-----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, TGE+5lDqJAdN5+ALVKgW3cwhw4j/2OSuW4a9K1OqbYIcrwBJByL72V/H9r7oOXSj MO6+Rd5pE+bE5SVuyMUFcA== 0000950144-99-002181.txt : 19990225 0000950144-99-002181.hdr.sgml : 19990225 ACCESSION NUMBER: 0000950144-99-002181 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAHAINA ACQUISITIONS INC CENTRAL INDEX KEY: 0000855684 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 841325695 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27480 FILM NUMBER: 99548784 BUSINESS ADDRESS: STREET 1: 2900 ATLANTIC AVE. STREET 2: SUITE 2-102 CITY: FERNANDINA BEACH STATE: CA ZIP: 32034 BUSINESS PHONE: 9042774438 MAIL ADDRESS: STREET 1: 102 SOUTH TENTH STREET CITY: FERNANDIANA BEACH STATE: FL ZIP: 32034 10-Q 1 LAHAINA ACQUISITIONS INC 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 31, 1998 Commission File Number #0-27480 ----------------- ---------
LAHAINA ACQUISITIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) COLORADO 84-1325695 - ------------------------------- --------------------------------- (State or Other Jurisdiction of (IRS Employer Identification No.) Incorporation or Organization)
Registrant's Telephone Number, Including Area Code (904) 277-4438 ------------------------------ NOT APPLICABLE - -------------------------------------------------------------------------------- (Former Name, Former Address, and Former Fiscal Year If Changed since Last Report) 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 or 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 ----- ----- Indicate the number of shares of each of the issuer's classes of common stock, as of the latest practical date.
Class of Common Stock Outstanding at February 19, 1999 --------------------- -------------------------------- no par value 2,246,500 shares
================================================================================ 2 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARIES INDEX TO FORM 10-Q
PART I -- FINANCIAL INFORMATION PAGE ---- ITEM 1 Financial Statements Consolidated Balance Sheets for the Quarter Ended 3 December 31, 1998 and for the Year Ended September 30, 1998 Consolidated Statements of Operations for the 4 Quarters Ended December 31, 1998 and 1997 and for the Period from Inception to December 31, 1998 Consolidated Statements of Cash Flows for 5 the Quarters Ended December 31, 1998 and 1997 and for the Period from Inception to December 31, 1998 Consolidated Statements of Changes in Shareholders' 6 Equity Notes to Consolidated Financial Statements for 7 The Quarter Ended December 31, 1998 ITEM 2 Management's Discussion and Analysis of Financial 12 Condition and Results of Operations PART II -- OTHER INFORMATION ITEM 1 Legal Proceedings 14 ITEM 2 Changes in Securities and the Use of Proceeds 14 ITEM 6 Exhibits and Reports on Form 8-K 16 SIGNATURES
-2- 3 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (AUDITED) FOR THE QUARTER FOR THE YEAR ENDED DECEMBER ENDED 31, 1998 SEPTEMBER 30, 1998 --------------- ------------- ASSETS $ $ Current Assets Cash .................................................. -0- -0- Accounts Receivable ................................... 16,555 -0- Prepaid Expenses ...................................... 31,378 -0- Note Receivable ....................................... 21,800 -0- Escrow Funds .......................................... 30,000 -0- Total Current Assets ..................................... 99,733 -0- Fixed Assets Land .................................................. 400,000 -0- Building .............................................. 2,406,965 -0- Equipment ............................................. 149,127 -0- Accumulated Depreciation .............................. (40,760) -0- Total Fixed Assets ....................................... 2,915,332 -0- TOTAL ASSETS .................................................. $ 3,015,065 -0- =========== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Current Liabilities Accounts Payable ...................................... 59,313 3,800 Accrued Interest Payable .............................. 22,706 -0- Security Deposits Payable ............................. 9,000 -0- Note Payable - Shareholder ............................ 74,151 -0- Notes Payable - Others ................................ 155,000 -0- Total Current Liabilities ................................ 320,170 3,800 Long-term Debt Note Payable - Mortgage .................................... 1,550,000 -0- Note Payable - Convertible Debenture ....................... 775,000 -0- Total Long-term Debt .......................................... 2,325,000 -0- TOTAL LIABILITIES ............................................. 2,645,170 -0- SHAREHOLDERS' EQUITY Common stock, no par value, 800,000,000 shares authorized, 2,246,500 shares issued and outstanding ..... 8,593 7,793 Additional Paid-In Capital - Common Stock .................. 42,928 41,678 Preferred Series A Convertible Stock, 1,910,000 shares ..... 428,823 -0- Deficit accumulated during the development stage............ (110,449) (53,271) TOTAL SHAREHOLDERS' EQUITY .................................... 369,895 (3,800) TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ...................... $ 3,015,065 $ -0- ============ =========
See accompanying Notes to the Consolidated Financial Statements. -3- 4 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS
FROM INCEPTION FOR THE QUARTERS ENDED (APRIL 1989) TO DECEMBER 31, DECEMBER 31, 1998 1998 1997 -------------------------------------------------- REVENUE: .......................... $ 16,555 $ -0- $ -0- EXPENSES: Administrative Expense: ...... 36,739 4,211 93,810 Operating Expense: ........... 10,488 -0- 10,488 Total Expense: ............... $ 47,227 $ 4,211 $ 104,298 LOSS FROM OPERATIONS ......... (30,672) (4,211) (87,743) INTEREST INCOME/(EXPENSE) .... (22,706) -0- (22,706) ----------- --------- ----------------- NET INCOME/(LOSS) ............ (53,378) (4,211) (110,449) INCOME PER SHARE: Basic ........................ (.02) (.00) (.05) Shares for basic ............. 2,246,500 996,500 2,246,500 Diluted ...................... (.02) (.00) (.05) Shares for diluted ........... 5,342,424 996,500 5,342,424
See accompanying Notes to the Consolidated Financial Statements. -4- 5 LAHAINA ACQUISITIONS, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS APRIL 1989 (INCEPTION) ENDED TO DECEMBER 31, 1998 DECEMBER 31, 1998 1997 ------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net Income (loss) ................................................... $ (53,378) $ (28,547) $ (106,649) Adjustments to reconcile net income to net cash provided by operating activities Depreciation ...................................................... 5,493 -0- 40,760 (Increase) decrease in: Accounts Receivable ............................................ (16,555) -0- (16,555) Prepaid expenses ............................................... (14,097) -0- (31,378) Note Receivable ................................................ (21,800) -0- (21,800) Increase (decrease) in: Accounts Payable ............................................... 8,411 -0- 17,313 Accrued Interest Payable ....................................... 22,706 28,547 22,706 Security Deposits Payable ...................................... -0- -0- 9,000 Escrow Funds ................................................... -0- -0- 30,000 NET CASH USED IN OPERATING ACTIVITIES ............................. (61,620) -0- 56,603 CASH FLOWS USED IN INVESTING ACTIVITIES Capital Expenditures ........................................... 2,554,151 -0- (2,974,092) NET CASH FLOWS USED IN INVESTING ACTIVITIES ........................................................ (8,731) -0- (2,974,092) CASH FLOWS PROVIDED BY FINANCING ACTIVITIES Proceeds from Borrowings ....................................... 2,554,151 -0- 2,554,151 Proceeds from Issuance of Common Stock ......................... 51,521 -0- 51,521 Proceeds from Issuance of Preferred Stock ...................... 428,828 428,823 NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES ........................................................ 3,034,495 -0- 3,030,695 NET INCREASE IN CASH ................................................ -0- -0- -0- CASH AT BEGINNING OF PERIOD ......................................... -0- -0- -0- CASH AT END OF PERIOD ............................................... -0- -0- -0- SUPPLEMENTAL DISCLOSURES: Income Taxes, paid .................................................. -0- -0- -0- Interest paid ....................................................... -0- -0- -0-
See accompanying Notes to the Consolidated Financial Statements. -5- 6 LAHAINA ACQUISITIONS, INC. (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY QUARTER ENDED DECEMBER 31, 1998 AND THE PERIOD FROM APRIL 1989 (INCEPTION) TO DECEMBER 31, 1998
CLASS A COMMON STOCK PREFERRED STOCK NO PAR VALUE DEFICIT NO PAR VALUE ACCUMULATED DURING SHARES AMOUNT SHARES AMOUNT ADDITIONAL THE PAID-IN DEVELOPMENT CAPITAL STAGE TOTAL Balance at September 30, 1997 -0- $ -0- 996,500 $ 7,793 $ 41,678 $ (7,193) $ 42,278 as previously stated Net loss for year ended -0- -0- -0- -0- -0- (46,078) (46,078) September 30, 1998 Balances at September 30, 1998 -0- $ -0- 996,500 $ 7,793 $ 41,678 (53,271) (3,800) Stock issues 1,910,000 428,823 1,250,000 800 1,250 -0- 430,873 Net loss for quarter ended (53,378) (53,378) December 31, 1998 Balance at December 31, 1998 1,910,000 $ 428,823 2,246,500 $ 8,593 $ 42,928 $(110,449) 369,895 ========= ========= ========= ======= ======== =========== =========
See accompanying Notes to the Consolidated Financial Statements. -6- 7 Notes to Consolidated Financial Statements for the Quarter Ended December 31, 1998 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This summary of significant accounting policies is presented to assist in understanding the Registrant's financial statements. The financial statements and notes are representations of the Registrant's management who are responsible for their integrity and objectivity. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. These accounting policies conform to generally accepted accounting principles and have been applied in the preparation of the financial statements. REGISTRANT'S ACTIVITIES AND OPERATING CYCLE Lahaina Acquisitions, Inc. (the Registrant) is engaged in real estate development and property management. The Registrant's fiscal year ends September 30. The subsidiary, Beachside Commons I, Inc. ("Beachside"), has a fiscal year end of December 31. The Registrant's financial statements have been prepared in conformity with principles of accounting applicable to a going concern. These principles contemplate the realization of assets and liquidation of liabilities in the normal course of business. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Lahaina Acquisitions, Inc. and its wholly owned subsidiary, Beachside. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Registrant considers all highly liquid investments with maturity of three months or less to be cash equivalents for the purpose of determining cash flows. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost. Depreciation is provided by straight-line methods for financial reporting and accelerated methods for income tax purposes over estimated useful lives, which range from 5 to 39.5 years. NOTE B - NOTE RECEIVABLE Note receivable represents an operating loan to a customer, secured by security interest and outstanding stock, due through December 31, 1999, bearing interest at a rate of prime plus three (3) percentage points (10.75% at December 31, 1998). $21,800 NOTE C - NOTES PAYABLE The carrying amount of notes payable approximates fair value and is based on the current rates available to the Registrant for debt of the same remaining maturities with similar collateral requirements. Notes payable at December 31, 1998, consisted of the following: Note payable, stockholder, consists of a revolving line of credit, due on demand to a related party, with a maximum borrowing facility of $300,000.00, bearing interest at 10%, unsecured, revolving line of credit, due on demand. $74,151 -7- 8 Notes payable, others, consists of three notes, at an interest rate of 18% payable on demand, from individuals in the amounts of $80,000, $50,000, and $25,000. $ 155,000 NOTE D - LONG-TERM DEBT Long-term debt at December 31, 1998, consisted of the following: Note payable to Pacific Coast Investment Company (secured by a first mortgage on the Beachside Commons property), at an interest rate of 15% payable in monthly installments of interest only. The entire principal is due and payable November 11, 2003. $1,550,000 Note payable to GCA Strategies Investment Fund Limited(1), dated December 6, 1998 (secured by a second mortgage on the Beachside Commons property), at an interest rate of 9%, maturing January 31, 2001 with interest payable quarterly in arrears on the last day of March, June, September and December of each year until the maturity date. (Note K - Significant Events) (Note M - Subsequent Events) $ 775,000 Note payable to Global Capital Advisors, Ltd.(1) dated November 4, 1998, at an interest rate of 12% maturing on May 3, 1999. (Note M - Subsequent Events) $2,325,000 ==========
(1) These notes include certain provisions, including issuance of warrants and conversion to common stock (see Form 8-K dated 12/28/98 for details). Such shares have been included in the computation of the fully diluted share amounts. Maturities of long-term debt are as follows:
Year Ending December 31 Amount ----------- ------ 1999 -0- 2000 -0- 2001 750,000 2002 -0- 2003 1,550,000
NOTE E - SHAREHOLDER'S EQUITY The components of shareholder's equity are as follows: Preferred stock consists of 9.5% cumulative preferred stock of no par value with a liquidation value at $1.00 per share for each outstanding share of Series A Preferred Stock. There are 10,000,000 shares of Series A Preferred Stock authorized with 1,910,000 shares issued and outstanding at December 31, 1998. This stock may be converted into Common Stock of the Registrant at $1.00 per share, or 1,910,000 shares, at the option of the holder. Common stock is voting stock with no par value. There are 800,000,000 shares authorized with 2,246,500 shares issued and outstanding at December 31, 1998. NOTE F - RELATED PARTY TRANSACTIONS -8- 9 Included in current debt are loans to the Registrant from the majority shareholder, Mongoose Investments, LLC, (Mongoose) and parties related to Mongoose, in the following amounts: Mongoose $74,151.00 Other related parties 70,000.00
Mongoose owns 2,000,000 of the 2,246,500 shares of the Registrant's Common Stock currently outstanding or approximately 89% of such shares. Mongoose has rights to own an additional 1,910,000 additional shares of Common Stock upon conversion of its Series A Preferred Stock. NOTE G - INCOME TAXES The Registrant has net operating loss carryforwards of approximately $107,000 which are available to offset future taxable income. The loss carryforwards expire $8,000 in 2016, $46,000 in 2017, and $53,000 in 2018. A valuation has been established in the full amount of the deferred tax benefit resulting from the net operating loss carryforwards for each of the periods ending December 31, 1998. NOTE H - EARNINGS PER SHARE Basic earnings per share was calculated using the 2,246,500 shares outstanding at December 31, 1998. Fully diluted shares would have been computed as follows: Shares outstanding at December 31, 1998 2,246,500 Shares assumes conversion of the outstanding 1,910,000 shares Series A Convertible Preferred Stock 1,910,000 Assumes conversion of the $750,000 Convertible Debenture 882,353 Assumes conversion of the $25,000 Note 28,571 Assumes conversion of the Warrant attached to the Line of Credit 200,000 Assumes exercise of the 60,000 Share Warrant 60,000 Assumes conversion of the Warrant attached to the Convertible Note 15,000 --------- Fully diluted shares 5,342,424 =========
NOTE I - LEGAL PROCEEDINGS The Company is party from time to time to various legal proceedings. The Company currently has a claim arising out of the construction phase of the Beachside project in the total amount of $30,000. While it expects to prevail favorable in this proceeding it has placed sufficient funds in escrow to accommodate any liabilities in this matter. In the opinion of management, these proceedings are expected to have no material impact on the Company's financial position or results of operations. NOTE J - RESERVE FOR DOUBTFUL ACCOUNTS The Company has not taken any reserves for its accounts receivable or notes receivable at this time, though it may change this policy in the future based on its experiences with respect to collections. NOTE K - SIGNIFICANT EVENTS As a result of the Registrant's initial transaction on December 14, 1998 the Registrant has become a holding company with an operating subsidiary. This transaction had a significant impact on the Registrant and created a number of other changes in the Registrant. As a result of the change in control that occurred as a result of this transaction, the value of the acquired stock was recorded at the transfer's basis in a manner similar to a pooling of interest as described in APB-16, Interpretation #39, the transferor's basis was equal to its historical cost, or $2,912,094 as of December 7, 1998 Management believes the approximate fair market value to be $4,500,000. A summary of the transaction follows. Acquisition Transaction On December 14, 1998, the Registrant purchased all of the outstanding stock of Beachside from Mongoose. The purchase was deemed effective as of December 7, 1998. Beachside is the owner of a commercial real estate development located on Fernandina Beach, Florida in the resort area of Amelia Island, Northeast Florida. The Registrant paid the following for the Beachside stock: 1,250,000 newly issued shares of Common Stock of the Registrant; 1,910,000 newly issued shares of Series A of Preferred Stock, of the Registrant which shares are convertible into 1,910,000 shares of Common Stock; and $667,500 in cash, which was a portion of the $750,000 borrowed in connection with this transaction by the Registrant under the Note, before amendment. At the same time, Mongoose purchased 750,000 shares of Common Stock from Paxford Investments, Ltd., ("Paxford") an existing shareholder of the Registrant, for $300,000. The Stock Purchase Agreement, the Note and the related Securities -9- 10 Purchase Agreement, Registration Rights Agreement, Stock Pledge Agreement and Warrant are attached as Exhibits or incorporated by reference to this Form 10-Q. As a result of the above transactions, a change in the control of the Registrant has occurred in that Mongoose owns 2,000,000 shares of the 2,246,500 shares of Common Stock currently outstanding or approximately 89% of such shares. Mongoose could own an additional 1,910,000 shares of Common Stock upon conversion of its Series A Preferred Stock. It is currently estimated that the conversion of the Note and the exercise of a related will result in an additional 825,000 to 1,030,000 shares of Common Stock being issued. According to current estimates, the Note as amended will convert into 910,924 shares of Common Stock. The Warrant is exercisable for 60,000 shares of Common Stock. Thus, after conversion of all convertible securities, it is likely that the Registrant will remain in the control of Mongoose for the foreseeable future. The Managing Member of Mongoose is Richard P. Smyth. The assets of Beachside consist of two buildings and unimproved real estate, leases to tenants in the buildings and minimal operating capital. The Beachside property is estimated to have a value of approximately $4,500,000. The property is subject to (1) a first mortgage securing a loan in the amount of $1,550,000 bearing interest at 15% per annum, principal and interest payable and due December 1, 2001, and (2) a second mortgage in favor of GCA securing repayment of the Note. Once the Note is converted to Common Stock the second mortgage will be released. The Registrant intends to continue operating the developed portion of the Beachside property and intends to initiate and complete the development of the currently undeveloped portion of the Beachside property when appropriate financing can be obtained. Change in Board of Directors In connection with the change in control of the Registrant, the previous Directors of the Registrant resigned, but, before resigning, elected Richard P. Smyth, Gerald F. Sullivan, Sidney E. Brown, and D. Nelson Lester as Directors of the Registrant. The Directors will be paid $500 per meeting held telephonically and $1,000 per meeting held in person. Further, each Director has been allowed to purchase $10,000 of the Company's Common Stock, restricted and priced as of the day of the initial transaction, at $.40 per share, the price paid by Mongoose for the Common Stock purchased from Paxford. The Registrant is interviewing other persons for membership on the Board of Directors. The Registrant indemnifies the past and present Directors to the maximum extent permitted by Colorado law. Change in Financial and Business Position As a result of the recent change in control, there has been a change in the financial position of the Registrant. Prior to December 14, 1998, the Registrant had virtually no assets and no operations. The Registrant now has assets, primarily in the form of the commercial real estate holdings of Beachside, and operates those holdings. Bridge Funding In order to raise the cash portion of the purchase price for the Beachside stock, the Registrant borrowed $750,000 from GCA. The costs associated with the transaction were the payment of an $82,500 consulting fee to affiliates of the Fund and the issuance of a Warrant to purchase 60,000 shares of Common Stock to LKB Financial, LLC in satisfaction of amounts owed to it for broker/finder services in connection with the transaction. -10- 11 NOTE L - Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, effective for fiscal years beginning after December 15, 1997. This statement, which must be adopted by the Registrant by fiscal year ended September 30, 1999, establishes standards for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in shareholders' equity except those resulting from investments by and distributions to owners. The Registrant believes it is in compliance and this did not have any material impact on the Registrant. Currently, no differences exist between the Company's net income or loss and comprehensive net income or loss. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, Disclosures About Segments of an Enterprise and Related Information ("SFAS No. 131"), effective for fiscal years beginning after December 15, 1997. This statement, which must be adopted by the Registrant by fiscal year ended September 30, 1999, established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas and major customers. The Registrant believes it is in compliance and this did not have any material impact on the Registrant. In March 1998, the American Institute of Certified Public Accounts ("AICPA") issued Statement of Position 98-1, Accounting for the Costs of Computer Software Developed For or Obtained For Internal Use ("SOP" No. 98-1"). SOP No. 98-1 is effective for fiscal years beginning after December 15, 1998. SOP No. 98-1 will require the capitalization of certain costs incurred after the date of adoption in connection with developing or obtaining software for internal-use. The Registrant believes it is in compliance and this did not have any material impact on the Registrant. NOTE M - SUBSEQUENT EVENTS In January 1999, the Registrant reached an agreement with the holder of its $25,000 note to convert it to the same terms as the $750,000 convertible debenture with a maturity date of January 31, 2001. Therefore, the note was included in long-term debt. In order to provide additional interim funding for the Registrant in its development stage, the Registrant has entered into a lending agreement with GCA Strategic Investment Fund, Ltd. This line provides for funding of up to a maximum of $300,000 in accordance with certain terms and conditions. The Fund is entitled to receive certain compensation for this line including the issuance of up to 200,000 warrants, based on the amounts drawn on the line, with a strike price of $2.60 per share of common stock. These shares have been included in the fully diluted share computation. As of the date of this filing, the Registrant has utilized $150,000 of this line. A copy of this agreement in attached as an exhibit to this Form 10-Q. -11- 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of the Registrant should be read in conjunction with the Registrant's Consolidated Financial Statements and Notes thereto immediately preceding this section. This discussion contains forward-looking statements based on current expectations which involve risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors, including, but not limited to, the possibilities that the demand for the Registrant's services may decline as a result of possible changes in general and industry specific economic conditions and the effects of competitive services and pricing, required financing may not be available upon terms acceptable to the Registrant, in which case the Registrant will not grow as expected, and such other risks and uncertainties as are described in reports and other documents filed by the Registrant from time to time with the Securities and Exchange Commission. OVERVIEW The Registrant was formed with the intent to actively seek, locate, evaluate, structure and complete mergers with or acquisitions of private companies, partnerships or sole proprietorships. The Registrant intends to implement a business strategy that will allow it to facilitate opportunistic acquisitions or investment in real estate, related operations and businesses with an emphasis on asset oriented opportunities, such as real estate equipment or other physical assets. The acquisition on December 14, 1998 of Beachside Commons I, Inc. ("Beachside"), whose main activity is real estate development and redevelopment and investment in businesses within resort market places, is consistent with that business strategy. Since inception, the Registrant generated no revenues until its acquisition of Beachside on December 14, 1998. Because the Registrant is in the development stage, the Registrant's model is significantly different from many existing real estate development companies. Since the Registrant was a holding company with limited assets until the December 14, 1998 acquisition of Beachside, the Registrant has only a limited operating history upon which an evaluation of the Registrant and its prospects can be based. This limited operating history makes the prediction of future operating results difficult if not impossible. The Registrant has incurred losses every quarter since inception and expects to continue to incur losses for the foreseeable future. The Registrant had an accumulated deficit as of September 30, 1998 of $53,271 and as of September 30, 1997 of $7,193. The Registrant had a loss for the three-month period ending December 31, 1998 of ($53,378) and a loss for the three-month period ending December 31, 1997 of ($4,211). At December 31, 1998, the accumulated deficit was $110,449. The Registrant's prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in the early stages of development, particularly companies in new and rapidly evolving markets, such as the market for resort development. There can be no assurance that the Registrant will successfully generate sufficient revenues to achieve profitability. Although the Registrant has experienced revenue growth in recent periods, historical growth rates are not sustainable and are not indicative of future operating results, and there can be no assurance that the Registrant will achieve or maintain profitability. See "Results of Operations." RESULTS OF OPERATIONS The following table sets forth unaudited quarterly statement of operations data for the seven quarters ended December 31, 1998. This unaudited quarterly information has been derived from unaudited financial statements of the Registrant and, in the opinion of management, includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the information for the periods covered. The quarterly data should be read in conjunction with the Registrant's Consolidated Financial Statements and the Notes thereto. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
Statement of Operations for the Three Months Ending (unaudited) ----------------------------------------------------------------------------- Dec. 31, Mar. 31, June 30, Dec. 31, Mar. 31, June 30, Dec. 31, 1996 1997 1997 1997 1998 1998 1998 ----------------------------------------------------------------------------- Revenues................ $ 0 $ 0 $4,690 $ 0 $ 0 $ 0 $16,555 Expenses: Legal and Accounting Fees.................. 1,260 0 45 28,297 7,450 3,594 Administrative Expense............... 36,739 Stock Transfers......... 0 448 1,921 0 0 Printing................ 0 0 537 250 0 Operating Expense Net Income (Loss)....... (1,260) (448) (2,187) (28,547) (7,450) (3,594) (30,672) Total Expense........... 47,227
(1) Figures for the three months ending September 30, 1996, September 30, 1997 and September 30, 1998 are not presented. They correspond with the end of the fiscal year and were not required. (2) Figures for the period ending March 31, 1998 are for a six month period. -12- 13 POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS AND SEASONALITY As a result of the Registrant's limited operating history in resort development and the emerging nature of the markets in which the Registrant competes, the Registrant is unable to accurately forecast its revenues. The Registrant's current and future expense levels are based predominantly on its operating plans and estimates of future revenues and, while relevant to management for planning purposes, should not be relied upon by potential investors. The Registrant may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues would likely have an immediate material adverse effect on the Registrant's business, operating results and financial condition. Further, the Registrant currently intends to substantially increase its operating expenses to increase advertising, develop and offer new and expanded services, to fund increased sales and marketing and customer service operations and to develop its technology and systems. To the extent such expenses precede or are not subsequently followed by increased revenues, the Registrant's operating results will fluctuate and anticipated net losses in a given quarter may be greater than expected. The Registrant expects to experience significant fluctuations in its future quarterly operating results due to a variety of other factors, many of which are outside the Registrant's control. Factors that may adversely affect the Registrant's quarterly operating results include, but are not limited to (i) general economic conditions and economic conditions specific to the real estate industry, (ii) the level of use of resort facilities as well as seasonal fluctuation in vacationers' demands, (iii) the Registrant's ability to upgrade and develop its systems and infrastructure and to attract new personnel in a timely and effective manner, (iv) the amount and timing of operating costs and capital expenditures relating to expansion of the Registrant's business, operations and infrastructure, (v) governmental regulation, (vi) unforeseen events affecting the industry, and (vii) the timing associated with the start, completion and closing associated with the land development or construction activities of the Registrant. Due to the foregoing factors, quarterly revenues and operating results are difficult to forecast, and the Registrant believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as an indication of future performance. It is likely that the Registrant's future quarterly operating results from time to time will not meet the expectations of security analysts or investors. In such event, the price of the Registrant's Common Stock would likely be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES As the result of a number of transactions aimed at funding the operations of the shell as a start-up registrant, the Registrant issued 5,342,424 fully diluted shares for a total of $1,200,000 in transactions occurring from August 1989 to January 19, 1999. The Registrant has recently begun operations. As a result of this change from a shell registrant into a holding registrant with operations it will have a need for significant financial resources as it adds operations and grows the current operations. At this time the Registrant is not currently generating profits from its operations. Further, the Registrant is currently consuming cash at a rate greater than it is generating cash, and is expected to continue in this manner for the foreseeable future. The Registrant believes that its current cash, and cash equivalents and its debt arrangements will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next several months. However, the Registrant's capital requirements depend on several factors, including the level of acquisition activity and other factors. The timing and amount of such capital requirements cannot accurately be predicted. If capital requirements vary materially from those currently planned, the Registrant may require additional financing sooner than anticipated. The Registrant has no commitments for any additional financing, and there can be no assurance that any such commitments can be obtained on favorable terms, if at all. Any additional equity financing may be dilutive to the Registrant's shareholders and debt financing, if available, may involve restrictive covenants with respect to dividends, raising capital and other financial and operational matters which could restrict its operations or finances. If the Registrant is unable to obtain additional financing as needed, the Registrant may be required to reduce the scope of its operations or its intended expansion, which could have a material adverse effect on the Registrant's business, results of operations and financial condition. RECENT DEVELOPMENTS In order to enhance the Registrant's ability to acquire, develop, renovate, manage and sell its properties and other businesses and operations, the Registrant has recently formed a subsidiary, Klein Real Estate Services, and has acquired a mortgage brokerage operation based in Gainesville, Georgia. Gerald Sullivan, the Vice Chairman of the Registrant, will run 1st Southern Mortgage, which the Registrant acquired from his son, Jerry Sullivan. The Registrant has entered into an agreement to acquire JP Concepts, Inc., a provider of resort related hospitality services. The Registrant has several other initiatives underway including the acquisition of other operations aimed at video/audio production and marketing and internet applications. These additional acquisitions are all contingent on the successful transfer of the associated licenses to the Registrant by the issuing governmental agencies. -13- 14 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party from time to time to various legal proceedings. The Company currently has a claim arising out the construction phase of the Beachside project in the total amount of $30,000. While it expects to prevail favorably in this proceeding it has placed sufficient funds in escrow to accommodate any liabilities in this matter. In the opinion of management, these proceedings are not expected to have a material impact on the Company's financial position or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS PREFERRED STOCK Pursuant to the Registrant's Amended and Restated Articles of Incorporation, the Board of Directors has the authority, without further action by the shareholders, to issue up to 10,000,000 shares of Preferred Stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the Common Stock. The Board of Directors, without shareholder approval, can issue Preferred Stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of Common Stock. Preferred Stock could thus be issued quickly with terms calculated to delay or prevent a change in control of the Registrant or make removal of management more difficult. Additionally, the issuance of Preferred Stock may have the effect of decreasing the market price of the Common Stock, and may adversely affect the voting and other rights of the holders of Common Stock. 1,910,000 shares of Series A Preferred Stock are currently outstanding. Although the Registrant has no current plans to issue any additional shares of the Preferred Stock, such shares may be issued in connection with subsequent acquisitions or financings. TERMS OF SERIES A PREFERRED STOCK In connection with its acquisition of Beachside, the Registrant authorized and issued shares of Series A Preferred Stock. These securities have preferential rights over the rights of outstanding Common Stock. The rights, preferences, and restrictions granted to and imposed on the Series A Preferred Stock are set forth below. DIVIDEND PROVISIONS Subject to the rights of any series of Preferred Stock that may from time to time come into existence, the holders of shares of Series A Preferred Stock are entitled to receive dividends out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Registrant) on the Common Stock of this Corporation, at the rate of $0.095 per share, per annum (as adjusted for any stock splits, stock dividends, recapitalizations or the like), payable when, as, and if declared by the Board of Directors. Such dividends will be cumulative. The holders of the outstanding Series A Preferred Stock can waive any dividend preference that such holders shall be entitled to receive upon the affirmative vote or written consent of the holders of a majority of the Series A Preferred Stock. LIQUIDATION PREFERENCE In the event of any liquidation, dissolution or winding up of the Registrant, either voluntary or involuntary, subject to the rights of any series of Preferred Stock that may from time to time come into existence, the holders of Series A Preferred Stock are entitled to receive, prior and in preference to any distribution of any of the assets of the Registrant to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of $1.00 for each outstanding share of Series A Preferred Stock (the "Series A Liquidation Price"), plus declared but unpaid dividends on such share (subject to adjust of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like). Upon completion of this distribution all of the remaining assets of the Registrant available for distribution to shareholders shall be distributed among the holders of Series A Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each holder (assuming full conversion of all shares of Series A Preferred Stock). Liquidation, dissolution or winding up of the Registrant shall be deemed to be occasioned by, or to include (unless the holders of a majority of the Series A Preferred Stock then outstanding shall determine otherwise), (i) the acquisition of the Registrant by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent or more of the outstanding voting power of the Registrant; or (ii) a sale of all or substantially all of the assets of the Registrant. In any of such events, if the consideration received by the Registrant is other than cash, its value will be deemed its fair market value determined as set forth in Amended and Restated Articles of Incorporation of the Registrant. REDEMPTION -14- 15 The Series A Preferred Stock is redeemable only at the election of the Board of Directors of the Registrant upon 20 days notice to the holders of Series A Preferred Stock at a price per share equal to the Series A Liquidation Price plus accrued (whether or not declared) but unpaid dividends on each such share. CONVERSION Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, and until 5:00 p.m. Eastern Time of the day fixed for its redemption (the "Conversion Rights"), at the office of the Registrant or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Series A Liquidation Price by the Conversion Price applicable to such share in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Series A Preferred Stock shall be $1.00, subject to adjustment as set forth in the Registrant's Amended and Restated Articles of Incorporation. AUTOMATIC CONVERSION Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series A Preferred Stock immediately upon the earlier of (i) the Registrant's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, the public offering price of which was not less than $10.00 per share (as adjusted for any stock splits, stock dividends, recapitalizations or the like) and $10,000,000 in the aggregate or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A Preferred Stock. VOTING RIGHTS The holder of each share of Series A Preferred Stock shall have the right to one vote for each share of Common Stock into which such Series A Preferred Stock could then be converted, and with respect to such vote, except as set forth in the following paragraph, such holder (i) shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (ii) shall be entitled to notice of any shareholders' meeting in accordance with the bylaws of the Registrant, and (iii) shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis shall be rounded to the nearest whole number (with one-half being rounded upward). The holders of shares of Series A Preferred Stock shall be entitled to elect one director of the Registrant at each annual election of Directors. The holders of Series A Preferred Stock and Common Stock (voting together as a single class and not as separate series, and on an as-converted basis) shall be entitled to elect any remaining Directors of the Registrant. Subject to the rights of any series of Preferred Stock that may from time to time come into existence, so long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of the Series A Preferred Stock then outstanding voting together as a single class: (i) sell, convey, or otherwise dispose of all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any transaction or series of related transactions in which more than fifty percent of the voting power of the Registrant is disposed of; (ii) redeem purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, Directors, consultants or other persons performing services for this Corporation or any subsidiary pursuant to agreements under which this Corporation has the option to repurchase such shares at cost or at cost upon the occurrence of certain events, such as the termination of employment; (iii) amend the Registrant's Articles of Incorporation or bylaws; (iv) declare or pay any dividends on any shares of capital stock; (v) do any act or thing which would result in taxation of the holders of shares of the Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended); or (vi) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security having a preference over, or being on a parity with, the Series A Preferred Stock with respect to dividends, liquidation or voting. -15- 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS
Number Description Page 2.1 Stock Purchase Agreement dated December 3, 1998, by and between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC (1) 2.2 Common Stock Purchase Warrant in the amount of 60,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by LKB Financial, LLC, expiring on December 20, 2003 (1) 3.1 Amended and Restated Articles of Incorporation (2) 3.2 Bylaws of the Registrant (2) 4.1 Securities Purchase Agreement dated December 7, 1998, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund Limited (1) 4.2 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund Limited, in the principal amount of $750,000 (1) 4.3 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic E-1 Investment Fund, Ltd. amending 9% Convertible Note 4.4 Registration Rights Agreement dated December 7, 1998, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund Limited (1) 4.5 Letter Agreement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic E-2 Investment Fund, Ltd. confirming conversion of $25,000 Beachside Commons Note 4.6 Working Capital Line dated January 19, 1999, by and between Lahaina Acquisitions, Inc. and GCA E-3 Strategic Investment Fund, Ltd. 4.7 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina Acquisitions, E-5 Inc. 4.8 Line of Credit for up to $250,000 between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC E-7 4.9 Form of Stock Certificate (2) 4.10 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal amount of E-9 $85,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. 4.11 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth, in the principal amount of E-11 $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. 4.12 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth, in the principal amount of E-13 $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. 10 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and LKB E-15 Financial LLC 27 Financial Data Schedule (for SEC use only) E-19
(1) Incorporated by reference to the Registrant's Current Report on Form 8-K, filed December 28, 1998. (2) Incorporated by reference to the Registration Statement on Form 10, filed December 29, 1995. (B) REPORTS ON FORM 8-K A report on Form 8-K was filed on December 28, 1998 reporting (i) a change in control of the Registrant, (ii) the acquisition of all of the stock of Beachside Commons I, Inc. from Mongoose Investments, LLC, (iii) a change in the location of company headquarters and (iv) the intention to file a Form S-1 Registration Statement. A report on Form 8-K was filed on February 10, 1999 reporting (i) a change in the Registrant's certifying accountant and (ii) that the company had formed, acquired or was in discussions to acquire a number of small businesses in order to complement its current operations and increase its overall size. -16- 17 SIGNATURES Pursuant to the requirements of the 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. -------------------------- (Registrant) By: /s/ Richard P. Smyth ----------------------------------------- Richard P. Smyth Chairman, Chief Executive Officer, and Treasurer February 23, 1999 EX-4.3 2 LETTER AGREEMENT DATED 1/19/99 1 EXHIBIT 4.3 January 19, 1999 Rick Smyth Lahaina Acquisitions, Inc. 2900 Atlantic Avenue Fernandina Beach, FL 32034 Dear Rick: This letter agreement will confirm the amendments in the 9% Convertible Note as follows: 2. Amend the conversion price on the second $375,000 from 85% of the 5 day Weighted Average Sale Price to a conversion price of $875. These amendments do not change any other terms of the agreement, rights of GCA Strategic Investment Funds, Ltd., or obligations of Lahaina Acquisitions, Inc., under the agreement. - ----------------------------------- GCA Strategic Investment Fund, Ltd. - ----------------------------------- Rick Smyth Lahaina Acquisitions, Inc. E-1 EX-4.5 3 LETTER AGREEMENT DATED 1/19/99 1 EXHIBIT 4.5 January 19, 1999 Rick Smyth Lahaina Acquisitions, Inc. 2900 Atlantic Avenue Fernandina Beach, FL 32034 Dear Rick: This letter agreement will confirm that the $25,000 Beachside Commons Note due May 3, 1999 will be converted from its present form to the $750,000 Convertible Debenture dated December 14, 1998, with all rights, remedies and obligations herein. The Conversion Shares and the 25,000 Shares issued under the Note will be included in the Registrant's S-1 Registration Statement. - ----------------------------------- GCA Strategic Investment Fund, Ltd. - ----------------------------------- Rick Smyth Lahaina Acquisitions, Inc. E-2 EX-4.6 4 WORKING CAPITAL LINE DATED 1/19/99 1 EXHIBIT 4.6 WORKING CAPITAL LINE $300,000 PAR VALUE SECTION ONE TERMS OF CREDIT LINE AND NOTES FOR VALUE RECEIVED, LAHAINA ACQUISITION, INC. ("the Debtor") of 2900 Atlantic Avenue, Suite 900, Fernandina Beach, Florida 32034 promises to pay to the order of GCA STRATEGIC INVESTMENT FUND LTD. (hereinafter "GCA") c/o Prime Management Limited Mechanics Building, 12 Church Street, Hamilton HM 11, Bermuda, the par value amount of One Hundred Eighty Thousand ($180,000) Dollars payable April 22, 1999. The purchase price of the note will be $850 principal amount for each $1000 par value amount purchased. Beginning on the latter of (i) the full repayment of the note and (ii) 95 days following the closing date, the Fund will grant to the Company an option for an additional $120,000 of Notes, with the same conditions as set forth herein (The "Option notes"), provided there is no material adverse change in financial condition of the Company or the Company's stock price. The additional notes will be funded in $60,000 increments, up to a total of $300,000. The Company will provide the Funds with three weeks notice prior to any take down of the additional notes. Prepayment of the full Par Value Amount is permitted at any time. All Option Notes shall have a term of Ninety (90) days from the date any Option Note is closed upon by Lahaina Acquisitions, Inc. SECTION TWO WARRANTS The Fund will receive 100,000 warrants with a strike price of $2.60. The term of the Warrants will begin at the closing date hereof and continue through five years from the closing date (the "Funding Warrants"). The Option Notes will entitle the Funds to receive an additional 50,000 Warrants per $60,000 par value amount thereof, with the same expiration as the Funding Warrants (the "Option Warrants"), up to an additional 100,000 Bonus Warrants. The stock price of the Option Warrants is the average of the following: (i) the 30 day Weighted Average Sales Price and (ii) the 30 day Closing Bid Price of Companies Common Shares listed on the OTC Bulletin Board as reported by Bloomberg, L.P., on the date of the takedown. SECTION THREE EFFECT OF WAIVER OF RIGHTS BY GCA GCA is not under any obligation to exercise any of its rights under this note, and failure to exercise its right under this note or to delay in exercising any of its rights shall not be deemed a waiver of or in any manner impair any of the rights of GCA. SECTION FOUR REGISTRATION RIGHTS The rights and remedies of GCA specified in this note are cumulative and do not exclude any other rights or remedies it may otherwise have. The Warrants will be registered for resale under a resale registration statement as provided for in the Registration Rights Agreement, attached hereto as Exhibit A. SECTION FIVE ACCELERATION OF INSOLVENCY OF DEBTOR If Debtor shall be adjudged bankrupt, or file a petition in bankruptcy, or have a petition in bankruptcy filed against it, this note shall become due and payable immediately without demand or notice. SECTION SIX WAIVER OF PRESENTMENT, PROTEST, AND NOTICE OF DISHONOR Debtor hereby waives all acts on the part of GCA required in fixing the liability of the party, including among other things presentment, demand, notice of dishonor, protest, notice of protest, notice of nonpayment, and any other notice. E-3 2 SECTION SEVEN CHOICE OF LAWS This note shall be governed by and construed in accordance with the internal laws (as opposed to conflict of laws) of Georgia in all respects, including matters of construction, validity and performance. SECTION EIGHT COSTS OF COLLECTION Debtor shall pay on demand all costs of collection, including legal expenses and attorney fees, incurred by GCA in enforcing this note on default. Dated: January 19, 1999 LAHAINA ACQUISITIONS, INC. By: ----------------------------------------- Richard Smyth E-4 EX-4.7 5 NOTE GUARANTY BY RICHARD P SMYTH 1 EXHIBIT 4.7 NOTE GUARANTY ($300,000) Guaranty made this 19th day of January, 1999, by Richard Smyth, of 7276 Sanctuary Lane, Fernandina Beach, Florida 32034 referred to as Guarantor, to GCA Strategic Investment Fund Ltd. c/o Prime Management Limited, Mechanics Building, 12 Church Street, Hamilton HM 11, Bermuda, referred to as Creditor with respect to the indebtedness of Lahaina Acquisitions, Inc. referred to as Debtor and having as its principle place of business and offices located at 2900 Atlantic Avenue, Fernandina Beach, Florida 32034. 3. STATEMENT OF GUARANTY In consideration of the sum of Ten Dollars ($10), paid by GCA Strategic Investment Fund Ltd. to the undersigned Guarantor, and other valuable consideration moving to the Guarantor, the receipt of which is acknowledged, as well as for the purpose of inducing GCA Strategic Investment Fund Ltd. to lend to Lahaina Acquisitions, Inc. the sum of Three Hundred Thousand Dollars ($300,000), Guarantor unconditionally guarantees to GCA Strategic Investment Fun Ltd. its endorsees, transferees, successors, or assigns of either this guaranty or of the obligation whose payment is guaranteed, the due and punctual payment of the par value and interest on, that certain promissory note dated hereof, in the par value amount of $300,000, made by the Debtor in favor of the Creditor and all other indebtedness due GCA Strategic Investment Fund Ltd. by the Debtor according to the terms of the instruments evidencing such indebtedness, payment to be made at such time or times as such indebtedness becomes due, either in course or by virtue of the provisions for the acceleration of the maturity of the indebtedness as contained in any instrument evidencing such indebtedness. 4. INDEBTEDNESS GUARANTEED The indebtedness, payment of which is guaranteed, includes any rewards or extensions of the indebtedness, in whole or in part, including both principal and interest, together with such attorneys' fees as may be collectable by law as shall be provided for by any note or instrument in writing evidencing such obligation and all damages, losses, costs, charges, expenses, and liabilities of every king, nature and description suffered or incurred by GCA Strategic Investment Fund Ltd. arising in any manner out of, or in any way connected with or growing out of such obligation of Debtor to GCA Strategic Investment Fund Ltd. 5. WAIVER OF NOTICE Guarantor waives any notice which may be required relative to the acceptance of this guaranty, the creation, extension, or renewal of the indebtedness of the Debtor and the acceleration of maturity of such indebtedness, also presentment, demand, protest, notice of dishonor or nonpayment or other default by the Debtor with respect to any liabilities or obligations of the Debtor under the terms of any note or instrument in writing evidencing such indebtedness or the laws applicable to that indebtedness. 6. AUTHORITY OF CREDITOR Guarantor authorized Creditor to deal in any manner with any obligation or indebtedness the discharge and payment of which are guaranteed and the collateral and the security of every kind and character given to secure the payment of such obligation and indebtedness, and without limiting the generality of this guaranty, Creditor is authorized to waive any rights which it may have relative to requiring additional collateral or to surrendering or to releasing collateral held by it, or to substituting any collateral held by it for other collateral of like kind, or any kind, nor shall the obligation of Guarantor under this guaranty, nor the rights of Creditor protected by it be diminished or in any manner affected by the failure of Creditor to exercise its rights with reference to such collateral, or failure to accelerate the maturity of the indebtedness upon default on that indebtedness, or in extending the maturity of the indebtedness, or in renewing the notes evidencing the same, or in failing to attempt collection of the indebtedness by legal proceedings or otherwise, or it any other manner proceeding against Debtor or the collateral or security pledged or conveyed as security for such obligations or indebtedness. 7. DEFAULT BY DEBTOR In the event the Debtor shall be in default in the payment of any of the indebtedness guaranteed by this instrument, Guarantor shall immediately, upon demand by the Creditor, pay to the Creditor, the full amount of the indebtedness in the payment of which default has occurred, and such obligation shall become the direct and primary obligation of the Guarantor. 8. JOINT AND SEVERAL LIABILITY The obligation and liability of the Guarantor and Debtor shall be joint and several. 9. SUIT AGAINST GUARANTOR E-5 2 There shall be no duty or obligation of Creditor to institute proceedings against Debtor or to exhaust any remedy in law or in equity against the Debtor before brining suit or instituting proceedings of any kind against the Guarantor. 10. INDEBTEDNESS AS PART OF GUARANTY Guarantor agrees that the terms, conditions, agreements, and stipulations in the note and other evidences of indebtedness whose payment or discharge is guaranteed, whether executed before or after this guaranty, shall become a part of this agreement, and Guarantor ratifies, adopts and confirms all such terms, conditions, agreements, and stipulations. 11. WAIVER OF CERTAIN RIGHTS Without in any way limiting the generality of Section 8, Guarantor hereby waives and renounces, for himself or his family, any and all exemption rights which any of them may have under or by virtue of the Constitution or Laws of the State of Florida, or of any other state or of the United States as against the liability obligation created by this instrument. The Guarantor transfers, conveys, and assigns to the Creditor or holder of this guaranty, a sufficient amount of any such exemption that may be allowed to the Guarantor including any such exemption as any be set apart in bankruptcy, to pay this obligation in full, with all costs of collection. The Guarantor directs that any nominated trustee having possession of such exemption to deliver to the Creditor a sufficient amount of property or money set apart as exempt to pay this obligation. 12. BINDING EFFECT This agreement shall bind the heirs and legal representatives of the Guarantor. 13. CHOICE OF LAWS This guaranty shall be governed by and construed in accordance with the internal laws (as opposed to conflict of laws) of Georgia in all respects, including matters of construction, validity and performance. Dated: January 19, 1999 IN WITNESS WHEREOF, the Guaranty has been duly executed by the Guarantor on the date above written. ------------------------------------------- Richard Smyth - ----------------------------- Witness E-6 EX-4.8 6 LINE OF CREDIT 1 EXHIBIT 4.8 LINE OF CREDIT PROMISSORY NOTE $250,000 Fernandina Beach, Florida , 1999 ---------------- FOR VALUE RECEIVED, LAHAINA ACQUISITIONS, INC., a Colorado Corporation (hereinafter referred to as "Payor"), promises to pay to the order of MONGOOSE INVESTMENTS, LLC, a Georgia limited liability company (hereinafter referred to as "Holder"), the principal sum of up to two hundred fifty thousand dollars ($250,000), the actual amount owed based on the real and actual amounts advanced to the Payor, less any reimbursements made by the Payor. All advances under this line shall be evidenced by documented transfers, canceled checks or other documentation acceptable to all parties and shall be reviewed by a qualified third party on a monthly basis with the accounting of the amounts owed reviewed by a qualified third party on a monthly basis with the accounting of the amounts owed reviewed by the Board of Directors upon completion of such monthly review. Said principal shall bear interest at the rate of ten percent per annum. Interest shall be due and payable monthly on so much of the principal as has been disbursed from time to time and remains unpaid and shall be calculated on the basis of a three hundred sixty -- (360) day year. As further consideration the Payor agrees to issue to the Holder at the end of each month the line is in place a warrant to purchase common stock in the Payor. This warrant shall allow the purchase, at 105% of the closing price of the stock on the final trading day of each month, a number of shares equal to the weighted average outstanding balance due from the Payor during the prior month divided by the closing price of the stock on the final day of the month that sum divided by twelve. The prices used in this calculation shall be as published by Bloomberg Financial, LLP, or as generally available from public sources. Principal and interest shall be payable at 7276 Sanctuary Lane, Amelia Island, Florida 32034, or at such other place as Holder may designate and shall mature and be payable on demand. Payor acknowledges and agrees that any amounts that have been disbursed prior to the execution hereof are covered by and included in the principal amount hereunder. Payments shall be made in currency of the United States of America, which at the time of payment shall be legal tender for the payment of public and private debts. This Note is secured by a security interest in all of the assets of the Company not otherwise encumbered by any other obligations. Payor shall have the right to prepay the principal amount outstanding in whole or in part at any time without penalty, and the Payor has the obligation to pay the outstanding amounts upon receipt of any additional funding provided to the Payor from any source, including but not limited to operating income, sale of equity or placement of debt, except to the extent that such payment would endanger the ongoing operations of the Company. Payor hereby waives all presentment, demand, notice of dishonor, and protest. Payor hereby renounces and waives all exemption rights allowed by the Constitution and laws of Florida or any other State of the United States, as against this Note or any renewal thereof. If Payor fails to pay any amount payable hereunder within five (5) days of demand, Payor shall be in default hereunder. In addition, a default shall exist hereunder upon the occurrence of any of the following events: (i) Payor becomes insolvent as defined in the Uniform Commercial Code as in effect at that time in Florida; (ii) Payor makes an assignment for the benefit of creditors or files a petition in bankruptcy. Payor acknowledges that its obligation to pay all sums due under this Note is absolute and unconditional and that such obligation is not subject to any defense, counterclaim, and right of setoff or recoupment. Payor shall pay all costs of collection, including, but not limited to, reasonable attorneys' fees if collected by or through an attorney at law. This instrument shall be governed by and interpreted in accordance with the laws of the State of Florida. Payor acknowledges that this Note has been entered into and monies advanced in the State of Florida, and Payor acknowledges and agrees that Payor is subject to the jurisdiction of the State of Florida. Words herein importing the masculine shall include females, and words importing persons shall include bodies corporate, and the singular shall include the plural, and vice-versa. The rights of Holder hereunder shall inure to the benefit of its legal representatives, successors and assigns. E-7 2 Except for any notice required under applicable law to be given in another manner, any notice provided for in this Note shall be given in writing, by hand delivery or by mailing such notice by certified mail, postage prepaid to the address shown below or to such other address as either party may designate by notice to the other as provided herein. Any notice provided for in this Note shall be deemed to have been given to Payor or Holder when given in the manner designated herein. Notice given as hereinabove provided shall be deemed received by the party to whom it is addressed on the third calendar day following the date on which said notice is deposited in the mail. (a) TO HOLDER: Mongoose Investments, LLC 7276 Sanctuary Lane Amelia Island, Florida 32034 (b) TO PAYOR: Lahaina Acquisitions, Inc. 102 South Tenth Street Fernandina Beach, Florida 32034 The waiver of a breach of any provision, term or condition of this Note shall not operate or be construed as a waiver of any subsequent breach, and the acceptance of a past due payment shall not be construed as a waiver of Holder's rights to require strict compliance with all terms and conditions herein. Time is of the essence of this Note. IN WITNESS WHEREOF, the undersigned have caused this Note to be executed this day of _________, 1998. Lahaina Acquisitions, Inc. By: ----------------------------------------- Gerald Sullivan, Vice Chairman E-8 EX-4.10 7 NOTE OF MONGOOSE INVESTMENTS/ELAINE OPPENHEIMER 1 EXHIBIT 4.10 PROMISSORY NOTE $85,000 FERNANDINA BEACH, FLORIDA AS OF JULY 1, 1998 FOR VALUE RECEIVED, MONGOOSE INVESTMENTS, LLC., a Georgia Limited Liability Company (hereinafter referred to as "Payor"), promises to pay to the order of ELAINE OPPENHEIMER, an individual (hereinafter referred to as "Holder"), the principal sum of Eighty Five Thousand Dollars ($85,000). Said principal shall bear interest at the rate of eighteen percent (18%). Interest shall due and payable on so much of the principal as has been disbursed from time to time and shall be calculated on the basis of a three hundred sixty (360) day year. Principal and interest shall be at such place as Holder may designate and shall mature and be payable on demand. Payor acknowledges and agrees that any amounts which have been disbursed prior to the execution hereof are covered by and included in the principal amount hereunder. Payments shall be made in currency of the United States of America, which at the time of payment shall be legal tender for the payment of public and private debts. Payor shall have the right to prepay the principal amount outstanding in whole or in part at any time without penalty. Payor hereby waives all presentment, demand, notice of dishonor, and protest. Payor hereby renounces and waives all exemption rights allowed by the Constitution and laws of Florida or any other State of the United States, as against this Note or any renewal thereof. If Payor fails to pay any amount payable hereunder within five (5) days of demand. Payor shall be in default hereunder. In addition, a default shall exist hereunder upon the occurrence of any of the following events: (i) Payor becomes insolvent as defined in the Uniform Commercial Code as in effect at that time in Florida; (ii) Payor makes an assignment for the benefit of creditors or riles a petition in bankruptcy; or (iii) a default shall exist under the terms of the Stock Pledge Agreement executed by the Payor on this date; Payor acknowledges that its obligation to pay all sums due under this Note is absolute and unconditional and that such obligation is not subject to any defense, counterclaim, right of setoff or recoupment. Payor shall pay all costs of collection, including, but not limited to, reasonable attorneys' fees if collected by or through an attorney at law. The instrument shall be governed by and interpreted in accordance with the laws of the State of Florida. Payor acknowledges that this Note has been entered into and monies advanced in the State of Florida, and Payor acknowledges and agrees that Payor is personally subject to the jurisdiction of the State of Florida. Payor, as used herein, shall include the undersigned and all endorsers, guarantors, and sureties of this Note, and shall also include the legal representatives, successors and assigns of the Payor, all of whom shall be jointly and severally liable hereunder. Words herein importing the masculine shall include females, and words importing persons shall include bodies corporate, and the singular shall include the plural, and vice-versa. The rights of Holder hereunder shall inure to the benefit of its legal representatives, successors and assigns. Except for any notice required under applicable law to be given in another manner, any notice provided for in this Note shall be given in writing, by hand delivery or by mailing such notice by certified mail, postage prepaid to the address shown below or to such other address as either party may designate by notice to the other as provided herein. Any notice provided for in this Note shall be deemed to have been given to Payor or Holder when given in the manner designated herein. Notice given as hereinabove provided shall be deemed received by the party to whom it is addressed on the third calendar day following the date on which said notice is deposited in the mail. (a) TO HOLDER: Elaine Oppenheimer c/o March Oppenheimer 25 Rockwood Place Englewood, New Jersey 07631 E-9 2 (b) TO PAYOR: Mongoose Investments, LLC 7276 Sanctuary Lane Fernandina Beach, Florida 32034 The waiver of a breach of any provision, term or condition of this Note shall not operate or be construed as a waiver of any subsequent breach, and the acceptance of a past due payment shall not be construed as a waiver of Holder's rights to require strict compliance with all terms and conditions herein. Time is of the essence of this Note. IN WITNESS WHEREOF, the undersigned have caused this Note to be executed this 1st day of July, 1998. Mongoose Investments, LLC By: --------------------------------- Richard Smyth THIS NOTE SHALL BE TRANSFERRED AND ASSIGNED TO LAHAINA ACQUISITIONS, INC., AS OF DECEMBER 7, 1998 AS A PART OF THE ACQUISITION OF THE STOCK OF BEACHSIDE COMMONS I, INC. By: --------------------------------- Richard Smyth, Chairman, Lahaina Acquisitions, Inc. By: --------------------------------- Gerald Sullivan, Vice Chairman, Lahaina Acquisitions, Inc. E-10 EX-4.11 8 NOTE OF MONGOOSE INVESTMENTS/NANCY ESTROFF SMYTH 1 EXHIBIT 4.11 PROMISSORY NOTE $50,000 FERNANDINA BEACH, FLORIDA AS OF JULY 30, 1998 FOR VALUE RECEIVED, MONGOOSE INVESTMENTS, LLC., a Georgia Limited Liability Company (hereinafter referred to as "Payor"), promises to pay to the order of NANCY ESTROFF SMYTH, an individual (hereinafter referred to as "Holder"), the principal sum of Fifty Thousand Dollars ($50,000). Said principal shall bear interest at the rate of eighteen percent (18%). Interest shall due and payable on so much of the principal as has been disbursed from time to time and shall be calculated on the basis of a three hundred sixty (360) day year. Principal and interest shall be at such place as Holder may designate and shall mature and be payable on demand. Payor acknowledges and agrees that any amounts which have been disbursed prior to the execution hereof are covered by and included in the principal amount hereunder. Payments shall be made in currency of the United States of America, which at the time of payment shall be legal tender for the payment of public and private debts. Payor shall have the right to prepay the principal amount outstanding in whole or in part at any time without penalty. Payor hereby waives all presentment, demand, notice of dishonor, and protest. Payor hereby renounces and waives all exemption rights allowed by the Constitution and laws of Florida or any other State of the United States, as against this Note or any renewal thereof. If Payor fails to pay any amount payable hereunder within five (5) days of demand. Payor shall be in default hereunder. In addition, a default shall exist hereunder upon the occurrence of any of the following events: (i) Payor becomes insolvent as defined in the Uniform Commercial Code as in effect at that time in Florida; (ii) Payor makes an assignment for the benefit of creditors or riles a petition in bankruptcy; or (iii) a default shall exist under the terms of the Stock Pledge Agreement executed by the Payor on this date; Payor acknowledges that its obligation to pay all sums due under this Note is absolute and unconditional and that such obligation is not subject to any defense, counterclaim, right of setoff or recoupment. Payor shall pay all costs of collection, including, but not limited to, reasonable attorneys' fees if collected by or through an attorney at law. The instrument shall be governed by and interpreted in accordance with the laws of the State of Florida. Payor acknowledges that this Note has been entered into and monies advanced in the State of Florida, and Payor acknowledges and agrees that Payor is personally subject to the jurisdiction of the State of Florida. Payor, as used herein, shall include the undersigned and all endorsers, guarantors, and sureties of this Note, and shall also include the legal representatives, successors and assigns of the Payor, all of whom shall be jointly and severally liable hereunder. Words herein importing the masculine shall include females, and words importing persons shall include bodies corporate, and the singular shall include the plural, and vice-versa. The rights of Holder hereunder shall inure to the benefit of its legal representatives, successors and assigns. Except for any notice required under applicable law to be given in another manner, any notice provided for in this Note shall be given in writing, by hand delivery or by mailing such notice by certified mail, postage prepaid to the address shown below or to such other address as either party may designate by notice to the other as provided herein. Any notice provided for in this Note shall be deemed to have been given to Payor or Holder when given in the manner designated herein. Notice given as hereinabove provided shall be deemed received by the party to whom it is addressed on the third calendar day following the date on which said notice is deposited in the mail. (a) TO HOLDER: Nancy Estroff Smyth 7276 Sanctuary Lane Fernandina Beach, Florida 32034 (b) TO PAYOR: Mongoose Investments, LLC 7276 Sanctuary Lane E-11 2 Fernandina Beach, Florida 32034 The waiver of a breach of any provision, term or condition of this Note shall not operate or be construed as a waiver of any subsequent breach, and the acceptance of a past due payment shall not be construed as a waiver of Holder's rights to require strict compliance with all terms and conditions herein. Time is of the essence of this Note. IN WITNESS WHEREOF, the undersigned have caused this Note to be executed this 30th day of July, 1998. Mongoose Investments, LLC By: --------------------------------- Richard Smyth THIS NOTE SHALL BE TRANSFERRED AND ASSIGNED TO LAHAINA ACQUISITIONS, INC., AS OF DECEMBER 7, 1998 AS A PART OF THE ACQUISITION OF THE STOCK OF BEACHSIDE COMMONS I, INC. By: --------------------------------- Richard Smyth, Chairman, Lahaina Acquisitions, Inc. By: --------------------------------- Gerald Sullivan, Vice Chairman, Lahaina Acquisitions, Inc. E-12 EX-4.12 9 NOTE OF MONGOOSE INVESTMENTS/NANCY ESTROFF SMYTH 1 EXHIBIT 4.12 PROMISSORY NOTE $20,000 FERNANDINA BEACH, FLORIDA AS OF SEPTEMBER 30, 1998 FOR VALUE RECEIVED, MONGOOSE INVESTMENTS, LLC., a Georgia Limited Liability Company (hereinafter referred to as "Payor"), promises to pay to the order of NANCY ESTROFF SMYTH, an individual (hereinafter referred to as "Holder"), the principal sum of Eighty Five Thousand Dollars ($85,000). Said principal shall bear interest at the rate of eighteen percent (18%). Interest shall due and payable on so much of the principal as has been disbursed from time to time and shall be calculated on the basis of a three hundred sixty (360) day year. Principal and interest shall be at such place as Holder may designate and shall mature and be payable on demand. Payor acknowledges and agrees that any amounts which have been disbursed prior to the execution hereof are covered by and included in the principal amount hereunder. Payments shall be made in currency of the United States of America, which at the time of payment shall be legal tender for the payment of public and private debts. Payor shall have the right to prepay the principal amount outstanding in whole or in part at any time without penalty. Payor hereby waives all presentment, demand, notice of dishonor, and protest. Payor hereby renounces and waives all exemption rights allowed by the Constitution and laws of Florida or any other State of the United States, as against this Note or any renewal thereof. If Payor fails to pay any amount payable hereunder within five (5) days of demand. Payor shall be in default hereunder. In addition, a default shall exist hereunder upon the occurrence of any of the following events: (i) Payor becomes insolvent as defined in the Uniform Commercial Code as in effect at that time in Florida; (ii) Payor makes an assignment for the benefit of creditors or riles a petition in bankruptcy; or (iii) a default shall exist under the terms of the Stock Pledge Agreement executed by the Payor on this date; Payor acknowledges that its obligation to pay all sums due under this Note is absolute and unconditional and that such obligation is not subject to any defense, counterclaim, right of setoff or recoupment. Payor shall pay all costs of collection, including, but not limited to, reasonable attorneys' fees if collected by or through an attorney at law. The instrument shall be governed by and interpreted in accordance with the laws of the State of Florida. Payor acknowledges that this Note has been entered into and monies advanced in the State of Florida, and Payor acknowledges and agrees that Payor is personally subject to the jurisdiction of the State of Florida. Payor, as used herein, shall include the undersigned and all endorsers, guarantors, and sureties of this Note, and shall also include the legal representatives, successors and assigns of the Payor, all of whom shall be jointly and severally liable hereunder. Words herein importing the masculine shall include females, and words importing persons shall include bodies corporate, and the singular shall include the plural, and vice-versa. The rights of Holder hereunder shall inure to the benefit of its legal representatives, successors and assigns. Except for any notice required under applicable law to be given in another manner, any notice provided for in this Note shall be given in writing, by hand delivery or by mailing such notice by certified mail, postage prepaid to the address shown below or to such other address as either party may designate by notice to the other as provided herein. Any notice provided for in this Note shall be deemed to have been given to Payor or Holder when given in the manner designated herein. Notice given as hereinabove provided shall be deemed received by the party to whom it is addressed on the third calendar day following the date on which said notice is deposited in the mail. (a) TO HOLDER: Nancy Estroff Smyth 7276 Sanctuary Lane Fernandina Beach, Florida 32034 (b) TO PAYOR: Mongoose Investments, LLC E-13 2 7276 Sanctuary Lane Fernandina Beach, Florida 32034 The waiver of a breach of any provision, term or condition of this Note shall not operate or be construed as a waiver of any subsequent breach, and the acceptance of a past due payment shall not be construed as a waiver of Holder's rights to require strict compliance with all terms and conditions herein. Time is of the essence of this Note. IN WITNESS WHEREOF, the undersigned have caused this Note to be executed this 30th day of September, 1998. Mongoose Investments, LLC By: --------------------------------- Richard Smyth THIS NOTE SHALL BE TRANSFERRED AND ASSIGNED TO LAHAINA ACQUISITIONS, INC., AS OF DECEMBER 7, 1998 AS A PART OF THE ACQUISITION OF THE STOCK OF BEACHSIDE COMMONS I, INC. By: --------------------------------- Richard Smyth, Chairman, Lahaina Acquisitions, Inc. By: --------------------------------- Gerald Sullivan, Vice Chairman, Lahaina Acquisitions, Inc. E-14 EX-10 10 CONTRACT OF ENGAGEMENT DATED 1/19/99 1 EXHIBIT 10 LKB FINANCIAL LLC./LAHAINA ACQUISITION, INC. CONTRACT OF ENGAGEMENT THIS IS AN ENGAGEMENT AGREEMENT (this "Agreement") by and between LKB FINANCIAL, LLC., a Georgia corporation ("LKB") and Lahaina Acquisitions, Inc. (the "Company"), and by which LKB and the Company, in consideration of the mutual agreements set forth below (the mutuality, adequacy, and sufficiency of which are hereby acknowledged), hereby agree as follows: 1. RETENTION OF LKB AS INVESTMENT BANKER. The Company hereby engages LKB, and LKB hereby agrees to provide specific financial advisory services to the Company for the purpose of securing financing for the Company. Neither LKB nor the Company shall make any commitment, representation, or warranty of any kind whatsoever on behalf of the other, nor shall either party have any right or authority to sign for, bind, or commit the other to any obligation or undertaking in connection with any transaction contemplated herein, or otherwise, without the written consent of the other. 2. NON-CONTRAVENTION. 2.1 The Company agrees not to engage in, or enter into a contract to engage in, any Financing with any party, or related or affiliated party, to whom it is introduced by LKB for the purposes of this financing for a period of Two (2) years from the Closing Date of this financing. In the event of circumvention of this prohibition by the Company, the Company shall be required to pay to LKB the same compensation with respect to such other Financing as is set forth in Section 4 of this Agreement. The terms of this paragraph shall remain in effect regardless of whether this contract is terminated under Section 2(c) or 7 below, and regardless of the term of this Agreement. 2.2 The Company agrees that LKB or its representative shall participate in any and all communications concerning this transaction between the Company and the Investor(s), affiliates, associates or representatives of the Investor introduced by LKB other than such communications that are made to shareholders generally. In the event of such circumvention, without prior approval from LKB, LKB may, at its sole option, cause the immediate termination of this Agreement. 3. SERVICES. During the term of this Agreement, LKB will provide the services set forth on Attachment A hereto (the "Services"). 4. COMPENSATION. For all Services to be provided under this Agreement, the Company shall pay LKB the fees set forth on Attachment B hereto. 5. ACKNOWLEDGMENT OF THE COMPANY. The Company acknowledges and agrees that LKB may be called upon by other parties or entities from time to time to provide services similar to the Services to such other parties or entities and in such an event the Company hereby consents to LKB providing any such services to such other party of entity. 6. TRADE SECRETS; CONFIDENTIAL INFORMATION. The parties agree that: 6.1 all of the trade secrets of each party (which include, but are not limited to, technical or nontechnical data, a formula, a pattern, a compilation, a program, a device, a method, a technique, a drawing, a process, financial data, financial plans, product plans, or a list of actual or potential customers or services, whether currently existing or otherwise developed during the term of this Agreement, that derives economic value, actual or potential, from not being generally known to and not being readily ascertainable by proper means by other persons who can obtain economic value from its disclosure or use and is the subject of efforts which are reasonable under the circumstances to maintain its secrecy and any other information or materials that is a trade secret within the meaning of Official Code of Georgia Annotated ss. 10-1-760), and 6.2 all of the confidential information of each party (which includes any data or information of either party other than trade secrets, whether currently existing or otherwise developed or acquired by either party during the term of this Agreement, which is competitively sensitive and not generally known to the public); 6.3 all of the information contained herein, the Terms of the transaction, and the structure of the transaction, except as required by the Securities and Exchange Commission; E-15 2 that either has been provided, or will be provided, to the other or that has been obtained, or will be obtained, by either party in connection with this Agreement (such trade secrets and confidential information being referred to collectively as the "Information") is proprietary Information of the disclosing party and is the sole, exclusive and valuable property of the disclosing party (and the recipient party acknowledges and agrees that he has, and will acquire, no right, title or interest in such property). Thus, the recipient party agrees: 6.3.1 that he will not use the Information to the detriment of the disclosing party and 6.3.2 that he will hold the Information in strict confidence, use the Information only in connection with the matters covered by this Agreement, and not disclose the Information to any person or entity (other than an employee of the recipient party) unless the disclosing party directs otherwise indefinitely in the case of trade secrets (so long as they remain trade secrets) and until Sixty (60) months after the termination of this Agreement in the case of confidential information; provided, however, that the agreements in clause (ii) shall not apply to the Information to the extent the recipient party demonstrates that: (a) it was in the public domain at the time of its communication to the recipient party; or (b) it entered the public domain through no action of the recipient party subsequent to the time of communication to the recipient party; or (c) it was rightfully received by the recipient party from a third party without a similar restriction and without breach of this Agreement or any other agreement with the disclosing party; or (d) it was independently developed by the recipient party without breach of this Agreement; or (e) it was approved for release by written authorization of the disclosing party. Immediately after termination of this Agreement, the recipient party shall deliver to the disclosing party all materials in its possession involving the disclosing party's Information. Any trade secrets shall also be entitled to all of the protection and benefits under O.C.G.A. ss. 10-1-760, O.C.G.A. ss. 16-8-13 and any other applicable law. If any information which the parties deem to be a trade secret is found by a court of competent jurisdiction not to be a trade secret for purposes of this section 6, then the Information shall be considered confidential information for purposes of this section 6. 7. TERM. The term of this Agreement shall be for a period of Three Hundred Sixty-Five (365) days from the execution of this Agreement, unless sooner terminated in accordance with this Agreement. 8. LIMITATION ON LIABILITY. Notwithstanding anything to the contrary in this Agreement, LKB's liability to the Company for any loss or damage arising out of LKB's performance or nonperformance of the Services shall be limited to loss or damage directly resulting from willful misconduct or gross negligence of LKB or its agents. It is expressly agreed that in no event shall LKB's liability to the Company ever exceed the fees paid to LKB by the Company for the Services set forth on Attachment B hereto. NEITHER LKB NOR ITS OFFICERS, DIRECTORS, SHAREHOLDERS OR AGENTS SHALL BE LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES OR LOSS OF REVENUES SUFFERED BY THE COMPANY OR FOR ANY CLAIM, DEMAND OR ACTION AGAINST THE COMPANY OR ANY OF ITS REPRESENTATIVES BY ANY THIRD PARTY ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. 9. INDEMNIFICATION. The Company shall be solely responsible for, and hold harmless and indemnify LKB (including its successors, officers, directors, shareholders, employees, agents and representatives) from and against, all losses, claims, damages, liabilities, and expenses (including any and all reasonable expenses and attorneys fees incurred in investigating, preparing or defending against any litigation or proceeding, commenced or threatened, or any claim whatsoever whether or not resulting in any liability) in connection with LKB's provision of the Services to the Company, unless such loss, claim, damage, liability or expense results from the willful misconduct or gross negligence of LKB or its employees or agents. 10. MISCELLANEOUS. E-16 3 10.1 NOTICES. Each notice under this Agreement shall be in writing and given either in person or by facsimile, overnight delivery service or first class mail, postage and any other costs prepaid, to the address of the party being given notice set forth below his or its signature or to such other address as a party may furnish to the other as provided in this sentence; and if notice is given pursuant to the foregoing of a permitted successor or assign, then notice shall thereafter be given pursuant to the foregoing also to such permitted successor or assign. 10.2 ASSIGNMENT; SUCCESSORS IN INTEREST. No assignment, transfer or delegation of any rights or obligations under this Agreement by a party shall be made without the prior written consent of the other party. This Agreement is binding upon the parties and their respective successors and assigns, and inures to the benefit of the parties and their respective permitted successors and assigns. References to a party are also references to any successor or assign of such party. 10.3 NUMBER; GENDER; CAPTIONS; CERTAIN DEFINITIONS. Whenever the context requires, the singular includes the plural, the plural includes the singular, and the gender of any pronoun includes the other genders. Titles and captions of or in this Agreement are inserted only as a matter of convenience and for reference and in no way affect the scope of this Agreement or the intent of its provisions. The parties agree: (i) that "this Agreement" includes any amendments or other modifications and supplements, and all exhibits, schedules and other attachments, to it; (ii) that "parties to this Agreement" and variations of that phrase includes all persons who have executed and delivered this Agreement and, in the event of a successor or assign to a person who has executed and delivered this Agreement, such successor or assign; and (iii) that "including" and other words or phrases of inclusion, if any, shall not be construed as terms of limitation, so that references to "included" matters shall be regarded as non-exclusive, non-characterizing illustrations. 10.4 SEVERABILITY. Any determination by any court of competent jurisdiction that any provision of this Agreement is invalid shall not affect the validity of any other provision of this Agreement, which shall remain in full force and effect and which shall be construed as to be valid under applicable law. INTEGRATION; AMENDMENT, WAIVER. This Agreement (i) constitutes the entire agreement of the parties with respect to its subject matter, (ii) supersedes all prior agreements, if any, of the parties with respect to its subject matter, and (iii) may not be amended except in writing signed by the party against whom the change is being asserted. The failure of any party at any time or times to require the performance of any provision of this Agreement shall in no manner affect the right to enforce the same; and no waiver by any party of any provision (or of a breach of any provision) of this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed or construed either as a further or continuing waiver of any such provision or breach or as a waiver of any other provision (or of a breach of any other provision) of this Agreement. 10.5 ATTACHMENTS. All schedules, attachments and exhibits to this Agreement are hereby incorporated into this Agreement and are hereby made a part of this Agreement as if set out in full in the first place that reference is made thereto. 10.6 CONTROLLING LAW. This Agreement is governed by, and shall be construed and enforced in accordance with the laws of the State of Georgia. 10.7 COUNTERPARTS. This Agreement may be executed in two or more counterparts, and all such counterparts taken together shall be deemed to constitute one and the same agreement. DULY EXECUTED and delivered by the parties hereto on January 19, 1999, and effective as of January 19, 1999. LKB FINANCIAL LLC. LAHAINA ACQUISITIONS, INC. By: By: ------------------------------------ -------------------------------- Lewis N. Lester, Chairman Richard P. Smyth, President Address: 106 Colony Park Dr. Address: 2900 Atlantic Avenue Suite 900 Fernandina Beach, Cumming, GA 30040 Florida 32037 E-17 4 ATTACHMENT A - SERVICES The Services to be provided by LKB shall include the following: 1. The introduction of an Investor or Investors; 2. Facilitating financing of a Working Credit Line and Notes in the amount of $300,000.00, on a Best Efforts Basis; 3. Negotiations of terms between the Investor(s) and the Company; 4. Introduction of Escrow Agent, and providing the Escrow Agreement. 5. Provide specific financial advisory services during the term of this Engagement Contract. ATTACHMENT B - COMPENSATION Total Compensation to be paid by the Company shall be as follows: 1. $15,000.00 to be paid in cash via wire transfer at the time of closing the initial funding. 2. 15,000 Warrants with a strike price equal to the average of the five closing bid prices of the Company's Common Shares, listed on the O.T.C. Bulletin Board as reported by Bloomberg, L.P. prior to the initial closing date. The term of the Warrants will begin at the closing date hereof and continue through five years from the closing date. E-18 EX-27 11 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR DECEMBER 31, 1998 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS SEP-30-1998 OCT-01-1998 DEC-31-1998 0 0 38,355 0 0 99,733 2,956,092 (40,760) 3,015,065 320,170 0 0 428,823 8,593 (67,521) 3,015,065 0 16,555 0 10,488 36,739 0 22,706 (53,378) 0 0 0 0 0 (53,378) (.02) (.02)
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