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
December 31, 1999
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, were 16,332,945 on January 10, 2000.
Explanatory Note
This Annual 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 December 31, 1999,
as filed with the Commission on February 22,2000 in response to comments from
the Securities and Exchange Commission received on April 5, 2000.
<PAGE>
2
LAHAINA ACQUISITIONS, INC.
FORM 10-Q/A
INDEX
PART I. FINANCIAL INFORMATION
Page
--------
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1999 3
and September 30, 1999
Consolidated Statement of Operations for the Three 4
Months Ended December 31, 1999
Consolidated Statement of Stockholders' 5
Deficit
Consolidated Statement of Cash Flows for the Three 6
Months Ended December 31, 1999
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about 16
Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security 17
Holders
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 20
Financial Data Schedule 21
<PAGE>
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
December 31, September 30,
1999 1999
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 80,436 $ 15,300
Restricted cash 286,384 77,352
Restricted certificates of deposit 126,607 126,249
Real estate held for sale -- 3,650,000
Real estate held for development 3,057,299 2,958,143
Foreclosed real estate 593,960 593,960
Mortgage loans held for sale, net -- --
Options to acquire real estate 84,966 122,893
Property and equipment, net 80,882 87,101
Goodwill, net 888,529 903,042
Note receivable - sale of Beachside Commons I, Inc. 1,944,877 -
Note receivable - sale of real estate option 900,000 -
Other assets 536,088 471,386
------------ ------------
Total assets $ 8,580,028 $ 9,005,426
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 1,749,941 $ 1,837,328
Accrued interest payable 282,380 298,432
Notes payable - warehouse line 1,132,442 1,132,442
Notes payable 5,564,538 7,537,432
Due to related parties and stockholders 2,052,057 611,057
Deferred revenue 173,550 216,500
Other liabilities -- 9,500
------------ ------------
Total liabilities 10,954,908 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 (135,799) (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, 12,967,343 shares
issued and outstanding at December 31, 1999 and September 30, 1999 -- --
Additional paid in capital (1,389,431) (1,389,431)
Accumulated deficit (849,650) (1,155,305)
------------ ------------
(2,239,081) (2,544,736)
------------ ------------
Total liabilities and stockholders' deficit $ 8,580,028 $ 9,005,426
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
4
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
Three Months
Ended
December 31,
1999
-------------
<S> <C>
Revenue:
Broker fee income $ 1,686,361
Gain on sale of real estate option 1,090,781
------------
Total revenue 2,777,142
------------
Operating expenses:
Broker commissions 1,493,457
Salaries and employee benefits 299,456
General and administrative 247,006
Professional expenses 140,462
Occupancy expense 38,277
Amortization of goodwill 14,513
Property taxes 9,515
Depreciation and amortization 6,219
------------
Total operating expenses 2,248,905
------------
Operating income 528,237
Other expense (income):
Other income (175,039)
Interest expense 178,572
Other expense 104,049
------------
107,582
------------
Income before income taxes 420,655
Income taxes 115,000
------------
Net income $ 305,655
============
Basic earnings per share $ 0.02
============
Diluted earnings per share $ 0.02
============
Weighted average shares outstanding - basic 16,217,343
============
Weighted average shares outstanding - diluted 17,645,914
============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
5
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 - - 305,655 305,655
-------------- -------------- -------------- --------------- --------------
Balance at December 31, 1999 12,967,343 $ - $ (1,389,431) $ (849,650) $ (2,239,081)
============== ============== ============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
6
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
Three Months
Ended
December 31,
1999
---------------
<S> <C>
Cash Flows from Operating Activities:
Net income $ 305,655
Adjustments:
Depreciation and amortization 20,732
Gain on sale of option to acquire real estate (1,090,781)
Income relating to restructuring of convertible notes (147,438)
Valuation adjustment relating to note receivable 83,180
(Increase) decrease in:
Restricted cash (219,723)
Restricted certificates of deposit (358)
Options to acquire real estate (21,292)
Costs associated with development of real estate (99,156)
Other assets (204,702)
(Decrease) increase in:
Accounts payable, accrued expenses and other liabilities 188,636
Accrued interest payable 70,603
Deferred revenue (42,950)
Increase in amounts due from former shareholders of Accent Mortgage
Services, Inc. under indemnity (43,270)
---------------
Net cash used in operating activities (1,200,864)
---------------
Cash Flows from Investing Activities -
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable 875,000
Repayment of notes payable (200,000)
Increase in amounts due to related parties 591,000
---------------
Net cash provided from financing activities 1,266,000
---------------
Net increase in cash and cash equivalents 65,136
Cash and cash equivalents at beginning of the period 15,300
---------------
Cash and cash equivalents at end of the period $ 80,436
===============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
7
LAHAINA ACQUISITIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(Continued)
<TABLE>
Three Months
Ended
December 31,
1999
---------------
<S> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 162,744
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 option to acquire real estate
Notes receivable $ 900,000
Debt forgiveness $ 250,000
Other debt transactions
Notes payable $ 900,000
Due to related parties and stockholders $ 900,000
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
8
LAHAINA ACQUISITIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months ended December 31, 1999
(Unaudited)
1. Summary of Significant Accounting Policies
Interim Reporting
The accompanying unaudited interim condensed consolidated financial
statements have been prepared by management of Lahaina Acquisitions, Inc. (the
"Company" or "Lahaina") in accordance with rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, certain information and
footnote disclosures usually found in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. In the opinion of management of the Company, all adjustments
(consisting only of normal recurring adjustments, except as disclosed herein)
considered necessary for a fair presentation of the condensed consolidated
financial statements have been included. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses. Actual results could differ from
those estimates.
The consolidated financial statements included herein should be read in
conjunction with the consolidated financial statements and notes thereto, and
the Independent Auditors' Report included in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1999 (the "1999 Form 10-K").
Reference is made to the accounting policies of the Company described in the
notes to consolidated financial statements included in the 1999 Form 10-K. The
Company has consistently followed those policies in preparing this report.
2. Acquisitions, Divestitures and Merger Transactions
Sale of Beachside Commons I, Inc.
On December 31, 1999, Lahaina and Accent Mortgage Services, Inc. ("AMSI"),
a wholly owned subsidiary of Lahaina, sold all of the outstanding capital stock
of Beachside Commons I, Inc. ("Beachside") to NP Holding, Inc. (the "Buyer"). On
December 14, 1998, the Company originally acquired all of the issued and
outstanding capital stock of Beachside, which was reported by the Company on a
current report on Form 8-K dated December 28, 1998. Beachside is the owner of a
commercial real estate development located in Fernandina Beach, Florida in the
resort area of Amelia Island located in northeast Florida. The property owned by
Beachside includes two (2) fully developed ocean view structures and two ocean
front sites for future development. The net realizable value of the property
owned by Beachside has been determined by the Company at this time to be
$3,650,000.
The sole member of the Buyer is Beachside Commons Holding, LLC, a recently
formed limited liability company. Beachside Commons Holding, LLC is also the
sole member of Beachside Holding, LLC which has pledged shares of Lahaina under
a Pledge Agreement (as defined below). Beachside Commons Holding, LLC is
comprised of eight members who received gifts of stock of the Company from
Mongoose Investments, LLC, which originally sold all of the issued and
outstanding capital stock of Beachside to Lahaina on December 14, 1998. Each of
the members of Beachside Commons Holding, LLC contributed all of their stock of
the Company in exchange for a membership interest in Beachside Commons Holding,
LLC. On the date the Company originally acquired all of the issued and
outstanding capital stock of Beachside, Mongoose Investments, LLC owned 89% of
the issued and outstanding shares of common stock of the Company. In addition,
the manager of Mongoose Investments, LLC, Richard P. Smyth, served as the Chief
Executive Officer, Treasurer and Chairman of the Board of Directors of the
Company from December 14, 1998 until August 23, 1999. Neither Mongoose
Investments, LLC nor Richard P. Smyth have any ownership in the Buyer either
directly or indirectly.
The purchase price for all of the issued and outstanding capital stock of
Beachside is $4,550,000 payable (i) by the delivery of a Non-Recourse Promissory
Note made payable to AMSI in the outstanding principal amount of $3,000,000 from
Buyer which bears interest at a rate equal to six percent (6%) per annum (the
"Note") and (ii) by taking the property and assets owned by Beachside subject to
a first mortgage granted by Beachside in favor of Pacific Coast Investment
Company in the original principal amount of $1,550,000. The purchase price shall
be allocated between the Company and AMSI for the adjustment, payment and
settlement of certain expenses that the Company previously incurred in
connection with the original acquisition of Beachside or its operating
subsequent to
<PAGE>
9
the original acquisition. The Company and AMSI have also agreed to pay certain
liabilities associated with the operation of Beachside. In the event that such
liabilities are not paid by Lahaina and/or AMSI, Beachside Holding, LLC may
exercise the right to sell shares pledged under the Pledge Agreement (as defined
below) to satisfy such unpaid liabilities.
The outstanding principal and interest under the Note is due and payable
in a balloon payment on December 31, 2000. The repayment of the Note is secured
solely by the pledge of 660,000 shares of common stock of Lahaina under the
terms of the Stock Pledge Agreement (the "Pledge Agreement") dated December 31,
1999 by and between Beachside Holding, LLC, an affiliate of the Buyer (the
"Pledgor") and AMSI. If the outstanding principal and interest under the Note is
not paid in full on or before December 31, 2000, Lahaina may only exercise its
rights to the common stock of the Company under the Pledge Agreement and may not
seek any recourse against the Buyer.
Additionally, in connection with the sale of all of the issued and
outstanding capital stock of Beachside to the Buyer, the consulting agreement
entered into between the Company and Gator Glory, LLC, an affiliate of Richard
P. Smyth, has been terminated, except that the provision requiring payment of a
two percent (2%) fee to obtain certain financing on behalf of the Company
remains in effect. The Company has also terminated its Consulting Agreement with
Gerald F. Sullivan, except that the provision requiring a one percent (1%) fee
for the first $13,000,000 of transactions consummated by Lahaina as a finder's
fee for identifying proposed acquisition candidates with such fee based on the
value of the gross assets of the target company remains in effect.
The Company has recorded the note receivable relating to the sale of
Beachside at a carrying value of $1,944,877, which represents management's
estimate of the fair value of the note at December 31, 1999. As a result, the
Company has recorded $83,160 of other expense during the period relating to the
valuation of the note receivable.
3. Real Estate Held for Sale
Real estate held for sale at September 30, 1999 represented the property
owned by the Company's wholly-owned subsidiary, Beachside, which subsequently
was divested on December 31, 1999 (see Note 2, Acquisitions, Divestitures and
Merger Transactions contained herein).
4. Real Estate Held for Development
Real estate held for development at December 31, 1999 consists of the
following:
<TABLE>
<S> <C>
Land held for development $ 2,757,440
Costs to develop land 299,859
-----------
$ 3,057,299
===========
</TABLE>
5. Options to Acquire Real Estate
The Company had previously acquired an option to purchase certain real
estate located in Tennessee for 100,000 shares of its common stock. The Company
recorded the option at $16,000 or $0.16 per share based on an independent
appraisal of the fair value of the Company's stock at the date of formation.
Subsequent to acquiring the option, the Company made additional cash investments
associated with this option of approximately $43,219. On December 30, 1999, the
Company sold all of its rights associated with this option to a third party for
consideration totaling $1,150,000. The total consideration for the option and
associated rights included a promissory note made payable to the Company in the
amount of $900,000, which has been recorded as an "other asset" in the Company's
consolidated balance sheet. The promissory note is secured by a first lien on
the property being developed (releases of which are subject to cash payments of
principal), a guaranty made by a third party related to the issuer of the note,
as well as by a pledge of 225,000 shares of Lahaina common stock. The Company
has recorded a gain on the sale of the rights associated with this option of
approximately $1,090,781.
The Company has also made cash payments associated with an option to
acquire a parcel of land located in Cumming, Georgia. Such payments include
payment of interest on existing indebtedness associated with the parcel of
<PAGE>
10
land. At December 31, 1999, the recorded value of this option totaled $84,966.
The Company intends to exercise this option and to develop the parcel of land.
Plans presently call for the development of approximately 195 townhomes on this
33-acre tract.
6. Notes Receivable
The note receivable resulting from the sale of Beachside, which has a face
value of $3,000,000, has been recorded at management's estimate of its fair
value. The fair value of the note was estimated based on an evaluation of the
market price of the 660,000 Lahaina common shares that secure the note for a
period of fifteen days surrounding the closing date of the transaction. At
December 31, 1999 this note receivable was in default, resulting from a
deficiency in the value of the collateral as described in the terms of the note.
As of the date of this report, Management has not taken any actions relating to
perfection of this default.
The note receivable resulting from the sale of the Company's option and
related development rights for a parcel of land in Tennessee was recorded at
face value, which in management's judgement represents its fair value.
7. Other Assets
Other assets at December 31, 1999 consists of the following:
<TABLE>
<S> <C>
Deal costs $ 168,221
Due From Related Parties and Stockholders 132,454
Branch set-up fees receivable 173,550
Deposits 38,137
Other 23,726
----------
$ 536,088
==========
</TABLE>
Deal costs represent costs associated with obtaining certain financing for
the Company, as well as costs associated with the registration of certain of the
Company's common shares. As a result of the restructuring of the Company's
convertible notes (see Note 11, Subsequent Events, contained elsewhere in this
report on Form 10-Q), the Company has written-off approximately $140,000 of
previously capitalized costs associated with maintaining an effective
registration statement on Form S-1 (or other Form) for the shares of Lahaina
common stock into which the convertible notes may be converted. Costs associated
with obtaining financing for the Company are amortized ratably over the term of
the associated financing.
Branch set-up fees receivable represents the uncollected portion of set-up
fees due and payable to the Company relating to the initial set-up fees that a
new branch pays to the Company.
<PAGE>
11
8. Notes Payable
The Company has the following notes payable at December 31, 1999:
<TABLE>
<S> <C>
Real estate indebtedness:
Note payable secured by certain parcels of land held for development, $2,085,595
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, 456,443
due March 20, 2002. Interest only is payable quarterly at a rate of 8.25%
Note payable secured by certain parcels of land held for development, due 255,000
due March 1, 2000. Interest only is payable quarterly at a rate equal to
prime plus 75 basis points (9.25% at December 31, 1999)
----------
Total real estate indebtedness 3,789,538
----------
General corporate indebtedness:
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 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 1,775,000
----------
Total notes payable $5,564,538
==========
Due to related parties and stockholders:
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 600,000
payable at maturity at a rate of 9% per annum
Unsecured note payable to the majority shareholder, with no stated interest rate, 800,000
due on demand. Interest is accrued at 10.25% per annum
Unsecured note payable to a related party, with no stated interest rate, 56,000
due on demand. Interest is accrued at 8.25% per annum
----------
Total due to related parties and stockholders $2,052,057
==========
</TABLE>
<PAGE>
12
Conversion Provisions on the Convertible Notes
The terms of the $775,000 and $500,000 convertible notes (collectively, the
"Notes") issued by the Company state that the Holder may convert the Notes at
any time, and contain certain other conversion provisions. The Notes are
convertible into common stock of the Company at a conversion price of $0.875 per
share (or approximately 885,714 shares) and $3.50 per share (or approximately
142,857 shares) for the $775,000 Note and the $500,000 Note, respectively.
At December 31, 1999 the Company was not in compliance with certain
provisions of the Notes and their related agreements, and as a result the Notes
are callable by the Holder. The events of default are failure to maintain an
effective registration statement for the conversion shares on Form S-1 (or other
Form) because of the aging of the financial information included therein, and
failure to pay interest on the Notes in either cash or common shares in a timely
fashion. The Holder of the Notes has provided an extended cure period with
respect to certain events of default. There is no cash flow impact with respect
to curing the events of default as the cure can be achieved by issuing and
delivering shares of the Company's common stock. At December 31, 1999 the
Company has provided reserves totaling $200,783 for potential liquidated damages
that might result from it not being in compliance with those provisions. Such
potential liquidated damages may be satisfied though issuance and delivery of
common stock of the Company. Additionally, as a result of the December 30, 1999
sale of Beachside, and the subsequent release of a second mortgage lien on
Beachside's real estate holdings by the Holder of the Notes, the Company has
granted to the Holder of the Notes a second mortgage lien on certain other real
estate holdings.
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 (see Note 11, Subsequent Events, contained elsewhere herein).
9. Commitments and Contingencies
Legal Proceedings
In July and August 1998, 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.
10. Segment Information
The Company operates in two business segments: Mortgage Brokerage and Real
Estate Development. A further description of each business segment along with
the Corporate services area follows:
Mortgage Brokerage - Mortgage Brokerage provides mortgage brokerage
services to consumers through several traditional branch offices located
primarily in the Atlanta, Georgia metropolitan area.
Real Estate Development - Real Estate development is a multi-state real
estate development organization engaged in the acquisition, development and sale
of a wide variety of real estate projects.
Corporate - Corporate services include human resources, legal,
accounting and various other of the Company's unallocated overhead charges.
<PAGE>
13
The accounting policies of the segments are the same as those described
in the 1999 Form 10-K. The Company evaluates performance based on revenues and
operating income (loss) of the respective segments. Revenues for the Real Estate
Development segment for the three-month period ended December 31, 1999 were
derived solely from the sale of an option to acquire land and certain
development rights to a tract of land in Athens, TN. There are no intersegment
revenues.
The following sets forth certain financial information attributable to
the Company's business segments as of December 31, 1999 and for the three months
ended December 31, 1999:
<TABLE>
<CAPTION>
Real
Mortgage Estate
Brokerage Development Corporate Total
-------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 1,686,361 $ 1,090,781 $ - $ 2,777,142
Operating income (loss) $ (64,180)$ 1,004,854 $ (412,437)$ 528,237
Identifiable assets $ 3,875,814 $ 3,437,012 $ 1,267,202 $ 8,580,028
Capital expenditures $ - $ - $ - $ -
</TABLE>
11. Income Taxes
The Company files a consolidated return with its subsidiaries and allocates
income tax benefits and expenses based upon the income or loss of each
subsidiary computed on a stand-alone basis. During the three-month period ended
December 31, 1999, the Company recorded income tax expense of $115,000,
resulting primarily from the sale of an option to acquire real property and the
sale of the stock of a subsidiary. The Company utilized its net operating loss
to offset income from operations and the above-mentioned gains. The resulting
effective combined tax rate for the quarter was approximately 27 percent.
12. Subsequent Events
Acquisition of Paradigm Mortgage Associates, Inc.
On January 11, 2000, the Company announced that it had executed a letter
of intent to acquire Paradigm Mortgage Associates, Inc. ("Paradigm") of
Jacksonville, Florida. Paradigm is one of the largest cooperative branch
mortgage companies in the country with more than 250 branch offices. In its
announcement, the Company stated that a plan of acquisition should be defined by
January 31, 2000 and that the transaction is expected to close within 60 days.
Closing of the transaction is subject to, among other things, negotiation of a
definitive agreement and plan of merger, satisfactory completion of a due
diligence review, approval by both companies' boards of directors, and
appropriate regulatory approvals. On February 8, 2000, the Company announced
that the due diligence process was continuing and that closing of the
transaction is anticipated by the end of the Company's second fiscal quarter.
Restructure of Convertible Notes
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 presently
in compliance with the amended terms and conditions of the Notes. The Company
has also written-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.
<PAGE>
14
ITEM 2. Management's 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/A 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/A or
in any document or statement referring to this Quarterly Report on Form 10-Q/A.
Recent Developments
Sale of Beachside Commons I, Inc.
On December 31, 1999, Lahaina and Accent Mortgage Services, Inc. ("AMSI"),
a wholly owned subsidiary of Lahaina, sold all of the outstanding capital stock
of Beachside Commons I, Inc. ("Beachside") to NP Holding, Inc. (the "Buyer"). On
December 14, 1998, the Company originally acquired all of the issued and
outstanding capital stock of Beachside, which was reported by the Company on a
current report on Form 8-K dated December 28, 1998. Beachside is the owner of a
commercial real estate development located in Fernandina Beach, Florida in the
resort area of Amelia Island located in northeast Florida. The property owned by
Beachside includes two (2) fully developed ocean view structures and two ocean
front sites for future development. The net realizable value of the property
owned by Beachside has been determined by the Company at this time to be
$3,650,000.
The purchase price for all of the issued and outstanding capital stock of
Beachside is $4,550,000 payable (i) by the delivery of a Non-Recourse Promissory
Note made payable to AMSI in the outstanding principal amount of $3,000,000 from
Buyer which bears interest at a rate equal to six percent (6%) per annum (the
"Note") and (ii) by taking the property and assets owned by Beachside subject to
a first mortgage granted by Beachside in favor of Pacific Coast Investment
Company in the original principal amount of $1,550,000. The purchase price shall
be allocated between the Company and AMSI for the adjustment, payment and
settlement of certain expenses that the Company previously incurred in
connection with the original acquisition of Beachside or its operating
subsequent to the original acquisition. The Company and AMSI have also agreed to
pay certain liabilities associated with the operation of Beachside. In the event
that such liabilities are not paid by Lahaina and/or AMSI, Beachside Holding,
LLC may exercise the right to sell shares pledged under the Pledge Agreement (as
defined below) to satisfy such unpaid liabilities.
The outstanding principal and interest under the Note is due and payable
in a balloon payment on December 31, 2000. The repayment of the Note is secured
solely by the pledge of 660,000 shares of common stock of Lahaina under the
terms of the Stock Pledge Agreement (the "Pledge Agreement") dated December 31,
1999 by and between Beachside Holding, LLC, an affiliate of the Buyer (the
"Pledgor") and AMSI. If the outstanding principal and interest under the Note is
not paid in full on or before December 31, 2000, Lahaina may only exercise its
rights to the common stock of the Company under the Pledge Agreement and may not
seek any recourse against the Buyer.
Additionally, in connection with the sale of all of the issued and
outstanding capital stock of Beachside to the Buyer, the consulting agreement
entered into between the Company and Gator Glory, LLC, an affiliate of Richard
<PAGE>
15
P. Smyth, has been terminated, except that the provision requiring payment of a
two percent (2%) fee to obtain certain financing on behalf of the Company
remains in effect. The Company has also terminated its Consulting Agreement with
Gerald F. Sullivan, except that the provision requiring a one percent (1%) fee
for the first $13,000,000 of transactions consummated by Lahaina as a finder's
fee for identifying proposed acquisition candidates with such fee based on the
value of the gross assets of the target company remains in effect.
Acquisition of Paradigm Mortgage Associates, Inc.
On January 11, 2000, the Company announced that it had executed a letter
of intent to acquire Paradigm Mortgage Associates, Inc. ("Paradigm") of
Jacksonville, Florida. Paradigm is one of the largest cooperative branch
mortgage companies in the country with more than 250 branch offices. In its
announcement, the Company stated that a plan of acquisition should be defined by
January 31, 2000 and that the transaction is expected to close within 60 days.
Closing of the transaction is subject to, among other things, negotiation of a
definitive agreement and plan of merger, satisfactory completion of a due
diligence review, approval by both companies' boards of directors, and
appropriate regulatory approvals. On February 8, 2000, the Company announced
that the due diligence process was continuing and that closing of the
transaction is anticipated by the end of the Company's second fiscal quarter.
Results of Operations
FOR THE THREE MONTH PERIOD ENDED DECEMBER 31, 1999
Revenues
Revenues for the three-month period ended December 31, 1999 totaled
$2,777,142. Broker fee income generated by AMSI represented $1,686,361 (or
approximately 60.7 percent) of total revenues for the period. This broker fee
income represents fees associated with the brokerage of mortgage loans by AMSI
branch offices. Mortgage loan volume originated and brokered by AMSI's branch
operation for the period totaled approximately $45.3 million, representing an
increase over the immediately preceding three-month period of 99.7%. Revenues
for ARG totaled $1,090,781 for the period (or approximately 39.3 percent of
total revenues). Revenues for ARG represented a gain on the sale of an option
and related development rights associated with a parcel of land in Tennessee.
Operating Expenses
Operating expenses for the three month period ended December 31, 1999
totaled $2,248,905. The principal components of operating expenses for the
period were broker commissions ($1,493,457 or 66.4 percent of total operating
expenses), salaries and employee benefits ($299,456 or 13.3 percent of total
operating expenses) general and administrative expenses ($247,006 or 11.0
percent of total operating expenses), and professional fees ($140,462 or 6.3
percent of total operating expenses).
The principal components of broker commissions ($1,493,457 for the period)
were commissions paid by AMSI to branch offices for loans brokered by each
branch. Such expenses are attributable to the Mortgage Services segment, and
represent commissions due to branch offices net of applicable fees due to AMSI.
General and administrative expense ($247,006 for the period) consisted of
$126,333 (or 51.2 percent of the total) attributable to the mortgage brokerage
segment, $107,726 (or 43.6 percent of the total) attributable to corporate
activities, and $12,947 (or 5.2 percent of the total) attributable to the real
estate development segment.
The principal components of the $126,333 of general and administrative
expense attributable to the mortgage brokerage segment were travel and
entertainment ($22,446), advertising and marketing ($12,827), printing costs
($14,241) and expenses associated with the operation of Beachside ($15,666). The
mortgage brokerage segment experienced significant expansion of its branch
operation during the period, and as a result experienced significant costs
associated with this expansion.
The principal components of the $107,726 of general and administrative
expense attributable to corporate activities were filing fees ($20,461), legal
fees ($21,500), costs associated with the Company's obtaining financing
($18,218), telephone expenses ($11,558), office supplies ($5,589), and travel
and entertainment ($4,329).
<PAGE>
16
Other Expense (Income)
Other expense (income) for the period totaled $107,583, primarily
consisting of interest expense ($178,572 for the period), other expense
($104,049 for the period) and other income ($175,039 for the period).
Interest expense ($178,562) represents interest expense associated with the
Company's borrowings. Approximately $98,250 of the total interest expense
relates to borrowings associated with the Company's real estate holdings, while
approximately $66,616 relates to general corporate indebtedness. A total of
$60,270 relates to indebtedness on the Company's Beachside property.
Other income of $175,039 for the period consists primarily of $147,438
attributable to the restructuring of the Company's $1,275,000 of outstanding
convertible notes. Approximately $7,776 of rental income relating to a sublease
of certain corporate office space, and $19,800 of miscellaneous income relating
to the mortgage brokerage segment also contributed to total other income.
Other expense ($104,049 for the period) consists primarily of a valuation
adjustment of $83,180 pertaining to the note receivable recorded as a result of
the sale of the Company's Beachside Commons I, Inc. subsidiary. Approximately
$20,869 of other expense relates to fees for taxes and licenses within the
Company's mortgage brokerage segment.
Income before Income Taxes, Tax Provision, Net Income
The Company recorded income before income taxes of $420,655 for the
three-month period ended December 31, 1999. Income tax expense of $115,000 was
recorded resulting in net income of $305,655 for the three-month period ended
December 31, 1999, or basic and diluted earnings per share of $0.02 and $0.02,
respectively.
Liquidity and Capital Resources
The Company used cash in operating activities totaling $1,200,864 for the
three-month period ended December 31, 1999. The principal component of cash
generated in operating activities was the Company's net income of $305,655.
Increases in restricted cash ($219,723) , costs associated with development of
real estate ($99,156) and other assets ($204,702) served to offset cash
generated by net income, while increases in accounts payable and accrued
expenses ($188,366) and accrued interest payable ($70,603) provided cash flow
from operations.
Cash provided from financing activities totaled $1,266,000 for the period,
primarily consisting of an increase in notes payable ($875,000) and amounts due
to related parties and stockholders ($591,000), partially offset by repayments
of notes payable of $200,000.
The Company had $80,436 of cash and cash equivalents at December 31, 1999.
The Company's warehouse line of credit has been restructured to accept
certain real estate owned as a reduction in the warehouse line of credit. The
remaining outstanding amounts are interest only with principal payments subject
to the resolution of the SGE Mortgage Funding Corporation matter described in
Note 8 to the Company's financial statements included in this quarterly report
on Form 10-Q.
<PAGE>
17
Management's plan is to continue 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.
On January 11, 2000, the Company announced that it had executed a letter
of intent to acquire Paradigm Mortgage Associates, Inc. ("Paradigm") of
Jacksonville, Florida. Paradigm is one of the largest cooperative branch
mortgage companies in the country with more than 250 branch offices. In its
announcement, the Company stated that a plan of acquisition should be defined by
January 31, 2000 and that the transaction is expected to close within 60 days.
Closing of the transaction is subject to, among other things, negotiation of a
definitive agreement and plan of merger, satisfactory completion of a due
diligence review, approval by both companies' boards of directors, and
appropriate regulatory approvals. On February 8, 2000, the Company announced
that the due diligence process was continuing and that closing of the
transaction is anticipated by the end of the Company's second fiscal quarter.
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 on
variable rate debt. At December 31, 1999, approximately 3.0 percent of the
Company's total indebtedness of $8,749,037 is subject to changes in the prime
rate of interest. Additionally, the short-term nature of a portion of the
Company's indebtedness will require that portions of the Company's total
indebtedness be renegotiated. The Company will be subject to any changes in
general interest rates at the time any of such debt is renegotiated.
The table below presents the principal cash flows and related weighted
average interest rates on debt by expected maturity dates as of December 31,
1999:
<TABLE>
<CAPTION>
Fair
2000 2001 2002 Total Value
--------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Fixed rate debt $ 5,133,442 $ 1,275,000 $ 2,085,595 $ 8,494,037 $ 8,494,037
Average interest rate 9.26% 9.00% 9.50% 9.28%
Floating rate debt $ 255,000 $ - $ - $ 255,000 $ 255,000
Average interest rate 9.25% 0.00% 0.00% 9.25%
</TABLE>
<PAGE>
18
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.
<PAGE>
19
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
<TABLE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.1 Stock Purchase Agreement dated December 31, 1999 by and among
Lahaina Acquisitions, Inc., Accent Mortgage Services, Inc. and
NP Holding, LLC (1)
10.2 Non-Recourse Purchase Money Note dated December 31, 1999 made
by NP Holding, LLC and payable to Accent Mortgage Services,
Inc. (1)
10.3 Stock Pledge Agreement dated December 31, 1999 by and between
Beachside Holding, LLC and Accent Mortgage Services, Inc. (1)
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the Company's Current Report on Form 8-K/A
(Amendment No. 1) dated January 18, 1999 and filed with the commission on
February 10, 1999.
B. Reports on Form 8-K
During the quarter ended December 31, 1999, the Company filed with the
Commission the following reports on Form 8-K:
Current Report on Form 8-K/A (No. 3) dated November 12, 1999 and filed with the
Commission on November 12, 1999, amending a previous filing relating to a change
in the Company's certifying accountant from Bearden & Smith to Kenneth R.
Walters, P.A.
Current Report on Form 8-K/A dated October 29, 1999 and filed with the
Commission on October 29, 1999, amending a previous filing dated December 28,
1998, providing historical financial statements for Beachside Commons I, Inc.
Current Report on Form 8-K/A dated October 21, 1999 and filed with the
Commission on October 21, 1999, amending certain historical financial
information pertaining to the Company's merger with The Accent Group, Inc.
Current Report on Form 8-K/A dated September 30, 1999 and filed with the
Commission on September 30, 1999, amending certain historical financial
information pertaining to the Company's merger with The Accent Group, Inc.
Subsequent to December 31, 1999, the Company filed with the Commission
the following reports on Form 8-K 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>
20
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: April 25, 2000 By: /s/ L. Scott Demerau
- ------------------------ ----------------------------------
L. Scott Demerau
President and Chief Executive
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
consolidated unaudited financial statements of Lahaina Acquisitions, Inc. for
the three-month period ended December 31, 1999, and is qualified in its entirety
by reference to such consolidated unaudited financial statements.
</LEGEND>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 366,820
<SECURITIES> 126,607
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,580,028
<CURRENT-LIABILITIES> 10,954,908
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (1,389,431)
<TOTAL-LIABILITY-AND-EQUITY> 8,580,028
<SALES> 0
<TOTAL-REVENUES> 2,777,142
<CGS> 0
<TOTAL-COSTS> 2,248,905
<OTHER-EXPENSES> (70,990)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178,572
<INCOME-PRETAX> 420,655
<INCOME-TAX> 115,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305,655
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
