10-Q 1 q33101.txt MARCH 31 2001 10Q 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, 2001 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 22,419,046 on May 2, 2001. 1 LAHAINA ACQUISITIONS, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Page ---------- Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 2001 and September 30, 2000 3 Consolidated Statement of Operations for the Three and Six Months Ended March 31, 2001 and March 31, 2000 4 Consolidated Statement of Stockholders' Equity 5 Consolidated Statement of Cash Flows for the Six Months Ended March 31, 2001 and March 31, 2000 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 14 PART II. OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 Signatures 19 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements LAHAINA ACQUISTIONS, INC. CONSOLIDATED BALANCE SHEETS (unaudited) March 31, September 30, 2001 2000 --------------- -------------- ASSETS Cash and cash equivalents $ 1,184,122 $ 272,297 Real estate held for sale 7,995,000 - Real estate held for development 636,783 3,139,138 Foreclosed real estate 143,960 143,960 Mortgage loans held for sale, net of allowance for doubtful accounts 37,954,002 - - Property and equipment, net 648,191 201,818 Accounts Receivable 445,458 - Note receivable, net 30,000 1,563,157 Due from related party - 57,816 Goodwill, net 4,451,830 1,575,433 Other assets 395,956 530,131 --------------- -------------- Total assets $ 53,885,302 $ 7,483,750 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses $ 2,446,714 $ 2,146,968 Accrued interest payable 1,108,981 472,350 Notes payable - warehouse line 37,512,662 642,442 Notes payable 6,854,943 5,581,253 Due to related parties and stockholders 1,982,561 2,255,269 Deferred revenue - 65,710 Other liabilities - - --------------- -------------- Total liabilities 49,905,861 11,163,992 --------------- -------------- Commitments and contingencies Redeemable stock: Common stock, no par value; 1,550,000 shares issued and outstanding at march 31, 2001 and September 30, 2000, entitled to redemption under certain circumstances (403,230) (421,145) --------------- -------------- Stockholders' equity (deficit): Preferred series B convertible stock, 2,000,000 shares authorized, 1,650,000 shares issued and outstanding, convertible into common stock 1,650,000 - at $1.47 per share Common stock, no par value, 800,000,000 shares authorized, 21,292,360 and 16,757,543 shares issued and outstanding at March 31, 2001 and September 30, 2000, respectively Additional paid in capital 4,751,657 883,465 Accumulated deficit (2,018,986) (3,142,562) --------------- -------------- 4,382,671 (2,259,097) Less: Subscriptions receivable 1,000,000 --------------- -------------- 4,382,671 (3,259,097) --------------- -------------- Total liabilities and stockholders' equity (deficit) $ 53,885,302 $ 7,483,750 =============== ==============
See accompanying notes to consolidated financial statements 3 LAHAINA ACQUISTIONS, INC. CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Three Months Six Months Three Months Six Months Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2001 2001 2000 2000 ------------- ------------- ------------- -------------- Revenue: Mortgage brokerage services $ 5,003,537 $ 9,232,148 $ 2,174,126 $ 3,860,487 Real estate services - - 600,000 600,000 ------------- ------------- ------------- -------------- Total revenue 5,003,537 9,232,148 2,774,126 4,460,487 ------------- ------------- ------------- -------------- Operating expenses: Broker commissions 2,717,953 5,103,334 1,800,162 3,293,619 Cost of real estate sold - - 136,310 136,310 Salaries and employee benefits 1,248,854 2,491,186 354,934 654,390 General and administrative 691,396 1,356,470 433,188 680,194 Professional expenses 144,318 338,764 162,413 302,875 Occupancy expense 183,218 362,809 39,972 78,249 Amortization of goodwill 78,622 153,104 18,264 32,777 Property taxes 4,454 32,942 - 9,515 Depreciation and amortization 42,364 85,062 7,865 14,084 ------------- ------------- ------------- -------------- Total operating expenses 5,110,180 9,923,673 2,953,108 5,202,013 ------------- ------------- ------------- -------------- Operating income (loss) (106,643) (691,525) (178,982) (741,526) Other expense (income): Gain on sale of note receivable - (851,062) - - Interest income (554,113) (1,137,359) (55,000) (56,000) Other income (1,088,821) (1,259,673) (431,164) (605,203) Interest expense 710,938 1,432,993 203,400 381,972 Other expense - - - 104,049 ------------- ------------- ------------- -------------- (931,996) (1,815,101) (282,764) (175,182) ------------- ------------- ------------- -------------- Income before income taxes 825,353 1,123,576 103,782 (566,344) Income tax (benefit) expense - - - - ------------- ------------- ------------- -------------- Net income $ 825,353 $ 1,123,576 103,782 (566,344) ============= ============= ============= ============== Basic earnings per share $ 0.04 $ 0.06 0.01 (0.04) ============= ============= ============= ============== Diluted earnings per share $ 0.04 $ 0.06 0.01 (0.04) ============= ============= ============= ============== Weighted average shares outstanding - basic 18,834,849 18,534,700 15,304,969 15,211,562 ============= ============= ============= ============== Weighted average shares outstanding - diluted 19,898,804 19,598,655 16,304,969 15,211,562 ============= ============= ============= ==============
See accompanying notes to consolidated financial statements a) Operating results for the quarter ended December 31, 1999 were adjusted in the Company's Form 10-K filed for the year ended September 30,2000, to defer a previously recognized gain of $1,090,781 from the sale of certain real property located in Tennessee. The gain was deferred due to a change in circumstances which occurred after the filing of the Company's Form 10-Q for the quarter ended December 31, 1999. This change is more fully disclosed in the Company's Form 10-K filed for the year ended September 30, 2000. b) Operating results for the quarter ended March 31, 2000 were adjusted in the Company's Form 10-K filed for the year ended September 30,2000, to defer a previously recognized gain of $600,000 from the sale of certain real property sold during the quarter. The gain was deferred due to a change in circumstances which occurred after the filing of the Company's Form 10-Q for the quarter ended March 31, 2000. This change is more fully disclosed in the Company's Form 10-K filed for the year ended September 30, 2000. 4 LAHAINA ACQUISTIONS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited) Additional Common Stock Preferred Stock Paid-in Accumulated Shares Amount Shares Amount Capital Deficit Total ----------- -------- ------- ----------- ----------- --------------- ------------- Balance at September 30, 2000 15,305,763 $ -- -- $ -- $ (116,535) $(3,142,562) $ (3,259,097) Collect subscriptions receivable 700,000 -- -- -- 1,000,000 -- 1,000,000 Preferred stock issued on purchase of real property -- -- -- 1,650,000 -- -- 1,650,000 Common stock issued on purchase of United Mortgage 951,780 -- -- -- 1,806,839 -- 1,806,839 Stock issued in exchange for debt 2,484,817 -- -- -- 2,061,353 -- 2,061,353 Net income -- -- -- -- - 1,123,576 1,123,576 ---------- -------- ------- --------- ------------ ------------ ------------- Balance at March 31, 2001 19,442,360 $ -- -- $ 1,650,000 $ 4,751,657 $ (2,018,986) $ 4,382,671
See accompanying notes to consolidated financial statements 5 LAHAINA ACQUISTIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended Six Months Ended March 31, 2001 March 31, 2000 ----------------- ----------------- Net income $ 1,123,576 $ (566,344) Depreciation and amortization 238,166 46,862 Income related to restructuring of convertible notes - (147,438) Income relating to forgiveness of debt - (135,241) Valuation adjustment relating to note receivable (851,062) (206,862) Gain on sale of real estate held for development - - Gain on sale of option to acquire real estate - - Issuance of warrants in lieu of cash for consulting services - - (Increase) decrease in: Restricted cash - (259,803) Restricted certificates of deposit 114,139 (358) Accounts receivable (241,411) - Mortgage loans held for sale (682,217) - Real estate held for sale - (600,000) Options to acquire real estate - - Due from related party 57,816 - Other assets 299,188 (141,346) Amounts due from former shareholders of Accent Mortgage Services, Inc. under indemnity 17,914 (243,771) (Decrease) increase in: Accounts payable, accrued expenses and other liabilities (795,680) 671,234 Accrued interest payable 335,042 166,635 Deferred revenue (65,710) (40,801) Costs associated with development of real estate 38,242 (208,280) All other - - ----------------- ----------------- Net cash used in operating activities (411,997) (1,665,513) ----------------- ----------------- Cash Flows from Investing Activities: Purchase of property and equipment (201,005) (14,200) Cash acquired in acquisitions 984,428 - ----------------- ----------------- Net cash used in investing activities 783,423 (14,200) ----------------- ----------------- Cash Flows from Financing Activities: Proceeds from the issuance of notes payable 56,744 2,030,000 Repayment of notes payable (649,138) (905,000) Increase in amounts due to related parties (928,606) 765,777 Increase in additional paid in capital 2,061,400 - ----------------- ----------------- Net cash provided by financing activities 540,400 1,890,777 ----------------- ----------------- Net increase in cash and cash equivalents 911,826 211,064 Cash and cash equivalents at beginning of period 272,297 15,300 ----------------- ----------------- Cash and cash equivalents at end of the period $ 1,184,123 226,364 ================= =================
See accompanying notes to consolidated financial statements 6 LAHAINA ACQUISTIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (continued) Six Months Ended Six Months Ended March 31, 2001 March 31, 2000 ---------------- ---------------- Supplemental disclosures of cash flow information: Cash paid during period for interest $ $ 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) Other debt transactions Notes payable $ - $ 900,000 Due to related parties $ - $ 900,000 Purchase of Swiss Air property Real estate held for sale $ (7,995,000) - Note receivable transferred to seller $ 2,450,000 - Issuance of preferred stock $ 1,650,000 - Issuance note payable to seller $ 385,000 - Cancel repayment of stock subscription receivable $ 1,010,000 - Note payable assumed by Company $ 2,500,000 - Purchase of United Capital Mortgage Goodwill $ (1,948,773) - Cash $ (848,663) - Property and equipment $ (383,543) - Issuance of common stock $ 1,050,000 - Notes payable assumed $ 2,000,000 - Purchase of Cross Keys Capital Goodwill $ (881,140) - Cash $ (135,765) - Property and equipment $ (49,900) - Notes payable issued $ 425,000 -
See accompanying notes to consolidated financial statements 7 LAHAINA ACQUISTIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Six Months Ended March 31, 2001 (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, 2000. 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, 2000. 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, 2000 (the "2000 Form 10-K"). Reference is made to the accounting policies of the Company described in the notes to consolidated financial statements included in the 2000 Form 10-K. The Company has consistently followed those policies in preparing this report. 2. Acquisitions, Divestitures and Merger Transactions United Capital Mortgage Corporation Effective October 1, 2000 the Company purchased United Capital Mortgage Corporation ("United Mortgage"), a 15-year old mortgage operation. United has a network of 13 traditional branch offices in Colorado, Nevada and Florida and has a wholesale operation in New York. The Company believes the combination of traditional branches and cooperative branches will enhance its ability to compete for borrowers. Cross Keys Capital Lahaina acquired Cross Keys Capital, LP of Hershey, Pennsylvania on October 24, 2000. The acquisition marked the entry into the traditional construction financing arena. This is in contrast to the existing brokerage mortgage operation. A key element to the transaction is access to Cross Key's $20 million warehouse line for construction financing. All originators will now have the opportunity to market construction financing for residential property. Swiss Air Estates Purchase On December 29, 2000 the Company acquired the personal residence of L. Scott Demerau, Chairman, CEO and President ("the Property") for approximately $8,000,000. The Board of Directors, including four (4) outside Directors, unanimously approved the transaction. Mr. Demerau abstained from the vote. Payment consisted of the assumption of a $2,500,000 first mortgage on the Property, the issuance of $1,650,000 of preferred stock to Mr. Demerau, the transfer of the Beachside Commons note receivable at a stated value of $2,450,000 to a corporate affiliate related to Mr. Demerau, the cancellation of $1,000,000 notes receivable for the exercise of 700,000 stock options and a promissory note to Mr. Demerau in the amount of $385,000. This transaction was reported by the Company in its Form 8-K filed on January 5, 2001. The Property is being leased for a period of two years at an annual rent of $300,000 by a real estate developer ("the Developer") who had previously purchased five lots in Swiss Air Estates. The Developer has temporarily sub-leased the Property to Mr. Demerau. The developer intends to use the Property as a showcase home to launch development of the lots it has previously purchased. The Company acquired the Property for three principal reasons. First, the Company purchased the Property in order for AMSI to meet asset requirements necessary to maintain its status as an approved HUD/FHA mortgage lender. Second, the Company wished to improve its balance sheet in order to allow United Mortgage and Cross Keys to expand their existing lines of credit Third, the Company owns five vacant lots in Swiss Air Estates and believes the circumstances of the sale of the Property will enhance its ability to sell these lots. 8 Peachtree Industrial Boulevard A creditor with a second lien on the property started foreclosure proceedings in a collection effort. The first lien holder initiated foreclosure proceedings to protect his interest and in early January of 2001 took the property in payment of the outstanding debt. The Company suffered no material economic impact as a result. Athens Tennessee Due to the default in payments, the land was transferred back to the original owner and the Company accelerated the note receivable. As a result of the sale of the underlying collateral, the Company recognized approximately $530,000 in income. 3. Real Estate Held for Development Real estate held for development at December 31, 2000 consists of the following: Land held for development $ 503,410 Costs to develop land 133,373 ----------- $ 636,783 ===========
4. Mortgage Loans held for Sale, net Mortgage loans held for sale in the amount of approximately $37,954,000 represent mortgages acquired by United Mortgage resulting from its mortgage brokerage operations and is offset by corresponding notes payable under its warehouse line. 5. Notes Receivable Beachside The note receivable resulting from the sale of Beachside, which had a face value of $3,000,000, was recorded at September 30, 2000 at management's estimate of its fair value of $ 1,553,938. The note receivable was used as partial consideration to purchase the personal residence of L. Scott Demerau, Chairman, CEO and President (see Note 2.) at a stated value of $2,450,000, resulting in a gain of $851,062 during the quarter ended December 31, 2000. Reconciliation of notes receivable at March 31, 2001
Note Deferred Valuation Notes Rec- Receivable Gain Allowance eivable, Net ------------- ------------- ------------- ------------- Swiss Air 600,000 600,000 -- -- Other 30,000 -- -- 30,000 ------------- ------------- ------------- ------------- Totals $ 630,000 $ 600,000 $ -- $ 30,000 ============= ============= ============= =============
9 6. Goodwill Goodwill represents the excess of cost over the net assets of acquired businesses and is amortized using the straight-line method over ten to fifteen years. Goodwill at March 31, 2001, consisted of the following: Purchase of United Mortgage $ 1,921,865 Purchase of Accent Mortgage 1,171,651 Purchase of Paradigm Mortgage 833,114 Purchase of Cross Keys Mortgage 812,324 ----------- $ 4,738,954 Less accumulated amortization (287,124) ----------- Goodwill, net $ 4,451,830 7. Other Assets Other assets at March 31, 2001 consists of the following: Prepaid expenses $ 132,860 Deposits 60,170 Other 202,926 ---------- $ 395,956 ==========
Prepaid expenses consist primarily of the unexpired portions of insurance policies purchased by the Company in the ordinary course of business and other normal business expenses paid in advance of their use. 8.Notes Payable - warehouse line Notes Payable - warehouse line in the amount of approximately $37,513,000 represents primarily advances taken by United Mortgage under its revolving financing agreement resulting from its mortgage brokerage operations and is offset by corresponding mortgage loans held for sale, net. 9. Notes Payable The Company has the following notes payable at March 31, 2001: 2001 ---------- Real estate indebtedness: Note payable secured by certain parcels of land held for development, due June 7, 2000. The Company believes it has a 550,000 binding agreement whereas the holder has taken title to Lot #4 and has agreed to a payment of $250,000 in full satisfaction of the note. The holder disputes the terms of the agreement. Note payable secured by first deed of trust on Swiss Air Estates, due November 2004. Monthly payments of $24,500 including interest. Interest is payable at a rate of prime. 2,500,000 ------------ Total real estate indebtedness 3,050,000 ------------ 10 General corporate indebtedness: 8% Note payable due September 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 the Company's common stock equal to the number of shares issuable upon conversion. 525,000 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 The Company's common 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 The Company's common stock equal to the number of shares issuable upon conversion. 475,000 Note payable secured by certain parcels of real estate, due June, 2001. Interest only is payable monthly at a rate of 15%. 161,750 Note payable secured by certain parcels of real estate, due June, 2001. Interest only is payable monthly at a rate of 15%. 350,000 Note payable secured by a certain condominium unit, due March, 2004. Monthly payment $2,183. Interest adjustable at 9.75%. 243,640 Note payable related to the United Mortgage acquisition, due on February 14, 2001. Payable in full plus Interest at 7%. 250,000 Note payable related to the United Mortgage acquisition, due December 14, 2001. Payable in 12 monthly payments of $77,673 including interest at 7%. 764,172 Note payable related to the Cross Keys acquisition, due April 23, 2001. Payable in full including interest at 6%. Convertible to common stock. 400,000 Other 135,381 ------------ Total general corporate indebtedness 3,804,943 ------------ Total notes payable $6,854,943 ============ Due to related parties and stockholder, due on demand $1,982,561 at varying interest rates. ------------ Total due to related parties and stockholders $ 1,982,561 ============
Conversion Provisions on the Convertible Notes The terms of the 8% convertible notes issued by the Company for general corporate indebtedness state that the notes may be converted by the holder at any time, and contain certain other conversion provisions. The conversion price of these notes is equal to 110% of the average closing bid price for the five (5) trading days immediately prior to the original issuance of the note. Conversion prices for the $525,000, $500,000 and $475,000 notes are $2.75, $3.77 and $2.03, respectively. Conversion would therefore result in issuance of 190,909, 132,626 and 233,990 common shares, respectively. The terms of the convertible notes issued by the Company to related parties and stockholders state that the notes may be converted by the holder at any time, and contain certain other conversion provisions. The $459,586 convertible note is convertible into common stock of the Company at a conversion price ranging from $0.875 to $0.940 per share (or approximately 506,430 shares). The $500,000 convertible note is convertible into common stock of the Company at a conversion price of $3.50 per share (or approximately 142,857 shares). 11 10. Commitments and Contingencies Legal Proceedings On February 17, 2000, the holder of convertible notes of the Company aggregating $1,250,000 sold the notes to Accent Associates, LLC, a related party of the Company in exchange for new debt. In an action filed January 10, 2001 in the Superior Court of Fulton County, Georgia, the holder asserted that $750,000 of this convertible note is in default. The holder is demanding of the Company payment of $1,327,347 for principal and accrued interest related to the $750,000 convertible note based on a formula of conversion which the Company is in disagreement. In addition, the holder has brought an action against the Company for payment of $550,000 under the terms of a convertible note executed by the Company on January 7, 2000 which the holder claims is in default. This $550,000 note was secured by a first priority deed to secure debt on Lot 4 of the Swiss Air Estates and a second priority deed to secure debt on Lot 8 of Swiss Air Estates. The Company believes it has a binding agreement whereas the holder has taken title to Lot #4 and has agreed to a payment of $250,000 in full satisfaction of the note. The holder disputes the terms of the agreement. During the quarter ended March 31, 2001, Imperial Credit Finance, Inc., the warehouse line the Company acquired in the original consolidation, brought an action against the Company for approximately $500,000. The warehouse line has been outstanding and in default since the consolidation. The Company has been indemnified by the previous principal shareholders against any loss. To date, Imperial Credit Finance, Inc., holder of the warehouse line, has been unable to locate the original documents that constitute the collateral. A contractor that was involved in some of the real estate developments of the Company has filed an action against Accent/Peachtree Industrial Property, Inc.. The Company has negotiated a settlement in the amount of $ 77,424.96. 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. 11. Segment Information Prior to October 1, 2000, the Company operated in two business segments: Mortgage Brokerage and Real Estate Development. With the acquisition of United Mortgage in October 2000 (See Note R), the Company has added mortgage banking to its services which is included in the mortgage brokerage segment. A further description of each business segment, at September 30, 2000 and 1999, along with the corporate services area follows: Mortgage Brokerage - provides mortgage brokerage origination services to consumers through several traditional branch offices located primarily in the Atlanta, Georgia metropolitan area. Real Estate Development - this segment is a multi-state real estate development organization engaged in the acquisition, development and sale of a wide variety of real estate projects. Corporate - services include human resources, legal, accounting and various other of the Company's unallocated overhead charges. The accounting policies of the segments are the same as those described in Note B, "Summary of Significant Accounting Policies." The Company evaluates performance based on revenues and operating income (loss) of the respective segments. There are no intersegment revenues. 12 The following sets forth certain financial information attributable to the Company's business segments as of March 31, 2001:
Three Months Six Months Three Months Six Months Ended Ended Ended Ended March 31, March 31, March 31, March 31, 2001 2001 2000 2000 ------------- ------------- ------------- ------------- Revenues Mortgage Brokerage $ 5,003,537 $ 9,232,148 $ 2,174,126 $ 3,860,487 Real Estate Development - - - - Corporate - - - - ------------- ------------- ------------- ------------- $ 5,003,537 $ 9,232,148 $ 2,174,126 $ 3,860,487 ============= ============== ============= ============= Operating profit (loss) Mortgage Brokerage $ 341,372 $ 474,228 $ 18,436 $ (45,744) Real Estate Development (50,003) (137,267) (249,056) (334,983) Corporate (398,012) (1,028,486) (548,362) (960,799) -------------- ------------- ------------- ------------- $ (106,643) $ (691,525) $ (778,982) $ (1,341,526) ============== ============= ============= ============= Depreciation and amortization Mortgage Brokerage $ 114,680 $ 225,221 $ $ 21,872 Real Estate Development - - - - Corporate 6,306 12,945 26,129 24,989 -------------- -------------- ------------- -------------- $ 120,986 $ 238,166 $ 26,129 $ 46,861 ============== ============== ============= ============== Identifiable assets Mortgage Brokerage $ 47,936,405 $ 5,053,819 Real Estate Development 631,531 3,453,639 Corporate 5,317,365 2,044,225 ------------- ------------- $ 53,885,302 $ 10,551,683 ============= ============= Capital expenditures Mortgage Brokerage $ - $ - Real Estate Development - - Corporate 201,005 14,200 ------------- ------------- $ 201,005 $ 14,200 ============= =============
13 12. Subsequent Events On April 20, 2001, the Company announced its intention to spin-off the mortgage banking and brokerage operations into a separate public company, to be called United Capital Mortgage Corporation. Lahaina will continue to operate a Georgia-based real estate development company. In April, 2001, approximately $520,000 in debt was converted to equity. An additional $200,000 in equity was received from an independent director. In April, the Company filed an S-8 Registration Statement outlining the Company's Stock Purchase Plan. 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 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 FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THE THREE MONTH PERIOD ENDED MARCH 31, 2000 Revenues Revenues for the mortgage operation for the quarter ended March 31, 2001, totaled $5,003,537 compared to $2,174,126 for the quarter ended March 31, 2000. This increase of $2,229,411 or 80.4% was due to the acquisitions of United Mortgage, Paradigm and Cross Keys which occurred after December 31, 1999. Revenues generated by these three acquisitions during the quarter ended March 31, 2001, totaled $3,461,242, indicating that revenue from existing Accent operations declined by $631,831 or 29.1%. The decline in revenue from existing Accent operations was due primarily to the closing of several unprofitable branches. Real estate revenue for the quarter ended March 31, 2001 was down $600,000 from the quarter ended March 31, 2000. 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, 2001 totaled $5,110,180 compared to $2,953,108 for the quarter ended March 31, 2000. This increase of $2,157,072 or 73.0% was due to the acquisitions of United Mortgage, Paradigm and Cross Keys which occurred after December 31, 1999. Operating expenses generated by these three acquired companies during the quarter ended March 31, 2001, totaled $3,110,200, indicating that operating expenses from existing operations declined by $952,699 or 32.3%. The principal components of operating expenses for the company as a whole for the quarter ended March 31, 2001 were broker commissions ($2,717,382 or 45.2% of total operating expenses), salaries and employee benefits ($1,248,854 or 20.8%of total operating expenses), general and administrative ($691,396 or 13.5% of total operating expenses) and professional fees ($144,318 or 2.4% of total operating expenses). The decreases in expenses for existing operations can be attributed both to the consolidation of facilities and personnel and the closing of several unprofitable branches. 14 Operating Loss Operating loss for the quarter ended March 31, 2001 totaled $106,643 compared to an operating loss of $178,982 for the quarter ended March 31, 2000. This decrease in operating loss of $72,339 was, in part, due to additional revenue generated from the acquisitions of United Mortgage and Cross Keys which occurred during the quarter ended December 31, 2000 and through the consolidation of facilities and personnel thereby reducing operating expenses. These operating losses were more than offset by other income generated by the Company. In addition, the Company expects to generate increased revenues since, with the acquisition of United Mortgage, the Company now has the ability to bundle and sell pools of mortgages, rather than having to sell each mortgage separately. Other Expense (Income) During the quarter ended March 31, 2001, the Company recorded interest income of approximately $554,113 compared to approximately $55,000 for the quarter ended March 31, 2000. This increase of approximately $499,113 is primarily due to mortgage interest income generated by the operations of United Mortgage and is partially offset by interest expense generated by the Company's warehouse line of credit. There was no comparable business operation during the quarter ended March 31, 2000. During the quarter ended March 31, 2000 the Company recorded $578,294 in other income from the sale of the collateral held as collateral by the Company related to certain property located in Athens, Tennessee. The collateral was sold to offset the note receivable when the note was accelerated due to default. During the quarter ended March 31, 2001, the Company recorded interest expense of approximately $710,938 compared to approximately $203,400 for the quarter ended March 31, 2000. This increase of approximately $507,538 is primarily due to interest expense generated by the operations of United Mortgage as mortgages are originated by borrowings against the Company's warehouse line of credit and is partially offset by interest income generated by the Company's mortgage origination operations. There was no comparable business operation during the quarter ended March 31, 2000. Net Income The Company recorded net income of $825,353 for the quarter ended March 31, 2001 compared to net income of $103,782 for the quarter ended March 31, 2000. Basic and diluted earnings per share for the quarter ended March 31, 2001, were $.04 Basic and diluted earnings per share for the quarter ended March 31, 2000, were $.01. FOR THE SIX MONTH PERIOD ENDED MARCH 31, 2001 COMPARED TO THE SIX MONTH PERIOD ENDED MARCH 31, 2000 Revenues Revenues for the Company for the six-month period ended March 31, 2001, totaled $9,232,148 compared to $4,460,487 for the six-month period ended March 31, 2000. This increase of $4,771,661 or 107% was due to the acquisitions of United Mortgage, Paradigm and Cross Keys which occurred after December 31, 1999. Revenues generated by these three acquisitions during the quarter ended March 31, 2001, totaled $6,253,287, indicating that revenue from existing Accent operations declined by $881,626 or 22.8%. The decline in revenue from existing Accent operations was due primarily to the closing of several unprofitable branches. Real estate revenue for the six-month period March 31, 2001 was down $600,000 from the six-month period ended March 31, 2000. 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 six-month period ended March 31, 2001 totaled $9,923,673 compared to $5,202,013 for the six-month period ended March 31, 2000. This increase of $4,721,660 or 90.8% was due to the acquisitions of United Mortgage, Paradigm and Cross Keys which occurred after December 31, 1999. Operating expenses generated by these three acquired companies during the quarter ended March 31, 2001, totaled $4,856,852, indicating that operating expenses from existing operations decreased by $135,192 or 2.5%. These decreases in expenses from existing operationgs can, in part, be attributed to the consolidation of facilities and personnel thereby reducing operating expenses. 15 Operating Loss Operating losses for the six-month period ended March 31, 2001 totaled $691,525 compared to an operating loss of $741,526 for the six-month period ended March 31, 2000. This decrease in operating loss of $50,001 was, in part, due to the acquisitions of United Mortgage and Cross Keys which occurred during the quarter ended December 31, 2000 and through the consolidation of facilities and personnel thereby reducing operating expenses. These operating losses were more than offset by other income generated by the Company. In addition, the Company expects to generate increased revenues since, with the acquisition of United Mortgage, the Company now has the ability to bundle and sell pools of mortgages, rather than having to sell each mortgage separately. Other Expense (Income) During the six-month period ended March 31, 2001, the Company recorded interest income of approximately $1,137,359 compared to approximately $56,000 for the six-month period ended March 31, 2000. This increase of approximately $1,081,359 is primarily due to mortgage interest income generated by the operations of United Mortgage and is partially offset by interest expense generated by the Company's warehouse line of credit. There was no comparable business operation during the six-month period ended March 31, 2000. During the six-month period ended March 31, 2001, the Company recorded a gain of approximately $850,000 on the exchange of a note receivable, on which the Company placed a reserve during the year ended September 31, 2000, for certain real property. The note receivable was valued as consideration by the seller of the real property at $2,450,000, which is $550,000 below the $3,000,000 face value of the note receivable. There was no comparable transaction during the six-month period ended March 31, 2000.During the six-month period ended March 31, 2000 the Company recorded $578,294 in other income from the sale of the collateral held as collateral by the Company related to certain property located in Athens, Tennessee. The collateral was sold to offset the note receivable when the note was accelerated due to default. During the six-month period ended March 31, 2001, the Company recorded interest expense of approximately $1,432,993 compared to approximately $381,972 for the six-month period ended March 31, 2000. This increase of approximately $1,051,021 is primarily due to interest expense generated by the operations of United Mortgage as mortgages are originated by borrowings against the Company's warehouse line of credit and is partially offset by interest income generated by the Company's mortgage origination operations. There was no comparable business operation during the six-month period ended March 31, 2000. Net Income The Company recorded net income of $1,123,576 for the six-month period ended March 31, 2001 compared to a net loss of ($566,344) for the six-month period ended March 31, 2000. Basic and diluted earnings per share for the six-month period ended March 31, 2001, were $.06. 16 Liquidity and Capital Resources The Company used cash from operating activities totaling $411,997 for the six-month period ended March 31, 2001. The principal component of cash generated in operating activities was the Company's net income of $1,123,576. Increases in mortgage loans held for sale ($682,217) and accrued expenses ($335,402)offset decrease in accounts payable ($795,680). A non-cash gain on the exchange of a note receivable was generated in the amount of $851,000 offset these favorable changes. The Company used cash from operating activities totaling $1,665,513 for the six-month period ended March 31, 2000. The principal component of cash used in operating activities was the Company's net loss of $(566,344). Increases in restricted cash ($260,000) and amounts due from former shareholders of Accent Mortgage Services, Inc. offset proceeds from the sale of real estate held for development ($600,000) as well as increases in accounts payable and accrued expenses ($671,234) and accrued interest ($166,635). The Company provided cash from investing activities totaling $783,423 for the six-month period ended March 31, 2001. The principal component of cash provided cash from investing activities was cash obtained in the acquisitions of United Mortgage and Cross Keys in the amount of $984,828. This amount was reduced by $201,005 used for the purchase of property and equipment. Cash provided by financing activities totaled $540,443 for the six-month period ended March 31, 2001. This amount consisted of $56,787 from proceeds from issuance of notes payable offset by $649,138 repayments on notes payable. Amounts due to related parties decreased $928,606. Additional paid in capital contributed $2,061,400 to cash flow from financing activities. Cash provided by financing activities totaled $1,891,777 for the six-month period ended March 31, 2000. This amount consisted of $2,030,000 from proceeds from issuance of notes payable offset by $905,000 repayments on notes payable. Amounts due to related parties increased $766,777. 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 maintain sustainable profitability and positive cash flow. The Company converted $2,061,353 in debt to equity through the issuance of 2,484,817 shares of common stock. 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. 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. 17 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 27.1 Financial Data Schedule B. Reports on Form 8-K During the quarter ended March 31, 2001, the Company filed with the Commission the following reports on Form 8-K: Current Report on Form 8-K dated January 5, 2001 and filed with the Commission on January 5, 2001 to disclose the particulars involved in the acquisition of the personal residence of the Chairman and Chief Executive Officer and to disclose the disposition of the Peachtree Industrial Boulevard property. Current Report on Form 8-K/A dated January 19, 2001 and filed with the Commission on January 19, 2001 to clarify a previous filing about the acquisition of United Capital Mortgage, Inc. by the Company. During the quarter ended March 31, 2001, the Company filed with the Commission the following reports on Form S-8: 18 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: May 2, 2001 By: /s/ L. Scott Demerau ------------------------ ---------------------------------- L. Scott Demerau President and Chief Executive Office 19 Financial Data Schedule 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, 2001, and is qualified in its entirety by reference to such consolidated unaudited financial statements.