[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
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VESTIN REALTY MORTGAGE I, INC.
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(Exact name of registrant as specified in its charter)
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MARYLAND
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20-4028839
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(State or Other Jurisdiction of
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(I.R.S. Employer
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Incorporation or Organization)
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Identification No.)
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Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
(Do not check if a smaller reporting company)
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Smaller reporting company [X]
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Page
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3 | ||
Exhibit 31.1
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Exhibit 31.2
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Exhibit 32
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ITEM 1.
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CONSOLIDATED FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS
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||||||||
ASSETS
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||||||||
September 30, 2012
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December 31, 2011
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|||||||
(Unaudited)
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||||||||
Assets
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||||||||
Cash and cash equivalents
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$ | 534,000 | $ | 6,758,000 | ||||
Investment in marketable securities - related party
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827,000 | 651,000 | ||||||
Interest and other receivables, net of allowance of $0 at September 30, 2012 and $228,000 at December 31, 2011
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15,000 | 10,000 | ||||||
Notes receivable, net of allowance of $1,931,000 at September 30, 2012 and $837,000 at December 31, 2011
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-- | -- | ||||||
Real estate held for sale
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2,825,000 | 2,409,000 | ||||||
Investment in real estate loans, net of allowance for loan losses of $628,000 at September 30, 2012 and $5,485,000 at December 31, 2011
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13,858,000 | 10,767,000 | ||||||
Asset held for sale
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4,292,000 | -- | ||||||
Other assets
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163,000 | 100,000 | ||||||
Total assets
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$ | 22,514,000 | $ | 20,695,000 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
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||||||||
Liabilities
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||||||||
Accounts payable and accrued liabilities
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$ | 101,000 | $ | 147,000 | ||||
Due to related parties
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104,000 | 104,000 | ||||||
Notes payable
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56,000 | 19,000 | ||||||
Liabilities related to asset held for sale
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34,000 | -- | ||||||
Deferred gain on sale of Hawaii Funeral Services, LLC
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42,000 | 63,000 | ||||||
Total liabilities
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337,000 | 333,000 | ||||||
Commitments and contingencies
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||||||||
Stockholders' equity
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||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued
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-- | -- | ||||||
Treasury stock, at cost, 0 shares at September 30, 2012 and 534,207 shares at December 31, 2011
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-- | (1,045,000 | ) | |||||
Common stock, $0.0001 par value; 25,000,000 shares authorized; 6,340,859 shares issued and outstanding at September 30, 2012 and 6,875,066 shares issued and 6,340,859 outstanding at December 31, 2011
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1,000 | 1,000 | ||||||
Additional paid-in capital
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61,217,000 | 62,262,000 | ||||||
Accumulated deficit
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(40,352,000 | ) | (40,856,000 | ) | ||||
Accumulated other comprehensive income
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199,000 | -- | ||||||
Total stockholders’ equity before non-controlling interest – related party
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21,065,000 | 20,362,000 | ||||||
Noncontrolling interest – related party
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1,112,000 | -- | ||||||
Total equity
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22,177,000 | 20,362,000 | ||||||
Total liabilities and stockholders' equity
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$ | 22,514,000 | $ | 20,695,000 |
VESTIN REALTY MORTGAGE I, INC.
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||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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||||||||||||||||
For The
Three Months Ended
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For The
Nine Months Ended
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|||||||||||||||
9/30/2012
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9/30/2011
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9/30/2012
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9/30/2011
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|||||||||||||
Revenues
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||||||||||||||||
Interest income from investment in real estate loans
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$ | 291,000 | $ | 97,000 | $ | 643,000 | $ | 328,000 | ||||||||
Gain related to pay off of real estate loan, including recovery of allowance for loan loss
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22,000 | -- | 210,000 | -- | ||||||||||||
Gain related to pay off of notes receivable, including recovery of allowance for notes receivable
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30,000 | 22,000 | 89,000 | 33,000 | ||||||||||||
Other
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-- | -- | -- | 12,000 | ||||||||||||
Total revenues
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343,000 | 119,000 | 942,000 | 373,000 | ||||||||||||
Operating expenses
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||||||||||||||||
Management fees - related party
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61,000 | 69,000 | 199,000 | 207,000 | ||||||||||||
Provision for loan loss
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21,000 | 608,000 | 40,000 | 735,000 | ||||||||||||
Interest expense
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2,000 | 7,000 | 3,000 | 19,000 | ||||||||||||
Professional fees
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135,000 | 59,000 | 523,000 | 304,000 | ||||||||||||
Consulting
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20,000 | 22,000 | 58,000 | 69,000 | ||||||||||||
Insurance
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55,000 | 55,000 | 166,000 | 176,000 | ||||||||||||
Other
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41,000 | 31,000 | 121,000 | 155,000 | ||||||||||||
Total operating expenses
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335,000 | 851,000 | 1,110,000 | 1,665,000 | ||||||||||||
Income (loss( from operations
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8,000 | (732,000 | ) | (168,000 | ) | (1,292,000 | ) | |||||||||
Non-operating income (loss)
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||||||||||||||||
Interest income from banking institutions
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-- | 1,000 | -- | 6,000 | ||||||||||||
Recovery from settlement with loan guarantor
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267,000 | -- | 978,000 | -- | ||||||||||||
Settlement income
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55,000 | -- | 55,000 | -- | ||||||||||||
Gain on sale of marketable securities – related party
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3,000 | -- | 3,000 | -- | ||||||||||||
Discounted professional fees
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-- | -- | -- | 280,000 | ||||||||||||
Settlement expense
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-- | -- | (23,000 | ) | -- | |||||||||||
Income from equity method investee held for sale
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-- | 328,000 | -- | 661,000 | ||||||||||||
Total non-operating income, net
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325,000 | 329,000 | 1,013,000 | 947,000 | ||||||||||||
Provision for income taxes
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-- | -- | -- | -- | ||||||||||||
Income (loss) from continuing operations
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333,000 | (403,000 | ) | 845,000 | (345,000 | ) | ||||||||||
Discontinued operations, net of income taxes
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||||||||||||||||
Net gain on sale of real estate held for sale
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-- | -- | 4,000 | -- | ||||||||||||
Expenses related to real estate held for sale
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(29,000 | ) | (98,000 | ) | (116,000 | ) | (232,000 | ) | ||||||||
Write-downs on real estate held for sale
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-- | (141,000 | ) | (316,000 | ) | (273,000 | ) | |||||||||
Income from asset held for sale, net of income taxes
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79,000 | -- | 118,000 | -- | ||||||||||||
Total loss from discontinued operations
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50,000 | (239,000 | ) | (310,000 | ) | (505,000 | ) | |||||||||
Net income (loss)
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383,000 | (642,000 | ) | 535,000 | (850,000 | ) | ||||||||||
Allocation to noncontrolling interest – related party
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(21,000 | ) | -- | (31,000 | ) | -- | ||||||||||
Net income (loss) attributable to common stockholders
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$ | 362,000 | $ | (642,000 | ) | $ | 504,000 | $ | (850,000 | ) | ||||||
Basic and diluted income (loss) per weighted average common share
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||||||||||||||||
Continuing operations
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0.05 | (0.06 | ) | 0.14 | (0.05 | ) | ||||||||||
Discontinued operations
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0.01 | (0.04 | ) | (0.05 | ) | (0.08 | ) | |||||||||
Total basic and diluted income (loss) per weighted
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||||||||||||||||
average common share
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$ | 0.06 | $ | (0.10 | ) | $ | 0.09 | $ | (0.13 | ) | ||||||
Dividends declared per common share
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$ | -- | $ | -- | $ | -- | $ | -- | ||||||||
Weighted average common shares outstanding
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6,340,859 | 6,340,858 | 6,340,859 | 6,380,734 |
VESTIN REALTY MORTGAGE I, INC.
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||||||||||||||||
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME (LOSS)
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||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011
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||||||||||||||||
(UNAUDITED)
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||||||||||||||||
For The
Three Months Ended
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For The
Nine Months Ended
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|||||||||||||||
9/30/2012
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9/30/2011
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9/30/2012
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9/30/2011
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Net income (loss)
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$ | 383,000 | $ | (642,000 | ) | $ | 535,000 | $ | (850,000 | ) | ||||||
Unrealized holding gain (loss) on available-for-sale securities – related party
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219,000 | (82,000 | ) | 199,000 | (208,000 | ) | ||||||||||
Comprehensive income (loss)
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602,000 | (724,000 | ) | 734,000 | (1,058,000 | |||||||||||
Net (income) attributable to noncontrolling interest
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(21,000 | ) | -- | (31,000 | ) | -- | ||||||||||
Comprehensive income (loss) attributable to Vestin Realty Mortgage I, Inc.
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$ | 581,000 | $ | (724,000 | ) | $ | 703,000 | $ | (1,058,000 | ) | ||||||
VESTIN REALTY MORTGAGE I, INC. |
CONSOLIDATED STATEMENT OF EQUITY |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2012 |
(UNAUDITED) |
Treasury Stock
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Common Stock
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|||||||||||||||||||||||||||||||||||
Shares
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Amount
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Shares
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Amount
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Additional
Paid-in-
Capital
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Accumulated Deficit
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Accumulated
Other Comprehensive
Loss
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Noncontrolling Interest – Related Party
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Total
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||||||||||||||||||||||||||||
Stockholders' Equity at
December 31, 2011
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534,207 | $ | (1,045,000 | ) | 6,340,859 | $ | 1,000 | $ | 62,262,000 | $ | (40,856,000 | ) | $ | -- | $ | -- | $ | 20,362,000 | ||||||||||||||||||
Net Income
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504,000 | 31,000 | 535,000 | |||||||||||||||||||||||||||||||||
Unrealized Gain on Marketable Securities - Related Party
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199,000 | 199,000 | ||||||||||||||||||||||||||||||||||
Comprehensive Loss
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734,000 | |||||||||||||||||||||||||||||||||||
Retire treasury stock
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(534,207 | ) | 1,045,000 | (1,045,000 | ) | -- | ||||||||||||||||||||||||||||||
Non-Controlling Interest – Related Party
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1,081,000 | 1,081,000 | ||||||||||||||||||||||||||||||||||
Stockholders' Equity at September 30, 2012 (Unaudited)
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-- | $ | -- | 6,340,859 | $ | 1,000 | $ | 61,217,000 | $ | (40,352,000 | ) | $ | 199,000 | $ | 1,112,000 | $ | 22,177,000 |
VESTIN REALTY MORTGAGE I, INC.
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||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
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||||||||
(UNAUDITED)
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||||||||
For The Nine
Months Ended
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||||||||
09/30/2012
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09/30/2011
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|||||||
Cash flows from operating activities:
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||||||||
Net income (loss)
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$ | 535,000 | $ | (850,000 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
Write-downs on real estate held for sale
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316,000 | 273,000 | ||||||
Recovery of allowance for doubtful notes receivable
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(89,000 | ) | (10,000 | ) | ||||
Gain on sale of marketable securities – related party
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(3,000 | ) | -- | |||||
Gain related to recovery of allowance for loan loss
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(210,000 | ) | (33,000 | ) | ||||
Settlement income
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(55,000 | ) | -- | |||||
Gain on sale of real estate held for sale
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(4,000 | ) | -- | |||||
Gain related to recovery from settlement with loan guarantor
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(978,000 | ) | -- | |||||
Provision for loan loss
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40,000 | 735,000 | ||||||
Amortized interest income
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-- | (2,000 | ) | |||||
Income from equity method investee held for sale
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-- | (661,000 | ) | |||||
Change in operating assets and liabilities:
|
||||||||
Interest and other receivables
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(5,000 | ) | 669,000 | |||||
Due to/from related parties
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-- | (731,000 | ) | |||||
Asset held for sale, net of liabilities
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(118,000 | ) | -- | |||||
Deferred gain on sale of Hawaii Funeral Services, LLC
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(21,000 | ) | -- | |||||
Other assets
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103,000 | 124,000 | ||||||
Accounts payable and accrued liabilities
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(44,000 | ) | (1,281,000 | ) | ||||
Net cash used in operating activities
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(533,000 | ) | (1,767,000 | ) | ||||
Cash flows from investing activities:
|
||||||||
Investments in real estate loans
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(14,169,000 | ) | (3,676,000 | ) | ||||
Purchase of investment in real estate loans from
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||||||||
VRM II
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(1,000,000 | ) | -- | |||||
Other related parties
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(300,000 | ) | -- | |||||
Purchase of marketable securities – related party
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-- | (543,000 | ) | |||||
Proceeds from loan payoffs
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6,689,000 | 804,000 | ||||||
Sale of investments in real estate loans to third parties
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2,012,000 | -- | ||||||
Proceeds from sale of marketable security – related party
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26,000 | -- | ||||||
Proceeds from settlement from loan guarantor
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978,000 | -- | ||||||
Proceeds from notes receivable
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89,000 | 10,000 | ||||||
Proceeds from settlement income
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55,000 | -- | ||||||
Proceeds from sale of real estate held for sale
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133,000 | -- | ||||||
Investment in asset held for sale
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(80,000 | ) | -- | |||||
Proceeds related to nonrefundable extension fees on real estate held for sale
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5,000 | -- | ||||||
Distributions from investment in equity method investee held for sale
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-- | 387,000 | ||||||
Net cash used in investing activities
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(5,562,000 | ) | (3,018,000 | ) | ||||
Cash flows from financing activities:
|
||||||||
Purchase of treasury stock at cost
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-- | (104,000 | ) | |||||
Principal payments on notes payable
|
(129,000 | ) | (114,000 | ) | ||||
Net cash used in financing activities
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(129,000 | ) | (218,000 | ) | ||||
NET CHANGE IN CASH
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(6,224,000 | ) | (5,003,000 | ) | ||||
Cash and cash equivalents, beginning of period
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6,758,000 | 8,145,000 | ||||||
Cash and cash equivalents, end of period
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$ | 534,000 | $ | 3,142,000 |
VESTIN REALTY MORTGAGE I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
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||||||||
For The Nine
Months Ended
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||||||||
09/30/2012
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09/30/2011
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|||||||
Supplemental disclosures of cash flows information:
|
||||||||
Interest paid
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$ | 3,000 | $ | 19,000 | ||||
Non-cash investing and financing activities:
|
||||||||
Write-off of interest receivable and related allowance
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$ | 228,000 | $ | -- | ||||
Real estate held for sale through deed in lieu, net of prior allowance
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$ | 787,000 | $ | -- | ||||
Note payable relating to prepaid D & O insurance
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$ | 166,000 | $ | 167,000 | ||||
Adjustment to note receivable and related allowance
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$ | 1,087,000 | $ | -- | ||||
Asset held for sale acquired through foreclosure, net of prior allowance
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(3,059,000 | ) | -- | |||||
Unrealized gain (loss) on marketable securities - related party
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$ | 199,000 | $ | (212,000 | ) |
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·
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Declines in real estate market conditions, which can cause a decrease in expected market value;
|
|
·
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Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
|
|
·
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Lack of progress on real estate developments after we advance funds. We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances. After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
|
|
·
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Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed property; and
|
|
·
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Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
|
|
·
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Management commits to a plan to sell the properties;
|
|
·
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The property is available for immediate sale in its present condition subject only to terms that are usual and customary;
|
|
·
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An active program to locate a buyer and other actions required to complete a sale have been initiated;
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|
·
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The sale of the property is probable;
|
|
·
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The property is being actively marketed for sale at a reasonable price; and
|
|
·
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Withdrawal or significant modification of the sale is not likely.
|
|
·
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The length of the time and the extent to which the market value has been less than cost;
|
|
·
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The financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer such as changes in technology that may impair the earnings potential of the investment or the discontinuance of a segment of the business that may affect the future earnings potential; or
|
|
·
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The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
|
|
·
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Level 1 – Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
|
·
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Level 2 – Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
|
|
·
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Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement, which utilize the Company’s estimates and assumptions.
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Loan Type
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Number of Loans
|
Balance *
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Weighted Average Interest Rate
|
Portfolio Percentage
|
Current Weighted Average Loan-To-Value, Net of Allowance for Loan Losses
|
|||||||||||||||
Commercial
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14 | $ | 14,392,000 | 8.11 | % | 99.35 | % | 67.15 | % | |||||||||||
Land
|
1 | 94,000 | 6.00 | % | 0.65 | % | 53.81 | % | ||||||||||||
Total
|
15 | $ | 14,486,000 | 8.10 | % | 100.00 | % | 67.06 | % |
Loan Type
|
Number of Loans
|
Balance *
|
Weighted Average Interest Rate
|
Portfolio Percentage
|
Current Weighted Average Loan-To-Value, Net of Allowance for Loan Losses
|
|||||||||||||||
Commercial
|
17 | $ | 15,855,000 | 10.15 | % | 97.55 | % | 70.96 | % | |||||||||||
Construction
|
1 | 165,000 | 8.00 | % | 1.02 | % | 90.50 | % | ||||||||||||
Residential
|
1 | 138,000 | 11.69 | % | 0.85 | % | 89.73 | % | ||||||||||||
Land
|
1 | 94,000 | 6.00 | % | 0.58 | % | 53.81 | % | ||||||||||||
Total
|
20 | $ | 16,252,000 | 10.09 | % | 100.00 | % | 70.86 | % |
*
|
Please see Balance Sheet Reconciliation below.
|
Loan Type
|
Number of Loans
|
September 30, 2012
Balance *
|
Portfolio
Percentage
|
Number of Loans
|
December 31, 2011 Balance *
|
Portfolio
Percentage
|
||||||||||||||||||
First deeds of trust
|
12 | $ | 13,058,000 | 90.14 | % | 13 | $ | 10,840,000 | 66.70 | % | ||||||||||||||
Second deeds of trust
|
3 | 1,428,000 | 9.86 | % | 7 | 5,412,000 | 33.30 | % | ||||||||||||||||
Total
|
15 | $ | 14,486,000 | 100.00 | % | 20 | $ | 16,252,000 | 100.00 | % |
*
|
Please see Balance Sheet Reconciliation below.
|
October 2012 –December 2012
|
$ | 2,225,000 | ||
January 2013 – March 2013
|
3,843,000 | |||
April 2013 – June 2013
|
4,823,000 | |||
July 2013 – September 2013
|
2,845,000 | |||
Thereafter
|
750,000 | |||
Total
|
$ | 14,486,000 |
September 30, 2012 Balance *
|
Portfolio Percentage
|
December 31, 2011 Balance *
|
Portfolio Percentage
|
|||||||||||||
Arizona
|
$ | -- | -- | % | $ | 3,282,000 | 20.20 | % | ||||||||
California
|
445,000 | 3.07 | % | 647,000 | 3.98 | % | ||||||||||
Colorado
|
-- | -- | 300,000 | 1.85 | % | |||||||||||
Michigan
|
1,741,000 | 12.02 | % | -- | -- | |||||||||||
Nevada
|
11,157,000 | 77.02 | % | 5,928,000 | 36.48 | % | ||||||||||
Oregon
|
-- | -- | 4,434,000 | 27.28 | % | |||||||||||
Texas
|
484,000 | 3.34 | % | 1,661,000 | 10.21 | % | ||||||||||
Utah
|
659,000 | 4.55 | % | -- | -- | |||||||||||
Total
|
$ | 14,486,000 | 100.00 | % | $ | 16,252,000 | 100.00 | % |
*
|
Please see Balance Sheet Reconciliation below.
|
September 30, 2012 Balance
|
December 31, 2011 Balance
|
|||||||
Balance per loan portfolio
|
$ | 14,486,000 | $ | 16,252,000 | ||||
Less:
|
||||||||
Allowance for loan losses (a)
|
(628,000 | ) | (5,485,000 | ) | ||||
Balance per consolidated balance sheets
|
$ | 13,858,000 | $ | 10,767,000 |
|
(a)
|
Please refer to Specific Reserve Allowance below.
|
Loan Type
|
Number Of Non-Performing Loans
|
Balance at
December 31, 2011
|
Allowance for Loan Losses
|
Net Balance at
December 31, 2011
|
||||||||||||
Commercial
|
4 | $ | 7,571,000 | $ | (3,724,000 | ) | $ | 3,847,000 | ||||||||
Total
|
4 | $ | 7,571,000 | $ | (3,724,000 | ) | $ | 3,847,000 |
|
·
|
Prevailing economic conditions;
|
|
·
|
Historical experience;
|
|
·
|
The nature and volume of the loan portfolio;
|
|
·
|
The borrowers’ financial condition and adverse situations that may affect the borrowers’ ability to pay;
|
|
·
|
Evaluation of industry trends; and
|
|
·
|
Estimated net realizable value of any underlying collateral in relation to the loan amount.
|
As of September 30, 2012
|
||||||||||||
Balance
|
Allowance for loan losses *
|
Balance, net of allowance
|
||||||||||
Non-performing loans – no related allowance
|
$ | -- | $ | -- | $ | -- | ||||||
Non-performing loans – related allowance
|
-- | -- | -- | |||||||||
Subtotal non-performing loans
|
-- | -- | -- | |||||||||
Performing loans – no related allowance
|
12,807,000 | -- | 12,807,000 | |||||||||
Performing loans – related allowance
|
1,679,000 | (628,000 | ) | 1,051,000 | ||||||||
Subtotal performing loans
|
14,486,000 | (628,000 | ) | 13,858,000 | ||||||||
Total
|
$ | 14,486,000 | $ | (628,000 | ) | $ | 13,858,000 |
As of December 31, 2011
|
||||||||||||
Balance
|
Allowance for loan losses*
|
Balance, net of allowance
|
||||||||||
Non-performing loans – no related allowance
|
$ | -- | $ | -- | $ | -- | ||||||
Non-performing loans – related allowance
|
7,571,000 | (3,724,000 | ) | 3,847,000 | ||||||||
Subtotal non-performing loans
|
7,571,000 | (3,724,000 | ) | 3,847,000 | ||||||||
Performing loans – no related allowance
|
6,241,000 | -- | 6,241,000 | |||||||||
Performing loans – related allowance
|
2,440,000 | (1,761,000 | ) | 678,000 | ||||||||
Subtotal performing loans
|
8,681,000 | (1,761,000 | ) | 6,920,000 | ||||||||
Total
|
$ | 16,252,000 | $ | (5,485,000 | ) | $ | 10,767,000 |
*
|
Please refer to Specific Reserve Allowances below.
|
|
Specific Reserve Allowances
|
Loan Type
|
Balance at
12/31/2011
|
Specific Reserve Allocation
|
Loan Pay Downs and Settlements
|
Write Off
|
Transfers to REO and Notes Receivable
|
Balance at
9/30/2012
|
||||||||||||||||||
Commercial
|
$ | 5,412,000 | $ | 40,000 | $ | (1,312,000 | ) | $ | (1,000,000 | ) | (2,512,000 | ) | $ | 628,000 | ||||||||||
Construction
|
73,000 | -- | (73,000 | ) | -- | -- | -- | |||||||||||||||||
Total
|
$ | 5,485,000 | $ | 40,000 | $ | (1,385,000 | ) | $ | (1,000,000 | ) | (2,512,000 | ) | $ | 628,000 |
Loan Type
|
Balance at
12/31/2010
|
Specific Reserve Allocation
|
Sales
|
Settlements
|
Transfers to REO & Other Assets
|
Balance at
9/30/2011
|
||||||||||||||||||
Commercial
|
$ | 5,708,000 | $ | 753,000 | $ | -- | $ | (1,038,000 | ) | $ | -- | $ | 5,423,000 | |||||||||||
Construction
|
72,000 | -- | -- | -- | -- | 72,000 | ||||||||||||||||||
Total
|
$ | 5,780,000 | $ | 753,000 | $ | -- | $ | (1,038,000 | ) | $ | -- | $ | 5,495,000 |
As of September 30, 2012
|
||||||||||||||||||||||||
Total
|
Performing
|
Non-Performing
|
||||||||||||||||||||||
Loan Type
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
||||||||||||||||||
Commercial
|
2 | $ | 1,195,000 | 2 | $ | 1,195,000 | -- | $ | -- | |||||||||||||||
Total
|
2 | $ | 1,195,000 | 2 | $ | 1,195,000 | -- | $ | -- |
As of December 31, 2011
|
||||||||||||||||||||||||
Total
|
Performing
|
Non-Performing
|
||||||||||||||||||||||
Loan Type
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
Number of Loans
|
Fund Balance
|
||||||||||||||||||
Commercial
|
6 | $ | 4,212,000 | 4 | $ | 2,276,000 | 2 | $ | 1,936,000 | |||||||||||||||
Construction
|
1 | 165,000 | 1 | 165,000 | -- | -- | ||||||||||||||||||
Total
|
7 | $ | 4,377,000 | 5 | $ | 2,441,000 | 2 | $ | 1,936,000 |
|
·
|
Commercial – As of September 30, 2012 and December 31, 2011 we had 14 and 17, respectively, commercial loans, two and three of which, respectively, were modified pursuant to TDR. On January 1, 2011 the principal amount of one of the non-performing loans was reduced by approximately $1.0 million. Interest only payments were due monthly from September 2010 until August 2011, at which point payments of interest and principal started and will continue until September 2013. As of September 30, 2012 this loan was considered performing.
|
Revenue
|
$ | 1,099,000 | ||
Expenses
|
(1,004,000 | ) | ||
Net Income
|
$ | 95,000 |
Beginning balance, January 1, 2012
|
$ | 2,409,000 | ||
Real estate held for sale acquired through foreclosure
|
787,000 | |||
Additional investment in REO
|
80,000 | |||
Proceeds on nonrefundable extension fee
|
(5,000 | ) | ||
Write down
|
(316,000 | ) | ||
Sale
|
(130,000 | ) | ||
Ending balance, September 30, 2012
|
$ | 2,825,000 |
Cash
|
$ | 308,000 | ||
Property and equipment
|
3,841,000 | |||
Current assets
|
14,000 | |||
Accounts payable and accrued liabilities
|
(23,000 | ) | ||
Net assets
|
$ | 4,140,000 |
September 30, 2012
|
||||
Assets:
|
||||
Cash
|
$ | 439,000 | ||
Current assets
|
4,000 | |||
Property and equipment
|
3,849,000 | |||
Total assets
|
$ | 4,292,000 | ||
Liabilities:
|
||||
Accounts payable and accrued liabilities
|
$ | 34,000 | ||
Total liabilities
|
34,000 | |||
Net assets held for sale
|
$ | 4,258,000 |
For The Three Months Ended September 30, 2012
|
For The Period from May 1, 2012 (foreclosure) through September 30, 2012
|
|||||||
Revenue
|
$ | 124,000 | $ | 266,000 | ||||
Expenses
|
(85,000 | ) | (148,000 | ) | ||||
Net Income
|
$ | 39,000 | $ | 118,000 |
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||||||
Quoted Prices in Active Markets For Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Balance
at 9/30/12
|
Carrying Value on Balance Sheet at 9/30/12
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Investment in marketable securities - related party
|
$ | 827,000 | $ | -- | $ | -- | $ | 827,000 | $ | 827,000 | ||||||||||
Investment in real estate loans
|
$ | -- | $ | -- | $ | 13,210,000 | $ | 13,210,000 | $ | 13,858,000 |
Fair Value Measurements at Reporting Date Using
|
||||||||||||||||||||
Quoted Prices in Active Markets For Identical Assets (Level 1)
|
Significant Other Observable Inputs (Level 2)
|
Significant Unobservable Inputs (Level 3)
|
Balance at 12/31/2011
|
Carrying Value on Balance Sheet at 12/31/2011
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Investment in marketable securities - related party
|
$ | 651,000 | $ | -- | $ | -- | $ | 651,000 | $ | 651,000 | ||||||||||
Investment in real estate loans
|
$ | -- | $ | -- | $ | 10,827,000 | $ | 10,827,000 | $ | 10,802,000 |
Investment in real estate loans
|
||||
Balance on January 1, 2012
|
$ | 10,827,000 | ||
Change in temporary valuation adjustment included in net income (loss)
|
||||
Increase in allowance for loan losses
|
(40,000 | ) | ||
Write-off of allowance for uncollectible loan
|
1,000,000 | |||
Transfer of allowance on real estate loans converted to unsecured notes receivable
|
989,000 | |||
Transfer of allowance on real estate loan to real estate held for sale
|
150,000 | |||
Transfer of allowance on real estate loan to asset held for sale
|
1,375,000 | |||
Reduction of allowance on real estate loans following payment
|
284,000 | |||
Reduction of allowance on real estate loan following settlement of loan
|
1,101,000 | |||
Purchase and additions of assets
|
||||
New mortgage loans and mortgage loans bought
|
15,395,000 | |||
Transfer of real estate loans to real estate held for sale
|
(936,000 | ) | ||
Transfer of real estate loan to asset held for sale
|
(4,434,000 | ) | ||
Transfer of real estate loans converted to unsecured notes receivable
|
(989,000 | ) | ||
Sales, pay downs and reduction of assets
|
||||
Write-off of uncollectible loan
|
(1,000,000 | ) | ||
Reduction of balance of real estate loan following settlement
|
(1,101,000 | ) | ||
Collections of principal and sales of investment in real estate loans
|
(8,703,000 | ) | ||
Temporary change in estimated fair value based on future cash flows
|
(708,000 | ) | ||
Balance on September 30, 2012, net of temporary valuation adjustment
|
$ | 13,210,000 |
Investment in real estate loans
|
||||
Balance on January 1, 2011
|
$ | 6,660,000 | ||
Change in temporary valuation adjustment included in net loss
|
||||
Increase in allowance for loan losses
|
(702,000 | ) | ||
Purchase and additions of assets
|
||||
New mortgage loans and mortgage loans bought
|
3,676,000 | |||
Reduction of allowance for loan losses relative to settlement of investment in real estate loan
|
986,000 | |||
Sales, pay downs and reduction of assets
|
||||
Collections of principal and settlements of investment in real estate loans
|
(1,790,000 | ) | ||
Temporary change in estimated fair value based on future cash flows
|
85,000 | |||
Balance on September 30, 2011, net of temporary valuation adjustment
|
$ | 8,915,000 |
9/30/2012
|
9/30/2011
|
|||||||
Current Taxes
|
||||||||
Federal
|
-- | -- | ||||||
State
|
-- | -- | ||||||
Total Current Taxes
|
-- | -- | ||||||
Change in Deferred Taxes
|
171,000 | -- | ||||||
Change in Valuation Allowance
|
(171,000 | ) | -- | |||||
Provision for income tax expense (benefit)
|
-- | -- |
Deferred Tax Assets:
|
||||
Provision for Loan Losses
|
304,000 | |||
Write down on real estate held for sale
|
915,000 | |||
Recovery of allowance for doubtful notes receivable
|
590,000 | |||
Net operating loss carryforward
|
12,279,000 | |||
Total Deferred Tax Assets
|
14,088,000 | |||
Valuation allowance
|
(14,088,000 | ) | ||
Deferred Tax Assets, net of valuation allowance
|
-- | |||
Non-current portion
|
-- | |||
Current portion
|
-- |
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Total Revenue:
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Interest income from investment in real estate loans
|
$ | 291,000 | $ | 97,000 | $ | 194,000 | 200 | % | ||||||||
Recovery of allowance for doubtful notes receivable
|
30,000 | 22,000 | 8,000 | 36 | % | |||||||||||
Gain related to pay off of real estate loan, including recovery of allowance for loan loss
|
22,000 | -- | 22,000 | 100 | % | |||||||||||
Total
|
$ | 343,000 | $ | 119,000 | $ | 224,000 | 188 | % |
Operating Expenses:
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Management fees – related party
|
$ | 61,000 | $ | 69,000 | $ | (8,000 | ) | (12 | %) | |||||||
Provision for loan loss
|
21,000 | 608,000 | (587,000 | ) | (97 | %) | ||||||||||
Interest expense
|
2,000 | 7,000 | (5,000 | ) | (71 | %) | ||||||||||
Professional fees
|
135,000 | 59,000 | 76,000 | 129 | % | |||||||||||
Insurance
|
55,000 | 55,000 | -- | -- | ||||||||||||
Consulting
|
20,000 | 22,000 | (2,000 | ) | (9 | %) | ||||||||||
Other
|
41,000 | 31,000 | 10,000 | 32 | % | |||||||||||
Total
|
$ | 335,000 | $ | 851,000 | $ | (516,000 | ) | (61 | )% |
Non-operating income (loss):
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Interest income from banking institutions
|
$ | -- | $ | 1,000 | $ | (1,000 | ) | (100 | %) | |||||||
Gain on sale of marketable securities – related party
|
3,000 | -- | 3,000 | 100 | % | |||||||||||
Income from settlement
|
55,000 | -- | 55,000 | 100 | % | |||||||||||
Recovery from settlement with loan guarantor
|
267,000 | -- | 267,000 | 100 | % | |||||||||||
Income from equity investee held for sale
|
-- | 328,000 | (328,000 | ) | (100 | %) | ||||||||||
Total
|
$ | 325,000 | $ | 329,000 | $ | (4,000 | ) | (1 | %) |
Discontinued operations, net of income taxes:
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Income from asset held for sale, net of income taxes
|
$ | 79,000 | $ | -- | $ | 79,000 | (100 | %) | ||||||||
Expenses related to real estate held for sale
|
(29,000 | ) | (98,000 | ) | 69,000 | 70 | % | |||||||||
Write-downs on real estate held for sale
|
-- | (141,000 | ) | 141,000 | 100 | % | ||||||||||
Total
|
$ | 50,000 | $ | (239,000 | ) | $ | 289,000 | (121 | %) |
Total Revenue:
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Interest income from investment in real estate loans
|
$ | 643,000 | $ | 328,000 | $ | 315,000 | 96 | % | ||||||||
Recovery of allowance for doubtful notes receivable
|
89,000 | 33,000 | 56,000 | 170 | % | |||||||||||
Gain related to pay off of real estate loan, including recovery of allowance for loan loss
|
210,000 | -- | 210,000 | 100 | % | |||||||||||
Other income
|
-- | 12,000 | (12,000 | ) | (100 | %) | ||||||||||
Total
|
$ | 942,000 | $ | 373,000 | $ | 569,000 | 153 | % |
Operating Expenses:
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Management fees – related party
|
$ | 199,000 | $ | 207,000 | $ | (8,000 | ) | (4 | %) | |||||||
Provision for loan losses
|
40,000 | 735,000 | (695,000 | ) | (95 | %) | ||||||||||
Interest expense
|
3,000 | 19,000 | (16,000 | ) | (84 | %) | ||||||||||
Professional fees
|
523,000 | 304,000 | 219,000 | 72 | % | |||||||||||
Insurance
|
166,000 | 176,000 | (10,000 | ) | (5 | %) | ||||||||||
Consulting
|
58,000 | 69,000 | (11,000 | ) | (16 | %) | ||||||||||
Other
|
121,000 | 155,000 | (34,000 | ) | (22 | %) | ||||||||||
Total
|
$ | 1,110,000 | $ | 1,665,000 | $ | (555,000 | ) | (33 | %) |
Non-operating income (loss):
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Interest income from banking institutions
|
$ | -- | $ | 6,000 | $ | (6,000 | ) | (100 | %) | |||||||
Gain on sale of marketable securities – related party
|
3,000 | -- | 3,000 | 100 | % | |||||||||||
Income from settlement
|
55,000 | -- | 55,000 | 100 | % | |||||||||||
Recovery from settlement with loan guarantor
|
978,000 | -- | 978,000 | 100 | % | |||||||||||
Income from equity investee held for sale
|
-- | 661,000 | (661,000 | ) | (100 | %) | ||||||||||
Settlement expense
|
(23,000 | ) | -- | (23,000 | ) | (100 | %) | |||||||||
Discounted legal fees
|
-- | 280,000 | (280,000 | ) | (100 | %) | ||||||||||
Total
|
$ | 1,013,000 | $ | 947,000 | $ | 66,000 | 7 | % |
Discontinued operations, net of income taxes:
|
2012
|
2011
|
$ Change
|
% Change
|
||||||||||||
Net gain on sale of real estate held for sale
|
$ | 4,000 | $ | -- | $ | 4,000 | 100 | % | ||||||||
Income from assets held for sale, net of income taxes
|
118,000 | -- | 118,000 | (100 | %) | |||||||||||
Expenses related to real estate held for sale
|
(116,000 | ) | (232,000 | ) | 116,000 | (50 | %) | |||||||||
Write-downs on real estate held for sale
|
(316,000 | ) | (273,000 | ) | (43,000 | ) | 16 | % | ||||||||
Total
|
$ | (310,000 | ) | $ | (505,000 | ) | $ | 195,000 | (39 | %) |
Changed Assumption
|
Increase (Decrease) in Interest Income
|
|||
Weighted average interest rate assumption increased by 1.0% or 100 basis points
|
$ | 145,000 | ||
Weighted average interest rate assumption increased by 5.0% or 500 basis points
|
$ | 724,000 | ||
Weighted average interest rate assumption increased by 10.0% or 1,000 basis points
|
$ | 1,449,000 | ||
Weighted average interest rate assumption decreased by 1.0% or 100 basis points
|
$ | (145,000 | ) | |
Weighted average interest rate assumption decreased by 5.0% or 500 basis points
|
$ | (724,000 | ) | |
Weighted average interest rate assumption decreased by 10.0% or 1,000 basis points
|
$ | (1,449,000 | ) |
Changed Assumption
|
Increase (Decrease) in Allowance for Loan Losses
|
|||
Allowance for loan losses assumption increased by 1.0% of loan portfolio
|
$ | 145,000 | ||
Allowance for loan losses assumption increased by 5.0% of loan portfolio
|
$ | 724,000 | ||
Allowance for loan losses assumption increased by 10.0% of loan portfolio
|
$ | 1,449,000 | ||
Allowance for loan losses assumption decreased by 1.0% of loan portfolio
|
$ | (145,000 | ) | |
Allowance for loan losses assumption decreased by 5.0% of loan portfolio
|
$ | (724,000 | ) | |
Allowance for loan losses assumption decreased by 10.0% of loan portfolio
|
$ | (1,449,000 | ) |
|
·
|
Declines in real estate market conditions that can cause a decrease in expected market value;
|
|
·
|
Discovery of undisclosed liens for community improvement bonds, easements and delinquent property taxes;
|
|
·
|
Lack of progress on real estate developments after we advance funds. We customarily utilize disbursement agents to monitor the progress of real estate developments and approve loan advances. After further inspection of the related property, progress on construction occasionally does not substantiate an increase in value to support the related loan advances;
|
|
·
|
Unanticipated legal or business issues that may arise subsequent to loan origination or upon the sale of foreclosed upon property; and
|
|
·
|
Appraisals, which are only opinions of value at the time of the appraisal, may not accurately reflect the value of the property.
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY AND USE OF PROCEEDS
|
Period
|
(a) Total Number of Shares Purchased
|
(b) Average Price Paid per Share
|
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
|
(d) Maximum Number of (or Approximate Dollar Value) of Shares that May Yet Be Purchase Under the Plans or Programs
|
||||||||||||
July 1, 2012 –July 31, 2012
|
-- | $ | -- | -- | $ | 4,013,475 | ||||||||||
August 1, 2012 – August 31, 2012
|
-- | -- | -- | 4,013,475 | ||||||||||||
September 1, 2012 – September 30, 2012
|
-- | -- | -- | 4,013,475 | ||||||||||||
Total
|
-- | $ | -- | -- | $ | 4,013,475 |
Exhibit No.
|
Description of Exhibits
|
|
2.1(1)
|
Agreement and Plan of Merger between Vestin Fund II, LLC and the Registrant
|
|
2.2(5)
|
Membership Interest Purchase Agreement between VRM I, VRM II and Northstar Hawaii, LLC
|
|
3.1(1)
|
Articles of Incorporation of the Registrant
|
|
3.2(1)
|
Bylaws of the Registrant
|
|
3.3(1)
|
Form of Articles Supplementary of the Registrant
|
|
4.1(1)
|
Reference is made to Exhibits 3.1, 3.2 and 3.3
|
|
4.2(2)
|
Specimen Common Stock Certificate
|
|
4.3(1)
|
Form of Rights Certificate
|
|
10.1(1)
|
Form of Management Agreement between Vestin Mortgage and the Registrant
|
|
10.2(1)
|
Form of Rights Agreement between the Registrant and the rights agent
|
|
10.3 (4)
|
Agreement between Strategix Solutions, LLC and Vestin Realty Mortgage I, Inc. for accounting services.
|
|
10.4 (6)
|
Died in Lieu
|
|
14 (3) | Vestin Realty Mortgage I, Inc. Code of Business Codeuct and Ethics | |
21.1(2)
|
List of subsidiaries of the Registrant
|
|
31.1
|
Section 302 Certification of Michael V. Shustek
|
|
31.2
|
Section 302 Certification of Eric Bullinger
|
|
32
|
Certification Pursuant to 18 U.S.C. Sec. 1350
|
|
101
|
The following material from the Company's quarterly report on Form 10-Q for the three and nine months ended September 30, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2012 (unautdited) and December 31, 2011, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2012 and 2011 (unaudited), (iii) Cosolidated Statements of Other Comprehensive Inocme for the three and nine months ended September 30, 2012 and 2011 (unaudited), (iv) Consolidated Statement of Equity for the nine months ended September 30, 2012 (unaudited), (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and 2011 (unaudited), and (vi) Notes to the Consolidated Financial Statements (unaudited).
|
(1)
|
Incorporated herein by reference to Post-Effective Amendment No. 3 to our Form S-4 Registration Statement filed on January 4, 2006 (File No. 333-125347)
|
|
(2)
|
Incorporated herein by reference to Post-Effective Amendment No. 4 to our Form S-4 Registration Statement filed on January 31, 2006 (File No. 333-125347)
|
|
(3)
|
Incorporated herein by reference to the Transition Report on Form 10-K for the ten month transition period ended April 30, 2006 filed on June 28, 2006 (File No. 000-51964)
|
|
(4)
|
Incorporated herein by reference to the Quarterly Report on Form 10-Q filed on May 8, 2009 (File No. 000-51964)
|
|
(5)
|
Incorporated herein by reference to the Form 8-K/A filed on November 14, 2011 (File No. 000-51964)
|
|
(6)
|
Incorporated herein by reference to the Form 10-K filed on March 16, 2012 (File No. 000-51964)
|
Vestin Realty Mortgage I, Inc.
|
||
By:
|
/s/ Michael V. Shustek
|
|
Michael V. Shustek
|
||
President and Chief Executive Officer
|
||
Date:
|
November 14, 2012
|
|
By:
|
/s/ Eric Bullinger
|
|
Eric Bullinger
|
||
Chief Financial Officer
|
||
Date:
|
November 14, 2012
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ Michael V. Shustek
|
Michael V. Shustek
|
Chief Executive Officer
|
Vestin Realty Mortgage I, Inc.
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ Eric Bullinger
|
Eric Bullinger
|
Chief Financial Officer
|
Vestin Realty Mortgage I, Inc.
|
|
(1)
|
The Registrant’s Report on Form 10-Q for the nine months ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
|
/s/ Michael V. Shustek
|
Michael V. Shustek
|
Chief Executive Officer
|
Vestin Realty Mortgage I, Inc.
|
/s/ Eric Bullinger
|
Eric Bullinger
|
Chief Financial Officer
|
Vestin Realty Mortgage I, Inc.
|
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Note D - Investments in Real Estate Loans (Detail) - Specific Reserve Allowance for Non-Performing Loans (USD $)
|
9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
|||||
Balance | $ 628,000 | [1] | $ 5,485,000 | [1] | ||
Specific Reserve Allocation | 40,000 | 753,000 | ||||
Sales | (1,385,000) | 0 | ||||
Loan Pay Downs and Settlements | (1,000,000) | (1,038,000) | ||||
Transfers to Notes Receivable | (2,512,000) | 0 | ||||
Commercial Loans [Member] | Beginning of Period [Member]
|
||||||
Balance | 5,412,000 | 5,708,000 | ||||
Commercial Loans [Member] | End of Period [Member]
|
||||||
Balance | 628,000 | 5,423,000 | ||||
Commercial Loans [Member]
|
||||||
Specific Reserve Allocation | 40,000 | 753,000 | ||||
Sales | (1,312,000) | 0 | ||||
Loan Pay Downs and Settlements | (1,000,000) | (1,038,000) | ||||
Transfers to Notes Receivable | (2,512,000) | 0 | ||||
Construction Loans [Member] | Beginning of Period [Member]
|
||||||
Balance | 73,000 | 72,000 | ||||
Construction Loans [Member] | End of Period [Member]
|
||||||
Balance | 0 | 72,000 | ||||
Construction Loans [Member]
|
||||||
Specific Reserve Allocation | 0 | 0 | ||||
Sales | (73,000) | 0 | ||||
Loan Pay Downs and Settlements | 0 | |||||
Transfers to Notes Receivable | 0 | 0 | ||||
Beginning of Period [Member]
|
||||||
Balance | 5,485,000 | 5,780,000 | ||||
End of Period [Member]
|
||||||
Balance | $ 628,000 | $ 5,495,000 | ||||
|
Note M - Legal Matters Involving The Company (Detail) (USD $)
|
1 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Sep. 24, 2012
|
Jul. 31, 2012
|
Sep. 30, 2012
|
Aug. 23, 2012
|
Aug. 03, 2012
|
Feb. 07, 2012
|
Jun. 12, 2007
|
|
Gain Contingency, Unrecorded Amount | $ 9,000,000 | ||||||
Proceeds from Legal Settlements | 145,000.00 | 55,000 | |||||
Shares Purchased Settlement (in Shares) | 447,226 | ||||||
Share Purchase Price Settlement (in Dollars per share) | $ 1.40 | ||||||
Real Estate Acquired Through Deed In Lieu | 9,900,000 | ||||||
Security Deposit | 1,000,000 | ||||||
PercentageOfOwnershipVRTA | 8.00% | ||||||
Percentage of Ownership VRTB | 90.00% | ||||||
Percentage of Ownership VF III | 2.00% | ||||||
Proceeds from Sale of Other Assets | 55,000,000 | ||||||
Earnest Money Deposits | 250,000 | ||||||
Minimum [Member]
|
|||||||
Estimated Litigation Liability | 41,000,000 | ||||||
Maximum [Member]
|
|||||||
Estimated Litigation Liability | 48,000,000 | ||||||
VRMI I [Member]
|
|||||||
Proceeds from Legal Settlements | 145,000 | ||||||
Real Estate Acquired Through Deed In Lieu | $ 800,000 |
Note G - Assets Held For Sale and Discontinued Operations (Detail) - Summary of the results of operations related to the assets held for sale: (USD $)
|
1 Months Ended | 3 Months Ended | 5 Months Ended |
---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2012
Assets Held-for-sale [Member]
|
Sep. 30, 2012
Assets Held-for-sale [Member]
|
|
Revenue | $ 1,099,000 | $ 124,000 | $ 266,000 |
Expenses | (1,004,000) | (85,000) | (148,000) |
Net Income | $ 95,000 | $ 39,000 | $ 118,000 |
Note N - Income Taxes (Detail) (USD $)
|
6 Months Ended | 9 Months Ended | 12 Months Ended |
---|---|---|---|
Jun. 30, 2012
|
Sep. 30, 2012
|
Dec. 31, 2011
|
|
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate | 34.00% | ||
Valuation Allowance, Deferred Tax Asset, Change in Amount (in Dollars) | $ 171,000 | ||
Percentage Of Taxable Income Distributed | 90.00% | ||
Uncertainty Of Realization [Member]
|
|||
Valuation Allowance, Deferred Tax Asset, Change in Amount (in Dollars) | 14,088,000 |
Note G - Assets Held For Sale and Discontinued Operations (Detail) - We performed an allocation as of the foreclosure date as follows: (USD $)
|
Sep. 30, 2012
|
---|---|
Cash | $ 308,000 |
Property and equipment | 3,841,000 |
Current assets | 14,000 |
Accounts payable and accrued liabilities | (23,000) |
Net assets | $ 4,140,000 |
Note D - Investments in Real Estate Loans (Detail) - Priority of Real Estate Loans (USD $)
|
9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
|||||
Number of Loans | 15 | 20 | ||||
Balance (in Dollars) | $ 14,486,000 | [1] | $ 16,252,000 | [1] | ||
Portfolio Percentage | 100.00% | 100.00% | ||||
First Deeds of Trust [Member]
|
||||||
Number of Loans | 12 | 13 | ||||
Balance (in Dollars) | 13,058,000 | [1] | 10,840,000 | [1] | ||
Portfolio Percentage | 90.14% | 66.70% | ||||
Second Deeds of Trust [Member]
|
||||||
Number of Loans | 3 | 7 | ||||
Balance (in Dollars) | $ 1,428,000 | [1] | $ 5,412,000 | [1] | ||
Portfolio Percentage | 9.86% | 33.30% | ||||
|
Note N - Income Taxes (Detail) - Summary of Significant Components of Deferred Tax Assets and Liabilities (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Deferred Tax Assets: | ||||
Provision for Loan Losses | $ (21,000) | $ (608,000) | $ (40,000) | $ (735,000) |
Write down on real estate held for sale | 141,000 | 316,000 | 273,000 | |
Recovery of allowance for doubtful notes receivable | 89,000 | 10,000 | ||
Net operating loss carryforward | 12,279,000 | 12,279,000 | ||
Total Deferred Tax Assets | 14,088,000 | 14,088,000 | ||
Valuation allowance | (14,088,000) | (14,088,000) | ||
Provision For Loan Losses [Member]
|
||||
Deferred Tax Assets: | ||||
Provision for Loan Losses | 304,000 | |||
Write Down On Real Estate Held For Sale [Member]
|
||||
Deferred Tax Assets: | ||||
Write down on real estate held for sale | 915,000 | |||
Recovery Of Allowance For Doubtful Notes Receivable [Member]
|
||||
Deferred Tax Assets: | ||||
Recovery of allowance for doubtful notes receivable | $ 590,000 |
Note F - Real Estate Held For Sale (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Real Estate Properties [Table Text Block] |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Real Estate Owned [Member]
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block] |
|
Note I - Notes Receivable (Detail) (USD $)
|
9 Months Ended | 12 Months Ended | 1 Months Ended | 9 Months Ended | 1 Months Ended | 1 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
Jan. 31, 2012
Paying Monthly [Member]
Pre-Rewrite [Member]
|
Jan. 31, 2012
Paying Monthly [Member]
Post Rewrite [Member]
|
Jan. 31, 2012
Accruing [Member]
Pre-Rewrite [Member]
|
Feb. 28, 2012
Paying Monthly [Member]
Partially Paid Off [Member]
|
Sep. 30, 2012
Paying Monthly [Member]
Partially Paid Off [Member]
|
Apr. 30, 2012
Rewritten Existing Loan [Member]
|
Jan. 31, 2012
Rewritten Existing Loan [Member]
|
Apr. 30, 2012
Partially Paid Off [Member]
|
Feb. 28, 2012
Partially Paid Off [Member]
|
Sep. 30, 2012
Partially Paid Off [Member]
|
Sep. 30, 2012
Balance [Member]
|
Sep. 30, 2012
Partially Paid Off 1 [Member]
|
|
Interest Rate on Notes Receivable | 3.00% | 7.00% | 5.00% | |||||||||||
Loans and Leases Receivable, Allowance | $ 1,931,000 | $ 837,000 | $ 100,000 | |||||||||||
Accrued Interest Reclassified To Notes Receivable | 23,000 | |||||||||||||
Allowance for Loan and Lease Losses, Provision for Loss, Net | 40,000 | 753,000 | 19,000 | |||||||||||
Increase (Decrease) in Notes Receivables | 1,000 | 11,000 | 200,000 | 30,000 | ||||||||||
Financing Receivable, Net | $ 700,000 | $ 200,000 | $ 700,000 |
Note F - Real Estate Held For Sale (Detail) (USD $)
|
1 Months Ended | 3 Months Ended | 9 Months Ended | 1 Months Ended | 1 Months Ended | 1 Months Ended | 1 Months Ended | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2012
|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 24, 2012
|
Aug. 23, 2012
|
Feb. 07, 2012
|
Apr. 30, 2012
Held For Sale [Member]
|
Sep. 30, 2012
Held For Sale [Member]
|
Feb. 07, 2012
Minimum [Member]
|
Feb. 07, 2012
Maximum [Member]
|
Apr. 30, 2012
ConsultationFeeRelatingToHeldForSalePropertySold [Member]
|
Apr. 30, 2012
VRMI I, VRMI II, and Fund III [Member]
|
Feb. 07, 2012
VRMI I, VRMI II, and Fund III [Member]
|
Aug. 31, 2012
VRMI I [Member]
|
Apr. 30, 2012
VRMI I [Member]
|
Aug. 23, 2012
VRMI I [Member]
|
Feb. 07, 2012
VRMI I [Member]
|
Aug. 23, 2012
VRMI II [Member]
|
Aug. 23, 2012
Fund III [Member]
|
Sep. 30, 2012
1701 Commerce LLC [Member]
|
Aug. 31, 2012
1701 Commerce LLC [Member]
|
|
Number of Real Estate Properties | 5 | ||||||||||||||||||||||
Real Estate Acquired Through Foreclosure | $ 2,800,000 | $ 2,800,000 | |||||||||||||||||||||
Proceeds from Sale of Property Held-for-sale | 500,000 | 100,000 | 55,000,000 | ||||||||||||||||||||
Gains (Losses) on Sales of Other Real Estate | 4,000 | 2,000 | |||||||||||||||||||||
Professional Fees | 135,000 | 59,000 | 523,000 | 304,000 | 17,000 | ||||||||||||||||||
Real Estate Acquired Through Deed In Lieu | 9,900,000 | 9,900,000 | 800,000 | ||||||||||||||||||||
Mortgage Loans on Real Estate, Prior Liens | 41,000,000 | 48,000,000 | |||||||||||||||||||||
Pledged Assets Separately Reported, Real Estate Pledged as Collateral, at Fair Value | 1,000,000 | ||||||||||||||||||||||
Equity Method Investment, Ownership Percentage | 8.00% | 90.00% | 2.00% | ||||||||||||||||||||
Earnest Money Deposits | 250,000 | ||||||||||||||||||||||
Proceeds from Sale of Real Estate Held-for-investment | 2,000,000 | ||||||||||||||||||||||
Proceeds from Fees Received | $ 30,000 | $ (5,000) | $ 5,000 | ||||||||||||||||||||
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners | 8.00% | 8.00% |
Note D - Investments in Real Estate Loans (Detail) - Non-Performing Loans (USD $)
|
9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2012
|
Dec. 31, 2011
|
|||||
Number Of Non-Performing Loans | 15 | 20 | ||||
Allowance for Loan Losses | $ (628,000) | [1] | $ (5,485,000) | [1] | ||
Nonperforming Loans [Member] | Commercial Loans [Member]
|
||||||
Number Of Non-Performing Loans | 4 | |||||
Balance | 7,571,000 | |||||
Allowance for Loan Losses | (3,724,000) | |||||
Net Balance | 3,847,000 | |||||
Nonperforming Loans [Member]
|
||||||
Allowance for Loan Losses | [1] | $ (3,724,000) | [1] | |||
Commercial Loans [Member]
|
||||||
Number Of Non-Performing Loans | 14 | 17 | ||||
|
Note J - Fair Value (Detail) - Changes in our Financial Assets and Liabilities Measured on Recurring Basis Using Significant Unobservable Inputs (USD $)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2012
|
Sep. 30, 2011
|
Sep. 30, 2012
|
Sep. 30, 2011
|
|
Beginning Balance | $ 10,767,000 | |||
Ending Balance | 13,858,000 | 13,858,000 | ||
Change in temporary valuation adjustment included in net income (loss) | ||||
Write-off of allowance for uncollectible loan | 21,000 | 608,000 | 40,000 | 735,000 |
Transfer of Allowance on Real Estate Loans Converted to Unsecured Notes Receivable [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Transfer | 989,000 | |||
Transfer of Allowance on Real Estate Loans to Real Estate Held for Sale [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Transfer | 150,000 | |||
Transfer of Real Estate Loans to Real Estate Held for Sale [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Transfer | 1,375,000 | |||
Transfer of Real Estate Loans to Other Real Estate Owned [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Transfer | (936,000) | |||
Transfer Of Real Estate Loan To Asset Held For Sale [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Transfer | (4,434,000) | |||
Transfer of Real Estate Loans Converted to Unsecured Notes Receivable [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Transfer | (989,000) | |||
Sales And Pay Downs On Reduction Of Assets [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Sales, pay downs and reduction of assets | ||||
Reduction of balance of real estate loan following settlement | (8,703,000) | |||
Collections of principal and settlements of investment in real estate loans | (8,703,000) | |||
Reduction of Allowance For Loan Losse Relative To Settlement Of Investment in Real Estate Loan [Member] | Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Change in temporary valuation adjustment included in net income (loss) | ||||
Reduction of allowance on real estate loan following settlement of loan | 986,000 | |||
Purchase and additions of assets | ||||
Reduction of allowance for loan losses relative to settlement of investment in real estate loan | 986,000 | |||
Investment in Real Estate Loans [Member] | Fair Value, Inputs, Level 3 [Member]
|
||||
Beginning Balance | 10,827,000 | 6,660,000 | ||
Ending Balance | 13,210,000 | 8,915,000 | 13,210,000 | 8,915,000 |
Change in temporary valuation adjustment included in net income (loss) | ||||
Increase in allowance for loan losses | (40,000) | (702,000) | ||
Write-off of allowance for uncollectible loan | 1,000,000 | |||
Reduction of allowance on real estate loans following payment | 284,000 | |||
Reduction of allowance on real estate loan following settlement of loan | 1,101,000 | |||
Purchase and additions of assets | ||||
New mortgage loans and mortgage loans bought | 15,395,000 | 3,676,000 | ||
Reduction of allowance for loan losses relative to settlement of investment in real estate loan | 1,101,000 | |||
Sales, pay downs and reduction of assets | ||||
Write-off of uncollectible loan | (1,000,000) | |||
Reduction of balance of real estate loan following settlement | (1,101,000) | (1,790,000) | ||
Collections of principal and settlements of investment in real estate loans | (1,101,000) | (1,790,000) | ||
Temporary change in estimated fair value based on future cash flows | $ (708,000) | $ 85,000 |
Note G - Assets Held For Sale and Discontinued Operations (Detail) - The following is summary of net assets held for sale: (USD $)
|
9 Months Ended |
---|---|
Sep. 30, 2012
|
|
Property and equipment | $ 3,849,000 |
Total assets | 4,292,000 |
Accounts payable and accrued liabilities | 34,000 |
Total liabilities | 34,000 |
Cash [Member]
|
|
Cash | 439,000 |
Current Assets [Member]
|
|
Current assets | 4,000 |
Total Assets Held For Sale [Member]
|
|
Total assets | 4,292,000 |
Accrued Liabilities [Member]
|
|
Accounts payable and accrued liabilities | 34,000 |
Total liabilities | 34,000 |
Total Liabilities Held For Sale [Member]
|
|
Accounts payable and accrued liabilities | 34,000 |
Total liabilities | 34,000 |
Net Assets Held For Sale [Member]
|
|
Net assets held for sale | $ 4,258,000 |
Note B - Summary of Significant Accounting Policies
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2012
|
||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies [Text Block] |
NOTE
B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
consolidated financial statements of the Company have been
prepared in accordance with the accounting principles
generally accepted in the United States of America
(“GAAP”). In the opinion of management
all normal recurring adjustments considered necessary to give
a fair presentation of operating results for the periods
presented have been included. Interim results are
not necessarily indicative of results for a full
year. The information included in this Form 10-Q
should be read in conjunction with information included in
the 2011 annual report filed on Form 10-K.
Management
Estimates
The
preparation of consolidated financial statements in
conformity with GAAP 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 consolidated 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
Cash
and cash equivalents include interest-bearing and
non-interest-bearing bank deposits, money market accounts,
short-term certificates of deposit with original maturities
of three months or less, and short-term instruments with a
liquidation provision of one month or less.
Revenue
Recognition
Interest
is recognized as revenue on performing loans when earned
according to the terms of the loans, using the effective
interest method. We do not accrue interest income
on loans once they are determined to be
non-performing. A loan is non-performing when,
based on current information and events, it is probable that
we will be unable to collect all amounts due according to the
contractual terms of the loan agreement or when the payment
of interest is 90 days past due. Cash receipts
will be allocated to interest income, except when such
payments are specifically designated by the terms of the loan
as principal reduction. Interest is fully allowed
for on impaired loans and is recognized on a cash basis
method.
Investments
in Real Estate Loans
We
may, from time to time, acquire or sell investments in real
estate loans from or to our manager or other related parties
pursuant to the terms of our Management Agreement without a
premium. The primary purpose is to either free up
capital to provide liquidity for various reasons, such as
loan diversification, or place excess capital in investments
to maximize the use of our capital. Selling or
buying loans allows us to diversify our loan portfolio within
these parameters. Due to the short-term nature of
the loans we make and the similarity of interest rates in
loans we normally would invest in, the fair value of a loan
typically approximates its carrying
value. Accordingly, discounts or premiums
typically do not apply upon sales of loans and therefore,
generally no gain or loss is recorded on these transactions,
regardless of whether to a related or unrelated party.
Investments
in real estate loans are secured by deeds of trust or
mortgages. Generally, our real estate loans
require interest only payments with a balloon payment of the
principal at maturity. We have both the intent and
ability to hold real estate loans until maturity and
therefore, real estate loans are classified and accounted for
as held for investment and are carried at amortized
cost. Loans sold to or purchased from affiliates
are accounted for at the principal balance and no gain or
loss is recognized by us or any
affiliate. Loan-to-value ratios are initially
based on appraisals obtained at the time of loan origination
and are updated when new appraisals are received or when
management’s assessment of the value has changed, to
reflect subsequent changes in value
estimates. Original appraisals are generally dated
within 12 months of the date of loan origination and may be
commissioned by the borrower.
The
Company considers a loan to be impaired when, based upon
current information and events, it believes it is probable
that the Company will be unable to collect all amounts due
according to the contractual terms of the loan
agreement. The Company’s impaired loans
include
troubled debt
restructuring, and performing and
non-performing loans in which full
payment of principal or
interest is not expected. The Company calculates
an allowance required for impaired loans based on the present
value of expected future cash flows discounted at the
loan’s effective interest rate, or at the loan’s
observable market price or the fair value of its
collateral.
Loans
that have been modified from their original terms are
evaluated to determine if the loan meets the definition of a
Troubled Debt Restructuring (“TDR”) as defined by
Accounting Standards
Codification 310-40. When the Company
modifies the terms of an existing loan that is considered a
TDR, it is considered performing as long as it is in
compliance with the modified terms of the loan
agreement. If the modification calls for deferred
interest, it is recorded as interest income as cash is
collected.
Allowance
for Loan Losses
We
maintain an allowance for loan losses on our investments in
real estate loans for estimated credit
impairment. Our manager’s estimate of losses
is based on a number of factors including the types and
dollar amounts of loans in the portfolio, adverse situations
that may affect the borrower’s ability to repay,
prevailing economic conditions and the underlying collateral
securing the loan. Additions to the allowance are
provided through a charge to earnings and are based on an
assessment of certain factors, which may indicate estimated
losses on the loans. Actual losses on loans are
recorded as a charge-off or a reduction to the allowance for
loan losses. Generally, subsequent recoveries of
amounts previously charged off are added back to the
allowance and included as income.
Estimating
allowances for loan losses requires significant judgment
about the underlying collateral, including liquidation value,
condition of the collateral, competency and cooperation of
the related borrower and specific legal issues that affect
loan collections or taking possession of the
property. As a commercial real estate lender
willing to invest in loans to borrowers who may not meet the
credit standards of other financial institutional lenders,
the default rate on our loans could be higher than those
generally experienced in the real estate lending
industry. We and our manager generally approve
loans more quickly than other real estate lenders and, due to
our expedited underwriting process; there is a risk that the
credit inquiry we perform will not reveal all material facts
pertaining to a borrower and the security.
Additional
facts and circumstances may be discovered as we continue our
efforts in the collection and foreclosure
processes. This additional information often
causes management to reassess its estimates. In
recent years, we have revised estimates of our allowance for
loan losses. Circumstances that have and may
continue to cause significant changes in our estimated
allowance include, but are not limited to:
Discontinued
Operations
We
have reclassified for all periods presented in the
accompanying consolidated statements of operations, the
amounts related to discontinued operations and real estate
held for sale, in accordance with the applicable accounting
criteria. In addition, the assets and liabilities
related to the discontinued operations are reported
separately in the accompanying consolidated balance sheets as
real estate held for sale, assets held for sale, and
liabilities related to assets held for sale.
Real
Estate Held for Sale
Real
estate held for sale (“REO”) includes real estate
acquired through foreclosure and will be carried at the lower
of the recorded amount, inclusive of any senior indebtedness,
or the property's estimated fair value, less estimated costs
to sell, with fair value based on appraisals and knowledge of
local market conditions. While pursuing
foreclosure actions, we seek to identify potential purchasers
of such property. We seek to sell properties
acquired through foreclosure as quickly as circumstances
permit, taking into account current economic
conditions. The carrying values of REO are
assessed on a regular basis from updated appraisals,
comparable sales values or purchase offers.
Management
classifies REO when the following criteria are met:
Classification
of Operating Results from Real Estate Held for Sale
Generally,
operating results and cash flows from long-lived assets held
for sale are to be classified as discontinued operations as a
separately stated component of net income. Our
operations related to REO are separately identified in the
accompanying consolidated statements of operations.
Secured
Borrowings
Secured
borrowings provide an additional source of capital for our
lending activity. Secured borrowings allow us to
increase the diversification of our loan portfolio and to
invest in loans that we might not otherwise invest
in. We do not receive any fees for entering into
secured borrowing arrangements; however, we may receive
revenue for any differential of the interest spread, if
applicable. Loans in which unaffiliated investors
have participated through inter-creditor agreements
(“Inter-creditor Agreements”) are accounted for
as secured borrowings.
The
Inter-creditor Agreements provide us additional funding
sources for real estate loans whereby an unaffiliated
investor (the “Investor”) may participate on a
non-pari passu basis in certain real estate loans with us
and/or VRM II (collectively, the “Lead
Lenders”). In the event of borrower
non-performance, the Inter-creditor Agreements generally
provide that the Lead Lenders must repay the Investor’s
loan amount either by (i) continuing to remit to the Investor
the interest due on the participated loan amount; (ii)
substituting an alternative loan acceptable to the Investor;
or (iii) repurchasing the participation from the Investor for
the outstanding balance plus accrued interest.
Additionally,
an Investor may participate in certain loans with the Lead
Lenders through Participation Agreements. In the
event of borrower non-performance, the participation
agreement may allow the Investor to be repaid up to the
amount of the Investor’s investment prior to the Lead
Lender being repaid. Real estate loan financing
under the participation agreements are also accounted for as
a secured borrowing. We do not receive any
revenues for entering into secured borrowing
arrangements.
Investment
in Marketable Securities – Related Party
Investment
in marketable securities – related party consists of
stock in VRM II. The securities are stated at fair
value as determined by the closing market price as of
September 30, 2012 and December 31, 2011. All
securities are classified as available-for-sale.
We
are required to evaluate our available-for-sale investment
for other-than-temporary impairment charges. We
will determine when an investment is considered impaired
(i.e., decline in fair value below its amortized cost), and
evaluate whether the impairment is other than temporary
(i.e., investment value will not be recovered over its
remaining life). If the impairment is considered
other than temporary, we will recognize an impairment loss
equal to the difference between the investment’s basis
and its fair value.
According
to the SEC Staff Accounting Bulletin, Topic 5: Miscellaneous
Accounting, M - Other Than
Temporary Impairment of Certain Investments in Debt and
Equity Securities, there are numerous factors to be
considered in such an evaluation and their relative
significance will vary from case to case. The
following are a few examples of the factors that,
individually or in combination, indicate that a decline is
other than temporary and that a write-down of the carrying
value is required:
Fair
Value Disclosures
Fair
value is defined as the price that would be received to sell
an asset or paid to transfer a liability (i.e. “the
exit price”) in an orderly transaction between market
participants at the measurement date. In
determining fair value, the Company uses various valuation
approaches, including quoted market prices and discounted
cash flows. The established hierarchy for inputs
used, in measuring fair value, maximizes the use of
observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used
when available. Observable inputs are inputs that
market participants would use in pricing the asset or
liability developed based on market data obtained from
independent sources. Unobservable inputs are
inputs that reflect a company’s judgment concerning the
assumptions that market participants would use in pricing the
asset or liability developed based on the best information
available under the circumstances. The fair value
hierarchy is broken down into three levels based on the
reliability of inputs as follows:
If
the volume and level of activity for an asset or liability
have significantly decreased, we will still evaluate our fair
value estimate as the price that would be received to sell an
asset or paid to transfer a liability in an orderly
transaction (that is, not a forced liquidation or distressed
sale) between market participants at the measurement date
under current market conditions. In addition,
since we are a publicly traded company, we are required to
make our fair value disclosures for interim reporting
periods.
Basic
and Diluted Earnings Per Common Share
Basic
earnings per share (“EPS”) is computed by
dividing net income available to common stockholders by the
weighted average number of common shares
outstanding. Diluted EPS is similar to basic EPS
except that the weighted average number of common shares
outstanding is increased to include the number of additional
common shares that would have been outstanding if the
dilutive potential common shares had been
exercised. We had no outstanding common share
equivalents during the three months ended September 30, 2012
and 2011.
Common
Stock Dividends
During
June 2008, our Board of Directors decided to suspend the
payment of dividends. Our Board of Directors will
closely monitor our operating results in order to determine
when dividends should be reinstated; however, we do not
expect reinstatement of dividends in the foreseeable
future.
Treasury
Stock
On
February 21, 2008, our Board of Directors authorized the
repurchase of up to $5 million worth of our common
stock. Depending upon market conditions, shares
may be repurchased from time to time at prevailing market
prices through open market or privately negotiated
transactions. We are not obligated to purchase any
shares. Subject to applicable securities laws,
including SEC Rule 10b-18, repurchases may be made at such
times and in such amounts, as our management deems
appropriate. The repurchases will be funded from
our available cash.
Segments
We
are currently authorized to operate two reportable segments,
investments in real estate loans and investments in real
property. As of September 30, 2012, we had not
commenced investing in real property.
Our
objective is to invest approximately 97% of our assets in
real estate loans and real estate investments, while
maintaining approximately 3% as a working capital cash
reserve. Current market conditions have impaired
our ability to be fully invested in real estate loans and
real estate investments. As of September 30, 2012,
approximately 62% of our assets, net of allowance for loan
losses, are classified as investments in real estate
loans.
Reclassifications
Certain
amounts in the September 30, 2011 consolidated financial
statements have been reclassified to conform to the September
30, 2012 presentation.
Principles
of Consolidation
Our
consolidated financial statements include the accounts of VRM
I, Vestin TRS I, Inc., our wholly owned subsidiary, and VREO
XXV, LLC, in which we have a controlling
interest. All significant intercompany balances
and transactions have been eliminated in
consolidation.
Business
Combinations
In
December 2007, the Financial Accounting Standards Board
(FASB) revised the authoritative guidance for business
combinations, establishing principles and requirements for
how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired (including
goodwill), the liabilities assumed, and any noncontrolling
interest in the acquiree. Subsequently, on April 1,
2009, the FASB amended and clarified certain aspects of its
authoritative guidance on initial recognition and
measurement, subsequent measurement and accounting, and
disclosure of assets and liabilities arising from
contingencies in a business combination. We apply the FASB
authoritative guidance to all business combinations for which
the acquisition date is on or after January 1, 2009, and
to certain future income tax effects related to our prior
business combinations, should they arise.
Noncontrolling
Interests
The
FASB issued authoritative guidance for noncontrolling
interests in December 2007, which establishes accounting and
reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The
guidance clarifies that a noncontrolling interest in a
subsidiary, which is sometimes referred to as an
unconsolidated investment, is an ownership interest in the
consolidated entity that should be reported as a component of
equity in the consolidated financial statements. Among other
requirements, the guidance requires consolidated net income
to be reported at amounts attributable to both the parent and
the noncontrolling interest. It also requires disclosure, on
the face of the consolidated income statement, of the amounts
of consolidated net income attributable to the parent and to
the noncontrolling interest.
Income
Taxes
The
Company accounts for its income taxes under the assets and
liabilities method, which requires recognition of deferred
tax assets and liabilities for future tax consequences of
events that have been included in the financial
statements. Under this method, deferred tax assets
and liabilities are determined based on the differences
between the financial statements and tax basis of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The
effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that
includes the enactment date.
The
Company records net deferred tax assets to the extent the
Company believes these assets will more likely than not be
realized. In making such determination, the
Company considers all available positive and negative
evidence, including future reversals of existing taxable
temporary differences, projected future taxable income, tax
planning strategies and recent financial
operations. A valuation allowance is established
against deferred tax assets that do not meet the criteria for
recognition. In the event the Company were to
determine that it would be able to realize deferred income
tax assets in the future in excess of their net recorded
amount, they would make an adjustment to the valuation
allowance which would reduce the provision for income
taxes.
The
Company follows the accounting guidance which provides that a
tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be
sustained upon examination, including resolutions of any
related appeals or litigation processes, based on the
technical merits. Income tax positions must meet a
more-likely-than-not recognition threshold at the effective
date to be recognized initially and in subsequent
periods. Also included is guidance on measurement,
derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and
transition.
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