-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O0dSeXhBFxIc/+PdzPnwMgGn6pBw2wt2UDM9XHUuU8yZ1t/8GTu/DSPqA337A6XY WO0DJGRIbFh4fCEyVP6TBw== 0000855684-00-000021.txt : 20000523 0000855684-00-000021.hdr.sgml : 20000523 ACCESSION NUMBER: 0000855684-00-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000522 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAHAINA ACQUISITIONS INC CENTRAL INDEX KEY: 0000855684 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 841325695 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27480 FILM NUMBER: 641488 BUSINESS ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 220 CITY: ALPHARETTA STATE: GA ZIP: 30005 BUSINESS PHONE: 7707546140 MAIL ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 220 CITY: ALPHARETTA STATE: GA ZIP: 30005 10-Q 1 10 Q FOR SECOND QUARTER 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 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. 2 LAHAINA ACQUISITIONS, INC. FORM 10-Q 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 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 17 Signatures 18 Financial Data Schedule 19 PART I - FINANCIAL INFORMATION Item 1. Financial Statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED BALANCE SHEETS March 31, September 30, 2000 1999 ----------- ------------ (unaudited) 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; 1,100,000 shares issued and outstanding entitled to redemption under certain circumstances (488,300) (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, 15,659,627 shares issued and outstanding at March 31, 2000 and 12,967,343 shares issued and outstanding at September 30, 1999 - - Additional paid in capital (284,372) (1,389,431) Accumulated deficit (700,868) (1,155,305) --------------- -------------- (985,240) (2,544,736) --------------- -------------- Total liabilities and stockholders' deficit $ 10,551,683 $ 9,005,426 =============== ==============
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Three Months Six Months Ended Ended March 31, March 31, 2000 2000 --------------- --------------- 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 (412,458) (587,497) Interest expense 203,400 381,972 Other expense (73,706) 30,343 --------------- --------------- (282,764) (175,182) --------------- --------------- Income before income taxes 103,782 524,437 Income taxes (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 16,580,999 16,557,189 =============== ===============
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATE STATEMENT OF STOCKHOLDERS' DEFICIT (unaudited) Additional Common Stock Paid-in Accumulated Shares Amount Capital Deficit Total -------------- -------------- -------------- --------------- -------------- 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 Reclassification from redeemable stock 2,150,000 152,000 152,000 -------------- -------------- -------------- --------------- -------------- Balance at March 31, 2000 15,659,627 $ - $ (284,372) $ (700,868) $ (985,240) ============== ============== ============== =============== ==============
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended March 31, 2000 ----------------- Net income $ 454,437 Adjustments: Depreciation and amortization 46,861 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 (206,862) Issuance of warrants in lieu of cash for consulting services 52,000 (Increase) decrease in: Restricted cash (249,112) Options to acquire real estate (107,239) Costs associated with development of real estate (462,703) Other assets (193,346) Amounts due from former shareholders of Accent Mortgage Services, Inc. under indemnity (243,771) (Decrease) increase in: Accounts payable 308,829 Accrued interest payable 166,634 All other (59,159) ----------------- Net cash used in operating activities (1,731,650) ----------------- Cash Flows from Investing Activities: Purchase of property and equipment (13,199) ----------------- Net cash used in investing activities (13,199) ----------------- 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 145,928 Cash and cash equivalents at beginning of period 80,436 ----------------- Cash and cash equivalents at end of the period $ 226,364 =================
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (continued) Six Months Ended March 31, 2000 ---------------- Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 244,362 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 Other financing transactions: Notes payable $ (2,175,000) Due to related parties and stockholders $ 2,175,000 Redeemable stock $ (152,000) Additional paid-in capital $ 152,000 Goodwill acquired in Paradigm transaction $ (756,001) Purchase of property and equipment $ (155,058) Issuance of stock in Paradigm transaction $ 901,059
See accompanying notes to consolidated financial statements LAHAINA ACQUISITIONS, 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, 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 amortized 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 achieve 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) stock 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 400,000 shares are held in escrow with 250,000 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. 3. Notes Payable The Company has the following notes payable at March 31, 2000: 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 ==============
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. Three months Six months ended ended --------------- --------------- March 31, 2000 ------------------------------------- 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 $ 5,019,160 Real Estate Development 3,181,475 Corporate 2,044,225 --------------- $ 10,244,860 ===============
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. 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 three-month period ended March 31, 2000 totaled $2,775,000 a decrease of $3,000 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 $2,953,000, an increase from $2,249,000 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. 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 credit 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). $659,000 or 37.6% of the real estate revenue is attributable to the sale of property developed by the Company. The remaining $1,091,000 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), reduced by interest expense of $382,000. Income before Income Taxes, Tax Provision, Net Income For the six months ended March 31, 2000, the Company recorded income tax expense of $70,000. 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 $1,732,000 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 $409,000. Increases in restricted cash ($249,000), costs associated with the development of real estate and options to acquire real estate ($735,000), amounts due from former shareholders of Accent Mortgage Services, Inc. ($244,000), and other assets ($193,000) offset cash generated by net income, while increases in accounts payable and accrued expenses (including interest) of $747,000 provided cash flow from operations. Cash provided from financing activities totaled $2,757,000 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 issued 250,000 shares of common stock ($866,000) to purchase assets of Paradigm Mortgage Associates, Inc. The Company had $226,000 of 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 an additional $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: Fair 2000 2001 2002 Total Value --------------- -------------- --------------- --------------- --------------- 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%
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 Exhibit No. Description of Exhibit 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
(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. 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 ACQUISITION, INC. Dated : May 22, 2000 By: /s/ L. Scott Demerau - ---------------------- ----------------------- L. Scott Demerau President and Chief Executive Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated unaudited financial statements of Lahaina Acquisitions, Inc. for the six-month period ended March 31, 2000, and is qualified in its entirety by reference to such consolidated unaudited financial statements. US DOLLARS 6-MOS SEP-30-2000 MAR-31-2000 1 552,828 126,607 0 0 0 0 0 0 10,551,683 12,025,223 0 0 0 0 (284,372) 10,551,683 0 5,610,487 0 5,261,232 (557,154) 0 381,972 524,437 70,000 0 0 0 0 454,437 0.03 0.03
-----END PRIVACY-ENHANCED MESSAGE-----