<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
TO
COMMISSION FILE NUMBER 000-24803
SUNDERLAND CORPORATION
- -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-2102142
---------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
2901 EL CAMINO AVENUE, LAS VEGAS, NEVADA 89102
-----------------------------------------------------------------
(Address of principal executive offices)
702/227-0965
-------------------------------------
(Issuers'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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 10, 1999:
Common 6,121,270
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION 1
Item 1. Financial Statements 1
SUNDERLAND CORPORATION:
Condensed Consolidated Balance Sheet as of June 30, 1999 1
Condensed Consolidated Statement of Operations for the period from
April 27, 1999 (Date of Reorganization) through June 30, 1999 2
Condensed Consolidated Statements of Cash Flows for the period from
April 27, 1999 (Date of Reorganization) through June 30, 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 5
DEL MAR MORTGAGE, INC. AND DEL MAR HOLDINGS, INC.:
Condensed Combined Statements of Operations for the period from
April 1, 1999 through April 26, 1999, for the three months
ended June 30, 1998, for the period from January 1, 1999
through
April 26, 1999 and for the six months ended June 30, 1998 6
Condensed Combined Statements of Cash Flows for the period from
January 1, 1999 through April 26, 1999 and for the six months
ended June 30, 1998 7
Notes to Condensed Combined Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9 - 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3 Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL INFORMATION
SUNDERLAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 196,518
Accounts receivable, net 303,001
Other receivables 138,654
Due from related parties 167,898
Trust deed investments 2,611,743
Note receivable 435,646
Property and equipment, net 18,793
Other assets 37,350
------------
Total assets $ 3,909,603
------------
------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable $ --
Income taxes payable 290,319
Notes payable 350,000
------------
Total liabilities 640,319
Stockholder's equity:
Common stock, $.0001 par value, 100 million shares
authorized, 6,161,270 shares issued and outstanding 616
Additional paid-in capital 2,705,267
Retained earnings 563,401
------------
Total stockholder's equity 3,269,284
Total liabilities and stockholder's equity $ 3,909,603
------------
------------
</TABLE>
See Accompanying Notes to Financial Statements
1
<PAGE>
SUNDERLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
From
April 27, 1999,
(Date of
Reorganization)
Through
June 30, 1999
----------------
<S> <C>
Revenues:
Loan origination and related fees $ 1,908,347
Interest income 42,659
Other income 50,000
------------
Total revenues 2,001,006
Expenses:
Sales and marketing 467,486
General and administrative 679,641
------------
Total expenses 1,147,127
------------
Income before provision for income taxes 853,879
Provision for income taxes 290,319
------------
Net income $ 563,560
------------
------------
Primary and fully diluted earnings per common share $ 0.09
------------
------------
Weighted average number of common share used
in primary and fully diluted per share calculation 6,161,270
------------
------------
</TABLE>
See Accompanying Notes to Financial Statements
2
<PAGE>
SUNDERLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
From
April 27, 1999,
(Date of
Reorganization)
Through
June 30, 1999
----------------
<S> <C>
Cash flows from operating activities:
Net income $ 563,560
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,203
Changes in operating assets and liabilities:
Increase in accounts receivable (303,001)
Decrease in other receivables 278,864
Increase in due from related party (15,930)
Increase in income taxes payable 290,319
------------
Net cash provided by operating activities 816,015
------------
Cash flows from investing activities:
Cash transferred in reorganization 416
Cash outlay for trust deed investments (619,913)
------------
Net cash used by investing activities (619,497)
------------
Net increase in cash 196,518
Cash, beginning balance at April 27, 1999 --
------------
Cash, ending balance at June 30, 1999 $ 196,518
------------
------------
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE>
SUNDERLAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Sunderland Corporation (hereinafter referred to as
"Sunderland"), was incorporated in the state of Delaware in June 2,
1998.
On April 27, 1999, Sunderland Acquisition Corporation consummated an
asset purchase agreement with Del Mar Mortgage, Inc. and Del Mar
Holdings, Inc. (collectively referred to as "Del Mar Entities") whereby
the Sunderland acquired certain assets and assumed certain liabilities
of the Del Mar Entities in exchange for 2,934,762 share of common stock
of Sunderland. Sunderland concurrently consummated a reorganization
agreement with Capsource, Inc. ("Capsource") whereby the Company
acquired all the outstanding capital stock of Capsource in exchange for
12,000 shares of common stock of Sunderland (referred to as the
"Transactions").
The Del Mar Entities are related entities under common management and
controlling ownership. Accordingly, the business combination between
the Del Mar Entities has been accounted for as a reorganization of
entities under common control. The reorganization reflects the combined
financial statements of the Del Mar Entities and the restatement of
their stockholders' equity for the shares issued by Sunderland in a
manner similar to a stock split. Only certain assets of the Del Mar
Entities were acquired by Sunderland; however, since the Del Mar
Entities are considered the accounting acquirer in the business
combinations with Sunderland and Capsource, the assets not acquired,
net of the liabilities not assumed, have been accounted for as
distributions to the Del Mar Entities' shareholders. The transaction
between the Del Mar Entities and Sunderland has been accounted for as
a reverse acquisition of Sunderland by the Del Mar Entities and the
assets of Sunderland have been recorded at historical cost since
Sunderland was a shell corporation with no operations and only nominal
assets prior to the transaction.
The business combination between the Del Mar Entities and Capsource has
been accounted for under the purchase method of accounting resulting in
recognition of $1,390 in goodwill to be amortized over five years.
In connection with the transactions, 4,250,000 shares of common stock
of Sunderland held by the previous owners of Sunderland were retired
leaving 750,000 shares before the issuance of additional shares related
to the transaction noted above. Effective as of the date of
consummation of the Transactions, Sunderland changed its name from
"Sunderland Acquisition Corporation" to "Sunderland Corporation", and
effected a 5 for 3 stock split of its issued and outstanding common
stock. The accompanying financial statements have been restated for the
effects of the stock split for all periods presented.
Sunderland, including the operations from the assets acquired from the
Del Mar Entities, and Capsource are collectively referred to herein as
the "Company" subsequent to the Transactions.
The Company has continued the loan origination segment of the various
busness operations formerly conducted by Del Mar Mortgage, Inc. through
Capsource, a wholly owned subsidiary. Capsource operates as a mortgage
company licensed in the state of Nevada. Capsource is engaged in the
origination, arrangement, and secondary purchase and sale of loans
secured by real property.
The accompanying consolidated financial statements are unaudited and
include the accounts of the Company and its subsidiaries, (all of which
are wholly-owned). All significant inter-company transactions and
balances have been eliminated.
4
<PAGE>
SUNDERLAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the period
beginning April 27, 1999 (Date of Reorganization) through June 30, 1999
are not necessarily indicative of financial results that may be
expected for the full year ended December 31, 1999. These unaudited
consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB; and Capsource,
Inc., Del Mar Mortgage, Inc., and Del Mar Holdings, Inc. for the year
ended December 31, 1998 included in the Form 8-K/A filed August 13,
1999.
2. TRUST DEED INVESTMENTS
Trust deed investments are funds invested in promissory notes secured
by real estate deeds of trust. These trust deed investments have
maturities of one year or less with interest rates ranging from 12% to
14% payable monthly, with principal due at maturity.
3. NOTE PAYABLE
As of June 30, 1999, the Company owes a note payable of $350,000
representing a liability acquired as part of the asset purchase
agreement between the Company and Del Mar Holdings, Inc. as it relates
to the Transactions. The note payable is an amount due to an unrelated
party and is due July 1999.
4. RELATED PARTY TRANSACTIONS
As of June 30, 1999, the Company has a balance due from related parties
of $167,898 which represents amounts due from an entity wholly-owned by
the Company's major shareholder. This balance bears no interest and is
due on demand.
As of June 30, 1999, a note receivable of $435,646 is due from the
Company's major shareholder in the form of a promissory note. The
promissory note is collateralized by this shareholder's stock in the
Company, bears interest of 8%, and the principal and interest is due on
December 2001.
5
<PAGE>
DEL MAR MORTGAGE, INC. AND
DEL MAR HOLDINGS, INC.
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
From April 1, For the From January 1, For the
1999 through Three Months 1999 through Six Months
April 26, Ended April 26, Ended
1999 June 30, 1998 1999 June 30, 1998
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Loan origination and related fees $ 1,475,494 $ 1,681,159 $ 2,633,050 $ 3,362,317
Interest income 259,419 141,293 488,885 282,586
Other income 105,395 195,601 191,060 391,202
------------- ------------- ------------- -------------
Total revenues 1,840,308 2,018,053 3,312,995 4,036,105
Expenses:
Sales and marketing 238,084 203,372 407,685 406,744
General and administrative 981,192 1,170,356 1,781,991 2,340,712
------------- ------------- ------------- -------------
Total expenses 1,219,276 1,373,728 2,189,676 2,747,456
------------- ------------- ------------- -------------
Net income $ 621,032 $ 644,325 $ 1,123,319 $ 1,288,649
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Primary and fully diluted earnings per common share $ .0.21 $ 0.22 $ 0.38 $ 0.44
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of common share used
in primary and fully diluted per share calculation 2,934,762 2,934,762 2,934,762 2,934,762
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
BASIS OF CONDENSED COMBINED STATEMENTS OF OPERATIONS PRESENTATION: The condensed
combined statements of operations for Del Mar Mortgage, Inc. and Del Mar
Holdings, Inc. noted above have been presented on a historical basis. The
condensed combined statements of operations cover periods relating to the three
and six months ended June 30, 1998, periods from April 1, 1999 through April 26,
1999, and periods from January 1, 1999 through April 26, 1999. These statements
are intended to report the combined result of operations for the three months
ended June 30 and six months ended June 30 for 1999 and 1998, respectively,
prior to the reorganization on April 27, 1999 as discussed in the notes to the
condensed combined financial statements. These statements should be read in
conjunction with the Sunderland Corporation condensed consolidated statement of
operations for periods from April 27, 1999 through June 30, 1999 and the
accompanying notes thereto.
See Accompanying Notes to Financial Statements
6
<PAGE>
DEL MAR MORTGAGE, INC. AND
DEL MAR HOLDINGS, INC.
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period For the Six
January 1, 1999 Months
Through Ended
April 26, 1999 June 30, 1998
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,123,319 $ 1,288,649
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 884 6,365
Changes in operating assets and liabilities:
Increase in accounts receivable (72,556) (349,385)
Increase in other assets (235,253) (265,909)
Decrease in due from/to related party (1,255,304) (774,184)
Increase (decrease) in accounts payable (139,271) 64,362
------------- ------------
Net cash used by operating activities (578,181) (30,102)
Cash flow from investing activities:
Purchase of furniture and equipment 18,067 (12,282)
Cash outlay for trust deed investments -- (1,976,741)
Cash received from principal of
trust deed investments 636,894 --
------------- ------------
Net cash provided (used) by
investing activities 654,961 (1,989,023)
------------- ------------
Cash flow from financing activities:
Payments of capital lease obligations (221) (603)
Proceeds from issuance of common stock -- 3,206,242
------------- ------------
Net cash provided (used) by
financing activities (221) 3,205,639
------------- ------------
Net increase in cash 76,559 1,186,514
Cash, beginning balance 457,931 191,141
------------- ------------
Cash, ending balance $ 534,490 $ 1,377,655
------------- ------------
------------- ------------
</TABLE>
See Accompanying Notes to Financial Statements
7
<PAGE>
DEL MAR MORTGAGE, INC. AND
DEL MAR HOLDINGS, INC.
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
APRIL 26, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - The accompanying combined financial statements include
the combined accounts of Del Mar Holdings, Inc. ("DMH") and Del Mar
Mortgage, Inc. ("DMM"), which are under common management of DMH. The
combined group is collectively referred to as the "Company". The
combined financial statements have been presented on a combined basis
due to common control and management. In addition, these entities are
expected to be the subject of a business combination during the fourth
quarter of 1998. All significant intercompany balances and transactions
have been eliminated.
Del Mar Holdings, Inc. was incorporated in the state of Nevada in
January 1998. The Company operates as a management company in the
state of Nevada.
Del Mar Mortgage, Inc. was incorporated in the state of Nevada in April
1995. The Company operates as a mortgage company licensed in the state
of Nevada. The Company is engaged in the origination, arrangement, and
secondary purchase and sale of loans secured by real property. In
addition, the Company services construction loans during the
construction period which it has arranged for investor parties.
USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures during the reporting period.
Accordingly, actual results could differ from those estimates.
REVENUE RECOGNITION - The Company recognizes revenue primarily from
loan origination fees and extension fees. Loan origination fees are
recorded as revenue at the close of escrow. Extension fees are recorded
as revenue at the extension grant date.
EXPENSES - Expenses incurred from cost of revenues and operating are
recorded in the period incurred.
ADVERTISING COSTS - Advertising costs incurred in the normal course of
operations are expensed currently.
2. RELATED PARTY TRANSACTIONS
The Company incurred management fees expense of $702,532 for the six
months ended June 30, 1998 which were paid to an entity wholly-owned by
the Company's sole shareholder.
3. REORGANIZATION
On April 27, 1999, Sunderland Acquisition Corporation ("Sunderland")
consummated an asset purchase agreement with Del Mar Mortgage, Inc. and
Del Mar Holdings, Inc. (collectively referred to as "Del Mar Entities")
whereby Sunderland acquired certain assets and assumed certain
liabilities of the Del Mar Entities in exchange for 2,934,762 share of
common stock of Sunderland. Accordingly, the business combination
between the Del Mar Entities and Sunderland has been accounted for as a
reorganization of entities under common control. The reorganization
reflects the combined financial statements of the Del Mar Entities and
the restatement of their stockholders' equity for the shares issued by
Sunderland in a manner similar to a stock split. Assets consisting of
trust deeds, receivables, and fixed assets approximating $3,019,000,
and a liability consisting of a promissory note totaling $350,000 of
the Del Mar Entities were acquired by Sunderland, assets approximating
$2,340,000 not acquired, net of liabilities approximating $1,802,000
not assumed, have been accounted for as distributions to the Del Mar
Entities' shareholders. The transaction between the Del Mar Entities
and Sunderland has been accounted for as a reverse acquisition of
Sunderland by the Del Mar Entities and the assets of Sunderland have
been recorded at historical cost since Sunderland was a shell
corporation with no operations and only nominal assets prior to the
transaction.
8
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
SUNDERLAND CORPORATION
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the condensed
consolidated financial statements and the condensed combined financial
statements and the accompanying notes thereto included in Item 1 of this
Quarterly Report, and the financial statements and the Form 8-K/A filed
July 12, 1999.
FORWARD LOOKING STATEMENTS
When used in this Quarterly Report on Form 10-QSB the words or phrases "will
likely result," "are expected to," "will continue," "is anticipated," or similar
expressions are intended to identify "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are subject to certain risks and uncertainties, including but not limited to
changes in interest rates, the Company's dependence on debt financing and
securitizations to fund operations, risks associated with the Year 2000 issue,
and fluctuations in operating results. Such factors, which are discussed in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, could affect the Company's financial performance and could cause the
Company's actual results for future periods to differ materially from any
opinion or statements expressed herein with respect to future periods. As a
result, the Company wishes to caution readers not to place undue reliance on any
such forward looking statements, which speak only as of the date made.
OVERVIEW
HISTORY: Sunderland Corporation ("Sunderland" or "Company") was formed to
provide a method for a foreign or domestic private company to become a reporting
company whose securities would be qualified for trading in the United States
secondary market. Prior to the following transactions noted below, Sunderland
had no operations, revenues or liabilities.
On April 27, 1999, Sunderland Acquisition Corporation consummated an asset
purchase agreement with Del Mar Mortgage, Inc. and Del Mar Holdings, Inc.
(collectively referred to as "Del Mar Entities") whereby the Sunderland acquired
certain assets and assumed certain liabilities of the Del Mar Entities in
exchange for 2,934,762 shares of common stock of Sunderland. Sunderland
concurrently consummated a reorganization agreement with Capsource, Inc.
("Capsource") whereby the Company acquired all the outstanding capital stock of
Capsource in exchange for 12,000 shares of common stock of Sunderland (referred
to as the "Transactions").
The Del Mar Entities are related entities under common management and
controlling ownership. Accordingly, the business combination between the Del Mar
Entities has been accounted for as a reorganization of entities under common
control. The reorganization reflects the combined financial statements of the
Del Mar Entities and the restatement of their stockholders' equity for the
shares issued by Sunderland in a manner similar to a stock split. Only certain
assets of the Del Mar Entities were acquired by Sunderland; however, since the
Del Mar Entities are considered the accounting acquirer in the business
combinations with Sunderland and Capsource, the assets not acquired, net of the
liabilities not assumed, have been accounted for as distributions to the Del Mar
Entities' shareholders. The transaction between the Del Mar Entities and
Sunderland has been accounted for as a reverse acquisition of Sunderland by the
Del Mar Entities and the assets of Sunderland have been recorded at historical
cost since Sunderland was a shell corporation with no operations and only
nominal assets prior to the transaction.
The business combination between the Del Mar Entities and Capsource has been
accounted for under the purchase method of accounting resulting in recognition
of $1,390 in goodwill to be amortized over five years.
In connection with the transactions, 4,250,000 shares of common stock of
Sunderland held by the previous owners of Sunderland were retired. Effective as
of the date of consummation of the Transactions, Sunderland changed its name
from "Sunderland Acquisition Corporation" to "Sunderland Corporation", and
effected a 5 for 3 stock split of its issued and outstanding common stock. The
accompanying financial statements have been restated for the effects of the
stock split for all periods presented.
Sunderland, including the operations from the assets acquired from the Del Mar
Entities, and Capsource are collectively referred to herein as the "Company"
subsequent to the Transactions.
The Company has continued the loan origination segment of the various busness
operations formerly conducted by Del Mar Mortgage, Inc. through Capsource, a
wholly owned subsidiary. Capsource operates as a mortgage company licensed in
the state of Nevada. Capsource is engaged in the origination, arrangement, and
secondary purchase and sale of loans secured by real property.
9
<PAGE>
The commercial and residential developer mortgage banking business involve fees
based on origination and funding of nonconforming loans.
RESULTS OF OPERATIONS
The following table represents the Company's unaudited consolidated results of
operations for the three and six months ended June 30, 1999 and has been
presented in the following table on a pro forma basis giving effect to the
Transaction as if the Transactions had become effective at the beginning of the
period. The combined results of operations for Del Mar Mortgage, Inc. and Del
Mar Holdings, Inc. for the three and six months ended June 30, 1998 has also
been presented for comparative purposes.
<TABLE>
<CAPTION>
Pro Forma Consolidated Pro Forma Combined Del Mar Mortgage, Inc.
Sunderland Corporation and Del Mar Holdings, Inc
------------------------------ -----------------------------------------
For the Three For the Six For the Three For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 3,841,314 100% $ 5,314,001 100% $ 2,018,053 100% $ 4,036,105 100%
Sales and marketing expenses 705,570 18% 875,171 16% 203,372 10% 406,744 10%
General and administrative expenses 1,660,833 43% 2,461,632 46% 1,170,356 58% 2,340,712 58%
Income before provisions for income taxes 1,474,911 38% 1,977,198 37% 644,325 32% 1,288,649 32%
Provision for income taxes (1) 501,470 13% 672,247 13% 219,071 11% 438,141 11%
Net income $ 973,441 25% $ 1,304,951 25% $ 425,254 22% $ 850,508 22%
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share:
Primary and fully diluted $ .16 $ .21 $ .07 $ .14
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of common shares 6,161,270 6,161,270 6,161,270 6,161,270
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(1) Provisions for income taxes have been added for period ended June 30, 1998
using a tax rate of 34%.
REVENUE. The Company reported total revenues of $5.3 million for the six months
ended June 30, 1999, an increase from $4 million in the same period for 1998.
The increase in revenue was primarily due to an increase in fees charged on loan
origination and an increase in loan funding activities outside the State of
Nevada.
SALES AND MARKETING EXPENSES. Sales and marketing expenses of $0.9 million for
the six months ended June 30, 1999 increased from $0.4 million in the same
period for 1998. The increase in sales and marketing expenses is due to an
increase in commissions paid primarily related to the increase in loans
originated as discussed above.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of $2.5
million for the six months ended June 30, 1999 increased from $2.3 million in
the same period for 1998. The increase in general and administrative expenses is
primarily due to increased salary and office expenses from the Company's growth
in loan volume.
INCOME BEFORE PROVISIONS FOR INCOME TAXES. As a result of the foregoing factors,
income before provision for income taxes was $0.7 million for the six months
ended June 30, 1999, increased from $0.4 million in the same period for 1998.
LIQUIDITY AND FUNDING
Liquidity is a measure of a company's ability to meet potential cash
requirements, including ongoing commitments to fund lending activities and for
general purposes. Cash for originating loans and general operating expenses is
primarily obtained through cash flows from operations and private investors.
The Company has significant ongoing liquidity needs to support its existing
business and continued growth. The Company's liquidity is actively managed on a
periodic basis and the Company's financial status, including its liquidity, is
reviewed periodically by the Company's management. This process is intended to
ensure the maintenance of sufficient funds to meet the needs of the Company.
10
<PAGE>
The Company has historically relied upon the cash flow from operations to
provide for its capital requirements. Management believes that cash generated
from operations, together with cash and trust deed investments on hand at June
30, 1999 will be sufficient to provide for its capital requirements for at least
the next 12 months. The Company may seek additional equity financing in the
latter part of 1999 through a secondary offering of its common stock, and
contemplate that this offering, before expenses relating to the offering, will
be no less than $15 million and no more than $20 million. Further, the Company
will be actively seeking initial credit lines/arrangements of no less than $100
million. There can no assurance that the Company will be able to complete a
secondary offering or obtain credit lines/arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 requires recognition of all derivative instruments in the statement of
financial position as either assets or liabilities and the measurement of
derivative instruments at fair value. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. The adoption of SFAS No. 133 is not expected to
affect the consolidated financial statements of the Company.
In October 1998, the FASB issued SFAS No. 134, ACCOUNTING FOR MORTGAGE-BACKED
SECURITIES RETAINED AFTER THE SECURITIZATION OF MORTGAGE LOANS HELD FOR SALE BY
A MORTGAGE BANKING ENTERPRISE, AMENDMENT OF SFAS NO. 65. SFAS No. 134 requires
mortgage banking enterprises to classify loans held for sale that they have
securitized, based on their intent to sell or hold those investments. SFAS No.
134 is effective for the fiscal quarter beginning after December 15, 1998. The
adoption of SFAS No. 134 is not expected to affect the consolidated financial
statements of the Company.
YEAR 2000
GENERAL. Many of the world's computers, software programs and other equipment
using microprocessors or embedded chips currently have date field that use two
digits rather than four digits to define the applicable year. These computers,
programs and chips may be unable to properly interpret dates beyond the year
1999; for example, computer software that has date sensitive programming using a
two digit format may recognize a date using "00" as the year 1900 rather than
the year 2000. Such errors could potentially result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions or engage in similar normal
business activities, which, in turn, could lead to disruptions in the Company's
operations or performance.
The Company's assessments of the cost and timeliness of completion of Year 2000
modifications set forth below are based on management's best estimates, which
are derived using numerous assumptions relating to future events, including,
without limitation, the continued availability of certain internal and external
resources and third party readiness plans. Furthermore, as the Company's Year
2000 initiative (described below) progresses, the Company continues to revise
its estimates of the likely problems and costs associated with the Year 2000
problem and to adapt its contingency plan. However, there can be no assurance
that any estimate or assumption will prove to be accurate.
THE COMPANY'S YEAR 2000 INITIATIVE. The Company is conducting a comprehensive
Year 2000 initiative with respect to its internal business-critical systems.
This initiative encompasses information technology ("IT") systems and
applications, as well as non-IT systems and equipment with embedded technology,
such as fax machines and telephone systems, which may be impacted by the Year
2000 problem. Business-critical systems encompass internal accounting systems,
including general ledger, accounts payable and financial reporting applications;
and loan servicing systems; as well as the underlying technology required to
support the software. The initiative includes assessing, remediating or
replacing, testing and upgrading the Company's business-critical IT systems.
Based upon a review of the contemplated and planned stages of the initiative,
and testing done to date, the Company does not anticipate any material
difficulties in achieving Year 2000 readiness with respect to its internal
business-critical systems, and the Company anticipates that Year 2000 with
respect to virtually all its internal business-critical systems will be achieved
by mid 1999.
In addition to its own internal IT systems and non-IT systems, the Company may
be at risk from Year 2000 failures caused by or occurring to third parties.
These third parties can be classified into two groups. The first group includes
borrowers, lenders, vendors and other service providers with whom the Company
has a direct contractual relationship. The second group, while encompassing
certain members of the first group, is comprised of third parties providing
services or functions to large segments of society, both domestically and
internationally such as airlines, utilities and national stock exchanges.
As is the case with most other companies, the actions the Company can take to
avoid any adverse effects from the failure of companies, particularly those in
the second group, to become Year 2000 ready is extremely limited.
11
<PAGE>
There can be no assurance that the systems of the Company or those third parties
will be timely converted. Furthermore, there can be no assurance that a failure
to convert by another company, or a conversion that is not compatible with the
Company's systems or those of other companies on which the Company's systems
rely, would not have a material adverse effect on the Company.
The Company does not anticipate that it will incur additional expenditures in
connection with any modifications necessary to achieve Year 2000 readiness. The
Company estimates that is has incurred minimal costs of less than $10,000
related to its Year 2000 initiative through December 31, 1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
SUNDERLAND CORPORATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of
such proceedings contemplated against it.
ITEM 2. CHANGES IN SECURITIES
As more fully discussed in the Form 8-K, Sunderland concurrently consummated the
following related Transactions: (i) the acquisition of all of the outstanding
capital stock of Capsource for 12,000 shares of common stock of Sunderland; (ii)
the acquisition of certain assets of Del Mar Mortgage for 60,000 shares of
common stock of Sunderland to be distributed to its sole shareholder, Michael V.
Shustek; and (iii) the acquisition of certain assets of Del Mar Holdings for
2,874,762 shares of common stock of Sunderland to be distributed to its
respective shareholders. In connection with the Transactions, 4,250,000 shares
of the 5,000,000 shares of common stock of Sunderland held by Sunderland's
previous 100% owners, Mr. James M. Cassidy, his wholly owned affiliate, Pierce
Mill Associates, and Cassidy & Associates, a law firm in which Mr. Cassidy is a
principal, have been retired. As of the effective date of the Transactions, the
officer and director of Sunderland resigned and certain other persons became the
officers and directors of the Company, as described in the Form 8-K. Subsequent
to the Transactions, effective as of the date of consummation of the
Transactions, the Company changed its name to "Sunderland Corporation", and
effected a 5 for 3 stock split of its issued and outstanding common stock. The
Transactions are more fully set forth in the agreements that were attached and
filed as exhibits to the Form 8-K (collectively, the "TRANSACTION DOCUMENTS").
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Board of Directors of the Company submitted the Transactions, the Name
Change and the Stock Split to a vote of its shareholders. The shareholders have
approved the Transactions, the Name Change and the Stock Split. The Transaction
Documents have been previously filed by the Company as Exhibits to the Form 8-K,
and the amendment to the Company's Articles of Incorporation to reflect the Name
Change and the Stock Split is attached as an exhibit to this Form 10-QSB.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Report on Form 8-K and 8-K/A filed during the second quarter 1999:
A Current Report on Form 8-K filed May 4, 1999 regarding change in control of
registrant, consummation of merger between Sunderland Corporation and Capsource,
Inc., and consummation of acquisition of certain assets of Del Mar Mortgage,
Inc., and Del Mar Holdings, Inc.
An amendment to Form 8-K dated May 4, 1999 was filed on August 16, 1999
regarding financial statements for Capsource, Inc., Del Mar Mortgage, Inc., and
Del Mar Holdings, Inc.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUNDERLAND CORPORATION
By: /s/ Stephen J. Byrne
----------------------------
STEPHEN J. BYRNE, President
Dated: August 13, 1999
13
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