600,000
(Increase) decrease in:
Restricted cash (423,637)
Restricted certificates of deposit (358)
Options to acquire real estate (344,679)
Costs associated with development of real estate (962,398)
Due from former shareholders of Accent Mortgage Services, Inc.
under indemnity (284,472)
Other assets (219,102)
(Decrease) increase in:
Accounts payable, accrued expenses and other liabilities 806,286
Accrued interest payable 266,597
Deferred revenue (16,251)
---------------
Net cash provided by operating activities (3,183,180)
---------------
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 issuance of notes payable 3,626,616
Proceeds from exercise of stock options 17,500
Repayment of notes payable (1,090,943)
Increase in amounts due to related parties 653,181
---------------
Net cash used in financing activities 3,206,354
---------------
Net increase in cash and cash equivalents 8,974
Cash and cash equivalents at beginning of the period 15,300
---------------
Cash and cash equivalents at end of the period $ 24,274
===============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(continued)
<TABLE>
Nine Months
Ended
June 30,
2000
---------------
<S> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 385,422
Supplemental disclosures of non-cash transactions:
Sale of Beachside Commons I, Inc.
Real estate held for sale $ (3,650,000)
Notes payable assumed by purchaser $ 1,547,894
Notes receivable $ 2,028,057
Other assets and liabilities assumed by purchaser, net $ 74,049
Sale of lots
Gross sales price $ (2,000,000)
Note to related party assumed by purchaser $ 506,750
Notes payable assumed by purchaser $ 893,250
Note receivable $ 600,000
Sale of option to acquire real estate
Gross sales price $ (1,150,000)
Notes receivable $ 900,000
Debt forgiveness $ 250,000
Purchase of Paradigm
Goodwill $ (746,001)
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
Warrants issued in lieu of cash for debt issueance costs $ (302,731)
Other assets $ 302,731
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
LAHAINA ACQUISITIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months Ended June 30, 2000
(unaudited)
The information presented herein as of June 30, 2000, and for the nine
months ended June 30, 2000 is unaudited. The September 30, 1999 balance sheet
was derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
1. Summary of Significant Accounting Policies
The accompanying interim consolidated financial statements have been
prepared by us in accordance and consistent with the accounting policies stated
in our 1999 Annual Report on Form 10-K/A and should be read in conjunction with
the consolidated financial statements appearing therein. In the opinion of
management, all adjustments necessary for a fair presentation of such
consolidated financial statements are reflected in the interim periods
presented. Additionally, all adjustments are of a normal recurring nature.
Interim results are not necessarily indicative of results for a full year.
The consolidated financial statements and notes are presented as permitted
by Form 10-Q and do not contain certain information included in the annual
consolidated financial statements.
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 1,175,000 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 amortized discount and the market value of the
stock held as collateral. At June 30, 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 Expense of $173,000 for the quarter ended June 30, 2000 and Other Income
of $34,000 for the nine months ended June 30, 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 $746,001
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. To date, the Company
has identified $18,000 of such costs, which have been billed and collected. The
reimbursement was recorded as a reduction of the appropriate expense.
300,000 of the shares issued to purchase the Paradigm assets 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>
3. Notes Payable
The Company has the following notes payable at June 30, 2000:
<TABLE>
<S> <C>
Real estate indebtedness:
Note payable secured by certain parcels of land held for development, $ 2,645,595
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. 6,443
Interest only is payable quarterly at a rate of 8.25%.
Non interest bearing note secured by certain parcels of land held for 550,000
development, due June 7, 2000.
--------------
Total real estate indebtedness 3,202,038
--------------
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.
8% Note payable due October 25, 2000. Company may elect to pay the note,
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. 500,000
8% Note payable due December 26, 2000. Company may elect to pay the note,
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. 475,000
Note payable secured by certain parcels of real estate, due October 24, 2000. Interest 161,750
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%.
Insurance premium note. Interest at 11.5%, with monthly payments of $14,950. 85,029
--------------
Total general corporate indebtedness 2,096,779
--------------
Total notes payable $ 5,298,817
==============
Due to related parties and stockholders:
9% Convertible Note, secured by a second mortgage on certain parcels of 459,586
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 a related party secured by certain parcels of land held for 89,307
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 904,075
payable at maturity at a rate of 9% per annum.
Unsecured note payable to the majority shareholder, with no stated interest rate, 777,000
due on demand. Interest is accrued at 10.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 71,720
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 16,800
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 37,000
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate, 22,000
due on demand. Interest is accrued at 8.25% per annum.
Unsecured note payable to a related party, with no stated interest rate,
due on demand. Interest is accrued at 8.25% per annum. 5,000
--------------
Total due to related parties and stockholders $ 2,882,488
==============
</TABLE>
<PAGE>
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 (including, but not limited to, the provisions for
liquidated damages, requirements for filing and maintaining an effective
registration statement and conversion terms) 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.
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. Management is of the
opinion that its current method of operation is substantially in compliance with
the regulations.
The Company is 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.
<PAGE>
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 25 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.
Three months Nine months
ended ended
-------------- --------------
June 30, 2000
-------------------------------
Revenues
Mortgage Brokerage $ 2,893,131 $ 6,753,618
Real Estate Development 2,000,000 3,750,000
Corporate - -
-------------- --------------
$ 4,893,131 $ 10,503,618
============== ==============
Operating income (loss)
Mortgage Brokerage $ 32,020 (13,724)
Real Estate Development 1,387,775 2,743,573
Corporate (682,717) (1,643,516)
-------------- --------------
$ 737,078 $ 1,086,333
============== ==============
Identifiable assets
Mortgage Brokerage $ 5,060,037
Real Estate Development 3,660,305
Corporate 2,497,161
--------------
$ 11,217,502
==============
<PAGE>
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 June 30, 2000
Revenues
Revenues for the quarter ended June 30, 2000 totaled $4,893,000 an increase
of $2,057,000 when compared to the first quarter and $2,119,000 when compared to
the second quarter. Revenue from Mortgage Brokerage Services was $2,893,000, an
increase of $1,207,000 over the first quarter and $719,000 over the second
quarter. Mortgage loan volume originated and brokered by the Company's branch
operations for the quarter totaled $80.9 million. This represents an increase
over the previous quarter of 39% and over the first quarter of 79%.
Revenue from Real Estate Services for the quarter was $2,000,000, an
increase of $1,400,000 over the second quarter and $850,000 over the first
quarter. Due to the type and small number 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 June 30, 2000 total $4,119,000, an
increase from $2,953,000 in the previous quarter and $2,309,000 for the first
quarter. Operating expenses for the quarter ended June 30, 2000 were 84.2% of
total revenue for the period. The principal components of operating expenses for
the period were broker commissions ($2,503,000 or 60.8% of total operating
expense), salaries and employee benefits ($615,000 or 14.9% of total operating
expenses), general and administrative expenses ($276,000 or 6.7% of total
operating expenses), and professional fees ($179,000 or 4.3% of total operating
expenses).
Broker commissions are typically commissions paid by the Company to
employees at the branch offices who are responsible for originating the loans
brokered by the branch. The relationship between revenue and the related
Commission expense for the three quarters is as follows:
Quarter 1 Quarter 2 Quarter 3
Mortgage Brokerage Revenue $ 1,686,000 $ 2,174,000 $ 2,893,000
Broker Commissions 1,493,000 1,800,000 2,503,000
Percentage 88.6% 82.8% 86.5%
General and administrative expense in the quarter ended June 30, 2000 was
$157,000 lower than in the previous quarter, and $29,000 higher than in the
first quarter. Cost associated with the acquisition and integration of the
Paradigm operation are believed to have been a temporary matter.
<PAGE>
Other (Expense) Income
Other (expense) income for the quarter ended June 30, 2000 is a net expense
of $264,000. This consists primarily of interest expense of $192,000 and the
$72,000 net expense from interest and miscellaneous income of $100,000 and the
$173,000 expense from the quarterly adjustment of the carrying value of the
Beachside Note Receivable.
Income before Income Taxes, Tax Provision, Net Income
Income tax expense is provided for on the basis of estimated taxable income
which differs from the income on the financial statements, primarily as a result
of the fluctuation in the valuation of the Beachside Commons note receivable. As
noted above, in the quarter ended June 30, 2000, this adjustment was a non
deductible expense of $173,000.
NINE MONTHS ENDED June 30, 2000
Revenues
Revenues for the nine-month period ended June 30, 2000 aggregated
$10,504,000, with $6,754,000 (64.3%) from Mortgage Brokerage Services. Mortgage
loan volume originated and brokered by the Company's branch operations totaled
$184.3 million. Real estate revenues totaled $3,750,000, (35.7% of total
revenue). $2,600,000 or 69.3% 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 to acquire property for
development that was owned by the Company.
Operating Expenses
Operating expenses for the nine-month period ended June 30, 2000 aggregated
$9,380,000 or 89.3% of total revenue for the period. The principal components of
operating expenses for the period were Broker commissions ($5,796,000 or 61.8%
of total operating expenses), salaries and employee benefits ($1,269,000 or
13.5% of total operating expenses), general and administrative ($965,000 or
10.3% of total expenses), and professional expenses ($482,000 or 5.1% 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 nine-month period ended June 30, 2000,
Broker commissions were 85.8% of Mortgage Brokerage services revenue.
Other (Expense) Income
Other (expense) income for the nine-months ended June 30, 2000 is a net
expense of $89,000. This consists of Other Income of $485,000 which consists
primarily of the year to date valuation adjustment to the Beachside Commons note
($34,000), 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 ($115,000), and is reduced by interest
expense of $574,000.
Income before Income Taxes, Tax Provision, Net Income
For the nine-month period ended June 30, 2000, the Company recorded income
tax expense of $262,500. The sale of the stock of a subsidiary (Beachside
Commons I) 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.
<PAGE>
Liquidity and Capital Resources
The Company used cash in operating activities totaling $3,183,000 for the
nine-month period ended June 30, 2000. The principal component of cash generated
in operating activities was the Company's net income of $735,000. Increases in
restricted cash ($424,000), costs associated with the development of real estate
($962,000), options to acquire real estate ($345,000), and amounts due from
former shareholders of Accent Mortgage Services, Inc. ($284,000) offset cash
generated by net income. Income from restructuring notes ($147,000), forgiveness
of debt ($135,000) and the revaluation of the Beachside note receivable
($34,000) offset cash generated by net income. Gains on sales of real estate
($1,502,000) and the gain on the sale of options to acquire real estate
($1,091,000) were generated in transactions that provided no cash to the company
and likewise offset cash generated by net income. The sales resulted in
significant reductions in outstanding debt ($1,650,000), and notes receivable
aggregating $1,500,000.
Proceeds from the sale of real estate held for development ($600,000),
increases in accounts payable and accrued expenses ($806,000), and accrued
interest ($267,000) provided cash flow from operations.
Cash provided from financing activities totaled $3,206,000 for the period,
primarily consisting of borrowings from non-related parties ($3,627,000) and
related parties and stockholders ($654,000), partially offset by repayments of
$1,091,000.
The Company had $24,000 of unrestricted cash and cash equivalents at June
30, 2000. With this small cash balance and the historical negative cash provided
by operations, the Company may not be able to pay its obligations in a timely
manner.
Management's plan is to continue to attempt to restructure or refinance its
existing obligations, find a source of equity, 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. While management is currently holding discussions with
potential sources of debt and equity financing, there can be no assurance that
they will be successful in the discussions.
The Company has contracts for the sale of lots and parcels in its Peachtree
Industrial development totaling more than $1,350,000 and believes the
transactions will close before the end of September. There can be no assurance
that these transactions will close, or if they do, that they will generate
sufficient cash to satisfy the needs of the Company.
In early July 2000, several employees of the Company were granted options
to acquire 700,000 shares of freely trading common stock for $1,000,000. The
employees exercised these options on July 6, 2000 by executing a note to the
Company. The Company anticipates that the note will be paid in full within the
next 60 days to provide an infusion of cash.
The Company anticipates collection of at least some of the amount due from
former shareholders of Accent Mortgage Services, Inc. under an indemnity
agreement executed as part of the original agreement for the purchase of Accent
Mortgage Services, Inc. by The Accent Group.
There can be no assurance that an increase in mortgage loan volume will be
achieved such that sufficient cash will be generated. The Company has announced
that it intends to dividend a significant ownership percentage (80% or more) in
the mortgage operations to existing shareholders. Profitability and cash flow
from the separate operations will no longer be available to support the
operating or financing needs of each other.
A $550,000 note secured by parcels of real estate was due on June 7, 2000
and the Company was unable to make the payment. The Company is negotiating with
the holder of this note in an effort to obtain an extension of the note. If the
Company is not successful in these efforts, the note will be in default and
interest at 18% begins accruing from the date of the note in addition to any
other remedies the holder might seek. The Company believes it will be successful
in these negotiations.
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.
<PAGE>
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 does not expect the adoption of SFAS No. 133 to have a
material effect on the Company's consolidated financial statements.
In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN 44"), which is
effective July 1, 2000, except that certain conclusions in this Interpretation
which cover specific events that occur after either December 15, 1998 or January
12, 2000 are recognized on a prospective basis from July 1, 2000. This
Interpretation clarifies the application of APB Opinion 25 for certain issues
related to stock issued to employees. The Company believes its existing stock
based compensation policies and procedures are in compliance with FIN 44 and
therefore, the adoption of FIN 44 will have no material impact on the Company's
financial condition, results of operations or cash flows.
In March 2000, the FASB issued Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs" ("EITF 00-2") which is effective for
all such costs incurred for fiscal quarters beginning after June 30, 2000. EITF
00-2 establishes accounting and reporting standards for costs incurred to
develop a web site based on the nature of each cost. Currently, as the Company
has de minimis web site development costs, the adoption of EITF 00-2 would have
no impact on the Company's financial condition or results of operation.
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 June 30, 2000:
<TABLE>
Fair
2000 2001 2002 Total Value
--------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Fixed rate debt $ 5,393,152 $ 1,275,000 $ 2,645,595 $ 9,313,747 $ 9,313,747
Average interest rate 8.34% 9.00% 9.50% 8.76%
</TABLE>
<PAGE>
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
The Company borrowed $550,000 from GCA Strategic Investment Fund, Limited,
under terms of a note secured by parcels of real estate. The note became due on
June 7, 2000.
The Company is negotiating with the holder of this note in an effort to
obtain an extension of the due date. If the Company is not successful in these
efforts, in default the note bears interest at 18% which will begins accruing
from the date of the note in addition to any other remedies the holder might
seek. The Company believes it will be successful in these negotiations.
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
Exhibit No. Description of Exhibit
2.1 Second Amendment to Asset Purchase Agreement dated
March 20, 2000 (1)
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Current Report on Form 8-K/A
dated June 5, 2000 and filed with the Commission on June 5, 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/A dated July 24, 2000 and filed with the
Commission on July 24, 2000 to clarify a previous filing about a change in
Accountants.
Current Report on Form 8-K dated July 13, 2000 and filed with the
Commission on July 14, 2000, regarding changes in Registrant's Certifying
Accountant.
Current Report on Form 8-K/A (Amendment No.1) dated June 5, 2000 and filed
with the Commission on June 5, 2000, amending a previous filing relating to the
Company's acquisition of certain assets of Paradigm Mortgage Associates, Inc.
<PAGE>
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: August 21, 2000 By: /s/ L. Scott Demerau
-------------------------- ----------------------------------------
L. Scott Demerau
President and Chief Executive Officer
