-----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, GrGaB1CCNZUQ4FZhoA4Y0oEqik/QGM2L/24aMLiKrrG1cOqs2GEmBeXBWt8T7Z7B WneVFKeY6doja1JgPw1HRA== 0000950144-99-012051.txt : 19991025 0000950144-99-012051.hdr.sgml : 19991025 ACCESSION NUMBER: 0000950144-99-012051 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19991022 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAHAINA ACQUISITIONS INC CENTRAL INDEX KEY: 0000855684 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 841325695 STATE OF INCORPORATION: CO FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: POS AM SEC ACT: SEC FILE NUMBER: 333-74607 FILM NUMBER: 99732018 BUSINESS ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 200 CITY: ALPHARETTA STATE: GA ZIP: 30005 BUSINESS PHONE: 7707546140 MAIL ADDRESS: STREET 1: 5895 WINDWARD PARKWAY STREET 2: SUITE 200 CITY: ALPHARETTA STATE: GA ZIP: 30005 POS AM 1 LAHAINA ACQUISITIONS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1999 REGISTRATION NO. 333-74607 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 - -------------------------------------------------------------------------------- FORM S-1 POST EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 - -------------------------------------------------------------------------------- LAHAINA ACQUISITIONS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
COLORADO 6512 84-1325695 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
5895 WINDWARD PARKWAY, SUITE 220 ALPHARETTA, GEORGIA 30005 (770) 754-6140 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) L. SCOTT DEMERAU, PRESIDENT AND CHIEF EXECUTIVE OFFICER LAHAINA ACQUISITIONS, INC. 5895 WINDWARD PARKWAY, SUITE 220 ALPHARETTA, GEORGIA 30005 (770) 754-6140 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPIES TO: ELIZABETH H. NOE, ESQ. PAUL, HASTINGS, JANOFSKY & WALKER LLP 600 PEACHTREE STREET, NE SUITE 2400 ATLANTA, GA 30308 (404) 815-2400 APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement as determined by the selling shareholders. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] 2 PROSPECTUS LAHAINA ACQUISITIONS, INC. 2,100,000 Shares of Common Stock This is a registration of up to 2,100,000 shares of Common Stock of Lahaina Acquisitions, Inc. ("Lahaina" or "the Company") either issued to or to be issued to, and sold by, holders of warrants and convertible notes of the Company upon conversion of these securities. To date, certain of these securities have been converted into 249,843 shares of Common Stock. The initial note and warrant holders are identified in this prospectus as the selling shareholders. Lahaina will not receive any money from the sale of the Common Stock. The Common Stock may be sold by the selling shareholders in several ways. See "Plan of Distribution" starting on page 31. There is no fixed price for the sale of the Common Stock. The selling price will be based on the market price of the Common Stock at the time sales are made. The Common Stock is currently quoted on the OTC Bulletin Board under the symbol "LAHA". Lahaina intends to apply to list the Common Stock on NASDAQ/AMEX at the time the criteria for listing on NASDAQ/AMEX are met. THE PURCHASE OF THE COMMON STOCK CARRIES WITH IT A HIGH DEGREE OF RISK, SUCH AS LOSS OF THE ENTIRE PURCHASE PRICE. SEE "RISK FACTORS". NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated October 21, 1999. 3 PROSPECTUS SUMMARY The following summary may not contain all the information that is important to you. You should carefully review the information appearing elsewhere in this prospectus, in particular the "Risk Factors" section and the Consolidated Financial Statements and Notes thereto. The Summary Financial and Other Data is at the end of the prospectus summary. Except where noted in the text, all information in the text of this prospectus assumes the conversion or exercise of the following securities pursuant to their applicable terms of conversion or exercise. See "Terms of Conversion; Terms of Exercise": - the Company's convertible note dated as of December 7, 1998, as amended to date, (the "Note") issued to GCA Strategic Investment Fund Limited ("GCA") in the aggregate principal amount of $775,000; - the Company's convertible note dated as of August 19, 1999 (the "Second Note") issued to GCA in the aggregate principal amount of $500,000; - the Company's warrant to purchase 200,000 shares of Common Stock dated as of January 19, 1999 issued to GCA (the "GCA Warrant"); and - the Company's warrant to purchase 50,000 shares of Common Stock dated as of August 19, 1999 issued to GCA (the "Second GCA Warrant"). The Form S-1 Registration Statement of which this prospectus is a part has been prepared to register for resale certain securities acquired in connection with that certain Securities Purchase Agreement between the Company and GCA dated December 7, 1998 and that certain Securities Purchase Agreement between the Company and GCA dated August 19, 1999. Except where noted in the text, references to "Lahaina Acquisitions, Inc.", "Lahaina" or the "Company" include Lahaina Acquisitions, Inc. and its consolidated subsidiaries. THE COMPANY Lahaina is a multi-state provider of mortgage brokerage services to consumers and also operates a diversified multi-state real estate services organization. The Company's operations consist of a mortgage financing division, Accent Mortgage Services, Inc. ("AMSI"), and a real estate development division, Accent Real Estate Group ("ARG"). AMSI is a HUD approved residential mortgage lender, providing mortgage brokerage services to consumers through several traditional branch offices located primarily in the Atlanta, Georgia metropolitan area. AMSI recently began recruiting activities aimed at adding additional mortgage brokerage operations to its branch operations, utilizing a concept called "Net Branch", and as of the date of this prospectus has recruited more than 160 of these Net Branches. Under the Net Branch concept, AMSI recruits mortgage brokerage professionals to originate mortgage loans under AMSI's license in those states where AMSI is licensed to provide mortgage brokerage services. All fees associated with originating and closing mortgage loans are forwarded to AMSI, from which AMSI then distributes the appropriate commissions (net of AMSI's fees). AMSI provides training and substantial marketing and administrative support to its Net Branches. ARG is a diversified multi-state real estate services organization engaged in the acquisition, development and sale of a wide variety of real estate projects. The Company did not conduct an active business until December 14, 1998 when it purchased all of the outstanding stock of Beachside Commons I, Inc. ("Beachside") from Mongoose Investments, LLC ("Mongoose"). Beachside is the owner of a commercial real estate development located in Fernandina Beach, Florida on Amelia Island. At the time of the purchase, Beachside's assets consisted of two buildings and unimproved real estate, leases to tenants in the buildings and minimal operating capital. On August 23, 1999, LAHA No. 1, Inc. ("LAHA 1"), a wholly-owned subsidiary of the Company, merged with The Accent Group, Inc. ("Accent"), an Atlanta based real estate development and mortgage origination and financing entity (the "Merger"). The Merger was completed pursuant to an Agreement and Plan of Merger dated July 21, 1999 (the "Merger Agreement"). The Merger was accounted for as a reverse acquisition as Accent's shareholders obtained a majority interest in the Company and Accent's management team replaced the Company's previous management team. The Company's new management has significant experience in both mortgage brokerage operations as well as real estate development, and intends to capitalize on opportunities in these markets. The Company is aggressively marketing its Net Branch concept in efforts to increase its share of the domestic market for mortgage origination, and also intends to pursue a strategy of continued investment in selected real estate development projects. Further, the Company intends to continue evaluating potential acquisitions in order to increase its size of operation and value. 2 4 THE OFFERING Common Stock offered(1)....................................... 2,100,000 Shares Common Stock to be outstanding after the offering(2).......... 18,067,500 Shares Use of proceeds............................................... The Common Stock will be sold by certain selling shareholders listed in this prospectus. The Company will receive no money from the Offering. OTC Bulletin Board symbol .................................... "LAHA"
- ---------- (1) The shares offered represent (i) 48,990 shares of Common Stock issued to LKB Financial, LLC ("LKB") in a cashless exercise on August 11, 1999 of the Company's warrant to purchase 60,000 shares of Common Stock dated as of December 7, 1998 ("First LKB Warrant"); (ii) 8,520 shares of Common Stock issued to LKB in a cashless exercise on August 11, 1999 of the Company's warrant to purchase 15,000 shares of Common Stock dated January 19, 1999 ("Second LKB Warrant"); (iii) 25,000 shares of Common Stock issued to GCA in connection with the exercise on May 11, 1999 of a right to purchase shares dated November 4, 1998 ("GCA Right"); (iv) 146,667 shares of Common Stock issued to GCA on June 30, 1999 in connection with the conversion of a $300,000 GCA credit line dated January 19, 1999; (v) 20,666 shares of Common Stock issued to GCA in payment of fees related to delays in filing the Registration Statement on March 26, 1999; (vi) 885,714 shares of Common Stock to be issued upon conversion of the Note; (vii) 300,000 shares of Common Stock to be issued upon conversion of the Second Note; (viii) 200,000 shares of Common Stock issued upon exercise of the GCA Warrant; (ix) 50,000 shares of Common Stock to be issued upon exercise of the Second GCA Warrant; and (x) 414,443 shares of Common Stock to meet any additional share issuance requirement arising from fluctuations in exercise prices or additional fees and penalties to be paid in Common Stock. For purposes of this prospectus the Company has estimated the number of shares of Common Stock issuable upon conversion of the Note and the Second Note and the exercise of the GCA Warrant and the Second GCA Warrant. The actual number of shares of Common Stock issuable pursuant to the Note, the Second Note, the GCA Warrant and the Second GCA Warrant will be determined at the time of conversion or exercise. See "Terms of Conversion; Terms of Exercise." (2) Includes conversion of the Company's Series A Preferred Stock into 415,000 shares of Common Stock in connection with the Merger and the 2,100,000 shares described in (1) above. SUMMARY RISK FACTORS A purchaser of Common Stock must consider the following risk factors before purchasing Common Stock. The Common Stock is a highly speculative investment and a purchaser could lose all of the money spent on purchasing the Common Stock. See "Risk Factors" for a complete discussion of the relative risks. - Success of the mortgage brokerage services division is contingent upon interest rates and general economic conditions; - The Company can give no assurance that its business strategy to recruit additional mortgage brokerage operations to its net branch operations will be successful; - The Company's mortgage brokerage services division is subject to the rules and regulations of various federal, state and local regulatory agencies in connection with the mortgage process. Regulatory and legal requirements are subject to change and may become more restrictive, thus making compliance more difficult and costly for the Company; - Competition for mortgage brokerage services is fierce; - Success of the real estate division is contingent upon general economic conditions; - The Company's real estate division is subject to federal, state and local regulations and is required to comply with various federal, state and local environmental, zoning, land use, land sale and other laws and regulations which govern its operations. These regulations are subject to change and may become more restrictive, thus making compliance more difficult and costly for the Company; - If the Company has owned, managed or operated real property which contained certain hazardous or toxic substances, it may be subject to possible environmental liabilities; - Competition in the real estate market, particularly in the metropolitan Atlanta, Georgia area, is fierce; - The Company has a limited operating history from which to evaluate its business prospects; - The Company's business plan requires additional financing and that financing may not be available upon terms acceptable to the Company. Terms of additional financing may require the Company to issue additional Common Stock or Preferred Stock or debt, any of which could reduce the value of the shares of Common Stock; - L. Scott Demerau is the beneficial owner of approximately 38.8% of the outstanding shares of Common Stock of the Company and when combined with the common stock held by Accent Associates, LLC and Kingdom Generals, LLC, entities controlled by relatives of Demerau, he controls 53% of the outstanding common stock. Demerau may exercise control over many significant decisions of the Company. This centralized control may have an adverse effect on the market price of the Common Stock; - The number of shares available for active trading is limited and thus the price of the Common Stock may rise and fall dramatically upon the trading of a relatively small number of shares. A purchase of the shares of Common Stock should not be made unless the purchaser can afford to lose the entire amount of the purchase price. 3 5 SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA On August 23, 1999, Lahaina merged with Accent in a merger accounted for as a reverse acquisition. For financial statement presentation purposes, Accent has been identified as the accounting acquiror. The following unaudited summary pro forma combined financial data present certain data for the Company, as adjusted for: (i) the acquisition of Accent by Lahaina, (ii) consummation of Accent's acquisition of the outstanding capital stock of AMSI, (iii) the contribution of certain real estate and options to acquire real estate to Accent by the majority stockholder, (iv) other Accent acquisitions, and (v) the exercise or conversion of the remaining warrants and convertible notes into 1,850,157 shares of the Company's Common Stock. The Summary Pro Forma Combined Statement of Operations Data and Summary Pro Forma Combined Balance Sheet Data should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and notes thereto and the historical financial statements of the predecessor companies and notes thereto included elsewhere in this Prospectus.
Pro Forma Combined ---------------------------------- Year Ended Nine Months September 30, Ended June 30, 1998 1999 ------------- -------------- Statement of Operations Data: Revenues(1) $ 1,211,246 $ 1,245,161 Selling, general and administrative expenses 2,685,496 2,314,210 Amortization of goodwill 92,155 69,116 ------------- -------------- Loss from operations (1,566,405) (1,138,165) Other expense, net 372,675 436,190 ------------- -------------- Net loss $ (1,939,080) $ (1,574,355) ============= ============== Net loss per share, basic and diluted $ (0.11) $ (0.09) ============= ============== Shares used in computing pro forma basic and diluted net loss per share 18,067,500 18,067,500 ============= ==============
- ------------ (1) Amounts are net of brokerage services expense.
Pro Forma Combined June 30, 1999 ------------- Balance Sheet Data: Total assets $ 8,360,902 Total debt $ 6,451,233 Total liabilities $ 8,029,621 Stockholders' equity $ 260,704 Total liabilities and stockholders' equity $ 8,360,902
SUMMARY PREDECESSOR FINANCIAL DATA The following table presents summary predecessor financial data for Lahaina and AMSI on a historical basis for the periods indicated. The financial information for Lahaina for the period from inception to December 7, 1999 and the nine months ended June 30, 1999 is derived from the financial statements of Lahaina (formerly known as Beachside Commons I, Inc.) included elsewhere in this prospectus. The financial information for AMSI for the years ended December 31, 1998 and 1997 and the six month periods ended June 30, 1999 and 1998 are derived from the financial statements of AMSI included elsewhere in this prospectus. The results for the interim periods are not necessarily indicative of the results for the full fiscal year or any future period. Interim results reflect all adjustments, which are in the opinion of management, necessary to a fair statement of these results.
Period from Nine Month September 25, Interim 1998 (date of Period Ended inception) to June 30, December 7, 1998 1999 ---------------- ------------- Lahaina Acquisitions, Inc.: (formerly known as Beachside Commons I, Inc.) Revenues $ -- $ 143,713 Selling, general and administrative expenses 5,278 702,221 -------- --------- Loss from operations (5,278) (558,508) Other expense, net 15,288 204,646 -------- --------- Net loss before income taxes $(20,566) $(763,154) ======== =========
Six Month Interim Periods Ended Fiscal Years Ended December 31, June 30, -------------------------------------------------------- --------------------- 1994 1995 1996 1997 1998 1998 1999 --------- --------- ---------- ---------- ----------- --------- --------- Accent Mortgage Services, Inc.: Revenues (1) $ 265,996 $ 629,854 $1,039,172 $1,082,090 $ 1,211,246 $ 631,518 $ 236,875 Selling, general and administrative expenses 225,870 541,857 911,947 1,231,261 2,373,856 723,183 436,878 --------- --------- ---------- ---------- ----------- --------- --------- Income (loss) from operations 40,126 87,997 127,225 (149,171) (1,162,610) (91,665) (200,003) Other (income) expense, net (1,770) 5,290 11,143 19,236 169,420 65,133 189,443 --------- --------- ---------- ---------- ----------- --------- --------- Net income (loss) before income taxes $ 41,896 $ 82,707 $ 116,082 $ (168,407) $(1,332,030) $(156,798) $(389,446) ========= ========= ========== ========== =========== ========= =========
- ----------- (1) Amounts are net of brokerage services expense. 4 6 RISK FACTORS A purchase of the Common Stock offered pursuant to this prospectus involves a high degree of risk. A purchaser could lose all of his or her investment in the purchase price. In addition to the other information in this prospectus, a purchaser must carefully consider the following risk factors in evaluating whether to purchase the shares of Common Stock offered pursuant to this prospectus. This prospectus contains forward-looking statements that address, among other things, the Company's business strategy, use of proceeds, projected capital expenditures, liquidity, possible business relationships, possible effects of competition and inherent risks in investment in real estate. These statements may be found under "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" as well as in the prospectus generally. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of any number of factors, including risks associated with future acquisitions (such as quality of projects acquired, financing costs and profitability of operations), fluctuations in operating results, variations in stock prices, political and economic climates, competition, risks of operations, regulatory agencies' policies, financing difficulties and difficulties in integrating newly-acquired businesses, in addition to the risk factors set forth below and elsewhere in this prospectus. The cautionary statements made in this prospectus should be read as being applicable to all forward-looking statements wherever they appear in this prospectus. MORTGAGE BROKERAGE SERVICES RISKS IF INTEREST RATES RISE OR GENERAL ECONOMIC CONDITIONS DETERIORATE, IT COULD HARM OUR BUSINESS The Company will likely originate fewer mortgage loans if interest rates rise. In periods of rising interest rates, demand for mortgage loans typically declines. During those periods, the Company will likely originate fewer mortgage loans and its revenues will decline. Demand for refinancing mortgages declines more significantly than for new home purchase mortgages during periods of rising interest rates. The Company's mortgage business would be adversely affected by declining economic conditions in those states where it originates mortgage loans, particularly in their residential real estate markets. AMSI HAS BEGUN A NEW BUSINESS STRATEGY CALLED "NET BRANCH". IF THIS STRATEGY IS UNSUCCESSFUL, IT COULD HARM OUR BUSINESS The Company, which has been primarily involved in providing mortgage brokerage services to consumers through several traditional branch offices located in the metropolitan Atlanta, Georgia area, has begun to aggressively recruit additional mortgage brokerage operations to its branch operations. This approach to providing mortgage brokerage services is referred to as the "Net Branch" concept. The Company believes that the implementation of the Net Branch concept will increase its share of the domestic market for mortgage origination. However, the Company may not be successful in its attempts to recruit new Net Branch offices, nor may the Net Branch concept be successful. IF WE DO NOT COMPLY WITH MORTGAGE BANKING RULES AND REGULATIONS OR OTHER REGULATORY REQUIREMENTS, OUR BUSINESS MAY BE HARMED The Company's mortgage business is subject to the rules and regulations of various federal, state and local regulatory agencies in connection with originating, processing, underwriting and selling mortgage loans. These rules and regulations, among other things, impose licensing obligations on the Company, prohibit discrimination, establish underwriting guidelines and mandate disclosures and notices to borrowers. The Company is also required to comply with each regulatory entity's financial requirements. If the Company does not comply with these rules, regulations and requirements, the regulatory agencies may restrict its ability to originate mortgage loans. Regulatory and legal requirements are subject to change and may become more restrictive, making compliance more difficult or expensive or otherwise restricting the Company's ability to conduct its business as it is now conducted. As of June 30, 1999, the Company's wholly owned subsidiary, AMSI, was not in compliance with the Department of Housing and Urban Development ("HUD") net worth requirements. As of September 21, 1999, the Company took corrective action to resolve this matter. The Company believes that it is currently in material compliance with all applicable laws and regulations to which it is currently subject. However, no assurance can be given that the costs of future compliance will not be significant or that the Company is in fact in compliance with all applicable laws and regulations. THE MARKET IN WHICH WE OPERATE IS INTENSELY COMPETITIVE AND ACTIONS BY COMPETITORS COULD HARM OUR BUSINESS The Company competes with other mortgage brokerage companies, many of which are larger, are more experienced and have greater financial resources than the Company. Accordingly, the Company may not be able to successfully compete in the mortgage brokerage market. Competitors may be able to respond more quickly to take advantage of new or changing opportunities, technologies and customer requirements. They also may be able to undertake more extensive promotional activities, offer more attractive terms to borrowers and adopt more aggressive pricing policies. REAL ESTATE DEVELOPMENT RISKS IF THE REAL ESTATE INDUSTRY OR GENERAL ECONOMIC CONDITIONS DETERIORATE, IT COULD HARM OUR BUSINESS Real estate markets are cyclical in nature and highly sensitive to changes in national and regional economic conditions, including, among other factors, levels of employment and discretionary disposable income, consumer confidence, available financing and interest rates. A downturn in the economy in general or in the market for residential or commercial real estate could have a material adverse effect on the Company's business, operating results and financial condition. In addition, concentration in a given region may increase the Company's susceptibility to an economic downturn. Most of the real estate owned or held by the Company is located in the southeastern United States, thus increasing the Company's susceptibility to the economic conditions of the southeast. IF THE REAL ESTATE INDUSTRY OR GENERAL ECONOMIC CONDITIONS DETERIORATE IN METROPOLITAN ATLANTA, GEORGIA AND FERNANDINA BEACH, FLORIDA, IT COULD HARM OUR BUSINESS The majority of the Company's real estate is located in and around the metropolitan Atlanta, Georgia area and Fernandina Beach, Florida. There are substantial risks associated with a large investment in real estate. These include the following risks: - real property may decline in value due to changing market and economic conditions; - development and carrying costs may exceed anticipated costs; - there may be delays in bringing inventories to market due to, among other things, changes in regulations, adverse weather conditions or changes in the availability of development financing on terms acceptable to the Company; or - interest rates may increase which will adversely affect the ability of the Company to sell their properties. WE ARE SUBJECT TO CERTAIN REGULATIONS RELATED TO REAL ESTATE, AND IF WE DO NOT COMPLY OUR BUSINESS MAY BE HARMED The Company's real estate business is subject to certain federal, state and local regulations and is required to comply with various federal, state and local environmental, zoning, land use, land sales, licensing and other laws and regulations which govern its operations. Existing or future regulations may have a material adverse impact on the Company's operations by, among other things, imposing additional compliance costs and delaying the period in which the development projects are brought to market. The Company believes that it is in material compliance with all applicable laws and regulations to which it is currently subject. However, no assurance can be given that the costs of future compliance will not be significant or that the Company is in fact in compliance with all applicable laws and regulations. In addition, there can be no assurance that laws and regulations applicable to the Company in any specific jurisdiction will not be revised or that other laws or regulations will not be adopted which could increase the Company's costs of compliance or prevent the Company from marketing or selling its properties. Any failure of the Company to comply with applicable laws or regulations or any increase in the costs of compliance could have a material adverse effect on the Company's business, operating results and financial condition. IF OUR INVENTORY IS FOUND TO BE ENVIRONMENTALLY CONTAMINATED OUR BUSINESS MAY BE HARMED Under various federal, state and local laws, ordinances and regulations, the current or previous owner, manager or operator of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as related costs of investigation and property damage. These laws often impose liability without regard to whether the owner, manager or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The Company believes that it is in compliance in all material respects with all federal state and local laws, ordinances and regulations regarding hazardous or toxic substances, but no assurance can be given that hazardous or toxic substances will not be found on its property or properties that it previously owned. THE MARKET IN WHICH WE OPERATE IS INTENSELY COMPETITIVE AND ACTIONS BY COMPETITORS COULD HARM OUR BUSINESS The real estate industry is highly competitive. The Company competes with builders, developers and others for the acquisition of desirable properties and financing. Many of the Company's competitors are larger and possess greater financial, marketing, personnel and other resources than the Company. Although the Company believes it can effectively compete in its market areas, no assurances can be given as to the Company's future ability to locate, develop and sell attractive properties in the market in which it wishes to operate. Further, the entrance of high profile and well-established operators into the Company's market areas may have a material adverse effect on the Company's operations. GENERAL BUSINESS RISKS WE HAVE A LIMITED OPERATING HISTORY AND THEREFORE HISTORICAL RESULTS MAY NOT BE INDICATIVE OF FUTURE PERFORMANCE As described in this prospectus under the heading "BUSINESS", prior to December 1998 the Company did not conduct an active business, and its sole activity was seeking an acquisition partner. The merger with Accent resulted in a change of control of the Company and a change in the Company's management. The Company has a limited operating history, and its historical results of operations are not useful as a basis for predicting future operating results of the Company. No assurance can be given that the future operations of the Company will be successful. WE MAY BE UNABLE TO RAISE ADDITIONAL FUNDING TO PURSUE OUR STRATEGIES WHICH MAY HARM OUR BUSINESS The Company anticipates the need for additional capital as it pursues its business strategy of implementing the Net Branch concept in its mortgage services division and of continuing its investment in selected real estate development projects. The Company expects to raise additional capital through a combination of new debt issuances and equity sales, from private as well as public sources. Issuance of new debt and/or the sale of equity will likely have a dilutive effect on the Company and its shareholders. Implementation of the Company's strategy and its business plans is contingent upon the availability of such funding sources. No assurance can be given that the Company will be able to raise debt or equity capital, at terms that are acceptable to the Company, or at all, in order to fund its operations as set forth above. THE UNPREDICTABILITY OF OUR QUARTER-TO-QUARTER RESULTS MAY HARM THE TRADING PRICE OF OUR COMMON STOCK Because the Company has a limited operating history, it lacks sufficient historical operating data on which to base its future operating results and financial performance. General economic conditions, as well as competition from other competing businesses, may adversely affect the Company's performance. Because of these and other factors, the Company's financial performance may fluctuate from period to period, which could result in a material fluctuation in the trading price of the Company's common stock. ONE INDIVIDUAL HAS SUBSTANTIAL CONTROL OVER US AND MAY MAKE DECISIONS THAT ARE NOT IN THE BEST INTEREST OF OTHER STOCKHOLDERS L. Scott Demerau, individually, through his wife and in his capacity as a controlling owner of Eutopean Enterprises, LLC, acquired up to approximately a 38.8% interest in the outstanding Common Stock of the Company prior to the conversion of the Note and the Second Note, and the exercise of the GCA Warrant and the Second GCA Warrant. When Demerau's stock is combined with that held by Accent Associates, LLC and Kingdom Generals, LLC, entities controlled by relatives of Demerau, Demerau will control approximately 53% of the outstanding Common Stock of the Company. Demerau is also the Chief Executive Officer and President of the Company. Therefore, the control of the Company is highly centralized and many significant decisions, including the election of members of the Board of Directors and the outcome of corporate actions requiring shareholder approval, such as mergers and other changes of corporate control, going private transactions and other extraordinary transactions and the terms thereof, will be subject to the approval of Demerau. This centralized control could have an adverse effect on the market price of the Company's Common Stock. 5 7 WE ARE DEPENDENT ON A LIMITED NUMBER OF KEY PERSONNEL, AND THE LOSS OF THESE INDIVIDUALS COULD HARM OUR BUSINESS The Company has new management. The corporate staff will initially consist of 25 people, including L. Scott Demerau, its Chief Executive Officer and President, William A. Thurber, its Executive Vice President-Finance and Treasurer, Betty Sullivan, its Executive Vice President-Administration and Secretary, Sherry Sagemiller, its Assistant Secretary, a support staff, accounting staff, marketing staff and real estate development staff. Richard P. Smyth, a former executive officer of the Company, as principal of Gator Glory, LLC, and Gerald F. Sullivan will act as consultants to the Company. Other staff will be added as qualified personnel are recruited, although it is anticipated that the staff will not increase in the near term. If Mr. Demerau should die or become incapacitated, the Company could face financial and operating difficulties pending the hiring of a new Chief Executive Officer and President. WE MAY MAKE ACQUISITIONS, WHICH ENTAILS RISKS THAT COULD HARM OUR BUSINESS 6 8 Inability of management to adequately manage the operations of the business may subject the business of the Company to certain risks, in addition to those commonly found in a growing company. These risks include: - obtaining additional financing; - providing adequate working capital to pay salaries for personnel hired to acquire and develop properties before revenue from the properties is sufficient to pay their salaries; - the inability of management to recognize potential problems before they become serious problems; - the lack of sufficient experience in the staff to solve problems once they are identified; and - the risk from competitors. ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A THIRD PARTY ACQUISITION OF US DIFFICULT Certain provisions of the Company's Amended and Restated Articles of Incorporation and bylaws could make it difficult for a third party to acquire, and could discourage a third party from attempting to acquire control of the Company. Certain of these provisions allow the Company to issue Preferred Stock with rights senior to those of the Common Stock without any further vote or action by the shareholders and impose various procedural and other requirements which could make it more difficult for shareholders to effect certain corporate actions. These charter provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock or Preferred Stock and may have the effect of delaying or preventing a change in control of the Company. The issuance of Preferred Stock also could decrease the amount of earnings and assets available for distribution to the holders of Common Stock or could adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. WE WILL NOT RECEIVE ANY FUNDS FROM THIS SALE, ACCORDINGLY WE WILL NEED TO RAISE MONEY, FAILURE TO DO SO COULD HARM OUR BUSINESS None of the money from the sale of the Common Stock will be paid to the Company. Accordingly, the Company will need to raise money from profits and other sources to fund operations and capital expenditures. See "Future Funding Plans; Financial Constraints." 7 9 OUR BUSINESS OPERATIONS MAY BE INTERRUPTED IF WE EXPERIENCE UNEXPECTED YEAR 2000 PROBLEMS Many existing computer systems and software products do not properly recognize dates after December 31, 1999. This Year 2000 problem could result in data corruption, system failures or disruptions of operations. We are subject to potential Year 2000 problems affecting our products and services, our internal systems, and the systems of third parties on whom we rely. We believe that the technology underlying our products and services is Year 2000 compliant. However, we may discover errors or defects in our internal systems that may be unresolvable or that may result in material costs to us. Internal Year 2000 problems could negatively affect our business, operating results and financial condition. We use third-party equipment, software and content that may not be Year 2000 compliant. Although we have received assurances from third parties that they are Year 2000 compliant, we do not independently verify their Year 2000 compliance. If third parties on whom we rely are not Year 2000 compliant, our business could be adversely affected later this year. We have not yet fully developed a comprehensive contingency plan to address situations that may result if we encounter Year 2000 problems. The cost of developing and implementing a contingency plan may itself by material, and we cannot assure you that our contingency plans will be adequate. For more information on how we are addressing the Year 2000 problem, see "Management's Discussion and Analysis--Year 2000 Readiness." OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY COULD HARM OUR BUSINESS The Company's success and ability to compete is not dependent upon its proprietary systems and technology. However, the Company uses software and other intellectual property provided by third parties and could be brought into litigation involving the software or other intellectual property. The expense of such litigation and an adverse judgment could have a material adverse effect on the Company's business or financial condition. THERE HAS BEEN NO SIGNIFICANT PUBLIC MARKET FOR OUR COMMON STOCK, AND THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE Prior to the Offering, there has been no significant public market for the Company's Common Stock although the Company's Common Stock is quoted on the OTC Bulletin Board on an occasional trade basis. There can be no assurance that an active trading market will develop or be sustained or that the market price of the Common Stock will not decline. Even if an active trading market does develop, the market price of the shares of Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to factors such as actual or anticipated variations in the Company's revenues, earnings and cash flow, changes in financial estimates by securities analysts, adoption of new accounting standards affecting the Company's business, general market conditions and other factors. Further, the stock markets, and in particular the Nasdaq National Market, have experienced extreme price and volume fluctuations that have particularly affected the market prices of equity securities of many small capitalization companies and that often have been unrelated or disproportionate to the operating performance of such companies. These broad market factors and market fluctuations, as well as general economic, political and market conditions such as recessions and interest rate or international currency fluctuations, may adversely affect the market price of the Common Stock. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Such litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources, which would have a material adverse effect on the Company's business, results of operations and financial condition. THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK INTO THE PUBLIC MARKET MAY HARM THE MARKET PRICE OF OUR COMMON STOCK Sale of substantial numbers of shares of Common Stock in the public market could adversely affect the market price of the Common Stock and make it more difficult for the Company to raise funds through equity offerings in the future. The 2,100,000 shares offered hereby will be eligible for immediate sale in the public market without restriction. In addition, the Company may need to register shares of Common Stock when required as a condition to future financings. 8 10 THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK IN THE FUTURE MAY HARM THE BOOK VALUE OF THE OUTSTANDING SHARES OF COMMON STOCK To the extent the future funding requirements of the Company require the issuance of convertible securities or securities or debt having a priority to the shares of Common Stock, the shares of Common Stock may suffer a decline in book value. See "Dilution." WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE FUTURE The Company intends to retain all future earnings for use in the development of its business. The Company has never paid and does not currently anticipate paying any cash dividends on its Common Stock in the foreseeable future. See "Dividend Policy." 9 11 USE OF PROCEEDS The Company will not receive any proceeds from the sale of the shares of Common Stock offered hereby. The Company received $775,000 upon the sale of the Note and $500,000 upon sale of the Second Note. See "Business -- Overview." The Company will require additional financing in the future to finance continuing growth. No assurance can be given that such financing will be available on favorable terms or at all. See "Management's Discussion" and "Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." DIVIDEND POLICY The Company has never declared or paid cash dividends on its Common Stock. The Company currently intends to retain all of its future earnings, if any, for use in its business and therefore does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. CAPITALIZATION The following table sets forth the debt and the capitalization of the Company at June 30, 1999: (i) on a pro forma basis to give effect to the Merger; and (ii) as further adjusted to reflect the conversion of the Note and the Second Note and exercise of the GCA Warrant and the Second GCA Warrant into an assumed maximum of 1,850,157 shares of Common Stock. This table should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements of the Company and the notes thereto included elsewhere in this document.
Pro Forma Combined June 30, 1999 ----------------------------- As Adjusted Prior to for Conversion/ Conversion/ Exercise Exercise ----------- ----------- Notes payable and other debt $ 6,451,233 $ 6,451,233 =========== =========== Convertible note $ 775,000 $ - =========== =========== Redeemable common stock, no par value, 3,250,000 shares issued and outstanding $ 70,577 $ 70,577 =========== =========== Stockholders' equity (deficit) Preferred Series A Convertible Stock, no par value, 10,000,000 shares authorized, none issued or outstanding $ - $ - Common Stock, no par value, 800,000,000 shares authorized, 16,217,343 shares issued and outstanding, pro forma; and 18,067,500 issued - - and outstanding, as adjusted Additional paid-in capital (563,283) 381,704 Retained deficit (121,000) (121,000) ----------- ----------- Total stockholder's equity (deficit) (684,283) 260,704 ----------- ----------- Total capitalization $ 6,612,527 $ 6,782,514 =========== ===========
10 12 DILUTION The deficit in pro forma tangible net book value of the Company as of June 30, 1999 was approximately $2.1 million, or $0.13 per share after giving effect to the Merger. The deficit in pro forma tangible book value per share represents the Company's pro forma net tangible assets less its total liabilities, divided by the number of shares of Common Stock to be outstanding after giving effect to the Merger. After giving effect to the conversion of the Note, the Second Note and applicable warrants into an assumed 1,850,157 shares, the Company's deficit in pro forma net tangible book value as of June 30, 1999 would have been approximately $1.1 million or $0.06 per share. This represents an immediate increase in pro forma net tangible book value of approximately $0.07 per share to existing stockholders and an immediate dilution of approximately $0.75 per share to the selling shareholders. The following table illustrates this pro forma dilution per share: Assumed selling shareholders price per share(1) $ 0.69 Pro forma deficit in net tangible book value as of June 30, 1999 $ (0.13) Increase in pro forma net tangible book value attributable to selling shareholders 0.07 ------------ Pro forma deficit in net tangible book value after the Offering (0.06) ---------- Dilution to selling shareholders $ 0.75 ==========
(1) Price computed as the face amount of the Note ($775,000) and the face amount of the Second Note ($500,000) divided by the number of shares issued in conjunction with the conversion of such notes (1,185,714), the exercise of the related warrants (250,000 shares) and the 414,443 contingency shares. The following table summarizes, on a pro forma basis as of June 30, 1999, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company, and the average price per share paid by existing shareholders and to be paid by the new investors (using the average assumed selling shareholder price per share).
TOTAL CONSIDERATION AVERAGE SHARES PURCHASED PAID PRICE PER SHARE NUMBER PERCENT AMOUNT PERCENT SHARE Existing shareholders(1) 16,217,343 89.8% $ (1,014,296) N/A $(0.06) Selling shareholders 1,850,157 10.2% 1,275,000 100.00% $ 0.69 --------------------------------------------------------------------- Total 18,067,500 100.00% $ 260,704 100.00% $ 0.01 =====================================================================
(1) Total consideration for the existing shareholders represents the combined stockholders' equity before the conversion of the Note and the Second Note and the exercise of the related warrants. 11 13 TERMS OF CONVERSION; TERMS OF EXERCISE Note GCA, as the sole holder of the Note for $775,000, may convert up to 50% of the outstanding principal amount of the Note at a price per share of Common Stock equal to the lesser of (i) $0.875 (the average bid of the Common Stock for the 20 days prior to December 7, 1998) or (ii) an amount determined based on a formula ("Formula Price") F/P, where F = the principal amount of the Note being converted plus accrued and unpaid interest thereon through the date of conversion plus default interest, if any, on such interest, and P = the product of 85% multiplied by the average of the five consecutive DWASP for the Common Stock for the five trading days ending on the day prior to the date of conversion (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The term "DWASP" means, as of any date, the daily-weighted average sales price on the NASDAQ Market as reported by Bloomberg or, if the NASDAQ Market is not the principal trading market for such security, the daily-weighted average sales price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the daily-weighted average sales price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no daily-weighted average sales price is reported for such security by Bloomberg, then the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the DWASP cannot be calculated for such security on such date on any of the foregoing bases, the DWASP of such security on such date shall be the fair market value as mutually determined by the Company and the holder of the Note being converted for which the calculation of the closing bid price is required in order to determine the Conversion Price of such Note. The balance of the outstanding principal amount of the Note is convertible into Common Stock at a price per share of $0.875. For purposes of this prospectus, the Company has assumed that the entire Note will be converted to Common Stock pursuant to these provisions. Management believes that the conversion price of the note was at or above market value at the date of issuance. The First LKB Warrant The First LKB Warrant to purchase 60,000 shares of Common Stock was exercised by the holder on August 11, 1999 in a cashless exercise for 48,990 shares of Common Stock. The exercise price was $0.91875 per share. Management believes that the exercise price of the warrant was at or above market value at the date of issuance. The Second LKB Warrant The Second LKB Warrant to purchase 15,000 shares of Common Stock was exercised by the holder on August 11, 1999 in a cashless exercise for 8,520 shares of Common Stock. The exercise price was $2.88 per share. Management believes that the exercise price of the warrant was at or above market value at the date of issuance. The GCA Warrant The GCA Warrant may be exercised for 100,000 shares of Common Stock for a price of $2.60 per share and for 100,000 shares of Common Stock for a price of $2.19 per share. The GCA Warrant has a term of five years beginning January 19, 1999. Management believes that the exercise price of the warrant was at or above market value at the date of issuance. The GCA Right The GCA Right was exercised for 25,000 shares on May 11, 1999. The GCA Right was issued to GCA by the Company in connection with a convertible note in the aggregate principal amount of $25,000 dated as of November 4, 1998 which was subsequently amended to become a part of the Note. Management believes that the exercise price of the right was at or above market value at the date of issuance. The Second Note GCA, as the holder of the Second Note, may convert at any time from and after August 19, 1999, the principal amount of the Second Note or any portion of such principal amount, into that number of shares of Common Stock equal to the sum of (1) the principal amount of the Second Note to be converted in such conversion plus (2) accrued and unpaid interest, if any, on such principal amount at the interest rates provided in the Second Note to the Conversion Date (as defined in the Second Note) plus (3) Default Interest, if any (as defined in the Second Note), on the interest referred to in the immediately preceding clause (2) plus (4) at GCA's option, any amounts owed to it pursuant to the Second Note, or the Securities Purchase Agreement dated as of August 19, 1999 (the "Securities Purchase Agreement") by and between the Company and GCA, divided by $3.50. Management believes that the conversion price of the note was at or above market value at the date of issuance. The Second GCA Warrant The Second GCA Warrant may be exercised for 50,000 shares of Common Stock for a purchase price per share of Common Stock initially equal to 102% of the simple average of the weighted average sales price as published by Bloomberg of the Common Stock on the NASDAQ Stock Market or, if the NASDAQ Market is not the principal trading market for such security, the simple average sales price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the simple average sales price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, for the ten completed trading days immediately preceding August 19, 1999 (the "Purchase Price"); provided however that the Purchase Price shall be adjusted pursuant to Article XI of the Securities Purchase Agreement, attached as an exhibit hereto. Management believes that the exercise price of the warrant was at or above market value at the date of issuance. 12 14 SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA On August 23, 1999, Lahaina merged with Accent in a merger accounted for as a reverse acquisition. For financial statement presentation purposes, Accent has been identified as the accounting acquiror. The following unaudited selected pro forma combined financial data present certain data for the Company, as adjusted for: (i) the acquisition of Accent by Lahaina, (ii) consummation of Accent's acquisition of the outstanding capital stock of AMSI, (iii) the contribution of certain real estate and options to acquire real estate to Accent by the majority stockholder, (iv) other Accent acquisitions, and (v) the conversion of the remaining warrants and convertible notes into 1,850,157 shares of the Company's Common Stock. The Selected Pro Forma Combined Statement of Operations Data and Selected Pro Forma Combined Balance Sheet Data were derived from and should be read in conjunction with the Unaudited Pro Forma Combined Financial Statements and notes thereto and the historical financial statements of the predecessor companies and notes thereto included elsewhere in this Prospectus.
Pro Forma Combined -------------------------------- Year Ended Nine Months September 30, Ended June 30, 1998 1999 ------------- -------------- Statement of Operations Data: Revenues(1)........................................... $ 1,211,246 $ 1,245,161 Selling, general and administrative expenses.......... 2,685,496 2,314,210 Amortization of goodwill.............................. 92,155 69,116 ------------- ------------- Loss from operations................................ (1,566,405) (1,138,165) Other expense, net.................................... 372,675 436,190 ------------- ------------- Net loss.............................................. $ (1,939,080) $ (1,574,355) ============= ============= Net loss per share, basic and diluted................. $ (0.11) $ (0.09) ============= ============= Shares used in computing pro forma basic and diluted net loss per share................ 18,067,500 18,067,500 ============= ============= Pro Forma Combined June 30, 1999 ------------- Balance Sheet Data: Total assets................................... $ 8,360,902 Total debt..................................... $ 6,451,233 Total liabilities.............................. $ 8,029,621 Stockholders' equity........................... $ 260,704 Total liabilities and stockholders' equity..... $ 8,360,902
- -------------------- (1)Amounts are net of brokerage services expense. SELECTED PREDECESSOR OPERATING DATA The following table presents selected predecessor financial data for Lahaina and AMSI on a historical basis for the periods indicated. The financial information for Lahaina for the period from inception to December 7, 1999 and for the nine months ended June 30, 1999 is derived from the financial statements of Lahaina (formerly known as Beachside Commons I, Inc.) included elsewhere in this prospectus. The financial information for AMSI for the years ended December 31, 1998 and 1997 and the six month periods ended June 30, 1999 and 1998 are derived from the financial statements of AMSI included elsewhere in this prospectus. The results for the interim periods are not necessarily indicative of the results for the full fiscal year or any future period. Interim results reflect all adjustments, which are in the opinion of management, necessary to a fair statement of these results.
Period from Nine Month September 25, 1999 Interim (date of inception) Period Ended to December 7, 1998 June 30, 1999 ------------------- ------------------- Lahaina Acquisitions, Inc.: (formerly known as Beachside Commons I, Inc.) Revenues $ -- $ 143,713 Selling, general and administrative expenses 5,278 702,221 -------- --------- Loss from operations (5,278) (558,508) Other expense, net 15,288 204,646 -------- --------- Net loss before income taxes $(20,566) $(763,154) ======== ========= Six Month Interim Periods Ended Fiscal Years Ended December 31, June 30, ----------------------------------------------------------- ---------------------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ----- Accent Mortgage Services, Inc.: Revenues(1) $ 265,996 $ 629,854 $ 1,039,172 $ 1,082,090 $ 1,211,246 $ 631,518 $ 236,875 Selling, general and administrative expenses 225,870 541,857 911,947 1,231,261 2,373,856 723,183 436,878 --------- -------- ---------- ----------- ----------- --------- ---------- Loss from operations 40,126 87,997 127,225 (149,171) (1,162,610) (91,665) (200,003) Other (income) expense, net (1,770) 5,290 11,143 19,236 169,420 65,133 189,443 --------- --------- ----------- ----------- ----------- --------- ---------- Net income (loss) before income taxes $ 41,896 $ 82,707 $ 116,082 $ (168,407) $(1,332,030) $(156,798) $ (389,446) ========= ========= =========== =========== =========== ========= ==========
- -------------------- (1) Amounts are net of brokerage services expense. 13 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition of Lahaina and certain predecessor companies should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this prospectus. This discussion contains forward-looking statements based on current expectations that 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 those set forth in the section entitled "RISK FACTORS" and elsewhere in this prospectus. OVERVIEW The Company was formed with the intent to actively seek, locate, evaluate, structure and complete mergers with or acquisitions of private companies, partnerships or sole proprietorships. Through a series of transactions described further below, the Company has acquired additional assets, primarily in the form of real estate and a mortgage financing entity, and is now operational. The Company's operations now consist of a mortgage financing division ("AMSI") and a real estate development division ("ARG"). THE TRANSACTIONS On December 14, 1998, the Company 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 in Fernandina Beach, FL on Amelia Island. At the time of purchase, Beachside's assets consisted of two buildings and unimproved real estate, tenant leases and minimal operating capital. The purchase was accounted for as a reverse acquisition with Beachside being identified as the accounting acquiror in accordance with Staff Accounting Bulletin No. 97 (SAB 97). The acquisition was accounted for using the historical cost basis of the acquired company, Lahaina, as it was a shell company at December 7, 1998. On August 23, 1999, LAHA NO. 1, a wholly owned subsidiary of the Company, merged with and into Accent, an Atlanta, GA based real estate development and mortgage financing entity. Accent was formed through a series of transactions on July 9, 1999. These transactions included contributions of land and options to acquire land to Accent by Accent's majority shareholder, as well as the acquisition of Accent Mortgage Services, Inc. ("AMSI"), a mortgage brokerage operation. The Merger has been accounted for as a reverse acquisition, as Accent's shareholders obtained a majority interest in the Company and Accent's management team replaced Lahaina's management team. 14 16 RESULTS OF OPERATIONS -- LAHAINA HISTORICAL The following table sets forth the operating results for Lahaina (formerly known as Beachside Commons I, Inc.) for the period from September 24, 1998 (date of inception) to December 7, 1998 and for the nine months ended June 30, 1999.
For the period from September 25, 1998 (date of inception) Nine Months Ended to December 7, 1998 June 30, 1999 ----------------------- ------------------- Revenues $ -- $ 143,713 Selling, General & Administrative Expenses 5,278 702,221 Interest Expense and Other - Net 15,288 204,646 -------- --------- Operating Loss $(20,566) $(763,154) ======== =========
FOR THE NINE MONTHS ENDED JUNE 30, 1999 Revenues Revenues for the nine months ended June 30, 1999 totaled $143,713, compared with $0 for the comparable period in 1998. The principal source of Lahaina's revenues during the period was lease rental revenue relating to its retail property, Beachside. Prior to December 7, 1998, Lahaina did not conduct an active business, and therefore did not generate revenue from any business operations until December 7, 1998. Expenses Expenses for the nine months ended June 30, 1999 totaled $906,867, of which $702,221 represents operating and administrative expenses and $204,646 represents net interest expense. Operating and administrative expenses principally represent expenses associated with operating the Beachside property and certain merger expenses. Interest expense principally relates to mortgage loans relating to Beachside, as well as interest on loans provided for working capital. Operating Loss Lahaina reported an operating loss of $(763,154) for the nine month period ended June 30, 1999. 15 17 RESULTS OF OPERATIONS - ACCENT MORTGAGE SERVICES HISTORICAL The following table sets forth the operating results for AMSI for the years ended December 31, 1996, 1997 and 1998 and for the nine months ended June 30, 1998 and 1999.
Year Ended December 31, Six Months Ended June 30, ---------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ---------------------------------------- ------------------------- Revenue(1) $1,039,172 $1,082,090 $ 1,211,246 $ 631,518 $ 236,875 Selling, General & Administrative Expenses 911,947 1,231,261 2,373,856 723,183 436,878 Interest Expense and Other - Net 11,143 19,236 169,420 65,133 189,443 ---------- ---------- ----------- --------- --------- Operating Income (Loss) $ 116,082 $ (168,407) $(1,332,030) $(156,798) $(389,446) ========== ========== =========== ========= =========
(1) Revenues are net of brokerage services expense. FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED WITH 1996 Revenues AMSI generated revenues of $1,082,090 for the year ended December 31, 1997 compared with $1,039,172 for the 1996 period, representing an increase of $42,918 (or 4.1%). The increase in revenues is primarily attributable to an increase in loan origination volume. Expenses Selling, general and administrative expenses totaled $1,231,261 for the year ended December 31, 1997 compared with $911,947 for the 1996 period, representing an increase of $319,314 (or 35.0%). The increase in selling, general and administrative expenses is primarily attributable to expenses associated with efforts to grow the business. Interest expense and other - net totaled $19,236 for the year ended December 31, 1997 compared with $11,143 for the comparable 1996 period, representing an increase of $8,093 (or 72.6%). This increase is primarily attributable to higher borrowing levels in 1997 as compared with 1996. Operating Income (Loss) AMSI recorded a net operating loss of $168,407 for the year ended December 31, 1997 compared with operating income of $116,082 for the comparable 1996 period. FOR THE YEAR ENDED DECEMBER 31, 1998 COMPARED WITH 1997 Revenues AMSI generated revenues of $1,211,246 for the year ended December 31, 1998 compared with $1,082,090 for the year ended December 31, 1997, representing an increase of $129,156 (or 11.9%). This increase in revenue is primarily attributable to an increase in the volume of mortgage loans originated through AMSI's branch operations. Expenses Selling, general and administrative expenses totaled $2,373,856, as compared with $1,231,261 for the comparable period in 1997, representing an increase of $1,142,595 (or 92.8%). The principal components of selling, general and administrative expenses for the year ended December 31, 1998 were Provision for Losses ($853,056) and General and Administrative expenses ($1,520,800). The provision for loan losses is due to a large portfolio of loans that were purchased during 1998. After the loans were purchased, it was determined that the loans had also been sold to others by the seller. For comparable 1997 period, the principal component of operating expenses was General and Administrative expense. Interest expense and Other - Net totaled $19,236 for the year ended December 31, 1998, versus $169,420 for the comparable period in 1997. The increase in interest expense is due to increased borrowings under the warehouse lines of credit during 1998. Operating Loss AMSI recorded a net operating loss of $1,332,030 for the year ended December 31, 1998, compared with a net operating loss of $168,407 for the comparable period in 1997. FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH 1998 Revenues For the six month period ended June 30, 1999, AMSI generated total revenues of $236,875, principally related to brokerage service operations. For the six month period ended June 30, 1998, AMSI generated total revenues of $631,518. Total revenues decreased by $394,643, principally the result of a lower volume of mortgage loan originations. Expenses Selling, general and administrative expenses totaled $436,878, compared with $723,183 in the comparable period in 1998, representing a decrease of $286,305. The principal components of operating expenses for the six month period ended June 30, 1999 were Provision for Losses ($50,000), and General and Administrative expenses ($386,878). The principal component of operating expenses for the comparable period in 1998 was General and Administrative expense. A decrease of $286,305 in General and Administrative expense represented the most significant change during the period. The decrease is primarily due to consulting fees of approximately $240,000 which were paid during the first six months of 1998 but not in 1999. Interest expense and other - - net totaled $65,133 for the six months ended June 30, 1998, versus $189,443 for the comparable period in 1999. The increase is primarily due to the loss on disposal of property and equipment ($167,645) that occurred during 1999. Operating Loss AMSI recorded a net operating loss of $389,446 for the six month period ended June 30, 1999 as compared with a net operating loss of $156,798 for the comparable period in 1998. LIQUIDITY AND CAPITAL RESOURCES -- PROFORMA Historically, the Company and its subsidiaries have not generated positive cash flow. The Company expects to generate positive cash flow to fund short-term operations through sales of real estate inventory as well as through refinancing existing real estate. The Company intends to generate long-term cash flow by growing its Net Branch operations and through the development and sale of real estate inventory. The Company believes that net cash flow from operations, sales of real estate, and refinancing existing debt will be sufficient to fund the Company's expected working capital needs, debt service requirements and planned capital expenditures for at least the next 12 months. The Company intends to pursue selected acquisition opportunities. The timing or success of any acquisition efforts is unpredictable. Accordingly, the Company is unable to accurately estimate its expected capital commitments. Funding for future acquisitions will likely come from a combination of additional borrowings and the issuance of additional equity. LIQUIDITY AND CAPITAL RESOURCES -- LAHAINA HISTORICAL For the nine months ended June 30, 1999, Lahaina used $353,451 in net cash in operating activities, the most significant amount of which related to its operating loss. Lahaina's capital expenditures for the period totaled $33,955, principally related to improvements at Beachside. Funds were provided principally from borrowings as well as the issuance of common stock. At June 30, 1999, Lahaina had total indebtedness of $2,325,000, consisting of a mortgage loan on its Beachside property of $1,550,000 and a convertible note totaling $775,000, and its cash position at June 30, 1999 totaled $60,261. LIQUIDITY AND CAPITAL RESOURCES -- ACCENT MORTGAGE SERVICES HISTORICAL AMSI used $62,597 of net cash in operating activities during the year ended December 31, 1998, the most significant portion of which resulted from its operating loss. Net cash used in investing activities totaled $2,952,084, the most significant portion of which resulted from the purchase of mortgage loans. Capital expenditures for the period totaled $125,066, and proceeds from the sale of investments totaled $185,175. Net cash provided from financing activities totaled $3,057,575, principally consisting of an increase in borrowings on lines of credit of $2,901,600. AMSI's cash position totaled $66,050 at December 31, 1998, and its total indebtedness was $4,909,212. For the six months ended June 30, 1999, AMSI used $158,474 in cash flow from its operating activities, the most significant amount of which related to its net operating loss. Net cash provided by investing activities totaled $2,020,742 for the six month period, the most significant portion of which relates to the sale of mortgages. Proceeds from the sale of the fixed assets for the period totaled $13,500. Net cash used in financing activities totaled $1,847,063 for the six month period, the most significant portion of which resulted from a decrease in AMSI's line of credit, offset by proceeds from notes payable of $528,891 and capital contributions of $500,000. At June 30, 1999, AMSI had total indebtedness of $2,562,149, and its cash position at June 30, 1999 totaled $81,255. 16 18 YEAR 2000 READINESS The "Year 2000" issue is a general term used to describe the various problems that may result from the improper processing of dates and date-sensitive calculations by computers and other machinery as the year 2000 is approached and reached. These problems arise from hardware and software unable to distinguish dates in the "2000's" from dates in the "1900's" and from other sources such as the use of special codes and conventions in software that make use of a date field. We recognize the need to ensure our operations will not be adversely affected by Year 2000 software failures. We have reviewed our internal management information and other critical business systems to identify any Year 2000 problems. All such systems were vendor supplied with no significant modifications. Consequently, we have communicated with the external vendors that supply us with material software and information systems and with significant suppliers to determine their Year 2000 readiness. Based on our vendors' representations, we believe that the third-party hardware and software we use is Year 2000 compliant although we have not performed any operational tests on these systems. To date, we have not incurred any material costs directly associated with Year 2000 compliance efforts. As discussed above, we do not expect the total cost of Year 2000 problems to be material to our business, financial condition and operating results. During the months prior to the century change, however we will continue to evaluate any new versions of software and information systems provided by third parties and any new infrastructure systems that we may acquire, to determine whether they are Year 2000 compliant. Despite our current assessment, we may not identify and correct all significant Year 2000 problems on a timely basis. If the representations made by our various vendors regarding Year 2000 compliance are inaccurate, additional Year 2000 compliance efforts may involve significant time and expense and unremediated problems could harm our business. FORWARD LOOKING STATEMENTS Certain statements in this statement contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the context of the statement and generally arise when the Company is discussing its beliefs, estimates or expectations. These statements are not guarantees of future performance and involve a number of risks and uncertainties. Actual results and outcomes may differ materially from what is expressed or forecast in such forward-looking statements. The principal risks and uncertainties that may affect the Company's actual performance and results of operations include the following: general economic conditions and interest rates; adverse weather; changes in property taxes and energy costs; changes in federal income tax laws and federal mortgage financing programs; governmental regulation; changes in governmental and public policy; changes in economic conditions specific to one or more of the Company's markets and businesses; competition; availability of raw materials; and unexpected operations difficulties. Other risks and uncertainties may also affect the outcome of the Company's actual performance and results of operations. RECENT ACCOUNTING PRONOUNCEMENTS COMPREHENSIVE INCOME On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 established standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income consists of net income and net unrealized gains (losses) on securities and is presented in the consolidated statements of shareholders' equity and comprehensive income. The Statement requires only additional disclosures in the consolidated financial statements; it does not affect the Company's consolidated balance sheets or statements of operations. The adoption of SFAS No. 130 has had no effect on the Company's consolidated financial statements. SEGMENT REPORTING In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 established standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented. The adoption of SFAS No. 131 has not had a significant impact on the Company's consolidated financial statements. DERIVATIVES In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company does not currently engage in derivative or hedging activities. If the Company engages in derivative or hedging activities in the future, it will apply SFAS No. 133. The FASB has issued SFAS No. 137 delaying the effective date of Statement No. 133 to fiscal years beginning after June 15, 2000. At this time, the Company does not anticipate any material impact from the adoption of this standard. ACCOUNTING FOR MORTGAGE-BACKED SECURITIES In October 1998, the Financial Accounting Standards Board issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." SFAS No. 134 amends SFAS No. 65, "Accounting for Certain Mortgage Banking Securities," to require that after an entity that is engaged in mortgage banking activities has securitized mortgage loans that are held for sale, it must classify the resulting retained mortgage-backed securities or other retained interests based on its ability and intent to sell or hold those investments. This statement is effective for the first fiscal quarter beginning after December 15, 1998, with earlier application encouraged. The adoption of this standard has not had a material impact on the Company's consolidated financial statements. 17 19 CHANGE IN ACCOUNTANTS In February, 1999, the Registrant reported that Millward and Co. ("Millward"), who had served as principal accountant to audit the financial statements of the Registrant, resigned from its engagement with the Registrant. The Registrant also reported that, following such resignation, the Board of Directors of the Registrant approved the engagement of Bearden & Smith ("Bearden") as the Registrant's principal accountant and replacement for Millward. Prior to such time, Bearden had provided accounting consulting services to the Registrant relating to the preparation of historical financials for a recently acquired subsidiary. Notwithstanding the approval by the Registrant's Board of Directors of the engagement of Bearden as principal accountant, Bearden continued to provide solely accounting consulting services to the Registrant. The role of principal accountant for the Registrant was ultimately filled by Kenneth R. Walters, P.A. ("Walters"), who was initially engaged with approval of the Board of Directors to provide auditing services with respect to fiscal 1998 financial statements of the Registrant in connection with the filing of a registration statement by the Registrant. During 1999, with the approval of the Board of Directors of the Registrant, Walters has continued to act as principal accountant and replacement for Millward. Walters did not prepare or review the financial statements of the Registrant for the quarter ended June 30, 1999. Millward's report on the Registrant's financial statements for each of the last two years did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. During the Registrant's two most recent fiscal years and the subsequent interim period preceding the resignation of Millward, there were no disagreements with Millward on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Millward, would have caused it to make a reference to the subject matter of the disagreement(s) in connection with its report. Millward did not advise the Registrant during the Registrant's two most recent fiscal years or during the subsequent interim period preceding Millward's resignation: (a) that the internal controls necessary for the Registrant to develop reliable financial statements did not exist; (b) that information had come to its attention that had led it to no longer be able to rely on management's representations, or that had made it unwilling to be associated with the financial statements prepared by management; (c) of the need to expand significantly the scope of its audit, or that information had come to its attention during the two most recent fiscal years or any subsequent interim period that if further investigated might (i) materially have impacted the fairness or reliability of either: a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report or (ii) have caused it to be unwilling to rely on management's representations or be associated with the Registrant's financial statements; or (d) that information had come to its attention that it had concluded materially impacts the fairness or reliability of either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report. Millward was authorized by the Registrant to respond fully to inquiries of Bearden. During the two most recent fiscal years and during the interim period prior to engaging Walters, neither the Registrant nor anyone on its behalf consulted Walters regarding either: (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Registrant's financial statements, and neither a written report nor oral advice was provided to the Registrant that Walters concluded was an important factor considered by the Registrant in reaching a decision as to an accounting, auditing or financial reporting issue; or (b) any matter that was the subject of either a disagreement or any other event described above. On September 17, 1999, Walters who had served as principal accountant to audit the financial statements of the Company, resigned from his engagement with the Company. Following such resignation, the Board of Directors of the Company approved the engagement of Deloitte & Touche LLP ("Deloitte") as the Company's principal accountant and replacement for Walters. The Board approved the engagement of Deloitte because it had the resources needed to serve the Company as its business grows. Walters' report on the Company's financial statements for each of the last two years did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles. During the Company's two most recent fiscal years and the subsequent interim period preceding the resignation of Walters, there were no disagreements with Walters on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement(s), if not resolved to the satisfaction of Walters, would have caused it to make a reference to the subject matter of the disagreement(s) in connection with its report. Walters did not advise the Company during the Company's two most recent fiscal years or during the subsequent interim period preceding Walters' resignation: (a) that the internal controls necessary for the Company to develop reliable financial statements did not exist; (b) that information had come to its attention that had led it to no longer be able to rely on management's representations, or that had made it unwilling to be associated with the financial statements prepared by management; (c) of the need to expand significantly the scope of its audit, or that information had come to its attention during the two most recent fiscal years or any subsequent interim period that if further investigated might (i) materially have impacted the fairness or reliability of either: a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report or (ii) have caused it to be unwilling to rely on management's representations or be associated with the Company's financial statements; or (d) that information had come to its attention that it had concluded materially impacts the fairness or reliability of either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report. Walters was authorized by the Company to respond fully to inquiries of Deloitte. Except such advice as has been provided by Deloitte in connection with auditing services related to the preparation of historical financials for the Company's recently acquired subsidiary, during the two most recent fiscal years and during the interim period prior to engaging Deloitte, neither the Company nor anyone on its behalf consulted Deloitte regarding either: (a) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company's financial statements, and neither a written report nor oral advice was provided to the Company that Deloitte concluded was an important factor considered by the Company in reaching a decision as to an accounting, auditing or financial reporting issue; or (b) any matter that was the subject of either a disagreement or any other event described above. 18 20 BUSINESS GENERAL Lahaina is a multi-state provider of mortgage brokerage services to consumers and also operates a diversified multi-state real estate services organization. The Company's operations consists of a mortgage financing division, AMSI, and a real estate development division, ARG. AMSI is a HUD approved residential mortgage lender, providing mortgage brokerage services to consumers through several traditional branch officers located primarily in the Atlanta, Georgia metropolitan area. AMSI recently began recruiting activities aimed at adding additional mortgage brokerage operations to its branch operations, utilizing a concept called "Net Branch", and as of the date of this prospectus has recruited more than 160 of these net branches. ARG is a diversified multi-state real estate services organization engaged in the acquisition, development and sale of a wide variety of real estate projects. BACKGROUND The Company was incorporated under Colorado law in April 1989 for the purpose of acquiring an interest in one or more business opportunities or ventures. Prior to December 14, 1998, the Company did not conduct an active business. On December 14, 1998, the Company 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 in Fernandina Beach, Florida on Amelia Island. At the time of the purchase, Beachside's assets consisted of two buildings and unimproved real estate, tenant leases and minimal operating capital. The purchase was accounted for as a reverse acquisition with Beachside being identified as the accounting acquiror in accordance with Staff Accounting Bulletin No. 97 (SAB 97). The acquisition was accounted for using the historical cost basis of the acquired company, Lahaina, as it was a shell company at December 7, 1998. On August 23, 1999, LAHA 1, a wholly-owned subsidiary of the Company, merged with Accent, an Atlanta, Georgia based real estate development and mortgage financing entity. The merger was accounted for as a reverse acquisition with Accent being the accounting acquiror in accordance with SAB 97. Prior to the Merger, there were 1,321,500 shares of no par value per share Accent common stock issued and outstanding (the "Accent Common Stock"). The Accent Common Stock was issued in exchange for the contribution to Accent of (i) certain parcels of real property owned by the holder of such shares (ii) options to purchase certain parcels of real estate, (iii) 100% interest in AMSI and (iv) consulting fees incurred in connection with the Merger. Upon the closing of the Merger, each share of Accent Common Stock was surrendered to the Company and the Company issued a total of 13,251,000 shares of Common Stock to the prior holders of Accent Common Stock. Of the 13,251,000 shares of Common Stock issued, 4,301,000 were issued and released immediately to their holders. The remaining 8,950,000 shares of Common Stock were issued subject to the certain conditions of release as set forth in the Merger Agreement included as an exhibit in the registration statement of which this prospectus is a part, and are currently being held by the Company. The conditions of release were designed to ensure that no shareholder received shares of Common Stock until they had fully conveyed the consideration for the Accent Common Stock. To date, conditions of release of such shares have been satisfied or waived with respect to a total of 5,600,000 of the 8,950,000 shares of Common Stock. The conditions of release of the remaining 3,350,000 shares of Common Stock have not, as of the date of this prospectus, been satisfied. There is no guarantee that the remaining shares will ever be released. In transactions related to the Merger, the Company redeemed 1,910,000 shares of Preferred Stock held by the then-majority shareholder Richard P. Smyth for 415,000 shares of Common Stock, entered into consulting agreements with each of Gerald F. Sullivan and Gator Glory, LLC, a limited liability company managed by Smyth, and issued the Second Note. The proceeds of the Second Note were used to finance the payment of the Company's accounts payables incurred through the date of the Merger. CHANGE IN CONTROL AND MANAGEMENT A change of control of the Company has occurred as a result of the Merger. L. Scott Demerau, directly, through his wife and through his ownership of Eutopean Enterprises, LLC, controls approximately 38.8% of the Company's issued and outstanding shares. When Demerau's shares are combined with those held by Accent Associates, LLC, and Kingdom Generals, LLC, entities controlled by relatives of Demerau, Demerau will control approximately 53% of the Company's issued and outstanding Common Stock. It is currently estimated that the conversion of the Note and the Second Note and the exercise of the GCA Warrant and the Second GCA Warrant will result in an additional 1,300,000 to 1,700,000 shares of Common Stock being issued. According to the current estimates, the Note is convertible into 885,714 shares of Common Stock, the Second Note is convertible into 300,000 shares of Common Stock, the GCA Warrant is exerciseable for up to 200,000 shares of Common Stock and the Second GCA Warrant is exerciseable for up to 50,000 shares of Common Stock. See "Terms of Conversion; Terms of Exercise." On March 25, 1999, GCA exercised its right for 25,000 shares of Common Stock and was issued 20,666 shares of Common Stock in payment of fees related to delays in prior registrations. On June 30, 1999, the GCA Line of Credit was converted into 146,667 shares of Common Stock. On August 11, 1999, the First LKB Warrant was exercised for 48,990 shares of Common Stock and the Second LKB Warrant was exercised for 8,520 shares of Common Stock. Thus, after the conversion of all of the convertible securities, it is likely that Demerau will remain in control of the Company for the foreseeable future. CHANGE IN BOARD OF DIRECTORS The board of directors of the Company, as well as the Company's management, has changed as a result of the merger with Accent. All previous directors of the Company have resigned as a result of the merger with Accent, but prior to their resignation they elected L. Scott Demerau, Sherry Sagemiller, Betty M. Sullivan and Bart Siegel as directors of the Company. Each of the directors above, with the exception of Bart Siegel are employees of the Company. Management of the Company's operations has been transferred to the Atlanta, GA based Accent management group. STRATEGY The Company's management has significant experience in both mortgage brokerage operations as well as real estate development, and intends to capitalize on opportunities in these markets. According to the Mortgage Bankers Association of America (MBAA), the market for mortgage origination in the United States exceeded $1.5 trillion in 1998, and is expected to reach approximately $1.3 trillion in 1999. The Company is aggressively marketing its Net Branch concept in an effort increase its share of the domestic market for mortgage origination. The Company also intends to pursue a strategy of continued investment in selected real estate development projects. Further, the Company intends to continue evaluating potential acquisitions in order to increase its size of operation and value. 19 21 OPERATIONS As a result of the merger with Accent, the Company has acquired additional assets, primarily in the form of real estate and a mortgage financing entity, and is now operational. The Company's operations consist of a mortgage financing division and a real estate development division. ACCENT MORTGAGE SERVICES (AMSI) AMSI is a HUD approved residential mortgage lender providing mortgage brokerage services to consumers through several traditional branch offices located primarily in the Atlanta, GA metropolitan area. As of June 30, 1999, AMSI was not in compliance with HUD net worth requirements. As of September 21, 1999, the Company took corrective action to resolve this matter. The Company believes that it is currently in material compliance with all applicable laws and regulations to which it is currently subject. AMSI recently began recruiting activities aimed at adding additional mortgage brokerage operations to its branch operations, utilizing a concept called "Net Branch". Under the Net Branch concept, AMSI recruits mortgage brokerage professionals to originate mortgage loans under AMSI's license in those states where AMSI is licensed to provide mortgage brokerage services. All fees associated with originating and closing mortgage loans are forwarded to AMSI, from which AMSI then distributes the appropriate commissions (net of AMSI's fees). AMSI provides training and substantial marketing and administrative support to its Net Branches. Net Branches utilize AMSI's senior level of licensing, along with AMSI's access to a broader range of funding sources, to originate larger numbers of loans than they might otherwise be capable of originating. AMSI Net Branches actively solicit the origination of a variety of types of residential mortgage loans, through personal contact as well as via the Internet. Interested consumers are encouraged to submit a pre-qualification application via a Net Branch website, after which a loan officer will establish personal contact. AMSI loan officers guide consumers through the entire process of obtaining a mortgage loan, from the initial application to the final closing of the mortgage loan. AMSI has established relationships with more than 200 potential funding sources, providing a wide variety of mortgage financing options for consumers. AMSI provides substantial marketing and administrative support to its Net Branches, including access to a proprietary Internet site for generating loan application information, communicating with the Company's corporate office, access to loan origination software, and receiving accounting information relating to loan origination activity. Additionally, AMSI provides a senior level of licensing under which its Net Branches may originate mortgage loans. As of this date AMSI has recruited more than 160 new Net Branches, and is presently licensed to originate mortgage loans in 21 states. AMSI intends to pursue licenses in additional states. The market for the origination of mortgage loans is rapidly evolving, and competition for borrowers is intense and is expected to increase significantly in the future. There can be no assurance that AMSI's competitors and potential competitors will not develop services and products that are equal or superior to those of AMSI or that achieve greater market acceptance than its products and services. AMSI also offers an interim financing product to the manufactured housing industry. The manufactured housing industry is experiencing significant growth due to certain affordability factors associated with this type of housing. AMSI's interim financing product is designed to bridge the period of time between the date that a housing unit is shipped to its permanent site and the date that permanent mortgage financing is closed and funded. Interim financing allows the manufactured housing dealer to receive a staged revenue stream during the process. AMSI also offers permanent mortgage financing services to this industry. ACCENT REAL ESTATE GROUP (ARG) ARG is a diversified multi-state real estate services organization engaged in the acquisition, development and sale of a wide variety of real estate projects. As a result of the formation of Accent, and the Company's subsequent merger with Accent and exercise of options to acquire land, the Company now owns land or options to acquire land, and has assumed and/or issued associated indebtedness. The Company may assume additional indebtedness should it choose to exercise the remaining options. A number of the Company's development-ready projects are now in various stages of development, including: SWISS AIR ESTATES - a lakefront gated residential community located at Lake Sidney Lanier, just north of metropolitan Atlanta, Georgia. This property consists of 12 estate-sized lots priced from $500,000 to more than $900,000. The property is zoned and is under development. CASTLEBERRY RESIDENTIAL COMMUNITY - The Company holds an option to acquire a 33 acre parcel in Cumming, Georgia. The Company intends to develop a multi-family residential townhouse community. Plans call for the development and sale of approximately 197 mid-level townhomes in the $150,000 price range. The property is zoned, and the project is in the design phase. PEACHTREE INDUSTRIAL BOULEVARD - a commercial/industrial tract totaling approximately 50 acres located on Peachtree Industrial Boulevard in Fulton County, Georgia. This tract is in the design stages, and plans call for development of an industrial park. 20 22 ATHENS, TENNESSEE - The Company holds an option to acquire land in Athens, Tennessee. Plans call for the development of an upscale residential modular home community totaling approximately 65 lots on a 40 acre tract. Beachside, an oceanfront mixed use commercial development located in Fernandina Beach, FL on Amelia Island is a part of the Company's consolidated holdings. Amelia Island is an international tourist destination, and is growing rapidly. The property consists of a retail building and an oceanfront building lot suitable for development. The Company has listed the retail building for sale, and is presently evaluating the feasibility for development of the tract of land. Effective September 21, 1999, the stock of Beachside was transferred from the Company to AMSI. Accordingly, it remains a part of the Company's consolidated holdings. In addition to the properties listed above, Demerau holds redeemable common stock relating to options to purchase three family entertainment centers located in Roswell, Georgia, Cocoa Beach, Florida and Pensacola, Florida. Such options are to be delivered to the Company by Demerau. Release of the redeemable Common Stock to Demerau is contingent upon delivery of the options on or before July 9, 2000. The entertainment centers consist of miniature golf and game facilities. ARG competes with commercial developers, real estate companies and other real estate owners for development and acquisition opportunities in all of its market areas. Certain of these competitors may have greater capital and other resources than those of the Company. ARG's management believes that ARG is able to compete effectively for development and acquisition opportunities in its selected markets. FACILITIES The Company's operations are principally located in a multi-level office building in Alpharetta, Georgia, a suburb of Atlanta. The Company occupies approximately 9,000 square feet of office space under a lease that expires in August 2004. Annual rent associated with this office space is approximately $158,000 including utilities. GOVERNMENT REGULATION The Company's mortgage brokerage services division and its real estate development division are subject to various laws and regulations. AMSI is subject to federal, state and local regulatory agencies in connection with originating, processing, underwriting and selling mortgage loans. These rules and regulations, among other things impose licensing obligations on AMSI, prohibit discrimination, establish underwriting guidelines and mandate disclosures and notices to borrowers. ARG is required to comply with various federal, state and local environmental, zoning, land use, licensing and other laws and regulations which govern its operations. Existing regulations may have a material adverse impact on the Company's operations by, among other things, imposing additional compliance costs and delaying the period in which mortgages may be processed or real estate projects may be brought to market. To date, the Company has not expended significant resources on lobbying or related government affairs issues but may be required to do so in the future. EMPLOYEES As of the date of this prospectus, the Company employees 25 people within its corporate division and has approximately 300 Net Branch employees. 21 23 LEGAL PROCEEDINGS The Company is party, from time to time, to various legal proceedings. On July 29, 1999 Company settled a claim arising out of the construction phase of the Beachside project in the total amount of $15,250. MARKET INFORMATION COMMON STOCK The Company's Common Stock has been traded over-the-counter on the bulletin board operated by the National Association of Securities Dealers, Inc. under the symbol "LAHA." The following table sets forth the high and low closing bid of the Company's Common Stock for each quarter during the past two fiscal years. The prices reflect inter-dealer quotations without retail mark-ups, mark downs and commissions, and do not necessarily represent actual transactions. The Company's securities began trading in August 1996. Since the foregoing date, the high bid has been $6.750 the low bid has been $0.031.
Period High Low ------- ----- ----- Fiscal 1997 First quarter..................................................... 0.875 0.875 Second quarter.................................................... 0.875 0.875 Third quarter..................................................... 0.875 0.875 Fourth quarter.................................................... 0.875 0.875 Fiscal 1998 First quarter...................................................... 3.250 0.875 Second quarter..................................................... 3.250 0.875 Third quarter...................................................... 3.250 0.875 Fourth quarter..................................................... 1.500 0.875 Fiscal 1999 First Quarter...................................................... 4.000 0.031 Second Quarter .................................................... 4.000 1.500 Third Quarter ..................................................... 4.625 0.500 Fourth Quarter ................................................... 6.750 3.125 Fiscal 2000 First Quarter (through October 20, 1999)........................... 5.00 3.625
On December 14, 1998, the closing bid on the Common Stock was $0.50. On August 23, 1999 the closing bid on the stock was $5.00. On October 20, 1999, the closing bid on the Common Stock was $4.625. MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information with respect to the executive officers and Directors of the Company as of October 5, 1999.
OFFICERS AND DIRECTORS AGE POSITION L. Scott Demerau (2) ................ 39 Chief Executive Officer, President and Director William A. Thurber................... 45 Executive Vice President - Finance and Treasurer Betty Sullivan (1),(2)............... 49 Executive Vice President - Administration, Secretary and Director Bart Siegel (1),(2).................. 51 Director Sherry Sagemiller (2)................ 46 Assistant Secretary and Director
- ---------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee. 22 24 L. Scott Demerau was elected as a director, the Chief Executive Officer and President of the Company effective August 23, 1999. Mr. Demerau holds a B.A. from the University of Port Huron, Michigan. Mr. Demerau began his entrepreneurial career in 1986 by forming a family entertainment center company, Mountasia. Mountasia held an Initial Public Offering in 1993 and merged with Malibu Entertainment Worldwide in 1994 where he served as Chairman, President and CEO until 1997. From 1997 to 1999, Mr. Demerau served as a consultant to Malibu. Mr. Demerau has served as a director of Malibu since 1993. Betty M. Sullivan was elected as a director, the Executive Vice President - Administration and Secretary of the Company effective August 23, 1999. She is a graduate of the American Institute of Banking, Louisiana State University. Ms. Sullivan was Assistant Vice President with Sun Banks of Florida from 1968 to 1980. She was owner and operator of two Sonny's Real Pit BarBQ Restaurants, and four Athletic Attic Sporting Goods Stores from 1981 to 1986. She was employed with Malibu Entertainment Worldwide (formerly Mountasia) as Vice President of Operations, Vice President of Human Relations, Vice President of Investors Relations and Secretary from 1987 to 1999. William A. Thurber was elected Executive Vice President - Finance and Treasurer of the Company effective September 28, 1999. From 1997 until June 1999, Mr. Thurber served as Treasurer of Vanstar Corporation, a NYSE technology services company. From 1992 to 1997, Mr. Thurber served as Assistant Treasurer and Director of Finance for John H. Harland Company, a NYSE financial printing company. Mr. Thurber was also employed by Harland from January 1988 until November 1988. From 1989 to 1992, Mr. Thurber served as Vice President for a unit of NationsBank Corporation. From November 1988 until March 1989, Mr. Thurber served as Chief Financial Officer of StarTouch Communications, Inc., a telecommunications company. From 1981 to 1988, Mr. Thurber was employed by Contel Corporation, a NYSE telecommunications company. From 1977 to 1981, Mr. Thurber was employed by Grumman Corporation, a NYSE aerospace defense contractor. Mr. Thurber holds an MBA Degree in Corporate Finance from Hofstra University, as well as a BS Degree in Accounting from New York Institute of Technology. Bart Siegel was elected as a director of the Company effective August 23, 1999. Mr. Siegel holds a B.S. from the Virginia Commonwealth University. Mr. Siegel is the owner and President of Allen Enterprises, a manufacturing, technology, product development and technical service industry. He has also served as Chief Operations Officer for Oak Brook Management, a management and operational reporting company for over twenty diverse companies from 1995 to the present. Mr. Siegel also serves as a strategic partner for the Institute of Financial Management. Sherry Sagemiller was elected as a director and the Assistant Secretary of the Company effective August 23, 1999. Ms. Sagemiller was employed as a legal assistant for real estate law firms from 1976 to 1982. She was the assistant to the President of Washington Mortgage & Development Co. from 1982 to 1988. Ms. Sagemiller was Director of Marketing for Sagemiller & Associates, Inc. from 1988 to January 1990. She was President/Owner of Accent Mortgage Services, Inc. from February 1990 to July 1996. She is currently the manager of an Accent Mortgage Services branch in Cumming, Ga. The Board of Directors is authorized to have five members; however, as of the date of this prospectus, there are only four directors. One director is to be appointed within 60 days of August 19, 1999 by mutual consent of L. Scott Demerau and Richard P. Smyth. DIRECTOR COMPENSATION The Company's non-employee Directors currently receive $1,000 per meeting attended in person and $500 per attended telephonic meeting for service on the Company's Board of Directors or any committee thereof. Officers of the Company are appointed by the Board of Directors and serve at its discretion. The Company has amended its bylaws to provide for the indemnification of Directors and officers to the fullest extent authorized, permitted or allowed by law. EXECUTIVE COMPENSATION None of the Company's executives have received any compensation in the last three fiscal years. STOCK OPTIONS OR OTHER INCENTIVE COMPENSATION PLANS Accent, a wholly-owned subsidiary of the Company, has a stock option plan, the Accent 1999 Stock Option Plan, which was adopted prior to the Merger (the "Plan"). All directors, employees and key consultants of Accent and any subsidiary or affiliate of Accent are eligible to participate in the Plan. Under the terms of the Plan, not more than 200,000 shares of Accent Common Stock shall be issued, and not more than 20,000 shares of Accent Common Stock may be made subject to the options to any individual in the aggregate in any one fiscal year of Accent. The Plan is attached as an exhibit to the Registration Statement on Form S-1 of which this prospectus is a part. As of the date of this prospectus, Accent has granted a total of 40,000 options, with not more than 10,000 options granted to any one individual. The Company is currently evaluating whether to adopt the Plan, and, in the event such action is deemed to be in the best interest of the Company, how to convert the stock subject to the options from Accent Common Stock to Common Stock of the Company. 23 25 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No interlocking relationship exists between the Company's Board of Directors or Compensation Committee and the Board of Directors or compensation committee of any other company, nor has such interlocking relationship existed in the past. The Compensation Committee of the Board of Directors currently consists of Bart Siegel, Betty Sullivan and Sherry Sagemiller. EMPLOYMENT AGREEMENTS The Company has no employment agreements at this time. The Company has consulting agreements with each of Gerald F. Sullivan and Gator Glory, LLC, a company that has employed Richard P. Smyth. Such consulting agreements are filed as Exhibits in the registration statement of which this prospectus is a part. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Amended and Restated Articles of Incorporation limits the liability of Directors to the maximum extent permitted by Colorado law. Colorado law provides that a corporation's articles of incorporation may contain a provision eliminating or limiting the personal liability of a director for monetary damages for breach of their fiduciary duties as Directors, except for liability (i) for any breach of their duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 7-108-403 of the Colorado Business Corporation Act or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Amended and Restated Articles of Incorporation provides that the Company shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding, including reasonable expenses incurred by a director in connection with the enforcement of this indemnification provision if: (i) the director furnishes to the Company a written affirmation of the director's good faith belief that he or she has met the standard of conduct described in Section 7-109-102 of the Colorado Business Corporation Act; (ii) the director furnishes to the Company a written undertaking, executed personally or on the director's behalf to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct and (iii) a determination is made that the facts then known to those making the determination would not preclude indemnification under Article 109 of the Colorado Business Corporation Act. The Company's Restated bylaws provide that the Company shall indemnify its Directors and officers and may indemnify its employees and agents to the fullest extent permitted by law. The Company believes that indemnification under its Restated bylaws covers at least negligence and gross negligence on the part of indemnified parties. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is therefore unenforceable. CERTAIN TRANSACTIONS On December 14, 1998, the Company purchased all of the outstanding stock of Beachside from Mongoose in exchange for 1,250,000 newly issued shares of Common Stock of the Company, 1,910,000 newly issued shares of Series A Preferred Stock of the Company and $667,500 in cash. The purchase was effective as of December 7, 1998. The purchase was accounted for as a reverse acquisition. Beachside was determined to be the accounting acquiror for financial statement purposes in accordance with Staff Accounting Bulletin No. 97. The assets and liabilities of Lahaina were recorded at its historical cost basis as it was a shell company at December 7, 1998. Beachside is the owner of a commercial real estate development located in Fernandina Beach, Florida on Amelia Island. As a result of this transaction, Mongoose became the Company's largest shareholder and Richard P. Smyth, the Managing Member of Mongoose, became the Chief Executive Officer, Treasurer and a Director of the Company and served in such capacity until the Merger. On February 2, 1999, 1st Southern, a mortgage brokerage operation owned by the son of a consultant and former Vice-Chairman, Secretary and director of the Company issued a promissory note for up to $75,000 to the Company. To date, 1st Southern has borrowed $62,000 of the promissory note. The Company has an option to acquire 1st Southern. Should the acquisition be completed, the total consideration given would be the outstanding amount of the loan. On June 30, 1999, the Company entered into a Purchase and Sale Agreement with Mongoose, the Company's then-majority shareholder, pursuant to which the Company sold and Mongoose purchased all of the assets and capital stock of JP Concepts, Inc. owned by the Company. The Company redeemed 60,000 shares of Common Stock held by Mongoose in connection with the transaction. 24 26 On June 30, 1999 the Company borrowed $40,000 from Scott Demerau, interest free and the Company re-paid the debt in full on July 12, 1999. Also, on September 3, 1999 and September 15, 1999 the Company borrowed $20,000 and $45,000 respectively, interest free from Mr. Demerau. The Company repaid $50,000 to Mr. Demerau on September 17, 1999 and currently owes a balance of $15,000. On July 9, 1999, Accent Holdings, Inc. AMSI, Accent, Sherry Sagemiller and Jon Andersen entered into a Property Contribution Agreement pursuant to which Sherry Sagemiller and the other former AMSI shareholders jointly and severally indemnified Accent and AMSI against losses incurred by Accent or AMSI as a result of certain action or inaction by the indemnifying parties. At July 9, 1999, the indemnifying parties owed Accent $257,423 under the indemnity. In addition, the indemnifying parties assumed from AMSI the obligation to repay certain notes payable to banks in the amount of $247,821. Such notes continue to be collateralized by $125,435 of certificates of deposit owned by AMSI. Sherry Sagemiller was elected a director of the Company in connection with the Merger. For purposes of this prospectus the Company has estimated the number of shares of Common Stock issuable upon conversion of the Note and the Second Note and the exercise of the GCA Warrant and the Second GCA Warrant. The actual number of shares of Common Stock issuable pursuant to the Note, the Second Note, the GCA Warrant and the Second GCA Warrant will be determined at the time of conversion or exercise. See "Terms of Conversion; Terms of Exercise." 25 27 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth the beneficial ownership of the Company's Common Stock and the Series A Preferred Stock as of October 5, 1999, as adjusted to reflect the conversion/exercise of the shares of Common Stock offered by the Selling Shareholders of (i) each person known by the Company to own beneficially 5% or more of the Company's Common Stock, (ii) each of the Company's directors and (iii) all of the Company's officers and directors as a group. The number of shares that may actually be sold by each of the selling shareholders will be determined by such shareholder and may depend upon a number of factors, including, among other things, the market price of the Common Stock.
- ------------------------------------------------------------------------------------------------- SHARES BENEFICIALLY OWNED* PRIOR TO CONVERSION -------------------------------------------------- COMMON NUMBER PERCENT SHARES ----------------------------- ------------------- OFFERED COMMON SERIES A COMMON SERIES A FOR BENEFICIAL OWNER PREFERRED PREFERRED SALE - ------------------------------------------------------------------------------------------------- L. Scott Demerau 6,297,000(2) -- 38.8% -- -- 8645 Swiss Air Road Gainesville, GA 30506 - ------------------------------------------------------------------------------------------------- Julia Demerau 6,297,000(2) -- 38.8% -- -- 8645 Swiss Air Road Gainesville, GA 30506 - ------------------------------------------------------------------------------------------------- Accent Associates, LLC 1,400,000 -- 8.6% -- -- 7310 Pine Valley Road Cumming, GA 30041 - ------------------------------------------------------------------------------------------------- Eutopean Enterprises, LLC 1,200,000 -- 7.4% -- -- 8645 Swiss Air Road Gainesville, GA 30506 - ------------------------------------------------------------------------------------------------- Kingdom Generals, LLC 850,000 -- 5.2% -- -- 7310 Pine Valley Road Cumming, GA 30041 - ------------------------------------------------------------------------------------------------- Sherry Sagemiller 833,330(3) -- 5.1% -- -- 1460 Squire Lane Cumming, GA 30041 - ------------------------------------------------------------------------------------------------- GCA Strategic Investment 1,628,047(4) -- 9.2% -- 1,628,047(4) Fund Limited Mechanics Building 12 Church Street Hamilton HM 11 Bermuda - ------------------------------------------------------------------------------------------------- LKB Financial, LLC 57,510(5)(6) -- .4% -- 57,510(5)(6) 106 Colony Park Drive Suite 900 Cumming, GA 30040 - ------------------------------------------------------------------------------------------------- L. Scott Demerau 6,297,000 -- 38.8% -- -- Betty Sullivan -- -- -- -- -- Sherry Sagemiller 833,330 -- 5.1% -- -- Bart Siegel -- -- -- -- -- All directors and officers 7,130,330 -- 44.0% -- -- as a group (5 people) - -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- SHARES BENEFICIALLY OWNED* AFTER THE OFFERING(1) --------------------- -------------------- NUMBER PERCENT --------------------- -------------------- COMMON SERIES A COMMON SERIES A BENEFICIAL OWNER PREFERRED PREFERRED - -------------------------------------------------------------------------------- L. Scott Demerau 6,297,000(2) -- 38.8% -- 8645 Swiss Air Road Gainesville, GA 30506 - -------------------------------------------------------------------------------- Julia Demerau 6,297,000(2) -- 38.8% -- 8645 Swiss Air Road Gainesville, GA 30506 - -------------------------------------------------------------------------------- Accent Associates, LLC 1,400,000 -- 8.6% -- 7310 Pine Valley Road Cumming, GA 30041 - -------------------------------------------------------------------------------- Eutopean Enterprises, LLC 1,200,000 -- 7.4% -- 8645 Swiss Air Road Gainesville, GA 30506 - -------------------------------------------------------------------------------- Kingdom Generals, LLC 850,000 -- 5.2% -- 7310 Pine Valley Road Cumming, GA 30041 - -------------------------------------------------------------------------------- Sherry Sagemiller 833,330(3) -- 5.1% -- 1460 Squire Lane Cumming, GA 30041 - -------------------------------------------------------------------------------- GCA Strategic Investment (4) -- -- -- -- Fund Limited Mechanics Building 12 Church Street Hamilton HM 11 Bermuda - -------------------------------------------------------------------------------- LKB Financial, LLC (5)(6) -- -- -- -- 106 Colony Park Drive Suite 900 Cumming, GA 30040 - -------------------------------------------------------------------------------- L. Scott Demerau 6,297,000 -- 38.8% -- Betty Sullivan -- -- -- -- Sherry Sagemiller 833,330 -- 5.1% -- Bart Siegel -- -- -- -- All directors and officers 7,130,330 -- 44.0% -- as a group (5 people) - --------------------------------------------------------------------------------
- ------------------------------------ * For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13(d)-3 of the Securities Exchange Act of 1934, as amended, under which, in general, a person is deemed to be the beneficial owner of a security if such person has or shares the power to vote or to direct the voting of the security or the power to dispose or to direct the disposition of the security, or if such person has the right to acquire beneficial ownership of the security within sixty days of October 21, 1999. (1) The shares beneficially owned after the Offering are calculated assuming the sale of all shares offered by the Selling Shareholders pursuant to this Offering. (2) Includes 1,200,000 shares of Common Stock which are held in escrow by the Company pursuant to the Merger Agreement. These shares will be released upon the satisfaction of certain conditions involving the full conveyance of the consideration for the Accent Common Stock. No assurance can be given that these shares will ever be released. (3) Includes 766,666 shares of Common Stock which are held in escrow by the Company pursuant to the Merger Agreement. These shares will be released upon the satisfaction of certain conditions involving the full conveyance of the consideration for the Accent Common Stock. No assurance can be given that these shares will ever be released. (4) Represents an estimate of the number of shares of Common Stock into which the Note and the Second Note will be converted, an estimate of the number of shares of Common Stock to be issued upon exercise of the GCA Warrant and the Second GCA Warrant. Represents shares of Common Stock issued as fees related to delays in filing the Registration Statement, upon the exercise of the GCA right and upon the conversion of the GCA Line of Credit. This does not include the 414,443 shares being registered to meet any additional share issuance requirement. (5) Represents shares of Common Stock issued upon exercise of the First and Second LKB Warrants. (6) The Company has engaged LKB to provide specific financial advisory services for one year beginning January 19, 1999. 26 28 DESCRIPTION OF CAPITAL STOCK As of October 5, 1999, there were 16,217,343 shares of Common Stock outstanding held of record by approximately 191 shareholders. Upon the closing of the Offering, the outstanding shares of Common Stock will consist of 18,067,500 shares assuming that the remaining notes and warrants convert to 1,850,157 shares. As of October 5, 1999, the Company has 3,350,000 shares held in escrow which are subject to the certain conditions of release as set forth in the Merger Agreement included as an exhibit included as an exhibit in the registration statement of which this prospectus is a part, and are currently being held by the Company. COMMON STOCK The Company is authorized to issue a total of 800,000,000 shares of no par value per share Common Stock. Holders of Common Stock are entitled to one vote per share in all matters to be voted on by the shareholders. Subject to the preferences of the Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available for payment. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of shares of Preferred Stock then outstanding, if any. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and nonassessable, and the shares of Common Stock to be issued in connection with the Offering will be fully paid and non-assessable. PREFERRED STOCK Pursuant to the Company'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 Company 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. No shares of Series A Preferred Stock are currently outstanding. Although the Company 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 Company authorized and issued shares of Series A Preferred Stock. The rights, preferences, privileges, 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 Company) 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 Company, 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 27 29 Company 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 adjustment 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 Company 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 Company 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 Company 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 Company; or (ii) a sale of all or substantially all of the assets of the Company; In any of such events, if the consideration received by the Company 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 Company. REDEMPTION The Series A Preferred Stock is redeemable only at the election of the Board of Directors of the Company 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 Company 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 Company'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 Company's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-l 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 Company, 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 Company 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 Company. 28 30 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 Company 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 Company'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. REGISTRATION RIGHTS Pursuant to agreements between the Company and the holder (the "Holder") of the Note and the Second Note the shares of Common Stock into which the notes are convertible, (the "Registrable Securities"), can be registered for sale under the Act. If the Company proposes to register any of its securities under the Act, either for its own account or for the account of the Holder exercising registration rights, the Holder is entitled to notice of such registration and is entitled to include shares of Registrable Securities therein. Additionally, the Holder is also entitled to certain demand registration rights pursuant to which they may require the Company to file a registration statement under the Act at the Company's expense with respect to their shares of Registrable Securities, and the Company is required to use its commercially reasonable best efforts to effect such registration. All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration. The Holder claims $50,500 in fees related to delays in filing the Registration Statement through September 13, 1999 and claims it is entitled to additional fees under the terms of the Note and the Second Note for each additional day which the Registration Statement is not declared effective. Management believes it has a reasonable basis to dispute such fees and intends to enter into negotiations with the Holder to mitigate its damages. LIMITATION OF DIRECTOR AND OFFICER LIABILITY The Company's Amended and Restated Articles of Incorporation and bylaws contain certain provisions relating to the limitation of liability and indemnification of Directors and officers. The Company's Amended and Restated Articles of Incorporation provide that Directors of the Company may not be held personally liable to the Company or its shareholders for a breach of fiduciary duty, except for liability (i) for any breach of the director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) under Section 7-108-403 of the Colorado Business Corporation Act, relating to prohibited dividends, distributions and repurchases or redemptions of stock, (iv) for any transaction from which the director derives an improper benefit. In addition, the Company's Amended and Restated Articles of Incorporation and bylaws provide that the Company shall indemnify Directors and officers to the fullest extent authorized by Colorado law. 29 31 TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Company's Common Stock is Corporate Stock Transfer Corporation, Republic Plaza, 370 17th Street, Suite 2350, Denver, Colorado, 80202. Its telephone number for such purposes is (303) 595-3300. SHARES ELIGIBLE FOR FUTURE SALE Prior to the Offering, the Company has an aggregate of 16,217,343 shares of Common Stock outstanding and an additional 1,850,157 shares of Common Stock reserved for issuance upon the conversion of the Note and the Second Note and the exercise of the GCA Warrant and the Second GCA Warrant. Upon completion of the Offering, the Company will have outstanding an aggregate of 18,067,500 shares of Common Stock, assuming the full conversion of the Note and the Second Note and exercise of the GCA Warrant and the Second GCA Warrant into 1,850,157 shares. Assuming the sale of all shares of Common Stock offered hereby, the 2,100,000 shares sold in the Offering will be freely tradeable without restriction or further registration under the Act, except that any shares held or purchased by "affiliates" of the Company, as that term is defined in Rule 144 of the Securities Act ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 described below. Scott Demerau constitutes an Affiliate of the Company, thus the 6,297,000 shares of Common Stock he currently owns, together with any shares he acquires in the future, will be subject to these limitations. In general, under Rule 144 as currently in effect, any holder of securities who is an Affiliate of the issuer is entitled to sell within any three-month period a number of shares that does not exceed the greater of: (i) one percent of the number of shares of Common Stock then outstanding (which will equal approximately 180,675 shares immediately after the Offering); or (ii) the average weekly trading volume of the Common Stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. Sales under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about the Company. The above described provisions of Rule 144, together with an additional one year holding period requirement, also apply to "restricted securities" defined under Rule 144 as securities issued in a private offering by a publicly traded company. Any shares of Common Stock issued upon conversion of the Note or the Second Note or the exercise of the GCA Warrant or the Second GCA Warrant would constitute, and the other shares currently held by the Selling Shareholders constitute, restricted securities under Rule 144 and must be sold in compliance with the above described limitations unless and until sold pursuant to this prospectus in the Offering. PLAN OF DISTRIBUTION Sales of the shares may be made from time to time by the selling shareholders, or, subject to applicable law, by pledgees, donees, distributees, transferees or other successors in interest. Such sales may be made on the OTC Bulletin Board, in another over-the-counter market, on a national securities exchange (any of which may involve crosses and block transactions), in privately negotiated transactions or otherwise or in a combination of such transactions at prices and at terms then prevailing or at prices related to the then current market price, or at privately negotiated prices. In addition, any shares covered by this prospectus which qualify for sale pursuant to Section 4(l) of the Securities Act or Rule 144 promulgated thereunder may be sold under such provisions rather than pursuant to this prospectus. Without limiting the generality of the foregoing, the shares may be sold in one or more of the following types of transactions: (a) a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this prospectus; (c) an exchange distribution in accordance with the rules of such exchange; (d) ordinary brokerage transactions and transactions in which the broker solicits purchasers, and (e) face-to-face transactions between sellers and purchasers without a broker-dealer. In effecting sales, brokers or dealers engaged by the selling shareholders may arrange for other brokers or dealers to participate in the resales. In connection with distributions of the shares or otherwise, the selling shareholders may enter into hedging transactions with broker-dealers. In connection with such transactions, broker-dealers may engage in short sales of the shares registered hereunder in the course of hedging the positions they assume with selling shareholders. The selling shareholders may also sell shares short and deliver the shares to close out such short positions. The selling shareholders may also enter into option or other transactions with broker-dealers which require the delivery to the broker-dealer of the shares registered hereunder, which the broker-dealer may resell pursuant to this prospectus. The 30 32 selling shareholders may also pledge the shares registered hereunder to a broker or dealer and upon a default, the broker or dealer may effect sales of the pledged shares pursuant to this prospectus. Brokers, dealers or agents may receive compensation in the form of commissions, discounts or concessions from selling shareholders in amounts to be negotiated in connection with the sale. Such brokers or dealers and any other participating brokers or dealers may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales and any such commission, discount or concession may be deemed to be underwriting discounts or commissions under the Securities Act. Information as to whether underwriters who may be selected by the selling shareholders, or any other broker-dealer, is acting as principal or agent for the selling shareholders, the compensation to be received by underwriters who may be selected by the selling shareholders, or any broker-dealer, acting as principal or agent for the selling shareholders and the compensation to be received by other broker-dealers, in the event the compensation of such other broker-dealers is in excess of usual and customary commissions, will, to the extent required, be set forth in a supplement to this prospectus (the "Prospectus Supplement"). Any dealer or broker participating in any distribution of the shares may be required to deliver a copy of this prospectus, including the Prospectus Supplement, if any, to any person who purchases any of the shares from or through such dealer or broker. The Company has advised the selling shareholders that during such time as they may be engaged in a distribution of the shares included herein they are required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes any selling shareholders, any affiliated purchasers and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the Common Stock. It is anticipated that the selling shareholders will offer all of the shares for sale. Further, because it is possible that a significant number of shares could be sold at the same time hereunder, such sales, or the possibility thereof, may have a depressive effect on the market price of the Company's Common Stock. LEGAL MATTERS The validity of the shares of Common Stock offered hereby was passed upon for the Company by Paul, Hastings, Janofsky & Walker LLP, Atlanta, Georgia. Mongoose made a gift of 100,000 shares of the Company's Common Stock to a partner of Paul, Hastings, Janofsky & Walker, LLP, effective as of December 7, 1998. EXPERTS Beachside Commons I, Inc. (currently known as Lahaina Acquisitions, Inc.) financial statements as of and for the period from inception (September 25, 1998) to December 7, 1998 appearing in this prospectus and Registration Statement have been audited by Kenneth R. Walters, PA, independent public accountants, and are included herein in reliance upon the authority of said firm as experts in giving said report. AMSI's financial statements for the period ended June 30, 1999 and the years ended December 31, 1998 and 1997 appearing in this prospectus and Registration Statement have been audited by Holland Shipes Vann, P.C., independent public accountants, and are included herein upon the authority of said firm as experts in giving said report. The consolidated balance sheet of The Accent Group, Inc. and subsidiaries as of July 9, 1999 included in this prospectus has been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and is included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. ADDITIONAL INFORMATION A Registration Statement on Form S-1, including amendments thereto, relating to the Common Stock offered hereby has been filed by the Company with the Securities and Exchange Commission (the "Commission"), Washington, D.C. This prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. Statements contained in this prospectus as to the contents of any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract 31 33 or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. For further information with respect to the Company and the Common Stock offered hereby, reference is made to such Registration Statement, exhibits and schedules. A copy of the Registration Statement may be inspected by anyone without charge at the Commission's principal office, 450 Fifth Street, N.W., Washington, D.C. 20549, the New York Regional Office located at 7 World Trade Center, 13th Floor, New York, NY 10048, and the Chicago Regional Office located at Northwestern Atrium Center, 500 West Madison Street, Chicago, IL 60661, and copies of all or any part thereof, including any exhibit thereto, may be obtained from the Commission upon the payment of certain fees prescribed by the Commission. In addition, the Company files annual, quarterly and special reports, proxy statements and other information with the Commission. You may read and copy any documents the Company files at the Commissions public reference rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms. The Company's filings are also available to the public from the Commission's website at http://www.sec.gov. 32 34 LAHAINA ACQUISITIONS, INC. INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
PAGE ---- Basis of Presentation............................................................ F-2 Unaudited Pro Forma Condensed Combined Balance Sheet of Lahaina Acquisitions, Inc, as of June 30, 1999................................... F-3 Unaudited Pro Forma Condensed Combined Balance Sheet of The Accent Group, Inc, as of June 30, 1999....................................... F-3 Unaudited Pro Forma Condensed Combined Statement of Operations of Lahaina Acquisitions,Inc, for the nine months ended June 30, 1999................ F-4 Unaudited Pro Forma Condensed Combined Statement of Operations of The Accent Group, Inc, for the nine months ended June 30, 1999................... F-4 Unaudited Pro Forma Condensed Combined Statement of Operations of Lahaina Acquisitions, Inc., for the year ended September 30, 1998................ F-5 Unaudited Pro Forma Condensed Combined Statement of Operations of The Accent Group, Inc., for the year ended September 30, 1998.................... F-5 Notes to Unaudited Pro Forma Combined Financial Statements....................... F-6
INDEX TO PREDECESSOR FINANCIAL STATEMENTS LAHAINA ACQUISITIONS, INC. (formerly known as Beachside Commons I, Inc.)
PAGE ---- Report of Independent Auditors................................................... F-8 Consolidated Balance Sheets...................................................... F-9 Consolidated Statements of Operations............................................ F-10 Consolidated Statement of Changes in Shareholders' Equity........................ F-11 Consolidated Statements of Cash Flows............................................ F-12 Notes to Consolidated Financial Statements....................................... F-13
THE ACCENT GROUP, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENT
PAGE ---- Report of Independent Auditors................................................... F-23 Consolidated Balance Sheet of The Accent Group, Inc.............................. F-24 Notes to Consolidated Balance Sheet of The Accent Group, Inc..................... F-25
ACCENT MORTGAGE SERVICES, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Auditors as of and for the six months ended June 30,1999... F-34 Balance Sheets of Accent Mortgage Services, Inc.................................. F-35 Statements of Operations of Accent Mortgage Services, Inc........................ F-36 Statement of Changes in Shareholders' Equity (Deficit) of Accent Mortgage Services, Inc.................................................................... F-37 Statements of Cash Flows of Accent Mortgage Services, Inc........................ F-38 Notes to Financial Statements of Accent Mortgage Services, Inc................... F-39 Report of Independent Auditors as of and for the years ended December 31, 1998 and 1997....................................................... F-49 Balance Sheets of Accent Mortgage Services, Inc.................................. F-50 Statements of Operations of Accent Mortgage Services, Inc........................ F-51 Statement of Changes in Shareholders' Equity (Deficit) of Accent Mortgage Services, Inc.................................................................... F-52 Statements of Cash Flows of Accent Mortgage Services, Inc........................ F-53 Notes to Financial Statements of Accent Mortgage Services, Inc................... F-54
F-1 35 LAHAINA ACQUISITIONS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS BASIS OF PRESENTATION The following unaudited pro forma condensed combined financial statements give effect to the following transactions: (i) the acquisition of The Accent Group, Inc. ("Accent") by Lahaina Acquisitions, Inc. ("Lahaina"), (ii) consummation of Accent's acquisition of the outstanding capital stock of Accent Mortgage Services, Inc. ("AMSI"), (iii) the contribution of certain real estate and options to acquire real estate to Accent by the majority stockholder, (iv) other Accent acquisitions, and (v) the conversion or exercise of the Note, the Second Note and related warrants into 1,850,157 shares of the Company's Common Stock. The acquisitions of AMSI and Lahaina will be accounted for using the purchase method of accounting and the contributions of real estate and options to acquire real estate from the majority shareholder will be accounted for at the majority shareholder's cost basis due to common ownership and control. In accordance with the provisions of Staff Accounting Bulletin No. 97, Accent is deemed to be the accounting acquiror of Lahaina as its stockholders will receive the largest portion of the voting rights in the combined corporation. The Unaudited Pro Forma Combined Condensed Balance Sheet gives effect to the acquisitions as if they had occurred on June 30, 1999. The Unaudited Pro Forma Condensed Combined Statements of Operations for the nine months ended June 30, 1999 and the year ended September 30, 1998 gives effect to these transactions as if they had occurred on October 1, 1997. The pro forma adjustments are based on estimates, available information and certain assumptions and may be revised as additional information becomes available. The pro forma condensed combined financial data does not purport to represent what Lahaina's financial position or results of operations would actually have been if such transactions in fact had occurred on those assumed dates and are not necessarily representative of Lahaina's financial position or results of operations for any future period. Since Lahaina, Accent and AMSI were not under common control or management, historical combined results may not be comparable to, or indicative of, future performance. The unaudited pro forma condensed combined financial statements should be read in conjunction with the other financial statements and notes thereto included elsewhere in the prospectus. F-2 36 LAHAINA ACQUISITIONS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 1999
PRO FORMA PRO FORMA COMBINED HISTORICAL ADJUSTMENTS PRO FORMA ACCENT LAHAINA (note 3) COMBINED ----------- ----------- ----------- ----------- ASSETS Cash and cash equivalents $ 106,255 $ 60,261 $ 500,000 $ 666,516 Restricted cash -- 31,000 -- 31,000 Restricted certificates of deposit 125,435 -- -- 125,435 Loans receivable 531,692 -- -- 531,692 Mortgage loans held for sale, net 499,150 -- -- 499,150 Real estate held for sale -- 2,901,799 748,201 3,650,000 Land held for development 700,000 -- -- 700,000 Foreclosed real estate 593,960 -- -- 593,960 Goodwill 1,237,487 -- 144,839 1,382,326 Due from related parties and stockholders 40,000 -- -- 40,000 Other assets 283,323 211,251 (353,751) 140,823 ----------- ----------- ----------- ----------- Total assets $ 4,117,302 $ 3,204,311 $ 1,039,289 $ 8,360,902 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Notes payable $ 2,103,943 $ 1,550,000 $ -- $ 3,653,943 Due to related parties and stockholders 636,057 -- -- 636,057 Notes payable-convertible debt -- 775,000 (775,000) -- Note payable-warehouse line 1,632,342 -- -- 1,632,342 Note payable-stage funding line 528,891 -- -- 528,891 Accrued interest payable 208,080 -- -- 208,080 Accounts payable and accrued expenses 628,752 540,294 190,762 1,359,808 Other liabilities 1,500 9,000 -- 10,500 ----------- ----------- ----------- ----------- Total liabilities 5,739,565 2,874,294 (584,238) 8,029,621 ----------- ----------- ----------- ----------- Redeemable stock 70,577 -- -- 70,577 Stockholders' equity (deficit): Common stock -- -- -- -- Convertible preferred stock -- -- -- -- Additional paid-in capital (1,571,840) 1,093,171 860,373 381,704 Retained earnings (deficit) (121,000) (763,154) 763,154 (121,000) ----------- ----------- ----------- ----------- Total stockholders' equity (deficit) (1,692,840) 330,017 1,623,527 260,704 ----------- ----------- ----------- ----------- Total liabilities and stockholders' equity (deficit) $ 4,117,302 $ 3,204,311 $ 1,039,289 $ 8,360,902 =========== =========== =========== ===========
THE ACCENT GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 1999
PRO FORMA PRO FORMA ACCENT MORTGAGE ADJUSTMENTS COMBINED ACCENT SERVICES, INC. (note 3) ACCENT ----------- --------------- ----------- ----------- ASSETS Cash and cash equivalents $ 25,000 $ 81,255 $ -- $ 106,255 Restricted certificates of deposit -- 125,435 -- 125,435 Loans receivable -- 531,692 -- 531,692 Mortgage loans receivable, net -- 499,150 -- 499,150 Land held for development -- -- 700,000 700,000 Foreclosed real estate -- 593,960 -- 593,960 Goodwill -- -- 1,237,487 1,237,487 Due from related parties and stockholders 10,477 29,523 -- 40,000 Other assets 329,523 206,300 (252,500) 283,323 ----------- ----------- ----------- ----------- Total assets $ 365,000 $ 2,067,315 $ 1,684,987 $ 4,117,302 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' DEFICIT Notes payable $ -- $ 247,821 $ 1,856,122 $ 2,103,943 Due to related parties and stockholders 40,000 153,094 442,963 636,057 Note payable-warehouse line -- 1,632,342 -- 1,632,342 Note payable-stage funding line -- 528,891 -- 528,891 Accrued interest payable -- 208,080 -- 208,080 Accounts payable and accrued expenses 350,000 278,752 -- 628,752 Other liabilities -- 1,500 -- 1,500 ----------- ----------- ----------- ----------- Total liabilities 390,000 3,050,480 2,299,085 5,739,565 ----------- ----------- ----------- ----------- Redeemable common stock -- -- 70,577 70,577 Stockholders' deficit: Common stock -- 60,000 (60,000) -- Additional paid-in capital -- 624,595 (2,196,435) (1,571,840) Retained earnings (deficit) (25,000) (1,667,760) 1,571,760 (121,000) ----------- ----------- ----------- ----------- Total stockholders' deficit (25,000) (983,165) (684,675) (1,692,840) ----------- ----------- ----------- ----------- Total liabilities and stockholders' deficit $ 365,000 $ 2,067,315 $ 1,684,987 $ 4,117,302 =========== =========== =========== ===========
F-3 37 LAHAINA ACQUISITIONS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the nine months ended June 30, 1999
ACCENT PRO FORMA PRO FORMA LAHAINA ADJUSTMENTS PRO FORMA COMBINED(A) HISTORICAL (NOTE 4) COMBINED ------------- ---------- ----------- ---------- Revenues(1) $ 1,101,448 $ 143,713 $ -- $ 1,245,161 Selling, general and administrative expenses 1,701,989 702,221 (150,000)(B) 2,314,210 60,000 (C) Amortization of goodwill 61,874 -- 7,242 (D) 69,116 Other (income) expense: Interest expense 328,762 204,646 (40,688)(E) 492,720 Interest income (56,530) -- -- (56,530) ---------- ---------- ---------- ---------- Net loss $ (934,647) $ (763,154) $ 123,446 $(1,574,355) =========== ========== =========== ===========
THE ACCENT GROUP, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS For the nine months ended June 30, 1999
PRO FORMA ACCENT ACCENT MORTGAGE ADJUSTMENTS PRO FORMA ACCENT SERVICES, INC. (NOTE 4) COMBINED (A) ---------- --------------- ----------- ------------ Revenues(1) $ -- $ 1,101,448 $ -- $ 1,101,448 Selling, general and administrative expenses 25,000 1,668,259 8,730 (F) 1,701,989 Amortization of goodwill -- -- 61,874 (D) 61,874 Other (income) expense: Interest expense -- 171,698 157,064 (G) 328,762 Interest income -- (56,530) -- (56,530) ---------- ---------- ----------- --------- Net loss $ (25,000) $ (681,979) $ (227,668) $ (934,647) ========== ============ =========== ===========
(1) Revenues are net of brokerage services expense. F-4 38 LAHAINA ACQUISITIONS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998
ACCENT PRO FORMA PRO FORMA LAHAINA ADJUSTMENTS PRO FORMA COMBINED (A) HISTORICAL (NOTE 4) COMBINED -------------- ---------- ----------- ----------- Revenues(1) $ 1,211,246 $ -- $ -- $ 1,211,246 Selling, general and administrative expenses 2,385,496 -- 300,000(C) 2,685,496 Amortization of goodwill 82,499 -- 9,656(D) 92,155 Other (income) expense: Interest expense 465,672 -- -- 465,672 Interest income (92,997) -- -- (92,997) Other, net -- -- -- -- ----------- --------- ---------- ----------- Net loss $(1,629,424) $ -- $ (309,656) $(1,939,080) =========== ========= ========== ===========
THE ACCENT GROUP, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1998
PRO FORMA ACCENT ACCENT MORTGAGE ADJUSTMENTS PRO FORMA ACCENT SERVICES, INC. (NOTE 4) COMBINED (A) --------- --------------- ----------- ------------- Revenues(1) $ -- $ 1,211,246 $ -- $ 1,211,246 Selling, general and administrative expenses -- 2,373,856 11,640 (F) 2,385,496 Amortization of goodwill -- -- 82,499 (D) 82,499 Other (income) expense: Interest expense -- 262,417 203,255 (G) 465,672 Interest income -- (92,997) -- (92,997) Other, net -- -- -- -- --------- ----------- ----------- ------------- Net loss $ -- $(1,332,030) $ (297,394) $ (1,629,424) ========= =========== ========== =============
(1) Revenues are net of brokerage services expense. F-5 39 LAHAINA ACQUISITIONS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NOTE 1-GENERAL Lahaina was founded in 1989 to seek, investigate and, if warranted, acquire an interest in one or more business opportunities or ventures. The historical financial statements reflect the financial position and results of operations of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons I, Inc.) ("Lahaina"), The Accent Group, Inc. ("Accent"), and Accent Mortgage Services, Inc. ("AMSI") and were derived from the respective historical financial statements where indicated. The periods included in these financial statements for Lahaina are as of June 30, 1999 and for the year ended September 30, 1998 and for the nine months ended June 30, 1999. The periods included in these financial statements for Accent are as of June 30, 1999 and for the period from May 5, 1999(date of inception) to June 30, 1999. The periods included in these financial statements for AMSI are as of June 30, 1999 and for the year ended December 31, 1998 and the nine months ended June 30, 1999. The audited historical financial statements included elsewhere herein have been included in accordance with Securities and Exchange Commission Regulation S-X Rule 3-05. NOTE 2-ACQUISITIONS The acquisitions of both Lahaina and AMSI will be accounted for using the purchase method of accounting with Accent being treated as the accounting acquirer of Lahaina in accordance with Staff Accounting Bulletin No. 97 and APB 16. The assignment of fair values to assets acquired and liabilities assumed for Lahaina and AMSI are preliminary and subject to revision based on final determination of the fair values of properties acquired. The contributions by the majority shareholder of Accent which related to its formation were recorded at the majority shareholder's cost basis due to common ownership and control. NOTE 3-UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS The following table summarizes unaudited pro forma condensed combined balance sheet adjustments related to (i) the acquisition of Lahaina by Accent (Merger Adjustments) and (ii) the Conversion of the Note, the Second Note and the exercise of the related warrants into Common Stock of the Company (Conversion Adjustments):
Total Merger Conversion Pro Forma Adjustments(A) Adjustments(B) Adjustments -------------- -------------- ----------- ASSETS Cash and cash equivalents $ -- $ 500,000 $ 500,000 Restricted cash -- -- -- Restricted certificates of deposit -- -- -- Loans receivable -- -- -- Mortgage loans held for sale, net -- -- -- Land held for development 748,201 -- 748,201 Foreclosed real estate -- -- -- Goodwill 144,839 -- 144,839 Due from related parties and stockholders -- -- -- Other assets (214,500) (139,251) (353,751) --------- --------- ---------- Total assets $ 678,540 $ 360,749 $1,039,289 ========= ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Notes payable $ -- $ -- $ -- Due to related parties and stockholders -- -- -- Note payable-convertible debt -- (775,000) (775,000) Note payable-warehouse line -- -- -- Note payable-stage funding line -- -- -- Accrued interest payable -- -- -- Accounts payable and accrued expenses -- 190,762 190,762 Other liabilities -- -- -- --------- --------- ---------- Total liabilities -- (584,238) (584,238) --------- --------- ---------- Redeemable stock -- -- -- Stockholders' equity: Common stock -- -- -- Convertible preferred stock -- -- -- Additional paid-in capital (84,614) 944,987 860,373 Retained earnings 763,154 -- 763,154 --------- --------- ---------- Total stockholders' equity 678,540 944,987 1,623,527 --------- --------- ---------- Total liabilities and stockholders' equity $ 678,540 $ 360,749 $1,039,289 ========= ========= ==========
(A) Reflects the acquisition of Lahaina by Accent consisting of 2,966,343 shares of Common Stock valued at $0.34 per share based on an independent valuation of Accent just prior to the merger with Lahaina and acquisition expenses of $152,000 for a total purchase price of $1,161,057. After writing off an uncollectible receivable of $62,000 and the allocation of purchase price to the fair market value of the real estate ($748,201), the remaining excess purchase price over the fair market value of the assets and liabilities acquired was recorded as goodwill ($144,839). The assignment of fair values to assets and liabilities for Lahaina is preliminary and subject to revision based on final determination of the fair values of assets and liabilities acquired. (B) Reflects the conversion of the Note ($775,000), the conversion and related proceeds from the Second Note ($500,000), and the exercise of the related warrants for a total of 1,850,157 shares of Common Stock. Also reflects the write-off of capitalized registration costs ($139,251) and the accrual of additional registration costs ($190,762) which is recorded as a reduction of additional paid-in capital. The following table summarizes unaudited pro forma condensed combined balance sheet adjustments related to (i) Accent's acquisition of AMSI, (ii) the contribution of assets by the majority shareholder of Accent, and (iii) other Accent acquisitions and is adjusted for the 10 for 1 exchange of common stock between Accent and Lahaina:
TOTAL PRO FORMA PROFORMA ADJUSTMENTS ADJUSTMENTS ------------------------------------------------ -------------- (A) (B) (C) (D) ----------- ----------- ------- -------- ASSETS Cash and cash equivalents $ -- $ -- $ -- $ -- $ -- Restricted certificates of deposit -- -- -- -- -- Loans receivable -- -- -- -- -- Mortgage loans receivable, net -- -- -- -- -- Land held for development 700,000 -- -- -- 700,000 Foreclosed real estate -- -- -- -- -- Goodwill -- 1,237,487 -- -- 1,237,487 Due from related parties and stockholders -- -- -- -- -- Other assets -- (332,500) 80,000 -- (252,500) ----------- ----------- ------- -------- ----------- Total assets $ 700,000 $ 904,987 $80,000 $ -- $ 1,684,987 =========== =========== ======= ======== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Notes payable $ 2,103,943 $ (247,821) $ -- $ -- $ 1,856,122 Due to related parties and stockholders 596,057 (153,094) -- -- 442,963 Notes payable-warehouse line -- -- -- -- -- Note payable - stage funding line -- -- -- -- -- Accrued interest payable -- -- -- -- -- Accounts payable and accrued expenses -- -- -- -- -- Other liabilities -- -- -- -- -- ----------- ----------- ------- -------- ----------- Total liabilities 2,700,000 (400,915) -- -- 2,299,085 ----------- ----------- ------- -------- ----------- Redeemable stock -- (25,423) -- 96,000 70,577 Stockholders' deficit: Common stock -- (60,000) -- -- (60,000) Additional paid-in capital (2,000,000) (276,435) 80,000 -- (2,196,435) Retained earnings -- 1,667,760 -- (96,000) 1,571,760 ----------- ----------- ------- -------- ----------- Total stockholders' deficit (2,000,000) 1,331,325 80,000 (96,000) (684,675) ----------- ----------- ------- -------- ----------- Total liabilities and stockholders' deficit $ 700,000 $ 904,987 $80,000 $ -- $ 1,684,987 =========== =========== ======= ======== ===========
(A) Reflects the contribution of real estate and options to acquire real estate from the majority shareholder in exchange for 8,525,000 shares of Common Stock. Accent's basis in the real estate and options to acquire real estate is recorded at the majority shareholder's basis ($700,000). Accent also assumed F-6 40 LAHAINA ACQUISITIONS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS (Continued) notes payable related to the real estate of $2.7 million. The basis in the real estate and options contributed less the debt assumed is a reduction in additional paid-in capital ($2.0 million). (B) Reflects the purchase of AMSI, consisting of 3,626,000 shares of Common Stock valued at $0.16 per share (a total of $580,160) based on an independent valuation of Accent on July 9, 1999, and acquisition expenses of $172,500 for a total estimated purchase price of $752,660, resulting in an excess purchase price over the fair value of assets and liabilities acquired of $1,237,487. In conjunction with the transaction, deal costs of $160,000 that had been capitalized by AMSI in other assets were written off and the former shareholders of AMSI have assumed the notes payable of AMSI ($400,915). The Company is also indemnified, by the former shareholders of AMSI, against any accounts payable or other liabilities assumed by the Company that were recorded or arise in the future that relate to periods prior to the date of acquisition. The former shareholders have pledged 1,450,000 shares of Common Stock against the indemnity. The pledged Common Stock valued at $0.16 per share (a total of $232,000) has been recorded by the Company as Redeemable Common Stock as it is redeemable by Accent for conditions which are not solely within the control of Accent. The amount due under the indemnity at June 30, 1999 ($257,423) has been recorded as a reduction of Redeemable Common Stock. The assignment of fair values to assets acquired and liabilities assumed for AMSI is preliminary and subject to revision based on final determination of the fair values of assets and liabilities acquired. (C) Reflects the purchase of two options to acquire real estate, for 500,000 shares of Common Stock valued at $0.16 per share (a total of $80,000) based on an independent valuation of Accent on July 9, 1999. (D) Reflects the issuance of 600,000 shares of Common Stock valued at $0.16 per share (a total of $96,000) based on an independent valuation of Accent on July 9, 1999. The Common Stock was issued to consultants in exchange for services provided and is recorded as consulting expense of the combined group upon the formation of Accent. The Common Stock has been recorded as Redeemable Common Stock as it is redeemable by Accent for conditions which are not solely within the control of Accent. NOTE 4-UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT ADJUSTMENTS The following proforma adjustments are not adjusted for their income tax effect as none of the entities had profitable operations during these periods. At June 30, 1999, AMSI had NOL carryforwards of approximately $551,000. (A) Reflects the Pro Forma Condensed Combined Income Statement of Accent following its acquisition of AMSI. (B) Reflects the elimination of merger related expenses that were included in Lahaina's income statement. (C) Reflects the increase in compensation expense related to the terms of the new consulting agreements with former employees of Lahaina. (D) Reflects the amortization of goodwill to be recorded as a result of the acquisition of AMSI and Lahaina by Accent over a 15-year estimated life. The amortization is based on the preliminary assignment of fair values of assets acquired and liabilities assumed and is subject to revision based on final determination of the fair values of assets acquired and liabilities assumed. (E) Reflects the decrease in interest expense as a result of the conversion of the convertible notes into shares of common stock. (F) Reflects the increase in property tax expense associated with the undeveloped real estate contributed to Accent by its majority shareholder. (G) Reflects the increase in interest expense associated with long-term debt assumed by Accent that encumbers undeveloped real estate contributed to Accent by its majority shareholder net of a decrease in interest expense for AMSI loans assumed or forgiven by former AMSI Shareholders. Also reflects the decrease in interest expense following the conversion of the convertible notes to Common Stock. NOTE 5-NET LOSS PER SHARE The proforma net loss per share for the nine months ended June 30, 1999 and the year ended September 30, 1998 was $.09 and $.11, respectively. The number of shares used in computing basic and diluted net loss per share (18,067,500) is based on the outstanding shares of Lahaina before the merger (2,966,343) and the shares issued in conjunction with the Accent Merger (13,251,000) and (1,850,157) shares issued from the assumed conversion of the convertible notes and exercise of the warrants and assumes the transactions occurred on January 1, 1998. F-7 41 To the Board of Directors Lahaina Acquisitions, Inc. Alpharetta, GA INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheet of BEACHSIDE COMMONS I, INC. (currently known as LAHAINA ACQUISITIONS, INC.) as of December 7, 1998, and the related statements of operations, changes in stockholder's equity, and cash flows for the period from inception, September 25, 1998, to December 7, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BEACHSIDE COMMONS I, INC. (currently known as LAHAINA ACQUISITIONS, INC.) as of December 7, 1998, and the results of its operations and its cash flows for the period then ended, in conformity with generally accepted accounting principles. /s/ KENNETH R. WALTERS, P.A. - ------------------------ Fernandina Beach, FL October 14, 1999 F-8 42 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) BALANCE SHEETS
June 30, 1999 December 7, (unaudited) 1998 ----------- ----------- ASSETS Current Assets Cash $ 60,261 $ - Accounts receivable - 17,281 Prepaid Expenses 10,000 - Escrow Funds 31,000 30,000 ----------- ---------- Total Current Assets 101,261 47,281 Fixed Assets Land 400,000 400,000 Building 2,434,289 2,403,623 Equipment 150,279 143,738 Accumulated Depreciation (82,769) (24,389) ----------- ---------- Total Fixed Assets 2,901,799 2,922,972 Other assets Offering costs and reserve 139,251 -- Notes receivable 62,000 -- ----------- ---------- Total other assets 201,251 -- ----------- ---------- TOTAL ASSETS $3,204,311 $2,970,253 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current Liabilities Accounts Payable $ 540,294 $ 4,250 Security Deposits Payable 9,000 9,000 ---------- ---------- Total Current Liabilities 549,294 13,250 ---------- ---------- Long-term Debt Notes Payable 2,325,000 1,730,000 ---------- ---------- Total Long-term Debt 2,325,000 1,730,000 ---------- ---------- TOTAL LIABILITIES 2,874,294 1,743,250 STOCKHOLDERS' EQUITY Common stock, no par value, 800,000,000 shares authorized, 2,493,833 and 500 shares issued and outstanding at June 30, 1999 and December 7, 1998, respectively - - Preferred Series A Convertible Stock, 10,000,000 shares authorized, 1,910,000 and none shares issued and outstanding at June 30, 1999 and December 7, 1998, respectively - - Additional Paid-In Capital 1,093,171 1,247,569 Accumulated Deficit (763,154) (20,566) ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 330,017 1,227,003 ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,204,311 $2,970,253 ========== ==========
The accompanying notes are an integral part of these financial statements. F-9 43 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) STATEMENTS OF OPERATIONS
For the Period Nine months ended from September 25, 1998 June 30, 1999 (date of inception) (unaudited) to December 7, 1998 ------------------- ----------------------- Rent Revenue $ 143,713 $ -- --------- -------- Operating Expenses 702,221 5,278 --------- -------- Operating Loss (558,508) (5,278) Interest Expense (204,646) (15,288) --------- -------- Net Loss $(763,154) $(20,566) ========= ========
The accompanying notes are an integral part of these financial statements. F-10 44 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Preferred Series A Common Stock Convertible Stock Additional Total -------------------- --------------------- Paid-In Accumulated Stockholders' Shares Amount Shares Amount Capital Deficit Equity --------- --------- --------- --------- ---------- --------- ------------- Balance at September 25, 1998 -- $ -- -- $ -- $ -- $ -- $ -- Issuance of Common Stock 500 500 -- -- -- -- 500 Non-Cash Capital Contributions -- -- -- -- 1,247,069 -- 1,247,069 Net loss -- -- -- -- -- (20,566) (20,566) --------- ----- --------- ---- ---------- --------- ---------- Balance at December 7, 1998 500 500 -- -- 1,247,069 (20,566) 1,227,003 Adjustment for Merger -- (500) -- -- 500 -- -- --------- ----- --------- ---- ---------- --------- ---------- Balance at December 7, 1998, as adjusted 500 -- -- -- 1,247,569 (20,566) 1,227,003 Cash distribution -- -- -- -- (667,500) -- (667,500) Issuance of common and preferred stock for acquired company 2,246,000 -- 1,910,000 -- (7,065) -- (7,065) Issuance of common stock 307,333 -- -- -- 607,867 -- 607,867 Repurchase and retirement of common stock (60,000) -- -- -- (87,700) -- (87,700) Net loss -- -- -- -- -- (742,588) (742,588) --------- ----- --------- ---- ---------- --------- ---------- Balance at June 30, 1999 (unaudited) 2,493,833 $ -- 1,910,000 $ -- $1,093,171 $(763,154) $ 330,017 ========= ===== ========= ==== ========== ========= ==========
The accompanying notes are an integral part of these financial statements. F-11 45 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) STATEMENTS OF CASH FLOW
FOR THE PERIOD FROM FOR THE NINE SEPTEMBER 25, 1998 MONTHS ENDED (DATE OF INCEPTION) SEPTEMBER 30, TO DECEMBER 7, 1999 1998 (Unaudited) ----------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (763,154) $ (20,566) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 58,380 3,252 Expenses paid on behalf of the company by the majority shareholder 11,538 11,538 (Increase) decrease in: Accounts receivable (10,000) -- Prepaid expenses 18,835 1,526 Escrow funds (1,000) -- Notes payable (62,000) -- Offering costs (139,251) -- Increase in accounts payable 533,201 4,250 ---------- ---------- Net cash used in operating activities (353,451) -- ---------- ---------- CASH FLOWS USED IN INVESTING ACTIVITIES -- capital expenditures (33,955) -- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of notes payable 1,172,867 -- Proceeds from the issuance of common stock 30,000 -- Cash distribution (667,500) -- Repurchase and retirement of common stock (87,700) -- ---------- ---------- Net cash provided by financing activities 447,667 -- ---------- ---------- Net increase in cash 60,261 -- Cash at beginning of period -- -- ---------- ---------- Cash at end of period $ 60,261 -- ========== ========== Supplemental cash flow information: Cash paid during the period for interest $ 204,646 $ 15,288 ========== ========== Cash paid during the period for income taxes $ -- $ -- ========== ========== Supplemental disclosure of non-cash items Non-cash capital contributions by majority stockholder 1,247,569 1,247,569 ========== ========== Purchase of Lahaina Acquisitions, Inc. $ (7,065) $ -- ========== ========== Conversion of line of credit into common stock $ 277,500 $ -- ========== ========== Conversion of loan to majority stockholder into additional paid-in capital $ 135,367 $ -- ========== ========== Assumption of debt by majority stockholder $ 165,000 $ -- ========== ==========
The accompanying notes are an integral part of these financial statements. F-12 46 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) NOTES TO FINANCIAL STATEMENTS December 7, 1998 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY BEACHSIDE COMMONS I, INC. ("the Company"), was incorporated under the laws of the State of Florida on September 25, 1998. The Company's intent at December 7, 1998 was to operate and further develop a commercial real estate property in the resort area of Amelia Island, Florida. The commercial property owned by the Company was purchased and developed by Mongoose Investments, LLC (Mongoose) a limited liability company formed under the laws of the state of Georgia. On September 25, 1998, BEACHSIDE COMMONS I, INC. was incorporated under the laws of the State of Florida as a wholly-owned subsidiary of Mongoose. On November 13, 1998, the commercial real estate property was transferred from Mongoose to the Company. On December 14, 1998, Lahaina Acquisitions, Inc. (Lahaina) completed the acquisition of all of the outstanding stock of Beachside Commons I, Inc. from Mongoose. The acquisition was effective as of December 7, 1998. Since Lahaina, Mongoose and the Company were at that time under the common control of Richard P. Smyth, the assets were recorded at historical cost. The December 7, 1998 financial statements represent the accounts of Beachside Commons I, Inc. and are prior to the merger with Lahaina. CASH EQUIVALENTS The Company considers all short-term investments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at December 7, 1998. FISCAL YEAR The Company's fiscal year-end is September 30. PROPERTY AND EQUIPMENT/DEPRECIATION The Company depreciates buildings and equipment on the straight-line method based on their estimated useful lives which range from five to twenty years. Depreciation expenses for the period was $3,252. ACCOUNTS PAYABLE-CASH BOOK BALANCE As of December 7, 1998, the Company had checks outstanding in excess of book balances totaling $4,250, which have been classified as accounts payable. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS 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 reporting period. Actual results could differ from those estimates. COMPREHENSIVE INCOME Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, (SFAS 130), requires that total comprehensive income be reported in the financial statements. Comprehensive income is equal to the net loss for the period ended December 7, 1998. F-13 47 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) NOTES TO FINANCIAL STATEMENTS December 7, 1998 NOTE 2-ESCROW FUNDS The Company was involved in legal proceedings and $30,000 was being held in escrow at December 7, 1998. The Company is party from time-to-time in various legal proceedings. In the opinion of management, there are no matters which might have a material impact on the Company's financial position or results of operations. NOTE 3-LONG TERM DEBT 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 Strategic Investment Fund, Ltd. (1), (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. 25,000 Notes payable, others, consists of three notes, at an interest rate of 18% payable on demand, from individuals in the amounts of $85,000, $50,000, and $20,000. 155,000 ---------- $1,730,000 ==========
All long-term debt is reported at fair value. The notes payable on demand are recorded as long-term debt due to subsequent events. F-14 48 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) NOTES TO FINANCIAL STATEMENTS December 7, 1998 Maturities of long-term debt are as follows:
Year Ending December 31 Amount ----------- ------ 1999 $ -0- 2000 -0- 2001 25,000 2002 -0- 2003 1,550,000
NOTE 4-CAPITAL CONTRIBUTIONS Some expenses were paid on behalf of the Company by the stockholder. Those amounts have been recorded as additional paid-in capital. NOTE 5-RELATED PARTY TRANSACTIONS Included in Note 3-LONG-TERM DEBT are two notes payable to Nancy E. Smyth totaling $70,000. Mrs. Smyth is married to the majority stockholder of Lahaina. F-15 49 LAHAINA ACQUISITIONS, INC. (FORMERLY KNOWN AS BEACHSIDE COMMONS I, INC.) NOTES TO FINANCIAL STATEMENTS December 7, 1998 NOTE 8 - SUBSEQUENT EVENTS On December 14, 1998, the Company was acquired by Lahaina Acquisitions, Inc. ("Lahaina"). Lahaina issued 1,250,000 shares of common stock and 1,910,000 shares of preferred stock and paid $667,500 for the Company. The acquisition was accounted for as a reverse acquisition. The Company was determined to be the accounting acquiror for financial statement purposes in accordance with Staff Accounting Bulletin No. 97. The assets and liabilities of Lahaina were recorded at its historical cost basis as it was a shell company at December 7, 1998. On August 23, 1999 Lahaina completed its merger with The Accent Group, Inc. ("Accent") the merger was accounted for as a reverse acquisition with Accent being the accounting acquiror in accordance with Staff Accounting Bulletin No. 97 (SAB 97). Lahaina issued 13,251,000 Shares of common stock to shareholders of Accent in exchange for all of the outstanding common stock of Accent. F-16 50 Notes to Consolidated Financial Statements of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons I, Inc.) for the Nine Months Ended June 30, 1999 (Unaudited) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES As discussed further in Note M, Lahaina Acquisitions, Inc. ("Lahaina") acquired Beachside Commons I, Inc. ("Beachside") (collectively, the "Company") on December 7, 1998. The purchase was accounted for as a reverse acquisition, whereby Beachside was determined to be the accounting acquiror in accordance with Staff Accounting Bulletin No. 97 (SAB 97). The assets and liabilities of Lahaina were recorded at the historical cost basis as it was a shell company at December 7, 1998. This summary of significant accounting policies is presented to assist in understanding the Company's financial statements. The financial statements and notes are representations of the Company'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. All adjustments have been made that, in the opinion of management, are necessary for a fair statement of the results of the interim period. Other than the acquisition of Beachside Commons I, Inc. ("Beachside") described in Note O, all adjustments made have been of a normal and recurring nature. 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 "Company") is engaged in real estate development and property management. The Company's fiscal year ends September 30. 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 the Registrant and its wholly owned subsidiary, Beachside. All significant intercompany accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company 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 - ACCOUNTS RECEIVABLE Accounts receivable includes a $10,000 advance against accrued salary to a director. NOTE C - NOTES RECEIVABLE Notes receivable were reduced from the prior period as a result of the purchase of a note due from a customer, whose balance was $87,700 at March 31, 1999 and approximately $200,000 at June 30, 1999 which was purchased from the Company through the Redemption of 60,000 shares of the Registrant's Common Stock. The purchaser was Mongoose Investments, LLC. ("Mongoose"), the largest shareholder of the Company. The managing member of Mongoose is Richard P. Smyth, who is also the Company's Chairman and CEO. The purchase of the notes was part of the sale of the assets of JP Concepts, Inc. ("JP Concepts") a restaurant operation located at Beachside Commons, which was purchased by the Registrant on April 1, 1999, through the issuance of 20,000 shares of Common Stock and a note payable from the Registrant of $10,000. The operation was not deemed to be important to the Registrant based on the Registrant's pending merger with The Accent Group, Inc. ("Accent"), was not profitable, and was not expected to achieve profitability in the near term. Included in the amounts owed to the Company by JP Concepts were amounts due for rent at Beachside Commons through September 1999. Mongoose has agreed to assume all responsibilities of the existing lease between JP Concepts and Beachside. The Board of Directors of the Company has deemed this transaction to be more favorable to the Company than any other third party transaction which it may have considered with regard to the disposition of the JP Concepts assets. F-17 51 Notes to Consolidated Financial Statements of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons I, Inc.) for the Nine Months Ended June 30, 1999 (Continued) Other Notes Receivable are detailed below: An operating loan to 1st Southern Mortgage ("1st Southern"), secured by security interest in outstanding stock, due through December 31, 1999, bearing interest at 10% per annum. $62,000
NOTE D - OFFERING COSTS - RESERVE Offering costs reserve consists of costs incurred in preparation of the S-1 Registration Statement filing in the amount of $139,251. Upon completion of the S-1 Registration Statement, these costs will be charged against the equity accounts. If the S-1 Registration Statement is abandoned, these costs will be expensed as administrative costs. Management expects the shares involved in the S-1 Registration Statement to be issued during the Company's fiscal fourth quarter, at which time this reserve would be eliminated. NOTE E - MERGER COSTS Expenses charged against earnings during this quarter include costs associated with the planned merger with Accent, include legal, travel and consulting costs related to the transaction in the amount of approximately $150,000. NOTE F - NOTES PAYABLE - CONVERSION OF LINE OF CREDIT During the period the Company converted its working capital loan from GCA Strategic Investment Fund Limited into shares of the Company's Common Stock. The Company issued 146,667 shares in consideration of an outstanding balance of approximately $300,000 or $2.05 per share, including accrued interest and fees. NOTE G - NOTES PAYABLE - REDUCTION BY SHAREHOLDER As of June 30, 1999, for no additional consideration, the Company's largest shareholder has agreed to assume three notes payable, whose balance at June 30, 1999 was approximately $165,000, including principal and accrued interest. Further, the Company's largest shareholder has waived the obligations of the Company to repay its line of credit with the Company whose balance at June 30, 1999 was approximately $135,000. These transactions resulted in a reduction of liabilities of approximately $300,000. NOTE H - LONG-TERM DEBT Long-term debt at June 30, 1999, 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
F-18 52 Notes to Consolidated Financial Statements of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons I, Inc.) for the Nine Months Ended June 30, 1999 (Continued) Note payable to GCA Strategic Investment Fund, Ltd.(1), dated December 4, 1998 (secured by a second mortgage on the Beachside Commons property), and a $25,000 note payable to GCA Strategic Investment Fund, Ltd. dated November 4, 1998, both at an interest rate of 9%, maturing January 31, 2001 with interest payable quarterly in arrears on the last day of March, June, $ 775,000 September and December of each year until the maturity date. See Note M - Significant Events ---------- $2,325,000 ==========
(1) These notes include certain provisions, including issuance of warrants and conversion to common stock. Maturities of long-term debt are as follows:
Year Ending June 30 Amount ----------- ------ 1999 -0- 2000 -0- 2001 775,000 2002 -0- 2003 1,550,000
NOTE H - STOCKHOLDERS' EQUITY The components of stockholders' equity are as follows: F-19 53 Notes to Consolidated Financial Statements of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons I, Inc.) for the Nine Months Ended June 30, 1999 (Continued) 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 June 30, 1999. This stock may be converted into Common Stock of the Company 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 2,493,833 shares issued and outstanding at June 30, 1999. NOTE I - RELATED PARTY TRANSACTIONS Included in current debt is a loan from the Company to 1st Southern for $62,000. The Company has an option to acquire. 1st Southern, which is currently owned by the son of the Company's Vice Chairman. The Vice Chairman of 1st Southern is a director of the Company. Should the acquisition be completed, the total consideration given would be the outstanding amount of this loan. During the quarter the Company acquired, then disposed of, the assets of JP Concepts, a restaurant operation and tenant in the Company's Beachside Commons project. The assets were sold to the Company's largest shareholder, Mongoose. See Note "C". JP Concepts was responsible for approximately 50% of the Company's revenues during this quarter. NOTE J - INCOME TAXES The Company has net operating loss carry-forwards of approximately $316,000 which are available to offset future taxable income. The loss carry-forwards expire $8,000 in 2016, $46,000 in 2017, $53,000 in 2018 and $209,000 in 2019. A valuation has been established in the full amount of the deferred tax benefit resulting from the net operating loss carry-forwards for each of the periods ending June 30, 1999. F-20 54 Notes to Consolidated Financial Statements of Lahaina Acquisitions, Inc. (formerly known as Beachside Commons I, Inc.) for the Nine Months Ended June 30, 1999 (Continued) NOTE K - LEGAL PROCEEDINGS The Company is party from time to time to various legal proceedings. In the opinion of management, there are no matters which might have a material impact on the Company's financial position or results of operations. NOTE L - 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 M - SIGNIFICANT EVENTS As a result of the Company's merger on December 14, 1998 the Company became a holding company with an operating subsidiary. Acquisition Transaction On December 14, 1998, the Company 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 Company 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 Original 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 Company, for $300,000. As a result of the above transactions, a change in the control of the Company occurred in that Mongoose owns 1,715,000 shares of the 2,493,833 shares of Common Stock outstanding on June 30, 1999 or approximately 70% 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 convertible debenture and the exercise of the warrants will result in an additional 1,200,000 to 2,100,000 shares of Common Stock being issued. According to current estimates, the convertible debenture as amended will convert into 885,714 shares of Common Stock. The warrant attached to the line of credit is exercisable for 200,000 shares of Common Stock, the warrant issued December 4, 1998 is exercisable for 60,000 shares of Common Stock, the warrant attached to the convertible debenture is exercisable for 15,000 shares of Common Stock and the Right is exercisable for 25,000 shares of Common Stock. Thus, after conversion of all convertible securities, it is likely that Mongoose will remain in the control of the Company 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 F-21 55 Notes to Consolidated Financial Statements of Lahaina Acquisitions, Inc. (a Development Stage Company) for the Nine Months Ended June 30, 1999 (Continued) 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 Company 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. 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. The Company has received additional operating loans from GCA Strategic Investment Fund, Ltd. in the form of three ninety-day convertible notes that total $300,000. The notes include up-front charges totaling $48,000. The charges expensed during the nine months ended June 30, 1999 totaled $52,500, including discounted amounts. On June 1, 1999 the Company converted this Note into 146,667 shares of Common Stock. (See Note F.) Acquisitions and Dispositions During the Period As of March 31, 1999, the Registrant had agreements for the acquisition of three companies: Klein Real Estate Services ("KRES"), JP Concepts and 1st Southern. On June 30, 1999, and in other subsequent press releases the Company has announced its plans to merge with Accent, an Atlanta, GA based Real Estate and Mortgage Financing concern. On July 21, 1999, the Company announced it had entered into a definitive Merger Agreement, subject to final board approval. The merger became final on August 23, 1999. The assets of JP Concepts were acquired on April 1, 1999 for the consideration of 20,000 shares of the Registrant's Common Stock and a note payable to JP Concept's shareholder in the amount of $10,000. On June 30, 1999, the same assets, including accrued rent due to the Registrant, were sold to Mongoose for the contribution of 60,000 shares of the Company's Common Stock. The assets of KRES were acquired on April 1, 1999 for the consideration of 20,000 shares of the Registrant's Common Stock and a note payable to the manager of KRES in the amount of $10,000. On June 30, 1999, based on a change of direction in the Registrant the Registrant's entered into an agreement with the former owner of KRES to terminate the transaction. The consideration given included the payment of $30,000, and reimbursement of normal expenses of approximately $5,000 and salaries due as of June 30, 1999. F-22 56 INDEPENDENT AUDITORS' REPORT To the Board of Directors The Accent Group, Inc. We have audited the accompanying consolidated balance sheet of The Accent Group, Inc. and subsidiaries (the "Company") as of July 9, 1999. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. In our opinion, such balance sheet presents fairly, in all material respects, the consolidated financial position of the Company at July 9, 1999 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Atlanta, Georgia September 13, 1999, except for note 9 which is as of September 21, 1999 F-23 57 THE ACCENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JULY 9, 1999 ASSETS: Cash and cash equivalents $ 296,255 Restricted certificates of deposit 125,435 Loans receivable 531,692 Mortgage loans held for sale, net -- Real estate held for development 700,000 Foreclosed real estate 593,960 Options to acquire real estate 80,000 Due from related parties and stockholders 100,000 Goodwill 1,171,651 Other assets 190,689 ----------- Total assets $ 3,789,682 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT LIABILITIES: Notes payable $ 2,103,943 Due to related parties and stockholders 886,057 Note payable-warehouse line 1,132,442 Note payable-stage funding line 528,891 Accrued interest payable 130,362 Accounts payable and accrued expenses 630,250 ----------- Total liabilities 5,411,945 ----------- REDEEMABLE STOCK: Common stock, no par value; 3,250,000 shares issued and outstanding entitled to redemption under certain circumstances 70,577 ----------- STOCKHOLDERS' DEFICIT: Common stock (no par value; 100,000,000 shares authorized, 10,001,000 shares issued and outstanding) -- Additional paid-in capital (1,571,840) Accumulated deficit (121,000) ----------- Total stockholders' deficit (1,692,840) ----------- Total liabilities and stockholders' deficit $ 3,789,682 ===========
See notes to Consolidated Balance Sheet F-24 58 THE ACCENT GROUP, INC AND SUBSIDIARIES NOTES TO CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 1. FORMATION The Accent Group, Inc. (the "Company") was formed on July 9, 1999 through a series of transactions (the "Formation Transactions") as follows: - The majority stockholder and his family contributed land and options to acquire land to the Company and the Company assumed $2,700,000 in related notes payable in exchange for 8,525,000 shares of common stock. Due to common ownership and control, the contributed land and options were recorded by the Company at the majority stockholder and his family's cost basis ($700,000). Of the shares issued to the majority stockholder, 1,200,000 shares are contingent upon the majority stockholder delivering options to acquire three family entertainment centers located in Roswell, Georgia, Cocoa Beach, Florida and Pensacola, Florida (collectively the "Family Facilities"). In the event the majority stockholder fails to make available for acquisition by the Company any one or more of the Family Facilities for a total consideration (including the assumption of all debts) not in excess of $1 million by July 9, 2000, the majority stockholder will forfeit and convey to the Company, (i) 60% of the contingent shares in the event the Roswell facility is not made available for acquisition, (ii) 35% of the contingent shares in the event the Cocoa Beach facility is not made available for acquisition, (iii) 5% of the contingent shares in the event the Pensacola facility is not made available for acquisition. If the majority stockholder makes any one or more of the Family Facilities available for acquisition for a cost in excess of $1 million and fails to contribute to the capital of the Company cash or other consideration equal to the amount of such excess, then the majority stockholder shall forfeit and convey to the Company a fraction of the 1,200,000 shares calculated as the consideration paid in excess of $1 million divided by $1 million. The 1,200,000 shares of common stock has been recorded as redeemable common stock as it is redeemable by the Company for conditions outlined above, which are not solely within the control of the Company. F-25 59 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) - The Company acquired Accent Mortgage Services, Inc. ("AMSI") for 3,626,000 shares of its common stock, plus the assumption of certain outstanding debt and other liabilities. The stock was valued at $580,160 or $0.16 per share based on an independent appraisal of the Company's stock at the date of formation. For the purposes of securing certain of the AMSI shareholders' performance under the obligations imposed under the purchase agreement, certain of the AMSI shareholders' have pledged 1,450,000 shares of the Company's common stock. The 1,450,000 shares of common stock has been recorded as redeemable common stock as it is redeemable by the Company for conditions which are not solely within the control of the Company. If AMSI either (i) during the one year period ending July 9, 2000 fails to produce $500,000 or more of total pre-tax income including an allocation of the Company's overhead or (ii) during the two year period ending July 9, 2001, fails to produce $1.5 million or more of total pre-tax income including an allocation of the Company's overhead, then certain of the AMSI shareholders shall forfeit 500,000 of the 1,450,000 shares. The remaining 950,000 pledged shares are pledged to secure obligations against an indemnity provided to the Company by certain of the AMSI shareholders. These shares will remain pledged until the Company is satisfied that all obligations of certain of the AMSI shareholders have been fully satisfied. At July 9, 1999, the former AMSI shareholders owed the Company $257,423 under the indemnity, which has been recorded as a reduction of the redeemable common stock. In addition, such shareholders assumed from AMSI the obligation to repay certain notes payable to banks in the amount of $247,821 such notes continue to be collateralized by $125,435 of certificates of deposit owned by AMSI. The assignment of fair values to assets acquired and liabilities assumed for AMSI is preliminary and subject to revision based on the resolution of certain pre-acquisition contingencies. The Company applied the purchase method of accounting to this acquisition and "pushed down" its basis in the acquired assets and liabilities to AMSI. The net purchase price allocated consisted of common stock valued at $580,160 and professional costs associated with the acquisition of $172,500, net of $257,423 due under the indemnity from the former AMSI Shareholders. Values assigned to the assets and liabilities of AMSI is as follows: Cash and cash equivalents $ 246,255 Certificates of deposit 125,435 Loans receivable 531,692
F-26 60 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) Foreclosed real estate 593,960 Goodwill 1,171,651 Other assets 33,666 Due to related parties and stockholders, net (135,477) Note payable-warehouse line (1,132,442) Note payable-stage funding line (528,891) Other liabilities (410,612) ----------- $ 495,237 ===========
- The Company acquired an option to purchase certain real estate located in Tennessee for 100,000 shares of common stock. The Company recorded the option at $16,000 or $0.16 per share based on an independent appraisal of the fair value of the Company's stock at the date of formation. In the event the Company does not exercise the option to acquire real estate, the shares will be returned to the Company. - The Company acquired an option to purchase certain real estate located in Atlanta, Georgia for 400,000 shares of common stock. The Company recorded the option at $64,000 or $0.16 per share based on an independent appraisal of the fair value of the Company's stock at the date of formation. In the event the Company does not exercise the option to acquire real estate, the shares will be returned to the Company. - The Company issued 600,000 shares of common stock to two consulting firms that aided the Company in structuring the formation of the Company. The Company has recorded the issuance of the shares as consulting expense at $1.60 per share. If on or before July 1, 2001 either (i) the common stock of the Company is not being traded in a public market at a price-to-projected earnings (as determined by the Board of Directors) multiple of at least 15 or (ii) the Company has not received capital contributions or financings in connection with the new capital stock issuances and sales totaling more than $7.5 million ($1,015,000 being procured by the consulting firms), then the consulting firms will forfeit and convey to the Company all of its stock. The common stock F-27 61 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) has been recorded as redeemable common stock as it is redeemable by the Company for conditions which are not solely within the control of the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - The Company was formed in 1999 to acquire a mortgage brokerage company and certain tracts of land. The Company is closely held with the majority stockholder and his family controlling approximately 65% of the outstanding voting common stock at July 9, 1999. As a result of the acquisitions and contributions, the Company, through its subsidiaries, will provide mortgage brokerage services to individuals and will develop real estate for sale. Principles of Consolidation - The consolidated balance sheet of the Company includes the accounts of their respective wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Basis of presentation - The consolidated balance sheet has been prepared in conformity with generally accepted accounting principles and with general practices in the mortgage brokerage and real estate industries. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ significantly from those estimates. Cash and cash equivalents - The Company considers its highly-liquid investments with maturities of three months or less to be cash equivalents. Restricted certificate of deposit - The Company has pledged certificates of deposit to secure certain indebtedness of former AMSI shareholders. Loans receivable - The loans receivable represent short-term stage financing on manufactured housing. The purpose of the loan is to provide financing until the manufactured housing is in place and is then repaid through permanent financing. The loans are for a term of less than 90 days and are secured by the manufactured house. F-28 62 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) Mortgage loans held for sale - Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized through a valuation allowance by charges to income. Concentration and credit risk - The Company is subject to concentration of credit risk with respect to the portfolio of mortgages receivable as changes in the economic environment might adversely impact the borrowers ability or willingness to repay such mortgages. Additionally, the value of such mortgages can be impacted by fluctuations in interest rates and the credit markets. Valuation of real estate - The Company has adopted Statement of Financial Accounting Standard No. 121 ("SFAS No. 121"), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Foreclosed real estate - Foreclosed real estate is reported at the lower of cost or fair value less estimated disposal costs, determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. Goodwill - Goodwill represents the excess of the purchase price over the fair market value of the assets and liabilities of Accent Mortgage Services, Inc. which was acquired by the Company on July 9, 1999. The goodwill is amortized using the straight-line method over a period of 15 years. Income taxes - The Company has adopted the provisions of SFAS 109, "Accounting for Income Taxes", which requires the use of the asset and liability approach in accounting for income taxes. Fair value of financial instruments - The provisions of Statement of Financial Accounting Standards ("SFAS") 107 Disclosure About Fair Value of Financial Instruments, require the disclosure of fair value information about both on and off balance sheet financial instruments where it is practicable to estimate such values of its financial instruments. For certain instruments that are short-term in nature, such as cash and cash equivalents, carrying values approximate fair value. Loans receivable are recently executed and short-term in nature, therefore carrying values approximate fair value. Management has estimated that the fair value for the loans issued under notes payable (see Note 5) and the warehouse line and loan agreement (see Note 5) approximates carrying value. F-29 63 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) 3. MORTGAGE LOANS HELD FOR SALE Mortgage loans held for sale at July 9, 1999 consist of a pool of non-performing loans that were purchased by AMSI in July and August 1998 from SGE Mortgage Funding Corp. ("SGE"). Many of the loans that were acquired were also sold by SGE to other institutions, thereby, putting the ownership of the loans in question. Management believes that the collection of these amounts is unlikely and therefore a valuation allowance of $845,591, representing AMSI's investment, has been recorded against these loans. 4. STOCK OPTIONS The Company has adopted the 1999 Stock Option Plan which is open to participation of all directors, employees and key consultants to the Company or any subsidiary or affiliate of the Company. Under the terms of the plan, not more than 200,000 shares of Accent are available to be optioned and not more than 20,000 shares of Accent may be subject to options granted to any one individual in the aggregate in any one fiscal year of Accent. Options are granted at not less than fair market value of the underlying stock at date of grant and vest ratably over a three year period. Such options expire five years from date of grant. Compensation expense will be recorded for grants to non-employees, directors and consultants. Employee stock options will be accounted for under APB 25 using the intrinsic value method. No compensation expense will be recorded for employee options. Options for 40,000 shares have been granted on July 9, 1999 at a price of $3.40 per share. Such price was determined to be fair market value at the date of the Company's merger with Lahaina as described in Note 9. No options were exercisable on July 9, 1999. Had the Company adopted FAS 123, "Accounting for Stock-Based Compensation" and recognized stock options on a fair value basis, such options would have no significant value using the minimum value methodology in the Black-Scholes model. 5. NOTES PAYABLE The Company has the following notes payable at July 9, 1999: Note payable to a bank secured by certain parcels of the land held for development. The note bears interest 8.25% and is payable quarterly. The principal balance is due in full on March 23, 2000. $ 992,500 Note payable to a bank secured by certain parcels of the land held for development. The note bears interest at a rate 75 basis points above the lender's prime rate (8.75% at July 9, 1999) and is payable quarterly. The principal balance is due in full on March 1, 2000. 255,000 Note payable to a bank secured by certain parcels of the land held for development. The note bears interest 8.25% and is payable quarterly. The principal balance is due in full on March 30, 2002. 456,443
F-30 64 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) Note payable to an investment bank secured by certain parcels of the land held for development. The note bears interest 8.25% and is payable quarterly. The principal balance is due in full on June 1, 2000. 400,000 ----------- Total notes payable $ 2,103,943 =========== Note payable to a related party secured by certain parcels of the land held for development. The note bears interest 8.25% and is payable quarterly. The principal balance is due in full on July 1, 2000. $ 596,057 Unsecured note payable to the majority stockholder. The note has no stated interest rate and is due by July 31, 1999. 40,000 Unsecured note payable to a related party. The note bears Interest at a rate of 10% and is due on November 6, 1999 250,000 ----------- Due to related parties and stockholders $ 886,057 ===========
Scheduled maturities on notes payable and due to related parties and stockholders as of July 9, 1999 are as follows:
Calendar Year: 1999 $ 290,000 2000 2,243,557 2001 -- 2002 456,443 ----------- $ 2,990,000 ===========
At July 9, 1999, the Company had $1,132,442 outstanding under a $2,000,000 warehouse line. The warehouse line bears interest at a rate equal to 11.75% and is payable monthly. The warehouse line is secured by the underlying mortgages originated using proceeds from draws on the warehouse line and foreclosed real estate. The warehouse line was suspended as of July 9, 1999 due to violation of certain debt covenants and failure to repurchase or otherwise remove aged loans pursuant to the line of credit agreement. The F-31 65 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (CONTINUED) Company intends to cure the default by liquidating certain assets to repay the line of credit. On January 15, 1999, AMSI entered into a revolving Loan Agreement (the "Agreement") with Accent Partners I, L.L.L.P. (a related party) for the purpose of making short term loans to consumers for the purpose of financing the purchase of real property, installation of improvements and the purchase of a manufactured home as part of an "on-your-lot" program for the acquisition of manufactured homes. The revolving loan is repaid as permanent financing is obtained. At July 9, 1999 outstanding loans totaled $528,891. In addition AMSI pays a loan fee equal to 1.25% of each borrowing made under this Agreement at the time of such borrowing. Interest accrues on the unpaid principal amount of loans outstanding at a rate per annum which is 1% above the Prime Rate (8% at July 9, 1999). 6. REDEEMABLE COMMON STOCK The Company has issued common stock during the Formation Transactions that is subject to redemption at the Company's option under certain circumstances for reasons beyond the Company's control, as described in Note 1. 7. INCOME TAXES The Company files a consolidated tax return with its subsidiaries and allocates income tax benefits and expenses based upon the income or loss of each company computed on a stand-alone basis. Temporary differences that give rise to deferred tax assets and liabilities at July 9, 1999 consist of net operating loss carry forwards, expense accruals, the allowance for loan losses and the use of accelerated depreciation methods. Net deferred taxes at July 9, 1999 was a deferred tax asset of $745,000 which was offset by a valuation allowance as the Company has not demonstrated the sustained profitability necessary to record such asset. 8. COMMITMENTS AND CONTINGENCIES In July and August 1998, AMSI acquired from SGE Mortgage Funding Corp. and related entities notes secured primarily by first security interests in residences. The selling entity (SGE) has been placed in receivership by Order of the Superior Court of Tift County, Georgia. The receiver is charged with the responsibility of settling competing claims, if any, to loans made and sold by SGE. Many of the loans acquired by the Company from SGE were later sold to Matrix Bank for a total purchase price of $623,032. Matrix Bank contends some of the loans are subject to competing claims or are non-performing assets, and has demanded that the Company reacquire these loans. The Company is negotiating with Matrix to resolve these issues, however, the ultimate resolution is unknown at this time. The Company has not provided for any loss which may result from the Matrix transaction. At July 9, 1999, AMSI was not in compliance with Department of Housing and Urban Development (HUD) net worth requirements. The Company is taking corrective action; however, the ultimate resolution of the matter and the effects it may have on the Company's operations are not known. The Company is also subject to various litigation in the ordinary course of business. In the opinion of management, resolution of such matters F-32 66 THE ACCENT GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED BALANCE SHEET AS OF JULY 9, 1999 (Continued) will not have a significant effect on the financial position of the Company. 9. SUBSEQUENT EVENTS On July 21, 1999, the Company entered into an Agreement and Plan of Merger with Lahaina Acquisitions, Inc. ("Lahaina") whereby all shareholders of the Company would receive 10 shares of common stock of Lahaina in exchange for each share of the Company's common stock. The shares outstanding and related amounts have been adjusted to show the 10 for 1 exchange. On August 23, 1999, the Company completed the merger with Lahaina. The merger was accounted for as a reverse acquisition as the Company's shareholders obtained a majority interest in Lahaina and the Company's management team replaced Lahaina's management team. On September 21, 1999, the Company contributed to AMSI, its subsidiary, a subsidiary of Lahaina, a sister company, which owned an investment real estate property on Amelia Island, Florida. Such transfer was made to cure the deficit in net worth at AMSI and achieve compliance under the HUD net worth regulations for mortgage companies. F-33 67 INDEPENDENT AUDITORS' REPORT To the Stockholder and Board of Directors of Accent Mortgage Services, Inc. We have audited the accompanying balance sheet of Accent Mortgage Services, Inc. as of June 30, 1999 and the related statements of operations, stockholder's equity (deficit) and cash flows for the six months then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Accent Mortgage Services, Inc. as of June 30, 1999 and the results of its operations and its cash flows for the six months then ended in conformity with generally accepted accounting principles. HOLLAND SHIPES VANN, P.C. Atlanta, Georgia September 9, 1999, except for Note 12 as to which the date is September 21, 1999 F-34 68 ACCENT MORTGAGE SERVICES, INC. BALANCE SHEET
- ----------------------------------------------------------------------------- JUNE 30, 1999 - ----------------------------------------------------------------------------- ASSETS Mortgage portfolio, net $ 1,030,842 Restricted certificates of deposit 125,435 Cash and cash equivalents 81,255 Accrued interest receivable 12,634 Property and equipment, less accumulated depreciation 32,166 Foreclosed real estate 593,960 Due from related company 189,523 Other assets 1,500 - ----------------------------------------------------------------------------- $ 2,067,315 ============================================================================= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) LIABILITIES Lines of credit $ 1,632,342 Notes payable 776,713 Due to stockholders 153,094 Accrued interest payable 208,080 Other liabilities 280,251 - ----------------------------------------------------------------------------- 3,050,480 - ----------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES - ----------------------------------------------------------------------------- STOCKHOLDER'S EQUITY (DEFICIT) Common stock, no par value, 1,000,000 shares authorized; 400,000 shares issued and outstanding 60,000 Additional paid-in capital 624,595 Accumulated (deficit) (1,667,760) - ----------------------------------------------------------------------------- (983,165) - ----------------------------------------------------------------------------- $ 2,067,315 =============================================================================
See accompanying notes to financial statements. F-35 69 ACCENT MORTGAGE SERVICES, INC. STATEMENT OF OPERATIONS
Unaudited - ----------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, 1999 1998 - ----------------------------------------------------------------------------- REVENUES Brokerage services $ 560,097 $1,429,869 Interest income 9,188 45,369 - ----------------------------------------------------------------------------- 569,285 1,475,238 - ----------------------------------------------------------------------------- OTHER EXPENSES Brokerage services expense 323,222 798,351 Interest expense 30,986 110,502 Provision for losses 50,000 -- Administrative and general 386,878 723,183 Loss on disposal of property and equipment 167,645 -- - ----------------------------------------------------------------------------- 958,731 1,632,036 - ----------------------------------------------------------------------------- NET LOSS $ (389,446) $ (156,798) =============================================================================
See accompanying notes to financial statements. F-36 70 ACCENT MORTGAGE SERVICES, INC. STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
- ------------------------------------------------------------------------------------------------------------ Additional Total Common Paid-in Accumulated Stockholder's Stock Capital (Deficit) Equity (Deficit) - ------------------------------------------------------------------------------------------------------------ BALANCE, December 31, 1998 $ 60,000 $ 124,595 $(1,278,314) $(1,093,719) Net loss for the six months ended June 30, 1999 (389,446) (389,446) Capital contribution 500,000 500,000 - --------------------------------------------------------------------------------------------------------- BALANCE, June 30, 1999 $ 60,000 $ 624,595 $(1,667,760) $ (983,165) =========================================================================================================
See accompanying notes to financial statements. F-37 71 ACCENT MORTGAGE SERVICES, INC. STATEMENT OF CASH FLOWS
Unaudited - ------------------------------------------------------------------------------------------------ SIX MONTHS ENDED JUNE 30, 1999 1998 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (389,446) $ (156,798) - ------------------------------------------------------------------------------------------------ Adjustments to reconcile net loss to net cash used in operating activities:- Depreciation 16,568 18,514 Gain on sale of investments -- (31,218) Loss on disposal of property and equipment 167,645 -- Changes in assets and liabilities: Accrued interest receivable 47,959 (5,908) Other assets (1,500) 73,548 Accrued interest payable (34,835) -- Other liabilities 35,135 -- - ------------------------------------------------------------------------------------------------ 230,972 54,936 - ------------------------------------------------------------------------------------------------ NET CASH USED IN OPERATING ACTIVITIES (158,474) (101,862) - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM INVESTING ACTIVITIES Advances to related company (189,523) -- Proceeds from sale of mortgages 2,199,119 33,302 Proceeds from sale of investments -- 185,175 Purchase of certificates of deposit (2,354) -- Proceeds from sale of equipment 13,500 -- - ------------------------------------------------------------------------------------------------ NET CASH PROVIDED BY INVESTING ACTIVITIES 2,020,742 218,477 - ------------------------------------------------------------------------------------------------ CASH FLOWS FROM FINANCING ACTIVITIES Capital contribution 500,000 -- Loans from stockholders 2,794 15,304 Decrease in lines of credit (2,855,222) (9,489) Proceeds from notes payable 528,891 -- Principal payments on notes payable (23,526) (138,749) - ------------------------------------------------------------------------------------------------ NET CASH USED IN FINANCING ACTIVITIES (1,847,063) (132,934) - ------------------------------------------------------------------------------------------------ NET INCREASE IN CASH 15,205 (16,319) CASH AND CASH EQUIVALENTS, beginning of period 66,050 23,156 - ------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS, end of period $ 81,255 $ 6,837 ================================================================================================
See accompanying notes to financial statements. F-38 72 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 1. ORGANIZATION Accent Mortgage Services, Inc. (AMSI) was AND SUMMARY OF incorporated in the State of Georgia on August 21, SIGNIFICANT 1991. The Company engages in residential and ACCOUNTING commercial brokerage services and in the purchase POLICIES and sale of mortgages. The Company provides these services primarily to residential mortgage customers in the Southeastern United States. In 1999, the Company expanded its services to include net branch brokerage services, which allows outside agents to broker loans utilizing the Company's licenses, and provide short-term stage financing for modular home purchasers. At June 30, 1999, the Company was a wholly-owned subsidiary of Accent Holdings, Inc. Effective July 9, 1999, Accent Holdings, Inc. exchanged 400,000 shares of Accent Mortgage Services, Inc. for 362,000 shares of common stock of The Accent Group, Inc., thereby making AMSI a wholly-owned subsidiary of The Accent Group. The Accent Group, Inc. then entered into a reverse merger with Lahaina Acquisitions, Inc. In connection with the merger, shareholders of The Accent Group received 86% of the common stock of Lahaina. The Accent Group, Inc. is now the surviving parent of AMSI. MANAGEMENT The preparation of financial statements in conformity ESTIMATES with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MORTGAGE Mortgage loans are held for sale and are carried at PORTFOLIO the lower of cost or fair value with any unrealized losses included in current period earnings. The accrual of interest on mortgages is discontinued when the mortgages become delinquent for 90 days or more. Any accrued interest on delinquent mortgages is charged against current-period interest income. Subsequent interest income on such mortgages is recognized only to the extent that cash payments are received. F-39 73 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) ALLOWANCE FOR The allowance for losses is based on an analysis of LOSSES the mortgage portfolio. The analysis considers credit profile factors such as mortgage characteristics and actual and expected loss experience. Increases in the allowance are charged to the provision for losses. Reductions in the allowance result from charge-offs, net of recoveries. In management's judgment, the allowance is adequate to provide for expected losses. PROPERTY AND Property and equipment are recorded at cost. EQUIPMENT Depreciation is provided utilizing the straight-line method over the estimated useful lives of the individual assets, which are generally five to seven years. Depreciation expense totaled $16,568 for the six months ended June 30, 1999. CASH AND CASH The Corporation considers highly liquid investment EQUIVALENTS instruments with an original maturity of three months or less to be "cash equivalents." Cash equivalents are carried at cost, which approximates market value. CREDIT RISK Concentration of credit risk with respect to the Company's mortgages receivable exists since borrowers are susceptible to changes in economic conditions that could affect their ability to meet their obligations. Additionally, the Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. FORECLOSED Foreclosed real estate is carried at the lower of REAL ESTATE cost or estimated fair value less estimated costs to sell. F-40 74 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 2. MORTGAGE The Company's mortgage portfolio represents mortgages PORTFOLIO closed either directly from borrowers or purchased from other lenders. Mortgages receivable at June 30, 1999 consist of the following: Principal of mortgages securing lines of credit $ 1,244,279 Stage funding 531,692 Principal of other mortgages 944,828 Less: Purchase discounts (844,366) -------------------------------------------------------------------------- 1,876,433 Less: Allowance for losses (845,591) -------------------------------------------------------------------------- $ 1,030,842 ==========================================================================
F-41 75 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 3. PROPERTY AND Property and equipment at June 30, 1999 are summarized EQUIPMENT as follows: Furniture and fixtures $ 13,825 Office equipment 26,269 ------------------------------------------------------ 40,094 Less: Accumulated depreciation (7,928) ------------------------------------------------------ $ 32,166 ======================================================
4. 401(K) PROFIT Effective January 1, 1998, the Company established a SHARING PLAN 401(k) profit sharing plan covering substantially all of its employees. Effective June 30, 1999, the Plan was terminated and all eligible employees became 100% vested. The Company made contributions of $953 in 1999. F-42 76 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 5. LINES OF CREDIT Lines of credit at June 30, 1999 consist of the following: $7,000,000 warehouse line of credit, payable on demand, bearing interest at prime plus 2%, secured primarily by mortgages receivable $ 499,900 $2,000,000 warehouse line of credit, bearing interest at prime plus 2%, maturing October 1998, secured primarily by mortgages receivable and guaranteed by a principal share- holder of Accent Holdings, Inc. 1,132,442 -------------------------------------------------------------------------- $ 1,632,342 ==========================================================================
The Company is currently in default on its $2,000,000 line of credit. The loan agreement requires the Company to maintain certain net worth requirements. Additionally, the agreement requires mortgages to be removed as loan security from the line within 90 days after advances are made on the related mortgages. The Company is in violation of both of these provisions. Management is currently negotiating with the lender to cure the defaults. F-43 77 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 6. NOTES PAYABLE Notes payable at June 30, 1999 are summarized as follows: Note payable to bank in monthly principal and interest payments of $5,144 and a final balloon payment of $167,780 in August 1999. The note bears interest at 8.5% and is secured by accounts receivable, equipment and certificates of deposit totaling $125,435 $ 170,831 Note payable to bank; interest rate of 8.5%; maturing August 1999; secured by a $107,000 certificate of deposit of a shareholder's family member 75,000 Equipment note; monthly payments of $175, bearing interest at 10%, paid July, 1999 1,991 Notes payable to affiliated company, bearing interest at prime plus 1%, maturing December 2001, secured by stage funding mortgage receivables 528,891 ------------------------------------------------------------------------ $ 776,713 ========================================================================
F-44 78 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 7. INCOME TAXES The Company files a consolidated tax return with its parent, Accent Holdings, Inc., and allocates income tax benefits and expense based on the income or loss of each company. Temporary differences that give rise to significant portions of deferred tax assets and liabilities at June 30, 1999 consist of net operating loss carryforwards, expense accruals, the allowance for losses and the use of accelerated tax depreciation methods. Net deferred taxes at June 30, 1999 include the following components: Deferred tax assets $ 745,000 Valuation allowance (743,000) ------------------------------------------------------------------------- 2,000 Deferred tax liabilities (2,000) ------------------------------------------------------------------------- Net deferred taxes $ -0- =========================================================================
At June 30, 1999, the Company has net operating loss carryforwards for tax purposes of approximately $551,000, which are available to offset future taxable income through 2019. F-45 79 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 8. OPERATING LEASE The Company leases office space under a noncancelable lease classified as an operating lease. Future minimum obligations are as follows:
Year Ended June 30, ----------------------------------------------------------------------- 2000 $ 158,276 2001 161,619 2002 166,468 2003 171,407 2004 176,587 Thereafter 29,576 ----------------------------------------------------------------------- $ 863,933 =======================================================================
Rental expense totaled $30,991 at June 30, 1999 and is included in administrative and general expenses. 9. RELATED PARTY During 1999, Accent Holdings, Inc. made a capital TRANSACTIONS contribution of $500,000 to the Company. At June 30, 1999, shareholders of Accent Holdings, Inc. have made non-interest bearing advances totaling $153,094 to the Company. During June 1999, the Company made $189,523 in non-interest bearing advances to The Accent Group, Inc. In 1999, the Company borrowed $528,891 from Accent Partners, a partnership of Accent Holdings, Inc. and one of its shareholders. The funds were used to finance stage funding mortgage receivables totaling $531,692 at June 30, 1999. F-46 80 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 10. COMMITMENTS In July and August 1998, the Company purchased mortgage AND notes from SGE Mortgage Funding Corp. Subsequent to the CONTINGENCIES purchases, the Superior Court of Tift County, Georgia, placed SGE in receivership and charged the receiver with the responsibility of settling competing claims to loans made and sold by SGE. Many of the loans acquired by the Company from SGE were later sold to Matrix Bank for $623,032. Matrix Bank contends some of the loans are subject to competing claims or are nonperforming assets, and has demanded that the Company reacquire these loans. The Company is negotiating with Matrix to resolve these issues, however, the ultimate resolution is unknown at this time. The Company has not provided for losses which may result from the Matrix transaction. At June 30, 1999, the Company was not in compliance with Department of Housing and Urban Development (HUD) net worth requirements. The Company is taking corrective action; however, the ultimate resolution of the matter and the effects it may have on the Company's operations are not known. The Company is involved in several lawsuits and regulatory issues arising in the normal course of business. In the opinion of management, no material loss will result from settlement of these issues. 11. SUPPLEMENTAL The Company paid interest of $65,821 during the six CASH FLOW months ended June 30, 1999. INFORMATION F-47 81 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1999 (Continued) 12. SUBSEQUENT As mentioned in Note 1, effective July 9, 1999, EVENTS Accent Holdings, Inc. exchanged 400,000 shares of Accent Mortgage Services, Inc. for 362,000 shares of common stock of The Accent Group, Inc., thereby making AMSI a wholly-owned subsidiary of The Accent Group. The Accent Group, Inc. then entered into a reverse merger with Lahaina Acquisitions, Inc. In connection with the merger, shareholders of The Accent Group, Inc. received 86% of the common stock of Lahaina. The Accent Group, Inc. is now the surviving parent of AMSI. In order to alleviate the Company's deficit in stockholder's equity, on September 21, 1999, The Accent Group transferred a subsidiary, Beachside Commons I, Inc. into the Company. Beachside Commons I, Inc.'s principal holding is real estate. Management estimates that the net value of the Company is approximately $1,700,000. Additionally, in the merger referred to above, the Company was relieved of stockholder loans totaling approximately $153,000 at June 30, 1999. The loans were transferred to additional paid-in capital. The effect of the two transactions is to increase net worth by approximately $1,853,000 and brings the Company into compliance with the net worth requirements of both HUD and its line of credit which is in default. F-48 82 INDEPENDENT AUDITORS' REPORT To the Stockholder and Board of Directors of Accent Mortgage Services, Inc. We have audited the accompanying balance sheets of Accent Mortgage Services, Inc. as of December 31, 1998 and 1997 and the related statements of operations, stockholder's equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Accent Mortgage Services, Inc. as of December 31, 1998 and 1997 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Holland Shipes Vann, P.C. Atlanta, Georgia September 9, 1999, except for Note 13, as to which the date is September 21, 1999 F-49 83 ACCENT MORTGAGE SERVICES, INC. BALANCE SHEETS
=========== ========== December 31, 1998 1997 =========== ========== ASSETS Mortgage portfolio, net $ 3,823,921 $1,658,900 Investments, held to maturity 153,957 Restricted certificates of deposit 123,081 121,500 Cash and cash equivalents 66,050 23,156 Accrued interest receivable 60,593 25,446 Property and equipment, less accumulated depreciation 229,879 141,841 Other assets 73,548 ----------- ---------- $ 4,303,524 $2,198,348 =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) LIABILITIES Lines of credit $ 4,487,564 $1,585,964 Notes payable 271,348 355,268 Due to stockholders 150,300 35,000 Accrued interest payable 242,915 26,719 Other liabilities 245,116 81,681 ----------- ---------- 5,397,243 2,084,632 ----------- ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY (DEFICIT) Common stock, no par value, 1,000,000 shares authorized; 400,000 shares issued and outstanding 60,000 60,000 Additional paid-in capital 124,595 Retained earnings (deficit) (1,278,314) 53,716 ----------- ---------- (1,093,719) 113,716 ----------- ---------- $ 4,303,524 $2,198,348 =========== ==========
See accompanying notes to financial statements. F-50 84 ACCENT MORTGAGE SERVICES, INC. STATEMENTS OF OPERATIONS
=========== =========== Year Ended December 31, 1998 1997 =========== =========== REVENUES Brokerage services $ 2,783,098 $1,910,837 Interest and investment income 92,997 42,902 ----------- ---------- 2,876,095 1,953,739 ----------- ---------- EXPENSES Brokerage services expense 1,571,852 828,747 Interest expense 262,417 62,138 Provision for losses 853,056 Administrative and general 1,520,800 1,231,261 ----------- ---------- 4,208,125 2,122,146 ----------- ---------- NET LOSS $(1,332,030) $ (168,407) =========== ==========
See accompanying notes to financial statements. F-51 85 ACCENT MORTGAGE SERVICES, INC. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
======== =========== ========= ================ Additional Retained Total Common Paid-in Earnings Stockholder's Stock Capital (Deficit) Equity (Deficit) ======== =========== ========== ================ BALANCE, December 31, 1996 $60,000 $ 222,123 $ 282,123 1997 net loss (168,407) (168,407) ------- --------- ----------- ----------- BALANCE, December 31, 1997 60,000 53,716 113,716 1998 net loss (1,332,030) (1,332,030) Capital contribution $ 124,595 124,595 ------- --------- ----------- ----------- BALANCE, December 31, 1998 $60,000 $ 124,595 $(1,278,314) $(1,093,719) ======= ========= =========== ===========
See accompanying notes to financial statements. F-52 86 ACCENT MORTGAGE SERVICES, INC. STATEMENTS OF CASH FLOWS
=========== ============ Year Ended December 31, 1998 1997 =========== ============ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $(1,332,030) $ (168,407) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities:- Depreciation 37,028 25,936 Amortization of discount (13,898) Provision for losses 845,591 Gain on sale of investments (31,218) Changes in assets and liabilities: Accrued interest receivable (35,147) (25,446) Other assets 73,548 16,455 Accrued interest payable 216,196 26,719 Other liabilities 163,435 33,283 ----------- ----------- 1,269,433 63,049 ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (62,597) (105,358) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of mortgages, net (3,010,612) (960,000) Acquisition of property and equipment (125,066) (62,229) Purchase of investments and certificates of deposit (1,581) (165,394) Proceeds from sale of investments 185,175 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (2,952,084) (1,187,623) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contribution 124,595 Borrowings on notes payable 75,000 492,979 Loans from stockholders 115,300 35,000 Increase in lines of credit 2,901,600 901,042 Principal payments on notes payable (158,920) (165,045) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 3,057,575 1,263,976 ----------- ----------- NET INCREASE (DECREASE) IN CASH 42,894 (29,005) CASH AND CASH EQUIVALENTS, beginning of year 23,156 52,161 ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 66,050 $ 23,156 =========== ===========
See accompanying notes to financial statements. F-53 87 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 1. ORGANIZATION Accent Mortgage Services, Inc. (AMSI) was incorporated AND SUMMARY OF in the State of Georgia on August 21, 1991. The Company SIGNIFICANT engages in residential and commercial brokerage ACCOUNTING services and in the purchase and sale of mortgages. The POLICIES Company provides these services primarily to mortgage customers in the Southeastern United States. At December 31, 1998, the Company was a wholly-owned subsidiary of Accent Holdings, Inc. Effective July 9, 1999, Accent Holdings, Inc. exchanged 400,000 shares of Accent Mortgage Services, Inc. for 362,000 shares of common stock of The Accent Group, Inc., thereby making AMSI a wholly-owned subsidiary of The Accent Group. The Accent Group, Inc. then entered into a reverse merger with Lahaina Acquisitions, Inc. In connection with the merger, shareholders of The Accent Group received 86% of the common stock of Lahaina. The Accent Group, Inc. is now the surviving parent of AMSI. MANAGEMENT The preparation of financial statements in conformity ESTIMATES with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. MORTGAGE Mortgage loans are held for sale and are carried at PORTFOLIO the lower of cost or fair value with any unrealized losses included in current period earnings. The accrual of interest on mortgages is discontinued when mortgages become delinquent for 90 days or more. Any accrued interest on delinquent mortgages is charged against current-period interest income. Subsequent interest income on such mortgages is recognized only to the extent that cash payments are received. INVESTMENTS Nonmortgage investments are classified as held-to-maturity and are carried at historical cost, adjusted for unamortized discount or premium. Interest income is recognized on an accrual basis. F-54 88 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) ALLOWANCE FOR The allowance for losses is based on an analysis of LOSSES the mortgage portfolio. The analysis considers credit profile factors such as mortgage characteristics and actual and expected loss experience. Increases in the allowance are charged to the provision for losses. Reductions in the allowance result from charge-offs, net of recoveries. In management's judgment, the allowance is adequate to provide for expected losses. PROPERTY Property and equipment are recorded at cost. AND Depreciation is provided utilizing the straight-line EQUIPMENT method over the estimated useful lives of the individual assets, generally five to seven years. Depreciation expense totaled $37,028 (1998) and $25,936 (1997). CASH AND CASH The Corporation considers highly liquid investment EQUIVALENTS instruments with an original maturity of three months or less to be "cash equivalents." Cash equivalents are carried at cost, which approximates market value. CREDIT RISK Concentration of credit risk with respect to the Company's mortgages receivable exists since borrowers are susceptible to changes in economic conditions that could affect their ability to meet their obligations. Additionally, the Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. F-55 89 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) 2. MORTGAGE The Company's mortgage portfolio represents mortgages PORTFOLIO closed either directly from borrowers or purchased from other lenders. Mortgages receivable consist of the following:
1998 1997 ---------------------------------------------------------------------- Principal of mortgages securing lines of credit $ 4,626,154 $1,658,900 Principal of other mortgages 944,828 Less: Purchase discounts (901,470) ---------------------------------------------------------------------- 4,669,512 1,658,900 Less: Allowance for losses (845,591) ---------------------------------------------------------------------- $ 3,823,921 $1,658,900 ======================================================================
3. INVESTMENTS Investments classified as held-to-maturity consisted of U. S. Government zero coupon bonds with an amortized cost of $153,957 at December 31, 1997 and a market value of $182,233. The bonds were sold in 1998 resulting in a realized gain of $31,218. F-56 90 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) 4. PROPERTY AND Property and equipment are summarized as follows: EQUIPMENT
1998 1997 ---------------------------------------------------------------------- Automobiles $ 24,160 $ 24,160 Furniture and fixtures 34,631 29,080 Office equipment 173,973 129,624 Leasehold improvements 89,206 14,040 ---------------------------------------------------------------------- 321,970 196,904 Less: Accumulated depreciation (92,091) (55,063) ---------------------------------------------------------------------- $ 229,879 $ 141,841 ======================================================================
5. 401(K) PROFIT Effective January 1, 1998, the Company established a SHARING PLAN 401(k) profit sharing plan covering substantially all of its employees. Effective June 30, 1999, the Plan was terminated and all eligible employees became 100% vested. The Company made contributions of $5,664 in 1998 to the Plan. F-57 91 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) 6. LINES OF CREDIT Lines of credit consist of the following:
1998 1997 --------------------------------------------------------------------------- $7,000,000 warehouse line of credit, payable on demand, bearing interest at prime plus 2%, secured primarily by mortgages receivable $ 3,220,875 $2,000,000 warehouse line of credit, bearing interest at prime plus 2%, maturing October 1998, secured primarily by mortgages receivable and guaranteed by a principal share- holder of Accent Holdings, Inc. 1,266,689 $1,585,964 --------------------------------------------------------------------------- $ 4,487,564 $1,585,964 ===========================================================================
The Company is currently in default on its $2,000,000 line of credit. The loan agreement requires the Company to maintain certain net worth requirements. Additionally, the agreement requires mortgages receivable to be removed as loan security within 90 days after advances are made on the related mortgages. The Company is in violation of both of these provisions. Management is currently negotiating with the lender to cure the defaults. F-58 92 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) 7. NOTES PAYABLE Notes payable are summarized as follows:
1998 1997 ------------------------------------------------------------------------------------ Note payable to bank in monthly principal and interest payments of $5,144 and a final balloon payment of $167,780 in August 1999. The note bears interest at 8.5% and is secured by accounts receivable, equipment and certificates of deposit totaling $123,081 (1998) and $121,500 (1997) $ 194,357 $ 236,481 Margin demand loan payable, secured by investments, interest paid monthly at variable rates 109,233 Note payable to bank; interest rate of 8.5%; maturing August 1999; secured by a $107,000 certificate of deposit of a shareholder's family member 75,000 Equipment notes; monthly payments of $175 (1998) and $3,700 (1997), bearing interest at rates from 9 1/2% to 17.99%, maturing June 1998 to April 1999, secured by office equipment 1,991 9,554 ------------------------------------------------------------------------------------ $ 271,348 $ 355,268 ====================================================================================
8. INCOME TAXES The Company files a consolidated tax return with its parent, Accent Holdings, Inc., and allocates income tax benefits and expense based on the income or loss of each company. F-59 93 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) Temporary differences that give rise to significant portions of deferred tax assets and liabilities at December 31, 1998 and 1997 consist of net operating loss carryforwards, expense accruals, the allowance for losses and the use of accelerated tax depreciation methods. Net deferred taxes at December 31, 1998 and 1997 include the following components:
1998 1997 ------------------------------------------------------------- Deferred tax assets $ 593,000 $ 67,000 Valuation allowance (575,000) (51,000) ------------------------------------------------------------- 18,000 16,000 Deferred tax liabilities (18,000) (16,000) ------------------------------------------------------------- Net deferred taxes $ -0- $ -0- =============================================================
At December 31, 1998, the Company has net operating loss carryforwards for tax purposes of approximately $210,000, which are available to offset future taxable income through 2018. 9. OPERATING LEASE The Company leases office space under a noncancelable lease classified as an operating lease. Future minimum obligations are as follows:
Year Ended December 31, ------------------------------------------------------------ 1999 $110,307 2000 159,629 2001 164,441 2002 169,343 2003 174,410 Thereafter 103,517 ------------------------------------------------------------ $881,647 ============================================================
F-60 94 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) Rental expense totaled $54,333 (1998) and $26,657 (1997) and is included in administrative and general expenses. 10. RELATED PARTY The Company received advances from and paid expenses on TRANSACTIONS behalf of several affiliated companies. During 1998, the parent company, Accent Holdings, Inc., contributed net advances of $124,595 to the capital of The Company. Shareholders of Accent Holdings, Inc. made non-interest bearing advances totaling $150,300 (1998) and $35,000 (1997) to the Company. The Company paid consulting fees of $74,482 in 1998 to a company related through common ownership to one of the shareholders of Accent Holdings, Inc. 11. COMMITMENTS In July and August 1998, the Company purchased mortgage AND notes from SGE Mortgage Funding Corp. Subsequent to the CONTINGENCIES purchases, the Superior Court of Tift County, Georgia, placed SGE in receivership and charged the receiver with the responsibility of settling competing claims to loans made and sold by SGE. Many of the loans acquired by the Company from SGE were later sold to Matrix Bank for $623,032. Matrix Bank contends some of the loans are subject to competing claims or are nonperforming assets, and has demanded that the Company reacquire these loans. The Company is negotiating with Matrix to resolve these issues, however, the ultimate resolution is unknown at this time. The Company has not provided for losses which may result from the Matrix transaction. Subsequent to December 31, 1998, the Company determined it was not in compliance with Department of Housing and Urban Development (HUD) net worth requirements. The Company is taking corrective action; however, the ultimate resolution of the matter and the effects it may have on the Company's operations are not known. F-61 95 ACCENT MORTGAGE SERVICES, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1998 AND 1997 (Continued) The Company is involved in several lawsuits and regulatory issues arising in the normal course of business. In the opinion of management, no material loss will result from settlement of these issues. 12. SUPPLEMENTAL The Company paid interest of $46,221 (1998) and CASH FLOW $35,419 (1997). The Company paid income taxes of INFORMATION $29,830 in 1997. 13. SUBSEQUENT As mentioned in Note 1, effective July 9, 1999, EVENTS Accent Holdings, Inc. exchanged 400,000 shares of Accent Mortgage Services, Inc. for 362,000 shares of common stock of The Accent Group, Inc., thereby making AMSI a wholly-owned subsidiary of The Accent Group. The Accent Group, Inc. then entered into a reverse merger with Lahaina Acquisitions, Inc. In connection with the merger, shareholders of The Accent Group, Inc. received 86% of the common stock of Lahaina. The Accent Group, Inc. is now the surviving parent of AMSI. In order to alleviate the Company's deficit in stockholder's equity, on September 21, 1999, The Accent Group transferred a subsidiary Beachside Commons I, Inc. into the Company. Beachside Commons I, Inc.'s principal holding is real estate. Management estimates that the net value of the Company is approximately $1,700,000. Additionally, in the merger referred to above, the Company was relieved of the stockholder loans totaling approximately $153,000 at June 30, 1999. The loans were transferred to additional paid-in capital. The effect of the two transactions is to increase net worth by approximately $1,853,000 and brings the Company into compliance with the net worth requirements of both HUD and its line of credit which is in default. F-62 96 =============================================================================== NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. - ------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary................................... 2 Risk Factors......................................... 5 Use of Proceeds...................................... 10 Dividend Policy...................................... 10 Capitalization....................................... 10 Dilution...............................................11 Terms of Conversion; Terms of Exercise............... 12 Selected Unaudited Pro Forma Combined Financial Data..................................... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations...... 14 Change in Accountants................................ 19 Business............................................. 20 Management........................................... 23 Certain Transactions................................. 25 Principal and Selling Shareholders................... 27 Description of Capital Stock......................... 28 Shares Eligible for Future Sale...................... 31 Plan of Distribution................................. 31 Legal Matters........................................ 32 Experts.............................................. 32 Additional Information............................... 32 Index to Financial Statements........................ F-1
- ---------------- UNTIL NOVEMBER 30, 1999 (40 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. =============================================================================== =============================================================================== 2,100,000 SHARES LAHAINA ACQUISITIONS, INC. COMMON STOCK ---------------- PROSPECTUS ---------------- =============================================================================== OCTOBER 21, 1999 97 PART II INFORMATION NOT REQUIRED IN THE PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid in connection with the sale of the Common Stock being registered, all of which will be paid by the Registrant. All amounts are estimates except the registration fee. Registration fee.......................................... $ 1,021.65 Blue Sky fees and expenses................................ 5,000.00 Accounting fees and expenses.............................. 98,000.00 Legal fees and expenses................................... 55,000.00 Transfer agent and registrar fees......................... 1,000.00 Printing and engraving expenses........................... 30,000.00 Miscellaneous expenses.................................... 740.35 Total........................................... $190,762.00 - ----------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Sections 7-109-102 and 7-109-107 of the COLORADO Law ("Colorado Law") and Article 7 of the Company's Amended and Restated Articles of Incorporation provide for indemnification of the Company's Directors and officers in a variety of circumstances which may include liabilities under the Act. Article 7 provides that unless otherwise determined by the Board of Directors of the Company, the Company shall indemnify to the full extent permitted by the laws of Colorado as from time to time in effect, the persons described in Sections 7-109-102 and 7-109-107 of Colorado Law. The general effect of the provisions in the Company's Amended and Restated Articles of Incorporation and Colorado Law is to provide that the Company shall indemnify its Directors and officers against all liabilities and expenses actually and reasonably incurred in connection with the defense or settlement of any judicial or administrative proceedings in which they have become involved by reason of their status as corporate Directors or officers, if they acted in good faith and in the reasonable belief that their conduct was neither unlawful (in the case of criminal proceedings) nor inconsistent with the best interests of the Company. With respect to legal proceedings by or in the right of the Company in which a director or officer is adjudged liable for improper performance of his duty to the Company or another enterprise which such person served in a similar capacity at the request of the Company, indemnification is limited by such provisions to that amount which is permitted by the court. The Company intends to maintain officers' and Directors' liability insurance which will insure against liabilities that officers and Directors of the Company may incur in such capacities. Reference is made to the Proposed Form of Underwriting Agreement filed as Exhibit 1 which provides for indemnification of the Directors and officers of the Company signing the Registration Statement and certain controlling persons of the Company against certain liabilities, including those arising under the Act in certain instances, of the Underwriters. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since the Company's inception, the Company has made the following sales of securities that were not registered under the Act: 1. As of December 7, 1998, the Company issued and sold 1,910,000 shares of Series A Preferred Stock in a private placement for an aggregate consideration of all the Common Stock of Beachside. In connection with such transaction, the Company issued (i) 1,250,000 shares of Common Stock to Mongoose, (ii) the Note convertible II-1 98 into 885,714 shares to GCA in exchange for $775,000 in cash, (iii) the GCA Warrant exercisable for 100,000 shares of Common Stock for a purchase price of $2.60 and 100,000 shares of Common Stock for a purchase price of $2.19 (iv) 25,000 shares of Common Stock issued upon the exercise of the GCA Right, (v) 48,990 shares of Common Stock issued upon the exercise of the First LKB Warrant and (vi) 8,520 shares of Common Stock issued upon the exercise of the Second LKB Warrant; and (vii) 146,667 shares of Common Stock issued upon the conversion of the $300,000 GCA credit line. The term of the Second LKB Warrant will begin at the closing date and continue through five years from the closing date. Such Sales of Series A Preferred Stock and Common Stock were made in reliance on the exemption from registration provided by Section 4(2) of the Act. 2. On August 19, 1999, the Company authorized the issuance of 13,251,000 shares of Common Stock in exchange for certain properties supplied by Accent in the Merger. In connection with the financing of the Merger, the Company issued the Second Note, convertible into approximately 145,000 to 300,000 shares of Common Stock and the Second GCA Warrant for 50,000 shares of Common Stock for a purchase price as set forth in Terms of Conversion; Terms of Exercise. 3. [Reserved] ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (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).............. 2.3 Agreement and Plan of Merger dated July 21, 1999 by and among Lahaina Acquisitions, Inc., LAHA No. 1, Inc., Mongoose Investments, LLC, The Accent Group, Inc. and Accent Mortgage Services, Inc. (the "Plan of Merger") (4)(6).......................................................................... 3.1 Amended and Restated Articles of Incorporation (2)..................................................... 3.2 Bylaws of the Company (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 Investment Fund, Ltd. Amending 9% Convertible Note (3)....................................... 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 Investment Fund, Ltd. Confirming conversion of $25,000 Beachside Commons Note (3)............ 4.6 Working Capital Line dated January 19, 1999, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Ltd. (3)............................................................... 4.7 Form of Stock Certificate (2).......................................................................... 4.8 Securities Purchase Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc., and GCA Strategic Investment Fund Limited (6).................................................................. 4.9 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund Limited, in the principal amount of $500,000 (6).................................................................... 4.10 Registration Rights Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund Limited (6).................................................................. 4.11 Common Stock Purchase Warrant in the amount of 50,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by GCA Strategic Investment Fund Limited, expiring on August 19, 2004. (6)............... 4.12 Pledge Agreement dated August __, 1999 by and among Mongoose Investments, LLC, Richard P. Smyth and GCA Strategic Investment Fund Limited (6).............................................................. 5.1+ Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP........................................... 10.1 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and LKB Financial LLC (3).................................................................................. 10.2 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina Acquisitions, Inc. (3)................................................................................. 10.3 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal amount of $85,000. This note was transferred to Lahaina Acquisitions, Inc. On December 7, 1998. (3).......... 10.4 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount of $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. (3).......... 10.5+ 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount of $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998 (5)........... 10.6+ Right to receive 25,000 shares of Common Stock in consideration for entering into promissory note in the principal amount of $25,000 (5)................................................................. 10.7 Settlement and Release Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and Sherry Klein (6)....................................................................................... 10.8 Purchase and Sale Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC (6)................................................................................... 10.9 GCA Consent to Agreement and Plan of Merger dated August 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Limited (6)...................................... 10.10 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gerald F. Sullivan (6)........................................................................................... 10.11 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gator Glory, LLC (6)................................................................................................ 10.12 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and Richard P. Smyth (6)................................................................................... 10.13 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and Gerald F. Sullivan (6)................................................................................. 10.14 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and Sidney E. Brown (6).................................................................................... 10.15 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and D. Nelson Lester (6)................................................................................... 10.16 Escrow Agreement dated August 16, 1999 by and among Lahaina Acquisitions, Inc., LAHA No. 1, Inc., Mongoose Investments, LLC, The Accent Group, Inc., Accent Mortgage Services, Inc. and Altman, Kritzer & Levick, P.C. (6)....................................................................................... 10.17 Escrow Agreement dated August 19, 1999 by and among Lahaina Acquisitions, Inc., GCA Strategic Investment Fund Limited and Kim T. Stephens, Esq. (6).................................................. 10.18 Second Mortgage on Beachside Commons in the principal amount of $500,000 (6)........................... 10.19 1999 Accent Stock Option Plan.......................................................................... 23.1 Consent of Paul, Hastings, Janofsky and Walker LLP (included in Exhibit 5.1)........................... 23.2 Consent of Kenneth R. Walters, P.A..................................................................... 23.3 Consent of Deloitte and Touche LLP..................................................................... 23.4 Consent of Holland Shipes Vann, P.C.................................................................... 24.1 Power of Attorney (included on the signature page to this registration statement)...................... 99.1 Form of Press Release dated December 24, 1998(1).......................................................
+Previously filed (1) Incorporated by reference to the Company'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. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q, Filed February 25, 1999. (4) Exhibits and Schedules to the Plan of Merger are available from the company upon request. (5) Incorporated by reference to the First Amendment to the Company's Registration Statement on Form S-1 filed March 26, 1999. (6) Incorporated by reference to the Company's Current Report on Form 8-K filed September 7, 1999. II-2 99 (b) Financial Statement Schedules ITEM 17. UNDERTAKINGS (a) The Company hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (ss.230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective Registration Statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-3 100 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Atlanta, State of Georgia, on October 21, 1999. Lahaina Acquisitions, Inc. By:/s/ L. Scott Demerau --------------------------------- L. Scott Demerau Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints L. Scott Demerau as his or her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and any other regulatory authority, granting unto said attorney-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE --------- ----- ---- /s/ L. Scott Demerau ----------------------------------- Director October 21, 1999 L. Scott Demerau /s/ Betty Sullivan ----------------------------------- Director October 21, 1999 Betty Sullivan /s/ Bart Siegal ----------------------------------- Director October 21, 1999 Bart Siegal /s/ Sherry Sagemiller ----------------------------------- Director October 21, 1999 Sherry Sagemiller
II-4 101 EXHIBIT INDEX
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) ............. 2.3 Agreement and Plan of Merger dated July 21, 1999 by and among Lahaina Acquisitions, Inc., LAHA No. 1, Inc., Mongoose Investments, LLC, The Accent Group, Inc. and Accent Mortgage Services, Inc. (the "Plan of Merger") (4)(6).......................................................................... 3.1 Amended and Restated Articles of Incorporation (2)..................................................... 3.2 Bylaws of the Company (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 Investment Fund, Ltd. Amending 9% Convertible Note (3)....................................... 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 Investment Fund, Ltd. Confirming conversion of $25,000 Beachside Commons Note (3)............ 4.6 Working Capital Line dated January 19, 1999, by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Ltd. (3)............................................................... 4.7 Form of Stock Certificate (2).......................................................................... 4.8 Securities Purchase Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc., and GCA Strategic Investment Fund Limited (6).................................................................. 4.9 9% Convertible Note of Lahaina Acquisitions, Inc. payable to GCA Strategic Investment Fund Limited, in the principal amount of $500,000 (6).................................................................... 4.10 Registration Rights Agreement dated August 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund Limited (6).................................................................. 4.11 Common Stock Purchase Warrant in the amount of 50,000 shares to be issued by Lahaina Acquisitions, Inc. and purchased by GCA Strategic Investment Fund Limited, expiring on August 19, 2004. (6)............... 4.12 Pledge Agreement dated August __, 1999 by and among Mongoose Investments, LLC, Richard P. Smyth and GCA Strategic Investment Fund Limited (6).............................................................. 5.1+ Opinion and Consent of Paul, Hastings, Janofsky & Walker LLP........................................... 10.1 Contract of Engagement dated January 19, 1999 by and between Lahaina Acquisitions, Inc. and LKB Financial LLC (3).................................................................................. 10.2 Note Guaranty by Richard P. Smyth with respect to $300,000 of indebtedness of Lahaina Acquisitions, Inc. (3)................................................................................. 10.3 18% Note of Mongoose Investments, LLC payable to Elaine Oppenheimer, in the principal amount of $85,000. This note was transferred to Lahaina Acquisitions, Inc. On December 7, 1998. (3).......... 10.4 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount of $50,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998. (3).......... 10.5+ 18% Note of Mongoose Investments, LLC payable to Nancy Estroff Smyth in the principal amount of $20,000. This note was transferred to Lahaina Acquisitions, Inc. on December 7, 1998............... 10.6+ Right to receive 25,000 shares of Common Stock in consideration for entering into promissory note in the principal amount of $25,000................................................................ 10.7 Settlement and Release Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and Sherry Klein (6)....................................................................................... 10.8 Purchase and Sale Agreement dated June 30, 1999 by and between Lahaina Acquisitions, Inc. and Mongoose Investments, LLC (6)................................................................................... 10.9 GCA Consent to Agreement and Plan of Merger dated August 19, 1999 by and between Lahaina Acquisitions, Inc. and GCA Strategic Investment Fund, Limited (6)...................................... 10.10 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gerald F. Sullivan (6)........................................................................................... 10.11 Consulting Agreement dated August 16, 1999 by and between Lahaina Acquisitions, Inc. and Gator Glory, LLC (6)................................................................................................ 10.12 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and Richard P. Smyth (6)................................................................................... 10.13 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and Gerald F. Sullivan (6)................................................................................. 10.14 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and Sidney E. Brown (6).................................................................................... 10.15 Indemnification Agreement dated August __, 1999 by and between Lahaina Acquisitions, Inc. and D. Nelson Lester (6)................................................................................... 10.16 Escrow Agreement dated August 16, 1999 by and among Lahaina Acquisitions, Inc., LAHA No. 1, Inc., Mongoose Investments, LLC, The Accent Group, Inc., Accent Mortgage Services, Inc. and Altman, Kritzer & Levick, P.C. (6)....................................................................................... 10.17 Escrow Agreement dated August 19, 1999 by and among Lahaina Acquisitions, Inc., GCA Strategic Investment Fund Limited and Kim T. Stephens, Esq. (6).................................................. 10.18 Second Mortgage on Beachside Commons in the principal amount of $500,000 (6)........................... 10.19 1999 Accent Stock Option Plan.......................................................................... 23.1 Consent of Paul, Hastings, Janofsky and Walker LLP (included in Exhibit 5.1)........................... 23.2 Consent of Kenneth R. Walters, P.A. .................................................................... 23.3 Consent of Deloitte & Touche LLP........................................................................ 23.4 Consent of Holland Shipes Vann, P.C. ................................................................... 24.1 Power of Attorney (included on the signature page to this registration statement)...................... 99.1 Form of Press Release dated December 24, 1998(1)....................................................... + Previously filed (1) Incorporated by reference to the Company'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. (3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q, filed February 25, 1999. (4) Exhibits and Schedules to the Plan of Merger are available from the company upon request. (5) Incorporated by reference to the First Amendment to the Company's Registration Statement on Form S-1 filed March 26, 1999. (6) Incorporated by reference to the Company's Current Report on Form 8-K filed September 7, 1999.
II-5 EX-10.19 2 1999 ACCENT STOCK OPTION PLAN 1 EXHIBIT 10.19 THE ACCENT GROUP, INC. 1999 STOCK OPTION PLAN TABLE OF CONTENTS Page 1999 STOCK OPTION PLAN.......................................1 1999 STOCK OPTION PLAN.......................................2 THE ACCENT GROUP, INC........................................2 1999 STOCK OPTION PLAN......................................2
2 THE ACCENT GROUP, INC. 1999 STOCK OPTION PLAN ARTICLE I DEFINITIONS As used herein, the following terms have the following meanings unless the context clearly indicates to the contrary: 1.1 "Award" shall mean a grant of Restricted Stock or an SAR. 1.2 "Board" shall mean the Board of Directors of the Company. 1.3 "Cause" (i) with respect to the Company or any subsidiary or affiliate which employs the recipient of an Award or Option (the "recipient") or for which such recipient primarily performs services, the commission by the recipient of an act of fraud, embezzlement, theft or proven dishonesty, or any other illegal act or practice (whether or not resulting in criminal prosecution or conviction), or any act or practice which the Committee shall, in good faith, deem to have resulted in the recipient's becoming unbondable under the Company's, the subsidiary's or the affiliate's fidelity bond; (ii) the willful engaging by the recipient in misconduct which is deemed by the Committee, in good faith, to be materially injurious to the Company, any subsidiary, or any affiliate, monetarily or otherwise, including, but not limited, improperly disclosing trade secrets or other confidential or sensitive business information and data about the Company or any subsidiaries or affiliates and competing with the Company or its subsidiaries and affiliates, or soliciting employees, consultants or customers of the Company in violation of law or any employment or other agreement to which the recipient is a party; or (iii) the willful and continued failure or habitual neglect by the recipient to perform his or her duties with the Company or the subsidiary or affiliate substantially in accordance with the operating and personnel policies and procedures of the Company or the subsidiary or affiliate generally applicable to all their employees. For purposes of this Plan, no act or failure to act by the recipient shall be deemed be "willful" unless done or omitted to be done by recipient not in good faith and without reasonable belief that the recipient's action or omission was in the best interest of the Company and/or the subsidiary or affiliate. Notwithstanding the foregoing, if the recipient has entered into an employment agreement that is binding as of the date of employment termination, and if such employment agreement defines "Cause," then the definition of "Cause" in such agreement shall apply to the recipient in this Plan. "Cause" under either (i), (ii) or (iii) shall be determined by the Committee. 3 1.4 "Change in Control" shall mean any occurrence by which any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act), other than any person who is a shareholder of the Company on or before the Effective Date, by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50 percent or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that any change in the relative beneficial ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company. 1.5 "Code" shall mean the United States Internal Revenue Code of 1986, including effective date and transition rules (whether or not codified). Any reference herein to a specific section of the Code shall be deemed to include a reference to any corresponding provision of future law. 1.6 "Committee" shall mean a committee of at least two Directors appointed from time to time by the Board, having the duties and authority set forth herein in addition to any other authority granted by the Board. In selecting the Committee, the Board shall consider (i) the benefits under Section 162(m) of the Code of having a Committee composed of "outside directors" (as that term is defined in the Code) for certain grants of Options to highly compensated executives, and (ii) the benefits under Rule 16b-3 of having a Committee composed of either the entire Board or a Committee of at least two Directors who are Non-Employee Directors for Options granted to or held by any Section 16 Insider. At any time that the Board shall not have appointed a committee as described above, any reference herein to the Committee shall mean the Board. 1.7 "Company" shall mean The Accent Group, Inc., a Georgia corporation. 1.8 "Effective Date" shall mean July __, 1999. 1.9 "Director" shall mean a member of the Board and any person who is an advisory or honorary director of the Company if such person is considered a director for the purposes of Section 16 of the Exchange Act, as determined by reference to such Section 16 and to the rules, regulations, judicial decisions, and interpretative or "no-action" positions with respect thereto of the Securities and Exchange Commission, as the same may be in effect or set forth from time to time. 1.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. 2 4 Any reference herein to a specific section of the Exchange Act shall be deemed to include a reference to any corresponding provision of future law 1.11 "Exercise Price" shall mean the price at which an Optionee may purchase a share of Stock under a Stock Option Agreement. 1.12 "Fair Market Value" on any date shall mean (i) the closing sales price of the Stock, regular way, on such date on the national securities exchange having the greatest volume of trading in the Stock during the thirty-day period preceding the day the value is to be determined or, if such exchange was not open for trading on such date, the next preceding date on which it was open; (ii) if the Stock is not traded on any national securities exchange, the average of the closing high bid and low asked prices of the Stock on the over-the-counter market on the day such value is to be determined, or in the absence of closing bids on such day, the closing bids on the next preceding day on which there were bids; or (iii) if the Stock also is not traded on the over-the-counter market, the fair market value as determined in good faith by the Board or the Committee based on such relevant facts as may be available to the Board, which may include opinions of independent experts, the price at which recent sales have been made, the book value of the Stock, and the Company's current and future earnings. 1.13 "Grantee" shall mean a person who is an Optionee or a person who has received an Award of Restricted Stock or an SAR. 1.14 "Incentive Stock Option" shall mean an option to purchase any stock of the Company, which complies with and is subject to the terms, limitations and conditions of Section 422 of the Code and any regulations promulgated with respect thereto 1.15 "Non-Employee Director" shall have the meaning set forth in Rule 16b-3 under the Exchange Act, as the same may be in effect from time to time, or in any successor rule thereto, and shall be determined for all purposes under the Plan according to interpretative or "no-action" positions with respect thereto issued by the Securities and Exchange Commission. 1.16 "Officer" shall mean a person who constitutes an officer of the Company for the purposes of Section 16 of the Exchange Act, as determined by reference to such Section 16 and to the rules, regulations, judicial decisions, and interpretative or "no-action" positions with respect thereto of the Securities and Exchange Commission, as the same may be in effect or set forth from time to time. 1.17 "Option" shall mean an option, whether or not an Incentive Stock Option, to purchase Stock granted pursuant to the provisions of Article VI hereof. 3 5 1.18 "Optionee" shall mean a person to whom an Option has been granted hereunder. 1.19 "Permanent and Total Disability" shall have the same meaning as given to that term by Code Section 22(e)(3) and any regulations or rulings promulgated thereunder. 1.20 "Plan" shall mean The Accent Group, Inc. 1999 Stock Option Plan, the terms of which are set forth herein. 1.21 "Purchasable" shall refer to Stock which may be purchased by an Optionee under the terms of this Plan on or after a certain date specified in the applicable Stock Option Agreement. 1.22 "Qualified Domestic Relations Order" shall have the meaning set forth in the Code or in the Employee Retirement Income Security Act of 1974, or the rules and regulations promulgated under the Code or such Act. 1.23 "Reload Option" shall have the meaning set forth in Section 6.8 hereof. 1.24 "Restricted Stock" shall mean Stock issued, subject to restrictions, to a Grantee pursuant to Article VII hereof. 1.25 "Restriction Agreement" shall mean the agreement setting forth the terms of an Award, and executed by a Grantee as provided in Section 7.1 hereof. 1.26 "SAR" means a stock appreciation right, which is the right to receive an amount equal to the appreciation, if any, in the Fair Market Value of a share of Stock from the date of the grant of the right to the date of its payment, all as provided in Article VIII hereof. 1.27 "SAR Price" means the base value established by the Committee for an SAR on the date the SAR is granted and which is used in determining the amount of benefit, if any, paid to a Grantee. 1.28 "Section 16 Insider" shall mean any person who is subject to the provisions of Section 16 of the Exchange Act, as provided in Rule 16a-2 promulgated pursuant to the Exchange Act. 1.29 "Stock" shall mean the common stock, no par value per share, of the Company or, in the event that the outstanding shares of Stock are hereafter changed into or exchanged for shares of a different stock or securities of the Company or some other entity, such other stock or securities. 4 6 1.30 "Stock Option Agreement" shall mean an agreement between the Company and an Optionee under which the Optionee may purchase Stock hereunder, a sample form of which is attached hereto as Exhibit A (which form may be varied by the Committee in granting an Option). ARTICLE II THE PLAN 2.1 Name. This Plan shall be known as "The Accent Group, Inc. 1999 Stock Option Plan." 2.2 Purpose. The purpose of the Plan is to advance the interests of the Company, its subsidiaries, its affiliates that perform services for the Company and its subsidiaries, and its shareholders by affording certain employees and Directors of the Company and its subsidiaries and affiliates, as well as key consultants and advisors to the Company or any subsidiary or affiliate, an opportunity to acquire or increase their proprietary interests in the Company. The objective of the issuance of the Options and Awards is to promote the growth and profitability of the Company, its subsidiaries and its affiliates because the Grantees will be provided with an additional incentive to achieve the Company's objectives through participation in its success and growth and by encouraging their continued association with or service to the Company. 2.3 Effective Date. The Plan shall become effective on July __, 1999. 2.4 Shareholder Approval. If shareholder approval is required by the Code for Incentive Stock Options and such shareholder approval has not been obtained (or is not obtained within 12 months thereof), any Incentive Stock Options issued under the Plan shall automatically become options which do not qualify as Incentive Stock Options. ARTICLE III PARTICIPANTS The class of persons eligible to participate in the Plan shall consist of all persons whose participation in the Plan the Committee determines to be in the best interests of the Company which shall include, but not be limited to, all Directors and employees, including but not limited to executive personnel, of the Company or any subsidiary or affiliate, as well as key consultants and advisors to the Company or any subsidiary or affiliate. 5 7 ARTICLE IV ADMINISTRATION 4.1 Duties and Powers of the Committee. The Plan shall be administered by the Committee. The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. The Committee shall keep minutes of its meetings and shall make such rules and regulations for the conduct of its business as it may deem necessary. The Committee shall have the power to act by unanimous written consent in lieu of a meeting, and to meet by telephone. In administering the Plan, the Committee's actions and determinations shall be binding on all interested parties. The Committee shall have the power to grant Options or Awards in accordance with the provisions of the Plan and may grant Options and Awards singly, in combination, or in tandem. Subject to the provisions of the Plan, the Committee shall have the discretion and authority to determine those individuals to whom Options or Awards will be granted and whether such Options shall be accompanied by the right to receive Reload Options, the number of shares of Stock subject to each Option or Award, such other matters as are specified herein, and any other terms and conditions of a Stock Option Agreement or Restriction Agreement. The Committee shall also have the discretion and authority to delegate to any Officer its powers to grant Options or Awards under the Plan to any person who is an employee of the Company but not an Officer or Director. To the extent not inconsistent with the provisions of the Plan, the Committee may give a Grantee an election to surrender an Option or Award in exchange for the grant of a new Option or Award, and shall have the authority to amend or modify an outstanding Stock Option Agreement or Restriction Agreement, or to waive any provision thereof, provided that the Grantee consents to such action. 4.2 Interpretation; Rules. Subject to the express provisions of the Plan, the Committee also shall have complete authority to interpret the Plan, to prescribe, amend, and rescind rules and regulations relating to it, to determine the details and provisions of each Stock Option Agreement, and to make all other determinations necessary or advisable for the administration of the Plan, including, without limitation, the amending or altering of the Plan and any Options or Awards granted hereunder as may be required to comply with or to conform to any federal, state, or local laws or regulations. 4.3 No Liability. Neither any member of the Board nor any member of the Committee shall be liable to any person for any act or determination made in good faith with respect to the Plan or any Option or Award granted hereunder. 4.4 Majority Rule. A majority of the members of the Committee shall constitute a quorum, and any action taken by a majority at a meeting at which a quorum is present, or any action taken without a meeting evidenced by a writing executed by 6 8 all the members of the Committee, shall constitute the action of the Committee. 4.5 Company Assistance. The Company shall supply full and timely information to the Committee on all matters relating to eligible persons, their employment, death, retirement, disability, or other termination of employment, and such other pertinent facts as the Committee may require. The Company shall furnish the Committee with such clerical and other assistance as is necessary in the performance of its duties. ARTICLE V SHARES OF STOCK SUBJECT TO PLAN 5.1 Limitations. Subject to any antidilution adjustment pursuant to the provisions of Section 5.2 hereof, the maximum number of shares of Stock that may be issued hereunder shall be 200,000, and not more than 20,000 shares of Stock may be made subject to Options to any individual in the aggregate in any one fiscal year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. The number of shares of Stock available for issuance hereunder shall automatically increase on the first trading day each calendar year beginning January 1, 2000, by an amount equal to ten percent (10%) of the shares of Stock outstanding on the trading day immediately preceding January 1; but in no event shall any such annual increase exceed 100,000 shares (subject to adjustment under Section 5.2). Any or all shares of Stock subject to the Plan may be issued in any combination of Incentive Stock Options, non-Incentive Stock Options, Restricted Stock, or SARs, and the amount of Stock subject to the Plan may be increased from time to time in accordance with Article X, provided that the total number of shares of Stock issuable pursuant to Incentive Stock Options may not be increased to more than 500,000 (other than pursuant to anti-dilution adjustments and the annual increase provided above) without shareholder approval. Shares subject to an Option or issued as an Award may be either authorized and unissued shares or shares issued and later acquired by the Company. The shares covered by any unexercised portion of an Option or Award that has terminated for any reason (except as set forth in the following paragraph), or any forfeited portion of an Option or Award, and shares tendered for cashless exercise and withheld for taxes may again be optioned or awarded under the Plan, and such shares shall not be considered as having been optioned or issued in computing the number of shares of Stock remaining available for option or award hereunder. If Options are issued in respect of options to acquire stock of any entity 7 9 acquired, by merger or otherwise, by the Company (or any subsidiary of the Company), to the extent that such issuance shall not be inconsistent with the terms, limitations and conditions of Code Section 422 or Rule 16b-3 under the Exchange Act, the aggregate number of shares of Stock for which Options may be granted hereunder shall automatically be increased by the number of shares subject to the Options so issued; provided, however, that the aggregate number of shares of Stock for which Options may be granted hereunder shall automatically be decreased by the number of shares covered by any unexercised portion of an Option so issued that has terminated for any reason, and the shares subject to any such unexercised portion may not be optioned to any other person. 5.2 Antidilution. (a) If (1) the outstanding shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company or any other entity by reason of merger, consolidation, reorganization, recapitalization, reclassification, combination or exchange of shares, or stock split or stock dividend, (2) any spin-off, spin-out or other distribution of assets materially affects the price of the Company's stock, or (3) there is any assumption and conversion to the Plan by the Company of an acquired company's outstanding option grants, then: (iii) the aggregate number and kind of shares of Stock for which Options or Awards may be granted hereunder shall be adjusted proportionately by the Committee; and (iv) the rights of Optionees (concerning the number of shares subject to Options and the Exercise Price) under outstanding Options and the rights of the holders of Awards (concerning the terms and conditions of the lapse of any then-remaining restrictions), shall be adjusted proportionately by the Committee. (b) In the event of an anticipated Change in Control or the Company shall be a party to any reorganization, involving merger, consolidation, or acquisition of the stock or substantially all the assets of the Company, the Board or the Committee, in its discretion, may: (i) notwithstanding other provisions hereof, declare that all Options granted under the Plan shall become exercisable immediately notwithstanding the provisions of the respective Stock Option Agreements regarding exercisability, that all such Options shall terminate 90 days after the Committee gives written notice of the immediate right to exercise all such Options and of the decision to 8 10 terminate all Options not exercised within such 90-day period, and that all then-remaining restrictions pertaining to Awards under the Plan shall immediately lapse; and/or (ii) notify all Grantees that all Options or Awards granted under the Plan shall be assumed by the successor corporation or substituted on an equitable basis with options or restricted stock issued by such successor corporation. (c) If the Company is to be liquidated or dissolved in connection with a reorganization described in Section 5.2(b), the provisions of such Section shall apply. In all other instances, the adoption of a plan of dissolution or liquidation of the Company shall, notwithstanding other provisions hereof, cause all then-remaining restrictions pertaining to Awards under the Plan to lapse, and shall cause every Option outstanding under the Plan to terminate to the extent not exercised prior to the adoption of the plan of dissolution or liquidation by the shareholders, provided that, notwithstanding other provisions hereof, the Committee may declare all Options granted under the Plan to be exercisable at any time on or before the fifth business day following such adoption notwithstanding the provisions of the respective Stock Option Agreements regarding exercisability. (d) The adjustments described in paragraphs (a) through (c) of this Section 5.2, and the manner of their application, shall be determined solely by the Board or the Committee, and any such adjustment may provide for the elimination of fractional share interests; provided, however, that any adjustment made by the Board or the Committee shall be made in a manner that will not cause an Incentive Stock Option to be other than an Incentive Stock Option under applicable statutory and regulatory provisions. The adjustments required under this Article V shall apply to any successors of the Company and shall be made regardless of the number or type of successive events requiring such adjustments. 9 11 ARTICLE VI OPTIONS 6.1 Types of Options Granted. The Committee may, under this Plan, grant either Incentive Stock Options or Options which do not qualify as Incentive Stock Options. Within the limitations provided in this Plan, both types of Options may be granted to the same person at the same time, or at different times, under different terms and conditions, as long as the terms and conditions of each Option are consistent with the provisions of the Plan. Without limitation of the foregoing, Options may be granted subject to conditions based on the financial performance of the Company or any other factor the Committee deems relevant. 6.2 Option Grant and Agreement. Each Option granted hereunder shall be evidenced by minutes of a meeting or the written consent of the Committee and by a written Stock Option Agreement executed by the Company and the Optionee. The terms of the Option, including the Option's duration, time or times of exercise, exercise price, whether the Option is intended to be an Incentive Stock Option, and whether the Option is to be accompanied by the right to receive a Reload Option, shall be stated in the Stock Option Agreement. No Incentive Stock Option may be granted more than ten years after the earlier to occur of the Effective Date or the date the Plan is approved by the Company's shareholders. Separate Stock Option Agreements may be used for Options intended to be Incentive Stock Options and those not so intended, but any failure to use such separate agreements shall not invalidate, or otherwise adversely affect the Optionee's interest in, the Options evidenced thereby. 6.3 Optionee Limitation. The Committee shall not grant an Incentive Stock Option to any person who, at the time the Incentive Stock Option is granted: (a) is not an employee of the Company or any of its subsidiaries; or (b) owns or is considered to own stock possessing at least 10% of the total combined voting power of all classes of stock of the Company or any of its parent or subsidiary corporations; provided, however, that this limitation shall not apply if at the time an Incentive Stock Option is granted the Exercise Price is at least 110% of the Fair Market Value of the Stock subject to such Option and such Option by its terms would not be exercisable after five years from the date on which the Option is granted. 6.4 $100,000 Limitation. Except as provided below, the Committee shall not grant an Incentive Stock Option to, or modify the exercise provisions of outstanding Incentive Stock Options held by, any person who, at the time the Incentive Stock 10 12 Option is granted (or modified), would thereby receive or hold any Incentive Stock Options of the Company and any parent or subsidiary of the Company, such that the aggregate Fair Market Value (determined as of the respective dates of grant or modification of each option) of the stock with respect to which such Incentive Stock Options are exercisable for the first time during any calendar year is in excess of $100,000 (or such other limit as may be prescribed by the Code from time to time); provided that the foregoing restriction on modification of outstanding Incentive Stock Options shall not preclude the Committee from modifying an outstanding Incentive Stock Option if, as a result of such modification and with the consent of the Optionee, such Option no longer constitutes an Incentive Stock Option; and provided that, if the $100,000 limitation (or such other limitation prescribed by the Code) described in this Section 6.4 is exceeded, the Incentive Stock Option, the granting or modification of which resulted in the exceeding of such limit, shall be treated as an Incentive Stock Option up to the limitation and the excess shall be treated as an Option not qualifying as an Incentive Stock Option. 6.5 Exercise Price. The Exercise Price of the Stock subject to each Option shall be determined by the Committee. Subject to the provisions of Section 6.3(b) hereof, the Exercise Price of an Incentive Stock Option shall not be less than the Fair Market Value of the Stock as of the date the Option is granted (or in the case of an Incentive Stock Option that is subsequently modified, on the date of such modification). 6.6 Exercise Period. The period for the exercise of each Option granted hereunder shall be determined by the Committee, but the Stock Option Agreement with respect to each Option intended to be an Incentive Stock Option shall provide that such Option shall not be exercisable after the expiration of ten years from the date of grant (or modification) of the Option. In addition, no Incentive Stock Option granted under the Plan shall be exercisable prior to shareholder approval of the Plan. 6.7 Option Exercise. (a) Unless otherwise provided in the Stock Option Agreement or Section 6.6 hereof, an Option may be exercised at any time or from time to time during the term of the Option as to any or all full shares which have become Purchasable under the provisions of the Option, but not at any time as to less than 100 shares unless the remaining shares that have become so Purchasable are less than 100 shares. The Committee shall have the authority to prescribe in any Stock Option Agreement that the Option may be exercised only in accordance with a vesting schedule during the term of the Option. 11 13 (b) An Option shall be exercised by (i) delivery to the Company at its principal office a written notice of exercise with respect to a specified number of shares of Stock and (ii) payment to the Company at that office of the full amount of the Exercise Price for such number of shares in accordance with Section 6.7(c). If requested by an Optionee, an Option may be exercised with the involvement of a stockbroker in accordance with the federal margin rules set forth in Regulation T (in which case the certificates representing the underlying shares will be delivered by the Company directly to the stockbroker). (c) The Exercise Price is to be paid in full in cash upon the exercise of the Option and the Company shall not be required to deliver certificates for the shares purchased until such payment has been made; provided, however, that in lieu of cash, all or any portion of the Exercise Price may be paid by tendering to the Company shares of Stock duly endorsed for transfer and owned by the Optionee, or by authorization to the Company to withhold shares of Stock otherwise issuable upon exercise of the Option, in each case to be credited against the Exercise Price at the Fair Market Value of such shares on the date of exercise (however, no fractional shares may be so transferred, and the Company shall not be obligated to make any cash payments in consideration of any excess of the aggregate Fair Market Value of shares transferred over the aggregate Exercise Price); provided further, that the Board may provide in a Stock Option Agreement (or may otherwise determine in its sole discretion at the time of exercise) that, in lieu of cash or shares, all or a portion of the Exercise Price may be paid by the Optionee's execution of a recourse note equal to the Exercise Price or relevant portion thereof, subject to compliance with applicable state and federal laws, rules and regulations. (d) In addition to and at the time of payment of the Exercise Price, the Optionee shall pay to the Company in cash the full amount of any federal, state, and local income, employment, or other withholding taxes applicable to the taxable income of such Optionee resulting from such exercise. However, in the discretion of the Committee any Stock Option Agreement may provide that all or any portion of such tax obligations, together with additional taxes not exceeding the actual additional taxes to be owed by the Optionee as a result of such exercise, may, upon the irrevocable election of the Optionee, be paid by tendering to the Company whole shares of Stock duly endorsed for transfer and owned by the Optionee, or by authorization to the Company to withhold shares of Stock otherwise issuable upon exercise of the Option, in either case in that number of shares having a Fair Market Value on the date of exercise equal 12 14 to the amount of such taxes thereby being paid, and subject to such restrictions as to the approval and timing of any such election as the Committee may from time to time determine to be necessary or appropriate to satisfy the conditions of the exemption set forth in Rule 16b-3 under the Exchange Act, if such rule is applicable. (e) The holder of an Option shall not have any of the rights of a shareholder with respect to the shares of Stock subject to the Option until such shares have been issued and transferred to the Optionee upon the exercise of the Option. 6.8 Reload Options. (a) The Committee may specify in a Stock Option Agreement (or may otherwise determine in its sole discretion) that a Reload Option shall be granted, without further action of the Committee, (i) to an Optionee who exercises an Option (including a Reload Option) by surrendering shares of Stock in payment of amounts specified in Sections 6.7(c) or 6.7(d) hereof, (ii) for the same number of shares as are surrendered to pay such amounts, (iii) as of the date of such payment and at an Exercise Price equal to the Fair Market Value of the Stock on such date, and (iv) otherwise on the same terms and conditions as the Option whose exercise has occasioned such payment, subject to such other conditions or terms as the Committee shall specify at the time such exercised Option is granted. (b) Unless provided otherwise in the Stock Option Agreement, a Reload Option may not be exercised by an Optionee (i) prior to the end of a one-year period from the date that the Reload Option is granted, and (ii) unless the Optionee retains beneficial ownership of the shares of Stock issued to such Optionee upon exercise of the Option referred to above in Section 6.8(a)(i) for a period of one year from the date of such exercise. 6.9 Nontransferability of Option. No Option shall be transferable by an Optionee other than by will or the laws of descent and distribution or, in the case of Options other than Incentive Stock Options, pursuant to a Qualified Domestic Relations Order, and no Option shall be transferable by an Optionee who is a Section 16 Insider prior to shareholder approval of the Plan. During the lifetime of an Optionee, Options shall be exercisable only by such Optionee (or by such Optionee's guardian or legal representative, should one be appointed). 6.10 Termination of Employment or Service. The Committee shall have the power to specify, with respect to the Options granted to a particular Optionee, the effect upon such Optionee's right to exercise an Option of termination of such 13 15 Optionee's employment or service under various circumstances, which effect may include immediate or deferred termination of such Optionee's rights under an Option, or acceleration of the date at which an Option may be exercised in full; provided, however, that in no event may an Incentive Stock Option be exercised after the expiration of ten years from the date of grant thereof. Unless a Stock Option Agreement specifically provides otherwise, in the event the recipient of an Option or Award is terminated from his or her employment or other service to the Company or its subsidiaries for Cause, Options and Awards, whether vested or unvested, granted to such person shall terminate immediately and shall not thereafter be exercisable. 6.11 Employment Rights. Nothing in the Plan or in any Stock Option Agreement shall confer on any person any right to continue in the employ of the Company or any of its subsidiaries, or shall interfere in any way with the right of the Company or any of its subsidiaries to terminate such person's employment at any time. 6.12 Certain Successor Options. To the extent not inconsistent with the terms, limitations and conditions of Code Section 422 and any regulations promulgated with respect thereto, an Option issued in respect of an option held by an employee to acquire stock of any entity acquired, by merger or otherwise, by the Company (or any subsidiary of the Company) may contain terms that differ from those stated in this Article VI, but solely to the extent necessary to preserve for any such employee the rights and benefits contained in such predecessor option, or to satisfy the requirements of Code Section 424(a). 6.13 Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable on an accelerated basis in the event that a Change in Control occurs with respect to the Company (and the Committee shall have the discretion to modify the definition of a Change in Control in a particular Option Agreement). If the Committee finds that there is a reasonable possibility that, within the succeeding six months, a Change in Control will occur with respect to the Company, then the Committee may determine that all outstanding Options shall be exercisable on an accelerated basis. ARTICLE VII RESTRICTED STOCK 7.1 Awards of Restricted Stock. The Committee may grant Awards of Restricted Stock, which shall be governed by a Restriction Agreement between the Company and the Grantee. Each Restriction Agreement shall contain such restrictions, terms, and conditions as the Committee may, in its discretion, determine, and may 14 16 require that an appropriate legend be placed on the certificates evidencing the subject Restricted Stock. Shares of Restricted Stock granted pursuant to an Award hereunder shall be issued in the name of the Grantee as soon as reasonably practicable after the Award is granted, provided that the Grantee has executed the Restriction Agreement governing the Award, the appropriate blank stock powers, and, in the discretion of the Committee, an escrow agreement and any other documents which the Committee may require as a condition to the issuance of such shares. If a Grantee shall fail to execute the foregoing documents within any time period prescribed by the Committee, the Award shall be void. At the discretion of the Committee, shares issued in connection with an Award may be held by the Company for the account of the Grantee or deposited together with the stock powers with an escrow agent designated by the Committee. Unless the Committee determines otherwise and as set forth in the Restriction Agreement, upon issuance of the shares, the Grantee shall have all of the rights of a shareholder with respect to such shares, including the right to vote the shares and to receive all dividends or other distributions paid or made with respect to the shares. Unless the Committee determines otherwise, not more than 20,000 shares of Restricted Stock may be awarded to any individual in the aggregate in any one fiscal year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. 7.2 Non-Transferability. Until any restrictions upon Restricted Stock awarded to a Grantee shall have lapsed in a manner set forth in Section 7.3, such shares of Restricted Stock shall not be transferable other than by will or the laws of descent and distribution, or pursuant to a Qualified Domestic Relations Order, nor shall they be delivered to the Grantee. 7.3 Lapse of Restrictions. Restrictions upon Restricted Stock awarded hereunder shall lapse at such time or times and on such terms and conditions as the Committee may, in its discretion, determine at the time the Award is granted or thereafter. 7.4 Termination of Employment. The Committee shall have the power to specify, with respect to each Award granted to any particular Grantee, the effect upon such Grantee's rights with respect to such Restricted Stock of the termination of such Grantee's employment under various circumstances, which effect may include immediate or deferred forfeiture of such Restricted Stock or acceleration of the date at which any then-remaining restrictions shall lapse. 7.5 Treatment of Dividends. At the time an Award of Restricted Stock is made the Committee may, in its discretion, determine that the payment to the Grantee of 15 17 any dividends, or a specified portion thereof, declared or paid on such Restricted Stock shall be (i) deferred until the lapsing of the relevant restrictions and (ii) held by the Company for the account of the Grantee until such lapsing. In the event of such deferral, there shall be credited at the end of each year (or portion thereof) interest on the amount of the account at the beginning of the year at a rate per annum determined by the Committee. Payment of deferred dividends, together with interest thereon, shall be made upon the lapsing of restrictions imposed on such Restricted Stock, and any dividends deferred (together with any interest thereon) in respect of Restricted Stock shall be forfeited upon any forfeiture of such Restricted Stock. 7.6 Delivery of Shares. Except as provided otherwise in Article IX below, within a reasonable period of time following the lapse of the restrictions on shares of Restricted Stock, the Committee shall cause a stock certificate to be delivered to the Grantee with respect to such shares and such shares shall be free of all restrictions hereunder. ARTICLE VIII STOCK APPRECIATION RIGHTS 8.1 SAR Grants. The Committee, in its sole discretion, may grant to any Grantee an SAR. The Committee may impose such conditions or restrictions on the exercise of any SAR as it may deem appropriate, including, without limitation, restricting the time of exercise of the SAR to specified periods as may be necessary to satisfy the requirements of Rule 16b-3. Unless the Committee determines otherwise, an SAR providing for not more than 20,000 equivalent shares of Stock may be awarded to any individual in the aggregate in any one fiscal year of the Company, such limitation to be applied in a manner consistent with the requirements of, and only to the extent required for compliance with, the exclusion from the limitation on deductibility of compensation under Section 162(m) of the Code. 8.2 Determination of Price. The SAR Price shall be established by the Committee in its sole discretion. The SAR Price shall not be less than 100% of the Fair Market Value of the Stock on the date the SAR is granted for an SAR issued in tandem with an Incentive Stock Option. 8.3 Exercise of an SAR. Upon exercise of an SAR, the Grantee shall be entitled, subject to the terms and conditions of this Plan and the Agreement, to receive the excess for each share of Stock being exercised under the SAR of (i) the Fair Market Value of such share of Stock on the date of exercise over (ii) the SAR Price for such share of Stock. 16 18 8.4 Payment for an SAR. At the sole discretion of the Committee, the payment of such excess shall be made in (i) cash, (ii) shares of Stock, or (iii) a combination of both. Shares of Stock used for this payment shall be valued at their Fair Market Value on the date of exercise of the applicable SAR. 8.5 Status of an SAR under the Plan. Shares of Stock subject to an Award of an SAR shall be considered shares of Stock which may be issued under the Plan for purposes of Section 5.1 hereof, unless the Agreement making the Award of the SAR provides that the exercise of such SAR results in the termination of an unexercised Option for the same number of shares of Stock. 8.6 Termination of Employment. The Committee shall have the power to specify, with respect to each SAR granted to any particular Grantee, the effect upon such Grantee's rights with respect to such SAR of the termination of such Grantee's employment under various circumstances, which effect may include immediate or deferred forfeiture of such SAR or acceleration of the date at which any then-remaining restrictions shall lapse. 8.7 No Shareholder Rights. The Grantee shall have no rights as a shareholder with respect to an SAR. In addition, no adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or rights except as provided in Section 5.2 hereof. ARTICLE IX STOCK CERTIFICATES The Company shall not be required to issue or deliver any certificate for shares of Stock purchased upon the exercise of any Option granted hereunder or any portion thereof, or deliver any certificate for shares of Restricted Stock granted hereunder, prior to fulfillment of all of the following conditions: (a) The admission of such shares to listing on all stock exchanges on which the Stock is then listed; (b) The completion of any registration or other qualification of such shares which the Committee shall deem necessary or advisable under any federal or state law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body; (c) The obtaining of any approval or other clearance from any federal or state governmental agency or body which the Committee shall determine to be necessary or advisable; and 17 19 (d) The lapse of such reasonable period of time following the exercise of the Option as the Board from time to time may establish for reasons of administrative convenience. Stock certificates issued and delivered to Grantees shall bear such restrictive legends as the Company shall deem necessary or advisable pursuant to applicable federal and state securities laws. ARTICLE X TERMINATION AND AMENDMENT 10.1 Termination and Amendment. The Board may at any time terminate the Plan, and may at any time and from time to time and in any respect amend the Plan; provided, however, that the Board (unless its actions are approved or ratified by the shareholders of the Company within twelve months of the date that the Board amends the Plan) may not amend the Plan to: (a) Increase the total number of shares of Stock issuable pursuant to Incentive Stock Options, except as contemplated in Sections 5.1 and 5.2; (b) Change the class of employees eligible to receive Incentive Stock Options that may participate in the Plan; or (c) Otherwise materially increase the benefits accruing to recipients of Incentive Stock Options under the Plan. 10.2 Effect on Grantee's Rights. No termination, amendment, or modification of the Plan shall affect adversely a Grantee's rights under a Stock Option Agreement or Restriction Agreement without the consent of the Grantee or his legal representative. ARTICLE XI RELATIONSHIP TO OTHER COMPENSATION PLANS The adoption of the Plan shall not affect any other stock option, incentive, or other compensation plans in effect for the Company or any of its subsidiaries; nor shall the adoption of the Plan preclude the Company or any of its subsidiaries from establishing any other form of incentive or other compensation plan for employees or Directors of the Company or any of its subsidiaries. 18 20 ARTICLE XII MISCELLANEOUS 12.1 Replacement or Amended Grants. At the sole discretion of the Committee, and subject to the terms of the Plan, the Committee may modify outstanding Options or Awards or accept the surrender of outstanding Options or Awards and grant new Options or Awards in substitution for them. However, no modification of an Option or Award shall adversely affect a Grantee's rights under a Stock Option Agreement or Restriction Agreement without the consent of the Grantee or his legal representative. 12.2 Forfeiture for Competition. If a Grantee provides services to a competitor of the Company or any of its subsidiaries, whether as an employee, officer, director, independent contractor, consultant, agent, or otherwise, such services being of a nature that can reasonably be expected to involve the skills and experience used or developed by the Grantee while an employee of the Company or subsidiary, then that Grantee's rights under any Options outstanding hereunder shall be forfeited and terminated, and any shares of Restricted Stock held by such Grantee subject to remaining restrictions shall be forfeited, subject in each case to a determination to the contrary by the Committee. 12.3 Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company. 12.4 Singular, Plural; Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender. 12.5 Headings, etc., No Part of Plan. Headings of Articles and Sections hereof are inserted for convenience and reference; they do not constitute part of the Plan. 12.6 Interpretation. With respect to Section 16 Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Plan administrators fails to so comply, it shall be deemed void to the extent permitted by law and deemed advisable by the Plan administrators. * * * * * 19 21 Exhibit A Form of Stock Option Agreement THE ACCENT GROUP, INC. STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (this "Agreement"), entered into as of this ____ day of ________________, 1999, by and between THE ACCENT GROUP, INC., a Georgia corporation (the "Company"), and ______________________________ (the "Optionee"). WHEREAS, effective as of ___________ __, 1999 the Board of Directors of the Company adopted a stock option plan known as "The Accent Group, Inc. 1999 Stock Option Plan" (the "Plan"), and recommended that the Plan be approved by the Company's shareholders; and WHEREAS, effective as of ___________ __, 1999 the shareholders of the Company adopted the Plan; and WHEREAS, the Committee has granted the Optionee a stock option to purchase the number of shares of the Company's common stock as set forth below, and in consideration of the granting of that stock option the Optionee intends to remain in the employ of the Company; and WHEREAS, the Company and the Optionee desire to enter into a written agreement with respect to such option in accordance with the Plan. NOW, THEREFORE, as an employment incentive and to encourage stock ownership, and also in consideration of the mutual covenants contained herein, the parties hereto agree as follows. 1. Incorporation of Plan. This option is granted pursuant to the provisions of the Plan and the terms and definitions of the Plan are incorporated herein by reference and made a part hereof. A copy of the Plan has been delivered to, and receipt is hereby acknowledged by, the Optionee. 2. Grant of Option. Subject to the terms, restrictions, limitations and conditions stated herein, the Company hereby evidences its grant to the Optionee, not in lieu of salary or other compensation, of the right and option (the "Option") to purchase all or any part of the number of shares of the Company's Common Stock, no par value (the "Stock"), set forth on Schedule A attached hereto and incorporated herein by reference. The Option shall be exercisable in the amounts and at the time specified on Schedule A. The Option shall expire and shall not be i 22 exercisable on the date specified on Schedule A or on such earlier date as determined pursuant to Section 8, 9, or 10 hereof. Schedule A states whether the Option is intended to be an Incentive Stock Option. 3. Purchase Price. The price per share to be paid by the Optionee for the shares subject to this Option (the "Exercise Price") shall be as specified on Schedule A, which price shall be an amount not less than the Fair Market Value of a share of Stock as of the Date of Grant (as defined in Section 11 below) if the Option is an Incentive Stock Option. 4. Exercise Terms. The Optionee must exercise the Option for at least the lesser of 100 shares or the number of shares of Purchasable Stock as to which the Option remains unexercised. In the event this Option is not exercised with respect to all or any part of the shares subject to this Option prior to its expiration, the shares with respect to which this Option was not exercised shall no longer be subject to this Option. 5. Option Non-Transferable. No Option shall be transferable by an Optionee other than by will or the laws of descent and distribution or, in the case of non-Incentive Stock Options, pursuant to a Qualified Domestic Relations Order, and no Option shall be transferable by an Optionee who is a Section 16 Insider prior to shareholder approval of the Plan. During the lifetime of an Optionee, Options shall be exercisable only by such Optionee (or by such Optionee's guardian or legal representative, should one be appointed). 6. Notice of Exercise of Option. This Option may be exercised by the Optionee, or by the Optionee's administrators, executors or personal representatives, by a written notice (in substantially the form of the Notice of Exercise attached hereto as Schedule B) signed by the Optionee, or by such administrators, executors or personal representatives, and delivered or mailed to the Company as specified in Section 14 hereof to the attention of the President or such other officer as the Company may designate. Any such notice shall (a) specify the number of shares of Stock which the Optionee or the Optionee's administrators, executors or personal representatives, as the case may be, then elects to purchase hereunder, (b) contain such information as may be reasonably required pursuant to Section 12 hereof, and (c) be accompanied by (i) a certified or cashier's check payable to the Company in payment of the total Exercise Price applicable to such shares as provided herein, (ii) shares of Stock owned by the Optionee and duly endorsed or accompanied by stock transfer powers having a Fair Market Value equal to the total Exercise Price applicable to such shares purchased hereunder, or (iii) a certified or cashier's check accompanied by the number of shares of Stock whose Fair Market Value when added to the amount of the check equals the total Exercise Price applicable to such shares purchased hereunder. Upon receipt of any such notice and accompanying payment, and subject to the terms hereof, the ii 23 Company agrees to issue to the Optionee or the Optionee's administrators, executors or personal representatives, as the case may be, stock certificates for the number of shares specified in such notice registered in the name of the person exercising this Option. 7. Adjustment in Option. The number of shares subject to this Option, the Exercise Price and other matters are subject to adjustment during the term of this Option in accordance with Section 5.2 of the Plan. 8. Termination of Employment. (a) Except as otherwise specified in Schedule A hereto, in the event of the termination of the Optionee's employment with the Company or any of its subsidiaries, other than a termination that is either (i) for Cause, (ii) voluntary on the part of the Optionee and without written consent of the Company, or (iii) for reasons of death or disability or retirement, the Optionee may exercise this Option at any time within 90 days after such termination to the extent of the number of shares which were Purchasable hereunder at the date of such termination. (b) Except as specified in Schedule A attached hereto, in the event of a termination of the Optionee's employment that is either (i) for Cause or (ii) voluntary on the part of the Optionee and without the written consent of the Company, this Option, to the extent not previously exercised, shall terminate immediately and shall not thereafter be or become exercisable. (c) Unless and to the extent otherwise provided in Exhibit A hereto, in the event of the retirement of the Optionee at the normal retirement date as prescribed from time to time by the Company or any subsidiary, the Optionee shall continue to have the right to exercise any Options for shares which were Purchasable at the date of the Optionee's retirement (provided that, on the date which is three months after the date of retirement, the Options will become void and unexercisable unless on the date of retirement the Optionee enters into a noncompete agreement with National Environmental Contracting Company and continues to comply with such noncompete agreement). This Option does not confer upon the Optionee any right with respect to continuance of employment by the Company or by any of its subsidiaries. This Option shall not be affected by any change of employment so long as the Optionee continues to be an employee of the Company or one of its subsidiaries. 9. Disabled Optionee. In the event of termination of employment because of the Optionee's becoming a Disabled Optionee, the Optionee (or his or her personal representative) may exercise this Option, within a period ending on the earlier of iii 24 (a) the last day of the one year period following the Optionee's death or (b) the expiration date of this Option, to the extent of the number of shares which were Purchasable hereunder at the date of such termination. 10. Death of Optionee. Except as otherwise set forth in Schedule A with respect to the rights of the Optionee upon termination of employment under Section 8(a) above, in the event of the Optionee's death while employed by the Company or any of its subsidiaries or within three months after a termination of such employment (if such termination was neither (i) for cause nor (ii) voluntary on the part of the Optionee and without the written consent of the Company), the appropriate persons described in Section 6 hereof or persons to whom all or a portion of this Option is transferred in accordance with Section 5 hereof may exercise this Option at any time within a period ending on the earlier of (a) the last day of the one year period following the Optionee's death or (b) the expiration date of this Option. If the Optionee was an employee of the Company at the time of death, this Option may be so exercised to the extent of the number of shares that were Purchasable hereunder at the date of death. If the Optionee's employment terminated prior to his or her death, this Option may be exercised only to the extent of the number of shares covered by this Option which were Purchasable hereunder at the date of such termination. 11. Date of Grant. This Option was granted by the Board of Directors of the Company on the date set forth in Schedule A (the "Date of Grant"). 12. Compliance with Regulatory Matters. The Optionee acknowledges that the issuance of capital stock of the Company is subject to limitations imposed by federal and state law and the Optionee hereby agrees that the Company shall not be obligated to issue any shares of Stock upon exercise of this Option that would cause the Company to violate law or any rule, regulation, order or consent decree of any regulatory authority (including without limitation the Securities and Exchange Commission) having jurisdiction over the affairs of the Company. The Optionee agrees that he or she will provide the Company with such information as is reasonably requested by the Company or its counsel to determine whether the issuance of Stock complies with the provisions described by this Section 12. 13. Restriction on Disposition of Shares. The shares purchased pursuant to the exercise of an Incentive Stock Option shall not be transferred by the Optionee except pursuant to the Optionee's will, or the laws of descent and distribution, until such date which is the later of two years after the grant of such Incentive Stock Option or one year after the transfer of the shares to the Optionee pursuant to the exercise of such Incentive Stock Option. iv 25 14. Miscellaneous. (a) This Agreement shall be binding upon the parties hereto and their representatives, successors and assigns. (b) This Agreement is executed and delivered in, and shall be governed by the laws of, the State of Georgia. Any requests or notices to be given hereunder shall be deemed given, and any elections or exercises to be made or accomplished shall be deemed made or accomplished, upon actual delivery thereof to the designated recipient, or three days after deposit thereof in the United States mail, registered, return receipt requested and postage prepaid, addressed, if to the Optionee, at the address set forth below and, if to the Company, to the executive offices of the Company at 5895 Windward Parkway, Suite 220, Alpharetta, Georgia 30005 (d) This Agreement may not be modified except in writing executed by each of the parties hereto. IN WITNESS WHEREOF, the Board of Directors of the Company has caused this Stock Option Agreement to be executed on behalf of the Company and the Company's seal to be affixed hereto and attested by the Secretary or an Assistant Secretary of the Company, and the Optionee has executed this Stock Option Agreement under seal, all as of the day and year first above written. THE ACCENT GROUP, INC. OPTIONEE By: ------------------------- -------------------------- Its: ------------------------- Name: -------------------- Attest: Address: ----------------------- ------------------ ------------------ Its: ------------------ ------------------ v 26 SCHEDULE A TO STOCK OPTION AGREEMENT BETWEEN THE ACCENT GROUP, INC. AND ----------------------------- Dated: --------------- 1. Number of Shares Subject to Option: shares. 2. This Option (Check one) [ ] is [ ] is not an Incentive Stock Option. 3. Option Exercise Price: $ per share. 4. Date of Grant: 5. Option Vesting Schedule: Check one: ( ) Options are exercisable with respect to all shares on or after the date hereof ( ) Options are exercisable with respect to the number of shares indicated below on or after the date indicated next to the number of shares: No. of Shares Vesting Date 6. Option Exercise Period: Check One: ( ) All options expire and are void unless exercised on or before , ______________. ( ) Options expire and are void unless exercised on or before the date indicated next to the number of shares: No. of Shares Expiration Date 7. Effect of Termination of Employment of Optionee (if different from that set forth in Sections 8, 9 and 10 of the Stock Option Agreement): vi 27 SCHEDULE B NOTICE OF EXERCISE The undersigned hereby notifies The Accent Group, Inc. (the "Company") of this election to exercise the undersigned's stock option to purchase _________ shares of the Company's common stock, $.01 par value (the "Common Stock"), pursuant to the Stock Option Agreement (the "Agreement") between the undersigned and the Company dated ________________. Accompanying this Notice is (1) a certified or a cashier's check in the amount of $ __________ payable to the Company, and/or (2) __________ shares of the Company's Common Stock presently owned by the undersigned and duly endorsed or accompanied by stock transfer powers, having an aggregate Fair Market Value (as defined in The Accent Group Inc. 1999 Stock Option Plan) as of the date hereof of $____________, such amounts being equal, in the aggregate, to the purchase price per share set forth in Section 3 of the Agreement multiplied by the number of shares being purchased hereby (in each instance subject to appropriate adjustment pursuant to Section 5.2 of the Agreement). IN WITNESS WHEREOF, the undersigned has set his hand and seal, this _____ day of ______________, _______. OPTIONEE [OR OPTIONEE'S ADMINISTRATOR, EXECUTOR OR PERSONAL REPRESENTATIVE] Name: Position (if other than Optionee): vii EX-23.2 3 CONSENT OF KENNETH R. WALTERS, P.A. 1 EXHIBIT 23.2 October 21, 1999 To the Board of Directors LAHAINA ACQUISITIONS, INC. 5895 Windward Parkway Suite 200 Alpharetta, GA 30005 We hereby consent to the inclusion in this Registration Statement on Form S-1 of our report dated October 14, 1999 on our audit of the financial statements of Beachside Commons I, Inc. (currently known as Lahaina Acquisitions, Inc.). We also consent to the reference to our firm under the caption "Experts." Sincerely, /s/ Kenneth R. Walters KENNETH R. WALTERS, P.A. Fernandina Beach, Florida EX-23.3 4 CONSENT OF DELOITTE AND TOUCHE LLP 1 Exhibit 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-74607 of Lahaina Acquisitions, Inc. on Form S-1 of our report dated September 13, 1999, except for note 9 which is as of September 21, 1999, related to the consolidated balance sheet of The Accent Group, Inc. and subsidiaries as of July 9, 1999, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/ DELOITTE & TOUCHE LLP - ----------------------------- Atlanta, Georgia October 21, 1999 EX-23.4 5 CONSENT OF HOLLAND SHIPES VANN, P.C. 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the inclusion in this Registration Statement on Form S-1 of our reports dated September 9, 1999 on our audits of the financial statements and financial statement schedules of Accent Mortgage Services, Inc. We also consent to the reference to our Firm under the caption "Experts." /s/ Holland Shipes Vann, P.C. ------------------------------------- Holland Shipes Vann, P.C. Atlanta, Georgia October 21, 1999 -----END PRIVACY-ENHANCED MESSAGE-----