-----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, AyjCPIaiWvAn8IUZE7VQG2eATAhBSSmPA6SD+6WJ+sOt4s8NE2QnCNPMk2mIiVks sR8ucnW4/88piMVTfAdrJw== 0000855684-01-500022.txt : 20010815 0000855684-01-500022.hdr.sgml : 20010815 ACCESSION NUMBER: 0000855684-01-500022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 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: 1934 Act SEC FILE NUMBER: 000-27480 FILM NUMBER: 1713457 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 june2001.txt JUNE 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 June 30, 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) 2500 Northwinds Parkway, Suite 350 Alpharetta, Georgia 30004 (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 23,114,493 on August 10, 2001. 1 LAHAINA ACQUISITIONS, INC. FORM 10-Q INDEX PART I. FINANCIAL INFORMATION Page ---------- Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2001 and September 30, 2000 3 Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2001 and June 30, 2000 4 Consolidated Statement of Stockholders' Equity 5 Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2001 and June 30, 2000 6 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition 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 ACQUISITIONS, INC. CONSOLIDATED BALANCE SHEETS (unaudited) June 30, September 30, 2001 2000 --------------- -------------- ASSETS Cash and cash equivalents $ 1,630,706 $ 272,297 Real estate held for sale 7,995,000 - Real estate held for development 246,565 3,139,138 Foreclosed real estate 143,960 143,960 Mortgage loans held for sale, net of allowance for doubtful accounts 48,332,630 - - Property and equipment, net 1,120,142 201,818 Accounts Receivable 628,740 - Note receivable, net 30,000 1,563,157 Due from related party - 57,816 Goodwill, net 4,374,130 1,575,433 Other assets 435,000 530,131 --------------- -------------- Total assets $ 64,936,873 $ 7,483,750 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses $ 2,439,838 $ 2,146,968 Accrued interest payable 960,602 472,350 Notes payable - warehouse line 47,829,047 642,442 Notes payable 5,230,978 5,581,253 Due to related parties and stockholders 1,812,761 2,255,269 Deferred revenue - 65,710 --------------- -------------- Total liabilities 58,273,226 11,163,992 --------------- -------------- Commitments and contingencies Redeemable stock: Common stock, no par value; 1,550,000 shares issued and outstanding at June 30, 2001 and September 30, 2000, entitled to redemption under certain circumstances (524,380) (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, 21,163,510 and 15,305,763 shares issued and outstanding at June 30, 2001 and September 30, 2000, respectively - - Additional paid in capital 6,540,742 883,465 Accumulated deficit (1,002,715) (3,142,562) --------------- -------------- 7,188,027 (2,259,097) Less: Subscriptions receivable 1,000,000 --------------- -------------- Total Stockholder's equity 7,188,027 (3,259,097) --------------- -------------- Total liabilities and stockholders' equity (deficit) $ 64,936,873 $ 7,483,750 =============== ==============
See accompanying notes to consolidated financial statements 3 LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Nine Months Three Months Nine Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2001 2001 2000 2000 ------------- ------------- ------------- -------------- Revenue: Mortgage brokerage services $ 6,341,204 $16,612,844 $ 2,893,131 $ 6,753,618 Real estate sales 490,763 490,763 2,000,000 3,750,000 ------------- ------------- ------------- -------------- Total revenue 6,831,967 17,103,607 4,893,131 10,503,618 ------------- ------------- ------------- -------------- Operating expenses: Broker commissions 2,838,232 7,941,566 2,502,567 5,796,186 Cost of real estate sold 53,314 53,314 498,086 693,615 Salaries and employee benefits 1,260,697 3,751,883 614,548 1,268,938 General and administrative 1,520,085 3,735,470 275,517 965,226 Professional expenses 228,715 567,478 178,927 481,802 Occupancy expense 166,868 529,677 39,410 117,659 Amortization of goodwill 78,192 231,297 27,271 60,048 Property taxes 1,462 34,406 - - Depreciation and amortization 42,365 127,427 19,727 33,811 ------------- ------------- ------------- -------------- Total operating expenses 6,189,930 16,972,518 4,156,053 9,417,285 ------------- ------------- ------------- -------------- Operating income 642,037 131,089 737,078 1,086,333 Other expense (income): Gain on sale of note receivable - (851,062) - - Interest income (4,126) (101,993) (15,000) (15,000) Other income (610,123) (2,577,546) (85,000) (470,094) Interest expense 240,015 814,093 191,870 573,842 Other expense - 707,750 172,058 - ------------- ------------- ------------- -------------- (374,234) (2,008,758) 263,928 88,748 ------------- ------------- ------------- -------------- Income before income taxes 1,016,271 2,139,847 473,150 997,585 Income tax (benefit) expense - - - - ------------- ------------- ------------- -------------- Net income $ 1,016,271 $ 2,139,847 $ 473,150 $ 997,585 ============= ============= ============= ============== Basic earnings per share $ 0.05 $ 0.11 $ 0.03 $ 0.08 ============= ============= ============= ============== Diluted earnings per share $ 0.04 $ 0.05 $ 0.03 $ 0.06 ============= ============= ============= ============== Weighted average shares outstanding - basic 20,232,132 17,963,934 13,557,769 13,226,360 ============= ============= ============= ============== Weighted average shares outstanding - diluted 23,215,398 22,845,568 18,306,917 17,874,252 ============= ============= ============= ==============
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 ACQUISITIONS, 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 -- -- 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 4,205,967 -- -- -- 3,850,438 -- 3,850,438 Net income -- -- -- -- - 2,139,847 2,139,847 ---------- --------- --------- ---------- ------------ ------------- ------------ Balance at June 30, 2001 21,163,510 $ -- 1,650,000 $1,650,000 $ 6,540,742 $(1,002,715) $ 7,188,027
See accompanying notes to consolidated financial statements 5 LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended Nine Months Ended June 30, 2001 June 30, 2000 ----------------- ----------------- Cash Flows From Operating Activities: Net income $ 2,139,847 $ 997,585 Depreciation and amortization 358,724 93,859 Income related to restructuring of convertible notes - (147,438) Income relating to forgiveness of debt - (135,241) Valuation adjustment relating to note receivable - (34,296) Gain on sale relating to note receivable (851,062) Gain on sale of real estate held for development (327,763) (1,965,604) Gain on sale of option to acquire real estate - (1,090,781) Interest income accrued on notes related to real estate sales - (60,750) Proceeds from sale of real estate held for development - 600,000 (Increase) decrease in: Restricted cash (446,584) (423,637) Restricted certificates of deposit - (358) Accounts receivable 16,718 - Mortgage loans held for sale (62,243) - Real estate held for sale 390,218 - Options to acquire real estate - (344,679) Other assets (239,044) (219,102) Amounts due from former shareholders of Accent Mortgage Services, Inc. under indemnity - (284,472) (Decrease) increase in: Accounts payable, accrued expenses and other liabilities (6,876) 543,786 Accrued interest payable (148,379) 266,597 Deferred revenue - (16,251) Costs associated with development of real estate - (962,398) ----------------- ----------------- Net cash (used) provided in operating activities 823,556 (3,183,180) ----------------- ----------------- Cash Flows from Investing Activities: Purchase of property and equipment (599,378) (14,200) Cash acquired in acquisitions 984,428 - ----------------- ----------------- Net cash (used) providedng activities 385,050 (14,200) ----------------- ----------------- Cash Flows from Financing Activities: Proceeds from the issuance of notes payable 1,274,783 3,626,616 Repayment of notes payable (955,180) (1,090,943) (Decrease) increase in amounts due to related parties (169,800) 653,181 Proceeds from exercise of stock options - 17,500 ----------------- ----------------- Net cash (used) provided by financing activities 149,803 3,206,354 ----------------- ----------------- Net increase in cash and cash equivalents 1,358,409 8,974 Cash and cash equivalents at beginning of period 272,297 15,300 ----------------- ----------------- Cash and cash equivalents at end of the period $ 1,630,706 24,274 ================= =================
See accompanying notes to consolidated financial statements 6 LAHAINA ACQUISITIONS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (continued) Nine Months Ended Nine Months Ended June 30, 2001 June 30, 2000 ---------------- ---------------- Supplemental disclosures of cash flow information: Cash paid during period for interest $ 1,500,000 $ 385,422 Supplemental disclosures of non-cash transactions: Sale of Beachside Commons I, Inc.: Real estate held for sale $ - $ 3,650,000 Notes payable assumed by purchaser $ - $ (1,547,894) Notes receivable $ - $ (2,028,057) Other assets and liabilities assumed by purchaser, net $ - $ (74,049) Sale of lots Gross sales price $ - $ (2,000,000) Note to related party assumed by purchaser $ - $ 506,750 Notes payable assumed by purchaser $ - $ 893,250 Note receivable $ - $ 600,000 Sale of option to acquire real estate Gross sales price $ - $ (1,150,000) Notes receivable $ - $ 900,000 Debt forgiveness $ - $ 250,000 Purchase of Paradigm Goodwill $ - $ (746,001) Property and equipment $ - $ (155,058) Issuance of common stock $ - $ 901,059 Other financing transactions Notes payable $ - $ (2,175,000) Due to related parties and stockholders $ - $ 2,175,000 Warrants issued in lieu of cash for debt issuance costs $ - $ (302,731) Other assets $ - $ 302,731 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 $ 1,000,000 - 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 ACQUISITIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended June 30, 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 Mortgage 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 ("Cross Keys") 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. 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 Accent Mortgage Services, Inc. ("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 3. Real Estate Held for Development Real estate held for development at June 30, 2000 consists of the following: Land held for development $ 113,192 Costs to develop land 133,373 ----------- $ 246,565 ===========
4. Mortgage Loans held for Sale, net Mortgage loans held for sale in the amount of approximately $48,332,630 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 June 30, 2001
Note Deferred Valuation Notes Rec- Receivable Gain Allowance eivable, Net ------------- ------------- ------------- ------------- Swiss Air 322,000 322,000 -- -- Other 30,000 -- -- 30,000 ------------- ------------- ------------- ------------- Totals $ 352,000 $ 322,000 $ -- $ 30,000 ============= ============= ============= =============
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 June 30, 2001, consisted of the following: Purchase of United Mortgage $ 1,921,865 Purchase of Accent Mortgage 1,172,143 Purchase of Paradigm Mortgage 833,114 Purchase of Cross Keys 812,324 ----------- 4,739,446 Less accumulated amortization (365,316) ----------- Goodwill, net $ 4,374,130 7. Other Assets Other assets at June 30, 2001 consists of the following: Prepaid expenses $ 207,837 Deposits 50,670 Other 176,493 ---------- $ 435,000 ==========
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. 9 8.Notes Payable - warehouse line Notes Payable - warehouse line in the amount of approximately $47,829,047 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 June 30, 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. 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 ------------ 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. 425,000 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. 425,000 Note payable secured by certain parcels of real estate, due September, 2001. Interest only is payable monthly at a rate of 15%. 339,442 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%. 649,482 Other 92,053 ------------ Total general corporate indebtedness 2,180,977 ------------ Total notes payable $5,230,977 ============ Due to related parties and stockholder, due on demand $1,812,761 at varying interest rates. ------------ Total due to related parties and stockholders $ 1,812,761 ============
10 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 $425,000 and $425,000 notes are $2.75 and $2.03, respectively. Conversion would therefore result in issuance of 154,505 and 209,360 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). 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 June 30, 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; the amount owed at this time is $37,424.96. In 1998 former management of Accent Mortgage purchased loans from SGE. SGE apparently double sold loans, delivering them also to individual investors or investor groups. SGE then went into bankruptcy. These loans are 100% reserved for on AMSI's books. In 1996, IndyMac purchased a loan from AMSI for approximately $350,000. IndyMac subsequently foreclosed on the subject property and have put in a claim for a $200,000 loss. The Company contests the loss based upon the fact that IndyMac did not properly or timely notify and confirm the foreclosure sale. In Georgia, this confirmation is necessary to pursue any deficiency. 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, 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, 2001 and 2000, 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. 11 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. The following sets forth certain financial information attributable to the Company's business segments as of June 30, 2001:
Three Months Nine Months Three Months Nine Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2001 2001 2000 2000 ------------- ------------- ------------- ------------- Revenues Mortgage Brokerage $ 6,341,204 $ 16,612,844 $ 2,893,131 $ 6,753,618 Real Estate Development 490,763 490,763 2,000,000 3,750,000 Corporate - - - - ------------- ------------- ------------- ------------- $ 6,831,967 $ 17,103,607 $ 4,893,131 $ 10,503,618 ============= ============== ============= ============= Operating profit (loss) Mortgage Brokerage $ 650,829 $ 1,305,635 $ 32,020 $ (13,724) Real Estate Development 378,945 241,679 1,387,775 2,743,573 Corporate (387,737) (1,416,225) (682,717) (1,643,516) -------------- -------------- ------------- ------------- $ 642,037 $ 131,089 $ 737,078 $ 1,086,333 ============== ============== ============= ============= Depreciation and amortization Mortgage Brokerage $ 114,251 $ 339,473 $ 40,531 $ 76,377 Real Estate Development - - - - Corporate 6,306 19,251 6,467 17,482 -------------- --------------- ------------- -------------- $ 120,557 $ 358,724 $ 46,998 $ 93,859 ============== =============== ============= ============== Identifiable assets Mortgage Brokerage $ 55,391,785 $ 5,060,037 Real Estate Development 927,970 3,660,305 Corporate 8,617,118 2,497,160 -------------- ------------- $ 64,936,873 $ 11,217,502 ============== ============= Capital expenditures Mortgage Brokerage $ 599,378 $ - Real Estate Development - - Corporate - - -------------- ------------- $ 599,378 $ - ============== =============
12 12. Subsequent Events None 13. Income Taxes The Company files a consolidated income tax return with its subsidiaries. No current provision for income taxes has been provided since the Company has sufficient net tax operating losses to offset any current taxable income. Deferred income tax assets at June 30, 2001 have been fully offset by a valuation allowance as the Company has not demonstrated the sustained profitability necessary to record such asset. 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 June 30, 2001 COMPARED TO THE THREE MONTH PERIOD ENDED June 30, 2000 Revenues Revenues for the mortgage operation for the quarter ended June 30, 2001, totaled $6,341,204 compared to $2,893,131 for the quarter ended June 30, 2000. This increase of $3,448,073 or 119% was due to the acquisitions of United Mortgage and Cross Keys which occurred after December 31, 1999. Revenues generated by these two acquisitions during the quarter ended June 30, 2001, totaled $4,290,208, indicating that revenue from existing Accent operations declined by $842,134 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 June 30, 2001 totaled $490,763 compared to $2,000,000 for the quarter ended June 30, 2000. This decrease of $1,509,237 was, in part, due to the downsizing of the real estate division. Due to the eventual elimination of the real estate division, the Company does not anticipate that revenue from real estate activities will necessarily be consistent from period to period. 13 Operating Expenses Operating expenses for the quarter ended June 30, 2001 totaled $6,189,930 compared to $4,156,053 for the quarter ended June 30, 2000. This increase of $2,033,877 or 48.9% was due to the acquisitions of United Mortgage and Cross Keys which occurred after December 31, 1999. Operating expenses generated by these two acquired companies during the quarter ended June 30, 2001, totaled $3,714,629 indicating that operating expenses from existing operations declined by $1,730,752 or 41.6%. The principal components of operating expenses for the company as a whole for the quarter ended June 30, 2001 were broker commissions ($2,838,232 or 46.2% of total operating expenses), salaries and employee benefits ($1,260,697 or 20.5%of total operating expenses), general and administrative ($1,520,085 or 24.8% of total operating expenses) and professional fees ($228,715 or 3.7% 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. Operating Income Operating income for the quarter ended June 30, 2001 totaled $642,037 compared to an operating income of $737,078 for the quarter ended June 30, 2000. This decrease in operating income of approximately $95,000 was due to a decrease in real estate related operating profit of approximately $1,000,000 for the quarter ended June 30, 2001. This decrease was offset by the increase from operating profit mortgage operations of approximately $620,000 for the quarter ended June 30, 2001. Other Expense (Income) During the quarter ended June 30, 2001, the Company recorded interest income of $4,126 compared to $15,000 for the quarter ended June 30, 2000. During the quarter ended June 30, 2001, the Company recorded other income of $610,123 compared to $85,000 for the quarter ended June 30, 2000. This increase of approximately $525,000 is primarily due to the gain on sale of a piece of property held by United Mortgage and the writedown of previously recorded liabilities. There was no comparable business operation during the quarter ended June 30, 2000. During the quarter ended June 30, 2001, the Company recorded interest expense of approximately $240,000 compared to approximately 192,000 for the quarter ended June 30, 2000. This increase was due to an increase in the notes payable owed by the Company. Net Income The Company recorded net income of $1,016,271 for the quarter ended June 30, 2001 compared to net income of $473,150 for the quarter ended June 30, 2000. Basic and diluted earnings per share for the quarter ended June 30, 2001, were $.05 and .04, respectively. Basic and diluted earnings per share for the quarter ended June 30, 2000, were $.03. FOR THE NINE MONTH PERIOD ENDED June 30, 2001 COMPARED TO THE NINE MONTH PERIOD ENDED June 30, 2000 Revenues Revenues for the Company for the nine-month period ended June 30, 2001, totaled $17,103,607 compared to $10,503,618 for the nine-month period ended June 30, 2000. This increase of $6,599,989 or 62.8% was due, in part, to the acquisitions of United Mortgage and Cross Keys which occurred as of October 1, 2000 and October 24, 2000, respectively. Revenues generated by these two acquisitions during the quarter ended June 30, 2001, totaled $10,472,467, indicating that revenue from existing operations declined by $4,363,622 or 41.5%. The decline in revenue from existing operations was due primarily to the downsizing of the real estate division whose revenue for the nine-month period ended June 30, 2001 was down $3,259,000 from the nine-month period ended June 30, 2000. The Company does not anticipate that revenue from real estate activities will necessarily be consistent from period to period. The remaining decline resulted from the closing of several unprofitable branches. Operating Expenses Operating expenses for the nine-month period ended June 30, 2001 totaled $16,972,518 compared to $9,417,285 for the nine-month period ended June 30, 2000. This increase of $7,555,233 or 80% was due to the acquisitions of United Mortgage and Cross Keys which occurred as of October 1, 2000 and October 24, 2000, respectively. Operating expenses generated by these two acquired companies during the quarter ended June 30, 2001, totaled $9,291,267, indicating that operating expenses from existing operations decreased by $1,786,081 or 19%. These decreases in expenses from existing operations can, in part, be attributed to the consolidation of facilities and personnel thereby reducing operating expenses and the closing of several unprofitable branches. Operating Income Operating income for the nine-month period ended June 30, 2001 totaled $131,089 compared to $1,086,333 for the nine-month period ended June 30, 2000. This decrease in operating income of $955,244 was a result of the downsizing of the real estate division whose operating income for the nine-month period ended June 30, 2001 was down approximately $3,300,000 from the nine-month period ended June 30, 2000. This decrease in operating income was significantly offset by mortgage related 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. 14 Other Expense (Income) During the nine-month period ended June 30, 2001, the Company recorded interest income of $101,993 compared to approximately $15,000 for the nine-month period ended June 30, 2000. During the nine-month period ended June 30, 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 nine-month period ended June 30, 2000. During the nine-month period ended June 30, 2001 the Company recorded $578,294 in other income from the sale of the collateral held 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 nine-month period ended June 30, 2001, the Company recorded interest expense of $814,093 compared to $573,842 for the nine-month period ended June 30, 2000. This increase of approximately $240,000 is primarily due to accrued interest expense generated by the Company's convertible notes. There was no comparable business operation during the nine-month period ended June 30, 2000. Net Income The Company recorded net income of $2,139,847 for the nine-month period ended June 30, 2001 compared to a net income of $997,585 for the nine-month period ended June 30, 2000. Basic and diluted earnings per share for the nine-month period ended June 30, 2001, were $.11 and .05, respectively. Basic and diluted earnings per share for the nine-month period ended June 30, 2000, were $.08 and .06, respectively. 15 Liquidity and Capital Resources The Company provided cash from operating activities totaling $823,556 for the nine-month period ended June 30, 2001. The principal component of cash generated in operating activities was the Company's net income of $2,139,847. Increases in mortgage loans held for sale ($62,243) offset decreases in accounts payable ($6,876) and accrued interest payable ($148,379). A non-cash gain on the exchange of a note receivable generated in the amount of $851,062 offset these favorable changes. The Company used cash in operating activities totaling $3,183,180 for the nine-month period ended June 30, 2000. The principal component of cash generated in operating activities was the Company's net income of $997,585. Increases in restricted cash ($423,637), costs associated with the development of real estate ($962,398), options to acquire real estate ($344,679), and amounts due from former shareholders of Accent Mortgage Services, Inc. ($284,272) offset cash generated by net income. Income from restructuring notes ($147,438), forgiveness of debt ($135,241) and the revaluation of the Beachside note receivable ($34,296) offset cash generated by net income. Gains on sales of real estate ($1,502,000) were generated in transactions that provided no cash to the company and likewise offset cash generated by net income. The sales resulted in significant reductions in outstanding debt ($1,650,000) and notes receivable aggregating $1,500,000. Proceeds from the sale of real estate held for development ($600,000), increases in accounts payable and accrued expenses ($543,786) and accrued interest payable ($267,597) provided cash flow from operations. The Company provided cash from investing activities totaling 385,050 for the nine-month period ended June 30, 2001. The principal component of cash provided by 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 $599,378 used for the purchase of property and equipment. Cash used by financing activities totaled $149,803 for the nine-month period ended June 30, 2001. This amount consisted of ($955,180) repayments on notes payable and $1,274,783 from issuance of notes payable. Cash provided by financing activities totaled $3,206,354 for the nine-month period ended June 30, 2000 primarily consisted of borrowings from non-related parties ($3,626,616) and related parties and stockholders ($653,181) partially offset by repayments of $1,090,943. 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 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. 16 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 None. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LAHAINA ACQUISITIONS, INC. Dated: August 14 , 2001 By: /s/ L. Scott Demerau - ------------------------ ---------------------------------- L. Scott Demerau President and Chief Executive Officer 18 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 June 30, 2001, and is qualified in its entirety by reference to such consolidated unaudited financial statements. -----END PRIVACY-ENHANCED MESSAGE-----