-----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, QxWerwVLI/hvprer8X3ZsEMn40J+anEW4Wr0om/ArX0iUHsu5fnvm43wkxEbi8Ov 2j4kBAeYrrLIrD38clF7hA== 0000950147-01-502033.txt : 20020413 0000950147-01-502033.hdr.sgml : 20020413 ACCESSION NUMBER: 0000950147-01-502033 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20011214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VESTIN GROUP INC CENTRAL INDEX KEY: 0001068132 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 522102142 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-24803 FILM NUMBER: 1813850 BUSINESS ADDRESS: STREET 1: 2901 EL CAMINO AVENUE CITY: LAS VEGAS STATE: NV ZIP: 89102 BUSINESS PHONE: 7022270965 MAIL ADDRESS: STREET 1: 2901 EL CAMINO AVENUE CITY: LAS VEGAS STATE: NV ZIP: 89102 FORMER COMPANY: FORMER CONFORMED NAME: SUNDERLAND ACQUISITION CORP DATE OF NAME CHANGE: 19980813 FORMER COMPANY: FORMER CONFORMED NAME: SUNDERLAND CORP DATE OF NAME CHANGE: 19990517 10QSB/A 1 e-7857.txt AMENDMENT TO FORM 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER 000-24803 VESTIN GROUP, INC. (EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) DELAWARE 52-2102142 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 2901 EL CAMINO AVENUE, SUITE 206, LAS VEGAS, NEVADA 89102 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (702) 227-0965 (ISSUER'S TELEPHONE NUMBER) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Number of shares outstanding of each of the issuer's classes of common equity, as of August 13, 2001: [6,131,870] Shares of Common Stock VESTIN GROUP, INC. INDEX Page No. -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheet 1 Consolidated Statements of Operations 2 Consolidated Statements of Stockholders' Equity 3 Consolidated Statements of Cash Flows 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussions and Analysis 6 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 16 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VESTIN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET JUNE 30, 2001 (UNAUDITED) ASSETS Cash $ 629,349 Accounts receivable 3,218,630 Due from related parties 517,808 Distributions receivable from related parties 58,891 Investments in marketable securities available for sale 45,683 Investments in mortgage loans on real estate 6,061,247 Other investments 2,221,526 Prepaid expenses 250,000 Other assets 163,274 Property and equipment 276,659 Deferred tax assets 335,718 ------------ Total assets $ 13,778,785 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 1,445,161 Income taxes payable 1,740,618 Due to related parties 155,442 Line of credit 2,000,000 Note payable 950,000 ------------ Total liabilities 6,291,221 ------------ Commitments and contingencies -- Stockholders' equity Preferred stock, $.0001 par value; 20 million shares authorized; no shares issued -- Common stock, $.0001 par value; 100 million shares authorized; 6,989,270 shares issued, 6,131,870 shares outstanding 699 Treasury stock, at cost (707,482) Additional paid-in capital 2,204,269 Retained earnings 7,079,473 Note receivable from related party (940,710) Accumulated other comprehensive loss (148,685) ------------ Total stockholders' equity 7,487,564 ------------ Total liabilities and stockholders' equity $ 13,778,785 ============ SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 VESTIN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the three months For the six months ended June 30, ended June 30, ----------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (Restated) (Restated) Revenues Loan placement and related fees $ 4,535,539 $ 3,592,309 $ 8,253,646 $ 6,234,576 Interest income 119,937 164,065 329,359 281,813 Other income 60,131 6,725 87,994 -- ----------- ----------- ----------- ----------- Total revenues 4,715,607 3,763,099 8,670,999 6,516,389 Expenses Sales and marketing expenses 1,962,262 470,875 4,435,173 927,574 General and administrative expenses 2,357,996 1,187,857 4,401,385 2,393,559 Interest expenses 96,647 47,533 227,370 73,590 ----------- ----------- ----------- ----------- Total expenses 4,416,905 1,706,265 9,063,928 3,394,723 Income (loss) from continuing operations before provision for income taxes 298,702 2,056,834 (392,929) 3,121,666 Provision for income taxes 109,870 699,324 (125,285) 1,061,366 ----------- ----------- ----------- ----------- Net income (loss) from continuing operations 188,832 1,357,510 (267,644) 2,060,300 Discontinued operations Income from discontinued operations - Financial Services Division, net of income taxes of $0, $74,835, $0, and $145,230 -- 145,268 -- 281,918 ----------- ----------- ----------- ----------- Net income (loss) $ 188,832 $ 1,502,778 $ (267,644) $ 2,342,218 =========== =========== =========== =========== Earnings per common share - Basic Income (loss) from continuing operations $ 0.03 $ 0.19 $ (0.04) $ 0.29 =========== =========== =========== =========== Income from discontinued operations $ -- $ 0.02 $ -- $ 0.04 =========== =========== =========== =========== Net income (loss) $ 0.03 $ 0.22 $ (0.04) $ 0.34 =========== =========== =========== =========== Earnings per common share - Diluted Income (loss) from continuing operations $ 0.03 $ 0.19 $ (0.04) $ 0.29 =========== =========== =========== =========== Income from discontinued operations $ -- $ 0.02 $ -- $ 0.04 =========== =========== =========== =========== Net income (loss) $ 0.03 $ 0.22 $ (0.04) $ 0.34 =========== =========== =========== =========== Weighted average number of common shares outstanding - Basic 6,161,809 6,989,270 6,169,363 6,989,270 =========== =========== =========== =========== Weighted average number of common shares outstanding - Diluted 6,958,449 6,989,270 6,169,363 6,989,270 =========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 2 VESTIN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Preferred Stock Common Stock Treasury Stock ----------------- -------------------- --------------------- Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ Balance at January 1, 2001 -- $ -- 6,989,270 $ 699 2,400 $ (11,306) Divestiture of L.L. Bradford and Company -- -- -- -- 800,000 (540,000) Treasury stock acquired -- -- -- -- 55,000 (156,176) Expenses related to issuance of common stock warrants -- -- -- -- -- -- Note receivable from related party -- -- -- -- -- Unrealized loss on investments in marketable securities -- -- -- -- -- -- Net loss -- -- -- -- -- -- ---- ----- --------- ----- ------- --------- Balance at June 30, 2001 -- $ -- 6,989,270 $ 699 857,400 $(707,482) ==== ===== ========= ===== ======= ========= Additional Note Receivable Other Paid-in From Related Comprehensive Retained Capital Party Loss Earnings Total ------- ----- ---- -------- ----- Balance at January 1, 2001 $1,739,427 $ -- $(115,790) $7,347,117 $8,960,147 Divestiture of L.L. Bradford and Company -- -- -- -- (540,000) Treasury stock acquired -- -- -- -- (156,176) Expenses related to issuance of common stock warrants 464,842 -- -- -- 464,842 Note receivable from related party -- (940,710) -- -- (940,710) Unrealized loss on investments in marketable securities -- -- (32,895) -- (32,895) Net loss -- -- -- (267,644) (267,644) ---------- --------- --------- ---------- ---------- Balance at June 30, 2001 $2,204,269 $(940,710) $(148,685) $7,079,473 $7,487,564 ========== ========= ========= ========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 VESTIN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, --------------------------------- 2001 2000 ----------- ----------- Cash flows from operating activities: Net income (loss) $ (267,644) $ 2,342,218 Less net income from discontinued operations -- 281,918 ----------- ----------- Income (loss) from continuing operations (267,644) 2,060,300 Adjustments to reconcile net income (loss) from continuing operations to net cash provided (used) by operating activities: Depreciation and amortization 26,754 5,853 Expenses related to warrants granted 464,842 -- Changes in operating assets and liabilities: -- -- Accounts receivable (779,599) (22,782) Distributions receivable from related parties (58,891) -- Other assets (127,709) (390,305) Due from stockholder 87,289 -- Due from related parties (6,738) (257,127) Prepaid expenses (250,000) -- Deferred tax asset (125,285) -- Accounts payable and accrued expenses 683,600 (83,336) Due to related parties (49,249) (244,641) Income taxes payable (439,394) 861,366 ----------- ----------- Net cash provided (used) by operating activities of continuing operations (842,024) 1,929,328 Cash flows from investing activities: Purchase of property and equipment (118,730) (33,118) Cash advanced on notes receivable (812,500) (926,210) Principal payments received on notes receivable 153,000 -- Sale of real estate held for sale 896,000 -- Purchase of investment in marketable securities (19,068) (66,979) Purchase of other investments (679,289) (295,192) Purchase of investments in mortgage loans on real estate, net of sales (700,719) -- Sale of investments in mortgage loans on real estate, net of purchases -- 1,622,665 ----------- ----------- Net cash provided (used) by investing activities of continuing operations (1,281,306) 301,166 Cash flows from financing activities: Advances (payments) on line of credit, net 2,000,000 (1,980,000) Payments on notes payable (140,000) (5,661) Distributions to stockholders -- (60,035) Purchase of treasury stock (156,176) -- ----------- ----------- Net cash provided (used) by financing activities of continuing operations 1,703,824 (2,045,696) ----------- ----------- Net cash provided (used) by continuing operations (419,506) 184,798 Net cash provided by discontinued operations -- 60,035 ----------- ----------- Net change in cash (419,506) 244,833 Cash, beginning of period 1,048,855 1,093,044 ----------- ----------- Cash, end of period $ 629,349 $ 1,337,877 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 191,007 $ 73,590 =========== =========== Cash paid for income taxes $ 500,000 $ -- =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: On March 15, 2000, 10,300 shares of common stock were issued to acquire all of the outstanding shares of Vestin Capital, Inc. On March 31, 2000, 800,000 shares of common stock were issued to acquire all of the outstanding shares of L.L. Bradford & Company. On January 31, 2000, 17,700 shares of common stock were issued to acquire all of the outstanding shares of Vestin Mortgage Advisors, Inc. During January 2001, the Company sold real estate investments totaling $896,000 in exchange for a note receivable. During January 2001, the Company divested its subsidiary, L.L. Bradford & Company, to the original shareholders of L.L. Bradford and Company in exchange for 800,000 shares of the Company's common stock. SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 VESTIN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements should be read in conjunction with the Forms 10-KSB and 10-KSB/A for the year ended December 31, 2000 of Vestin Group, Inc. ("Vestin" or "the Company"). The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full year. In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operation. All such adjustments are of a normal recurring nature. NOTE 2 - RESTATEMENT The Company determined that certain entries were not made in during the three and six months ended June 30, 2001 to record penalties and interest related to federal income tax obligations and income earned on the Company's investments in Vestin Fund I, LLC ("Fund I"). As of June 30, 2001, the Managing Member had a weighted average membership units in the Company of approximately 89,000 units. Therefore, the Company has restated the income statements for the three months ended June 30, 2001 to reflect approximately $31,000 of additional other income related to income earned from Fund I; approximately $24,000 of additional general and administrative, and $36,000 of additional interest expenses related to federal tax obligations; and approximately $1,700 reduction in income tax expense. The Company has restated the income statements for the six months ended June 30, 2001 to reflect approximately $59,000 of additional other income related to income earned from Fund I; approximately $24,000 of additional general and administrative, and $36,000 of additional interest expenses related to federal tax obligations; and approximately $7,700 reduction in income tax benefits. For the three months ended June 30, 2001, the restatement net effect of the Company's earnings per share for basic and diluted resulted in decreases of $0.01 and $0.00, respectively. For the six months ended June 30, 2001, the restatement net effect of the Company's earnings per share for basic and diluted resulted in no changes. NOTE 3 - OTHER INVESTMENTS In June 2001, Vestin Fund I, LLC ("Fund I"), completed the sale of 10,000,000 units at $10 per unit. Fund I invests in mortgage loans secured by real property. Vestin Mortgage, Inc. a subsidiary of the Company is the Managing Member of the Fund I. As of June 30, 2001, Vestin's investment in Fund I totals $1,000,000 which is included as part of Other Investments totaling $2,221,526. For the six months ended June 30, 2001, the Company recorded revenues of approximately $59,000 from its investment in Fund I as a result of distributions declared during the months of January 2001 through June 2001 and is reflected as distributions receivable as of June 30, 2001. Vestin Mortgage, Inc., as the Managing Member, is entitled to an annual management fee of up to 0.25% of the aggregate capital contributions to Fund I. During the three and six months ended September 30, 2001, Vestin Mortgage received to management fees from Fund I of approximately $-- and $7,200, respectively. Total management fees waived by Vestin Mortgage for the three and six months ended June 30, 2001 approximated $58,000 and $91,000, respectively. As of June 30, 2001, the Company owed Fund I approximately $148,000 related to shared loan placement fees during fiscal year 2000. This balance bears no interest and is due on demand. 5 VESTIN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) In June 2001, the SEC declared effective the registration statement of Vestin Fund II, LLC ("Fund II") under which it will offer up to 50,000,000 units at $10 per unit. Fund II is similar to Fund I as it will invest in mortgage loans secured by real property. As of June 30, 2001, Vestin's investment in Fund II approximated $593,000 which is included as part of Other Investments totaling $2,221,526. Vestin Mortgage, Inc. is also the managing member of Fund II entitling it to receive annual management fees of 0.25% of the aggregate capital contributions to Fund II. During the three and six months ended June 30, 2001, Vestin Mortgage elected to waive all management fees from Fund II. Total management fees waived by Vestin Mortgage for the three and six months ended June 30, 2001 approximated $2,200 and $2,200, respectively. Total management fees waived from Fund I and II for the three and six months ended June 30, 2001 approximated $39,700 and $61,500 (net of tax effect), respectively, or $0.01 and $0.01 basic and fully diluted earnings per common share, respectively. NOTE 3 - NOTE RECEIVABLE FROM RELATED PARTY Note receivable to related party totaling $940,710 at June 30, 2001 relates to amounts loaned to a shareholder, secured with 155,400 shares of the Company's common stock owned by this shareholder. The note bears no interest and matures on January 31, 2002. NOTE 4 - RELATED PARTY TRANSACTIONS Due from related parties as of June 30, 2001 is comprised of the following: Advances made to an officer/director/shareholder of the Company approximating a total of $245,000 bearing no interest and due on demand. Notes receivable of $251,000 from an employee of the Company dated April 19, 2000. The note is unsecured, matures on April 19, 2004 and bears interest at 10%. Interest only payments are made on a semi-annual basis with the principal along with any accrued interest due as a lump sum on the date of maturity. Advances to two entities controlled by shareholders and/or officers of the Company approximating a total of $22,000 bearing no interest and due on demand. During the three and six months ended June 30, 2001, the Company paid $37,500 and $75,000, respectively, for outsourced financial reporting and accounting services (i.e., SEC and financial reporting, taxation, and other consulting matters) to an accounting firm majority owned by the President and CFO of the Company. NOTE 5 - TREASURY STOCK During the second quarter ended June 30, 2001, the Company acquired 55,000 shares of treasury stock for a total value of approximately $156,000. As of June 30, 2001, the Company has a total of 857,400 shares held in treasury. 6 VESTIN GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2001 (UNAUDITED) NOTE 6 - LINES OF CREDIT In June 2001, a line of credit with a financial institution was extended for one year and increased by $1 million for a total of $4 million. The $4 million line of credit has a new expiration date of June 2002. As of June 30, 2001, the outstanding principal balance on this line of credit is zero In addition, the Company was extended a $2 million line of credit with another financial institution which is payable in installments of interest only at the prime lending rate plus 2% and has an expiration date of June 2002. The line of credit is guaranteed by the Company's majority stockholder. As of June 30, 2001, the entire principal balance on this line of credit is outstanding. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS BACKGROUND Vestin Group, Inc., was incorporated in Delaware on June 2, 1998 under the name Sunderland Acquisition Corporation ("Vestin Group"). Vestin Group is a holding company which conducts all of its operations through its wholly owned subsidiaries. Vestin Group together with its subsidiaries shall be hereinafter referred to as the "Company." On August 13, 1998, Vestin Group filed a Registration Statement on Form 10-SB under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), registering its class of common stock, $.0001 par value per share (the "Common Stock"). On April 27, 1999, Vestin Group acquired all the outstanding capital stock of Capsource, Inc., a licensed Nevada mortgage company ("Capsource"), in exchange for 20,000 shares of Vestin Group's Common Stock. Simultaneously with the acquisition of Capsource, Vestin Group acquired certain assets and assumed certain liabilities of Del Mar Mortgage, Inc. and Del Mar Holdings, Inc. (collectively, the "Del Mar Entities") in exchange for 4,891,270 shares of Common Stock of Vestin Group. The Del Mar Entities are controlled by Michael V. Shustek, Chief Executive Officer and Chairman of the Board of Vestin Group. As part of a corporate restructuring, Vestin Group transferred the commercial mortgage brokerage business of the Del Mar Entities to Capsource. On October 15, 1999, Vestin Group filed a Registration Statement on Form SB-2 registering 1,926,270 shares of its Common Stock held by various stockholders. On July 6, 2000, Capsource changed its name to Vestin Mortgage, Inc. ("Vestin Mortgage"). Vestin Mortgage is currently a wholly-owned subsidiary of Vestin Group and holds a mortgage broker's license in Nevada. In April 2000, Vestin Group acquired Vestin Capital, Inc., formerly DM Financial Services, Inc., a registered broker-dealer in 49 states ("Vestin Capital"). Vestin Group also acquired DM Mortgage Advisors, Inc., an Arizona based mortgage funding business which has changed its name to Vestin Mortgage Advisors ("VM Advisors"), in exchange for Vestin Group's Common Stock in December 1999. Both Vestin Capital and VM Advisors were wholly owned by Michael Shustek, who received 10,300 shares of Vestin Group's Common Stock for Vestin Capital, and 17,700 shares of Vestin Group's Common Stock for VM Advisors in connection with the acquisitions. Vestin Mortgage serves as the manager of Vestin Fund I, LLC (formerly DM Mortgage Investors, LLC), a Nevada limited liability company ("the Fund I"), which was organized to invest in mortgage loans. As of June 30, 2001, the Fund I had sold all of the 10 million units registered under a registration statement on Form S-11. The Company has also organized Vestin Fund II, LLC ("the Fund II"), a second limited liability company to invest in mortgage loans. The second company filed a registration statement on Form S-11 with the Securities Exchange Commission which was declared effective on June 13, 2001. The Fund II will issue of up to $500 million of its 50 million units. As of June 30, 2001, the Fund II has raised approximately $10.5 million from issuance of units. THE COMPANY The Company is primarily engaged in the commercial mortgage brokerage business. The Company arranges loans to owners and developers of real property whose financing needs are not being met by traditional mortgage lenders. The underwriting standards and length of time required by traditional mortgage lenders, such as commercial banks, results in certain potential borrowers who are unable to or unwilling to go through the process required by traditional lenders. As a non-conventional lender, the Company focuses on the needs of borrowers unable or unwilling to meet the more restrictive requirements of traditional lenders. When evaluating prospective borrowers, the Company will typically focus on the value of collateral, which reduces the paperwork and time needed to evaluate other factors. 8 MANAGEMENT OF FUND I AND FUND II Vestin Mortgage is the Manager of both Fund I and Fund II. As manager, Vestin Mortgage evaluates prospective investments, selects the mortgages in which these Funds will invest and makes all investment decisions for these Funds. Additionally, Vestin Mortgage is responsible for all administrative matters such as accounting, tax and legal requirements for these Funds. Vestin Mortgage receives an annual management fee from each Fund of up to 0.25% of the aggregate capital contributions to each Fund. The Company may, in its sole discretion, waive its management fee. For the quarter ended June 30, 2001, the Company did not receive any management fees from either Fund I or Fund II. As of the same date, the Company received approximately 100,000 units in Fund I for expenses paid by the Company to unaffiliated third parties in connection with the offering of units in Fund I, and 59,000 units for the same in the Fund II. The Company's ownership in Funds I and II represent approximately 1% and 5% of the outstanding amount of units, respectively, as of June 30, 2001. FINANCIAL REVIEW The following financial review and analysis concerns the financial condition and results of operations of the Company for the quarters ended June 30, 2001 and 2000 and for the six months ended June 30, 2001 and 2000. This information should be read in conjunction with the Company's unaudited Consolidated Financial Statements and accompanying notes and other detailed information regarding the Company appearing elsewhere in this Form 10-QSB. RESULTS OF OPERATIONS COMPARISON OF THE QUARTERS ENDED JUNE 30, 2001 AND JUNE 30, 2000 AND FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 The historical operations of the Company for the quarters ended June 30, 2001, and June 30, 2000 and for the six month periods ended June 30, 2001 and 2000 are analyzed as follows: REVENUE The Company reported total revenues of approximately $4.7 million for the three month period ended June 30, 2001, an increase of 25% from $3.8 million for the three month period ended June 30, 2000. The Company derived approximately 96% and 95% of its revenue in the quarters ended June 30, 2001 and 2000, respectively from its mortgage brokerage operations. The remaining revenue was principally generated by interest earned from investments in mortgage loans and bank depository accounts for the quarters ended June 30, 2001 and 2000. For the six months ended June 30, 2001, the Company reported a 32% increase in revenues of approximately $8.6 million as compared to $6.5 million for the same period of the previous year. The Company placed approximately $54.8 million and $72.8 million in mortgage loans in the three month periods ended June 30, 2001, and 2000, respectively. The Company uses funds from individual investors, Fund I, Fund II, and its own resources to fund loans to real estate developers and owners for raw land, acquisition and development, construction, commercial, residential and bridge loans. 9 The revenues generated by the Company's mortgage brokerage operations for the three month periods ended June 30, 2001 and 2000 are as follows: Type of Revenue 6/30/01 6/30/00 --------------- ------- ------- Loan placement fees $ 2,554,000 $ 2,481,000 Loan servicing fees $ 1,297,000 $ 1,002,000 Loan extension fees $ 685,000 $ 109,000 ------------ ------------ Total $ 4,536,000 $ 3,592,000 ============ ============ Typically, loan placement fees are directly related to the size and type of loan. Although the overall amount loaned decreased approximately 25% in second quarter of 2001, as compared to the second quarter in 2000, average loan placement fees increased from 3.4% of the loan amount to 4.7%. The increase in average points charged is primarily related to the placement of two large loans in the amount of $10 million each upon which an average of 6.5% loan origination fees were charged. Loan servicing fees are recorded as revenue when such services are rendered. Extension fees are recorded as revenue at the extension grant date for a particular loan. DIRECT INVESTMENT Approximately 2% of revenues in the three month periods ended June 30, 2001 and 2000 were derived from investment in mortgage loans. As of June 30, 2001, the Company had approximately $5.2 million invested in mortgage loans. The Company earns additional income from interest earned on monies in its bank deposits. GEOGRAPHICAL EXPANSION Although the Company has historically focused its operations in certain Western states, the Company has commenced expansion of its operations throughout the U.S. The Company has developed a significant degree of knowledge with respect to the real estate markets in the Western states. Such knowledge is critical to the Company's business as it enables the Company to process loan applications more quickly than many conventional lenders. The Company is able to rapidly process loan applications in large part because the Company's underwriting standards focus heavily on the value of the underlying property rather than the creditworthiness of the borrower. The Company's ability to quickly assess the underlying value of real estate when it arranges the terms of a mortgage loan is therefore essential to its strategy of providing fast turnaround for loan applications. Real estate markets are significantly influenced by local conditions as well as by national economic conditions. Thus, real estate markets vary greatly from place to place and local knowledge of a real estate market is essential to prudent lending. In order to obtain such local knowledge, the Company intends to engage the services of local real estate brokers and real estate lawyers who are believed to be familiar with the markets into which the Company may expand. It is not possible at this time to predict in which areas the Company will expand or if the Company will be successful in this effort. Any difficulties encountered by the Company in this regard could slow down its expansion plans or could result in the Company placing loans which degrade its historical performance. SALES AND MARKETING EXPENSES Sales and marketing expenses primarily consist of advertising costs, public relations expenses, commissions and travel expenses. Sales and marketing expenses amounted to approximately 42% and 13% of the Company's total revenues for the three month periods ended June 30, 2001 and 2000, respectively. The 10 increase for the second quarter 2001 is primarily related to an increase in advertising costs approximating $0.8 million and the increase in public relations expenses of $0.6 million related to the Company bringing on Joe Namath as a spokesperson as compared to the second quarter of 2000. The increase is a result of the Company's aggressive efforts to enter new markets such as Florida, Oregon, Texas, and Arizona. Sales and marketing expenses, for the six months ended June 30, 2001, approximated $4.4 million as compared to $0.9 million for the same period in 2000. The increase is primarily related to the aforementioned increase in advertising and public relations efforts to penetrate new markets. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses include payroll and related expenses, consultation fees, professional fees, and general corporate expenses. General and administrative expenses of the Company amounted to $2.4 million or 50% of the total revenues for the second quarter of 2001, an increase of 99% from $1.2 million for the second quarter of 2000. The increase is a result of several factors to include an increase in wages of $0.3 million, legal and professional fees of $0.2 million, as well as a general increase in general and administrative expenses related to the Company's growth. The Company has also entered into several other contracts including a consulting agreement for approximately $37,000 per month for general consulting. General and administrative expenses, for the six months ended June 30, 2001, approximated $4.4 million as compared to $2.4 million for the same period in 2000. The increase is related to a number of factors including an increase in wages approximating $1.0 million, legal and professional fees approximating $0.2 million, and consultation fees approximating $0.4 million as well as a general increase in general and administrative expenses related to the Company's growth. INCOME BEFORE INCOME TAXES As a result of the foregoing factors, results from continuing operations before provision for income taxes equaled an income of approximately $0.3 million for the three month period ended June 30, 2001 as compared to $2.1 million for the second quarter 2000. For the six month period ended June 30, 2001, the Company incurred a loss from continuing operations approximating $0.4 million as opposed to an income from continuing operations of $3.1 million for the six months ended June 30, 2000. DISCONTINUED OPERATIONS On March 31, 2000, the Company consummated a merger with L.L. Bradford & Company (LLB) acquiring all of LLB's capital stock in exchange for 800,000 shares of the Company's common stock. LLB operates as a certified public accounting and consulting practice in the State of Nevada. The Company accounted for this business combination as a pooling of interests. As a result of the Company's change in business focus in December 2000, the Company consummated a Purchase Agreement on January 1, 2001 with the former shareholders of LLB, whereby, the Company repurchased the 800,000 shares of its common stock originally issued to the former shareholders of LLB and divested itself of LLB. The Company has accounted for this divestiture as a spin-off in accordance with Accounting Principles Board Statement ("APB") No. 29. The repurchase was considered to be a distribution of nonmonetary assets to the former shareholders of LLB, whereby the rescission of prior business combination was based on the historical cost of the nonmonetary assets distributed and no gain or loss was recognized. The repurchase of the 800,000 shares is recorded as Treasury Stock at book value. The Consolidated Financial Statements for the second quarter 2000 reflect L.L. Bradford as a discontinued operation. Accordingly, the revenues, expenses, assets and liabilities, and cash flows of L.L. Bradford have been segregated in the consolidated income statements, and cash flows for the second quarter of 2000 as well as for the six months ended June 30, 2000. For the second quarter of 2000, discontinued operation generated income of approximately $145,000. For the six months ended June 30, 2000, discontinued operations generated income of approximately $282,000. 11 LIQUIDITY AND CAPITAL RESOURCES Liquidity is a measure of an entity's ability to meet potential cash requirements, including ongoing commitments to fund lending activities. The Company has historically met its capital requirements through cash flows from operations and its ability to access individual investors who acquire interests in mortgage loans. For the six months ended June 30, 2001, the cash flows used by operating activities of the Company approximated $.8 million or 10% of the Company's total revenue, compared cash provided by operating activities of $1.9 million or 30% during the six month period ended June 30, 2000. Cash used in investing activities approximated $0.3 million or 4% of the Company's revenues during the six months ended June 30, 2001, compared to cash provided by investing activities approximating $1.3 million or 15% of total revenues during the same period of the prior year. The decrease in cash in the second quarter of 2001 is primarily due to the increased advertising efforts approximating $2.5 million in order to penetrate new markets as well as engaging Joe Namath as a spokesperson which resulted in a cash outlay of $250,000. The Company has historically relied upon the cash flow from operations to provide for its capital requirements. During the six months ended June 30, 2001, the Company incurred an operating loss of $0.3 million and a negative operating cash flow of approximately $0.8 million. These results were largely a result of a significant increase in marketing, sales, and general and administrative expenses. Management believes that the results of the first six month period is not indicative of the results for the remainder of the year. The Company believes that cash generated from operations, together with cash and cash flows from investments in mortgage loans on real estate on hand at June 30, 2001, will be sufficient to provide for its capital requirements to sustain currently expected loan volumes for at least the next 12 months. However, the Company will require additional financing in order to expand its business operations. The Company maintains a $4,000,000 revolving line of credit with a financial institution. There was no balance outstanding on this line of credit as of June 30, 2001. The line of credit is payable in monthly installments of interest only at the prime lending rate plus 1.0% (6.75% at June 30, 2001) and expires on June 15, 2002. The line of credit is guaranteed by the Company's majority stockholder and is secured by the deeds of trust on the property being advanced against. The line of credit agreement limits payments of dividends on the Company's stock and transfers between related parties without prior written consent from the financial institution. The line of credit contains certain covenants, which the Company has complied with or received waivers for as of June 30, 2001. In addition, the Company, on June 26, 2001, secured a $2,000,000 line of credit with another financial institution of which the entire balance was outstanding as of June 30, 2001. The line of credit is payable in installments of interest only at the prime lending rate plus 2% and expires on June 26, 2002. The line of credit is guaranteed by the Company's majority stockholder. FUNDING SOURCES In order to maintain and expand its business, the Company must have access to funding sources that are prepared to invest in mortgage loans which the Company brokers. Historically, the Company has relied primarily upon individual investors for this purpose. Of the approximately $54.8 million of mortgage loans placed by the Company in the three month period ended June 30, 2001, $37.8 million was funded by Fund I, $8.3 million was funded by Fund II, and the remainder was funded by individual investors. The Company has generally experienced a high rate of investors choosing to reinvest through the Company after their mortgage loans mature. For the second quarter 2001, approximately 90% of the individuals who invested through the Company have chosen to reinvest in the loans brokered by the Company. This has provided the Company with a reasonably reliable source of funding for mortgage loans. However, no assurance can be given that the Company will enjoy the same reinvestment rate in the future. 12 The Company is currently acting as manager of Fund I and Fund II, limited liability companies organized to invest in mortgage loans. As of June 30, 2001, Fund I has raised the entire $100,000,000 as set forth in its registration statement through a public offering of its units. Fund II has raised approximately $10.5 million through a public offering of its units. Fund II will offer of up to $500,000,000 of its units to the public. The success of raising funds by both Fund I and Fund II will provide an additional source of funding for mortgage loans placed by the Company. The Company's ability to attract investors to acquire interests in mortgage loans, either directly or through the limited liability companies discussed above, depends upon a number of factors, some of which are beyond the Company's control. The key factors in this regard include general economic conditions, the condition of real estate markets, the availability of alternative investment opportunities, the Company's track record and the Company's reputation. The Company believes that its ability to attract investors for mortgage loans has been enhanced by the high historical yields generated by such mortgage loans. These yields may prove more attractive in the near term if equity markets continue to decline. Notwithstanding the high historical yields generated by its mortgage loans, the Company believes its ability to attract investors may be impaired by the Company's small size and limited operating history. In addition, the mortgage loan investments offered by the Company are not federally insured as are certain bank deposits and the mortgage loan interests are generally illiquid as compared to government or corporate bonds. Thus, the Company's ability to generate high yields is critical to offsetting some of the disadvantages of investments in mortgage loans. The Company's ability to attract investors would suffer if the performance of Company-brokered mortgage loans declines or if alternative investment vehicles offering comparable rates and greater safety or liquidity become available. In order to address these issues, the Company has pursued a strategy of: (i) using great care in the selection of mortgage loans in order to maintain its current track record, and (ii) developing additional funding sources such as the Company-managed limited liability companies discussed above. In this manner, the Company is seeking to maintain its access to funding from current investors while broadening its funding sources, thereby enabling it to expand the scope of its mortgage brokerage operations. No assurance can be given that the Company will be successful in this effort. If its access to funding sources deteriorates for any reason, then the scope of the Company's operations may decline proportionately. The Company is also exploring additional sources of funding including new and/or expanded credit facilities. There can be no assurance that the Company will be able to obtain any additional financing. FACTORS AFFECTING THE COMPANY'S OPERATING RESULTS This quarterly report and other written reports and oral statements made from time to time by the Company may contain forward looking statements. Such forward looking statements may be identified by the use of such words as "expects," "plans," "estimates," "forecasts," "projects," "anticipates," "believes" and words of similar meaning. Forward looking statements are likely to address such matters as the Company's business strategy, future operating results, future sources of funding for mortgage loans brokered by the Company, future economic conditions and pending litigation involving the Company. As a result, investors should carefully consider any forward looking statements in light of the various factors which could affect future results. Some of these factors are discussed below. The Company's business is subject to numerous factors affecting its operating results. In addition to the factors discussed above, the Company's operating results may be affected by: LIMITED EXPERIENCE IN CERTAIN REAL ESTATE MARKETS Currently, the Company brokers mortgage loans primarily in areas in which Vestin Mortgage has substantial experience such as Arizona, California and Nevada. Depending on the market and on the Company's performance, it plans to expand the Company's operations throughout the United States. However, Vestin Mortgage has limited experience outside of certain western states. Real estate markets vary greatly from location to location. Vestin Mortgage's limited experience in most 13 U.S. real estate markets may impact its ability to make prudent investment decisions and may delay the loan approval process. This delay could have a material impact on the Company's competitive advantage of providing fast loan approvals. Accordingly, Vestin Mortgage plans to utilize independent real estate advisors located in markets where Vestin Mortgage lacks experience for consultation prior to making investment decisions. No assurance can be given such advisors will provide effective assistance to the Company. DEPENDENCE ON KEY PERSONNEL The Company's success depends upon the continued contributions of certain key personnel, including Michael V. Shustek, Stephen J. Byrne and Lance Bradford, each of whom would be difficult to replace because of his extensive experience in his field, extensive market contacts and familiarity with the Company's activities. If any of these key employees were to cease employment, the Company's operating results could suffer. The Company's future success also depends in large part upon its ability to hire and retain additional highly skilled managerial, operational and marketing personnel. Should the Company be unable to attract and retain skilled personnel, the Company's performance may suffer. RISKS OF UNDERWRITING STANDARDS AND PROCEDURES - - The Company's underwriting standards and procedures are more lenient than conventional lenders in that the Company will invest in loans to borrowers who will not be required to meet the credit standards of conventional mortgage lenders. - - The Company approves mortgage loans more quickly than other mortgage lenders. Due to the nature of loan approvals, there may be a risk that the credit inquiry the Company performs may not reveal all material facts pertaining to the borrower and the security. The Company's results of operations will vary with changes in interest rates and with the performance of the relevant real estate markets. - - If the economy is healthy, the Company expects that more people will be borrowing money to acquire, develop or renovate real property. However, if the economy grows too fast, interest rates may increase too much and the cost of borrowing may become too expensive. This could result in a slowdown in real estate lending which may mean the Company will have fewer loans to acquire, thus reducing its revenues and the distributions to stockholders. - - One of the results of interest rate fluctuations is that borrowers may seek to extend their low-interest-rate mortgage loans after market interest rates have increased. Generally, the Company's loan documents permit the Company to raise the interest rate it charges on extended loans anywhere from between 3/4% to 3% from the then-current rate on the loan. This creates three risks for the Company: (i) There can be no assurance that this permitted rate increase will be adequate if interest rates have increased beyond the range contemplated by the Company's loan documents. (ii) If interest rates rise, borrowers under loans with monthly or quarterly principal payments may be compelled to extend their loans to decrease the principal paid with each payment because the interest component has increased. If this happens, there is a higher risk that the borrower may default on the extended loan, and the increase in the interest rate on the loan may not be adequate compensation for the increased risk. Distributions on mortgage loans placed by the Company may decline if lenders are unable to reinvest at higher rates or if an increasing number of borrowers default on their loans. (iii) If, at a time of relatively low interest rates, a borrower prepays obligations that have a higher interest rate from an earlier period, investors will likely not be able to reinvest the funds in mortgage loans earning that higher rate of interest. In the absence of a prepayment fee, the investors will receive neither the anticipated revenue stream at the higher rate nor compensation for their loss. This in turn could harm the Company's reputation and may make it more difficult for the Company to attract investors willing to acquire interests in mortgage loans. 14 COMPETITION FOR FUNDS The ability of the Company to access funds for mortgage loans depends upon the perceived attractiveness of yields on loans placed by the Company, the safety of the underlying investment, the Company's reputation, general economic conditions and real estate market conditions. The Company's principal advantage in attracting investors is the high historical yields generated by loans brokered by the Company. The Company is at a disadvantage compared to alternative investment vehicles to the extent that an investment in mortgage loans lacks liquidity and is not guaranteed or insured by a governmental agency. In addition, the fact that the Company is smaller than many of the full service financial firms offering alternative investment vehicles and has a more limited operating history may be disadvantages in seeking to attract investors. COMPETITION FOR BORROWERS The Company considers its competitors for borrowers to be the providers of non-conventional mortgage loans, that is, lenders who offer short-term, equity-based loans on an expedited basis for slightly higher fees and rates than those charged by conventional lenders. To a lesser extent, the Company also competes with conventional mortgage lenders and mortgage loan investors, such as commercial banks, thrifts, conduit lenders, insurance companies, mortgage brokers, pension funds and other financial institutions that offer conventional mortgage loans. Many of the companies against which the Company competes have substantially greater financial, technical and other resources than the Company. Competition in the Company's market niche depends upon a number of factors, including price and interest rates of the loan, speed of loan processing, cost of capital, reliability, quality of service and support services. 15 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no significant legal proceedings against the Company and the Company is unaware of any significant proceedings contemplated against it. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable ITEM 5. OTHER INFORMATION Not Applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Page Number/ Exhibit Number Description Filing Method - -------------- ----------- ------------- 2.1 Agreement and Plan of Reorganization among the Company, * Capsource, Inc. and Stephen J. Byrne, dated as of April 9, 1999 2.2 Asset Acquisition Agreement between the Company and Del Mar * Holdings, Inc., dated as of April 9, 1999 2.3 Asset Acquisition Agreement between the Company and Del Mar * Mortgage, Inc., dated as of April 9. 1999 2.4 Agreement and Plan of Reorganization among the Company, L. L. ** Bradford & Company and the Shareholders of L. L. Bradford & Company, dated June 30, 2000 3.1 Certificate of Incorporation *** 3.2 By-laws *** 10.1 Employment Agreement between Del Mar Mortgage, Inc. and Steve *** Byrne, dated November 3, 1998 10.2 Transition Agreement between Del Mar Mortgage, Inc. and **** Capsource, Inc., dated April 27, 1999 and First Amendment thereto 10.3 Employment Agreement between Del Mar Mortgage and Mike Whiteaker, **** dated May 3, 1999 10.4 The 2000 Stock Option Plan of Sunderland Corporation **** 10.5 Employment Agreement between the Company and Michael V. Shustek, **** dated December 1, 1999 10.6 Employment Agreement between the Company and Ira S. Levine, dated ****** September 1, 2000 10.7 Employment Agreement between the Company and Lance K. Bradford, ******* dated April 1, 2000 10.8 Third Amended and Restated Operating Agreement of Vestin Fund I, ***** LLC, dated as of November 2, 2000
- ---------- * Previously filed on Form 8-K (File No. 000-24803) on May 4, 1999. ** Previously filed on Form 8-K (File No. 000-24803) on April 14, 2000. *** Previously filed on Form 10-SB/A (File No. 000-24803) on August 13, 1998. **** Previously filed on Form 10-KSB (File No. 000-24803) on June 30, 2000. ***** Previously filed on Form 424B5 (File No. 333-32800) on November 15, 2000. ****** Previously filed on Form 10-KSB (File No. 000-24803) on April 2, 2001. ******* Previously filed on Form 10-KSB/A (File No. 000-24803) on April 30, 2001. (b) Reports on Form 8-K None. 16 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned there unto duly authorized. VESTIN GROUP, INC. By: /s/ Lance K. Bradford -------------------------------------------------------- Lance K. Bradford, President and Chief Financial Officer (Authorized Officer and Principal Accounting Officer) Date: December 11, 2001 17 -----END PRIVACY-ENHANCED MESSAGE-----