Attached files
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| EX-31.1 - CERTIFICATIONS PURSUANT TO SECTION 302 OF SARBANES OXLEY ACT OF 2002 - MOPALS.COM, INC. | f10k2009ex31i_mortgagbroker.htm |
| EX-32.1 - CERTIFICATIONS PURSUANT TO SECTION 906 OF SARBANES OXLEY ACT OF 2002 - MOPALS.COM, INC. | f10k2009ex32i_mortgagbroker.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_________________________________________
FORM
10-K
_________________________________________
ANNUAL
REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES
EXCHANGE ACT OF 1934
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
Fiscal Year Ended
December
31, 2009
Commission
File #333-105778
MORTGAGEBROKERS.COM HOLDINGS,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or
other jurisdiction of incorporation or organization)
05-0554486
(IRS
Employer Identification Number)
11-260
Edgeley Boulevard, City of Vaughan, Ontario, L4K 3Y4
(Address
of principal executive offices)(Zip Code)
877-410-4848
(Registrant's
telephone no. including area code)
Securities
registered pursuant to Section 12(b) of the Act: None
Title of
each class Name of each exchange on which registered
_____________________________________________________________
Securities
registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par
value
(Title of
class)
(Former
name, former address and former fiscal year,
if
changed since last report)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
section 13 or Section 15(d) of the Act.
Yes o No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes o No þ
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K not contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company
filer. See definition of “accelerated filer” and “large accelerated
filer” in rule 12b-2 of the Exchange Act (Check one):
|
Large
accelerated filer
|
o
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Accelerated
filer
|
o
|
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Non-accelerated
filer
|
o
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Smaller
reporting company
|
þ
|
Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act.
Yes o No þ
Indicate
the number of shares outstanding of the Registrant’s common stock as of the
latest practicable date.
|
Class
|
|
Outstanding
at April 19, 2010
|
|
Common
Stock, $.0001 par value
|
42,976,548
|
Revenues
for year ended December 31, 2009: $ 16,851,224.
Aggregate
market value of the voting common stock held by non-affiliates of the registrant
as of December 31, 2009 is: $649,702.
Transfer
Agent as of April 19, 2010:
|
Securities
Transfer Corporation
|
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2591
Dallas Parkway, Suite 102
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Frisco,
TX, 75034
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PART
I
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ITEM
1.
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4
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ITEM
1A.
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13
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ITEM
1B.
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13
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ITEM
2.
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13
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ITEM
3.
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13
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ITEM
4.
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14
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PART II
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ITEM
5.
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15
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ITEM
6.
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19
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ITEM
7.
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19
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ITEM
7A.
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24
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ITEM
8.
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24
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ITEM
9.
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25
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ITEM
9A(T).
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25
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ITEM
9B.
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26
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PART III
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I ITEM
10.
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27
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ITEM
11.
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30
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ITEM
12.
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31
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ITEM
13.
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31
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ITEM
14.
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31
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ITEM
15.
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31
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PART
IV
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ITEM
16.
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32
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33
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PART
I
ITEM 1. DESCRIPTION OF BUSINESS
Classified
as a smaller reporting company as defined by rule 229.10 (f)(1), the following
provides a description of our business over the past three years.
Form
and Year of Organization
MortgageBrokers.com
Holdings, Inc. (the “Company”, “MortgageBrokers.com”, “we”, “our” or “us”) was
incorporated under the laws of Delaware on February 6, 2003 as MagnaData, Inc.
(“MagnaData”). In February 2005, we filed articles of amendments with
the State of Delaware changing the name of our Company to MortgageBrokers.com
Holdings, Inc.
Over the
past three year period, sales operations were conducted through our subsidiaries
in Canada only:
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|
1.
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MortgageBrokers.com
Inc. - an Ontario Canada provincially incorporated company that currently
holds our licensure for operating as a mortgage broker in the Province of
Ontario;
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2.
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MortgageBrokers.com
Financial Group of Companies Inc. - a Canadian federally incorporated
company, which currently holds our licensure for operating as a mortgage
broker in the Provinces of Newfoundland, Nova Scotia, New Brunswick,
Prince Edward Island and Alberta;
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3.
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MBKR
Holdings Inc. - a Canadian federally incorporated company, through which
the Company centralizes back office services in Canada;
and,
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4.
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MBKR
Franchising Inc. – a Canadian federally incorporated company, through
which the Company acts as a franchisor in Canada of the
MortgageBrokers.com business
system.
|
Bankruptcy,
Receivership or Similar Proceeding
None
Material
Reclassification, Merger, Consolidation, or Purchase or Sale of a Significant
Amount of Assets
None
Business
of Issuer
Products
and Services
In
operation since 2005, our Company is a mortgage brokerage operation whose
national agency sales force services the borrowing and refinancing needs of
individual home buyers and owners. We have access to a full range of
mortgage lenders, in excess of 50 banks, trusts and private lender sources, and
our agents source and negotiate the loan with the best rates, terms and features
to meet each customer's unique needs. The Company acts as broker only
and is not a lender. The Company has no mortgage lending related ‘on
or off balance sheet’ liabilities in case mortgage financing becomes
default.
As a
mortgage brokerage, we have access to lenders who lend mortgage
funds. In 2008, we funded mortgage volumes with 55 different mortgage
lenders with 97% of the mortgage volumes funded by our top 20
lenders. Outside our top 20 lenders, the remaining lenders serve very
niche product offerings which subsequently results in marginal mortgage
origination volumes.
We
typically access most of our lenders through the software platform provided by
Filogix Limited Partnership (“Filogix”), Canada’s leading technology provider to
the mortgage brokerage industry. Through this software, Filogix
connects mortgage brokers with lenders by providing an electronic conduit for
submission, approval and funding of mortgage transactions.
As a
mortgage brokerage, our general obligations to the lender include the
following:
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|
Ø
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provide
up to date, accurate and complete credit applications for all mortgage
loans;
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|
Ø
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provide
all conditions required to fund, which have been reviewed by the mortgage
originator for accuracy;
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Ø
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conduct
business in a professional and forthright manner, fully disclosing any
information that may impact the lender’s decision to proceed with the
transaction;
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Ø
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protect
the confidentiality and privacy of personal information and other
information provided to, or received by, the mortgage originator in
connection with any credit application for a mortgage loan;
and,
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|
Ø
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maintain
adequate funding ratios on all applications submitted to a
lender.
|
Failure
to maintain these general obligations can result in additional documentation
required on a mortgage application, cancellation of a mortgage approval or
termination of the mortgage agent and/or the brokerage relationship with the
lender.
Mortgage
agents are independent subcontracted mortgage consultants who work exclusively
under the Company’s brokerage license to provide consumers with unbiased advice
on mortgage financing. Our mortgage broker agents will conduct a
needs assessment from the potential borrower and find a suitable mortgage
product from a suite of lenders. Mortgage broker agents will
facilitate the communication between the lender and the borrower from
application submission to financing.
The
following describes our revenue streams from our offered products and
services:
|
|
1)
|
For
approximately 94 % of all mortgage origination deal flow at our Company,
our subsidiaries generate revenue when our licensed mortgage agents place
mortgages, on behalf of customers, with third party lenders who in return,
pay the Company a commission fee, as
follows:
|
|
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a)
|
most
lenders pay the Company a referral commission fee (“Finder’s
Fee”). This Finder’s Fee is generally a fixed percentage of the
principal amount of the mortgage being placed and varies depending on the
mortgage term chosen by the
customer.
|
|
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b)
|
In
addition, most lenders who pay a referral finder’s fee also pay the
Company a volume bonus (“Volume Bonus”) for the aggregate mortgage volumes
placed with a particular lender above volume thresholds established from
time to time. As the Company’s volume has grown, the Company
has been able to capitalize on achieving higher Volume Bonus tiers with
lenders that pay a Volume Bonus.
|
The
aggregate sum fee for Finder's Fees and Volume Bonus typically ranges between 75
to 150 basis points (0.75 to 1.5%) of the total mortgage volume originated by
the Company’s mortgage agents.
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2)
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For
approximately 6% of all mortgage origination deal flow at our Company,
commercial, alternative and sub-prime lenders may pay only a nominal
referral Finder’s Fee. For these transactions, our mortgage
agents may charge negotiated brokerage fees to generate
revenue.
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3)
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We
currently earn commission revenue through the referral and placement of
creditor insurance with third party insurance providers. In
general, when a client takes creditor insurance related to the mortgage
transaction originated by the Company, the Company earns a gross
commission which is, on average, estimated to be 14 basis points of the
mortgage amount.
|
Generally,
between 80 to 90% of all received commission revenue is paid to the Company’s
mortgage agents.
Markets
Served
Operations
are presently conducted through our subsidiaries in Canada only. The
Company is currently providing mortgage brokerage services in the Canadian
provincial markets of Newfoundland, Nova Scotia, New Brunswick, Prince Edward
Island, Ontario, Saskatchewan and Alberta.
Distribution
Methods for our Services
The
Company provides its services to the consumer through a national sales agency
network. Our national agency sales force are 100% commissioned
subcontractors who are registered as mortgage agents with the appropriate
regulatory government agency to provide mortgage broker services to the public
exclusively under the Company’s brokerage licensure and brand. Our
mortgage agents regionally market themselves under the MortgageBrokers.com brand
via the World Wide Web (www), newspapers, magazines, local promotion,
billboards, radio, and television. Our mortgage agents operate
offices or desks within real estate offices, have their own retail offices
established or operate out of their homes as mobile sales
professionals. The Company does not own, nor is a party to, any
retail mortgage agent office leases that are currently established by our
mortgage agents.
Our
national agency sales force, recruited and managed centrally by our sales
management staff, may operate regionally as individual businesses or they may
build agency sales teams. Our national sales force is diversified
with agents who provide mortgage broker services to the consumer public on a
full time and part time basis and may also provide their services in association
with other related business initiatives they are involved in outside of mortgage
brokerage such as financial planning or real estate sales.
Generally,
in the MortgageBrokers.com model, our licensed agents earn between 80 to 90% of
received commission fees. In addition to earned commission fees, our
business model also provides our mortgage agents with the potential to earn
stock-based compensation in our Company based on their annual mortgage
origination volume. This form of equity participation is intended to
provide our national sales agency network a transparent career exit strategy for
retirement and a retention strategy for team building purposes. It is
our belief that the benefit to the Company is that we are able to build a
sustainable long term operational margin contribution from Canadian operations
and we are able to include our national agency sales force, responsible for
executing the Company's sales strategy, into the ownership of the Company,
theoretically allowing them to benefit from Company growth related directly to
their contribution.
The
primary services that the Company provides to our national agency sales network
are:
|
|
Ø
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mortgage
brokerage licensure;
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Ø
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a
national brand and related marketing
initiatives;
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Ø
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a
regulatory compliance service associated with our agent’s
transactions;
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Ø
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human
resource services where we perform new agent registration, licensure, and
insurance coverage;
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Ø
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access
to our corporately arranged group health insurance and benefits
plan;
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Ø
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a
payroll and commission service reconciling commission fees paid by lenders
and insurers and accurate and timely payroll to our agents and their
referral sources with detailed payroll statements on a weekly
basis;
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Ø
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revenue
optimization for our agents through deal flow
aggregation;
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Ø
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sales
training, sales tools and support from our sales management team for
lender support, team and business building, and consumer
support;
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Ø
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the
establishment of market partnerships to allow our agency sales network to
access a greater portion of the mortgage and refinance
market;
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Ø
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information
technology services; and,
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Ø
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the
opportunity to earn stock-based compensation in our
Company.
|
Prior to
contracting with a mortgage agent, and in addition to the minimum regulatory
requirements prospective mortgage agents must meet for provincial registration,
MortgageBrokers.com reviews the prospective agent’s tenure and experience in the
industry, credit bureau history and a minimum of 2 reference
checks. Those mortgage agents that have minimal experience are
obligated to work as a mortgage agent under a more senior mortgage agent
(referred to within MortgageBrokers.com as a Managing Partner) who will sponsor,
supervise and train the inexperienced agent.
It is our
sales management team’s responsibility to recruit, mentor and support the
mortgage broker sales force across Canada. To integrate a mortgage
agent into our network, we make mandatory the licensure with the appropriate
provincial regulatory body, application for membership with the Canadian
Association of Accredited Mortgage Professionals (CAAMP), our national mortgage
brokerage industry association, and application to our Errors and Omissions
insurance plan we hold corporately.
Our
mortgage agents are all licensed as contractors (not employees) working
exclusively under our provincial brokerage licensure. Within each
province we operate, we have a ‘broker of record’ or ‘principal broker’ under
whose license we operate our business.
The
following table outlines the estimated net growth of our sales agency network
over the past three years:
|
YEAR
|
AGENT
COUNT
|
|
2007
|
320
|
|
2008
|
387
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2009
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430
|
The
Company may also develop and be party to strategic national or regional
alliances with real estate brands from time to time with a view to providing our
licensed mortgage agents access, on a volume basis, to mortgage referrals in
some form of revenue sharing arrangement. On January 26, 2006, and
later modified on May 25, 2006, the Company entered into a referral agreement
with RE/MAX Ontario-Atlantic CANADA Inc. (“RE/MAX”) in eastern
Canada. For referrals to our mortgage agents leading to funded
mortgages, RE/MAX receives 40 to 60% of the our Finder’s Fee commission as well
as stock-based compensation from the Company based on the aggregate volume of
funded referrals. On April 12, 2006 the Company entered into a
referral agreement with Maxwell Realty Inc. (“Maxwell”) in western
Canada. For referrals to our mortgage agents leading to funded
mortgages, Maxwell receives 25 to 40% of our Finder’s Fee commission as well as
stock-based compensation from the Company based on the aggregate volume of
funded referrals.
2009
Business Activities and Status of Publicly Announced Products and
Services
Expanding
upon our business model infrastructure, the Company’s focus through 2009 was
towards recruitment and servicing of mortgage agents across
Canada. Regional recruitment activities included introducing and
selling the Company’s value proposition to mortgage agents via direct
presentations, trade shows and arranged meetings. Regional servicing
of existing agents includes team building, marketing support and services with
signage and advertising, facilitating lender product training, realtor referral
relationship development, consumer business development and sales training,
lender relations management, and consumer servicing support. The
Company also made investments in information technology systems to support our
mortgage agents including developing a mortgage agent back office sales support
environment.
The
following provides further details highlighting our 2009 business activities and
their status:
|
|
Ø
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At
the beginning of 2009, we had two full time senior sales executives and
five full time contract senior sales executives strategically servicing
sales territories across Canada, who divided their time between servicing
existing agents in their territory, recruiting new books of business and
promoting the Company. Our sales management team serviced one
of the following Canadian regions: Alberta & the Prairies
out of Calgary, Alberta; central and eastern Ontario out of Ottawa,
Ontario; the Greater Toronto Area from Toronto; south western Ontario out
of Windsor, Ontario; and , Atlantic Canada out of Halifax, Nova
Scotia. By the end of 2009, the Company had strategically
consolidated its sales management resources to two full time senior sales
executives regionally servicing our national sales agency and centrally
supported by our Canadian sales
President.
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Ø
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In
September, 2009, the Company was recognized in Profit Magazine’s 10th
annual “PROFIT HOT 50” as Canada’s No. 27th Emerging Growth Company and
the Top Job Creator for 2009. The Company’s ranking was based
on reported growth of 293% over a two year span (from reported revenue of
$4.0 million and 195 staff in 2006 to $15.8 million and 402 staff in
2008).
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Ø
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In
November of 2008, the Company hired Diana Soloway as our chief strategy
officer responsible for assisting the CEO with creating, communicating,
executing, and sustaining strategic initiatives within our
organization. Ms. Soloway’s goals were to establish a
centralized mortgage investment fund for the Company, as well as to
establish a central services office supporting our mortgage agents with
difficult deals in the alternative and sub-prime
markets. Through 2009, Ms. Soloway hired 2 staff and commenced
the development of a central services office in the latter half of 2009
which was responsible for $ 21 million in mortgage origination in
2009. Planning continues regarding the development of a
centralized mortgage investment
fund.
|
|
Ø
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We
experienced an 11 percent increase in 2009 over 2007 in the number of
licensed agents registered with the Company. At December 31,
2008, we had 430 licensed mortgage agents operating exclusively under the
Company’s licensure. Our newly recruited mortgage agents were
recruited throughout 2009 by our sales management team. The
Company also regularly reviews the production level of all of our agents
and periodically will terminate our contractual agreement if mortgage
agents are unable to demonstrate the ability to increase their production
levels.
|
|
Ø
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On
May 13, 2009, the Company gave notice to RE/MAX regarding the Company’s
intent to terminate its agreement with RE/MAX on June 12, 2009 in
accordance with the provisions of the agreement. The primary
reason for termination of the agreement was due to management’s belief
that the terms of the agreement had become an impediment to the referral
arrangement’s performance. Termination of the agreement does
not affect the Company’s ability to continue to work with RE/MAX
Franchisees and their sales associates on existing or new referral fee
arrangements. Termination of the agreement has resulted
in: i) RE/MAX no longer providing any ongoing program market
support following termination; ii) termination of promotions by RE/MAX of
the RE/MAX registered retirement plan for RE/MAX franchisee sales
associates where Company referral fees were being directed and, iii) the
Company no longer being obligated to pay annual stock-based compensation
for the remaining term of the agreement to RE/MAX equal to 25% per year of
RE/MAX and affiliates original investment participation in the Company’s
private Placement memorandum that closed on June 9, 2006. The
Company does not expect the termination of this agreement to materially
impact the Company as the mortgage origination volume from RE/MAX
referrals amounted to less than 4% of the Company’s total mortgage
origination volume in 2009 at the time of agreement
termination.
|
Competitive
Business Conditions and our Market Positioning
The
following describes our market’s competitive business conditions and our market
positioning through describing existing market conditions, competitive market
conditions and, our business model market positioning.
Market
Conditions
To-date,
all of our operations are conducted through our subsidiaries in Canada
only. The U.S. mortgage industry has generally deteriorated since the
latter part of 2007 through 2009. This deterioration has been a deterrent for
management to consider entering the U.S. market as a mortgage brokerage at this
time. As such, we are solely affected operationally by market
conditions in Canada.
Highlights
of the Canadian Association of Accredited Mortgage Professionals (“CAAMP”) Chief
Economist report “Annual State of the Residential Mortgage Markets in Canada,”
dated November 2009, describe the Canadian mortgage market within which our
Company operates as follows:
|
Ø
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as
of August 2009, there was CAD $940 billion (2007: CAD $787 billion) of
outstanding residential mortgage credit in
Canada;
|
|
Ø
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Growth
of residential mortgage credit has slowed in the past year as the
recession negatively affected home buying activity. Reduced
number of housing starts in Canada also means there is less demand for new
mortgages associated with new houses. It is estimated that the
current year over year market is growing approximately 7.1% per year which
represents CADN $63 billion;
|
|
Ø
|
Based
on the volume of new approvals, which includes new mortgages, refinancing
of existing mortgages and transfers between lenders, the annual mortgage
origination market amounted to CAD $216 billion in 2008 (CAD $75 billion
in 2000 and CAD $217 billion in
2007);
|
|
Ø
|
On
average, 23% of annual mortgages were obtained with the use of a mortgage
broker (34% for new mortgages and 17% for renewed mortgages) which
represents an annual mortgage origination market of approximately $50
billion (an estimated $550 million in gross
revenue);
|
According
to CAAMP, in most Canadian provinces, housing demand is driven by job creation
and affordability – the investment motive is largely absent. While
the Canadian mortgage market is expected to continue to grow in 2010 at an
average pace of 7% annually, it is forecasted to grow to a lesser degree than
that leading up to 2008 (10% annually). The economic factors driving
an expected Canadian economic slowdown and this forecast include: a strong
Canadian dollar which is hurting exporters; the credit crunch is making it more
difficult for businesses to expand; and, Canada has experienced little job
creation in 2009.
Competitive
Market Conditions
Mortgage
origination in Canada can be segmented into three broad categories and their
estimated relative market share: (i) bank branch networks - 48%; (ii) bank
mobile mortgage sales teams - 22%; and (iii) mortgage brokers -
30%. Over the past decade, the relative share for the bank branch
networks had decreased as consumer demand for accessibility and specialization
intensify.
Our
Company’s direct competition in the Canadian marketplace is the major bank
mobile mortgage sales teams and the consolidating mortgage
brokerages.
According
to CAAMP, mortgage brokers captured 30% of the annual mortgage origination
market in 2007. Most industry sales referral relationships have been
established at the individual mortgage agent level. It is conservatively
estimated by the Company that there are in excess of 11,000 active mortgage
agents operating in Canada (based on a reported 11,000 membership reported in
the January 2008 Mortgage Journal published by Naylor Canada Inc. for
CAAMP).
The
Canadian mortgage origination market is fragmented, with an estimated 50% of the
market captured by five large Canadian mortgage origination companies or “Super
Brokers” who also lay claim to having more than two-thirds of the active
mortgage agents licensed in Canada. It is a growing trend to
establish national corporate sales referral arrangements with strategic
alliances, and there is significant market competition in the recruitment of
mortgage agents and their associated ‘books of business’ amongst the mortgage
originators.
The
primary tools used by our competitor consolidating brokerages for executing a
competitive strategy in recruiting mortgage agents has been increasing
commission splits (which currently ranges between 75 and 95% of the total
commission fees received), the development of brand and the provision of
administrative and marketing services.
The
competitor mobile sales teams of the major banks compete with mortgagebrokers by
leveraging bank brand appeal, exclusive mortgage products and leveraging a
captive bank customer base.
Our
Business Model Market Positioning
We have
positioned ourselves in this competitive landscape to the mortgage broker
industry as a very service oriented company that incorporates stock-based
compensation into our value offering to attract long-term value
builders. Our management team firmly believes that we have positioned
ourselves to be a long term value creator in our industry.
Our
centralized services, as more fully described in the previous section describing
our distribution methods for our services and again expanded in the previous
section describing the status of our products and services to our agents,
reduces our agents overhead allowing them to focus on their core strength of
sales and marketing.
We have
additionally designed our business model to incorporate two principal elements
which we believe will attract those mortgage agents who value ownership and a
career exit strategy within the Canadian mortgage market. We also
believe that mortgage brokerages have long suffered from their inability to
retain their top loan originators, typically losing them to competing brokerages
that offer increased commissions with very little sustainable value being
returned to the mortgage agent to help them grow their businesses. In
addition, in today’s consolidating environment, we believe many sales agents
have seen the companies they work with sold to large financial institutions or
brokerages with nothing to show from the transaction when it is they who are
responsible for creating much of the value associated with the
transaction. Therefore, management believes there is pent up demand within
the industry for a mortgage brokerage model that will address what we believe to
be the industry’s long- standing issues of agent retention and equity
participation.
As
Canada’s first and, at present, only publicly-traded and independent (non-bank
owned) mortgage brokerage, we have strategically positioned our Company as a
consolidator attracting those mortgage agents who value ownership and a career
exit strategy within the Canadian mortgage market. We have developed
what we believe to be a unique transparent business model that, we believe, will
allow us to rapidly and sustainably develop our national sales agency and long
term sales referral sources around which we can diversify our product offering
and develop our brand for the consumer. There are no direct means to
quantify and compare our rate of growth and the success of our strategy with our
competition since they are not public companies. However, our
strategy was acknowledged in the October 2008 issue of Profit Magazine where our
Company was identified as the number one fastest growing Canadian emerging
growth company. We reported 3,993% top-line revenue growth between 2005 and 2007
and were recognized in October 2009 as the number twenty-seventh fastest growing
of Canada’s emerging growth companies with a reported 293% top-line revenue
growth between 2006 and 2008. In 2009, one of our direct competitors,
a private corporation, was recognized as the 25th
fastest growing company in Canada of Canada’s emerging growth companies,
confirming to management that our industry sector is very dynamic, healthy and
exhibits strong growth opportunities.
We have
designed a business model to provide mortgage agents with the potential to earn
equity in our Company based on their annual mortgage origination
volume. This form of equity participation is intended to provide our
national sales agency network a transparent career exit strategy for retirement
and a retention strategy for team building purposes. It is our belief that
the benefit to the Company is that we are able to build a sustainable long term
operational margin contribution from Canadian operations and we are able to
include our national agency sales force, responsible for executing the Company's
sales strategy, into the ownership of the Company, allowing them to benefit from
any Company growth related directly to their contribution.
Generally,
our stock-based compensation model is based upon the future discounted cash flow
margin contribution to our Company’s bottom line of mortgage volume origination
by each exclusively contracted mortgage agent. When the stock-based
compensation model was initially designed, and until the Company is profitable
and generating free cash flow, we made certain assumptions on a Pro Forma basis
that a certain size funded mortgage origination volume would generate free cash
flow based on our expected cost structure. The model, which
made certain assumptions concerning expected growth rates, prevailing interest
rates during the term of the Pro Forma and cost of capital determinations, was
developed in 2005. In summary, the results of the model led to a
management decision that granted an aggregate of approximately 11.4 basis points
on an agent’s average funded mortgage origination volumes over a three to five
year period to an agent in the form of stock-based compensation.
To-date
we have made commitments to our existing agents to issue the stock-based
compensation as warrants that would be convertible into stock (1
warrant would be convertible into 1 share). The Company is currently in the
process of finalizing and formalizing the mortgage agent stock-based
compensation plan, associated agreements and the registration of such a
plan. Every mortgage agent registered with our company is eligible to
earn stock-based compensation.
The
mortgage agents are not eligible to earn stock warrants until a minimum term
sales period is completed in full. The first term is three years following
execution of an exclusive agency contract with the Company. In the
fall of 2008, the first stock-based compensation was fully earned by our agents
and 500,000 shares of restricted stock were issued to the agents by the
Company. No stock warrants have been issued to our mortgage agents
under this program to-date as the Company is still in the process of finalizing
the plan for registration purposes.
At
December 31st, 2009, the Company accrued, stock-based compensation equal to
1,849,808 common shares at $0.04 per share, totalling $74,000 which is payable
to our existing mortgage agents.
Patents,
trademarks, licenses, franchises, Agent Agreements and Commitments
The
following summarizes trademarks, agreements and arrangements we have in place to
protect our market positioning:
|
|
a)
|
On
December 3, 2009, we successfully registered a trademark (No. TMA754,451)
with the Canadian Intellectual Property office of Industry Canada for our
name and design as follows:
|
|
|
b)
|
The
Company’s Canadian subsidiary agency sales force consists of recruited
independent contractors operating regionally under the Company's
licensure. Generally, in the MortgageBrokers.com model, our
licensed agents earn 80-90% of received commission fees. In
addition to earned commission fees, the Company provides an opportunity
for our Canadian subsidiary's national agency sales force to earn stock
warrants in the Company based on annual sales volumes over a period of
time, typically 5 to 8 years. In practice, recruited mortgage
sales agents execute an exclusive and confidential agreement with a
subsidiary of MortgageBrokers.com as a third party sales
subcontractor. The mortgage agents agree to operate under the
terms of the sales agreement, the mortgage broker licensure, and brand of
the Company and allow the Company to earn typically 15% of the commission
fees payable to the mortgage agent from a mortgage lender in exchange for
payroll, revenue management (volume pooling), licensure, compliance, and
marketing services. No money is paid by the Company for
purchase of any asset of the mortgage agent or their business including
the agent’s book of business. The Company does not have an
equity ownership position in the independent business of the individual
mortgage agent or mortgage agent
team.
|
|
|
c)
|
Per
a three year renewable agreement dated April 12, 2006 and pursuant to the
execution of a service level agreement by the Maxwell Franchisee, the
Company is committed to issuing to Maxwell, at no cost, warrants for
common stock of the Company based on referrals leading to funded mortgage
origination volume. In summary, and on a pro rata basis,
Maxwell has the opportunity to earn 3,000 warrants (1 warrant convertible
to 1 share) for every $10,000,000 in funded mortgage origination that were
a result of a Maxwell referral annually. Warrants earned
between 2006 through 2011 are fully earned and vested assuming our
agreement is in good standing with Maxwell on December 31,
2011. To-date the Company has not issued any warrants to
Maxwell related to this program. At December 31, 2009, the
Company accrued stock-based compensation payable to Maxwell. The accrual
related to mortgage referral was comprised of 31,330 common shares at
$0.04 per share. The valuation of such accrual was based upon the December
31, 2009 closing price of the Company’s stock and resulted in a payable to
Maxwell equal to $1,253. To date, no stock warrants have been
issued to Maxwell or its sales agents pursuant to this
program. The Company is preparing to finalize the plan for
registration purposes.
|
|
|
d)
|
The
Company became a franchisor in the fall of 2008 offering franchise
opportunities to the mortgage broker market place across
Canada. In 2009, the Company sold one franchise which held a
long term agreement (5 years) with a financial planning team who wished to
expand their product offering to the market place and secure the
territory. The Company will continue to aggressively sell
franchise opportunities in Canada to stabilize it’s long term book of
business and resulting revenue
streams.
|
Government
Licensure and Approvals
The
Mortgage Brokerage industry is regulated provincially in Canada. For
instance, in the province of Ontario, we are regulated by the Financial Services
Commission of Ontario under the Mortgage Brokerages Lenders and Administrators
Act, 2006 and in the Province of Alberta, we are governed by the Real Estate
Council of Alberta under the Real Estate Act, 2000. These licensing bodies
have minimum criteria for licensure of potential mortgage agents recruited to
operate under the Company’s respective Provincial broker license, which include
relevant educational requirements, criminal record checks and disclosure of any
personal bankruptcy or court proceedings.
Our
subsidiaries are currently holding licenses in good standing in the provinces of
Newfoundland, Nova Scotia, New Brunswick, Prince Edward Island, Ontario and
Alberta. Typically, our licensure is renewed annually.
As
required for licensure in some Canadian provinces, our organization maintains an
errors and omissions liability insurance policy through Encon Group Inc. The
policy covers the organization and its national network of mortgage agents from
legal claims that brokers are exposed to on a daily basis. Our
current policy provides coverage up to CDN $5 million per incident and up to CDN
$10 million in aggregate.
The
Company became a Canadian franchisor near the end of 2008. The
franchisor disclosure regulations are provincially regulated. In
Ontario, for instance, franchisors are regulated by the Arthur Wishart Act
(R.S.O., 2000). Compliance to the Ontario act generally guarantees
compliance in the Province of Alberta.
Effect
of Existing or Probable Government Regulations on the Business
The
existing government regulatory regime protects the consumer through the mortgage
broker process including, but not limited to, protection of confidential
information, representation, cooling off period, and
disclosure. Current regulations requiring mortgage agent standards
helps raise the industry’s standards and promulgates a positive consumer
experience in Canada.
Canada
Revenue Agency issued a Notice, pursuant to the passing of Bill C-9, the Jobs
and Economic Growth Act in February 2010 that discussed modifications to the
definition of “Financial Services” as it applies to the current 13 percent
Canadian Harmonized Goods and Services Tax (“GST/HST”). Prior to this
year, financial services agents (like mortgage brokers, insurance agents,
financial advisors, etc.) were GST exempt. Finance’s legislative
proposals would generally apply to services provided after December 14, 2009 and
retroactively to past transactions in certain circumstances. The CRA
has taken the position that it can generally assess taxpayers based on such
proposals even before they become law. CAAMP says this notice raises
“important and serious questions on the definition of GST/HST exempt financial
services (mortgage brokers presently fall into that category, as do insurance
brokers and financial advisors). CAAMP has engaged its auditors,
KPMG, to seek clarification, and has also been in contact with officials in
Ottawa. The concern is that broker compensation could potentially be
subject to a 13 percent GST/HST tax on all revenue payable to Revenue
Canada. CAAMP says it will oppose that interpretation “in the
strongest possible way.” It is expected that a final determination on
this issue could come by May or June of 2010. If GST/HST were ever to
apply to mortgage brokers, there are various possible implications:
|
·
|
lenders
would potentially have to pay GST/HST on the placement fees they pay
brokers;
|
|
·
|
lenders
would probably not want to absorb this cost so brokers could end up making
less per deal;
|
|
·
|
lower
compensation would reduce broker ranks to some degree which would result
in fewer choices for consumers;
|
|
·
|
lower
compensation could reduce brokers’ incentive to discount interest rates
which would result in higher costs to
consumers;
|
|
·
|
customers
would need to pay GST/HST on broker fees that they pay for commercial,
sub-prime or private financing;
|
|
·
|
the
new tax would create a significant administrative cost for brokers and
brokerage firms alike; and,
|
|
·
|
the
new tax could create an un-level playing field for brokers as compared to
a lender’s owned in-house broker sales force which would likely not be
subject to GST/HST.
|
Research
and Development Activities in Past Two Years
None.
Environmental
Compliance Costs and Effects
None.
Employees
At
December 31, 2009, our Company had 15 full-time employees and 1 full-time
contract staff for a total of 16 full-time staff.
ITEM 1A. RISK FACTORS
We are
exempt from this reporting because we are a smaller reporting
company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We are
exempt from this reporting because we are a smaller reporting
company.
ITEM 2. DESCRIPTION OF PROPERTY
The
Company negotiated and executed a 5 year lease agreement commencing July 31,
2007 for our corporate offices at 11-260 Edgeley Boulevard, City of Vaughan,
Ontario, CANADA. Our current contact information for our Ontario
office is telephone number: (877) 410-4848 and fax number: (877)
410-4845. Our internet website can be found under the domain
name:
www.mortgagebrokers.com.
The
Company negotiated and executed a lease for its corporate office in Calgary,
Alberta, Canada, and is party to a five (5) year lease which commenced May 1,
2007.
The
Company negotiated and executed a lease for its corporate office in Glace Bay,
Nova Scotia, Canada, and is party to a twelve (12) month lease which commenced
November 1, 2009.
ITEM 3. LEGAL PROCEEDINGS
On
October 27, 2006, Trisan Equitable Corporation (“Trisan”) commenced an action in
the Ontario Superior Court in Ontario, Canada against several parties including
MortgageBrokers.com Holdings, Inc., its subsidiary MortgageBrokers.com Inc., and
Alex Haditaghi, our principal shareholder, sole director and chief executive
officer and several corporate affiliates of Mr. Haditaghi. The
statement of claim filed by Trisan asserted a number of claims in the aggregate
amount of approximately CDN $1.4 million, arising out of a loan agreement with
Trisan dated January 27, 2005.
In
January 2007, the Company filed a statement of defence, cross claim and counter
claim in response to Trisan`s statement of claim. On October 3, 2007,
a partial summary judgment from the Ontario Superior Court was awarded to Trisan
regarding the matter in an aggregate amount of CDN $748,671 plus 500,000 shares
of our common stock. The October 3, 2007 partial summary judgment was
appealed by us but the judgment was upheld on appeal by the Ontario Court of
Appeal on March 31, 2008.
On July
8, 2009, a full and final settlement agreement was executed between Trisan and
the defendants including MortgageBrokers.com Holdings, Inc. and its subsidiary,
MortgageBrokers.com Inc., regarding the prior summary judgment awarded to Trisan
and all outstanding and related matters. The Agreement provides for a
mutual final and full release and discharge regarding the Company and our
subsidiaries for all matters up to and including July 8, 2009 related to the
original claim and action, counterclaim, judgment, and appeal between Trisan and
the Company and its subsidiaries. The Trisan settlement agreement
required a third party company, of which our Chief Executive Officer is a
related party, to be encumbered with a financial arrangement. For the
period ending December 31, 2009, the Company recorded in the statement of
operations a recovery of legal judgement in the amount of $757,521.
The
settlement agreement does not provide for the payment of any monies, the
creation of any obligations or any encumbrances in favour of Trisan, by or upon
Mortgagebrokers.com Holdings Inc. or its subsidiary MortgageBrokers.com Inc.
other than the release of 500,000 shares of Mortgagebrokers.com Holdings Inc.
common stock which were issued in 2006 to Trisan related parties in
escrow.
The
Company is party to various other claims and proceedings arising in the normal
course of business. Management does not expect the disposition of
these matters to have a material adverse effect on the Company’s results of
operations or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
PART
II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information
Our
shares of common stock are approved for quotation on the OTC Bulletin Board
under the symbol “MBKR”.
The
following table represents the closing high and low bid information for our
common stock during the last two fiscal years as reported by the OTC Bulletin
Board. The quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not represent actual transactions.
The market for our common stock is sporadic and our stock is thinly
traded.
|
2009
|
High
|
Low
|
||||||
|
First
Quarter
|
$
|
0.12
|
$
|
0.06
|
||||
|
Second
Quarter
|
$
|
0.16
|
$
|
0.05
|
||||
|
Third
Quarter
|
$
|
0.10
|
$
|
0.05
|
||||
|
Fourth
Quarter
|
$
|
0.10
|
$
|
0.04
|
||||
|
2008
|
High
|
Low
|
||||||
|
First
Quarter
|
$
|
0.31
|
$
|
0.08
|
||||
|
Second
Quarter
|
$
|
0.15
|
$
|
0.08
|
||||
|
Third
Quarter
|
$
|
0.24
|
$
|
0.07
|
||||
|
Fourth
Quarter
|
$
|
0.41
|
$
|
0.10
|
||||
Holders
On
December 31, 2009, there were 333 beneficial shareholders of record for our
outstanding common stock.
Dividends
To date,
we have paid no dividends on our shares of common stock and have no present
intention of paying any dividends on our shares of common stock in the
foreseeable future. The payment by us of dividends on the shares of common stock
in the future, if any, rests solely within the discretion of our board of
directors and will depend upon, among other things, our earnings, capital
requirements and financial condition, as well as other factors deemed relevant
by our board of directors. Although dividends are not limited currently by
any agreements, it is anticipated that future agreements, if any, with
institutional lenders or others may limit our ability to pay dividends on our
shares of common stock.
Securities
Authorized for Issuance under Equity Compensation Plan
The
following table summarizes those securities authorized for issuance in 2009 in
accordance with an equity compensation plan including individual compensation
arrangements:
|
Plan
Category
|
Number
of Securities to be Issued upon Exercise of Outstanding Options, Warrants
& Rights
|
Weighted
Average Exercise Price of Outstanding Options, Warrants &
Rights
|
Number
of Securities remaining Available for Future Issuance under Equity
Compensation Plans (excluding Securities reflected in Column
(a))
|
|
(a)
|
(b)
|
(c)
|
|
|
Equity
Compensation Plans Approved by Security Holders
|
0
|
0
|
0
|
|
Equity
Compensation Plans not Approved by Security Holders
|
0
|
0
|
19,500,000
|
On
February 6, 2003 and as amended on February 14, 2003, the Company adopted the
2003 Equity Compensation Plan to attract and retain high
quality personnel. The adequacy of this plan is evaluated annually by Company
management. As of December 31, 2010, no options had been issued under this
plan. The disclosures made in the 2005 Audited Financial Statements (10-KSB
- Item 10. Executive Compensation) and the `Amendment to License Agreement
between RE/MAX and Mortgagebrokers.com Holding Inc.' dated May 25, 2006
(8-K - Schedule `A' 1. Outstanding Options) documenting the equity
compensation of employees has not been implemented as of April 15, 2010. The
Company is currently in the process of amending the existing employment
agreements which are expected to be executed in 2010. Until the new
employment contracts have been formally and legally executed, the existing
employment contracts of the Company are still in effect.
On March
1, 2005 the Board of Directors approved the Service Compensation Plan ("the
Service Plan"), the purpose of which is to enhance the Company’s stockholder
value and maximize the available capital resources of the company through
allowing non monetary transactions whereby the issuance of stock is granted for
services rendered. This program is expected to support the Company in building a
long term sustainable revenue pipeline, a national sales agency and referral
program as well as provide incentive to service providers to establish long term
relationships with the Company and to encourage stock ownership by such
individuals by providing them with a means to acquire a proprietary interest in
the Company’s success through stock ownership. Under the Service Plan, service
providers, consultants, mortgage agents and strategic alliance partners who
provide services to the Company may be granted options or warrants to acquire
restricted stock of the Company. The total number of shares reserved for
issuance under the Service Plan is 5,000,000, the adequacy of which will be
evaluated annually.
Recent
Sales of Unregistered Securities
The
Company has routinely issued unregistered restricted stock in exchange for cash,
services, compensation and assets. The relative pricing of our stock
was valued during negotiations, and was predicated on the market price at the
time the sale, purchase or contract was executed. The following
summarizes these issuances over the past three years:
Exemption
from Registration Claimed
The
following exemptions were relied upon in the issuance of unregistered securities
as referenced here-under over the past three years:
Regulation D Rule
506
The
Common Stock issued in our Regulation D, Rule 506 offering was issued in a
transaction not involving a public offering in reliance upon an exemption from
registration provided by Rule 506 of Regulation D of the Securities Act of
1933. In accordance with Section 230.506 (b)(1) of the Securities Act of
1933, these shares qualified for exemption under the Rule 506 exemption for this
offerings since it met the following requirements set forth in Reg.
§§230.506:
|
|
1)
|
No
general solicitation or advertising was conducted by us in connection with
the offering of any of the Shares.
|
|
|
2)
|
At
the time of the offering we were not: (1) subject to the reporting
requirements of Section 13 or 15 (d) of the Exchange Act; or (2) an
“investment company” within the meaning of the federal securities
laws.
|
|
|
3)
|
Neither
we, nor any of our predecessors, nor any of our directors, nor any
beneficial owner of 10% or more of any class of our equity securities, nor
any promoter currently connected with us in any capacity has been
convicted within the past ten years of any felony in connection with the
purchase or sale of any security.
|
|
|
4)
|
The
offers and sales of securities by us pursuant to the offerings were not
attempts to evade any registration or sale requirements of the securities
laws of the United States or any of its
states.
|
|
|
5)
|
None
of the investors are affiliated with any of our directors, officers or
promoters or any beneficial owner of 10% or more of our
securities.
|
Please
note that pursuant to Rule 506, all shares purchased in the Regulation D Rule
506 offering were restricted in accordance with Rule 144 of the Securities Act
of 1933. In addition, each of these shareholders were either accredited as
defined in Rule 501 (a) of Regulation D promulgated under the Securities Act or
sophisticated as defined in Rule 506(b)(2)(ii) of Regulation D promulgated under
the Securities Act.
We have
never utilized an underwriter for an offering of our securities. Other than the
securities mentioned above, we have not issued or sold any
securities.
Regulation
S
The
Company issued restricted shares of its common stock for services, cash or
assets. The shares were issued by the Company relying upon the exemption
from registration as set forth in Regulation S of the Securities Act for the
issuance of these shares. The stockholders are not a "U.S. Person" as that
term is defined in the Securities Act, and at the time of the offering and
issuance of the shares, the stockholders were located outside of the United
States. In addition, the stockholders took the shares for investment
purposes without a view to distribution and had access to information concerning
the Company and our business prospects, and were permitted access to the
Company's management for the purpose of acquiring investment information, as
required by the Securities Act. Further, there was no general solicitation
or advertising for the issuance of the shares. The Company issued the
shares without compliance with the registration requirements of the Securities
Act in reliance upon the exemptions there from afforded by Regulation
S.
Section 4(2) of the
Securities Act
The
Company issued restricted shares of its common stock. They were
issued in reliance on the exemption under Section 4(2) of the Securities Act of
1933, as amended (the “Act”). These shares of our common stock qualified for
exemption under Section 4(2) of the Securities Act of 1933 since the issuance
shares by us did not involve a public offering. The offering was not a
“public offering” as defined in Section 4(2) due to the insubstantial number of
persons involved in the deal, size of the offering, manner of the offering and
number of shares offered. We did not undertake an offering in which we sold
a high number of shares to a high number of investors. In addition, this
shareholder had the necessary investment intent as required by Section 4(2)
since they agreed to and received share certificates bearing a legend stating
that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act.
This restriction ensures that these shares would not be immediately
redistributed into the market and therefore not be part of a “public offering.”
Based on an analysis of the above factors, we have met the requirements to
qualify for exemption under Section 4(2) of the Securities Act of 1933 for these
transactions
2007
On July
7, 2007, the Company issued 125,000 restricted (Rule 144) common shares at
a price of $1 per share and having similar rights and obligations pursuant to
the terms of the 2006 Private Placement offered to executives and franchisees of
RE/MAX Ontario-Atlantic Canada Inc, all third parties. These shares rights
were assigned to the new subscribers by the initial subscribers of the 2006
PPM. These shares were issued in anticipation of the initial participants
shares being cancelled. The private placement shares were issued in
reliance on the exemption under Regulation D, Rule 506 and Regulation S of the
Securities Act of 1933, as amended (the “Act”), as described
heretofore. The shares were issued at $1.00 per share, the offered
price in the private placement which closed on June 9, 2006.
On
January 3, 2007, the Company issued 10,000 restricted (Rule 144) common
shares at a price of $0.75 per share for total amount of $7,500 to
SmallCapVoice.com, a third party, based on the execution of an investor
relations agreement. The Company relied upon the exemption from
registration as for these shares as set forth in Regulation S of the Securities
Act as described heretofore. The shares were issued at $0.75 per
share, the closing price of the security on the date of issue.
On July
7, 2007, the Company issued 478,000 restricted (Rule 144) common shares
under the terms of its Mortgage Service License Agreement with RE/MAX
Ontario-Atlantic Canada Inc, and its franchisee and broker owners, all third
parties that participated in the private placement offering which closed on June
9, 2006. The Company relied upon the exemption from registration as
for these shares as set forth in Regulation S of the Securities Act as described
heretofore. The shares were issued at $0.42 per share, the closing
price of the security on the date of issue.
On July
23, 2007, the Company issued 40,000 restricted (Rule 144) common shares to
Alexander Gershtein, a third party, in exchange for furniture and equipment
valued at $45,416, under its Service Compensation Plan. The Company
relied upon the exemption from registration as for these shares as set forth in
Regulation S of the Securities Act as described heretofore. The
securities were valued at $1.14 per share as negotiated on the value of the
assets acquired based on the value of assets purchased.
On July
23, 2007, the Company issued 25,000 restricted (Rule 144) common shares at
a price of $1.00 per share to Kalymon Consulting Ltd., a third party, in
exchange for consulting services under its Service Compensation
Plan. The Company relied upon the exemption from registration as for
these shares as set forth in Regulation S of the Securities Act as described
heretofore. The securities were valued at $1.00 per share as
negotiated at the time the contract was executed in 2005.
On July
23, 2007, the Company issued 1,700,000 shares of restricted (Rule 144) Company
stock to its senior management team based upon draft management agreements that
are expected to be executed by December 31, 2007. These shares have not
been released and the release is pending the finalizing and execution of
management agreements. The securities were valued at $0.43 per share,
the security closing price on the date of issue.
2008
On
February 5, 2008, the Company issued 50,000 restricted (Rule 144) common
shares at a price of $0.19 per share, the market close price on the date of
issue, for total value of $9,550 to vFinance, Inc. based on the execution
of an investment banking service agreement. vFinance, Inc. is an arm’s
length third party consultant. vFinance Inc. provided advisory services with
respect to the review of financing term sheets and investment banking
matters. The Company relied upon the exemption from registration as
for these shares as set forth in Regulation S of the Securities Act as described
heretofore.
On
September 11, 2008, the Company issued 490,500 restricted (Rule 144) common
shares under the terms of its Mortgage Service License Agreement with RE/MAX
Ontario-Atlantic Canada Inc, and its franchisee and broker owners, all third
parties, that participated in the private placement offering which closed on
June 9, 2006. The Company relied upon the exemption from registration
as for these shares as set forth in Regulation S of the Securities Act as
described heretofore. The shares were valued at $0.11 per share, the
share price on the date of issue.
On
September 11, 2008, the Company issued 3,272,500 shares of restricted (Rule 144)
Company stock to its employees based upon draft employment agreements that are
expected to be executed by December 31, 2008. The Company relied upon
the exemption from registration as for these shares as set forth in Regulation S
of the Securities Act as described heretofore. These shares have not
been released and the release is pending the finalizing and execution of
employment agreements. The shares were valued at $0.11 per share, the share
price on the date of issue.
On
October 20, 2008, the Company issued 150,000 restricted (Rule 144) common shares
at a price of $0.29 per share, based on the market price at the subscription
date, and having similar rights and obligations pursuant to the terms of the
2006 Private Placement offered to executives and franchisees of RE/MAX
Ontario-Atlantic Canada Inc. These shares were issued in reliance on
the exemption under Regulation D, Rule 506 and Regulation S of the Securities
Act of 1933, as amended (the “Act”), as described heretofore.
On
October 21, 2008, the Company issued 47,078 restricted (Rule 144) common shares
at a price of $0.28 per share, based on the market price at the subscription
date, and having similar rights and obligations pursuant to the terms of the
2006 Private Placement offered to executives and franchisees of RE/MAX
Ontario-Atlantic Canada Inc. These shares were issued in reliance on
the exemption under Regulation D, Rule 506 and Regulation S of the Securities
Act of 1933, as amended (the “Act”), as described heretofore.
On
December 16, 2008, the Company issued 500,000 shares of restricted (Rule 144)
Company stock to a group of its mortgage agents based upon agreements.
These shares were issued under the Company’s Service Compensation
Plan. The shares were issued at $0.16 per share, the market close
share price on the date of issue. The Company relied upon the
exemption from registration as for these shares as set forth in Regulation S of
the Securities Act as described heretofore.
2009
None
Repurchases
of Securities
No
repurchases were made by our Company or an affiliate in a month within the
fourth quarter of the fiscal year 2009.
ITEM 6. SELECTED FINANCIAL DATA
We are
exempt from reporting this item as a smaller reporting company.
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS
The
following is management’s discussion and analysis of the consolidated financial
condition and results of operations of MortgageBrokers.com Holdings, Inc for the
fiscal years ended December 31, 2009 and 2008. The following
information should be read in conjunction with the audited consolidated
financial statements for the period ending December 31, 2009 and notes thereto
appearing elsewhere in this Form 10K.
Significant
Accounting Policies and New Pronouncements
The
following are the most significant accounting policies that have a substantive
impact on the underlying discussions and analysis:
Revenue
Recognition
Revenue
consists of mortgage brokerage fees, finders’ fees and insurance commissions.
The revenue from brokerage fees and finders’ fees are recognized upon the
funding of a customer’s mortgage and when the collection is reasonably assured
which typically occurs when the brokerage fee or finders fees from the lender
has been advanced. Insurance commission revenues are recognized when
collection is reasonably assured which typically occurs when the insurance
commission fees from the insurance provider has been advanced.
Share-based
Payment
The Company adopted the disclosure requirements of ASC
718 (formerly SFAS No. 123R) "Share-Based Payment" ("ASC 718") for stock options
and similar equity instruments (collectively, "options") issued to
employees. The Company applies the fair value base method of
accounting as prescribed by ASC 718. Under the fair value based method,
compensation cost is measured at the grant date based on the value of the award
and is recognized over the service period, which is usually the vesting period.
For stock options, the fair value is determined using an option-pricing model
that takes into account the stock price at the grant date, the exercise price,
the expected life of the option, the volatility of the underlying stock and the
expected dividends on it, and the risk-free interest rate over the expected life
of the option. For restricted stock, the fair value is determined
based on the quoted market price. ASC 718 also applies to transactions in which an entity
issues its equity instruments to acquire goods or services from non-employees.
Those transactions must be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable, as described in note 11 of the
accompanying audited consolidated financial statements.
The
following are new pronouncements in accounting policies that may affect the
company’s accounting policies:
Recent Accounting
Pronouncements
In June
2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update No. 2009-01, Generally Accepted Accounting Principles (ASC
Topic 105), which establishes the FASB Accounting Standards Codification (“the
Codification” or “ASC”) as the official single source of authoritative U.S.
generally accepted accounting principles (“GAAP”). All existing accounting
standards are superseded. All other accounting guidance not included in the
Codification will be considered non-authoritative. The Codification also
includes all relevant Securities and Exchange Commission (“SEC”) guidance
organized using the same topical structure in separate sections within the
Codification. The Board will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (“ASU”) which will serve to update the
Codification, provide background information about the guidance and provide the
basis for conclusions on the changes to the Codification.
The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification was effective for our third-quarter
2009 financial statements and the principal impact on the Company’s financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the
Codification.
In
April 2009, the FASB issued ASC 820-10-65-4 (formerly referred to as FSP
SFAS 157-4), "Determining Whether a Market Is Not Active and a Transaction Is
Not Distressed." ASC 820-10-65-4 provides guidelines for making fair value
measurements more consistent with the principles presented in ASC 820-10-65-1.
ASC 820-10-65-4 provides additional authoritative guidance in determining
whether a market is active or inactive, and whether a transaction is distressed,
is applicable to all assets and liabilities (i.e. financial and non-financial)
and will require enhanced disclosures. This standard is effective for periods
ending after June 15, 2009. The Company has adopted this standard and
determined that it does not have an impact on its financial position and results
of operations.
In
April 2009, the FASB issued ASC 825-10-65-1 (formerly referred to as FSP
SFAS 107-1 and APB 28-1), "Interim Disclosures about Fair Value of
Financial Instruments," and "Disclosures about Fair Value of Financial
Instruments, (formerly referred to as FSP SFAS 107)" to require disclosures
about fair value of financial instruments in interim as well as in annual
financial statements. ASC 825-10-65-1 also includes an amendment to "Interim
Financial Reporting (formerly referred to as APB 28-1)," to require those
disclosures in all interim financial statements. This standard is effective for
periods ending after June 15, 2009. The Company has adopted this standard
and determined that it does not have an impact on its financial position and
results of operations.
In
October 2009, the FASB issued the “Accounting Standards Update (“ASU”) 2009-13
Multiple Deliverable Revenue Arrangements a consensus of EITF” (formerly topic
08-1) an amendment to ASC 605-25. The update provides amendments to the criteria
in Subtopic 605-25 for separating consideration in multiple-deliverable
arrangements. The amendments in this update establish a selling price hierarchy
for determining the selling price of a deliverable. The selling price used for
each deliverable will be based on vendor-specific objective evidence if
available, third-party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific objective
evidence nor third-party evidence is available. The amendments in this update
also will replace the term “fair value” in the revenue allocation guidance with
the term “selling price” in order to clarify that the allocation of revenue is
based on entity-specific assumptions rather than assumptions of a marketplace
participant. The amendments will also eliminate the residual method of
allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method. The relative selling price method allocates any discount in the
arrangement proportionally to each deliverable on the basis of each
deliverable’s selling price. The update will be effective for revenue
arrangements entered into or modified in fiscal year beginning on or after June
15, 2010 with earlier adoption permitted. The adoption of this standard is not
expected to have material impact on the Company’s consolidated financial
statements.
Liquidity
At
December 31, 2009, we had $2,012,964 in cash; $2,767 in restricted cash
comprised of referral fees held in trust for the Retirement Savings Plan
accounts owned by RE/MAX sales agents (the funds will be released upon the
completion of certain administrative agreements); $19,236 in prepaid expenses,
$106,935 in equipment and $1,968 in capital leased equipment totalling
$2,143,870 in assets. Comparatively, at December 31, 2008, we had
$1,262,321 in cash, $17,848 in restricted cash comprised of referral fees held
in trust for the Retirement Savings Plan accounts owned by RE/MAX sales agents
(the funds will be released upon the completion of certain administrative
agreements); $116,211 in prepaid expenses, $112,184 in equipment and $2,424 in
capital leased equipment, totalling $1,510,988 in assets.
At
December 31, 2009, we had $1,987,786 in accounts payable and accrued liabilities
related to mortgage agent commission fees payable for deferred revenue, bank
indebtedness equal to $65,104, employee tax deductions payable equal to
$219,759, related party loans payable equal to $359,138 accrued stock-based
compensation equal to $98,199, notes payable to an unrelated third party equal
to $65,104, and commissions payable equal to $2,767. Total
liabilities equalled $2,732,753. Comparatively, at December 31, 2008,
the Company had accounts payable and accrued liabilities equal to $1,918,178,
bank indebtedness equal to $117,385, employee tax deductions payable equal to
$275,317, related party loans payable equal to $129,425, commissions payable
equal to $17,848 lease obligations due equal to $1,624 accrued stock-based
compensation equal to $432,971 and notes payable to an unrelated third party
equal to $129,425. Total liabilities equalled
$2,892,748.
Management
makes the following comments regarding the most significant factors affecting
Company liquidity and their measured trends over the reporting period as
compared to 2008:
|
|
a)
|
Cash
and cash equivalents increased by 59% from 2008 to
$2,012,964. This was primarily due to an increase in Work in
Progress and a marginal increase in working capital
resources.
|
|
|
b)
|
Prepaid
expenses decreased by 84% from 2008 to $19,236. There is no
trend in pre-paid expenses and pre-paid expenses are based on the amount
in a given point in time based on current business activities at that
time.
|
|
|
c)
|
Bank
indebtedness decreased by 45% to $65,104, as compared with 2008. This
decrease is related to the Company effort to pay off its credit
facility.
|
|
|
d)
|
Accounts
payable and accrued liabilities increased by 4% to $1,987,786 as compared
with 2008.
|
|
|
e)
|
The
Company paid-down its employee taxes payable (December 31,
2009: $219,759) by approximately $55,000 through
2009.
|
|
|
f)
|
Stock-based
compensation accruals fluctuate year to year. The accrual is
valued based on stock prices at the end of the period, grant prices and
vesting terms for which the Company has no direct
influence. Thus, it is difficult to analyze related
trends. The Company anticipates that it will continue to
negotiate stock-based compensation arrangements to maximize working
capital resources.
|
|
|
g)
|
Advances
from a related party increased 177% to $359,138, as compared with
2008.
|
Capital
Resources
Total
revenue for the period ending 2009 was $16,851,224. The Company realized net
cash from operating activities of $355,825 or 2% of total
revenue. While the Company has grown total revenue by 7% from 2008 to
$16,851,224, net cash from operating activities has not appreciably improved
between the periods as we spend cash resources to fuel our
growth. The Company increased its total cash and cash equivalent
position at the end of 2009 by $750,643 or 59% as compared to the beginning of
2009. In the event of unforeseen impacts to cash flow or until the
Company increases its revenue and profitability from operations, we will
continue to rely upon the issuance of common stock and additional capital
contributions from shareholders and/or loans from shareholders and third-party
lenders as the company’s fall-back position to meet working capital requirements
if required.
Results
of Operations
The
following summarize material trends and outlooks related to our comparative
income statement:
1) Gross
revenue increased by 7% from 2008 to $16,851,224;
2) Operating
expenses decreased in 2009 by 2% to $15,983,350 as compared with 2008;
and,
3) We
reported earnings of $867,874 in 2009 as compared to a net loss of $492,593 in
2008.
Unusual
or Infrequent Events that affect Reported Income
|
|
a)
|
The
Company cancelled its employee stock-based compensation program at the end
of 2009 and the majority of staff cancelled their outstanding stock-based
compensation and accruals. The Company cancelled employee
stock-based accruals in the amount of $264,993 in the reporting
period.
|
|
|
b)
|
For
the period ending December 31, 2009, the Company recorded in the statement
of operations a recovery of legal judgement in the amount of
$757,521. On October 27, 2006, Trisan Equitable Corporation
(“Trisan”) commenced an action in the Ontario Superior Court in Ontario,
Canada against several parties including MortgageBrokers.com Holdings,
Inc. (the ``Company``) its subsidiary MortgageBrokers.com Inc.,
and Alex Haditaghi, our principal shareholder, sole director and chief
executive officer and several corporate affiliates of Mr.
Haditaghi. The statement of claim filed by Trisan asserted a
number of claims in the aggregate amount of approximately CDN $1.4
million, arising out of a loan agreement with Trisan dated January 27,
2005. In January 2007, the Company filed a statement of
defense, cross claim and counter claim in response to Trisan`s statement
of claim. On October 3, 2007, a partial summary judgment from
the Ontario Superior Court was awarded to Trisan regarding the matter in
an aggregate amount of CDN $748,671 plus 500,000 shares of our common
stock. The October 3, 2007 partial summary judgment was
appealed by
|
|
|
|
us
but the judgment was upheld on appeal by the Ontario Court of Appeal on
March 31, 2008. On July 8, 2009, a full and final settlement
agreement was executed between Trisan and the defendants including
MortgageBrokers.com Holdings, Inc. and its subsidiary, MortgageBrokers.com
Inc., regarding the prior summary judgment awarded to Trisan and all
outstanding and related matters. The Agreement provides for a
mutual final and full release and discharge regarding the Company and our
subsidiaries for all matters up to and including July 8, 2009 related to
the original claim and action, counterclaim, judgment, and appeal between
Trisan and the Company and its subsidiaries. The Trisan
settlement agreement required a third party company, of which our Chief
Executive Officer is a related party, to be encumbered with a financial
arrangement. The settlement agreement does not provide for the
payment of any monies, the creation of any obligations or any encumbrances
in favor of Trisan, by or upon Mortgagebrokers.com Holdings Inc. or its
subsidiary MortgageBrokers.com Inc. other than the release of 500,000
shares of Mortgagebrokers.com Holdings Inc. common stock which were issued
in 2006 to Trisan related parties in
escrow.
|
|
|
c)
|
Financial
market conditions in 2008 may have had a negative impact on the market for
our securities as a perceived mortgage finance company. If so,
this would have had a negative impact on the market price of our
securities which has a direct impact on reducing and reversing stock-based
accrual expenses for 2008.
|
Revenue
Trend Analysis
Gross
revenue in 2009 increased by 7% from 2008 to $16,851,224 and was likely affected
by the recession as this has been the Company’s slowest rate of growth year over
year reported since inception. Management believes our revenue growth
experienced between 2008 and 2009 was directly related to mortgage agent
recruitment accomplishments, the organic growth of our existing agent’s books of
business and improved revenue management.
As
discussed in more detail in Item 1 within this Form 10-K, our sales management
team increased the number of our mortgage agents by 11% in 2009 as compared to
2008 which would have had a positive impact to top-line growth numbers through
augmenting any lack of performance in our existing book due to recessionary
pressures.
The
following summarizes the factors that affect our revenue and their associated
trends:
|
1.
|
Currently,
revenue for the Company can be divided into three
streams: broker fees charged predominately to private lender
customers or commercial lender customers where-in the lender does not pay
an origination commission fee; origination commission fees paid by most
lenders and trust institutions, and creditor life insurance commissions
paid by the insurance carrier. The Table below summarizes
revenue for the last three fiscal periods by revenue
stream:
|
|
REVENUE
ORGANIZED BY REVENUE STREAM (CDN $)
|
|||||||||||
|
YE
2006
|
YE
2007
|
YE
2008
|
YE
2009
|
||||||||
|
Revenue
|
Fee
($) / Volume ($)
|
Revenue
|
Fee
($) / Volume ($)
|
Revenue
|
Fee
($) / Volume ($)
|
Revenue
|
Fee
($) / Volume ($)
|
||||
|
(bps)
|
(bps)
|
(bps)
|
(bps)
|
||||||||
|
Broker
Fee Revenue
|
$158,487
|
3.9
|
$278,098
|
2.4
|
$713,814
|
4.8
|
$1,041,606
|
5.98
|
|||
|
Origination
Commission Revenue
|
$4,404,290
|
108.8
|
$10,611,556
|
89.8
|
$15,739,449
|
106.6
|
$17,799,242
|
102.2
|
|||
|
Insurance
Revenue
|
n/a
|
$128,050
|
1.1
|
$392,813
|
2.7
|
$372,774
|
2.14
|
||||
|
Total
Revenue
|
$4,562,777
|
112.7
|
$11,017,704
|
93.3
|
$16,846,076
|
114.1
|
$19,213,622
|
110.31
|
|||
|
Funded
Origination Volume
|
$404,805,308
|
$1,181,255,045
|
$1,476,237,926
|
$1,741,860,068
|
|||||||
|
a.
|
Approximately
93% of the Company’s revenue in 2009 came from origination commission
fees, 5% came from broker fees and 2% came from insurance commission
fees. This break-down has been relatively consistent over the
recent past, although the greatest rate of growth, year over year, has
been in broker fee commission revenue (46% in 2009 over 2008) and
origination commission revenue (13% in 2009 over 2008). The
pricing structure of each revenue stream has remained consistent between
periods.
|
|
b.
|
In
2008, the Company received approximately 102 basis points from lenders
such as banks and trust companies who pay the Company an origination
commission fee. This represents a decrease of 4% of the basis
point revenue for origination commission fees reported in 2008 likely
associated with a general lack of streaming of deal flow to optimize
lender commission premiums associated with volume
thresholds.
|
|
c.
|
We
currently earn additional commission revenue through the referral and
placement of creditor insurance with Benesure Canada Inc. The
Company earns revenue in the form of an upfront fee as well as an on-going
trailer fee. In 2009, the Company earned CDN $372,774 from
creditor insurance sales which is a notional decrease to sales reported in
2008 and likely associated with recessionary pressures whereby consumers
do not want to invest in creditor
insurance.
|
|
2.
|
In
2008, approximately 71% of the Company’s revenue came from multi-product
depository banks and trust institutions. 23% of the Company’s
revenue came from monoline lenders who have a single product offering and
sell exclusively through the mortgage broker sales channel. 6%
of our revenue comes from broker fees associated with private
lenders. This break-down has been relatively consistent over
the past three years, although the fastest growing category is origination
with private lenders (62% growth in 2009 over 2008) versus the slowest
growing category being origination through monoline lenders (4% growth in
2009 over 2008) – possibly attributed to declining credit conditions
within the general economy and a loss of some monoline lenders in the
marketplace. Our contracted mortgage brokers are required to
find the best terms for a customer that meet the customer’s
needs. The Company has no control over directing associated
deal flow. In general, the Company earns its highest fees from
private lenders. The Table below summarizes revenue for the
last three fiscal periods by lender
category:
|
|
REVENUE
ORGANIZED BY LENDER CATEGORY (CDN $)
|
||||||||||||||||
| F2006 | F2007 | F2008 | F2009 | |||||||||||||
|
LENDER
CATEGORY
|
||||||||||||||||
|
DEPOSITORY
BANKS & TRUSTS (27*)
|
$ | 3,446,518 | $ | 8,629,309 | $ | 11,623,314 | $ | 13,450,421 | ||||||||
|
MONOLINE
LENDERS (26*)
|
$ | 983,121 | $ | 1,990,521 | $ | 4,187,297 | $ | 4,340,545 | ||||||||
|
PRIVATE
LENDERS (24*)
|
$ | 133,138 | $ | 269,824 | $ | 642,652 | $ | 1,041,606 | ||||||||
|
TOTALS:
|
$ | 4,562,777 | $ | 10,889,654 | $ | 16,453,263 | $ | 18,832,573 | ||||||||
|
*:
|
Number
of lending institutions
|
|||||||||||||||
|
3.
|
The
Company operates two sales channels for originating
mortgages. Approximately 96% of our mortgage origination volume
is sourced directly through our mortgage broker sales channel which
consists of 430 mortgage agents (as further described in Item 1 of this
Form 10-K). Approximately 4% of our mortgage origination volume
in 2009 was sourced through our real estate sales channel wherein the
Company established regional referral contracts with strategic alliance
partners RE/MAX in Eastern Canada and Maxwell in Western Canada (as
further described in Item 1 of this Form 10-K). In general, the
Company, as well as its agents, in aggregate, earn up to 30 basis points
less when deal flow is sourced through a strategic alliance partner via
the real estate sales channel. The long term intended trade-off
is that the Company expects to source significant mortgage origination
volume through the real estate channel, although this is currently being
monitored for substantiation purposes. The reported drop in
mortgage originations sourced through our real estate sales channel from
2008 to 2009 is likely associated with our termination of the RE/MAX
agreement in June 2009 as previously described. The Table below
summarizes mortgage origination by sales channel over the past three
years:
|
|
Company
Mortgage Origination Summarized by Sales Channel (CDN $)
|
||||||||||||||||
|
CHANNEL
|
YE
2006
|
YE
2007
|
YE
2008
|
YE
2009
|
||||||||||||
|
Mortgage
Broker Sales Channel
|
$ | 371,521,881 | $ | 1,025,316,928 | $ | 1,318,536,854 | $ | 1,678,825,663 | ||||||||
|
Real
Estate Sales Channel
|
$ | 33,283,427 | $ | 155,938,117 | $ | 157,701,073 | $ | 63,034,405 | ||||||||
|
GRAND
TOTAL
|
$ | 404,805,308 | $ | 1,181,255,045 | $ | 1,476,237,927 | $ | 1,741,860,068 | ||||||||
|
4.
|
The
Table below summarizes mortgage origination by sales territory across
Canada over the past three years and we provide the following
comments:
|
|
Company
Mortgage Origination summarized by Sales Territory (CDN $)
|
||||||||||||||||
|
TERRITORY
|
YE
2006
|
YE
2007
|
YE
2008
|
YE
2009
|
||||||||||||
|
Ontario
|
$ | 248,985,153 | $ | 737,109,325 | $ | 1,023,862,909 | $ | 1,339,030,063 | ||||||||
|
Alberta
|
$ | 146,432,515 | $ | 362,226,815 | $ | 320,782,600 | $ | 286,235,237 | ||||||||
|
Atlantic
Canada
|
$ | 9,387,640 | $ | 81,918,905 | $ | 131,592,418 | $ | 116,594,768 | ||||||||
|
GRAND
TOTAL
|
$ | 404,805,308 | $ | 1,181,255,045 | $ | 1,476,237,927 | $ | 1,741,860,068 | ||||||||
|
a.
|
77%
of our volume in 2009 was originated from the Province of Ontario, 16% our
volume in 2009 was originated from the Province of Alberta and 7% our
volume in 2009 was originated from Atlantic
Canada;
|
|
b.
|
Commission
fees (as described in section 1 heretofore) do not vary by geographical
region as our lenders are typically federally chartered and offer the same
service in each territory;
|
|
c.
|
There
is no difference in per unit revenue on a basis point basis for
origination from one sales territory to another, although the size of
mortgages, in general, are greater in Alberta and Ontario than Atlantic
Canada;
|
|
d.
|
The
Company has experienced the greatest consistent growth in mortgage
origination across Ontario. Management believes that the
downturn in mortgage origination volume in Alberta and Atlantic Canada in
2009 over 2008 was because these regions were most affected by a market
downturn first in Canada related to the North American economic recession
in 2008 and 2009.
|
|
e.
|
The
Company is able to manage its regional sales management expenses roughly
in proportion to the respective revenue distribution by
territory.
|
Expense
Trend Analysis
The
Company’s operating expenses decreased in 2009 by 2% over 2008 primarily due to
two one time expense recoveries during the period. The primary
components that comprise the Company’s operating expenses are agent commissions,
salaries and benefits, general and administrative expenses, occupancy costs and
stock-based compensation for which the following trends are observed by
management:
|
·
|
89%
of the operating expenses in 2009 were associated with agent
commissions. Agent commission fees as a percent of revenues
were fairly consistent between periods increasing by 1% from 2008 to
2009.
|
|
·
|
10%
of the operating expenses in 2009 were associated with salaries and
benefits. Costs associated with Salaries and Benefits increased
by 43% compared to 2008 as the company invested in attracting and
retaining a strong management team to help in the company’s
growth.
|
|
·
|
General
and administrative expenses were fairly consistent between periods
decreasing by 0.69% from 2008 to
2009.
|
|
·
|
Occupancy
costs decreased 11% from 2008 to $142,521 and is related, in part, to an
increase in the Canadian dollar relative to the U.S.
dollar.
|
Off-Balance
Sheet Arrangements
None
Tabular
Disclosure of Contractual Obligations
We are
exempt from this reporting as a smaller reporting company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
We are
exempt from reporting this item as a smaller reporting company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The
financial statements of the Company appear at the end of this report beginning
with the Index to Financial Statements on page F-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The
following describes changes in and disagreements with accountants on accounting
and financial disclosures through 2008 and 2009:
On
January 23, 2008, Jewett, Schwartz, Wolfe & Associates (the “Accountant”),
resigned as the Company’s independent auditor. The Accountant was
engaged on May 16, 2007, and, therefore, served as the Company’s independent
accountant for just over eight months. During that limited period of
service, the Accountant did not issue any audit report on the Company’s
financial statements because it did not conduct any audit of the financial
statements of the Company, there were no disagreements with the Accountant on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
Accountant’s satisfaction, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with any report it might have issued
on the financial statements of the Company, and there were no reportable events
described in Item 304(a)(1)(iv) of Regulation S-B.
On
February 8, 2008, the board of directors of the Company approved the engagement
of DNTW Chartered Accountants, LLP (“DNTW”), as its new independent
accountant. During the two most recent fiscal years and through the date
hereof, neither the Company nor any one on behalf of the Company has consulted
with DNTW regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company’s financial statements, or any other matters or
reportable events required to be disclosed under Regulation S-K.
On April
16, 2008, DNTW Chartered Accountants, LLP (“DNTW”) advised the Company that DNTW
would not be accepting the engagement as the Company’s auditors for the year
ended December 31, 2008 and that DNTW’s role as auditors of the Company would
cease immediately. After some discussion between the Company and DNTW as to
terms upon which DNTW might reconsider its decision not to accept such
engagement, DNTW provided written confirmation to the Company on April 22, 2008
that the client-auditor relationship between DNTW and the Company had
ceased. DNTW provided an audit report on the financial statements of
the Company for the year ended December 31, 2007. Other than a statement as
to the ability of the Company to continue as a going concern, there was in such
report no adverse opinion or disclaimer of opinion or modification as to
uncertainty, audit scope or accounting principles. Since DNTW’s engagement
on February 7, 2008, there have been no disagreements with DNTW on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to DNTW’s satisfaction, would have
caused it to make reference to the subject matter of the disagreement(s) in
connection with the report it issued on the financial statements of the Company,
and there were no reportable events described in Item 304(a)(1)(iv) of
Regulation S-B. The Company has provided DNTW with a copy of the
disclosures it is making in response to Item 304(a) of Regulation S-B and
requested that DNTW furnish the Company with a letter addressed to the
Commission stating whether it agrees with the statements made by the
Company. On May 9, 2008, DNTW provided the Company a letter to this effect,
a copy of which is filed in our current report filed May 12, 2008.
On May
11, 2008, the board of directors of the Company approved the engagement of
McGovern, Hurley, Cunningham, LLP, as its new independent
accountant. During the two most recent fiscal years and through the date
hereof, neither the Company nor any one on behalf of the Company has consulted
with McGovern, Hurley, Cunningham, LLP regarding the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company’s financial statements,
or any other matters or reportable events required to be disclosed under
Regulation S-K.
ITEM 9A(T). CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
As of the
end of the period covered by this report, the Company’s principal executive
officer and principal financial officer evaluated the effectiveness of the
Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d -15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Based on their evaluation of the Company’s disclosure
controls and procedures, the Company’s principal executive officer and principal
25
financial
officer, with the participation of the Company’s management, have concluded that
the Company’s disclosure controls and procedures were not effective as of
December 31, 2009, to ensure that information required to be disclosed by the
Company in the reports that we file or submit under the Exchange Act is(a)
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms and (b) accumulated and communicated to management,
including the Company’s principal executive officer and principal financial
officer, as appropriate to allow for timely decisions regarding required
disclosure, due to the Company’s limited internal resources and lack of ability
to have multiple levels of transactional review.
Management’s
Annual Report on Internal Controls Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f) and 15(d)-15(f). Under the supervision and with the
participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
our internal control over financial reporting as of December 31, 2009 based on
the framework in Internal Control – Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on that
evaluation, our management concluded that our internal control over financial
reporting was not effective as of December 31, 2009, due to the Company’s
limited internal resources and lack of ability to have multiple levels of
transactional review. Through the use of external consultants and the
review process, management believes that the financial statements and other
information presented herewith are materially correct.
This
Annual Report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management’s report in this Annual Report.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal controls over financial reporting
during our fourth quarter ended December 31, 2009, or in other factors that
could significantly affect these controls, that materially affected, or are
reasonably likely to materially affect, the Company’s internal controls over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART
III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Registrant
Director and Executive Officer
The
following table sets forth, as of April 19, 2010, the name and age of our sole
director and executive officer. The director will hold such office
until the next annual meeting of shareholders and until his successor has been
elected and qualified.
|
Name
|
Age
|
Position
|
|
Alex
Haditaghi
|
37
|
President,
CEO, CFO, Chief Accounting Officer and sole
Director
|
Business
Experience
The
following summarizes the occupation and business experience of our sole director
and executive officers:
Alex
Haditaghi, President, Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer and Chairman of the Board of Directors
Alex
Haditaghi has been working in the mortgage industry in Canada since 1999 and has
extensive experience in both residential and commercial
mortgages. Mr. Haditaghi formed Lending Tree Canada Inc., a private
mortgage brokerage operating in Canada, in 2000. He served as
President for five years until he founded MortgageBrokers.com in January
2005. Since then, Mr. Haditaghi has been the CEO, CFO and sole
director of MortgageBrokers.com Holdings, Inc. and President of its two
subsidiaries. Mr. Haditaghi is responsible for the business vision,
expansion, capital resources, hiring the executive management team, establishing
corporate policy and providing overall leadership to the
organization
Significant
Contributing Management
The
following table sets forth, as of April 19, 2010, the names and ages of our
Canadian operations management team.
|
Name
|
Age
|
Position
|
|
Dong
Lee
|
37
|
Vice
President of Operations
|
|
Robert
Hyde
|
46
|
Vice
President of Finance & Administration
|
|
Daniel
Putnam
|
53
|
President
of Sales - Canada
|
|
Diana
Soloway
|
45
|
Chief
Strategy Officer
|
|
David
Mercer
|
50
|
Vice
President of Sales-Alberta
|
Business
Experience
The
following summarizes the occupation and business experience of our Canadian
operations subsidiary management team:
Dong
Lee, Vice President of Operations
Dong Lee
has been vice president of operations at our Company’s Canadian subsidiary since
joining us in April, 2005. Mr. Lee is responsible for managing our
mortgage agent and referral commission and compliance operations and responsible
for overall business model development.
Prior to
joining MortgageBrokers.com, Mr. Lee was Senior Manager-Alternate Delivery
Channels, for Scotiabank where he oversaw the strategic development of both
Scotiabank's mobile mortgage sales team and mortgage broker delivery
channels. In this position, Lee was responsible for the strategic
marketing and development of sales programs. Mr. Lee worked at
Scotiabank from January 2001 to April 2005. Before joining
Scotiabank, Mr. Lee spent several years as the Business Development Officer for
Canada Mortgage & Housing Corporation (“CMHC”), where he managed and grew
the market share of CMHC's largest lender portfolio. Before specializing in the
mortgage sector, Lee spent several years with TD Bank Financial group as Manager
of Korean banking. Under that position, Lee envisioned, launched and
managed the Korean Banking Centre, establishing a multi million dollar referral
network with several of the largest banks in Korea.
Mr. Lee
is a graduate from Queen's University's undergraduate business
program. During his time at Queen's, Mr. Lee studied international
business at Herstmonceux Castle in Hailsham, England. Mr. Lee
completed his MBA in 2007 through Dalhousie University.
Robert
Hyde, Vice President of Finance & Administration
Mr. Hyde
joined MortgageBrokers.com’s Canadian subsidiary in April of
2005. His responsibilities include corporate development, finance and
reporting, agreement preparation and administration, administration of warrant,
option and other capital structure programs, regulatory and legal liaison,
private placement memorandum and registration statement preparation, and
accounting support.
Prior to
joining MortgageBrokers.com, Mr. Hyde had a 17 year career in the engineering,
software and management consulting industries servicing the real estate,
financial services and petrochemical industries with significant business
building experience and leadership roles in Canada, the US, and the
EU. Most recently, Robert was Managing Director of Paladin Capital
Ventures. Paladin Capital Ventures provided early stage technology
based companies with business model development, strategic planning, finance and
capital planning, facilitating venture capital and private placement, and
providing strategic market planning services. From 1998 to 2004,
Robert was the founder and managing director of eRealVantage Incorporated, a
real estate investment portfolio securitization technology company servicing the
REIT and pension fund portfolio market place. From 1992 to 1998, he
was President of Enviro Cheq Corporation and Vice President of the
knowledge-based environmental risk management company, Trillium Environmental
Corporation.
Mr. Hyde
graduated from the Richard Ivey School of Business, University of Western
Ontario (MBA) in 2003 and received his Masters of Engineering degree from
University of Windsor in 1990. He is a Professional Engineer in the
Province of Ontario and has completed numerous executive training courses
including the Art of Negotiation.
Daniel
Putnam, President of Sales - Canada
Since
joining our Company’s Canadian subsidiary in November, 2008, Daniel Putnam has
been President of our Canadian sales organization and currently directs our
sales management staff to service, recruit and manage our national mortgage
sales agency. Mr. Putnam directs a marketing manager responsible for
developing advertising, information brochures, and sales support
materials. Mr. Putnam also directs our senior Information System /
Information Technology staff responsible for developing www-based technology
back office systems to service the mortgage sales agency. Mr. Putnam
was formerly President of Mortgage Centre Canada – a Division of CIBC Mortgages
Inc. and more recently was President of Originations for Macquarie
Financial.
Diana
Soloway, Chief Strategy Officer
Since
joining our Company’s Canadian subsidiary in November of 2008, Diana Soloway is
our Chief Strategy Officer responsible for assisting the CEO with creating,
communicating, executing, and sustaining strategic initiatives within our
organization. Ms. Soloway brings with her 18 years of mortgage experience before
from operating her own mortgage brokerage firm to working within large financial
institutions. Prior to MortgageBrokers.com Ms. Soloway spent 8 years at Home
Trust company as VP Marketing and Sales.
David
Mercer, Vice President Sales - Alberta
David
Mercer is the Company’s vice president of Sales for Alberta and joined us
September of 2005. Prior to joining MortgageBrokers.com, Mr. Mercer,
a 23 year veteran of the real estate and mortgage broker industry, was President
of Lending Source Canada Inc. Previously, Mr. Mercer spent 4 years as
a top producing regional manager for The Mortgage Alliance Company of Canada,
who today claims to be the largest independent mortgage originator in
Canada. Through his career in the industry, Mr. Mercer has been
responsible for the recruitment, training and mentorship of over 300 Mortgage
Brokers across Canada. Mr. Mercer has also served as President of the
Alberta Mortgage Brokers Association, and for many years served as the Chair for
the Communications and Ethics committees. Mr. Mercer also currently
teaches for the Alberta Real Estate Association through Mt. Royal College,
Alberta.
Family
Relationships
None.
Involvement
in Certain Legal Proceedings
See Item
3 of this form 10-K.
Promoters
and Control Persons
None.
Code
of Ethics
The
Company has adopted a Code of Ethics applicable to its Chief Executive Officer
and Chief Financial Officer which has been filed as an exhibit to our Annual
Report on Form 10-KSB on March 31, 2005.
Directors
and Committees
The
Company currently has only one director and, as such, has no nominating, audit
or other committees of its board of directors. The sole director of the
Company does not qualify as an “audit committee financial
expert.” To-date, no formal board meetings have taken
place.
Shareholder
Communications
The
Company has retained an investor relations Company to communicate and respond to
shareholders. Shareholders may also correspond directly to our
Director.
Compliance
with Section 16(A) of the Exchange Act
Mr.
Haditaghi has yet to file a Form 5 for 2009 but plans to in the very near
future.
ITEM 11. EXECUTIVE COMPENSATION
The
following summarizes the Companies named officer and director, as identified in
Item 10 of this Firm 10-K, compensation:
|
SUMMARY
COMPENSATION TABLE
|
|||||||||
|
Name
and principal position
(a)
|
Year
(b)
|
Salary
($)
(c)1
|
Bonus
($)
(d)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Nonqualified
Deferred Compensation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
|
Alex
Haditaghi, Chairman and CEO
|
2009
2008
|
$4,752
$31,074
|
263,158
0
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
$267,910
$31,074
|
Footnotes:
1: The
executive’s base salary was paid in Canadian dollars. In Canadian
dollars, the base salary was $33,125 in 2008 and $5,417,125 with a bonus of
$300,000 in 2009. It was converted to USD for presentation in the
table as required using the conversion factor (USD $1.0 = CDN $1.066), the
annual average exchange rate for 2008 as reported by the Bank of
Canada. The annual average exchange rate for 2009 as reported by the
Bank of Canada was USD $1.0 = CDN $1.14.
Narrative
Disclosure to the Summary Compensation Table
The
employment agreements for executive officers are presently being
prepared. The disclosures made in the 2005 Audited Financial
Statements (10-KSB - Item 10. Executive Compensation) and the `Amendment to
License Agreement between RE/MAX and Mortgagebrokers.com Holding Inc.' dated May
25, 2006 (8-K - Schedule `A' 1. Outstanding Options) documenting the equity
compensation of employees has not been implemented as of April 15,
2010. The company is currently in the process of preparing employment
agreements which are expected to be executed in 2010.
|
OUTSTANDING
EQUITY AWARDS AT 2009 FISCAL YEAR END TABLE
|
|||||||||
|
OPTION
AWARDS
|
STOCK
AWARDS
|
||||||||
|
Name
and principal position
(a)
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
(b)
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
(c)1
|
Equity
Incentive Plan Awards:
Number
of Securities Underlying Unexercised Unearned Options
(#)
(d)
|
Option
Exercise Price
($)2
(e)
|
Option
Expiration
Date
(f)
|
Number
of Shares or units of Stock that have not Vested
(#)
(g)
|
Market
Value of Shares or Units of Stock that have not Vested
($)
(h)
|
Equity
Incentive
Plan Awards:
Number
of Unearned shares, Units or other rights that have not
Vested
($)
(i)
|
Equity
Incentive Plan Awards:
Market
or Payout Value of Unearned shares, Units or other rights that have not
Vested
($)
(j)
|
|
Alex
Haditaghi, Chairman and CEO
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Compensation
of Directors
No
additional compensation is paid to Alex Haditaghi, our sole
director.
Stock
Option Grants In The Past Fiscal Year
We have
not issued any grants of stock options in the past fiscal year to any officer or
director. As at December 31, 2009, no options to Company employees,
officers or directors are outstanding.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
|
Name
of Beneficial Owner (2)
|
Number
of Total Shares
|
Percent
of class (1)
|
|
Alex
Haditaghi
|
26,734,000
|
62.2%
|
|
All
executive officers
and
directors as a group
|
26,734,000
|
62.2%
|
(1)
Based on 42,976,548 shares of common stock issued and outstanding as of December
31, 2009.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.
As of
December 31, 2009, the controlling shareholder and Chief Executive Officer of
the Company had advanced $359,138 (December 31, 2008 - $129,425) to fund the
working capital of the Company. The advances are unsecured, non-interest bearing
and due on demand.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
Audit
Fees
For the
Company's fiscal year ended December 31, 2009, we have incurred $69,535 for
professional services rendered for the audit and reviews of our financial
statements.
For the
Company's fiscal year ended December 31, 2008, we had incurred $43,641 for
professional services rendered for the audit and reviews of our financial
statements.
For the
Company's fiscal year ended December 31, 2008, there were no other audit related
fees.
Tax
Fees
To-date,
for the Company's fiscal year ended December 31, 2008, the Company has not
incurred expenses for professional services rendered for tax compliance, tax
advice, and tax planning.
All
Other Fees
None.
ITEM 15. REPORTS ON FORM 8-K
|
May 22, 2009 (period:
May 13, 2009)
|
On May
13, 2009, MortgageBrokers.com Holdings, Inc. (the “Company”) gave notice to
RE/MAX Ontario-Atlantic Canada Inc. (“RE/MAX”) that the Company intends to
terminate its agreement with RE/MAX on June 12, 2009 in accordance with the
provisions of the agreement.
|
July 14, 2009 (period:
July 08, 2009
|
Other
Events
|
On July
8, 2009, a full and final settlement agreement (“The Agreement”) was executed
between Trisan Equitable Corporation and the MortgageBrokers Group regarding the
prior summary judgment awarded to Trisan against the parties and all outstanding
and related matters on October 3, 2007.
PART
IV
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
The
following documents are included as exhibits to this report pursuant to Item 601
of Regulation S-K.
|
Exhibit
No.
|
Description
|
|
3.1
|
Certificate
of Incorporation (1)
|
|
3.2
|
First
Amendment to Certificate of Incorporation (1)
|
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation filed February 1,
2005
|
|
3.4
|
Bylaws
(1)
|
|
10.1
|
2003
Equity Compensation Plan (1)
|
|
10.2
|
Stock
Purchase Agreement and Share Exchange dated March 21, 2005 by and among
Mortgagebrokers.com Holdings, Inc., Mortgagebrokers.com, Inc., and Alex
Haditaghi (2)
|
|
10.3
|
License
Agreement dated January 30, 2006 between RE/MAX Ontario-Atlantic Canada
Inc. and Mortgagebrokers.com Holdings, Inc. (3)
|
|
10.4
|
Amendment
to License Agreement dated May 25, 2006 by and among Mortgagebrokers.com
Holdings, Inc., RE/MAX Ontario-Atlantic Canada Inc, and Alex Haditaghi,
(4)
|
|
10.5
|
Service
Agreement dated April 12, 2006 between Mortgagebrokers.com Financial Group
of Companies, Inc. and Maxwell Realty Inc. (6)
|
|
10.6
|
Service
Level Agreement between Mortgagebrokers.com Financial Group of Companies,
Inc. and RE/MAX Franchisees (6)
|
|
10.7
|
Lease
between Mark Pharmaceutical Services Inc. and Mortgagebrokers.com, Inc.
(6)
|
|
10.8
|
Financial
Advisory and Investment Banking Agreement dated November 2, 2007 between
vFinance Investments, Inc. and Mortgagebrokers.com Holdings, Inc.
(6)
|
|
10.9
|
Form
of Subscription Agreement entered into between the Company and investors
in the Company’s 2006 Private Offering (6)
|
|
14.1
|
Code
of Ethics (5)
|
|
21.1
|
List
of Subsidiaries
|
|
31.1
|
Certifications
of Chief Executive Officer and Chief Financial Officer
|
|
32.1
|
Certifications
of Chief Executive Officer and Chief Financial
Officer
|
___________________________
Footnotes:
|
|
(1)
|
This
exhibit was filed with our Registration Statement on Form SB-2 filed on
June 2, 2003 (SEC Filed No. 333-117718) and is incorporated herein by this
reference.
|
|
|
(2)
|
This
exhibit was filed with our Current Report on Form 8-K filed on March 22,
2005 and is incorporated herein by this
reference.
|
|
|
(3)
|
This
exhibit was filed with our Current Report on Form 8-K filed on February 1,
2006 and is incorporated herein by this
reference.
|
|
|
(4)
|
This
exhibit was filed with our Current Report on Form 8-K filed on June 13,
2006 and is incorporated herein by this
reference.
|
|
|
(5)
|
This
exhibit was filed with our Annual Report on Form 10-KSB on March 31, 2005
and is incorporated herein by this
reference.
|
|
|
(6)
|
This
exhibit was filed with our Annual Report on Form 10-K on April 15,
2008 and is incorporated herein by this
reference.
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, there unto duly authorized.
|
MORTGAGEBROKERS.COM
HOLDINGS, INC.
|
|
By: /s/ Alex
Haditaghi
|
|
Alex Haditaghi
|
|
Principal Executive Officer,
|
|
Principal Accounting Officer,
|
|
President, Secretary and Director
|
Dated:
April 19, 2010
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
NAME
|
TITLE
|
DATE
|
|
|
/s/ Alex
Haditaghi
|
President,
Secretary and Director
|
April
19, 2010
|
|
|
Alex
Haditaghi
|
 MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
DECEMBER 31,
2009 AND 2008
|
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2009 AND 2008
CONTENTS
|
Report
of Independent Registered Public Accounting Firm
|
F3
|
|
Consolidated
Balance Sheets
|
F4
|
|
Consolidated
Statements of Operations and Comprehensive Income (Loss)
|
F5
|
|
Consolidated
Statements of Stockholders' Deficit
|
F6
|
|
Consolidated
Statements of Cash Flows
|
F7
|
|
Notes
to Consolidated Financial Statements
|
F8-28
|
Page
1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of
Mortgagebrokers.com
Holdings, Inc. and Subsidiaries
We have
audited the accompanying consolidated balance sheets of Mortgagebrokers.com
Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2009 and
2008, and the related consolidated statements of operations and comprehensive
income (loss), statements of stockholders’ deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. Our
audits included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such
opinion. 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 Mortgagebrokers.com Holdings, Inc.
and Subsidiaries as at December 31, 2009 and 2008 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles in the United States of
America.
As
discussed in Note 21, the accompanying 2008 consolidated financial statements
have been restated.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company’s operating losses, negative working capital,
and total capital deficiency raise substantial doubt about its ability to
continue as a going concern. Note 1 also describes management’s plans
to address these financial matters. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
McGOVERN, HURLEY, CUNNINGHAM,
LLP
Chartered
Accountants
Licensed
Public Accountants
TORONTO,
Canada
April 14,
2010
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Balance Sheets
December
31, 2009 and December 31, 2008
|
2009
|
2008
Restated
(Note
21)
|
||||||
|
ASSETS
|
|||||||
|
Current
Assets
|
|||||||
|
Cash
and cash equivalents
|
$
|
2,012,964
|
$
|
1,262,321
|
|||
|
Referral
fees held in trust – restricted(note 3)
|
2,767
|
17,848
|
|||||
|
Prepaid
expenses
|
19,236
|
116,211
|
|||||
|
Total
Current Assets
|
2,034,967
|
1,396,380
|
|||||
|
Equipment, net (note
4)
|
106,935
|
112,184
|
|||||
|
Equipment Under Capital Leases
(note 5)
|
1,968
|
2,424
|
|||||
|
Total
Assets
|
$
|
2,143,870
|
$
|
1,510,988
|
|||
|
LIABIL
ITIES AND STOCKHOLDERS' DEFICIT
|
|||||||
|
Current
Liabilities
|
|||||||
|
Bank
indebtedness – current portion (note 6)
|
$
|
65,104
|
$
|
61,244
|
|||
|
Accounts
payable and accrued liabilities (note 7)
|
1,987,786
|
1,918,178
|
|||||
|
Advances
from related party – current portion (note 8)
|
359,138
|
84,425
|
|||||
|
Trust
liability (note 3)
|
2,767
|
17,848
|
|||||
|
Employee tax deductions payable (note 9)
|
219,759
|
275,317
|
|||||
|
Obligation
under capital leases (note 10)
|
-
|
1,624
|
|||||
|
Stock-based
compensation accrual - current portion (note 11a)
|
19,720
|
41,562
|
|||||
|
Employee
stock-based compensation accrual (note 11b)
|
1,650
|
266,642
|
|||||
|
Total
Current Liabilities
|
2,655,924
|
2,666,840
|
|||||
|
Bank
Indebtedness
|
-
|
56,141
|
|||||
|
Advances from related
party(note8)
|
-
|
45,000
|
|||||
|
Stock-based Compensation
Accrual (note 11c)
|
76,829
|
124,767
|
|||||
|
Total
Liabilities
|
2,732,753
|
2,892,748
|
|||||
|
Commitments and
Contingencies (notes 1 and 18)
|
|||||||
|
STOCKHOLDERS'
DEFICIT
|
|||||||
|
Capital
Stock
|
|||||||
|
Preferred
stock, $0.0001 par value; 5,000,000 shares authorized, none
issued
|
-
|
-
|
|||||
|
Capital
stock, $0.0001 par value; 100,000,000 shares
authorized; 42,976,548 (2008: 42,976,548) issued and
outstanding (note
12)
|
4,298
|
4,298
|
|||||
|
Additional
Paid-in Capital
|
5,858,352
|
5,923,372
|
|||||
|
Additional Paid-in Capital -
Warrants (note 13)
|
335,183
|
489,243
|
|||||
|
Subscription
(Cancellation) of Stock
|
(220)
|
8,240
|
|||||
|
Subscription Receivable
(note 14)
|
-
|
(227,540)
|
|||||
|
Treasury
Stock (note 15)
|
(25,234
|
)
|
(25,234
|
)
|
|||
|
Accumulated
Other Comprehensive Income
|
142,605
|
213,407
|
|||||
|
Accumulated
Deficit
|
(6,903,867
|
)
|
(7,767,546
|
)
|
|||
|
Total
Stockholders' Deficit
|
(588,883)
|
(1,381,760)
|
|||||
|
Total
Liabilities and Stockholders' Deficit
|
$
|
2,143,870
|
$
|
1,510,988
|
|||
(The
accompanying notes are an integral part of these consolidated financial
statements.)
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Statement of Operations and Comprehensive Income (Loss)
Years
Ended December 31, 2009, and 2008
|
2009
|
2008
|
|||||||
|
Restated
|
||||||||
|
(Note
21)
|
||||||||
|
Revenue
|
$ | 16,851,224 | $ | 15,802,861 | ||||
|
Expenses
|
||||||||
|
Commission
and agent fees
|
14,287,627 | 13,314,374 | ||||||
|
Salaries
and benefits
|
1,668,413 | 1,186,658 | ||||||
|
General
and administrative expenses
|
949,102 | 942,602 | ||||||
|
Employee
stock-based compensation (note 11b)
|
(264,993 | ) | 684,197 | |||||
|
Legal
judgement (note 7)
|
(757,521 | ) | - | |||||
|
Stock-based
compensation (note 18a, 18b, and 18c(i))
|
(47,938 | ) | (25,052 | ) | ||||
|
Stock-based
compensation (note 18c(ii))
|
(21,842 | ) | (6,549 | ) | ||||
|
Stock-based
compensation for services
|
- | 6,479 | ||||||
|
Occupancy
costs (note 16)
|
142,521 | 159,317 | ||||||
|
Depreciation
expense
|
27,981 | 33,428 | ||||||
|
Total
Operating Expenses
|
15,983,350 | 16,295,454 | ||||||
|
Income
(Loss) from Operations
|
867,874 | (492,593 | ) | |||||
|
Other
Expenses
|
||||||||
|
Interest,
Finance and Other Expenses
|
(4,195 | ) | (26,759 | ) | ||||
|
Income
(Loss) Before Income Taxes
|
863,679 | (519,352 | ) | |||||
|
Provision
for income taxes (note 17)
|
- | - | ||||||
|
Net
Income (Loss)
|
863,679 | (519,352 | ) | |||||
|
Foreign
Currency Translation Adjustment
|
(70,802 | ) | 246,416 | |||||
|
Total
Comprehensive Income (Loss)
|
$ | 792,877 | $ | ( 272,936 | ) | |||
|
Net
Income (Loss) per Share – Basic (note 19)
|
0.02 | (0.01 | ) | |||||
|
Net
Income (Loss) per Share - Diluted (note 19)
|
0.02 | (0.01 | ) | |||||
|
Weighted
Average Number of Shares Outstanding - Basic During the
Year
|
42,976,548 | 39,713,425 | ||||||
|
Weighted
Average Number of Shares Outstanding - Diluted During the
Year
|
46,300,265 | 39,713,425 | ||||||
(The
accompanying notes are an integral part of these consolidated financial
statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC.
AND SUBSIDIARIES
Consolidated
Statements of Stockholders' Deficit
Years
Ended December 31, 2009 and 2008 (Restated)
|
Common
Shares
|
Stock
Amount
|
Accumulated
Additional
Paid-In
Capital(
Restated Note 21)
|
Additional
Paid-In
Capital
-
Warrants
|
Subscription
(Cancellation)
Of Stock
|
Subscription
Receivable
|
Treasury
Stock
|
Accumulated
Other
Comprehensive
Income
(Loss)(Restated
Note
21)
|
Accumulated
Deficit(Restated
Note 21)
|
Total
Stockholders'
Deficit(Restated
Note 21)
|
|||||||||||||||||||||||||||||
|
Balances
at December 31, 2007
|
38,466,470
|
$
|
3,847
|
$
|
3,424,264
|
$
|
622,211
|
$
|
64,086
|
$
|
(227,540
|
)
|
$
|
(25,234
|
)
|
$ |
(33,009)
|
$
|
(6,156,468
|
)
|
$
|
(2,327,843
|
)
|
|||||||||||||||
|
January
1, 2008-Rere
|
||||||||||||||||||||||||||||||||||||||
|
To
adjust for
|
-
|
|||||||||||||||||||||||||||||||||||||
|
Restatement
(note
21)
|
-
|
-
|
495,675
|
-
|
-
|
-
|
-
|
(1,091,726)
|
(596,051)
|
|||||||||||||||||||||||||||||
|
Shares
issued for services:
|
||||||||||||||||||||||||||||||||||||||
|
February
5, 2008 – Issued for $0.191 per Share (note 12)
|
50,000
|
5
|
9,545
|
-
|
-
|
-
|
-
|
-
|
-
|
9,550
|
||||||||||||||||||||||||||||
|
September
11, 2008 – Issued for $0.11 per Share (note 12)
|
3,272,500
|
327
|
1,670,538
|
-
|
-
|
-
|
-
|
-
|
-
|
1,670,865
|
||||||||||||||||||||||||||||
|
September
11, 2008 – Issued for $0.11 per Share (note 12)
|
490,500
|
49
|
53,906
|
-
|
-
|
-
|
-
|
-
|
-
|
53,955
|
||||||||||||||||||||||||||||
|
December
16, 2008 – Issued for $0.16 per Share (note 12)
|
500,000
|
50
|
79,950
|
-
|
-
|
-
|
-
|
-
|
-
|
80,000
|
||||||||||||||||||||||||||||
|
Exercise
and expiry of Warrants:
|
||||||||||||||||||||||||||||||||||||||
|
July 9,
2008, (note 13)
|
-
|
-
|
132,968
|
(132,968
|
)
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||||
|
October
20, 2008 – Issuance of stock (note 12)
|
150,000
|
15
|
43,485
|
(43,500
|
)
|
-
|
||||||||||||||||||||||||||||||||
|
October
21, 2008 – Issuance of stock (note 12 )
|
47,078
|
5
|
13,041
|
(13,046
|
)
|
-
|
||||||||||||||||||||||||||||||||
|
Subscription for
Stock
|
-
|
-
|
-
|
-
|
700
|
-
|
-
|
-
|
700
|
|||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
246,416
|
-
|
246,416
|
||||||||||||||||||||||||||||
|
Net
loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(519,352)
|
(519,352)
|
||||||||||||||||||||||||||||
|
Balances
at
December 31, 2008
|
42,976,548
|
$
|
4,298
|
$
|
5,923,372
|
$
|
489,243
|
$
|
8,240
|
$
|
(227,540
|
)
|
$
|
(25,234
|
)
|
$
|
213,407
|
$
|
(7,767,546
|
)
|
$
|
(1,381,760)
|
||||||||||||||||
|
September
30, 2009- subscription receivable; adjustment (note 14)
|
-
|
-
|
(211,540)
|
-
|
(8,460)
|
220,000
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||
|
September
30,2009- warrant subscription adjustment(note 14)
|
-
|
(7,540)
|
-
|
7,540
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||||
|
September
30, 2009- expiration of warrants(note 13)
|
-
|
-
|
146,520
|
(146,520)
|
--
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||||||
|
Foreign
currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(70,802)
|
-
|
(70,802)
|
||||||||||||||||||||||||||||
|
Net
Income for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
863,679
|
863,679
|
|||||||||||||||||||||||||||||
|
Balances
at
December 31, 2009
|
42,976,548
|
$
|
4,298
|
$
|
5,858,352
|
$
|
335,183
|
$
|
(220)
|
$
|
-
|
$
|
(25,234
|
)
|
$
|
142,605
|
$
|
(6,903,867)
|
$
|
(588,883)
|
||||||||||||||||||
(The
accompanying notes are an integral part of these consolidated financial
statements.)
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated
Statement of Cash Flows
Year
Ended December 31, 2009 and 2008
|
|
2009
|
2008
|
||||||
|
Cash
Flows from Operating Activities
|
Restated
(Note
21)
|
|||||||
|
Net
income(Loss)
|
$ | 863,679 | $ | (519,352 | ) | |||
|
Adjustments
to reconcile net income (loss) to net cash from operating
activities:
|
||||||||
|
Depreciation
|
27,981 | 33,428 | ||||||
|
Stock
issued for services
|
- | |||||||
|
Employee
stock-based compensation
|
(264,993 | ) | 684,197 | |||||
|
Recovery
of legal judgment
|
(757,521 | ) | - | |||||
|
Stock-based compensation accrual
|
(69,780 | ) | (25,122 | ) | ||||
|
(Increase)
decrease in net assets:
|
||||||||
|
Referral
fees held in trust
|
(16,588 | ) | (27,088 | ) | ||||
|
Prepaid
expenses
|
104,646 | 13,975 | ||||||
|
Accounts
payable and Employee tax deductions payable
|
451,901 | 44,233 | ||||||
|
Trust
liability
|
16,588 | 27,088 | ||||||
|
Net
Cash provided by Operating Activities
|
355,913 | 231,359 | ||||||
|
Cash
Flows from Investing Activities
|
||||||||
|
(Purchase)
of equipment, net
|
(5,776 | ) | (16,039 | ) | ||||
|
Net
Cash used in Investing Activities
|
(5,776 | ) | (16,039 | ) | ||||
|
Cash
Flows from Financing Activities
|
||||||||
|
(Repayments
of) obligations under capital leases
|
(1,742 | ) | (3,020 | ) | ||||
|
Repayment
of advances from related party
|
222,846 | (41,266 | ) | |||||
|
Subscription
for stock
|
- | 700 | ||||||
|
(Decrease) in
bank indebtedness
|
(65,703 | ) | (5,104 | ) | ||||
|
Net
Cash provided by (used in) Financing Activities
|
155,401 | (48,690 | ) | |||||
|
Net
Increase in Cash and Cash Equivalents
|
505,538 | 166,630 | ||||||
|
Effect
of exchange rates on cash and cash equivalents
|
245,105 | 264,839 | ||||||
|
Cash
and Cash Equivalents - Beginning of Year
|
1,262,321 | 830,852 | ||||||
|
Cash
and Cash Equivalents - End of Year
|
$ | 2,012,964 | $ | 1,262,321 | ||||
|
Supplemental
Cash Flow Information
|
||||||||
|
Interest
paid
|
$ | 4,195 | 26,759 | |||||
|
Income
taxes paid
|
$ | $ | - | |||||
(The
accompanying notes are an integral part of these consolidated financial
statements.)
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
1.
|
Nature
of Business and Going Concern
|
Nature of
Business
MortgageBrokers.com
Holdings, Inc., and Subsidiaries (the “Company”) was organized under the
laws of the State of Delaware on February 6, 2003.
Mortgage
brokerage operations are presently conducted through the Company’s subsidiaries,
Mortgagebrokers.com Inc. (an Ontario, Canada company), MortgageBrokers.com
Financial Group of Companies, Inc., MBKR Franchising Inc. and MBKR
Holdings Inc. (Canadian federal companies), in Canada only. The
planned operations of the Company consist of becoming a financial services
company centered around mortgage finance, brokerage, sales and consulting in
Canada, the United States and the European Union (“E.U.”).
Going
Concern
The
Company’s consolidated financial statements are presented on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. For the year ended December 31,
2009, the Company generated net income of $863,679 (2008 a loss of $
(519,352). Certain conditions noted below raise substantial doubt
about the Company’s ability to continue as a going concern.
The
Company’s ability to continue as a going concern is contingent upon its ability
to secure additional debt or equity financing, continue to grow sales of its
services and achieve profitable operations. Management’s plan is to
secure additional funds through future debt or equity
financings. Such financings may not be available or may not be
available on reasonable terms to the Company. The issuance of
additional equity securities by us could result in a significant dilution in the
equity interests of our current stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase our liabilities and
future cash commitments.
The
Company has devoted substantially all of its efforts to establishing its current
business. Management continues to develop and execute its business model,
business plans and strategic marketing plans which includes: organization of the
Company and divisions; identification of the Company’s sales channels and
associated supply chain; development of marketing strategic plans and sales
execution strategies; preparation of a financial plan, risk and capital
structure planning models, and mortgage origination ‘book of business’ models;
hiring mortgage sales agents to build its national sales force and continuing to
develop our referral relationship; developing cash flow forecasts and an
operating budget; identifying markets to raise additional equity capital and
debt financing; embarking on research and development activities; performing
employment searches and preparing agent contracts; and, recruiting and hiring
technicians, management and industry specialists.
The
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
2.
|
Summary
of Significant Accounting Policies
|
The
accounting policies of the Company are in accordance with accounting principles
generally accepted in the United States of America, and their basis of
application is consistent. Outlined below are those policies considered
particularly significant:
a) Basis
of Consolidation and Presentation
The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
and include the accounts of the Company, its wholly-owned subsidiaries
Mortgagebrokers.com Inc., Mortgagebrokers.com Financial Group of Companies, Inc.
and MBKR Holdings, Inc. All significant inter-company transactions
and balances have been eliminated upon consolidation.
b) Cash
and Cash Equivalents
Cash and
cash equivalents consist of cash on account and short-term investments with
remaining maturities at acquisition of three months or less.
c) Equipment,
net
Equipment
is stated at cost. Depreciation is calculated using the following annual rates
and methods based on the estimated useful lives of the assets:
|
Furniture
and equipment
|
20%
declining
|
|
|
Computer
equipment
|
30%
declining
|
|
|
Computer
software
|
30%
declining
|
|
|
Leasehold
improvements
|
Over
the remaining term of the lease
|
d) Revenue Recognition
Revenue
consists of mortgage brokerage fees, finders’ fees and insurance commissions.
The revenue from brokerage fees and finders’ fees are recognized upon the
funding of a customer’s mortgage and when the collection is reasonably assured
which typically occurs when the brokerage fee or finders fees from the lender
has been advanced. Insurance commission revenues are recognized when
collection is reasonably assured which typically occurs when the insurance
commission fees from the insurance provider has been advanced.
e) Use
of Estimates
Preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
related notes to financial statements. These estimates are based on management’s
best knowledge of current events and actions the Company may undertake in the
future. Actual results may ultimately differ from estimates, although management
does not believe such changes will materially affect the consolidated financial
statements in any individual year.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
2.
|
Summary
of Significant Accounting Policies
(cont'd)
|
f) Financial Instruments
In
accordance with ASC 825-10-50, (formerly SFAS No. 107), "Disclosures
About Fair Value of Financial Instruments" ("SFAS No. 107"), the estimated fair
value of financial instruments has been determined by the Company using
available market information and valuation methodologies. Considerable judgment
is required in estimating fair value. Accordingly, the estimates may not be
indicative of the amounts the Company could realize in a current market
exchange. As of December 31, 2009, the carrying value of accounts payable and
accrued liabilities, advances from related party and all other
current liabilities and long term debt approximate their fair value because of
the limited terms of these instruments.
In accordance with ASC 820-10, (formerly SFAS No. 157),
“Defining Fair Value Measurement”, the Company adopted the standard
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements.
g) Impairment
of Long-lived Assets
In
accordance with ASC 360-10-05 (formerly SFAS No. 144), "Accounting for the
Impairment or Disposal of Long-Lived Assets", long-lived assets to be held and
used are analyzed for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable. The Company
evaluates whether events and circumstances have occurred that indicate possible
impairment. If there are indications of impairment, the Company uses future
undiscounted cash flows of the related asset or asset grouping over the
remaining life in measuring whether the assets are recoverable. In the event
such cash flows are not expected to be sufficient to recover the recorded asset
values, the assets are written down to their estimated fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount or fair
value of asset less cost to sell. As described in note 1, the long-lived assets
have been valued on a going concern basis; however, substantial doubt exists as
to the ability of the Company to continue as a going concern. If the Company
ceases operations, the asset values may be materially impaired.
h) Share-based
Payment
The Company adopted the disclosure requirements of ASC
718 (formerly SFAS No. 123R) "Share-Based Payment" ("ASC 718") for stock options
and similar equity instruments (collectively, "options") issued to employees.
The Company applies the fair value base method of accounting as prescribed by
ASC 718. Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the service
period, which is usually the vesting period. For stock options, the fair value
is determined using an option-pricing model that takes into account the stock
price at the grant date, the exercise price, the expected life of the option,
the volatility of the underlying stock and the expected dividends on it, and the
risk-free interest rate over the expected life of the option. For
restricted stock, the fair value is determined based on the quoted market
price. ASC 718 also applies to
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. Those transactions must be accounted for based
on the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable, as described in note
11.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
2.
|
Summary
of Significant Accounting Policies
(cont'd)
|
i) Income
Taxes
The
Company accounts for income taxes pursuant to ASC 740-10, (formerly SFAS No.
109), Accounting for Income
Taxes. Deferred tax assets and liabilities are recorded for differences
between the financial statements and tax basis of the assets and liabilities
that will result in taxable or deductible amounts in the future based on enacted
tax laws and rates. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is recorded for the amount of income tax payable or refundable for the
year increased or decreased by the change in deferred tax assets and liabilities
during the year.
j) Earnings
or Loss Per Share
The
Company accounts for earnings per share pursuant to ASC 260-10-05 (formerly SFAS
No. 128), Earnings per
Share, which requires disclosure on the financial statements of "basic"
and "diluted" earnings (loss) per share. Basic earnings (loss) per share is
computed by dividing net income (loss) by the weighted average number of common
stock outstanding for the year. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of common stock
outstanding plus potentially dilutive securities (if dilutive) related to stock
options and warrants for the year.
k) Foreign
Currency Translation
The
Company accounts for foreign currency translation pursuant to ASC
830-10,(formerly SFAS No. 52), “Foreign Currency Translation”. The
Company’s functional currency is the Canadian dollar. All assets and liabilities
are translated into United States dollars using the exchange rates
prevailing at the end of the period. Revenues and expenses are translated using
the average exchange rates prevailing throughout the year.
Unrealized
foreign exchange amounts resulting from translations at different rates
according to their nature are included in accumulated other comprehensive
income.
Realized
foreign currency transaction gains and losses are recognized in
operations.
l) Comprehensive
Income or Loss
The
Company adopted ASC 220-10, (formerly SFAS No. 130) which establishes standards
for reporting and presentation of comprehensive income and its components in a
full set of financial statements. Comprehensive income is presented in the
statements of stockholders’ deficit, and consists of net loss and unrealized
gains (loss) on available for sale marketable securities; foreign currency
translation adjustments and changes in market value of future contracts that
qualify as a hedge; and negative equity adjustments recognized in accordance
with ASC 715-10 (formerly SFAS No. 87). ASC 220-10 requires only additional
disclosures in the financial statements and does not affect the Company’s
financial position or results of operations.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
2.
|
Summary
of Significant Accounting Policies
(cont'd)
|
m) Concentration
of Credit Risk
ASC
815-10, (formerly SFAS No. 105) “Disclosure of Information About Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk”, requires disclosure of any significant
off-balance sheet risk and credit risk concentration. The Company does not have
significant off-balance sheet risk or credit concentration.
n) Recent
Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update No. 2009-01, Generally Accepted Accounting Principles (ASC
Topic 105), which establishes the FASB Accounting Standards Codification (“the
Codification” or “ASC”) as the official single source of authoritative U.S.
generally accepted accounting principles (“GAAP”). All existing accounting
standards are superseded. All other accounting guidance not included in the
Codification will be considered non-authoritative. The Codification also
includes all relevant Securities and Exchange Commission (“SEC”) guidance
organized using the same topical structure in separate sections within the
Codification. The Board will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will
issue Accounting Standards Updates (“ASU”) which will serve to update the
Codification, provide background information about the guidance and provide the
basis for conclusions on the changes to the Codification.
The
Codification is not intended to change GAAP, but it will change the way GAAP is
organized and presented. The Codification was effective for our third-quarter
2009 financial statements and the principal impact on the Company’s financial
statements is limited to disclosures as all future references to authoritative
accounting literature will be referenced in accordance with the
Codification.
In
April 2009, the FASB issued ASC 820-10-65-4 (formerly referred to as FSP
SFAS 157-4), "Determining Whether a Market Is Not Active and a Transaction Is
Not Distressed." ASC 820-10-65-4 provides guidelines for making fair value
measurements more consistent with the principles presented in ASC 820-10-65-1.
ASC 820-10-65-4 provides additional authoritative guidance in determining
whether a market is active or inactive, and whether a transaction is distressed,
is applicable to all assets and liabilities (i.e. financial and non-financial)
and will require enhanced disclosures. This standard is effective for periods
ending after June 15, 2009. The Company has adopted this standard and
determined that it does not have an impact on its financial position and results
of operations.
In
April 2009, the FASB issued ASC 825-10-65-1 (formerly referred to as FSP
SFAS 107-1 and APB 28-1), "Interim Disclosures about Fair Value of
Financial Instruments," and "Disclosures about Fair Value of Financial
Instruments, (formerly referred to as FSP SFAS 107)" to require disclosures
about fair value of financial instruments in interim as well as in annual
financial statements. ASC 825-10-65-1 also includes an amendment to "Interim
Financial Reporting (formerly referred to as APB 28-1)," to require those
disclosures in all interim financial statements. This standard is effective for
periods ending after June 15, 2009. The Company has adopted this standard
and determined that it does not have an impact on its financial position and
results of operations.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
2.
|
Summary
of Significant Accounting Policies
(cont'd)
|
In
October 2009, the FASB issued the “Accounting Standards Update (“ASU”) 2009-13
Multiple Deliverable Revenue Arrangements a consensus of EITF” (formerly topic
08-1) an amendment to ASC 605-25. The update provides amendments to the criteria
in Subtopic 605-25 for separating consideration in multiple-deliverable
arrangements. The amendments in this update establish a selling price hierarchy
for determining the selling price of a deliverable. The selling price used for
each deliverable will be based on vendor-specific objective evidence if
available, third-party evidence if vendor-specific objective evidence is not
available, or estimated selling price if neither vendor-specific objective
evidence nor third-party evidence is available. The amendments in this update
also will replace the term “fair value” in the revenue allocation guidance with
the term “selling price” in order to clarify that the allocation of revenue is
based on entity-specific assumptions rather than assumptions of a marketplace
participant. The amendments will also eliminate the residual method of
allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method. The relative selling price method allocates any discount in the
arrangement proportionally to each deliverable on the basis of each
deliverable’s selling price. The update will be effective for revenue
arrangements entered into or modified in fiscal year beginning on or after June
15, 2010 with earlier adoption permitted. The adoption of this standard is not
expected to have a material impact on the Company’s consolidated
financial statements.
|
3.
|
Referral
Fees Held in Trust and Trust
Liability
|
Pursuant
to service agreements, a portion of RE/MAX referral fees charged to the Company
will be payable to RE/MAX agents and will be paid into a Registered Retirement
Savings Plan ("RRSP") account on behalf of the respective agent, administered as
the RE/MAX Agent Retirement Plan by Manulife Financial. The aforementioned
referral fees to date have been deposited into a temporary in-trust account that
has signing officers from both the Company & RE/MAX, until the Manulife
Financial administered program is fully established for new entrants to the
program. It is expected that these funds will be deposited into the respective
agents' RRSP’s during 2010.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
4.
|
Equipment,
net
|
|
Net
Book Value
|
Net
Book Value
|
|||||||||||||||
|
Accumulated
|
December
31,
|
December
31,
|
||||||||||||||
|
Cost
|
Depreciation
|
2009
|
2008
|
|||||||||||||
|
Furniture
and equipment
|
$
|
175,338
|
$
|
92,217
|
$
|
83,121
|
$
|
87,936
|
||||||||
|
Computer
equipment
|
33,676
|
19,474
|
14,202
|
12,751
|
||||||||||||
|
Leasehold
improvements
|
19,533
|
9,921
|
9,612
|
11,497
|
||||||||||||
|
$
|
228,547
|
$
|
121,612
|
$
|
106,935
|
$
|
112,184
|
|||||||||
|
5.
|
Equipment
Under Capital Leases
|
|
2009
|
2008
|
|||||||
|
Computer
equipment
|
$ | 6,748 | $ | 5,819 | ||||
|
less:
accumulated depreciation
|
(4,780 | ) | (3,395 | ) | ||||
| $ | 1,968 | $ | 2,424 | |||||
The
equipment under the capital leases is depreciated on a 30% declining
balance.
|
6.
|
Bank
Indebtedness
|
On November 22, 2005, the Company
obtained a line of credit in the amount of $150,000 CDN. The line of credit
bears interest at Royal Bank of Canada's prime plus 0.5% per annum, and is
collaterized by a general security agreement in all assets except real
property. On November 20, 2008, the credit facility was
converted to a 24 month term loan whereby the Company pays principal of CDN
$6,250 per month plus interest at the Royal Bank of Canada prime plus 1.5% per
annum.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
7.
|
Accrued
Legal Judgment
|
On
October 27, 2006, Trisan Equitable Corporation (“Trisan”) commenced an action in
the Ontario Superior Court in Ontario, Canada against several parties including
MortgageBrokers.com Holdings, Inc. (the ``Company``) its subsidiary
MortgageBrokers.com Inc., and Alex Haditaghi, our principal shareholder, sole
director and chief executive officer and several corporate affiliates of Mr.
Haditaghi. The statement of claim filed by Trisan asserted a number
of claims in the aggregate amount of approximately CDN $1.4 million, arising out
of a loan agreement with Trisan dated January 27, 2005.
In
January 2007, the Company filed a statement of defense, cross claim and counter
claim in response to Trisan`s statement of claim. On October 3, 2007,
a partial summary judgment from the Ontario Superior Court was awarded to Trisan
regarding the matter in an aggregate amount of CDN $748,671 plus 500,000 shares
of our common stock. The October 3, 2007 partial summary judgment was
appealed by us but the judgment was upheld on appeal by the Ontario Court of
Appeal on March 31, 2008.
On July
8, 2009, a full and final settlement agreement was executed between Trisan and
the defendants including MortgageBrokers.com Holdings, Inc. and its subsidiary,
MortgageBrokers.com Inc., regarding the prior summary judgment awarded to Trisan
and all outstanding and related matters. The Agreement provides for a
mutual final and full release and discharge regarding the Company and our
subsidiaries for all matters up to and including July 8, 2009 related to the
original claim and action, counterclaim, judgment, and appeal between Trisan and
the Company and its subsidiaries. The Trisan settlement agreement
required a third party company, of which our Chief Executive Officer is a
related party, to be encumbered with a financial
arrangement. For the period ending December 31, 2009, the Company
recorded in the statement of operations a recovery of legal judgement in the
amount of $757,521.
The
settlement agreement does not provide for the payment of any monies, the
creation of any obligations or any encumbrances in favor of Trisan, by or upon
Mortgagebrokers.com Holdings Inc. or its subsidiary MortgageBrokers.com Inc.
other than the release of 500,000 shares of Mortgagebrokers.com Holdings Inc.
common stock which were issued in 2006 to Trisan related parties in
escrow. The company had accrued for this legal judgment plus interest
in 2007. Upon the settlement of this judgment, the Company
reversed the accrual and recorded a recovery to the statement of operations in
2009.
|
8.
|
Advances
from Related Party
|
As of
December 31, 2009, the controlling shareholder and Chief Executive Officer of
the Company had advanced $359,138 (2008 - $129,425) to fund the working capital
of the Company. The advances are unsecured, non-interest bearing and due on
demand.
|
9.
|
Employee
Tax Deductions Payable
|
The
Company is in arrears on the tax withholdings due to Canada Revenue Agency
(“CRA”) related to employee salaries. The Company has negotiated an
agreement with CRA which, if certain conditions are met, allows the Company to
pay down the balance in monthly payments of $5,000. In the event that
the Company secures funding, the balance is to be paid off in full shortly after
receipt of the funds. In addition, CRA has registered a Certificate in the
Canadian Federal Court and the Property Register of Ontario for the amount owing
to CRA. These afore-mentioned conditions are related to paying all ongoing
collected employee payroll tax deductions to CRA in a timely manner on a go
forward basis as well as communicating with CRA on a regular and ongoing basis
with respect to the Company’s financial condition via forwarding copies of our
quarterly and year end financial reports as well as keeping CRA informed with
respect to our efforts in securing financing. To date, the company
has maintained in good standing the terms of its agreement with CRA. The
liability currently bears interest at 9% annually.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
10.
|
Obligation
Under Capital Leases
|
The
obligation under capital leases bear interest at approximately 30% per annum.
Future minimum lease payments under the capital leases expiring December 31,
2009 together with the balance of the obligation under capital leases is as
follows:
| 2009 | 2008 | |||||||
|
2009
|
- | 2,212 | ||||||
|
Total
minimum lease payments
|
- | 2,212 | ||||||
|
Less:
amount representing interest at approx. 30%
|
- | (588 | ) | |||||
|
Total
obligation under capital leases
|
- | 1,624 | ||||||
|
Less:
current portion
|
- | (1,624 | ) | |||||
|
Long-term
portion
|
$ | - | $ | - | ||||
|
11.
|
Stock-based
Compensation Accrual
|
The
Company has accrued expenses for stock-based compensation:
|
a.
|
As
of December 31, 2009, the Company has accrued, as stock-based compensation
payable, 493,000(2008 – 377,838) common shares at a price of $0.04(2008 -
$0.11) per share for a total of $19,720 (2008 - $41,562) payable to the
parties referred to in note 18c(
ii).
|
|
b.
|
As
of December 31, 2009, the Company has accrued employee stock-based
compensation of 15,000 (2008- 628,611) common shares for a total of $1,650
( 2008 - $266,642) under its Equity Compensation Plan referred to in note
12. In December 2009, employees agreed to return and cancel all
previously issued stock and cancel all 2009 Employee stock
based compensation in regards to employee stock based compensation.
Employee stock based compensation is valued at the fair market value at
the date of grant. The stock certificates will be
returned to the company and will be cancelled subsequent to December 31,
2009. The employee stock based compensation included a recovery of stock
compensation expense of $669,928 and is netted against the 2009
expense of $ 404,935 on the statement of
operations.
|
|
c.
|
As
of December 31, 2009, the Company has accrued, as stock-based compensation
1,970,729 (December 31, 2008 – 1,134,242) common shares at a price of
$0.04 (December 31, 2008 - $0.11) per share for a total of $76,829 (2008 -
$124,767) payable to the parties referred to in note 18a, 18b and
18c.
|
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
12.
|
Capital
Stock
|
Preferred
Stock
The
Company has 5,000,000 shares authorized of preferred stock with a par value of
$0.0001. The Company has issued none of these shares as of December 31,
2009.
Common
Stock
On June
9, 2006, the Company completed an offering in which it issued a total of
2,112,470 shares of its common stock to accredited investors including RE/MAX
Ontario-Atlantic Canada Inc., its executives and franchisees, at a price per
unit of $1.00 for an aggregate offering price of $2,112,470. Purchasers of these
securities receive the following additional rights and privileges:
|
i.
|
the
purchaser received a warrant (1 warrant = 1 share) to further purchase up
to the total number shares of common stock purchased through the private
placement exercisable at a rate of 20% each year following the anniversary
date of the private placement closure. The warrants are exercisable at a
price 30% below the 30 day fair market price preceding the date such
warrants are exercised. Warrants expire if not exercised within 30 days of
such anniversary date;
|
The
following summarizes the warrants issued, outstanding, exercisable, expired and
exercised related to the company’s private placement that closed on June 9,
2006:
|
2009
|
2008
|
|||||||
|
Number
of Warrants Outstanding at Beginning of Period:
|
1,267,482
|
1,682,976
|
||||||
|
Number
of Warrants Exercised:
|
-
|
10,000
|
||||||
|
Warrants
Expired:
|
422,494
|
405,494
|
||||||
|
Number
of Warrants Outstanding at End of Period:
|
844,988
|
1,267,482
|
||||||
|
ii.
|
further,
pursuant to the execution of a service level agreement, on the anniversary
date of the private placement closure, the Company has agreed to issue a
number of shares of common stock equal to 25% of the number of common
shares purchased in the private placement for ten consecutive anniversary
dates. The receipt of such shares is dependent on the execution and
maintenance in good standing of the terms of a service level agreement for
each of the ten years. The service level agreement included the provisions
of marketing, servicing and promotional
services.
|
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
|
12.
|
Capital
Stock(cont’d)
|
The
following is a summary of stock-based compensation issuances associated with our
January 30, 2006 agreement with RE/MAX which was modified on May 25,
2006:
|
YEAR
|
Date
of Issue
|
Anniversary
Stock Issued
|
Price
|
Value
|
|||
|
2007
|
July
7, 2007
|
478,000
|
$
|
0.42
|
$
|
200,760
|
|
|
2008
|
September
11, 2008
|
490,000
|
$
|
0.11
|
$
|
53,955
|
|
|
Subtotal
|
968,000
|
||||||
Based
upon the sale of 2,112,470 shares in our placement which closed on
June 9, 2006, and pursuant to the January 30, 2006 agreement with
RE/MAX which was modified on May 25, 2006, a maximum number of 528,117 shares
could be issued each anniversary of the placement closing date for a total of
5,281,170 shares over 10 years. As at December 31, 2009, the Company
has issued 968,500 of these common shares. The issuance of the
anniversary shares is subject to the good standing of the RE/MAX January 30,
2006 and amended May 25, 2006 agreements for RE/MAX affiliates as well as the
continued good standing of a one year renewable service level agreement for the
RE/MAX Franchisee. The Company and RE/MAX terminated the agreement
June 9, 2009 and as such the obligation to issue anniversary shares following
this period has been removed from the Company.
The
potential issuance of the shares to the June 9, 2006 private placement offering
participants is accrued for quarterly and issued annually. The annual
issuances are recorded at the market value of the share on the date of
issuance.
On July
7, 2007, the Company issued 125,000 restricted (Rule 144) common shares at
a price of $1 per share and having similar rights and obligations pursuant to
the terms of the 2006 Private Placement offered to executives and franchisees of
RE/MAX Ontario-Atlantic Canada Inc. These shares rights were assigned
to the new subscribers by the initial subscribers of the 2006 Private
Placement. These shares were issued in anticipation of the initial
participants shares being cancelled. The shares were issued at $1.00 per
share, the offered price in the private placement which closed on June 9,
2006.
On
October 20, 2008, the Company issued 150,000 restricted (Rule 144) common shares
at a price of $0.29 per share, based on the market price at the subscription
date, and having similar rights and obligations pursuant to the terms of the
2006 Private Placement offered to executives and franchisees of RE/MAX
Ontario-Atlantic Canada Inc.
On
October 21, 2008, the Company issued 47,078 restricted (Rule 144) common shares
at a price of $0.28 per share, based on the market price at the subscription
date, and having similar rights and obligations pursuant to the terms of the
2006 Private Placement offered to executives and franchisees of RE/MAX
Ontario-Atlantic Canada Inc.
Equity
Compensation Plan
On
February 6, 2003 and as amended on February 14, 2003, the Company adopted the
2003 Equity Compensation Plan to attract and retain high quality personnel.
The adequacy of this plan is evaluated annually by Company management. As
of December 31, 2009, no options had been issued under this plan. The
disclosures made in the
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
the Consolidated Financial Statements
December
31, 2009 and 2008
|
12.
|
Capital
Stock(cont’d)
|
2005
Audited Financial Statements (10-KSB - Item 10. Executive Compensation) and the
`Amendment to License Agreement between RE/MAX and Mortgagebrokers.com
Holding Inc.' dated May 25, 2006 (8-K - Schedule `A' 1. Outstanding
Options) documenting the equity compensation of employees has not been
implemented as of December 31, 2009. The Company is currently in the
process of amending the existing employment agreements which are expected to be
executed in 2010. Until the new employment contracts have been formally and
legally executed, the existing employment contracts of the Company are still in
effect.
Service
Compensation Plan
On March
1, 2005 the Board of Directors approved the Service Compensation Plan ("the
Service Plan"), the purpose of which is to enhance the Company’s stockholder
value and maximize the available capital resources of the company through
allowing non monetary transactions whereby the issuance of stock is granted for
services rendered. This program is expected to support the Company in building a
long term sustainable revenue pipeline, a national sales agency and referral
program as well as provide incentive to service providers to establish long term
relationships with the Company and to encourage stock ownership by such
individuals by providing them with a means to acquire a proprietary interest in
the Company’s success through stock ownership. Under the Service Plan, service
providers, consultants, mortgage agents and strategic alliance partners who
provide services to the Company may be granted options or warrants to acquire
restricted stock of the Company. The total number of shares reserved for
issuance under the Service Plan is 5,000,000, the adequacy of which will be
evaluated annually.
Non
Monetary Transactions
The
following non monetary transactions were completed by the Company on a service
for stock basis. It is the Company’s accounting policy that in certain
circumstances, stock, generally valued at the 5 day moving average price of the
trading value of the stock at the time the associated agreement was executed,
might be issued for the procurement of assets, provision of advisory and other
services.
On February 5, 2008, the Company issued 50,000
restricted (Rule 144) common shares at
a price of $0.19 per share, the market close price on the date of issue,
for total amount of $9,550 to vFinance, Inc. based
on the execution of an investment banking service agreement. vFinance, Inc. is
an arm’s length third party consultant. vFinance Inc. provided advisory services
with respect to the review of financing term sheets and investment banking
matters.
On September 11, 2008, the Company issued 490,500
restricted (Rule 144) common shares
under the terms of its Mortgage Service Licence Agreement with RE/MAX
Ontario-Atlantic Canada Inc, and its franchisee and broker owners, all
third parties, that participated in the private
placement offering which closed on June 9, 2006. The shares were
issued at $0.11 per share, the market close share price on the date of
issue.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
12.
|
Capital
Stock (cont’d)
|
On September 11, 2008, the Company issued 3,272,500
shares of restricted (Rule 144) Company stock to its employees based upon draft
employment agreements that are expected to be executed by December 31,
2009. These shares have not been released and the release is pending
the finalizing and execution of employment agreements. These shares
were issued under the Company’s Equity Compensation Plan. The shares
were issued at $0.11 per share, the market close share price on the date
of issue. These shares will be returned back to
the company as further discussed in note 11.
On December 16, 2008, the Company issued 500,000 shares
of restricted (Rule 144) Company stock to a group of its mortgage agents based
upon agreements. These shares were issued under the Company’s Service
Compensation Plan. The shares were issued at $0.16 per share,
the market close share price on the date of issue.
|
13.
|
Additional
Paid-in Capital - Warrants
|
On June
9, 2006, accredited investors including RE/MAX Ontario-Atlantic Canada Inc., its
executives and franchisees purchased 2,112,470 units of the Company for
aggregate proceeds of $2,112,470 as a part of private placement. Each unit
consisted of one common share and one common share purchase warrant. The
warrants are exercisable at a price 30% below the 30 day fair market price
preceding the date such warrants are exercised. One-fifth of such warrants must
be exercised (executed to purchase shares) within 30 days following each
successive anniversary date of the private placement closing of the offering.
Warrants expire if not exercised within 30 days of such anniversary date. The
warrants were relatively valued at $732,605. The fair value of the warrants was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions: expected dividend yield of 0%, expected stock
volatility of 64.7%, risk-free interest rate of 4.00% and an expected warrant
life of 1 year. As of December 31, 2009, 233,078 of the
warrants were exercised at an average price of $0.28.
During
the year ended December 31, 2009, 422,494(2008-405,494) warrants
expired with a value of $146,520 (2008-$132,468) and have been allocated to
Additional Paid in Capital. As of December 31, 2009, 1,034,404 warrants have
expired, 233,078 warrants have been exercised and 844,988 warrants remain
outstanding and exercisable.
|
14.
|
Subscription
Receivable
|
On June
9, 2006, the Company completed an offering in which it issued a total of
2,112,470 shares of its common stock to accredited investors including
executives and franchisees of RE/MAX Ontario-Atlantic Canada Inc., at a price
per unit of $1.00 for an aggregate offering price of $2,112,470. Payment of
$1,870,169 was received during the year ended December 31, 2006 and promissory
notes were executed for the balance of $242,301. As of December 31
2009, $155,000 of the original promissory notes remains
outstanding. Due to the lack of fulfilling the terms of the
promissory notes, two of the original participants’ shares, for a total of
125,000 shares, are in the process of being cancelled. On September 30,
2008 two new participants subscribed for 125,000 shares under the private
placement and as of December 31, 2009, $60,000 of the new participants’
promissory notes have been paid and $65,000 remains
outstanding.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
14.
|
Subscription
Receivable (cont’d)
|
In
addition, as of December 31, 2008, 233,078 warrants issued under the private
placement were exercised for a total value of $64,786, see note
12. During the fourth quarter of 2008, the Company issued 197,078
shares in relation to the warrants exercised and paid. The un-issued warrants
exercised are included in subscription for stock in the equity section of the
balance sheet. As of December 31, 2008, $7,540 receivable on the exercise of the
warrants was outstanding and was included in subscriptions receivable in the
equity section of the balance sheet. The shares underlying some of
the warrants have not been issued to date due to non receipt of payment from the
exerciser of the warrant.
As of
December 31, 2009, the balance owing of the subscription receivable and
subscription for stock was written off and the balance was allocated
back to Additional Paid in Capital, Additional Paid in Capital-Warrants and
subscriptions receivable. The share certificates will be cancelled
subsequent to December 31, 2009.
|
15.
|
Treasury
Stock
|
During
2007, the Company acquired 12,500 common shares of the Company, on the open
market, at an average price of $0.60 per share for a total of
$7,455. In 2006, the Company acquired 31,600 common shares of the
Company, on the open market, at an average value of $0.56 per common share, for
a total of $17,779.
|
16.
|
Occupancy
Costs - Related Party
|
On August
1, 2007, the Company’s current office space was sold to a related party of the
Chief Executive Officer, the Company`s majority shareholder. The Company’s lease
agreement obligation was extended from two to five years. Please see
note 18(f) for further details.
|
17.
|
Income
Taxes
|
The
Company has paid no federal, state or provincial income taxes. As of December
31, 2009, the Company had net operating loss carry forwards for federal income
tax reporting purposes of $3,991,587 which, if unused, will expire in various
years. The tax effect of the operating loss carry forwards and temporary
differences at December 31, 2009 and 2008 are as follows:
|
2009
|
2008
|
|||||||
|
Deferred
Income Tax Assets:
|
||||||||
|
Net
Operating loss carry forward
|
$
|
1,317,224
|
$
|
1,500,053
|
||||
|
Net
book value and tax value differences
|
(34,392)
|
(35,434
|
)
|
|||||
|
Valuation
allowance for deferred income tax assets
|
(1,282,832)
|
(1,464,619
|
)
|
|||||
|
Total
deferred tax effect
|
$
|
-
|
$
|
-
|
||||
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
17.
|
Income
Taxes (Cont’d)
|
The
following is a reconciliation of the income tax benefit computed using the
combined Canadian federal and provincial statutory rate of 33% (2008 - 34%) rate
to the provision for income taxes:
|
2009
|
2008
|
|||||||
|
Deferred
Tax Provision:
|
||||||||
|
Expected
income tax (expense) benefit
|
$
|
(285,014
|
) |
$
|
171,386
|
|||
|
Legal
judgement
|
249,902
|
-
|
||||||
|
Stock
based compensation
|
110,475
|
|
(217,495
|
) | ||||
|
Valuation
allowance
|
75,443
|
(46,109
|
) | |||||
|
Provision
for income taxes
|
$
|
-
|
$
|
-
|
||||
|
Current
Tax Provision:
|
||||||||
|
Federal and Provincial income tax
|
$
|
-
|
$
|
-
|
||||
Due to
the losses incurred since inception and expected future operating results,
management has determined that the Company does not meet the 'more likely than
not' criteria that the deferred tax assets resulting from the tax losses
available for carry forward and the differences in tax bases of assets will be
realized through the reduction of future income tax payments, accordingly a 100%
valuation allowance has been recorded for deferred income tax
assets.
Effective
January 1, 2007, we adopted the provisions of FASB Accounting Standards
Codification Topic 740, Accounting for Uncertainty in Income
Taxes. ASC 740 clarifies the accounting for uncertainty in income
taxes recognized in an enterprise's financial statements. The standard
prescribes a recognition and measurement method for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The standard also provides guidance on recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. We consider many factors when evaluating and estimating
our tax positions and tax benefits, which may require periodic adjustments and
which may not accurately forecast actual outcomes.
Based on a review of our tax positions,
the Company was not required to record a liability for unrecognized tax benefits
as a result of adopting ASC 740 on January 1, 2007. Further, there
has been no change during the years ended December 31, 2009 and
2008. Accordingly, we have not accrued any interest and penalties
through December 31, 2009.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
18.
|
Commitments
and Contingencies
|
Commitments
The
Company has entered into agreements with various parties, whereby the Company is
committed to issue compensatory warrants and stock as part of the “Service
Compensation Plan” to mortgage agents and strategic alliance
partners.
The
effective date (“Effective Date”), when mentioned below, is the date the
independent mortgage agent entered into a Mortgage Agent Agreement with the
Company; or, is the date the RE/MAX Ontario-Atlantic Canada Inc. (“RE/MAX”) or
Maxwell Realty Inc. (“Maxwell”) Franchisee entered into a Service Level
Agreement with the Company and is also the date that the strike price (“Strike
Price”) of the warrants is established. The strike price is the greater of $1
per share or the twenty day average closing price following the Effective
Date.
Since the
conversion ratio of dollar value of warrants into shares is fixed, but the share
price fluctuates, the accrual to expense the value of the warrants earned by the
mortgage agents and strategic alliance partners will fluctuate with the share
price at the end of each period.
The
Company has entered into agreements with the following parties:
a) Independent
Mortgage Agents/Loan Officers
Pursuant
to a 5 year Mortgage Agent Agreement, the Company is committed to issuing
warrants, at no cost, for common stock of the Company in two series to mortgage
agents licensed with the Company based on their annual mortgage origination
sales volume, which are summarized as follows based on current
formulae:
Series I
Warrants
|
“Average
Volume”:
|
defined
as the average best three out of five years in funded mortgage origination
volume
|
|
Number
of Warrants:
|
$8,257
worth of warrants divided by the Strike Price, per CDN $10 million in
Average Volume, adjusted on a pro rata basis, no minimum or maximum
thresholds. The warrants are convertible in common shares on a 1:1
basis.
|
|
Earnings
Period:
|
Series
I warrants are earned in the first 5 years following the Effective
Date;
|
|
Additional
Vestment:
|
all
SERIES I warrants are fully vested on the 5th anniversary of the Effective
Date
|
||
|
Determination
Date:
|
5
year anniversary of Effective Date
|
||
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
18.
|
Commitments
and Contingencies (Cont’d)
|
Series II
Warrants
|
“Annual
Volume”:
|
defined
as the total mortgage origination volume executed per 12 month period
following the Effective Date and subsequent 12 month periods following the
anniversary dates of the Effective
Date
|
|
Number
of Warrants:
|
$1,651
worth of warrants divided by the Strike Price per CDN $10 million in
Annual Volume, adjusted on a pro rata basis, no minimum or maximum
thresholds. The warrants are convertible in common shares on a 1:1
basis.
|
|
Earnings
Period:
|
Series
II warrants are earned in the first 5 years following the Effective
Date
|
|
Additional
Vestment:
|
All
SERIES II Warrants fully vest 3 years following the Determination
Date
|
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
18.
|
Commitments
and Contingencies (Cont’d)
|
b) Maxwell
Realty Inc.
Per a
three year renewable agreement dated April 12, 2006 and pursuant to the
execution of a service level agreement by the Maxwell Franchisee, the
Company is committed to issuing to Maxwell at no cost, warrants for common stock
of the Company based on referrals leading to funded mortgage origination volume.
The Maxwell Warrant-Based Compensation Program, which issue warrants (“SERIES
III Warrants”) that are divided amongst the Maxwell Franchisor, Franchisee and
referring Sales Agent.
|
Annual
Volume:
|
defined
as the total funded mortgage origination volume from Maxwell lead referral
executed per 12 month period following the Effective Date and subsequent
12 month periods following the anniversary dates of the Effective
Date
|
|
Number
of Warrants:
|
$3,000
worth of warrants divided by the Strike Price per CDN $10 million in
Annual Volume, adjusted on a pro rata basis, no minimum or maximum
thresholds. The warrants are convertible in common shares on a 1:1
basis.
|
|
Earnings
Period:
|
Series
III warrants are earned in the first 5 years following the Effective
Date
|
|
Additional
Vestment:
|
SERIES
III warrants are fully vested on the fifth anniversary of the Effective
Date
|
c) REMAX
The REMAX
agreement was cancelled June 2009 and the following commitments are no longer
applicable after June 30, 2009.
|
i)
|
Pursuant
to a ten year licensing agreement dated January 30, 2006 and amended May
25, 2006, and pursuant to the execution of a one year renewable service
level agreement by the RE/MAX Franchisee, the Company is committed to
issuing to RE/MAX at no cost, warrants for common stock of the Company
based on referrals leading to funded mortgage origination volume. The
RE/MAX Warrant-Based Compensation Program issues warrants (“SERIES IV
Warrants”) as follows based on current
formulae:
|
|
Annual
Volume:
|
defined
as the total funded mortgage origination volume from RE/MAX lead referral
executed per 12 month period following the Effective Date and subsequent
12 month periods following the anniversary dates of the Effective
Date
|
|
|
|
Number
of Warrants:
|
$3,000
worth of warrants divided by the Strike Price per $10 million dollars CDN
in Annual Volume, adjusted on a pro rata basis, no minimum or maximum
thresholds. The warrants are convertible in common shares on a 1:1
basis.
|
|
Additional
Vestment:
|
SERIES
IV warrants are fully vested on the 5th anniversary of the Effective
Date
|
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements
December
31, 2009 and 2008
|
18.
|
Commitments
and Contingencies (Cont’d)
|
|
Earnings
Period:
|
Series
IV warrants are earned in the first 3 years following the Effective
Date
|
|
ii)
|
Pursuant
to the ten year licensing agreement dated January 30, 2006 and amended May
25, 2006, the Company has committed to issuing, at no cost, an aggregate
of 528,118 common shares of the Company on each of the 10 year anniversary
dates of the licensing agreement to those RE/MAX executives and
franchisees that participated in the company’s private placement which
closed on June 9, 2006.
|
d) The
Company has the signed lease agreements for computer and office equipment.
Committed annual payments are as follows:
|
2010
|
$
|
5,506
|
||
|
2011
|
$
|
3,920
|
||
|
2012
|
$
|
3,467
|
||
e) On
February 8, 2007, the Company entered into a lease to rent office space in
Calgary, Alberta, Canada for maintaining the Company's western Canada
operations. The agreement is effective commencing May 1, 2007 for a five year
term.
Annual
minimum lease payments (excluding utilities, taxes and common area maintenance
expenses) are as follows:
|
2010
|
$
|
8,341
|
||
|
2011
|
$
|
10,010
|
||
|
2012
|
$
|
3,337
|
f) On
March 27, 2007, the Company entered into a lease to rent office space in
Concord, Ontario, Canada for maintaining the Company's Canadian head
office. The agreement is effective commencing April 1,
2007 for a five year term.
Annual
minimum lease payments (excluding utilities, taxes and common area maintenance
expenses) are as follows:
|
2010
|
$
|
100,302
|
||
|
2011
|
$
|
100,302
|
||
|
2012
|
$
|
100,302
|
||
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
the Condensed Consolidated Financial Statements
December
31, 2009 and 2008
|
18.
|
Commitments
and Contingencies (Cont’d)
|
g) In
October 2009, the Company entered into a lease in Glace Bay, Nova Scotia, for
maintaining the Company’s Atlantic Canada offices and records. The
lease agreement was effective November 1, 2009 for a one year
term. Committed annual payments for 2010 amounts to
$2,840.
h) Contingencies
The
Company is party to various other claims and proceedings arising in the normal
course of business. Management does not expect the disposition of
these matters to have a material adverse effect on the Company’s results of
operations or financial condition.
i) Management
is of the opinion that employee stock based compensation accrued under an
employment contract is no longer owing to an employee who has left the
company. As at December 31, 2009, shares were potentially owing to
employees who have left the company under employment contracts where the
employees have not signed final releases of any amounts owing. These
common shares have not been accrued in these consolidated financial statements
as there ultimate issuance is not determinable.
|
19.
|
Earnings
or Loss Per Share
|
The
Company calculates basic earnings per common share using net income divided by
the weighted-average number of common shares outstanding. The Company calculates
diluted earnings per common share in the same manner as basic, except we use the
weighted-average number of diluted common shares outstanding in the denominator,
when the stock options and warrants are not anti-dilutive.
|
|
2009
|
2008
|
||||||
|
Weighted
average number of common shares outstanding
|
42,976,548
|
39,713,425
|
||||||
|
Warrants
|
844,988
|
1,267,482
|
||||||
|
Stock
Based Compensation payable (RE/MAX)
|
493,000
|
377,838
|
||||||
|
Stock
Based Compensation payable (Other)
|
1,970,729
|
1,134,242
|
||||||
|
Stock
Based Compensation payable (Employee)
|
15,000
|
628,611
|
||||||
|
Weighted-average
number of diluted common shares outstanding
|
46,300,265
|
43,121,598
|
||||||
|
20.
|
Comparative
Figures
|
Certain
figures for the period have been reclassified to conform to the current period’s
financial statement presentation.
MORTGAGEBROKERS.COM
HOLDINGS, INC. AND SUBSIDIARIES
Notes to
the Condensed Consolidated Financial Statements
December
31, 2009 and 2008
|
21.
|
Restatement
of Previously Issued Consolidated Financial
Statements
|
A
) The Company has determined that its accounting treatment of
employee stock based compensation was not in accordance with ASC
718. As a result, the company has decided to adjust its accounting
policy to reflect the fair market value of the employee stock based compensation
at the date of grant per ASC 718. As a result, the Company has
restated its 2008 fiscal year.
B) The
Company has determined that its accounting treatment of employee vacation pay
was not consistent with its stated vacation pay accounting policy. As
a result, the Company has restated its 2008 fiscal year.
All
stock compensation expenses, accounts payable, accumulated deficit and stock
compensations accruals which were recorded prior to 2008 have been adjusted as
at January 1, 2008. The adjustment to accumulated deficit as at
January 1, 2008 was $1,091,726 with a $495,675 adjustment to accumulated
additional paid in capital for a net adjustment to total shareholders’ deficit
of $595,051. The effect on the consolidated balance sheet,
consolidated statement of operations and comprehensive loss and consolidated
statement of cash flows for the year ended December 31, 2008 is as
follows:
|
Consolidated
Balance sheet
|
As
reported
|
As
restated
|
Adjustment
|
|||||||||
|
Accounts
Payable
|
$ | 1,948,009 | $ | 1,918,178 | $ | (29,831 | ) | |||||
|
Employee
stock based compensation accrual
|
143,779 | 266,642 | 122,863 | |||||||||
|
Additional
Paid-in-Capital
|
4,116,807 | 5,923,372 | 1,806,565 | |||||||||
|
Accumulated
Deficit
|
(5,818,394 | ) | (7,767,546 | ) | ( 1,949,152 | ) | ||||||
|
Accumulated
Other Comprehensive Income
|
163,852 | 213,407 | 49,555 | |||||||||
|
Consolidated
Statement of Operations and Comprehensive Income(Loss)
|
||||||||||||
|
Employee
stock based compensation expense
|
(153,506 | ) | 684,197 | 837,703 | ||||||||
|
Net
Income(Loss)
|
338,074 | (519,352 | ) | (857,426 | ) | |||||||
|
Salaries
and benefits
|
1,166,935 | 1,186,658 | 19,723 | |||||||||
|
Foreign
Currency Translation Adjustment
|
196,861 | 246,416 | 49,555 | |||||||||
|
Net
Income(Loss) per share-basic
|
0.01 | (0.01 | ) | (0.02 | ) | |||||||
|
Net
Income(Loss) per share-diluted
|
0.01 | (0.01 | ) | (0.02 | ) | |||||||
|
Consolidated
Statement of Cash Flows
|
||||||||||||
|
Net
Income(Loss)
|
338,074 | (519,352 | ) | (857,426 | ) | |||||||
|
Employee
stock based compensation
|
(153,506 | ) | 684,197 | 837,703 | ||||||||
|
Accounts
Payable
|
74,064 | 44,233 | (29,831 | ) | ||||||||
|
Effect
of exchange rates on cash and cash equivalents
|
193,789 | 264,839 | 71,050 | |||||||||
|
22.
|
Subsequent
Events
|
Subsequent
to December 31, 2009, the Company received signed agreements from various
employees agreeing to cancel 4,085,000 common shares for Nil consideration and
to terminate any past and future stock-based compensation accrual arrangements
without further consideration. The cancellation of the common shares
will not have a material affect on the consolidated financial statements as the
cancelled common shares will be recorded as a charge against the Additional
Paid-in Capital when the cancellation occurs.
-F28-