<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-88217
PROSPECTUS
SUNDERLAND CORPORATION
1,926,270 SHARES OF COMMON STOCK TO BE SOLD
BY THE HOLDERS THEREOF
This registration statement relates to the offer and sale of 1,926,270
shares of common stock, $.0001 par value per share, of Sunderland Corporation, a
Delaware corporation ("Sunderland" or the "Company") by the holders of such
common stock. All costs incurred in the registration of the shares are being
borne by Sunderland.
There has been no sustained market for Sunderland's common stock and there
is no assurance that a public market will develop, or that, if any such market
does develop, it will be sustained. Sales of the shares being offered by the
selling securityholders, or even the potential of such sales, may likely have an
adverse effect on the market price of the common stock of Sunderland, if a
market should develop.
The shares will become tradeable on the effective date of this prospectus.
The selling securityholders will receive the proceeds from the sale of their
shares and Sunderland will not receive any of the proceeds from such sales. The
selling securityholders, directly or through agents, dealers or representatives
to be designated from time to time, may sell their shares on terms to be
determined at the time of sale. SEE "PLAN OF DISTRIBUTION." The selling
securityholders reserve the sole right to accept or reject, in whole or in part,
any proposed purchase of the shares being offered for sale.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" CONTAINED
IN THIS PROSPECTUS BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND COMPANY OR
PRICE TO PUBLIC(1) COMMISSIONS(2) OTHER PERSONS
------------------ -------------- -------------
<S> <C> <C> <C>
Per Share........................................ Unknown $0 (3)
Total...................................... Unknown $0 (3)
</TABLE>
- ------------------------
(1) All the shares are being sold by the selling securityholders and no offering
price to the public has been determined. Each selling securityholder will
sell its shares in separate transactions at prices to be negotiated at that
time.
(2) The shares are being sold by the selling securityholders and Sunderland has
no agreements or understandings with any broker or dealer for the sales of
such shares. A selling securityholder may determine to use a broker-dealer
in the sale of its securities and the commission paid to such broker-dealer
if any, will be determined at that time. Prior to the involvement of any
such broker-dealer, such broker-dealer must seek and obtain clearance of the
compensation arrangements from the National Association of Securities
Dealers, Inc. In such event, Sunderland will file a post-effective amendment
identifying such broker-dealer(s).
(3) Sunderland will not receive any proceeds from the sale of the shares.
The date of this Prospectus is October 20, 1999.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED BY, THE
MORE DETAILED INFORMATION SET FORTH IN THIS PROSPECTUS, WHICH SHOULD BE READ IN
ITS ENTIRETY.
SUNDERLAND CORPORATION
In April, 1999, Sunderland acquired all the outstanding capital stock of
Capsource, Inc., a licensed Nevada mortgage company which became a wholly-owned
subsidiary of Sunderland, and consummated related acquisitions of certain assets
of Del Mar Mortgage, Inc. and Del Mar Holdings, Inc., in exchange for an
aggregate of 2,946,762 shares of common stock of Sunderland. Through Capsource,
Sunderland originates loans, primarily for commercial and residential
developers, and obtains funds for these loans through private lenders. By virtue
of purchase of the assets of Del Mar Holdings, Inc., Sunderland also holds
selected real estate mortgage assets and serves as an investment vehicle in
related real estate and other business activities.
Sunderland is subject to the reporting requirements of the Securities
Exchange Act of 1934.
TRADING MARKET
There is currently no trading market for Sunderland's securities.
2
<PAGE>
SELECTED FINANCIAL DATA
As more fully explained in the accompanying financial statements, the
acquisition by Sunderland of certain assets, net of certain liabilities, from
Del Mar Mortgage, Inc. and Del Mar Holdings, Inc. (the "Del Mar Entities") was
accounted for as the reorganization of the Del Mar Entities into Sunderland on
April 27, 1999. The following table sets forth selected financial data of
Sunderland and subsidiary from April 27, 1999, and of the Del Mar Entities, on a
combined basis through April 27, 1999. The selected financial data has been
derived from the consolidated financial statements and notes thereto of
Sunderland and subsidiary from April 27, 1999 through June 30, 1999 and the
combined and separate financial statements of the Del Mar Entities and notes
thereto which are included elsewhere in this prospectus. The pro forma operating
data for the six months ended June 30, 1999 and for the year ended December 31,
1998 has been derived from the unaudited pro forma condensed consolidated
statements of operations which are included elsewhere in this prospectus. The
operating data for interim periods are not necessarily indicative of results for
subsequent periods or the full year. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with the financial statements of Sunderland and
the Del Mar Entities appearing elsewhere in this prospectus.
OPERATING DATA:
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL CONSOLIDATED/COMBINED
----------------------------------- -------------------------------------------
FOR THE FOR THE FOR THE YEARS ENDED
SIX MONTHS FOR THE SIX MONTHS DECEMBER 31,
ENDED YEAR ENDED ENDED --------------------------
JUNE 30, 1999 DECEMBER 31, 1998 JUNE 30, 1998 1998 1997
-------------- ------------------ -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues................... $5,788,986 $7,406,624 $3,593,977 $7,187,954(a) $4,877,299
Operating expenses
Sales and marketing...... 927,171 536,077 268,039 536,077 642,558
General and
administrative......... 2,762,310 4,034,461 1,908,869 3,820,273(a) 4,663,022
Interest................. 24,765 115,956 59,246 115,956 --
Income (Loss) before income
taxes.................... 2,074,740 2,720,130 1,357,823 2,715,648 (428,281)
Income tax provision....... 705,412 924,844 -- -- 1,513
Net income (loss).......... 1,369,328 1,795,286 1,357,823 2,715,648 (429,794)
Basic and diluted income
(loss) per common
share.................... $ 0.22 $ 0.30 $ 0.28 $ 0.57 $ (0.10)
Weighted average common
shares outstanding....... 6,161,270 5,980,220 4,891,270 4,730,220 4,433,762
</TABLE>
3
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
CONSOLIDATED COMBINED
JUNE 30, DECEMBER 31,
1999 1998
------------ -------------
<S> <C> <C>
Current assets.............................................. $3,516,489 $4,765,960
Total assets................................................ 3,572,632 4,819,893
Current liabilities......................................... 673,868 2,138,216
Total liabilities........................................... 673,868 2,151,934
Stockholders' equity........................................ 2,898,764 2,667,959
Total liabilities and stockholders' equity.................. 3,572,632 4,819,893
</TABLE>
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(a) Adjusted to eliminated intercompany management and referral fees of
$301,353.
4
<PAGE>
RISK FACTORS
There are substantial risk factors involved in investment in Sunderland.
Investment in Sunderland is speculative and no assurances can be made of any
return to investors.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus may contain certain forward-looking statements and
information relating to Sunderland that are based on its beliefs and its
principals as well as assumptions made by and information currently available to
them. These statements include, among other things, the discussions of
Sunderland's business strategy and expectations concerning its market position,
future operations, expansion opportunities, and profitability. When used in
these documents, the words "anticipate," "feel," "believe," "estimate,"
"expect," "plan," and "intend" and similar expressions, as they relate to
Sunderland or its principals, are intended to identify forward-looking
statements. Such statements reflect the current view of Sunderland respecting
future events and are subject to certain risks, uncertainties, and assumptions,
including the meaningful and important risks and uncertainties noted,
particularly those related to the operations, results of operations, and growth
strategy of Sunderland, liquidity, competitive factors and pricing pressures,
changes in legal and regulatory requirements, general economic conditions, and
other factors described herein. Although Sunderland has attempted to identify
important facts that could cause actual results to differ materially, there may
be other factors that cause the forward-looking statement not to come true as
anticipated, believed, estimated, expected, planned, or intended. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected, or intended.
Neither Sunderland nor any other person undertakes any obligation to revise
these forward-looking statements, to identify important facts, or to reflect the
occurrence of unanticipated events after the date hereof that could cause actual
results to differ materially.
5
<PAGE>
RISK FACTORS
SUNDERLAND HAS NO OPERATING HISTORY
While Sunderland's executive management, as well as the assets it acquired
from Del Mar Mortgage and Del Mar Holdings, provide it with experience and
recognition in the real estate mortgage business, Sunderland has no operating
history as it is currently structured. Because of the nature of Sunderland's
business, and its lack of operating history under its current structure,
historical results of operations may not be indicative of future financial
operating results and future financial performance is unknown. There is no
assurance Sunderland will show operating profits.
SUNDERLAND IS DEPENDENT ON AVAILABILITY OF FUNDING SOURCES
Sunderland currently raises funds for the origination of loans primarily
through private investor-lenders, especially repeat investors, including
retirees and successful professionals. A decline in the willingness of investors
to become repeat investors or an erosion of the investor base through death,
alternative investments, adverse publicity or otherwise, could have a material
adverse effect on Sunderland's ability to place new loans and would require
Sunderland to expend substantially more resources to attract new investors.
There can be no assurance that Sunderland will be able to retain its current
investor base as sources of funding for new loans or that it will be able to
attract new investors. Although it has not previously done so, Sunderland may
also seek alternative sources of financing, but there can be no assurance that
such other financing, if sought, will be available on terms acceptable to
Sunderland, if at all.
NON-CONVENTIONAL LOANS PROVIDED BY SUNDERLAND MAY INVOLVE DIFFERENT RISKS
Sunderland originates non-conventional type of loans to finance residential
and commercial development. Sunderland focuses its requirements for loan
approval almost exclusively on the equity or collateral provided. In certain
instances, as in the case of unimproved land, the collateral is based on the
anticipated development of the property. From time to time, Sunderland's
subsidiary has been, and Sunderland may be in the future, a holder of some or
all of such loans. Since loans are issued based on these or other projections,
there is the possibility that under certain circumstances the developer may not
be able to repay the loan. To the extent that Sunderland is a holder of such
loan, it would have to bear a portion or all of the expense of attempting to
collect on whatever collateral is available and stand to lose any shortfall
therefrom.
SUNDERLAND IS DEPENDENT UPON THE EXPERIENCE AND KNOWLEDGE OF ITS KEY PERSONNEL
The operations of Sunderland will depend to a great extent on the efforts
and expertise of Sunderland's executive officers and directors, particularly,
its Chairman and Chief Executive Officer, Michael V. Shustek, its President,
Stephen J. Byrne, and its Secretary and Chief Financial Officer, Lance Bradford,
each of whom were previously associated with Del Mar Mortgage. Among the
benefits accruing to Sunderland from Mr. Shustek is his established base of
repeat investors through which Sunderland intends to place the majority of the
loans it originates in the future. Mr. Shustek, directly and through his
business entities, has expended substantial time, effort and expense to build
this investor base, and as part of the asset acquisition of Del Mar Mortgage,
Sunderland acquired the rights to this investor base.
Except for Mr. Byrne, Sunderland has no employment contracts with these
individuals, and it carries no key man insurance on any of these individuals,
although all are shareholders of Sunderland. In addition, it is not anticipated
that Sunderland will maintain "key man" insurance with any of its senior
management or other employees, although Sunderland, in its discretion, may enter
into employment contracts with such management or employees in the future as it
deems appropriate. See "MANAGEMENT." If Sunderland is unable to retain its
senior management for any reason, Sunderland could be materially and adversely
affected.
6
<PAGE>
PAST DISCIPLINARY ACTION MAY IMPACT ON FUTURE OPERATIONS
On February 11, 1999, the State of Nevada, Department of Business and
Industry, Financial Institutions Division issued an Order Taking Possession of
Mortgage Companies against Del Mar Mortgage which order alleged certain
violations of the Nevada regulatory statutes and established a conservator to
oversee Del Mar Mortgage's operations. On February 16, 1999, Del Mar Mortgage
filed a complaint against the Financial Institutions Division in response to
such Order. On March 26, 1999, the Order was dismissed and the conservator
removed. As part of its asset purchase, Sunderland purchased the Del Mar
Mortgage name and intends to utilize the name in connection with its real estate
loan origination operations in the future. Adverse publicity created by the
Financial Institutions Division's subsequently vacated actions may have a
adverse effect on the reputation of Sunderland which may have an impact on its
future operations.
NO ASSURANCE THAT FINANCIAL RESULTS WILL SHOW A PROFIT
Sunderland expects to be profitable for the year ended December 31, 1999 on
a consolidated "pro forma" basis giving effect to the acquisition of Capsource
as a subsidiary and the acquisition of the assets of Del Mar Holdings and Del
Mar Mortgage. Capsource does not intend to service any loans, but instead rely
solely on third-parties to service the loans it originates. While the exclusion
of revenues from servicing is not material to Sunderland's current financial
condition or its results of operations as reflected in its pro forma
consolidated financial statements for the year ended December 31, 1998, there
can be no assurance that the absence of servicing in the future will not have a
material adverse impact on Sunderland.
FLUCTUATING INTEREST RATES MAY ADVERSELY AFFECT THE MORTGAGE MARKET AND ABILITY
TO ATTRACT MORTGAGE LOANS
Fluctuations in interest rates and increases and decreases of the prime rate
may directly impact the mortgage market and the ability of Sunderland to attract
mortgage loans. If interest rates should rise, the number of applications for
new mortgages may fall. The mortgage market is composed of borrowers who are
interest rate-driven often with the use of a mortgage loan as part of an
investment strategy; that is, certain mortgage borrowers refinance current
mortgages for ones with lower interest rates and terms. As interest rates
increase, such refinancing diminishes and the number of loan applications
decreases. There can be no assurances that interest rates will not rise and
negatively impact Sunderland's ability to attract mortgage loans.
FLUCTUATIONS IN FINANCIAL RESULTS MAY STEM FROM SEASONAL TRENDS OF MORTGAGE
BUSINESS
The mortgage banking industry is generally subject to seasonal trends. These
trends reflect the general pattern of resales of homes, which sales typically
peak during the spring and summer seasons and decline from January through
March. Refinancings tend to be less seasonal and more closely related to changes
in interest rates. Because of the seasonality, results for any single quarter
are not necessarily indicative of results that may be achieved for a full fiscal
year.
CHANGES IN FEDERAL OR STATE LAWS MAY IMPACT ON SUNDERLAND'S OPERATIONS
Sunderland is subject to extensive regulation and supervision by federal,
state, and local authorities, including the Nevada Division of Financial
Institutions. Because Sunderland's business is highly regulated, the laws,
rules and regulations applicable to Sunderland and its subsidiaries are subject
to on-going modification and change. The Nevada legislature recently adopted
Assembly Bill No. 64, which will become effective October 1, 1999 which could
significantly increase the cost and complexity of regulatory compliance to
Sunderland. It is possible that additional laws, rules and regulations could be
adopted in the future which could make compliance more difficult or expensive,
could restrict Sunderland's ability to originate or broker loans, further limit
or restrict the amount of fees, interest and other charges earned on loans
originated or sold by Sunderland, or otherwise adversely effect the business of
Sunderland.
7
<PAGE>
SUNDERLAND SUBJECT TO GENERAL MORTGAGE BUSINESS RISKS OUTSIDE ITS CONTROL
Sunderland's business is subject to a variety of business risks. Demand for
loan origination by Sunderland fluctuates depending upon real estate value,
prevailing interest rates, the level of consumer confidence and the expectation
of investment returns by the financial community, any one of which could
adversely affect the marketability of Sunderland's products. In addition,
Sunderland may be adversely affected by other factors, that could
(i) increase the cost to the borrower of loans originated by Sunderland,
(ii) create alternative lending sources for such borrowers, or
(iii) adversely impact returns realized by its funding sources.
Governmental intervention through elimination of tax benefits for home
equity loans, regulation of an increased scope of loans or introduction of
additional regulations aimed at mortgage loans could also adversely affect
Sunderland's business.
SUNDERLAND MAY BE SUBJECT TO LAWSUITS AND CLAIMS
In the ordinary course of its business Sunderland is subject to claims made
against it by borrowers and lenders arising from, among other things, losses
that are claimed to have been incurred as a result of breaches of fiduciary
obligation, misrepresentations, errors and omissions of employees and officers
of Sunderland (including its appraisers), incomplete documentation and failures
by Sunderland to comply with various laws and regulations applicable to its
business. Sunderland believes that any liability with respect to any currently
asserted claims or legal actions is not likely to have a material effect on
Sunderland's results of operations, however, there can be no assurance that
claims asserted in the future will not result in legal expenses or liabilities
which could have a material adverse effect on Sunderland's financial position
and results of operations.
NO DIVERSITY OF OPERATIONS AS BUSINESS OPERATIONS ARE CONCENTRATED IN THE STATE
OF NEVADA
Sunderland (through its wholly-owned operating subsidiary, Capsource)
currently originates loans secured by real estate located principally within the
State of Nevada, and in particular within the greater Las Vegas area.
Accordingly, the volume of Sunderland's loan originations, and Sunderland's
business in general, will be greatly affected by the economic conditions of
Nevada and the Las Vegas area. While Sunderland hopes to expand its operations
outside the State of Nevada, it has not yet begun this expansion and there can
be no assurances that Sunderland will be able to successfully achieve such an
expansion. Therefore, a downturn or stagnation in the economic environment of
Nevada, and of the Las Vegas area in particular, could have a material adverse
effect on Sunderland's financial condition and the value of the real estate
securing loans originated by Sunderland.
THE MORTGAGE BUSINESS IS HIGHLY COMPETITIVE
In addition to competing with other mortgage origination companies, brokers
and consumer finance lenders, Sunderland will compete with financial
institutions that have substantially greater financial resources than
Sunderland. These financial institutions also offer lower interest rates and
longer terms combined with lower fees or commissions than those offered by
Sunderland. Although as a result of consolidation the number of financial
institutions is being reduced, Sunderland will face increased competition from
the remaining institutions or newly created financial institutions. Moreover,
non-conventional lenders also compete with Sunderland within its specific market
niche. While Sunderland believes that it competes favorably against both
traditional and non-conventional mortgage lenders, there can be no assurance
that Sunderland will remain competitive. Changes in the mortgage lending
industry or within Sunderland's market niche, and a failure or inability to
timely respond to such changes could have a materially adverse effect on
Sunderland's competitiveness and operations.
8
<PAGE>
POTENTIAL COMPUTER DISRUPTION BEGINNING IN YEAR 2000
Computer programs involving dates and time periods generally have been
written to express years by their last two digits, on the assumption that the
first two digits of every year are 19, such that "98" means 1998. In the year
2000, these computer programs may produce errors with respect to any statements,
calculations or other measures involving dates or time periods. Such programs
require substantial review and rewriting in order to correct the potential
problems.
Sunderland uses a significant number of software applications which require
correction to avoid errors in its loan origination and administrative
operations. The failure or inability to timely address year 2000 issues with
respect to its computer programs could have a material adverse effect on
Sunderland and its customers. SEE "BUSINESS--Company's Year 2000 Initiative".
Sunderland 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. Sunderland
believes that it will have its systems tested and compliant with the Year 2000.
However, Sunderland could be impacted by the failure of other domestic and
international banks, companies and governments to timely correct their computer
systems, telephone systems, mail and package delivery systems, transportation
systems, financial systems, and others. If any of these systems or systems of
other companies or countries become inoperational Sunderland may be directly and
significantly affected. The extent or duration of the problems connected with
the Year 2000 Problem are impossible to predict.
MANAGEMENT AND AFFILIATES OWN ENOUGH SHARES TO CONTROL SHAREHOLDER VOTE
Sunderland's executive officers and directors beneficially own approximately
60.6% of the outstanding common stock. Currently, the stock held by Mr. Shustek
is subject to a voting trust until February 27, 2000. After the expiration of
such voting trust, Sunderland's executive officers and directors will be able to
exercise controlling interest over matters requiring stockholder approval,
including the election of directors and the approval of material corporate
matters such as change of control transactions. The effects of such stock
ownership could be to delay or prevent a change of control of Sunderland unless
the terms are approved by such stockholders.
A PUBLIC MARKET MAY NOT DEVELOP FOR SUNDERLAND'S COMMON STOCK
A public trading market for the Sunderland common stock may not develop or
if developed may not be sustained. Furthermore, if for any reason the common
stock is not listed on the OTC Bulletin Board maintained by Nasdaq or a public
trading market does not otherwise develop, purchasers of the shares may have
difficulty selling their common stock or warrants should they desire to do so.
ISSUANCE OF ADDITIONAL COMMON STOCK WILL REDUCE INVESTORS PERCENTAGE OWNERSHIP
The future issuance of all or part of the remaining authorized common stock
or preferred stock could result in substantial reduction in the percentage of
Sunderland's common stock held by its then shareholders, including purchasers of
the shares offered herein. No vote of the shareholders is required for the
issuance of additional common stock or the designation and issuance of preferred
stock. Sunderland may determine to issue common stock for future acquisitions,
or other items, or may sell shares of its common stock at a price lower than
price paid by any purchaser hereof. Such issuance may have the effect of
diluting the value of the shares held by its then shareholders and might have a
material adverse effect on any trading market, should a trading market develop
for Sunderland's securities.
9
<PAGE>
ADDITIONAL SHARES ENTERING MARKET PURSUANT TO RULE 144 WITHOUT ADDITIONAL
CAPITAL CONTRIBUTION
Pursuant to Rule 144 of the General Rules and Regulations of the Securities
and Exchange Commission, after the expiration of the holding period certain
shares of Sunderland common stock now restricted for trading will become
eligible for trading in the public market without any additional payment
therefore or increase to Sunderland's capitalization. Possible or actual sales
of its outstanding common stock by all or some of the present stockholders may
have an adverse effect on the market price of Sunderland's common stock should a
public trading market develop. The additional availability of such shares to be
traded in the public market would increase the "public float" of Sunderland
without any corresponding increase in the its capital.
SELLING SECURITYHOLDERS MAY SELL SECURITIES AT ANY PRICE OR TIME SUBJECT TO
VOLUME LIMITATION
After effectiveness of this prospectus, the selling securityholders may
offer and sell their shares at a price and time determined by the selling
securityholder in accordance with applicable federal and state securities laws
and subject to certain volume limitations. To avoid possible violations of
Regulation M (pertaining, in general, to market trading practices) the Company
has agreed that during the first three months after its common stock begins
trading, a selling securityholder holding shares registered for sale herein may
sell no more than 5,000 shares plus 15% of his holdings in excess of 5,000
shares (rounded to even lots) per month. Affiliates of Sunderland will be
subject to limitations of Rule 144, including its volume limitations in the sale
of their shares. The timing of such sales and the price at which the shares are
sold by the selling securityholders could have an adverse effect upon the public
market for the common stock, should one develop.
POSSIBILITY OF NO STATE RESTRICTION ON SALES BY SELLING SECURITYHOLDERS
The National Securities Market Improvement Act of 1996 limits the authority
of states to impose restrictions upon sales of Securities made pursuant to
Sections 4(1) and 4(3) of the Securities Act of companies which file reports
under Sections 13 or 15(d) of the Securities Exchange Act. Sales by the selling
securityholders in the secondary market may be made pursuant to Section 4(1)
(sales other than by an issuer, underwriter or broker). It is anticipated that
following the effective date of this prospectus the selling securityholder's
shares will be eligible for resale in the secondary market in each state.
THE POSSIBILITY OF SUNDERLAND ISSUING ADDITIONAL PREFERRED STOCK WITH CERTAIN
PREFERENCES MAY DEPRESS MARKET PRICE OF THE COMMON STOCK
The Board of Directors may designate additional series or classes of
preferred shares without shareholder consent which designations may give the
holders of the preferred stock voting control and other preferred rights such as
to liquidation and dividends. The authority of the Board of Directors to issue
such stock without shareholder consent may have a depressive effect on the
market price of Sunderland's common stock even prior to any such designation or
issuance of preferred stock. Any such issuance of shares of preferred stock,
under certain circumstances, could have the effect of delaying or preventing a
change in control of Sunderland or other take-over attempt and could adversely
materially affect the rights of holders of shares of the common stock.
OFFICERS AND DIRECTORS HAVE LIMITED LIABILITY AND HAVE INDEMNITY RIGHTS
The Certificate of Incorporation and By-Laws of Sunderland provide that
Sunderland indemnify its officers and directors against losses sustained or
liabilities incurred which arise from any transaction in such officer's or
director's respective managerial capacity unless such officer or director
violates a duty of loyalty, did not act in good faith, engaged in intentional
misconduct or knowingly violated the law, approved an improper dividend, or
derived an improper benefit from the transaction. Sunderland's Certificate of
Incorporation and By-Laws also provide for the indemnification by it of its
officers and directors against any losses or liabilities incurred as a result of
the manner in which such officers and
10
<PAGE>
directors operate Sunderland's business or conduct its internal affairs,
provided that in connection with these activities they act in good faith and in
a manner which they reasonably believe to be in, or not opposed to, the best
interests of Sunderland and their conduct does not constitute gross negligence,
misconduct or breach of fiduciary obligations.
SUNDERLAND COMMON STOCK MAY BE SUBJECT TO PENNY STOCK REGULATION
Currently, there is no public market for Sunderland's common stock. If a
market for the common stock develops and the price of the common stock falls
below $5.00 per share, then the common stock may be considered "penny stock."
Penny stocks generally are equity securities with a price of less than $5.00 per
share other than securities registered on certain national securities exchanges
or quoted on the Nasdaq Stock Market, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system. Sunderland's securities may be subject to "penny stock"
rules that impose additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell Sunderland's
securities.
AVAILABLE INFORMATION
Sunderland is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected and copied on
the Commission's home page on the World Wide Web at HTTP://WWW.SEC.GOV or at the
Commission's public reference room located at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices located at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and at 7 World Trade Center, 13th Floor, New York, New York
10048. Information about the Commission's public reference room can be obtained
by calling 800/SEC-0330. Copies of such materials may also be obtained at
prescribed rates from the Public Reference Section of the Commission located at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549.
Sunderland has filed a registration statement relating to the securities
offered hereby with the Commission pursuant to the provisions of the Securities
Act of 1933, as amended (the "Securities Act"). This prospectus forms a part of
the registration statement; however, it does not contain all the information set
forth in the registration statement, the exhibits and schedules thereto and the
documents incorporated herein and therein by reference. For further information
with respect to Sunderland and the securities offered hereby, reference is made
to the registration statement, the exhibits and schedules thereto and the
documents incorporated herein and therein by reference. Summaries of and
references to various documents in this prospectus do not purport to be complete
and in each case reference is made to the copy of such document which has been
filed as an exhibit to or incorporated by reference into the registration
statement.
Sunderland will provide without charge to each person who receives a copy of
this prospectus, upon written or oral request by such person, a copy of any of
the information incorporated herein by reference, not including exhibits. Such
requests should be made in writing to Stephen J. Byrne, President, 2901 El
Camino Avenue, Las Vegas, Nevada 89102.
Sunderland intends to furnish its stockholders with annual reports
containing audited financial statements and such other reports as may be
required by law.
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THE COMPANY
Sunderland was formed in Delaware on June 2, 1998 as Sunderland Acquisition
Corporation 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. On August 13, 1998, Sunderland Acquisition
Corporation filed a Form 10-SB pursuant to the Securities Exchange Act of 1934,
as amended. On April 27, 1999, Sunderland Acquisition Corporation acquired all
the outstanding stock capital stock of Capsource, Inc., a licensed Nevada
mortgage company, in exchange for an aggregate of 12,000 (pre-split) shares of
Sunderland shares of common stock. Simultaneously, Sunderland Acquisition
Corporation consummated the acquisition of certain assets and the assumption of
certain liabilities of Del Mar Mortgage, Inc. and Del Mar Holdings, Inc., in
exchange for an aggregate of 2,934,762 (pre-split) shares of common stock of
Sunderland Acquisition Corporation. Del Mar Holdings, Del Mar Mortgage and
Capsource, Inc. are related entities under common management and controlling
ownership.
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 forward stock split of its issued and
outstanding common stock.
Through its wholly owned operating subsidiary, Capsource, Sunderland is
engaged in the origination, arrangement and secondary purchase and sale of loans
secured by real property primarily for commercial and residential developers.
Sunderland obtains funds for these loans through private lenders. By virtue of
purchase of the assets of Del Mar Holdings, Inc., Sunderland also holds selected
real estate mortgage assets.
Sunderland is subject to the reporting requirements of the Securities
Exchange Act of 1934.
Sunderland has an authorized capitalization of 100,000,000 shares of common
stock, par value of $.0001 per share, of which 6,161,270 shares are issued and
outstanding, and 20,000,000 shares of non-designated preferred stock, par value
$.0001, of which no shares have been designated or issued. The address of
Sunderland is 2901 El Camino Avenue, Las Vegas, Nevada 89102 and its telephone
number (702) 227-0965. SEE "DESCRIPTION OF SECURITIES."
EMPLOYEES
Sunderland currently employs a staff of 17 full time employees consisting of
three employees in the loan underwriting department and 14 employees in general
administration.
USE OF PROCEEDS
Sunderland will not receive any proceeds from the sale of the shares.
DIVIDEND POLICY
Sunderland currently intends to retain substantially all of its earnings, if
any, to support the development of its business and has no present intention of
paying any dividends on its common stock in the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Board of Directors, and will depend on Sunderland's financial condition, results
of operations and capital requirements, and such other factors as the Board of
Directors deems relevant.
BUSINESS
References herein to Sunderland or the Company include its wholly-owned
subsidiary, Capsource, Inc., and the assets and liabilities acquired in the
transactions with Del Mar Holdings, Inc. and Del Mar Mortgage, Inc.
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OVERVIEW
Prior to its acquisition in April, 1999, of Capsource, Inc. as a subsidiary
and its acquisition of certain of the assets of Del Mar Mortgage, Inc. and Del
Mar Holdings, Inc., Sunderland had no operations, liabilities or revenues. With
the completion of these transactions, Sunderland acquired Capsource as a
wholly-owned subsidiary. Sunderland also acquired the customer lists, right to
the name, and certain fixed assets of Del Mar Mortgage, Inc. and deeds of trust
and other notes receivable and liabilities totaling $350,000 from Del Mar
Holdings. Sunderland intends to continue the operations of Capsource in the
mortgage lending business primarily in the State of Nevada as well as seeking to
expand its operations through the acquisition of similar companies in other
geographic areas. Capsource, Inc., a Nevada corporation incorporated in 1997, is
a private mortgage lender, licensed to engage in similar activities as Del Mar
Mortgage in the State of Nevada. Sunderland has developed a niche as a
"non-conventional" mortgage lender providing short-term, equity-based loans on
an expedited basis for slightly higher fees and rates.
Del Mar Mortgage, Inc., a Nevada corporation incorporated on April 20, 1995,
is a private mortgage lender in the State of Nevada. Del Mar Mortgage, Inc. will
continue its operations while it liquidates its collateralized mortgage
certificates which were not transferred with the asset acquisition of April,
1999. Del Mar Holdings, Inc. was incorporated in the State of Nevada in 1997. It
was formed to hold selected real estate mortgage assets and serve as an
investment vehicle in related real estate and other business activities that
either were not consistent with Del Mar Mortgage's strategic business objectives
or would be diversionary with respect to the operational effectiveness of Del
Mar Mortgage. Del Mar Holdings intends to liquidate at the end of 1999.
Through Capsource and with the acquisition of the assets of Del Mar
Mortgage, Sunderland originates loans, primarily for commercial and residential
developers, and obtains funds for these loans through private lenders.
Sunderland earns its principal revenues through (i) loan origination fees on the
loans it originates; and (ii) loan progress fees equal to the spread between the
interest rate collected from borrowers and the interest rate to be paid to
investors. Because of the speed of Sunderland's approval and funding of loans
(typically 10-20 days) compared to conventional mortgage lenders (typically
30-120 days), Sunderland's borrowers have been willing to pay a higher interest
rate, which in turn attracts lenders willing to fund such loans.
DESCRIPTION OF BUSINESS
Mortgage lending refers to the origination and funding of loans secured by
real property. Loan origination involves the processing of a loan application,
including necessary documentation and research, the approval of the loan and the
funding of the loan.
The mortgage lending industry consists of large public and private
institutional lenders, such as banks, insurance companies, and savings and loan
associations, as well as numerous private and non-conventional lenders. An
origination through traditional mortgage lenders, such as banks, generally
involves cumbersome procedures, extensive documentation and the passage of a
substantial length of time. To obtain a loan from a traditional mortgage lender,
Borrowers need to establish
(i) good character, as determined through credit checks and references,
(ii) capacity to repay the loan, as determined by bank statements and
sources of income, and
(iii) adequate collateral, as determined by property appraisal,
environmental reports and other documentation.
A deficiency in any one area can result in rejection of the loan
application. The typical loan origination process takes between 30-120 days.
Non-conventional lenders seek to address the needs of borrowers unable or
unwilling to accommodate the more restrictive requirements of traditional
lenders, and who require more responsive turn
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around time. These non-conventional lenders typically emphasize the value of
collateral in their review, thereby reducing the paperwork and time required to
judge other factors.
TARGET MARKETS
Sunderland's key market is comprised of potential or current borrowers who
have significant equity in real property but whose needs are not being met by
traditional mortgage lenders. The extensive requirements of traditional lenders
and the cumbersome documentation and length of time involved in conventional
loans leave many borrowers without financial services capable of meeting their
particularized needs. Commercial and residential developers are an important
segment of these borrowers.
Typically, developers depend upon, among other things, the timely completion
of a project to obtain a competitive advantage in the sale of their properties.
Traditional mortgage lenders generally require extensive documentation and
between 30 to 120 days to process and fund a loan, which creates an
administrative burden and substantially delays construction.
Sunderland has sought to service the developer by offering expedited loan
processing, which generally provides expedited loan funding between 1 to 3
months quicker than traditional mortgage lenders. Sunderland's focus on
collateral also reduces the paperwork involved in lien processing.
In meeting such needs, Sunderland has established a market niche as a
non-conventional mortgage lender. Currently, approximately 85% of the loans
originated by Sunderland service this specific market segment. The remaining 15%
of Sunderland's loans involve primarily (i) land loans (10%), and (ii) bridge
financing loans (5%).
OVERVIEW OF OPERATIONS
LOAN PROCESSING
Upon receipt of a loan request, Sunderland commences the loan application
and approval process. Sunderland undertakes a review of the relevant information
required of the borrower regarding his, her, or its financial condition, the
purpose of the loan and the real property involved. Such information may
include, among other things, credit reports, environmental reports and property
appraisals. All loans originated by Sunderland are first reviewed and approved
by the loan committee to confirm that all requirements have been satisfied,
although the loan committee may waive certain loan requirements based upon its
overall review of the loan. Based upon experience and expertise as well as
review of any property appraisal, the loan committee prepares a valuation of
each property from which the reserve for loan losses will be set according to
the appropriate loan to value ratio for the transaction. The loan committee
consists of three or more officers or loan managers of Sunderland authorized to
approve loans. The loan committee members have substantial experience in the
real estate and mortgage lending industries.
LOAN FUNDING
Sunderland funds its loans primarily through investors. Investors provide
funds by investing in all or portions of promissory notes secured by deeds of
trust. The investors receive monthly interest payments from the promissory notes
of Sunderland's loans. In addition, the deeds of trust grant a security interest
in the real property which serves as collateral for the loan. Because of the low
loan-to-value ratio required by Sunderland and the borrower's equity in the
properties, the secured notes offer substantial protection of the investment
while yielding a significant return.
CURRENT OPERATIONS
Sunderland currently markets its services to potential borrowers through
local media, i.e. newspapers and radio and has established a Web site on the
Internet at http://www.delmarmtg.com. Sunderland also utilizes traditional
sources to market its services including real estate brokers, banks and other
institutional
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lenders through personal contact. Sunderland believes that it has developed a
reputation in the local marketplace for short-term securitized loans.
Sunderland's pool of loan participants is principally derived from its data
base of prior participants in securitized mortgages, consisting of approximately
3,500 potential investors. Sunderland markets to potential new participants
through local media, Sunderland's Web site and through contact with lawyers,
accountants, investment advisors, bankers, and others.
Sunderland has received 560 mortgage loan applications since January 1, 1999
of which approximately over $122,000,000 of those mortgage applications have
been successfully funded and $12,000,000 remain as active loan applications in
the pipeline. The loan pipeline is defined as the volume of loans in
Sunderland's system that have met all of Sunderland's preliminary qualification
criteria and are consequently eligible for funding. These loans have been
preapproved and are awaiting final review. Generally, between 65% to 70% of the
loans in the Pipeline successfully pass the final review and are funded. The
majority of loans that fund will do so within 90 days from entrance into the
pipeline.
Currently mortgage loans, placed by Sunderland, for an approximate aggregate
value of $223,000,000 are held by private investors.
EXPANSION INTO NEW MARKETS
Sunderland's loans are primarily for the purchase and/or development of
property in Nevada, specifically primarily the Las Vegas, Nevada area. Las
Vegas, Nevada, has been a high growth area with a strong demand for residential
and commercial development loans. Sunderland anticipates that this growth will
continue, even if at slightly diminished rates, but Sunderland intends to expand
its business into new markets and has established a broker participation program
in which brokers outside of Nevada will market Sunderland's products. In the
event that such programs evidence sufficient demand in other markets, Sunderland
anticipates establishing branch offices and/or acquiring existing licensed
mortgage companies (such as Capsource) in such other markets. There can be no
assurance that the expertise and experience of management in the Nevada market
will be adaptable to other markets. The inability of Sunderland to understand
other markets or to implement its strategy in other markets could materially
adversely affect Sunderland's expansion plans and results of operations.
SOURCES OF REVENUE
Sunderland intends to generate revenues primarily through fees charged in
connection with the origination of loans, loan progress fees equal to amounts
received from the spread between interest rates charged to borrowers and
interest rate paid to investors, and other miscellaneous fees as may be charged
in connection with loan extensions, renewals, terminations and other such fees.
LOAN FEES
Sunderland, through Capsource, generates revenues from fees related to the
origination of loans. For each loan originated by it, Sunderland receives a loan
origination fee of up to 4% of the principal amount of the loan. A processing
fee of approximately $2,000 per loan is charged to document and package the
loan. Late charges are assessed for non-timely payments. Sunderland may also
receive additional fees for closing accounts upon termination of a loan (i.e.,
"exit fees").
LOAN PROGRESS FEES--INTEREST SPREAD
Sunderland earns a portion of its revenues through loan progress fees of
amounts equal to the difference between the interest rates charged to borrowers
and the interest rates paid to lenders. Sunderland typically receives an
interest spread of .75% as loan progress fees. For construction loans, which
constitute the bulk of Sunderland's loans, interest begins to accrue on the
amounts set forth on the
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initial draw schedule as of the date of each draw, with the condition that
interest will commence to accrue on the entire principal of the loan in the
fifth (5th) month after the closing of the loan regardless of the draw schedule.
In the event that the actual schedule of the borrower differs from the draw
schedule, interest will still commence to accrue on the dates and in the amounts
set forth on the draw schedule, or sooner in the event that the actual dates
precede the scheduled dates. Therefore, to the extent that the borrower
experiences delays, the actual draw schedule will occur later than the initial
draw schedule and the borrower will begin to pay interest on the draw amounts
even though disbursement of such amount has not been made. Sunderland receives
loan progress fees to the extent that such interest due from the borrowers is
greater than the interest due to Sunderland's investors (lenders) under their
subscriptions to invest in such loans.
TYPES OF LOANS
Sunderland originates different types of loans. Construction loans, however,
constitute approximately 85% of the loans originated by Sunderland. Land loans
comprise approximately 10% of Sunderland's loan portfolio and the remaining 5%
of Sunderland's loans involve bridge financing. There are various stages in the
development of land and the construction of structures thereon, which stages
correspond to the different types of loans originated by Sunderland.
CONSTRUCTION LOANS
A construction loan provides funds for the construction of one or more
structures on developed land. Typically, Sunderland does an appraisal of the
real value of the property and proposed improvements and will lend up to 75% of
such value. In the event the construction loan is for the construction of
multiple structures, such as a subdivision of homes, Sunderland will lend money
based solely upon the construction of the model homes which are to be used to
attract home buyers. Upon satisfactory completion of the model homes, Sunderland
will provide an additional loan for the construction of the remainder of the
subdivision. The additional loan amount will depend upon the pre-sales activity
for the homes to be built. If the developer has signed a contract for the sale
of a home, then Sunderland will generally lend up to 100% of the cost of
construction to build such home. The loan amount for unsold houses varies and
can exceed the 75% loan to value ratio of the model homes.
DEVELOPMENT PROPERTY LOANS
A development property loan consists of financing to complete the basic
development of the property, such as utility installation and curbing, prior to
construction. Upon completion of development, the property can readily be sold.
Generally, Sunderland undertakes an appraisal of the real value of the property
and will make a loan of up to 60% of such value.
RAW AND UNIMPROVED LAND LOANS
UNIMPROVED LAND LOAN. Sunderland offers loans for the purchase and/or
development of raw, unimproved land. Traditional lenders generally cannot make
such loans because the potential for distorted valuations of such land impairs
their ability to value the collateral appropriately. Generally, Sunderland
determines whether to make such loans based upon the 90-day quick sale value of
the property and the borrower's actual capital investment in the property. The
"90-day quick sale value" is the highest price for which such land could
actually be sold within 90 days, the approximate time of a foreclosure, as
determined by contacting real estate brokers and others. Such value is generally
the same as the cost of the land to the borrower. Typically, Sunderland will
lend less than 60% of the "90-day quick sale value" and generally require that
the borrower have invested in the property actual capital expenditures equal to
at least 25% of the property's value.
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RAW LAND INVENTORY LOAN. Raw land inventory loans represent property which
is outside current urbanization areas but which will be the next land to be
developed. Such land contains no improvements or infrastructure (i.e. roads,
sewer hook-ups, power lines), but such infrastructure is within the municipal
plans for expansion. For raw land inventory, Sunderland also typically does a
"90-day quick sale valuation", upon which it will generally lend up to 60% of
such value. In addition, Sunderland usually requires that the Borrower has
invested in the property actual capital expenditures equal to at least 20% of
the value.
BRIDGE LOANS
A bridge loan provides financing for commercial borrowers to make
improvements necessary for increasing the net operating income of the business
so that they can qualify for institutional refinancing. Sunderland will value
the existing property and generally loan up to 75% of such value.
BROKERED LOANS; HOME MORTGAGE LOANS
In addition to originating loans, Sunderland acts as a broker with respect
to permanent residential loans. Upon completion of a construction loan involving
residences, Sunderland typically offers the home buyers an opportunity to
originate a home mortgage loan through Sunderland. In such event, because of the
low interest rate involved in individual home mortgages, Sunderland will usually
arrange the loan with the borrower and place the loan with another lender. Loans
brokered by Sunderland typically meet the specific underwriting standards of the
Government National Mortgage Association (Ginny Mae), Federal National Mortgage
Association (Fanny Mae), and other such entities, which make such loans readily
saleable in the secondary market.
COMPETITION
Competition in the mortgage lending industry is intense. Many institutional
and other financial lenders are engaged in originating mortgage loans.
Sunderland considers its direct competitors 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. To
a lesser extent, Sunderland also competes with traditional mortgage lenders,
such as banks and other financial institutions that offer conventional mortgage
loans. Competition in Sunderland's market niche depends upon a number of
factors, including price/rates of the loan, speed of loan processing, cost of
capital, reliability, quality of service and support services.
Sunderland's principal competitors in its market niche as a non-conventional
mortgage lender in the Nevada market include: Consolidated Mortgage Corp., and
Interstate Mortgage Corp. Funding, both of which engage in originating the same
types of loans as Sunderland. In the broader market, Sunderland's competitors
consist of traditional mortgage lenders, which include Bank of America, Bank
One, Wells Fargo, Residential Funding, First Security Bank, United Bank of
Texas. Several of the companies against which Sunderland competes have
substantially greater financial, technical and other resources than it.
REGULATION
The operations of Sunderland are conducted through its wholly owned
operating subsidiary, Capsource, and are subject to extensive regulation by
federal, state and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations.
As a provider of mortgage loans, Sunderland is subject to certain government
regulations regarding the origination and funding of those loans pursuant to
Real Estate Settlement Procedure Act, Fair Credit Reporting Act, and
Truth-in-Lending Act. Such acts require that Sunderland furnish a potential
borrower with detailed information concerning, among other items, the identity
of the creditor, the loan servicer, the intention to sell or service the loan
(and percentage of loans sold in past three years), total finance charges,
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security, and payment schedules. Sunderland also furnishes to the borrower
information regarding the transaction including a good faith estimate of the
total costs involved coupled with a list of service providers for legal,
appraisal, title examination and settlement services as well as a borrower
information booklet which serves as a guide to a mortgage transaction. Pursuant
to these regulations, Sunderland files a compliance notice confirming compliance
with the delivery of such information to the prospective borrower. In addition,
Sunderland files a compliance notice confirming that it notified the potential
borrower of its intention to access a credit report and the borrower's right to
request a copy of such report. In instances where the applicant is denied credit
or the rate or charge for loans increase as a result of information obtained
from a consumer credit agency, the Fair Credit Reporting Act of 1970, as
amended, requires the lenders to supply the applicant with a name and address of
the reporting agency.
The Equal Credit Opportunity Act of 1974, as amended, and the Housing
Financial Discrimination Act of 1977 prohibit creditors from discriminating
against loan applicants on the basis of race, color, sex, age, marital status,
national origin, ancestry, lending or lifestyle trends, neighborhood
characteristics, or geographic area (unless the lender can demonstrate in the
particular case that such consideration is required to avoid unsafe and unsound
business practice). These laws restrict creditors from obtaining certain types
of information from loan applicants and require certain disclosures by the
lender regarding consumer rights and requires lenders to advise applicants of
the reasons for any credit denial.
Sunderland believes that it is in substantial compliance in all material
respects with applicable local, state and federal laws, rules and regulations.
There can be no assurance that laws, rules or regulations will not be adopted in
the future which could make compliance much more difficult or expensive,
restrict Sunderland's ability to originate or broker loans, further limit or
restrict the amount of fees, interest and other charges earned on loans
originated or brokered by Sunderland, or otherwise adversely affect the business
of Sunderland.
Capsource conducts its real estate mortgage business pursuant to a
"privileged" license issued by the Nevada Division of Financial Institutions.
Pursuant to Nevada Revised Statutes ("NRS") Sections 645B.010 through 645B.230
the Division has broad discretionary regulatory authority over Sunderland's
activities, including, without limitation, the authority to conduct periodic
regulatory audits with respect to all aspects of its operations. Sunderland is
routinely audited and subject to extensive regulatory compliance supervision by
the Nevada Division of Financial Institutions and, as such, subject to a broad
range of disciplinary actions ranging from informal warnings to revocation of
license.
Because Sunderland's business is highly regulated, the laws, rules and
regulations applicable to Sunderland are subject to regular modification and
change. There can be no assurance that laws, rules or regulations will not be
adopted in the future which could make compliance much more difficult or
expensive, restrict Sunderland's ability to originate, service or broker loans,
further limit or restrict the amount of commissions, interest and other charges
earned on loans originated or brokered by Sunderland, or otherwise adversely
affect the business or prospects of Sunderland.
PRIOR REGULATORY ACTIONS
On February 11, 1999, the State of Nevada, Department of Business and
Industry, Financial Institutions Division issued an Order Taking Possession of
Mortgage Companies against Del Mar Mortgage and Michael V. Shustek, Chairman of
the Board and Chief Executive Officer of Sunderland, which order alleged certain
violations of the Nevada regulatory statutes and established a conservator to
oversee operations and to conduct an audit of Sunderland's activities. On
February 16, 1999, Mr. Shustek filed a lawsuit in the District Court of Clark
County, Nevada, seeking, among other things, to have the Administrative Order
vacated. Upon completion of the audit, the overseer reported that all
deficiencies noted in the Division's report had been remedied, that no investor
assets had been in jeopardy, that all loans were fully in trust, and that all of
the investors' money had been properly accounted for. On March 29, 1999,
pursuant to a court ordered stipulation, the Order was vacated in its entirety
and operational control was returned to the licensee.
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PROPERTIES
Sunderland maintains its executive offices at 2901 El Camino Ave.,
Suite 206, Las Vegas, Nevada, consisting of approximately 7,000 square feet of
office space, which houses Sunderland's marketing, loan processing and
administrative functions. The current lease expires in March, 2004 and
Sunderland anticipates that it will renew the lease or enter into a new lease
for the same office space upon the expiration of the current term. Sunderland
also presently rents another approximately 1,300 square feet of space under a
lease that expires in November, 1999. It does not presently anticipate renewing
this lease upon expiration.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following financial review and analysis is intended to assist
prospective investors in understanding and evaluating the financial condition
and results of operations of the Company, for the years ended December 31, 1998
and 1997 and the six months ended June 30, 1999 and 1998. This information
should be read in conjunction with the Company's Financial Statements and
accompanying notes thereto, "Selected Consolidated Financial Data" and other
detailed information regarding the Company appearing elsewhere in this
Prospectus. All operations of the Company are conducted through its wholly owned
subsidiary, Capsource, Inc.
OVERVIEW
Sunderland Corporation is a newly-created company resulting from the
acquisition by Sunderland Acquisition Corporation, which had no operations,
revenues or liabilities, of Capsource, Inc., an operating Nevada mortgage
lending company, on April 27, 1999 in exchange for 20,000 (post-split) shares of
common stock of Sunderland. Simultaneously, Sunderland Acquisition Corporation
acquired certain assets and assumed certain liabilities of Del Mar Mortgage,
Inc., a Nevada mortgage company, and Del Mar Holdings, Inc., a Nevada
corporation, (the "Del Mar Entities") in exchange for 4,891,270 (post-split)
shares of common stock of Sunderland. Upon effectiveness of these transactions,
the Company changed its name to Sunderland Corporation and effected a 5-for-3
forward stock split of its common stock.
Because Del Mar Holdings and Del Mar Mortgage and are related entities under
common management and controlling ownership, the business combination between
them 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.
As part of the transactions, the Company assumed $350,000 in liabilities of
Del Mar Holdings.
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RESULTS OF OPERATIONS:
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 AND YEAR ENDED DECEMBER 31, 1997
The historical combined operations of the Del Mar Entities for the year
December 31, 1998 and 1997 are analyzed as follows:
REVENUE. The Company reported total revenues of approximately $7.2 million
in 1998 an increase from $4.9 million in 1997. 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.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of
$3.8 million for the year ended December 31, 1998 decreased from $4.7 million in
1997. General and administrative expenses increased primarily due to increased
salary and office expenses from the Company's growth in loan volume and
decreased due to the discontinuance in 1998 of the payment of referral fees to
Shustek Investments Inc., a company related through common ownership. Referral
fees were $1.5 million during 1997.
INCOME (LOSS) BEFORE INCOME TAXES. As a result of the foregoing factors,
income (loss) before income taxes of $2.7 million for 1998, increased from a
loss of $400 thousand in 1997.
COMPARISON OF PRO FORMA SIX MONTH PERIOD ENDED JUNE 30, 1999 AND HISTORICAL
COMBINED SIX MONTH PERIOD ENDED JUNE 30, 1998
The pro forma financial statements for the six months ended June 30, 1999
have been presented to give effect to the transactions with the Del Mar Entities
and Capsource as if the transactions had become effective at the beginning of
the period. They are compared to the historical combined results of operations
for the six months ended June 30, 1998.
REVENUE. The Company reported revenues of $5.8 million for the six months
ended June 30, 1999, an increase from $3.6 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 $0.3 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
$2.8 million for the six months ended June 30, 1999 increased from $1.9 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 INCOME TAXES. As a result of the foregoing factors, income
before income taxes of $2.0 million for the six months ended June 30, 1999,
increased from $1.4 million in the same period for 1998. Provision for income
taxes was not made during 1998 as the Del Mar Entities were not subject to
income taxes. However, pro forma provisions for income taxes for the six months
ended June 30, 1999 and 1998 were $0.7 million and $0.4 million respectively.
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.
20
<PAGE>
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.
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 an 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.
CAPITAL AND LIQUIDITY
During the six months ended June 30, 1999, cash flows from operating
activities provided $0.2 million compared to using $0.1 million during the same
period during 1998. Investing activities consisted primarily of collections of
mortgage loans of $0.6 million and purchases of mortgage loans in the amount of
$0.6 million.
On a combined basis, cash provided by operating activities, after
elimination of intercompany transactions increased to $2.6 million during the
year ended December 31, 1998 compared to $0.1 million during the year ended
December 31, 1997. This increase was primarily due to the increase in net
income. Cash used in investing activities was $2.7 million during 1998,
primarily from purchases of mortgage loans, compared to $0.2 in 1997. Cash used
by financing activities of $0.5 million in 1998 resulted primarily from $1.6
million advanced to a related party, $0.5 million advance to a shareholder and
$2.2 million received from the issuance of common stock. During 1997, financing
activities provided cash of $0.7 million which consisted primarily of $0.6
million from issuance of common stock and $0.5 from borrowing under notes
payable less $0.5 advanced to a related party.
At June 30, 1999, Sunderland had $0.2 million of cash and had $3.5 million
in current assets. At that same date, current liabilities were $0.7 million.
Stockholders' equity of $2.9 million included a receivable from a shareholder of
$0.4 million at June 30, 1999. Accordingly, Sunderland appears to have
sufficient working capital and capital to meet its operating needs in the near
term without additional external financing.
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.
21
<PAGE>
YEAR 2000 PROBLEM
Sunderland'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
compliance 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.
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.
22
<PAGE>
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- -------- -----------------------------------------------
<S> <C> <C>
Michael V. Shustek........................ 40 Chief Executive Officer and Director
Stephen J. Byrne.......................... 41 President and Director
Lance Bradford............................ 32 Chief Financial Officer and Corporate Secretary
Michael J. Whiteaker...................... 49 Vice-President of Regulatory Affairs
Robert J. Aalberts........................ 48 Director
Robert W. Fine............................ 63 Director
</TABLE>
All directors of the Company hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. At present,
the Company's Bylaws provide for not less than one nor more than five directors.
Currently, there are four directors of the Company. The Bylaws permit the Board
of Directors to fill any vacancy and such director may serve until the next
annual meeting of shareholders or until his successor is elected and qualified.
Officers serve at the discretion of the Board of Directors.
The principal occupation and business experience for each officer and
director of the Company, for at least the last five years are as follows:
MICHAEL V. SHUSTEK serves as Chairman of the Board of Directors and Chief
Executive Officer of the Company. Mr. Shustek founded Del Mar Mortgage in 1993
and has been involved in various aspects of the real estate industry in Nevada
since 1990. In 1993, he founded Foreclosures of Nevada, Inc., a company
specializing in non-judicial foreclosures and has built it into the second
largest company of its kind in the state. During the same year, he also
established Goldell Development, Inc., a company that specialized in residential
and commercial construction. With the completion of the existing projects and
the growth of Del Mar Mortgage, Goldell Development ceased operations in 1998.
In 1990, Mr. Shustek started Shustek Investments, a company that originally
specialized in property valuations for lending or investment purposes by third
parties and which continues today as the primary vehicle for his private
investment portfolio. Mr. Shustek is a guest lecturer at the University of
Nevada, Las Vegas, where he also teaches a course in Real Estate Law and Ethics.
Mr. Shustek received a Bachelor of Science degree in Finance at the University
of Nevada, Las Vegas.
On February 11, 1999, the Nevada Division of Financial Institutions on an ex
parte basis issued an administrative order against Del Mar Mortgage, Del Mar
Holdings, Michael V. Shustek, and certain other parties, alleging non-compliance
with the Mortgage Act, taking possession of the assets of Del Mar Mortgage, and
installing an interim overseer to conduct an audit of Del Mar Mortgage's assets
and operations. On February 16, 1999, Mr. Shustek filed a lawsuit in the
District Court of Clark County, Nevada, seeking, among other things, to have the
Administrative Order vacated. The interim overseer completed the audit and
reported that, all deficiencies noted in the Division's most recent audit had
been remedied, no investor's assets were ever in jeopardy, all loans were fully
in trust, and all of Del Mar investor's money was properly accounted for. On
March 26, 1999, pursuant to a court ordered stipulation, the Administrative
Order was vacated in its entirety.
STEPHEN J. BYRNE serves as President and a Director of the Company. Mr.
Byrne joined Del Mar Mortgage in June 1998 as its Senior Lending Officer. Prior
to joining Del Mar Mortgage, Mr. Byrne owned and operated Capsource, Inc., which
he founded in February 1997, and which is involved in substantially the same
asset lending activities as Del Mar Mortgage. From October, 1991 to February,
1997, Mr. Byrne served in Las Vegas as Vice-President of Wells Fargo Bank and of
its predecessor First Interstate Bank of Nevada. In that capacity, he underwrote
over $1.5 Billion in real estate, commercial and gaming industry loans. Mr.
Byrne served in various capacities with First Interstate Bank, including
management of the
23
<PAGE>
Diversified Asset Group based in Las Vegas and heading-up the commercial
Diversified Asset Group in Houston, Texas. Mr. Byrne received a Bachelor's of
Science degree in Business Administration from Hastings College, Hastings,
Nebraska.
LANCE BRADFORD joined the Company in April of 1999 as Chief Financial
Officer, Corporate Secretary, and Director. Since 1992, Mr. Bradford has been a
partner in L. L. Bradford & Company, Las Vegas, Nevada, a Certified Public
Accounting firm that he founded. From 1988 to 1991, Mr. Bradford served as an
accountant with Ernst & Young International. Mr. Bradford received a Bachelor of
Science degree in Accounting from the University of Nevada, Reno.
MICHAEL J. WHITEAKER joined the Company in May, 1999 as its Vice-President
of Regulatory Affairs. From 1982 to 1999, Mr. Whiteaker served with the State of
Nevada as its Supervisory Examiner, responsible for the financial and regulatory
compliance audits of all financial institutions in Nevada. In this capacity, he
supervised the activities of the examiners and served as the interface with
management and/or board of directors of the regulated financial institutions.
Mr. Whiteaker worked extensively on matters pertaining to both state and federal
statutes, examination procedures and policy determination, credit administration
for commercial, real estate, and consumer loans procedures, and all facets of
operations management. From 1973 to 1982, Mr. Whiteaker was Assistant
Vice-President of the Nevada National Bank, responsible for a variety of matters
including loan reviews. Mr. Whiteaker received a Bachelor of Science degree in
Management from the University of Nevada, Reno.
ROBERT AALBERTS serves as a Director of the Company. Since 1991, Mr.
Aalberts has held the Ernst Lied Professor of Legal Studies chair at the
University of Nevada, Las Vegas. From 1984 to 1991, Mr. Aalberts was an
Associate Professor of Business Law at Louisiana State University - Shreveport.
From 1982 through 1984, he served as an attorney for Gulf Oil Company. Mr.
Aalberts has either authored or co-authored books relating to the regulatory
environment, law and business. His work is either cited in, and/or he is the
author of, almost 100 legal articles, dealing with various aspects of real
estate, business, and the practice of law. Mr. Aalberts received his Juris
Doctor degree from Loyola University, New Orleans, Louisiana and received a
Master of Arts from the University of Missouri. He is a member of the State Bar
of Louisiana.
ROBERT W. FINE serves as a Director of the Company. Since 1998, Mr. Fine has
been the President of Equisource Group Ltd., a company providing
investment-banking services to businesses seeking to raise capital or to become
public companies. From 1993 to 1998, Mr. Fine was President of Transworld
Healthcare, a company providing home healthcare products and services, during
which period the company grew from less than $7 million in revenues to over $80
million. From 1990 to 1993, the year of its sale, Mr. Fine served as President
of the Fortress Company, a manufacturer of healthcare mobility devices. For the
seven years prior to joining Fortress, Mr. Fine was President of ConAc, a
company that specialized in mergers and acquisitions. During this period, the
company provided assistance in over 100 mergers, principally in the healthcare
field. Mr. Fine received a Bachelor of Arts in Accounting degree from Bentley
College, Waltham, Massachusetts.
EMPLOYMENT AGREEMENTS
The Company has entered into employment arrangements with Stephen Byrne, its
President and a Director. Mr. Byrne was initially employed by Del Mar Mortgage,
Inc. in October, 1998. Sunderland assumed Mr. Byrne's two- year employment
agreement in April, 1999 which agreement provided for the services of Byrne as a
loan officer and underwriter at a salary of $65,000. The employment agreement
includes confidentiality and non-competition provisions which restrict him from
using the Company's information and clientele for personal uses and from
engaging in a competing business. Mr. Byrne does not have an employment
agreement with Sunderland for serving as its President.
24
<PAGE>
REMUNERATION
The Company began payment to its personnel as of April, 1999. The Company
has undertaken to pay Michael V. Shustek, as Chief Executive Officer of the
Company, annual compensation of $720,000 and Stephen J. Byrne, as President of
the Company, annual compensation of $60,000.
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
The Certificate of Incorporation and Bylaws of Sunderland provide that it
shall, to the fullest extent permitted by applicable law, as amended from time
to time, indemnify all of its directors, as well as any of its officers or
employees to whom the Company has agreed to grant indemnification.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of their capacity or status as directors
and officers provided that this provision shall not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of shareholders or otherwise.
The effect of the foregoing is to require the Company to indemnify the
officers and directors of the Company for any claim arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
25
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of the effective date
of this prospectus regarding the beneficial ownership of Sunderland's common
stock by each of its officers and directors and by each person who owns in
excess of five percent of its common stock giving effect to the exercise of
warrants or options held by the named securityholder.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
COMMON PERCENT OF COMMON STOCK
STOCK BENEFICIALLY COMMON STOCK BENEFICIALLY OWNED
NAME OWNED(1) BENEFICIALLY OWNED AFTER OFFERING(2)
- ---- ------------------ ------------------ ------------------
<S> <C> <C> <C>
Michael V. Shustek........................... 3,270,000 53.1% 53.1%
Chairman and Chief Executive Officer
129 Augusta
Henderson, Nevada 89104
Stephen J. Byrne............................. 30,200 * *
President, Director
1808 Dalton Avenue
Henderson, Nevada 89104
Lance Bradford............................... 30,000 * *
Chief Financial Officer and Corporate
Secretary
3441 Eastern Avenue
Las Vegas, Nevada 89109
Michael J. Whiteaker......................... 0 0% 0%
Vice-President of Regulatory Affairs
Robert J. Aalberts........................... 1,000 * *
Director
311 Vallarte Drive
Henderson NV 89614
Robert W. Fine............................... 400,000 6.5% 6.5%
Director
111 Ashley Avenue
Brielle, New Jersey 08730
All directors and executive officers as a
group
(6 persons)................................ 3,731,200 60.6% 60.6%
</TABLE>
- ------------------------
* Less than 1%
(1) Based upon 6,161,270 shares outstanding giving effect to the Company's
5-for-3 forward stock split in April, 1999.
(2) No new shares are being issued in this offering.
26
<PAGE>
SELLING SECURITYHOLDERS
Sunderland is registering for offer and sale shares of its common stock held
by certain security holders. The selling securityholders may offer their shares
for sale on a continuous or delayed basis pursuant to Rule 415 under the 1933
Act. SEE "RISK FACTORS--Additional Shares Entering Public Market without
Additional Capital Pursuant to Rule 144" and "Selling Securityholders May Sell
Shares at any Price or Time."
Subsequent to the effective date of this prospectus, the Company intends to
apply for quotation on the OTC Bulletin Board which is maintained by Nasdaq for
its common stock; however, there can be no assurance that the common stock will
be accepted for quotation thereon. SEE "RISK FACTORS--No Current Trading Market
for the Company's Securities" and "DESCRIPTION OF SECURITIES--Admission to
Quotation to Nasdaq SmallCap Market and Bulletin Board"
All of the shares registered herein will become tradeable on the effective
date of this prospectus, subject to certain volume limitations. To avoid
possible violations of Regulation M (pertaining, in general, to market trading
practices) the Company has agreed that during the first three months after its
common stock begins trading, a selling securityholder holding shares registered
for sale herein may sell no more than 5,000 shares plus 15% of his holdings in
excess of 5,000 shares (rounded to even lots) per month.
The following table sets forth the beneficial ownership of the shares held
by each person who is a selling securityholder and by all selling
securityholders as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Robert Alberts 1,000 1,000 * 0.00%
Anthony Alfano & 100 100 * 0.00%
Madeline Alfano Ten Com
Marcella Ardelean 200 200 0.00% 0.00%
Clark Central Ave 10,000 10,000 * 0.00%
Celene Ayala 200 200 * 0.00%
Adnan Aydin 100 100 * 0.00%
Adnan Aydin Cust 100 100 * 0.00%
Alan Aydin
Fuat Aydin Cust 100 100 * 0.00%
Albert Fuat Aydin
Fuat Aydin Cust 100 100 * 0.00%
Brenda Alicia Aydin
Cora Aydin Cust 100 100 * 0.00%
Christopher Aydin
Cora Aydin Cust 100 100 * 0.00%
Nyman Aydin
Adnan Aydin Cust 100 100 * 0.00%
Robert Aydin
Annette Baer 4,000 4,000 * 0.00%
Courtney Baumann 200 200 * 0.00%
Adele Berger Cust 100 100 * 0.00%
Erica Camille Berger
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Adele Berger Cust 100 100 * 0.00%
Joshua Derek Berger
Barbara Jane Bernet 200 200 * 0.00%
Gorana C. Bier 100 100 * 0.00%
Robert R. Bier 1,000 1,000 * 0.00%
FBO Justin Edward Bier Education Trust
Robert R Bier Cust 100 100 * 0.00%
Justin Bier
Robert Bier 1,000 1,000 * 0.00%
Robert R. Bier & 100 100 * 0.00%
Gorana C. Bier Ten Com
Lynda Grahill Bland C/F 100 100 * 0.00%
Carson Grahill Bland
Suzie J. Bopp 200 200 * 0.00%
Nicholas Boustiskaris 100 100 * 0.00%
Scott Boutiskaris 100 100 * 0.00%
Isabel Branco Cust 100 100 * 0.00%
Anthony Branco
Lisa H. Bredhoff 100 100 * 0.00%
Richard T. Bredhoff 200 200 * 0.00%
Susan Joan Bredhoff 200 200 * 0.00%
Donald R. Matz Cust 100 100 * 0.00%
Darren Brill
Donald M. Matz Cust 100 100 * 0.00%
Kristen Brill
Herman Brockman 3,750 3,750 * 0.00%
Brookside Associates Inc. 250 250 * 0.00%
Brutello Investments NV 280,000 280,000 4.54% 0.00%
Silvia Buckley 200 200 * 0.00%
Stephen Byrne 30200 200 * *
Rui L. Caleiro Cust 200 200 * 0.00%
Luis M Caleiro
Richard De Capua 250 250 * 0.00%
Aurelio Cardoso 1,000 1,000 * 0.00%
Ryan J Carter 250 250 * 0.00%
Pat A Castellano 500 500 * 0.00%
Wayne Francis Cebollero Cust 100 100 * 0.00%
Justin M. Cebollero
Lisa M. Cebollero & 100 100 * 0.00%
Wayne Franis Cebollero JT Ten
Wayne Francis Cebollero Cust 100 100 * 0.00%
Nicholas A Cebollero
Wayne Francis Cebollero 100 100 * 0.00%
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Dominic Cervello 10,000 10,000 * 0.00%
Joan Charkowski 5,500 5,500 * 0.00%
Vito J Chiaravalloti 1,000 1,000 * 0.00%
Daniel Chin Cust 100 100 * 0.00%
Alexander G Chin
Daniel Chin Cust 100 100 * 0.00%
Sarah A Chin
Daniel A Chin Cust 100 100 * 0.00%
Simon Chin
Daniel Chin Cust 100 100 * 0.00%
Steven A Chin
Julie Cohen Cust 100 100 * 0.00%
David Cohen
Julie Cohen Cust 100 100 * 0.00%
Kristen Cohen
Julie Cohen Cust 100 100 * 0.00%
Steven Cohen
Arthur R Talbot Cust 100 100 * 0.00%
Melody E Colacino
Arthur R. Talbot Cust 100 100 * 0.00%
Nicholas Colacino
Gail Ann Kraus Cust 100 100 * 0.00%
Kevin Patrick Collins
Paul R. Connaghan & 5200 200 * *
Susan E. Connaghan JT Ten
Sean R. Cronin Cust 100 100 * 0.00%
Cole Parker Cronin
Sean R. Cronin 100 100 * 0.00%
Kristen L Curry 4,000 4,000 * 0.00%
Maria Cutinello Cust 100 100 * 0.00%
Aimee Cutinello
Maria Cutinello Cust 100 100 * 0.00%
Christine Cutinello
Marco Cutinello & 100 100 * 0.00%
Barbara Cutinello Ten Com
Maria Cutinello 100 100 * 0.00%
Mark T Cutinello 500 500 * 0.00%
Dawnmarie Damiani 100 100 * 0.00%
Jacobs Joseph Danovan 200 200 * 0.00%
John Dawson 8,200 8,200 * 0.00%
Shannon H. Dawson 200 200 * 0.00%
Janet E Denisi Cust 100 100 * 0.00%
Gaia Denisi
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Janet E. Denisi 100 100 * 0.00%
Samuel F. Denisi 100 100 * 0.00%
Dawnmarie Damiani C/F 100 100 * 0.00%
Nicole Dequarto
Dawnmarie Damiani Cust 100 100 * 0.00%
Peter Dequarto
Robert Dibias 3,000 3,000 * 0.00%
Dillon Investments Ltd 280,000 280,000 4.54% 0.00%
Richard Dinardo 200 200 * 0.00%
Eva Christina Dotson 200 200 * 0.00%
Richard Driggers 71,865 71,865 1.17% 0.00%
Grace B. Early 500 500 * 0.00%
Errol Erkman 100 100 * 0.00%
Ronald Favor Jr. 250 250 * 0.00%
Andrew L. Feld Cust 100 100 * 0.00%
Dyanna R. Feld
Andrew L. Feld Cust 100 100 * 0.00%
Michael C. Feld
Robert Ferra 200 200 * 0.00%
Elizabeth Filippatos C/F 100 100 * 0.00%
George J. Filip
George Filipatos C/F 100 100 * 0.00%
Ronnie Filipatos
Elizabeth Filappatos Cust 100 100 * 0.00%
Eleni Jane Filippatos
Kathy Filippatos C/F 100 100 * 0.00%
Jerry Filippatos
David M. Fine 1,000 1,000 * 0.00%
Janet E. Fine 3,000 3,000 * 0.00%
Jonathan E. Fine 1,000 1,000 * 0.00%
Millie Ford C/F 100 100 * 0.00%
Wayne E. Ford
Millie Ford C/F 100 100 * 0.00%
Leah N. Ford
Wayne Ford 1,500 1,500 * 0.00%
Arvis Forrest 24,000 24,000 * 0.00%
Dean Galasso & Lori Galasso Ten Com 100 100 * 0.00%
Louis Galasso III C/F 100 100 * 0.00%
Christina Galasso
Paul P. Galasso 100 100 * 0.00%
Anthony Gattini 100 100 * 0.00%
Anthony Gattini C/F 100 100 * 0.00%
Ryan Matthew Gattini
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Marian Georgeles 100 100 * 0.00%
Gary Geraci 3,600 3,600 * 0.00%
Charles Eric Von Goerken 5,000 5,000 * 0.00%
Carolyn G. Goldman 200 200 * 0.00%
John Grahill C/F 100 100 * 0.00%
Robert J. Grahill
Madelyn J. Grahill 1,500 1,500 * 0.00%
Laura Granelli Cust 100 100 * 0.00%
Kara Granelli
Pierto Grastella 500 500 * 0.00%
Dr Bernard Greenblatt Tr 200,000 200,000 3.25% 0.00%
Bernard Greenblatt Ttee FBO 50,000 50,000 * 0.00%
Bernard Greenblatt Dtd 7-15-1996
John Greico 21,402 21,402 * 0.00%
Benny Guastella 100 100 * 0.00%
Jack Guastella Cust 100 100 * 0.00%
Christina Guastella
Jack Guastella & 100 100 * 0.00%
Esther Guastella Jt Ten
Laura Guastella Cust 100 100 * 0.00%
Kimberly M Guastella
Jack Guastella Cust 100 100 * 0.00%
Peter Guastella
Laurie Guastella Cust 100 100 * 0.00%
Sarah E Guastella
Albert Mark Guerriero 1,000 1,000 * 0.00%
Carl Gurney 500 500 * 0.00%
Valerie A Gustofson Cust 100 100 * 0.00%
Beth A Gustofson
Valerie Anne Gustofson Cust 100 100 * 0.00%
Eric M Gustofson
Valerie A Gustofson Cust 100 100 * 0.00%
Kimberly Gustofson
Valerie Anne Gustofson 100 100 * 0.00%
Steve Haldemen 1,800 1,800 * 0.00%
Donna Hirsch Cust 100 100 * 0.00%
Lea C Hirsch
Richard Hirsch 100 100 * 0.00%
Donna L Hirsh 100 100 * 0.00%
Frank Hoefert III 300 300 * 0.00%
Robert Hornstein 5,000 5,000 * 0.00%
Beverly Hunt 100 100 * 0.00%
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Ray Hunt Cust 100 100 * 0.00%
Eric E Hunt
Ray Hunt Cust 100 100 * 0.00%
Jason J Hunt
Ray Hunt Cust 100 100 * 0.00%
Joseph R Hunt
Ray Hunt 100 100 * 0.00%
Sycamore Group Ltd Inc. 1,000 1,000 * 0.00%
Anthony Inverno Cust 250 250 * 0.00%
Anthony Inverno
Anthony J Inverno 250 250 * 0.00%
Debra Inverno 250 250 * 0.00%
Anthony Inverno Cust 250 250 * 0.00%
Gordon Inverno
Ian A. Inverno 250 250 * 0.00%
Donovan Jacobs 31,603 31,603 * 0.00%
Daniel R Jayson Cust 100 100 * 0.00%
Andrew F Jayson
Daniel R. Jayson 100 100 * 0.00%
Daniel R Jayson Cust 100 100 * 0.00%
Nicholas D Jayson
Thomas J Kacerek Cust 100 100 * 0.00%
Krystina Kacerek
Thomas J Kacerek Cust 100 100 * 0.00%
Thomas Kacerek Jr
Thomas Kacerek 500 500 * 0.00%
George Kalopoulos 4,000 4,000 * 0.00%
George Kalopoulos Cust 100 100 * 0.00%
Grigoria Kalopoulos
George Kalopoulos Cust 100 100 * 0.00%
Olga Kalopoulos
Harry Karis 1,000 1,000 * 0.00%
Mike Khoda 1,000 1,000 * 0.00%
Mike Khoda Cust 100 100 * 0.00%
Sena Khoda
John Paul Kirwin III Cust 100 100 * 0.00%
Alexander Garnett Kirwin
John Kirwin Cust 100 100 * 0.00%
Beatrix Dorothy Kirwin
John Paul Kirwin Cust 100 100 * 0.00%
Caroline Huntley Kirwin
John Paul Kirwin III 1,000 1,000 * 0.00%
Steve Kozmary 25,000 25,000 * 0.00%
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Marvin F. Kraushar 100 100 * 0.00%
Marc Lantzman Cust 100 100 * 0.00%
David Lantzman
Marc Lantzman Cust 100 100 * 0.00%
Elsa Lantzman
Marc Lantzman Cust 100 100 * 0.00%
Justin Lantzman
Marc Lantzman 200 200 * 0.00%
Denise Lavroff Cust 100 100 * 0.00%
Andrew U Lavroff
Denise Lavroff 100 100 * 0.00%
Denise Lavroff Cust 100 100 * 0.00%
Marissa E Lavroff
Denise Lavroff Cust 100 100 * 0.00%
Sarah A Lavroff
Steve Lewkowicz Cust 100 100 * 0.00%
Daniel A Lewkowicz
Steve Lewkowicz Cust 100 100 * 0.00%
Joshua G Lewkowicz
Steve Lewkowicz Cust 100 100 * 0.00%
Michelle I Lewkowicz
Steven A. Lewkowicz 100 100 * 0.00%
LHS Associates & Co LP 2,000 2,000 * 0.00%
John C. Lish 2,000 2,000 * 0.00%
Elysse R. London 100 100 * 0.00%
Gail London 100 100 * 0.00%
Jeffery London 1,000 1,000 * 0.00%
Leona Lubliner 12,000 12,000 * 0.00%
Edward Lubrano Cust 100 100 * 0.00%
Anthony Lubrano
Edward Lubrano Cust 100 100 * 0.00%
Christopher Lubrano
Edward Lubrano 1,250 1,250 * 0.00%
Joe Lubrano 1,000 1,000 * 0.00%
Joe Lubrano Sr Cust 100 100 * 0.00%
Joe Lubrano Jr
Darlene B Lyndes 1,000 1,000 * 0.00%
Christine Mangione 200 200 * 0.00%
Jorge Masihy Cust 150 150 * 0.00%
Alexandria Masihy
Jorge Masihy Cust 150 150 * 0.00%
Jorge E. Masihy
Joan D Masino 100 100 * 0.00%
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Randy J Matz Cust 100 100 * 0.00%
Daniel A Matz
Don Matz 10,000 10,000 * 0.00%
Donald Robert Matz 1,500 1,500 * 0.00%
Randy J Matz Cust Samantha F Matz 100 100 * 0.00%
Peggy Sue May 40200 200 * *
Colin Mccavitt 1,500 1,500 * 0.00%
Robert Mcmullen Cust 100 100 * 0.00%
Matthew R. Mcmullen
Robert Mcmullen Cust 100 100 * 0.00%
Morgan E Mcmullen
uobert Mcmullen 100 100 * 0.00%
Deette Mcpherson 200 200 * 0.00%
Linda Merialdo 20,000 20,000 * 0.00%
Hugh Merriman 29,200 29,200 * 0.00%
Juliet Meyers 200 200 * 0.00%
Mabeline Mitchell 200 200 * 0.00%
Stephen G Moore Cust 100 100 * 0.00%
Brittany Moore
Stephen G Moore Jr Cust 100 100 * 0.00%
Kayla Moore
Stephen G Moore Cust 100 100 * 0.00%
Stephen G Moore
Stephen G Moore & 100 100 * 0.00%
Janet M Moore Jt Ten
Jerry Moreo 10,000 10,000 * 0.00%
Tracy Lin Culinnan Cust 200 200 * 0.00%
Chreestine T Mullen
Tracy Lin Cullinan Cust 200 200 * 0.00%
James M Mullen
Patrick Murray Cust 100 100 * 0.00%
Aden Murry
Tim Murray Cust 100 100 * 0.00%
Emma Murry
Patrick Murray Cust 100 100 * 0.00%
Meghan Murry
Norberto M Neves 100 100 * 0.00%
Eleni Nicola 100 100 * 0.00%
Eleni Nicola & 100 100 * 0.00%
Panayis Nicola Jt Ten
Panayis Nicola 100 100 * 0.00%
Chris Nicolaou 100 100 * 0.00%
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Chris Nicolaou & 100 100 * 0.00%
Georgia Nicolaou Jt Ten
Georgia Nicolaou 100 100 * 0.00%
Nicholas Nicolaou 100 100 * 0.00%
Chris Nicolaou Cust 100 100 * 0.00%
Nicholas Nicolaou
Peter Nicolaou 100 100 * 0.00%
Peter Nicolaou 100 100 * 0.00%
Jessica Nilsson 200 200 * 0.00%
Robert Ogren 60,000 60,000 * 0.00%
Richard S Olin 250 250 * 0.00%
Jorge Masihy Cust 150 150 * 0.00%
Alehandro M. Ortiz
Jorge Masihy Cust 150 150 * 0.00%
Paola A. Ortiz
Dimitrios Papazoglou Cust 100 100 * 0.00%
Dimitri Papazoglou
Dimitrios Papazoglou & 1,600 1,600 * 0.00%
Maple E Papazoglou Jt Ten
Dimitrios Papazoglou Cust 100 100 * 0.00%
Natasha Papazoglou
Dimitrios Papazoglou Cust 100 100 * 0.00%
Xenophon Papazoglou
Paxton Ltd 80,000 80,000 1.30% 0.00%
Peter Perillo Cust 100 100 * 0.00%
Michael P Perillo
Denise M Petrello Cust 100 100 * 0.00%
Nicholas A Petrello
Denise M Petrello Cust 100 100 * 0.00%
William J Petrello
Lei Shine Pi 200 200 * 0.00%
Kellie Piazza 200 200 * 0.00%
Anne Pink 10,000 10,000 * 0.00%
A.W. Pohlman 30,000 30,000 * 0.00%
Andy Politi Cust 100 100 * 0.00%
Alexa T. Politi
Andy Politi Cust 100 100 * 0.00%
Briana L Politi
Mary Politi 200 200 * 0.00%
Andy Politi Cust 100 100 * 0.00%
Nikki A Politi
Unif Tran Min Act NJ
Karen Prata 1,000 1,000 * 0.00%
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Andrew Radmin Cust 100 100 * 0.00%
Alana B Radmin
Andrew Radmin Cust 100 100 * 0.00%
Alexander C Radmin
Andrew I. Radmin 1,450 1,450 * 0.00%
Estate of Ruth Radmin 100 100 * 0.00%
Andrew I. Radmin Pers/Rep
William S. Redd Ttee 30,000 30,000 * 0.00%
Retina Center of New Jersey 100 100 * 0.00%
Pa Retirement Plan
Sherry Rhymer 1,250 1,250 * 0.00%
Sherry Rhymer & 100 100 * 0.00%
Bryan E Rhymer Jt
Rogers & Halderman Ltd. CPAs-- 8,400 8,400 * 0.00%
Profit Sharing Plan
Paul Rogers 1,800 1,800 * 0.00%
William H. Rorke 100 100 * 0.00%
David Russo 200 200 * 0.00%
Sherry Rymer Cust 100 100 * 0.00%
Dana Rymer
Sherry Rymer Cust 100 100 * 0.00%
Drew Rymer
Elaine Sherman 10,000 10,000 * 0.00%
Stella M. Shih Cust 100 100 * 0.00%
James S Shih
Stella Shih 100 100 * 0.00%
Stella M Shih Cust Timothy Y Shih 100 100 * 0.00%
Emanuel Shustek 100 100 * 0.00%
Joseph Sohler 100 100 * 0.00%
Yolanda M Sohler 100 100 * 0.00%
James Souza Jr. 1,600 1,600 * 0.00%
Anthony Spatola 100 100 * 0.00%
Cathy Spatola 100 100 * 0.00%
Anthony Spatola Cust 100 100 * 0.00%
Danielle Spatola
Fran Spatola 200 200 * 0.00%
Michael V. Spatola 100 100 * 0.00%
Nicholas J. Spatola 100 100 * 0.00%
Paul V. Spatola 100 100 * 0.00%
Peter Spatola 1,000 1,000 * 0.00%
Rosario Spatola 2,500 2,500 * 0.00%
Sammy V. Spatola 100 100 * 0.00%
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Vicki A Spatola 100 100 * 0.00%
Edward Spinello Cust 100 100 * 0.00%
Amanda N Spinello
Chris Spinello 2,000 2,000 * 0.00%
David Spinello 100 100 * 0.00%
Edward A. Spinello 500 500 * 0.00%
Christopher Spinello & 100 100 * 0.00%
Jennifer Spinello Jt
George M. Spiridis 2,900 2,900 * 0.00%
Ben Spirn 250 250 * 0.00%
Marc Spirn 250 250 * 0.00%
Sharon Spirn 250 250 * 0.00%
Don Stanley 20,000 20,000 * 0.00%
William Don Stanley 1,500 1,500 * 0.00%
Marvin Starker 13,000 13,000 * 0.00%
Charles C. Strillacci 100 100 * 0.00%
Chales Strillacci Cust 100 100 * 0.00%
Charley L Strillacci
Arthur R. Talbot 100 100 * 0.00%
Gregory J. Taylor 200 200 * 0.00%
Gina M. Torreta 100 100 * 0.00%
Jack Torretta Cust 100 100 * 0.00%
Calogero Torretta
Jack Torretta 100 100 * 0.00%
Adama Toure 100 100 * 0.00%
Adama Toure & 100 100 * 0.00%
Donna Toure Jt Ten
Megan Tracy 100 100 * 0.00%
Jennifer E. Tsuneta 10200 200 * *
William S. Redd Ttee 5,000 5,000 * 0.00%
The Redd 1996 Trust
United unterprises Sa 280,000 280,000 4.54% 0.00%
John Urban 2,000 2,000 * 0.00%
Vassar Overseas Corporation 146,700 146,700 2.38% 0.00%
Laurene Volkel Cust 100 100 * 0.00%
Chasen Volkel
Laurene Volkel 100 100 * 0.00%
Robert Volkel & Lawrence R Volkel FBO 1,250 1,250 * 0.00%
Volkel Family Trust
Laurene Volkel Cust 100 100 * 0.00%
Troy Volkel
Gina Vorrius Cust 100 100 * 0.00%
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF STOCK OWNED
SHARES ---------------------------
NAME OF BENEFICIAL OWNER COMMON STOCK REGISTERED PRIOR TO AFTER
(ADDRESS PROVIDED IN EXHIBIT HERETO) OWNED FOR SALE OFFERING (1) OFFERING (2)
- ----------------------------------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Alessia Vorrius 100 100 * 0.00%
Gina L. Vorrius
Gina Vorrius Cust 100 100 * 0.00%
Jenna Vorrius
Clifford D. Wangerin 200 200 * 0.00%
Betty June Watson 200 200 * 0.00%
Kristen Weissleader 200 200 * 0.00%
Cathleen M Werrlein 100 100 * 0.00%
Mike J. Whiteaker 200 200 * 0.00%
Anthony Spatola Cust 100 100 * 0.00%
Drew Woods
Paula Woods 100 100 * 0.00%
Kenneth H. Wyatt & 1,500 1,500 * 0.00%
Phyllis p Wyatt
Russel J. Yeager Cust 100 100 * 0.00%
Kevin J. Yeager
Richard A. Yoken 2,000 2,000 * 0.00%
Michael E. Young Cust 100 100 * 0.00%
Gregory S Young
Henry Young 10,000 10,000 * 0.00%
Henry Young 1,500 1,500 * 0.00%
Michael E. Young Cust 100 100 * 0.00%
Jeremy A Young
Michael E. Young Cust 100 100 * 0.00%
Rachel B Young
John N. Zemkoski Cust 100 100 * 0.00%
Jenna N. Zemkoski
John Zemkoski Cust 100 100 * 0.00%
John M. Zemkoski
--------- ---------
Total Number of Shares: 2,011,270 1,926,270
========= =========
</TABLE>
- ------------------------
* Denotes less than 1%.
(1) Assumes 6,161,270 shares of common stock outstanding.
(2) Assumes sale of all shares offered by the selling securityholders.
In the event the selling securityholders receive payment for the sale of
their shares, Sunderland will not receive any of the proceeds from such sales.
Sunderland is bearing all expenses in connection with the registration of the
shares of the selling securityholders.
The shares owned by the selling securityholders are being registered
pursuant to Rule 415 of the General Rules and Regulations of the Securities and
Exchange Commission, which Rule pertains to delayed and continuous offerings and
sales of securities. In regard to the shares offered under Rule 415, the Company
has given certain undertakings in Part II of the Registration statement of which
this prospectus is a part which, in general, commit the Company to keep this
prospectus current during any period in which offers or sales are made pursuant
to Rule 415.
38
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective simultaneously with the acquisition of the outstanding shares of
Capsource, Inc. and the acquisition of certain assets and assumption of certain
liabilities of Del Mar Holdings, Inc. and Del Mar Mortgage, Inc., Stephen J.
Byrne, the then-president of Capsource, Inc., became President and a director of
the Company, and Michael V. Shustek, the founder and president of Del Mar
Mortgage and Del Mar Holdings, became Chief Executive Officer and Chairman of
the Board of the Company.
Del Mar Mortgage has paid referral fees on loans originated by it to a
related party wholly-owned by Michael V. Shustek. The referral fees paid by Del
Mar Mortgage ranged from 33% to 100% of the loan origination fee charged by Del
Mar Mortgage. Sunderland anticipates that it may continue to pay such referral
fees for referrals of loans originated by Sunderland.
VOTING TRUST AGREEMENT
A voting trust agreement was executed among Sunderland Acquisition
Corporation, Michael V. Shustek, and Stephen J. Byrne, and his successors (the
"Trustee") in trust, dated as of February 28, 1999 and which remains in effect
through February 27, 2000. Under the terms of this agreement, the Trustee will
vote Mr. Shustek's shares on all matters on which shareholders are entitled to
vote in the same proportion as the remaining shares are voted by the holders
thereof. It is unlikely that this agreement will be extended beyond the
termination date.
DESCRIPTION OF SECURITIES
The Company has authorized capital of 100,000,000 shares of Common stock,
$.0001 par value, and 20,000,000 shares of preferred stock, $.0001 par value. As
of the date hereof, the Company has 6,161,270 shares of common stock issued and
outstanding and no shares of preferred stock outstanding.
SHARES OF COMMON STOCK
The Company is not offering for sale any shares of common stock in this
registration statement. The selling securityholders of Sunderland are
registering an aggregate of 1,926,270 shares of common stock for sale at price
to be determined in the future.
Holders of the common stock do not have preemptive rights to purchase
additional shares of common stock or other subscription rights. The common stock
carries no conversion rights and is not subject to redemption or to any sinking
fund provisions. All shares of common stock are entitled to share equally in
dividends from sources legally available therefor when, as and if declared by
the Board of Directors and, upon liquidation or dissolution of the Company,
whether voluntary or involuntary, to share equally in the assets of the Company
available for distribution to stockholders. All outstanding shares are validly
authorized and issued, fully paid and nonassessable, and all shares to be sold
and issued as contemplated hereby will be validly authorized and issued, fully
paid and nonassessable.
The Board of Directors is authorized to issue additional shares of common
stock, not to exceed the amount authorized by the Company's Certificate of
Incorporation, and to issue options for the purchase of such shares, on such
terms and conditions and for such consideration as the Board may deem
appropriate without further stockholder action.
PENNY STOCK REGULATION
Penny stocks generally are equity securities with a price of less than $5.00
per share other than securities registered on certain national securities
exchanges or listed on the Nasdaq Stock Market, provided that current price and
volume information with respect to transactions in such securities is provided
by the exchange or system. The "penny stock" rules impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and
39
<PAGE>
accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of such securities and have received
the purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prescribed by the Commission relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell the Company's
securities. The foregoing required penny stock restrictions will not apply to
the Company's securities if such securities reach and maintain a market price of
$5.00 or greater.
NONCUMULATIVE VOTING
Each holder of common stock is entitled to one vote per share on all matters
on which such stockholders are entitled to vote. Shares of common stock do not
have cumulative voting rights. The holders of more than 50 percent of the shares
voting for the election of directors can elect all the directors if they choose
to do so and, in such event, the holders of the remaining shares will not be
able to elect any person to the Board of Directors.
PREFERRED STOCK
The Company's Certificate of Incorporation authorize the issuance of
20,000,000 shares of non-designated preferred stock, $.0001 par value per share.
There has been no preferred stock designated or issued.
The Board of Directors of the Company is authorized to provide for the
issuance of shares of preferred stock in series and, by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof without any further
vote or action by the shareholders. Any shares of preferred stock so issued may
have priority over the common stock with respect to dividend or liquidation
rights. Any future issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other rights
of the holders of common stock. At present, the Company has no plans to issue
any preferred stock nor adopt any series, preferences or other classification of
preferred stock.
ADDITIONAL INFORMATION DESCRIBING STOCK
The above descriptions concerning the stock of the Company do not purport to
be complete. Reference is made to the Company's Certificate of Incorporation and
By-Laws which are included as exhibits to the registration statement of which
this prospectus is a part and which are available for inspection at the
Company's offices. Reference is also made to the applicable statutes of the
State of Delaware for a more complete description concerning rights and
liabilities of shareholders.
ADMISSION TO QUOTATION TO NASDAQ SMALLCAP MARKET AND OTC BULLETIN BOARD
MAINTAINED BY NASDAQ
If it meets the qualifications, Sunderland intends to apply for quotation of
its securities on the OTC Bulletin Board which is maintained by Nasdaq. An
application on Form 15c211 for acceptance for quotation of its securities on the
OTC Bulletin Board was previously filed on July 24, 1999. After review,
Sunderland was denied listing until such time as it had a broader base of
shareholders holding unrestricted stock.
40
<PAGE>
If the Company's securities are not quoted on the OTC Bulletin Board, a
securityholder may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities. The
over-the-counter market ("OTC") differs from national and regional stock
exchanges in that it
(1) is not cited in a single location but operates through communication
of bids, offers and confirmations between broker-dealers and
(2) securities admitted to quotation are offered by one or more
broker-dealers rather than the "specialist" common to stock exchanges. To
qualify for quotation on the OTC Bulletin Board, an equity security must
have one registered broker-dealer, known as the market maker, willing to
list bid or sale quotations and to sponsor such a Company listing. If it
meets the qualifications for trading securities on the OTC Bulletin Board
the Company's securities will trade on the OTC Bulletin Board until such
future time, if at all, that the Company applies and qualifies for admission
for listing on the Nasdaq SmallCap Market. There can be no assurance that
the Company will ever qualify or if qualified that it will be accepted for
listing of its securities on the Nasdaq SmallCap Market.
To qualify for admission for listing on the Nasdaq SmallCap Market, an
equity security must, in relevant summary,
(1) be registered under the Securities Exchange Act of 1934;
(2) have at least three registered and active market makers, one of
which may be a market maker entering a stabilizing bid;
(3) for initial inclusion, be issued by a company with $4,000,000 in net
tangible assets, or $50,000,0000 in market capitalization, or $750,000 in
net income in two of the last three years (if operating history is less than
one year then market capitalization must be at least $50,000,000);
(4) have at a public float of at least 1,000,000 shares with a value of
at least $5,000,000;
(5) have a minimum bid price of $4.00 per share; and (6) have at least
300 beneficial shareholders.
TRANSFER AGENT AND REGISTRAR
StockTrans, Inc., Ardmore, Pennsylvania, serves as the transfer agent for
Sunderland.
REPORTS TO SHAREHOLDERS
Sunderland will furnish to its shareholders annual reports containing
audited financial statements examined and reported upon, and with an opinion
expressed by, an independent certified public accountant. The Company may issue
other unaudited interim reports to its shareholders as it deems appropriate.
PLAN OF DISTRIBUTION
Sunderland will not receive the proceeds from the sale of the shares by the
selling securityholders.
The selling securityholders' shares may be sold to purchasers from time to
time directly by and subject to the discretion of the selling securityholders
subject to certain volume limitation. To avoid possible violations of
Regulation M (pertaining, in general, to market trading practices) the Company
has agreed that during the first three months after its common stock begins
trading, a selling security holder holding shares registered for sale herein may
sell no more than 5,000 shares plus 15% of his holdings in excess of 5,000
shares (rounded to even lots) per month. The selling securityholders may from
time to time offer their shares for sale through underwriters, dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the selling securityholders and/or the
purchasers of the shares for whom they may act as agents. The shares sold by the
selling securityholders may be sold from time to time in one or more
transactions: (i) at an offering price that is fixed or that may vary from
41
<PAGE>
transaction to transaction depending upon the time of sale or (ii) at prices
otherwise negotiated at the time of sale. Such prices will be determined by the
selling securityholders or by agreement between the selling securityholders and
any underwriters.
Any underwriters, dealers or agents who participate in the distribution of
the securities may be deemed to be "underwriters" under the Securities Act and
any discounts, commissions or concessions received by any such underwriters,
dealers or agents may be deemed to be underwriting discounts and commissions
under the Securities Act.
At the time a particular offer is made by or on the behalf of the selling
securityholders, a prospectus, including any necessary supplement thereto, will
be distributed which will set forth the number of shares of common stock and
other securities being offered and the terms of the offering, including the name
or names of any underwriters, dealers or agents, the purchase price paid by any
underwriter for the shares purchased from the selling securityholders, any
discounts, commissions and other items constituting compensation from the
selling securityholders, any discounts, commissions or concessions allowed,
reallowed or paid to dealers, and the proposed selling price to the public.
Pursuant to Regulation M of the General Rules and Regulations of the
Securities and Exchange Commission, any person engaged in a distribution of
securities, including on behalf of a selling security holder, may not
simultaneously bid for, purchase or attempt to induce any person to bid for or
purchase securities of the same class for a period of five business days prior
to the commencement of such distribution and continuing until the selling
security holder (or other person engaged in the distribution) is no longer a
participant in the distribution.
If, at some time, Sunderland meets the requirements of the Nasdaq SmallCap
Market it will apply for listing thereon. If it should be accepted for listing
thereon, then certain underwriters may engage in passive market making
transactions in the Company's common stock in accordance with Rule 103 of
Regulation M.
In order to comply with the applicable securities laws, if any, of certain
states, the securities will be offered or sold in such states through registered
or licensed brokers or dealers in those states. In addition, in certain states,
the securities may not be offered or sold unless they have been registered or
qualified for sale in such states or an exemption from such registration or
qualification requirement is available and with which the Company has complied.
In addition and without limiting the foregoing, the selling securityholders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder in connection with transactions in shares during the
effectiveness of the registration statement.
Sunderland will pay all of the expenses incident to the registration of the
shares (including registration pursuant to the securities laws of certain
states) other than commissions, expenses, reimbursements and discounts of
underwriters, dealers or agents, if any.
In addition and without limiting the foregoing, the selling securityholders
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder in connection with transactions in the sale of the
selling securityholder shares during the effectiveness of this prospectus.
RESALES OF THE SECURITIES UNDER STATE SECURITIES LAWS
The National Securities Market Improvement Act of 1996 ("NMSIA") limits the
authority of states to impose restrictions upon sales of securities made
pursuant to ss.ss.4(1) and 4(3) of the Securities Act of companies which file
reports under Sections 13 or 15(d) of the Securities Exchange Act. Sales of the
shares offered by the selling securityholders in the secondary market may be
made pursuant to Section 4(1) (sales other than by an issuer, underwriter or
broker). It is anticipated that following the effective date hereof, the selling
securityholder's shares will be eligible for resale in the secondary market in
each state.
42
<PAGE>
LEGAL MATTERS
LEGAL PROCEEDINGS
Del Mar Mortgage is involved in several legal matters arising in the
ordinary course of its business. Del Mar Mortgage is vigorously defending itself
through legal counsel against these legal actions. In one case, the adverse
party has claimed damages in excess of $790,000. That case is still in the
discovery phase. Michael Shustek has agreed to indemnify Del Mar against any
loss that may be incurred and Del Mar Mortgage does not believe that any losses
would have a material impact on its liquidity or financial statements.
Sunderland, by virtue of its asset acquisition, may be determined to be a
successor in interest to Del Mar Mortgage for such legal actions.
LEGAL OPINION
Cassidy & Associates, Washington, D.C., has given its opinion as
attorneys-at-law that the shares offered for sale herein have been fully paid,
validly issued and are non-assessable.
EXPERTS
The financial statements of Del Mar Mortgage, Inc. as of December 31, 1998,
and for each of the two years in the period ended December 31, 1998, the
financial statements of Del Mar Holdings, Inc. as of December 31, 1998 for the
year ended December 31, 1998 and for the period from October 23, 1997 (date of
inception) through December 31, 1997, and the financial statements of Capsource,
Inc. as of December 31, 1998 and for the year ended December 31, 1998 and for
the period from April 30, 1997 (date of inception) through December 31, 1997,
included in this Prospectus have been audited by Hansen, Barnett & Maxwell,
independent certified public accountants, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
herein in reliance upon such reports given upon authority of said firm as
experts in accounting and auditing.
The financial statements of Sunderland Acquisition Corporation as of
December 31, 1998, and for the period from June 2, 1998 (date of inception)
through December 31, 1998, included in this Prospectus have been audited by
Weinberg & Company, P.A., independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included herein in reliance upon such report given upon authority of said firm
as experts in accounting and auditing.
43
<PAGE>
SUNDERLAND CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
INCOME OF SUNDERLAND CORPORATION, DEL MAR MORTGAGE, INC.,
DEL MAR HOLDINGS, INC. AND CAPSOURCE, INC.:............... F-3
Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the Six Months Ended June 30, 1999 and for
the Year Ended December 31, 1998.......................... F-4
Notes to Unaudited Pro Form Condensed Consolidated
Statements of Operations.................................. F-4
SUNDERLAND CORPORATION AND SUBSIDIARY:
Balance Sheet as of June 30, 1999 (Unaudited)............... F-5
Statement of Operations for the Period from April 27, 1999
(Date of Reorganization) through June 30, 1999
(Unaudited)............................................... F-6
Statement of Stockholders' Equity (Deficit) for the Period
from April 27, 1999 (Date of Reorganization) through June
30, 1999 (Unaudited)...................................... F-7
Statement of Cash Flows for the Period from April 27, 1999
(Date of Reorganization) through June 30, 1999
(Unaudited)............................................... F-8
Notes to Consolidated Financial Statements (Unaudited)...... F-9
DEL MAR MORTGAGE, INC. AND DEL MAR HOLDINGS, INC.:
Combined Statements of Operations for the Period from
January 1, 1999 through April 26, 1999 (Date of
Reorganization) and for the Six Months Ended June 30, 1998
(Unaudited)............................................... F-13
Combined Statement of Stockholders' Equity for the Period
from January 1, 1999 through April 26, 1999 (Date of
Reorganization) (Unaudited)............................... F-14
Combined Statements of Cash Flows for the Period from
January 1, 1999 through April 26, 1999 (Date of
Reorganization) and for the Six Months ended June 30, 1998
(Unaudited)............................................... F-15
Notes to Combined Financial Statements (Unaudited).......... F-16
DEL MAR MORTGAGE, INC.:
Report of Independent Certified Public Accountants.......... F-18
Balance Sheet as of December 31, 1998....................... F-19
Statements of Operations for the Years Ended December 31,
1998 and 1997............................................. F-20
Statements of Stockholder's Equity for the Years Ended
December 31, 1997 and 1998................................ F-21
Statements of Cash Flows for the Years Ended December 31,
1998 and 1997............................................. F-22
Notes to Financial Statements............................... F-23
DEL MAR HOLDINGS, INC.:
Report of Independent Certified Public Accountants.......... F-27
Balance Sheet as of December 31, 1998....................... F-28
Statements of Operations for the year ended December 31,
1998 and for the period October 23, 1997 (Date of
Inception) through December 31, 1997...................... F-29
Statement of Stockholder's Equity for the period October 23,
1997 (Date of Inception) through December 31, 1997 and for
the year ended December 31, 1998.......................... F-30
Statements of Cash Flows for the year ended December 31,
1998 and for the period October 23, 1997 (Date of
Inception) through December 31, 1997...................... F-31
Notes to Financial Statements............................... F-32
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
CAPSOURCE, INC.:
Report of Independent Certified Public Accountants.......... F-35
Balance Sheets as of March 31, 1999 (Unaudited) and December
31, 1998.................................................. F-36
Statements of Operations for the Three Months Ended March
31, 1999 and 1998 (Unaudited), for the Year ended December
31, 1998 and for the Period from April 30, 1997 (Date of
Inception) through December 31, 1997...................... F-37
Statements of Stockholder's Equity for the period April 30,
1997 (Date of Inception) through December 31, 1997, for
the year ended December 31, 1998 and for the Three Months
Ended March 31, 1999 (Unaudited).......................... F-38
Statements of Cash Flows for the Three Months Ended March
31, 1999 and 1998 (Unaudited), for the Year ended December
31, 1998 and for the period April 30, 1997 (Date of
Inception) through December 31, 1997...................... F-39
Notes to Financial Statements............................... F-40
SUNDERLAND CORPORATION:
Balance Sheets--March 31, 1999 (Unaudited).................. F-42
Statements of Operations for the Three Months Ended March
31, 1999 (Unaudited)...................................... F-43
Statements of Changes in Stockholders' Equity for the Three
Months Ended March 31, 1999 (Unaudited)................... F-44
Statements of Cash Flow for the Three Months Ended March 31,
1999 (Unaudited).......................................... F-45
Notes to Financial Statements (Unaudited)................... F-46
Independent Auditors' Report................................ F-48
Balance Sheet--December 31, 1998............................ F-49
Statement of Operations for the Period from June 2, 1998
(Date of Inception) to December 31, 1998.................. F-50
Statements of Changes in Stockholders' Equity for the Period
from June 2, 1998 (Date of Inception) to December 31,
1998...................................................... F-51
Statements of Cash Flow for the Period from June 2, 1998
(Date of Inception) through December 31, 1998............. F-52
Notes to Financial Statements............................... F-53
</TABLE>
F-2
<PAGE>
SUNDERLAND CORPORATION
PRO FORMA FINANCIAL INFORMATION
Effective April 27, 1999, Sunderland 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 4,891,270 share of common stock of Sunderland. Sunderland
concurrently consummated a reorganization agreement with Capsource, Inc.
("Capsource") whereby Sunderland acquired all the outstanding capital stock of
Capsource in exchange for 20,000 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.
Sunderland was a shell corporation with no operations and nominal assets
prior to the transaction. Accordingly, the transaction between the Del Mar
Entities and Sunderland has been accounted for as a reverse acquisition of the
net assets of Sunderland by the Del Mar Entities in exchange for the issuance of
1,250,000 shares of common stock. The assets of Sunderland have been recorded at
historical cost which was also equal to fair value.
The business combination with Capsource has been accounted for as a purchase
business combination. The cost of Capsource is based upon the fair value of the
20,000 common shares issued to the Capsource shareholder, which was $12,360 or
$0.62 per share. The acquisition resulted in the recognition of $1,390 of
goodwill. Goodwill is being amortized over a period of 5 years using the
straight-line method.
Following the above transactions, the new Sunderland shareholders approved a
5-for-3 stock split of Sunderland's common stock, resulting in 6,161,270 common
shares outstanding after the stock split. The above amounts, the financial
statements of the Del Mar Entities and the accompanying pro forma statements of
operations have been restated for the effects of the stock split on a
retroactive basis.
The following unaudited pro forma condensed consolidated statements of
operations are to present the results of operations of the combined entities as
though the above transactions had been effective on January 1, 1998. The pro
forma results of operations are based upon assumptions that Sunderland
Corporation believes are reasonable and are based on the historical operations
of Del Mar Mortgage, Inc., Del Mar Holdings, Inc., Sunderland and Capsource
adjusted for the effects of the reorganization and the purchases described
above. These statements should be read in connection with those historical
financial statements which are included elsewhere herein. The pro forma
statements of operations are presented for information purposes only and are not
necessarily indicative of the results of operations that would have occurred had
the above transactions been consummated on January 1, 1998, or which may occur
in the future.
F-3
<PAGE>
SUNDERLAND CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
DEL MAR
SUNDERLAND MORTGAGE SUNDERLAND PRO FORMA PRO FORMA
CORPORATION AND HOLDINGS CAPSOURCE ACQUISITION ADJUSTMENTS RESULTS
----------- ------------ --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $2,360,751 $3,312,995 $115,240 $ -- $ -- $5,788,986
---------- ---------- -------- ---- --------- ----------
Operating Expenses
Sales and marketing......... 519,486 407,685 -- -- -- 927,171
General and
administrative............ 888,711 1,757,226 116,337 36 -- 2,762,310
Interest.................... -- 24,765 -- -- -- 24,765
---------- ---------- -------- ---- --------- ----------
Total Operating
Expenses................ 1,408,197 2,189,676 116,337 36 -- 3,714,246
---------- ---------- -------- ---- --------- ----------
Income (Loss) Before Income
Taxes....................... 952,554 1,123,319 (1,097) (36) -- 2,074,740
Income Tax Provision.......... 323,868 -- -- --(A) 381,544 705,412
---------- ---------- -------- ---- --------- ----------
Net Income (Loss)............. $ 628,686 $1,123,319 $ (1,097) $(36) $(381,544) $1,369,328
========== ========== ======== ==== ========= ==========
Basic and Diluted Income
(Loss) Per Common Share..... $ 0.10 $ 0.23 $ 0.22
========== ========== ==========
Weighted Average Shares Used
in Per Share Calculations... 6,161,270 4,891,270 6,161,270
========== ========== ==========
</TABLE>
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEL MAR DEL MAR SUNDERLAND PRO FORMA PRO FORMA
MORTGAGE HOLDINGS CAPSOURCE ACQUISITION ADJUSTMENTS RESULTS
---------- --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $6,865,529 $ 623,778 $218,670 $ --(C) $(301,353) $7,406,624
---------- --------- -------- --------- --------- ----------
Operating Expenses
Sales and marketing............. 536,077 -- -- -- -- 536,077
159(B) 278
General and administrative...... 3,757,339 364,287 213,751 (C) (301,353) 4,034,461
Interest........................ -- 115,956 -- 115,956
---------- --------- -------- --------- --------- ----------
Total Operating Expenses...... 4,293,416 480,243 213,751 159 (301,075) 4,686,494
---------- --------- -------- --------- --------- ----------
Income (Loss) Before Income
Taxes........................... 2,572,113 143,535 4,919 (159) (278) 2,720,130
Income Tax Provision.............. -- -- -- --(A) 924,844 924,844
---------- --------- -------- --------- --------- ----------
Net Income (Loss)................. $2,572,113 $ 143,535 $ 4,919 $ (159) $(925,122) $1,795,286
========== ========= ======== ========= ========= ==========
Basic and Diluted Income (Loss)
Per Common Share................ $ 25.72 $ 0.03 $ -- $ 0.30
========== ========= ========= ==========
Weighted Average Shares Used in
Per Share Calculations.......... 100,000 4,630,220 1,250,000 5,980,220
========== ========= ========= ==========
</TABLE>
F-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
A. Provision for has been provided for income taxes as though the combined
companies had been subject to income taxes using a federal tax rate of 34%
for both periods presented.
B. Amortization of goodwill related to acquisition of Capsource is calculated
over a sixty-month period.
C. To eliminate intercompany management and referral fees.
F-5
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash........................................................ $ 196,518
Accounts receivable (net of allowance for doubtful accounts
of $1,210)................................................ 303,001
Other receivables........................................... 236,738
Due from related parties.................................... 176,635
Investments in mortgage loans on real estate................ 2,603,597
----------
TOTAL CURRENT ASSETS.................................... 3,516,489
Property and equipment (net of accumulated depreciation of
$14,129).................................................. 18,793
Other assets................................................ 37,350
----------
TOTAL ASSETS................................................ $3,572,632
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................ $ --
Income taxes payable........................................ 323,868
Note payable................................................ 350,000
----------
TOTAL CURRENT LIABILITIES............................... 673,868
----------
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value; 20 million shares
authorized; no shares issued............................ --
Common stock, $.0001 par value; 100 million shares
authorized; 6,161,270 shares issued and outstanding
shares.................................................. 616
Additional paid-in capital................................ 2,577,139
Retained earnings......................................... 756,655
Receivable from shareholder............................... (435,646)
----------
TOTAL STOCKHOLDERS' EQUITY.............................. 2,898,764
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $3,572,632
==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-6
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM APRIL 27, 1999 (DATE OF REORGANIZATION) THROUGH
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
REVENUES
Loan origination and related fees......................... $2,318,212
Interest income........................................... 42,539
----------
TOTAL REVENUES.......................................... 2,360,751
----------
OPERATING EXPENSES
Sales and marketing....................................... 519,486
General and administrative................................ 888,711
----------
TOTAL OPERATING EXPENSES................................ 1,408,197
----------
Income Before Provision for Income Taxes.................... 952,554
Provision for Income Taxes.................................. 323,868
----------
NET INCOME.................................................. $ 628,686
==========
PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE......... $ 0.10
==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN PER SHARE
CALCULATION............................................... 6,161,270
==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-7
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 27, 1999 (DATE OF REORGANIZATION) THROUGH
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
--------------------- ADDITIONAL RECEIVABLE TOTAL
NUMBER OF PAID-IN RETAINED FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDER EQUITY
---------- -------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances transferred in Reorganization from Del
Mar Mortgage, Inc. and Del Mar Holdings, Inc.,
on April 27, 1999............................... 4,891,270 $489 $2,564,490 $127,969 $(535,646) $2,157,302
Issuance to acquire Sunderland Corporation, April
27, 1999, $0.00 per share....................... 1,250,000 125 291 -- -- 416
Issuance to acquire CapSource, Inc., April 27,
1999, $0.62 per share........................... 20,000 2 12,358 -- -- 12,360
Payments received on receivable from
shareholder..................................... -- -- -- -- 100,000 100,000
Net income for the period......................... -- -- -- 628,686 -- 628,686
--------- ---- ---------- -------- --------- ----------
BALANCE AT JUNE 30, 1999.......................... 6,161,270 $616 $2,577,139 $756,655 $(435,646) $2,898,764
========= ==== ========== ======== ========= ==========
</TABLE>
See Accompanying Notes to Financial Statements.
F-8
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 27, 1999 (DATE OF REORGANIZATION) THROUGH
JUNE 30, 1999
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 628,686
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........................... 180,780
Increase in due from related party...................... (24,667)
Increase in income taxes payable........................ 323,868
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 807,869
---------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received in acquisition of Sunderland Acquisition
Corporation............................................. 416
Purchases of mortgage loans............................... (611,767)
---------
NET CASH USED BY INVESTING ACTIVITIES................... (611,351)
---------
NET INCREASE IN CASH........................................ 196,518
CASH, BEGINNING BALANCE AT APRIL 27, 1999................... --
---------
CASH, ENDING BALANCE AT JUNE 30, 1999....................... $ 196,518
=========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
1,250,000 shares of common stock were issued to acquire $416 of assets of
Sunderland Corporation and 20,000 shares of common stock were issued to
acquire all of the outstanding common stock of Capsource, Inc.
See Accompanying Notes to Financial Statements.
F-9
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Sunderland Corporation (hereinafter referred to as
"Sunderland"), was incorporated in the state of Delaware on June 2, 1998.
Effective April 27, 1999, Sunderland Corporation 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 4,891,270 shares of Sunderland common stock (post 5-for-3 stock
split). Sunderland concurrently consummated a reorganization agreement with
Capsource, Inc. ("Capsource") whereby the Company acquired all the outstanding
capital stock of Capsource in exchange for 20,000 shares of Sunderland common
stock (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 and the 5-for-3 stock split. Effective as of the date of
consummation of the Transactions, Sunderland changed its name from "Sunderland
Acquisition Corporation" to "Sunderland Corporation." 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
business 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.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS--The accompanying consolidated
financial statements are unaudited and include the accounts of the Company and
its subsidiary which is wholly-owned. All significant inter-company transactions
and balances have been eliminated. In the opinion of management,
F-10
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
all necessary adjustments (which include only normal recurring adjustments) have
been made to the accompanying financial statements in order to present fairly
the financial position, results of operations and cash flows for the period
presented.
GEOGRAPHIC CONCENTRATION--Substantially all of the Company's operations are
derived from Southern Nevada. Consequently, the Company's results of operations
and financial condition are affected by general trends in the Southern Nevada
economy and its commercial and residential real estate market.
USE OF ESTIMATES--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.
REVENUE RECOGNITION--The Company recognizes revenue primarily from loan
origination fees, loan servicing fees, and extension fees. Loan origination fees
are recorded as revenue at the close of escrow and reduced by direct loan
origination costs, excluding loan processing costs, incurred to such loan
origination activities. Loan servicing fees are recorded as revenue when such
services are rendered. Servicing fees represent the interest spread between what
is paid to the investor and what the borrower pays for the use of the money.
This can vary from loan to loan. Extension fees are recorded as revenue at the
extension grant date.
CASH--The Company invests its cash in high quality financial institutions,
which at times may be in excess of the Federal Deposit Insurance Corporation
insurance limits.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets. The cost of
repairs and maintenance is charged to expense as incurred. Expenditures for
property betterments and renewals are capitalized. Upon sale or other
disposition of depreciable asset, cost and accumulated depreciation are removed
from the accounts and any gain or loss is reflected in other income (expense).
ADVERTISING COSTS--Advertising costs incurred in the normal course of
operations are expensed currently.
INCOME TAXES--The Company accounts for its income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, which requires
recognition of deferred tax assets and liabilities for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and tax credit 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 enactment date.
F-11
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED--The Company adopted the
provisions of SFAS NO. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, as of June 30, 1999. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that an
asset's carrying amount may not be recoverable. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued SFAS NO. 130, REPORTING COMPREHENSIVE INCOME. SFAS
No. 130 established standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
the fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provides for comparative purposes is
required. Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations, or cash flows.
NOTE 2--ACCOUNTS RECEIVABLE
The Company services loans which have been arranged for the investor parties
through a servicing agreement. The servicing agreement stipulates that all
extension fees charged on behalf of the investors shall be retained by the
Company as part of the loan servicing fees. Accounts receivable represent
extension and loan origination fees earned but not yet funded.
NOTE 3--INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE
The Company has invested in mortgage loans which Del Mar Mortgage, Inc.
originated prior to the reorganization into Sunderland Corporation. The mortgage
loans are secured by first trust deeds on real estate. These loans have
maturities of one year or less with interest rates ranging from 12% to 14%
payable monthly, with principal due at maturity. The underlying value of the
trust deeds securing the mortgage loans was sufficient at June 30, 1999 to
realize their carrying value. Accordingly, an allowance for loan losses was not
required.
NOTE 4--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.
NOTE 5--RELATED PARTY TRANSACTIONS
As of June 30, 1999, the Company has a balance due from related parties of
$176,635 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.
F-12
<PAGE>
SUNDERLAND CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
NOTE 5--RELATED PARTY TRANSACTIONS (CONTINUED)
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.
NOTE 6--INCOME TAXES
The Company did not record any current or deferred income tax provision or
benefit for any of the periods presented because of nominal differences.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable and accounts payable,
approximate fair value because of the short-term maturity of these instruments.
NOTE 8--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS--The Company operates from a leased office facility under
a noncancellable operating lease. The lease requires the Company to pay certain
escalation clauses for real estate taxes, operating expense, usage and common
area charges. Rent expense for the leased office facility charged to operations
for the period ended June 30, 1999 approximates $78,000.
Future minimum rental payment required under the operating lease for the
office facility as of June 30, 1999, are as follows:
<TABLE>
<S> <C>
July 1, 1999 through December 31, 1999...................... $ 58,775
2000........................................................ 200,194
2001........................................................ 158,610
2002........................................................ 161,640
2003........................................................ 165,240
2004........................................................ 41,610
--------
Total future minimum operating lease payments............... $786,069
========
</TABLE>
VOUCHER CONTROL SERVICE CONTRACT--In August of 1998, the Company entered
into a contract with Disbursement Management, Inc. (DMI) to provide construction
voucher control services. The Company will pay monthly fees to DMI based upon
the amount of disbursements for construction vouchers. The monthly fees range
from $26,500 to $35,000. The Company may terminate this contract any time after
August of 1999. DMI will have the option of canceling the contract three years
after its inception.
F-13
<PAGE>
DEL MAR MORTGAGE, INC. AND
DEL MAR HOLDINGS, INC.
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE SIX
FROM JANUARY 1, MONTHS
1999 THROUGH ENDED
APRIL 26, 1999 JUNE 30, 1998
---------------- -------------
<S> <C> <C>
Revenues
Loan origination and related fees......................... $2,633,050 $3,258,529
Interest income........................................... 488,885 323,348
Other income.............................................. 191,060 12,100
---------- ----------
Total Revenues.......................................... 3,312,995 3,593,977
---------- ----------
Operating Expenses
Sales and marketing....................................... 407,685 268,039
General and administrative................................ 1,757,226 1,908,869
Interest expense.......................................... 24,765 59,246
---------- ----------
Total Operating Expenses.............................. 2,189,676 2,236,154
---------- ----------
Net Income.................................................. $1,123,319 $1,357,823
========== ==========
Primary and Fully Diluted Earnings
Per Common Share.......................................... $ 0.23 $ 0.28
========== ==========
Weighted Average Number of Common Shares Used in Primary and
Fully Diluted Per Share Calculation....................... 4,891,270 4,891,270
========== ==========
</TABLE>
BASIS OF COMBINED STATEMENTS OF OPERATIONS PRESENTATION: The condensed
combined statements of operations for Del Mr Mortgage, Inc. and Del Mar
Holdings, Inc. noted above have been presented on a historical basis. The
combined statements of operations cover periods relating to the six months ended
June 30, 1998, and from January 1, 1999 through April 26, 1999. These statements
are intended to report the combined result of operations prior to the
reorganization effective April 27, 1999 as discussed in the notes to the
combined financial statements. These statements should be read in conjunction
with the Sunderland Corporation consolidated statement of operations for period
from April 27, 1999 through June 30, 1999 and the accompanying notes thereto.
See Accompanying Notes to Financial Statements
F-14
<PAGE>
DEL MAR MORTGAGE, INC., AND
DEL MAR HOLDINGS, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1999 THROUGH APRIL 26, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL RECEIVABLE TOTAL
NUMBER OF PAID-IN RETAINED FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDER EQUITY
--------- -------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1998:
Del Mar Mortgage, Inc.............. 100,000 10 361,394 127,969 -- 489,373
Del Mar Holdings, Inc.............. 4,791,270 479 2,713,783 -- (535,646) 2,178,586
--------- ---- ---------- -------- --------- ----------
Combined Balance................... 4,891,270 $489 $3,075,147 $127,969 $(535,646) $2,667,959
Distribution of assets, net of
liabilities, to the Del Mar
Mortgage, Inc. and Del Mar
Holdings, Inc. shareholders, April
26, 1999........................... -- -- (1,633,976) -- -- (1,633,976)
Net Income for the period............ -- -- 1,123,319 -- -- 1,123,319
--------- ---- ---------- -------- --------- ----------
BALANCE--APRIL 26, 1999.............. 4,891,270 $489 $2,564,490 $127,969 $(535,646) $2,157,302
========= ==== ========== ======== ========= ==========
</TABLE>
See Accompanying Notes to Financial Statements
F-15
<PAGE>
DEL MAR MORTGAGE, INC. AND
DEL MAR HOLDINGS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE SIX
FROM JANUARY 1, MONTHS
1999 THROUGH ENDED
APRIL 26, 1999 JUNE 30, 1998
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $1,123,319 $1,357,823
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) (955,564)
Increase (decrease) in accounts payable................. (139,271) 64,362
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES................... (578,181) (142,308)
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of furniture and equipment....................... 18,067 (12,282)
Purchase of mortgage loans................................ -- (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
Distribution to the shareholders.......................... (534,490) --
Payments of capital lease obligations..................... (221) (603)
Proceeds from issuance of common stock.................... -- 3,206,242
---------- ----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........ (534,711) 3,205,639
---------- ----------
NET INCREASE (DECREASE) IN CASH............................. (457,931) 1,074,308
CASH, BEGINNING BALANCE..................................... 457,931 689,908
---------- ----------
CASH, ENDING BALANCE........................................ $ -- $1,764,216
========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: On
April 27, 1999, but shown in these financial statements as having occurred on
April 26, 1999, certain assets, net of liabilities, with a carrying value of
$1,633,976, including cash of $534,490, were distributed to the shareholders of
Del Mar Mortgage, Inc. and Del Mar Holdings, Inc.
See Accompanying Notes to Financial Statements
F-16
<PAGE>
DEL MAR MORTGAGE, INC. AND
NOTES TO COMBINED FINANCIAL STATEMENTS
APRIL 26, 1999
(UNAUDITED)
NOTE 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.
All significant intercompany balances and transactions have been eliminated.
Del Mar Holdings, Inc. was incorporated in the state of Nevada in
October 1997. 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.
INTERIM FINANCIAL STATEMENTS--The accompanying financial statements are
unaudited and, in the opinion of management, all necessary adjustments (which
include only normal recurring adjustments) have been made to present fairly the
results of operations and cash flows for the periods presented.
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.
ADVERTISING COSTS--Advertising costs incurred in the normal course of
operations are expensed currently.
NOTE 2--RELATED PARTY TRANSACTIONS
The Company incurred management fees expense of $702,532 for the six months
ended June 30, 1998 which was paid to an entity wholly-owned by the Company's
sole shareholder.
NOTE 3--REORGANIZATION
Effective 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 4,891,270 shares of Sunderland common stock (post
5-for-3 stock split). 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 mortgage loans,
F-17
<PAGE>
DEL MAR MORTGAGE, INC. AND
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
APRIL 26, 1999
(UNAUDITED)
NOTE 3--REORGANIZATION (CONTINUED)
receivables, and property and equipment 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 not acquired, net of liabilities
not assumed, of $1,633,976 have been accounted for as distributions to the Del
Mar Entities' shareholders in these financial statements. 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.
F-18
<PAGE>
[HANSEN, BARNETT & MAXWELL LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholder
Del Mar Mortgage, Inc.
We have audited the accompanying balance sheet of Del Mar Mortgage, Inc. as
of December 31, 1998 and the related statements of operations, stockholder's
equity, and cash flows for the years ended December 31, 1998 and 1997. 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 audits 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 Del Mar Mortgage, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 9, 1999 (Except for Note 1,
Reorganization and Basis of Presentation,
as to which the date is September 2, 1999)
F-19
<PAGE>
DEL MAR MORTGAGE, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 102,816
Cash held in trust........................................ 421,622
Accounts receivable, net of allowances of $219,000........ 401,526
Trust accounts receivable................................. 1,009,410
----------
TOTAL CURRENT ASSETS.................................... 1,935,374
----------
PROPERTY AND EQUIPMENT
Furniture and equipment................................... 58,118
Leasehold improvements.................................... 1,754
----------
TOTAL PROPERTY AND EQUIPMENT............................ 59,872
Less: Accumulated depreciation............................ 22,319
----------
NET PROPERTY AND EQUIPMENT.............................. 37,553
----------
TOTAL ASSETS................................................ $1,972,927
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... $ 34,701
Current portion of capital lease obligations.............. 4,103
Trust liabilities......................................... 1,431,032
----------
TOTAL CURRENT LIABILITIES............................... 1,469,836
----------
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS.............. 13,718
----------
TOTAL LIABILITIES........................................... 1,483,554
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY
Common stock--$0.0001 par value; 100,000,000 shares
authorized, 100,000 shares issued and outstanding....... 10
Additional paid-in capital................................ 361,394
Retained earnings......................................... 127,969
----------
TOTAL STOCKHOLDER'S EQUITY.............................. 489,373
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $1,972,927
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
DEL MAR MORTGAGE, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Construction loan origination and servicing fees.......... $5,181,148 $3,714,196
Single family residence loan origination fees............. 251,458 712,082
Extension fees............................................ 1,084,451 372,105
Interest income........................................... 339,273 70,932
Miscellaneous fees........................................ 9,199 7,984
---------- ----------
TOTAL REVENUES.......................................... 6,865,529 4,877,299
---------- ----------
OPERATING EXPENSES
Sales and marketing....................................... 536,077 642,558
General and administrative................................ 3,757,339 2,697,008
Referral fees--related party.............................. -- 1,536,452
---------- ----------
TOTAL OPERATING EXPENSES................................ 4,293,416 4,876,018
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 2,572,113 1,281
PROVISION FOR INCOME TAXES.................................. -- 1,513
---------- ----------
NET INCOME (LOSS)........................................... $2,572,113 $ (232)
========== ==========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE............ $ 25.72 $ --
========== ==========
WEIGHTED-AVERAGE COMMON SHARES USED IN PER SHARE
CALCULATION............................................... 100,000 100,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-21
<PAGE>
DEL MAR MORTGAGE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL TOTAL
NUMBER OF PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE--DECEMBER 31, 1996.............. 100,000 $10 $ 2,490 $128,201 $ 130,701
Net Loss................................ -- -- -- (232) (232)
------- --- ----------- -------- -----------
BALANCE--DECEMBER 31, 1997.............. 100,000 10 2,490 127,969 130,469
Net Income.............................. -- -- 2,572,113 -- 2,572,113
Distribution of receivable from Del Mar
Holdings, Inc. to the shareholder,
December 31, 1998..................... -- -- (2,213,209) -- (2,213,209)
------- --- ----------- -------- -----------
BALANCE--DECEMBER 31, 1998.............. 100,000 $10 $ 361,394 $127,969 $ 489,373
======= === =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
DEL MAR MORTGAGE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $2,572,113 $ (232)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities: Depreciation... 11,167 7,690
Changes in operating assets and liabilities:
Increase in accounts receivable......................... (297,245) (70,403)
(Increase) decrease in due from related party........... (2,212,226) 49,017
Increase (decrease) in accounts payable and accrued
expenses.............................................. 1,528 (32,426)
Increase (decrease) in due to related party............. (159,404) 159,404
---------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES........ (84,067) 113,050
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment....................... (495) (13,175)
---------- --------
Net Cash Used by Investing Activities................... (495) (13,175)
---------- --------
Cash Flows from Financing Activities
Payments on capital lease obligations..................... (3,763) (843)
---------- --------
Net Cash Used by Financing Activities................... (3,763) (843)
---------- --------
NET INCREASE (DECREASE) IN CASH............................. (88,325) 99,032
CASH, BEGINNING BALANCE..................................... 191,141 92,109
---------- --------
CASH, ENDING BALANCE........................................ $ 102,816 $191,141
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for income taxes................................ $ 1,513 $ 23,746
========== ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In 1998, a receivable from Del Mar Holdings, Inc. in the amount of
$2,213,209 was distributed to the Company's shareholder and accounted for as a
distribution of equity.
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
DEL MAR MORTGAGE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Del Mar Mortgage, Inc. (the "Company") was incorporated in the
State of Nevada in April 1995. The Company operates as a mortgage company
licensed in the states of Nevada and Arizona. The Company is engaged in the
origination, arrangement, and secondary purchase and sale of loans secured by
real property. In addition, construction loans which the Company arranges for
investor-parties are serviced by the Company during the construction period.
REORGANIZATION AND BASIS OF PRESENTATION--Effective April 27, 1999,
Sunderland Corporation ("Sunderland") consummated an asset purchase agreement
with Del Mar Mortgage, Inc. and Del Mar Holdings, Inc. (collectively referred to
as the "Del Mar Entities") whereby Sunderland acquired certain assets and
assumed certain liabilities of the Del Mar Entities in exchange for 4,891,270
shares of Sunderland common stock (post 5-for-3 stock split). The shareholders
of Del Mar Mortgage, Inc. received 100,000 shares of common stock of Sunderland
Corporation. Sunderland had 6,161,270 (post-split) common shares outstanding
after the reorganization. As a result of the transaction with Sunderland, the
shareholders of the Del Mar Entities received a majority of the common stock of
Sunderland. Accordingly, the Del Mar Entities were considered the acquirer for
financial reporting purposes and their financial statements have been restated
for all periods presented to reflect the common shares received by the
stockholders of the Del Mar Entities in a manner similar to a stock split.
The Del Mar Entities were 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. Normally the financial statements of the Del Mar Entities would be
restated on a combined basis for all periods presented; however, as further
explained in Note 8, the State of Nevada issued an order temporarily taking
possession of Del Mar Mortgage, Inc. which resulted in the Del Mar Entities
being required to maintain separate financial statements through December 31,
1998.
Since the Del Mar Entities are considered the accounting acquirer in the
business combinations with Sunderland and Capsource, the assets of the Del Mar
Entities not acquired, net of the liabilities not assumed, have been accounted
for as distributions to the Del Mar Entities' shareholders in 1999.
USE OF ESTIMATES--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 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.
GEOGRAPHIC CONCENTRATION--Substantially all of the Company's operations are
derived from Southern Nevada. Consequently, the Company's results of operations
and financial condition are affected by general trends in the Southern Nevada
economy and its commercial and residential real estate market.
REVENUE RECOGNITION--The Company recognizes revenue primarily from loan
origination fees, loan servicing fees, and extension fees. Loan origination fees
are recorded as revenue at the close of escrow and reduced by direct loan
origination costs, excluding loan processing costs. Loan servicing fees are
recorded as revenue when such services are rendered. Servicing fees represent
the interest spread between what is paid the investor and what the borrower pays
for the use of the money. This can vary from loan to loan. Extension fees are
recorded as revenue at the extension grant date.
F-24
<PAGE>
DEL MAR MORTGAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH--The Company invests its cash in high quality financial institutions,
which at times may be in excess of the Federal Deposit Insurance Corporation
insurance limits.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets. The cost of
repairs and maintenance is charged to expense as incurred. Expenditures for
property betterments and renewals are capitalized. Upon sale or other
disposition of depreciable assets, cost and accumulated depreciation are removed
from the accounts and any gain or loss is reflected in general and
administrative expense.
ADVERTISING COSTS--Advertising costs incurred in the normal course of
operations are expensed currently.
INCOME TAXES--The Company elected during 1998, to convert from a
C-Corporation to an S-Corporation for federal income tax purposes. As an
S-Corporation, elements of income and expense are passed through to the
stockholder to be included in his individual income tax return. Accordingly, no
income tax effects are included in the 1998 financial statements. For financial
reporting purposes, the S-Corporation election was deemed terminated on
April 27, 1999. As a result, net income and distributions to the shareholder for
1998 have been included in the financial statements as additional paid-in
capital as though the Company distributed its earnings to the owner followed by
a contribution to the capital of the Company.
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED--The Company adopted the
provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, as of December 31, 1996. This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that an asset's carrying amount may not be recoverable. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No.
130 established standards for reporting and display of comprehensive income and
its components in the financial statements. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Adoption of this Statement did not have a material impact on the Company's
financial position, results of operations, or cash flows.
NOTE 2--ACCOUNTS RECEIVABLE
The Company services loans which have been arranged for investor parties
through a servicing agreement. The servicing agreement stipulates that all
extension fees charged in behalf of the investors shall be retained by the
Company as part of the loan service fees. Accounts receivable represent
extension and loan origination fees earned but not yet funded.
F-25
<PAGE>
DEL MAR MORTGAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 2--ACCOUNTS RECEIVABLE (CONTINUED)
During 1997, the Company paid Shustek Investments, Inc., a related party
which is wholly-owned by the Company's shareholder, referral fees for loans
originated by the Company from customers which were referred by Shustek
Investment, Inc. The referral fees ranged from 33% to 100% of the loan
origination fees charged by the Company. Total payments for such referral fees
for the year ended December 31, 1997 totaled $1,536,452.
The practice of paying referral fees to Shustek Investments, Inc. was
discontinued at the end of 1997 when an arrangement was established with Del Mar
Holdings, Inc., a related party which is majority-owned by the Company's
shareholder. Under this arrangement, Del Mar Holdings, Inc. collected a majority
of the Company's revenues and paid a majority of its expenses which resulted in
a balance due from Del Mar Holdings, Inc. at December 31, 1998 of $2,213,209. At
December 31, 1998, the receivable from Del Mar Holdings, Inc. was transferred to
the Company's shareholder. The transfer was accounted for as a noncash equity
distribution.
The Company and its employees participate in an employee savings and profit
sharing plan (Plan) under section 401(k) of the Internal Revenue Code sponsored
by an entity wholly-owned by the Company's sole shareholder. The Company may
make discretionary contributions to this Plan on behalf of the employees. No
discretionary contributions have been made by the Company for the years ended
December 31, 1998 and 1997.
NOTE 4--CAPITAL LEASES
The Company is obligated under various capital leases for certain equipment
that expire at various dates over the next four years. Capital lease obligations
totaling $17,821 require minimum monthly lease payments ranging from $71 to $400
with implicit interest rates of 9.50%.
Future minimum capital lease obligations as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999........................................................ $ 5,181
2000........................................................ 5,652
2001........................................................ 5,652
2002........................................................ 4,777
-------
Total....................................................... 21,262
Less amount representing interest........................... 3,441
-------
Capital lease obligations................................... 17,821
Less current portion due.................................... 4,103
-------
Long-term portion of capital lease obligations.............. $13,718
=======
</TABLE>
The carrying value of equipment leased under capital leases at December 31,
1998 and 1997 totals $16,403 and $22,427, respectively, which is net of
accumulated depreciation of $5,924 and $1,439, respectively.
F-26
<PAGE>
DEL MAR MORTGAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 5--LOANS SERVICED FOR OTHERS
The Company services loans for others which are not shown on the balance
sheet. The balance of these loans at December 31, 1998 and 1997 approximated
$163,000,000 and $83,919,000, respectively. In connection with the loans
serviced for others, amounts held in trust for undistributed principal and
interest collections, and interest receivables for both investors and borrowers
aggregated $1,431,032 and $5,570,639 at December 31, 1998 and 1997,
respectively.
Loans serviced for others include construction loans that are originated by
the Company.
NOTE 6--COLLATERALIZED MORTGAGE OBLIGATIONS
The Company offers High Yield Collateralized Mortgage obligation
certificates (CMO's), collateralized by deeds of trust through a private
placement offering limited to the state of Nevada for a maximum amount of
$20,000,000. As of December 31, 1998, the Company has raised approximately
$5,000,000 through this private placement offering which is not shown on the
balance sheet. The Company had not yet offered the CMO's as of December 31,
1997. Even though the Company is the issuer, the assets and liabilities
associated with the CMO's is not on the Company's balance sheet because the
certificates do not give rise to any recourse liability to the Company and are
secured solely by the Collateral Pool. They are accounted for as trust
activities.
The proceeds from this offering are used for the funding and acquisition of
loans in accordance with the Indenture Agreement related to the offering or used
in connection with loans held by the Indenture Trustee as part of the collateral
pool (e.g., payments on senior encumbrances).
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, accounts payable and
accrued liabilities, approximate fair value because of the short-term maturity
of these instruments.
NOTE 8--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS--The Company operates from a leased office facility under
a noncancellable operating lease with a company owned by the Company's sole
shareholder. The lease requires the Company to pay certain escalation clauses
for real estate taxes, operating expense, usage and common area charges. Rent
expense for leased office facility charged to operations for the year ended
December 31, 1998 and 1997 approximated $159,000 and $43,000, respectively.
Future minimum rental payments required under the operating lease for leased
office facility as of December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999........................................................ $148,500
2000........................................................ 99,000
2001........................................................ 57,750
--------
Total future minimum operating lease payments............... $305,250
========
</TABLE>
UNFUNDED LOAN COMMITMENTS--The Company originated construction loans which
are funded by investor parties based on scheduled draws. The future funding of
these scheduled draws represent an
F-27
<PAGE>
DEL MAR MORTGAGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 8--COMMITMENTS AND CONTINGENCIES (CONTINUED)
unfunded loan commitment for the Company. As of December 31, 1998 and 1997,
unfunded loan commitments approximated $6,113,000 and $34,721,000, respectively.
LEGAL MATTERS--The Company is involved in several legal matters arising in
the ordinary course of business. Management is vigorously defending itself
through its legal counsel. In one case, the party has claimed damages in excess
of $790,000. The case is still in discovery. Losses, if any, that may be
sustained are not presently determinable. The Company's president has agreed to
indemnify the Company for any loss that may be incurred. Management believes
that losses, if any, would not be material to the Company's financial position,
results of operations or liquidity.
On February 11, 1999, the State of Nevada, Department of business and
Industry, Financial Institutions Division (the Division), issued an Order Taking
Possession of Mortgage Companies, alleging certain violations of State statutes,
and whereby the Division established a conservator to oversee the Company's
operations. On February 16, 1999, the Company filed a complaint against the
Division resulting from its actions. Negotiations between the Company and the
Division were concluded on March 26, 1999 resulting in the dismissal of the
order and the removal of the conservator.
VOUCHER CONTROL SERVICE CONTRACT--In August of 1998, the Company entered
into a contract with Disbursement Management, Inc. (DMI) to provide construction
voucher control services. The Company will pay monthly fees to DMI based upon
the amount of disbursements for construction vouchers. The monthly fees range
from a minimum of $26,500 to $35,000. The Company may terminate this contract
any time after August of 1999. DMI will have the option of canceling the
contract three years after its inception.
F-28
<PAGE>
[HANSEN, BARNETT & MAXWELL LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
Del Mar Holdings, Inc.
We have audited the accompanying balance sheet of Del Mar Holdings, Inc. as
of December 31, 1998 and the related statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1998 and for the period
from October 23, 1997 (date of inception) through December 31, 1997. 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 audits 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 Del Mar Holdings, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
year ended December 31, 1998 and for the period from October 23, 1997 (date of
inception) through December 31, 1997, in conformity with generally accepted
accounting principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
May 21, 1999 (Except for Note 1,
Reorganization and Basis of Presentation,
as to which the date is September 2, 1999)
F-29
<PAGE>
DEL MAR HOLDINGS, INC.
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 355,115
Other receivables......................................... 11,709
Investment in mortgage loans on real estate............... 2,460,724
Other current assets...................................... 3,038
----------
TOTAL CURRENT ASSETS.................................. 2,830,586
----------
PROPERTY AND EQUIPMENT
Furniture and equipment................................... 18,067
Less accumulated depreciation............................. (1,687)
----------
NET PROPERTY AND EQUIPMENT............................ 16,380
----------
TOTAL ASSETS................................................ $2,846,966
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses..................... $ 218,380
Note payable.............................................. 350,000
Short-term loan........................................... 100,000
----------
TOTAL CURRENT LIABILITIES............................. 668,380
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock--$0.0001 par value; 100,000,000 shares
authorized;
4,791,270 shares issued and outstanding................... 479
Additional paid-in capital................................ 2,713,753
Receivable from shareholder............................... (535,646)
----------
TOTAL STOCKHOLDERS' EQUITY............................ 2,178,586
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $2,846,966
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
DEL MAR HOLDINGS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM OCTOBER 23, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Related party management and referral fees................ $ 301,353 $ --
Interest income from mortgage loans....................... 307,425 --
Other..................................................... 15,000 --
---------- ----------
TOTAL REVENUES.......................................... 623,778 --
---------- ----------
OPERATING EXPENSES
General and administrative expenses....................... 364,287 429,562
Interest expense.......................................... 115,956 --
---------- ----------
TOTAL OPERATING EXPENSES................................ 480,243 429,562
---------- ----------
NET INCOME.................................................. $ 143,535 $ (429,562)
========== ==========
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE............ $ 0.03 $ (0.10)
========== ==========
WEIGHTED AVERAGE COMMON SHARES USE IN PER SHARE
CALCULATION............................................... 4,630,220 4,333,762
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
DEL MAR HOLDINGS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- ADDITIONAL RECEIVABLE TOTAL
NUMBER OF PAID-IN FROM STOCKHOLDERS'
SHARES AMOUNT CAPITAL SHAREHOLDER EQUITY
--------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE--OCTOBER 23, 1997 (DATE OF
INCEPTION).......................... -- $ -- $ -- $ -- $ --
Issuance for services, January through
July 1997 (prior to formation),
$0.10 per share..................... 4,255,003 426 425,074 -- 425,500
Issuance for cash, October through
December 1997, $5.00 per share...... 122,867 12 614,321 -- 614,333
Net loss for the period............... -- -- (429,562) -- (429,562)
--------- ---- ---------- --------- ----------
BALANCE--DECEMBER 31, 1997............ 4,377,870 438 609,833 -- 610,271
Issuance for cash, January through
August 1998, $5.35 per share........ 413,400 41 2,211,025 -- 2,211,066
Conversion of payable to Del Mar
Mortgage, Inc. to equity,
December 31, 1998, $5.35 per
share............................... 413,801 41 2,213,168 -- 2,213,209
Distribution of receivable from
related party to a shareholder,
December 31, 1998, $5.08 per
share............................... (413,801) (41) (2,101,046) -- (2,101,087)
Distribution of mortgage loans to a
shareholder, December 31, 1998...... -- -- (362,762) -- (362,762)
Cash advances to shareholder.......... -- -- -- (535,646) (535,646)
Net income for the year............... -- -- 143,535 -- 143,535
--------- ---- ---------- --------- ----------
BALANCE--DECEMBER 31, 1998............ 4,791,270 $479 $2,713,753 $(535,646) $2,178,586
========= ==== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
DEL MAR HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE PERIOD FROM OCTOBER 23, 1997 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ 143,535 $(429,562)
Adjustment to reconcile net loss to net cash provided by
(used in)
operating activities:
Depreciation............................................ 1,687 --
Interest and loan extension fee added to note payable... 100,000 --
Services paid for with common stock..................... -- 425,500
Changes in current assets and current liabilities:
Other receivables....................................... (11,709) --
Other current assets.................................... (3,038) --
Accounts payable and accrued expenses................... 214,889 3,491
---------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... 445,364 (571)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of mortgage loans............................... (2,643,491) (179,995)
Purchase of furniture and equipment....................... (18,067) --
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES................... (2,661,558) (179,995)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Advances to related party................................. (1,636,087) (465,000)
Collection of revenue and fees of Del Mar Mortgage, Inc.
in excess of payments made for Del Mar Mortgage, Inc.... 2,213,209 --
Advances to shareholder................................... (535,646) --
Proceeds from note payable and short-term loans........... 100,000 530,000
Principal payments on short-term loans.................... (280,000) --
Proceeds from issuance of common stock.................... 2,211,066 614,333
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 1,709,780 679,333
---------- ---------
NET INCREASE (DECREASE) IN CASH............................. (143,652) 498,767
CASH AT BEGINNING OF PERIOD................................. 498,767 --
---------- ---------
CASH AT END OF PERIOD....................................... $ 355,115 $ 498,767
========== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest.................................... $ 19,447 $ --
========== =========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the year ended December 31, 1998, $2,213,209 payable to Del Mar
Mortgage, Inc. was converted to stockholders' equity by the major shareholder of
the Company, $2,101,087 due from a company owned by the major shareholder was
distributed to that shareholder and $362,762 of mortgage loans were distributed
to the same shareholder.
During the period ended December 31, 1997, the Company issued 4,255,003 for
$425,500 of services.
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
DEL MAR HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Del Mar Holdings, Inc. (the "Company") was incorporated in the
State of Nevada on October 23, 1997. The Company provides mortgage management
and administrative services to Del Mar Mortgage, Inc., a company related through
common ownership and management. Del Mar Mortgage, Inc. pays the Company
referral fees from loans originated outside the State of Nevada. The Company
also invests in short-term mortgage loans originated by Del Mar Mortgage, Inc.
relating to construction projects and real estate bridge financing.
REORGANIZATION AND BASIS OF PRESENTATION--Effective April 27, 1999,
Sunderland Corporation ("Sunderland") consummated an asset purchase agreement
with Del Mar Mortgage, Inc. and Del Mar Holdings, Inc. (collectively referred to
as the "Del Mar Entities") whereby Sunderland acquired certain assets and
assumed certain liabilities of the Del Mar Entities in exchange for 4,891,270
shares of Sunderland common stock (post 5-for-3 stock split). The shareholders
of Del Mar Holdings, Inc. received 4,791,270 shares of common stock of
Sunderland Corporation. Sunderland had 6,161,270 (post-split) common shares
outstanding after the reorganization. As a result of the transaction with
Sunderland, the shareholders of the Del Mar Entities received a majority of the
common stock of Sunderland. Accordingly, the Del Mar Entities were considered
the acquirer for financial reporting purposes and their financial statements
have been restated for all periods presented to reflect the common shares
received by the stockholders of the Del Mar Entities in a manner similar to a
stock split.
The Del Mar Entities were 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. Normally the financial statements of the Del Mar Entities would be
restated on a combined basis for all periods presented; however, as further
explained in Note 7, the State of Nevada issued an order temporarily taking
possession of Del Mar Mortgage, Inc. which resulted in the Del Mar Entities
being required to maintain separate financial statements through December 31,
1998.
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 in 1999.
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.
CASH--The Company invests its cash in high quality financial institutions,
which at times may be in excess of the Federal Deposit Insurance Corporation
insurance limits.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided principally on the
straight-line method over the estimated useful lives of the assets. The cost of
repairs and maintenance is charged to expense as incurred. Expenditures for
property betterments and renewals are capitalized. Upon sale or other
disposition of depreciable assets, cost and accumulated depreciation are removed
from the accounts and any gain or loss is reflected in general and
administrative expenses.
F-34
<PAGE>
DEL MAR HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Upon formation in October 1997, the Company elected to be
taxed as an S-Corporation for federal income tax purposes. As an S-Corporation,
elements of income and expense are passed through to the stockholders to be
included in their individual income tax returns. Accordingly, no income tax
effects are included in the financial statements. For financial reporting
purposes, the S-Corporation election was deemed terminated on April 27, 1999. As
a result, net loss and distributions to the shareholder have been included in
the financial statements as additional paid-in capital as though the Company
distributed its losses to the shareholders.
FAIR VALUES OF FINANCIAL INSTRUMENTS--The carrying amounts of cash, other
receivables, investment in mortgage loans on real estate, accounts payable and
accrued expenses, notes payable and the short-term loan approximate their fair
values because of the short-term maturity of these instruments.
NOTE 2--RECEIVABLE FROM SHAREHOLDER
As of December 31, 1998, the receivable from a shareholder of $535,646
represents amounts advanced to the Company's major shareholder. This receivable
was subsequently collateralized by the major shareholder's shares of common
stock of Sunderland Corporation. The outstanding balance bears no interest and
is due on demand.
NOTE 3--INVESTMENT IN MORTGAGE LOANS ON REAL ESTATE
The Company has invested in mortgage loans originated by Del Mar Mortgage,
Inc. The mortgage loans are secured by first and second real estate deeds of
trust. These loans have maturities of one year or less with interest rates
ranging from 12% to 14% payable monthly, with principal due at maturity. At
December 31, 1998, mortgage loans secured by second trust deeds with a face
amount of $362,762 were distributed to the major shareholder of the Company at
their carrying amount which was considered their fair value. The underlying
value of the trust deeds securing the remaining mortgage loans was considered
sufficient to realize their carrying value. Accordingly, an allowance for loan
losses was not required at December 31, 1998.
NOTE 4--NOTE PAYABLE AND SHORT-TERM LOAN
The note payable totaling $350,000 at December 31, 1998 is due
December 1999 to an unrelated party. The note was issued in November 1997 with
an interest rate of 10% and a principal amount of $250,000. Interest of $25,000
and a loan extension fee (recognized as additional interest) of $75,000 were
added to the loan during 1998.
The short-term loan totaling $100,000 at December 31, 1998, represents a
short-term, non-interest bearing advance due on demand. The advance was repaid
in January 1999.
NOTE 5--STOCKHOLDERS' EQUITY
From January through July 1997, certain individuals made preparations to
form the Company and for an initial public offering of the Company's common
stock. The individuals were compensated for their services by the Company
issuing 4,255,003 shares of common stock when the Company was incorporated. The
shares issued were valued at $425,500, or $0.10 per share, based upon the value
of the services
F-35
<PAGE>
DEL MAR HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998
NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)
rendered and management's estimate of value of the Company's stock as if the
Company had been formed when the services were rendered.
NOTE 6--COMMITMENTS AND CONTINGENCIES
The Company is involved in various routine legal proceedings arising in the
ordinary course of business. Management believes that these proceedings are
without merit and will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
NOTE 7--RELATED PARTY TRANSACTIONS
The Company has an arrangement with Del Mar Mortgage, Inc. (Mortgage),
whereby the Company paid certain expenses, such as processing payroll and other
operating activities for and on behalf of Mortgage. The Company also charges
Mortgage for mortgage management and administrative services provided by the
Company. In addition, the Company collected $3,008,542 of revenue and fees from
customers of Mortgage for and on behalf of Mortgage. These transactions resulted
in a net amount payable to Mortgage of $2,213,209 at December 31, 1998. The
major shareholder converted this payable into additional paid-in capital on
December 31, 1998.
The Company has paid expenses and other payments of $1,636,087 and $465,000
during the year ended December 31, 1998 and 1997, respectively, for and on
behalf of Shustek Investments, Inc., a company related through common ownership.
These advances resulted in $2,101,087 due from Shustek Investments, Inc. at
December 31, 1998 which was distributed to the major shareholder of the Company
on December 31, 1998.
On February 11, 1999, the State of Nevada, Department of Business and
Industry, Financial Institutions Division (the Division), issued an order taking
possession of Mortgage. The Division alleged that certain violations of State
statutes had occurred and established a conservator to oversee Mortgage's
operations. On February 16, 1999, Mortgage filed a complaint against the
Division resulting from its actions. Negotiations between Mortgage and the
Division were concluded on March 26, 1999 resulting in the dismissal of the
order and the removal of the conservator.
NOTE 8--SUBSEQUENT EVENT
As explained in Note 1, an agreement was reached effective April 27, 1999
with Sunderland Corporation whereby the Company sold its investment in mortgage
loans on real estate, receivable from shareholder and other current assets for
4,791,270 shares of Sunderland Corporation common stock. In addition, Sunderland
Corporation assumed a $350,000 note payable.
F-36
<PAGE>
[HANSEN, BARNETT & MAXWELL LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholder
CapSource, Inc.
We have audited the accompanying balance sheets of CapSource, Inc. as of
December 31, 1998, and the related statements of income, stockholder's equity,
and cash flows for the year ended December 31, 1998, and for the period
April 30, 1997 (date of inception) through December 31, 1997. 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 which require that we plan and perform the audits 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 CapSource, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period April 30, 1997 (date of inception) through December 31, 1997, and for the
year ended December 31, 1998 in conformity with generally accepted accounting
principles.
HANSEN, BARNETT & MAXWELL
Salt Lake City,
Utah April 7, 1999 (Except for Note 1,
Business Combination, and Note 3, as to
which the date is September 2, 1999)
F-37
<PAGE>
CAPSOURCE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 8,650 $ 9,747
------- -------
TOTAL CURRENT ASSETS.................................... 8,650 9,747
PROPERTY AND EQUIPMENT
Furniture and fixtures.................................... 987 987
Office equipment.......................................... 2,771 2,770
------- -------
TOTAL PROPERTY AND EQUIPMENT............................ 3,758 3,757
Less: Accumulated depreciation............................ (1,017) (829)
------- -------
NET PROPERTY AND EQUIPMENT.............................. 2,741 2,928
COST OF MORTGAGE LICENSE, NET OF AMORTIZATION............... 1,000 1,075
------- -------
TOTAL ASSETS................................................ $12,391 $13,750
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES......................................... $ -- $ --
STOCKHOLDER'S EQUITY
Common stock--no par value; 2,500 shares authorized; 100
shares issued and outstanding........................... 5,022 5,022
Retained earnings......................................... 7,369 8,728
------- -------
TOTAL STOCKHOLDER'S EQUITY.............................. 12,391 13,750
------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY.................. $12,391 $13,750
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
CAPSOURCE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE THREE MONTHS FOR THE FROM APRIL 30, 1997,
ENDED MARCH 31, YEAR ENDED (DATE OF INCEPTION)
--------------------- DECEMBER 31, THROUGH
1999 1998 1998 DECEMBER 31, 1997
--------- --------- ------------ --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Brokerage fees............................ $114,487 $53,442 $213,764 $37,424
Other fees................................ 737 821 3,285 4,700
Interest Income........................... 16 405 1,621 --
-------- ------- -------- -------
TOTAL REVENUE........................... 115,240 54,668 218,670 42,124
-------- ------- -------- -------
OPERATING EXPENSES
Consulting and other...................... 101,000 46,589 186,356 30,235
Referral fees............................. -- 1,483 5,932 250
Rent...................................... 2,482 1,721 6,962 3,388
Other general and administrative
expenses................................ 12,855 3,625 14,501 4,442
-------- ------- -------- -------
TOTAL OPERATING EXPENSES................ 116,337 53,438 213,751 38,315
-------- ------- -------- -------
NET INCOME (LOSS)........................... $ (1,097) $ 1,230 $ 4,919 $ 3,809
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
CAPSOURCE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------- RETAINED STOCKHOLDER'S
SHARES AMOUNT EARNINGS EQUITY
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE--APRIL 30, 1997 (DATE OF INCEPTION)............. -- $ -- $ -- $ --
Common stock issued for cash............................ 100 5,022 -- 5,022
Net income.............................................. -- -- 3,809 3,809
--- ------ ------ -------
BALANCE--DECEMBER 31, 1997.............................. 100 $5,022 $3,809 $ 8,831
Net income.............................................. -- -- 4,919 4,919
--- ------ ------ -------
BALANCE--DECEMBER 31, 1998.............................. 100 5,022 8,728 13,750
Net loss (Unaudited).................................... -- -- (1,360) (1,360)
--- ------ ------ -------
BALANCE--MARCH 31, 1999 (UNAUDITED)..................... 100 $5,022 $7,368 $12,390
=== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
CAPSOURCE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
FOR THE THREE PERIOD FROM
MONTHS FOR THE APRIL 30, 1997,
ENDED MARCH 31, YEAR ENDED (DATE OF INCEPTION)
------------------- DECEMBER 31, THROUGH DECEMBER 31,
1999 1998 1998 1997
-------- -------- ------------ --------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).......................... $(1,360) $ 1,230 $ 4,919 $ 3,809
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization............................. 75 75 300 125
Depreciation............................. 188 188 752 77
------- ------- ------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................... (1,097) 1,493 5,971 4,011
------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of mortgage license............... -- -- -- (1,500)
Purchase of property and equipment......... -- (2,215) (2,215) (1,542)
------- ------- ------- -------
NET CASH USED IN INVESTING ACTIVITIES...... -- (2,215) (2,215) (3,042)
------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock issued for cash...................... -- -- -- 5,022
------- ------- ------- -------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................... -- -- -- 5,022
------- ------- ------- -------
NET INCREASE IN CASH......................... (1,097) (722) 3,756 5,991
CASH AT BEGINNING OF PERIOD.................. 9,747 5,991 5,991 --
------- ------- ------- -------
CASH AT END OF PERIOD........................ $ 8,650 $ 5,269 $ 9,747 $ 5,991
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
CAPSOURCE, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY--On April 30, 1997, CapSource, Inc. (the Company) was
incorporated under the laws of the State of Nevada. The Company has elected
S-Corporation status under the Internal Revenue Code. The Company is engaged in
the business of mortgage services, specifically the origination and the buying
and selling of mortgages, principally in the greater Las Vegas area.
BUSINESS COMBINATION--Effective April 27, 1999, Sunderland Corporation
("Sunderland") consummated a business combination with the Company whereby
Sunderland acquired all of the outstanding capital stock of CapSource in
exchange for 20,000 shares of Sunderland common stock (post 5-for-3 stock
split). The business combination between Sunderland 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.
USE OF ESTIMATES--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 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.
INTERIM FINANCIAL STATEMENTS--The accompanying financial statements as of
March 31, 1999 and for the three months then ended are unaudited and, in the
opinion of management, all necessary adjustments (which include only normal
recurring adjustments) have been made to present fairly the financial position,
results of operations and cash flows for the period presented.
ACCOUNTING POLICY--Revenues and expenses are recognized on the accrual basis
in accordance with generally accepted accounting principles.
CASH EQUIVALENTS--Cash equivalents include highly liquid short-term
investments with original maturities of three months or less, readily
convertible to known amounts of cash.
PROPERTY AND EQUIPMENT--Property and equipment are carried at cost and
depreciated over five years using the straight-line method. Depreciation expense
for the three months ended March 31, 1999, the year ended December 31, 1998, and
the period ended December 31, 1997 was $188, $752, and $77, respectively.
MORTGAGE LICENSE--The mortgage license is recorded at its cost of $1,500 and
is amortized over five years using the straight-line method. Amortization
expense for the three months ended March 31, 1999, the year ended December 31,
1998, and the period ended December 31, 1997 was $75, $300, and $125,
respectively.
ADVERTISING--The Company follows the policy of charging the costs of
advertising to expense as incurred. Advertising expense for the period
April 30, 1997 (date of inception) through December 31, 1997, for the year ended
December 31, 1998, and for the three months ended March 31, 1999 was $0, $2,919,
and $0, respectively.
INCOME TAXES--The Company is treated as an S-Corporation for income tax
purposes. Elements of income and expense are passed through to the stockholders
to be included in their personal income tax returns. Accordingly, no income tax
effects are included in the financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board (FASB) issued Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME
F-42
<PAGE>
CAPSOURCE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(FAS 130). FAS 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. FAS 130 is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes is
required. The adoption of this standard has no impact on the Company's results
of operations, financial position or cash flows.
NOTE 2--LEASE COMMITMENTS
During 1997, the Company rented its office space on a month-to-month basis.
In 1998, the Company entered into a 12-month noncancellable lease. The minimum
lease payment is $575 per month. On June 30, 1999, when this lease expires, the
Company has the option to continue leasing its office space on a month-to-month
basis. This lease is classified as an operating lease. The Company's future
minimum obligation under this lease amounts to $3,450, payable in 1999.
Rent expense for the period April 30, 1997 (date of inception) through
December 31, 1997, and for the year ended December 31, 1998, and for the three
months ended March 31, 1999 was $3,388, $6,962, and $2,482, respectively.
NOTE 3--SUBSEQUENT EVENT
As explained in Note 1, an agreement was reached effective April 27, 1999
with Sunderland Corporation whereby all of the outstanding capital stock of the
Company was acquired by Sunderland in exchange for 20,000 shares of Sunderland
common stock. The transaction was accounted for under the purchase method of
accounting.
F-43
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CASH........................................................ $380
----
TOTAL ASSETS................................................ $380
====
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES................................................. $ --
----
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value, 20 million shares
authorized, zero shares issued and outstanding......... --
Common stock, $.0001 par value, 100 million shares
authorized 8,333,333 shares issued and outstanding..... 833
Additional paid-in capital (discount on par)............ (258)
Accumulated deficit during development stage............ (195)
----
TOTAL STOCKHOLDERS' EQUITY............................ 380
----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $380
====
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
INCOME...................................................... $ --
---------
OPERATING EXPENSES
Organization fee expense.................................. --
Bank charges.............................................. 36
---------
TOTAL OPERATING EXPENSES................................ 36
---------
NET LOSS.................................................... $ (36)
=========
Basic & diluted net loss per common shares.................. $ 0.00
=========
Weighted average shares used in per share calculations...... 8,333,333
=========
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1998............................ $500 $75 $(159) $416
Net loss................................................ -- -- (36) (36)
---- --- ----- ----
BALANCE AT MARCH 31, 1999............................... $500 $75 $(195) $380
==== === ===== ====
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(159)
Adjustments to reconcile net loss to net cash used by
operating activities.................................... --
-----
NET CASH USED IN OPERATING ACTIVITIES................... (159)
-----
CASH FLOWS FROM INVESTING ACTIVITIES........................ --
-----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... 575
-----
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 575
-----
INCREASE IN CASH AND CASH EQUIVALENTS....................... 416
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD.............. --
-----
CASH AND CASH EQUIVALENTS--END OF PERIOD.................... $ 416
=====
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS OPERATIONS--Sunderland Acquisition Corporation (a
development stage company) ("the Company") was incorporated in Delaware on June
2, 1998 to serve as a vehicle to effect a merger, exchange of capital stock,
asset acquisition or other business combination with a domestic or foreign
private business. At March 31, 1999, the Company had not yet commenced any
formal business operations, and all activity to date relates to the Company's
formation and proposed fund raising. The Company's fiscal year end is
December 31.
The Company's ability to commence operations is contingent upon its ability
to identify a prospective target business and raise the capital it will require
through the issuance of equity securities, debt securities, bank borrowings or a
combination thereof.
USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles require 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.
INTERIM FINANCIAL STATEMENTS--The accompanying financial statements are
unaudited and, in the opinion of management, all necessary adjustments ( which
include only normal recurring adjustments) have been made to present fairly the
financial position, results of operations and cash flows for the period
presented.
CASH AND CASH EQUIVALENTS--For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INCOME TAXES--The Company accounts for income taxes under the Financial
Accounting Standards Board of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". 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. Deferred rates are expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date. There are no current or deferred income tax expense or benefits
due to the Company's limited operations for the period ended March 31, 1999.
NOTE 2--STOCKHOLDERS' EQUITY
PREFERRED STOCK--The Company is authorized to issue 20,000,000 shares of
preferred stock at $.0001 par value, with such designations, voting and other
rights and preferences as may be determined from time to time by the Board of
Directors.
COMMON STOCK--The Company is authorized to issue 100,000,000 shares of
common stock at $.0001 par value. The Company has rescinded certain stock and
issued certain stock subsequent to March 31, 1999. See Note 4.
F-48
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
NOTE 3--RELATED PARTIES
Legal counsel to the Company is a firm owned by a director of the Company
who also owns 100% of the outstanding stock of Pierce Mill Associates, Inc. The
same party is also the controlling owner of Cassidy & Associates.
NOTE 4--SUBSEQUENT EVENTS
Effective April 27, 1999, the Company rescinded, for no consideration,
7,083,333 shares of its common stock and also effected a 5-for-3 stock split.
All share amounts included in these financial statements have been restated for
the effects of the stock split on a retroactive basis.
Effective April 27, 1999, the Company consummated an asset purchase
agreement with Del Mar Mortgage, Inc. and Del Mar Holdings, Inc. (collectively
referred to as the "Del Mar Entities") whereby Sunderland acquired certain
assets and assumed certain liabilities of the Del Mar Entities in exchange for
4,891,270 shares of Sunderland common stock. As a result of the transaction with
Sunderland, the shareholders of the Del Mar Entities received a majority of the
common stock of Sunderland. Accordingly, the Del Mar Entities were considered
the acquirer for financial reporting purposes. In addition, effective April 27,
1999, the Company consummated a business combination with CapSource, Inc. (a
Nevada corporation) whereby Sunderland acquired all of the outstanding capital
stock of CapSource in exchange for 20,000 shares of Sunderland common stock. The
business combination with CapSource has been accounted for under the purchase
method of accounting.
Sunderland had 6,161,270 common shares outstanding after the reorganization
of the Del Mar entities and the acquisition of CapSource, Inc.
F-49
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Sunderland Acquisition Corporation
(A Development Stage Company)
We have audited the accompanying balance sheet of Sunderland Acquisition
Corporation (a development stage company) as of December 31, 1998 and the
related statements of operations, changes in stockholders' equity and cash flows
for the period from June 2, 1998 (inception) to December 31, 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 statements presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly
in all material respects, the financial position of Sunderland Acquisition
Corporation (a development stage company) as of December 31, 1998, and the
results of its operations and its cash flows for the period from June 2, 1998
(inception) to December 31, 1998, in conformity with generally accepted
accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
February 16, 1999 (Except for Note 4
as to which the date is September 9, 1999)
F-50
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<S> <C>
ASSETS
CASH........................................................ $416
----
TOTAL ASSETS................................................ $416
====
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES................................................. $ --
----
STOCKHOLDERS' EQUITY
Preferred stock, $.0001 par value, 20 million shares
authorized, zero issued and outstanding................. --
Common stock, $.0001 par value, 100 million shares
authorized 8,333,333 issued and outstanding............. 833
Additional paid-in capital (discount on par).............. (258)
Accumulated deficit during development stage.............. (159)
----
TOTAL STOCKHOLDERS' EQUITY.............................. 416
----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $416
====
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JUNE 2, 1998 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<S> <C>
INCOME...................................................... $ --
---------
OPERATING EXPENSES
Organization fee expense.................................. 75
Bank charges.............................................. 84
---------
TOTAL OPERATING EXPENSES................................ 159
---------
NET LOSS.................................................... $ (159)
=========
Basic & diluted net loss per common shares................ $ 0.00
=========
Weighted average shares used in per share calculations.... 8,333,333
=========
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 2, 1998 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING
COMMON PAID-IN DEVELOPMENT
STOCK CAPITAL STAGE TOTAL
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Common stock issuance.................................. $500 $75 $ -- $ 575
Net loss............................................... -- -- (159) (159)
---- --- ----- -----
BALANCE AT DECEMBER 31, 1998........................... $500 $75 $(159) $ 416
==== === ===== =====
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JUNE 2, 1998 (INCEPTION)
TO DECEMBER 31, 1998
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(159)
Adjustments to reconcile net loss to net cash used by
operating activities.................................... --
-----
NET CASH USED IN OPERATING ACTIVITIES................... (159)
-----
CASH FLOWS FROM INVESTING ACTIVITIES........................ --
-----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock.................... 575
-----
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 575
-----
INCREASE IN CASH AND CASH EQUIVALENTS....................... 416
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD.............. --
-----
CASH AND CASH EQUIVALENTS--END OF PERIOD.................... $ 416
=====
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS OPERATIONS--Sunderland Acquisition Corporation (a
development stage company) ("the Company") was incorporated in Delaware on
June 2, 1998 to serve as a vehicle to effect a merger, exchange of capital
stock, asset acquisition or other business combination with a domestic or
foreign private business. At December 31, 1998, the Company had not yet
commenced any formal business operations, and all activity to date relates to
the Company's formation and proposed fund raising. The Company's fiscal year end
is December 31.
The Company's ability to commence operations is contingent upon its ability
to identify a prospective target business and raise the capital it will require
through the issuance of equity securities, debt securities, bank borrowings or a
combination thereof.
USE OF ESTIMATES--The preparation of the financial statements in conformity
with generally accepted accounting principles require 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.
CASH AND CASH EQUIVALENTS--For purposes of the statements of cash flows, the
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
INCOME TAXES--The Company accounts for income taxes under the Financial
Accounting Standards Board of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". 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. Deferred rates are expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date. There are no current or deferred income tax expense or benefits
due to the Company's limited operations for the period ended December 31, 1998.
NOTE 2--STOCKHOLDERS' EQUITY
PREFERRED STOCK--The Company is authorized to issue 20,000,000 shares of
preferred stock at $.0001 par value, with such designations, voting and other
rights and preferences as may be determined from time to time by the Board of
Directors.
COMMON STOCK--The Company is authorized to issue 100,000,000 shares of
common stock at $.0001 par value. The Company issued 4,250,000 and 750,000
shares to Pierce Mill Associates, Inc. and Cassidy & Associates, respectively
(See Note 4).
NOTE 3--RELATED PARTIES
Legal counsel to the Company is a firm owned by a director of the Company
who also owns 100% of the outstanding stock of Pierce Mill Associates, Inc. The
same party is also the controlling owner of Cassidy & Associates.
F-55
<PAGE>
SUNDERLAND ACQUISITION CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1998
NOTE 4--SUBSEQUENT EVENT
On April 27, 1999, the Company's Board of Directors adopted a resolution
whereby it approved a 5 for 3 stock split of the issued and outstanding shares
of common stock. The 1998 financial statements have been retroactively restated
to give effect to the 5 for 3 stock split as if the then outstanding shares of
common stock where outstanding when the split occurred. The effect of the
retroactive restatement created a discount on par in the additional paid-in
capital account.
F-56
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MAY NOT
BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF ANY OFFER TO
BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR ANY SUCH
PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary..................... 2
Risk Factors........................... 6
Available Information.................. 11
The Company............................ 12
Dividend Policy........................ 12
Business............................... 12
Management's Discussion and Analysis of
Operations........................... 19
Management............................. 23
Security Ownership of Certain
Beneficial Owners and Management..... 26
Selling Securityholders................ 27
Certain Relationships and Related
Transactions......................... 39
Description of Securities.............. 39
Plan of Distribution................... 41
Legal Matters.......................... 43
Experts................................ 43
Index to Financial Statements.......... F-1
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
SUNDERLAND
CORPORATION
1,926,270 SHARES OF COMMON STOCK
TO BE SOLD BY THE HOLDERS THEREOF
---------------------
PROSPECTUS
---------------------
OCTOBER 20, 1999
- -------------------------------------------
- -------------------------------------------
