Attached files
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| EX-31.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - MOPALS.COM, INC. | f10q0910ex32i_mortgagebrk.htm |
| EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - MOPALS.COM, INC. | f10q0910ex31i_mortgagebrk.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 10-Q
______________________________
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File #333-105778
MORTGAGEBROKERS.COM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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05-0554486
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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First Canadian Place, P.O. Box 410, Suite 5310, Toronto, Ontario, M5X 1E3
(Address of principal executive offices and zip code)
Registrant’s telephone number, including area code: (877) 410-4848
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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No 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):
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Large accelerated filer
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Accelerated filer
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o
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Non-accelerated filer
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o
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
Yes o No x
Indicate the number of shares outstanding of the Registrant’s common stock as of the latest practicable date.
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Class
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Outstanding at November 18, 2010
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Common Stock, $.0001 par value
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42,939,099
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TABLE OF CONTENTS
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Item 1.
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Financial Statements
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Item 2.
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Management’s Discussion and Analysis of Financial Condition
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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Item 4T.
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Control and Procedures
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PART II-- OTHER INFORMATION
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Item 1
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Legal Proceedings
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Item 1A
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Risk Factors
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3.
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Defaults Upon Senior Securities
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Item 4.
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(Removed and Reserved)
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Item 5.
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Other Information
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Item 6.
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Exhibits
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SIGNATURE
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Basis of Presentation
The accompanying condensed and consolidated statements are presented in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring adjustments) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the nine months ended September 30, 2010 are not necessarily indicative of results that may be expected for the year ending December 31, 2010.
The financial statements of the Company appear at the end of this report beginning with the Index to Financial Statements on page F-1 and ending on F-16.
1
ITEM 2. 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 periods ending September 30, 2010 and 2009. The following information should be read in conjunction with the consolidated financial statements for the periods ending September 30, 2010 and notes thereto appearing elsewhere in this Form 10-Q.
Overview
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 our name of to MortgageBrokers.com Holdings, Inc.
Over the past three year period, sales and 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, Saskatchewan and Alberta;
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3.
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MBKR Holdings Inc., - a Canadian federally incorporated company, incorporated on November 24, 2008 for the intended centralization of back office services in Canada; and,
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4.
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MBKR Franchising Inc., - a Canadian federally incorporated company, incorporated on January 30, 2009 through which the Company is a mortgage brokerage franchisor selling the MortgageBrokers.com business system in Canada.
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As at September 30, 2010, we had 434 licensed mortgage agents operating across Canada. As at September 30, 2010, we had 12 full-time employees and 1 full-time contract staff for a total of 13 full-time staff.
Our corporate offices recently moved to First Canadian Place, P.O. Box 410, Suite 5310, Toronto, Ontario, M5X 1E3. 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. We also have regional offices in Mississauga - Ontario, Calgary - Alberta, and Glace Bay - Nova Scotia, Canada.
Results of Operations
Three months ended September 30, 2010 compared to three months ended September 30, 2009
Reported gross revenue in our third quarter decreased by approximately 27% in 2010, as compared to that of 2009, to $3,692,919. This relative trend is generally attributed, in large part, to the net effect of:
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Ø
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a general increase of approximately 5.6% in foreign exchange over the period in 2010 from our comparative in 2009 that we were exposed to as all of our operations are currently in Canada;
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Ø
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the loss of a large mortgage origination agent team, at the time representing approximately 29% of our national book of business, early in our first quarter of 2010; and
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Ø
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the organic growth of our book of business and increases due to ongoing recruitment efforts.
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We experienced no significant revenue trend changes within the period as compared to the comparable period in 2009 with respect to geographic variations in margin or the absolute amounts of lender’s commissions. Quarter over quarter, we experienced typical seasonal fluctuations where, based on historical averages, the first quarter of the year typically represents 17% of our annual sales, the second quarter typically represents 24%, the third quarter typically represents 32% and the fourth quarter typically represents 27%.
We reported operating expenses during the period decreased by approximately 15% as compared to that of 2009, to $3,721,287. Like revenue, the consolidated comparative decrease in total operating expenses is also affected by a 5.6 % increase in average value of the Canadian dollar (where all of our operations take place) as compared to the United States dollar (what we report in for filing purposes) from our third quarter in 2009 to that of 2010. The primary components that comprise our operating expenses and contribute to this trend are stock-based compensation, recovery of a legal judgement accrual, agent commissions, salaries and benefits and general and administrative expenses:
2
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·
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Management cancelled the employee stock-based compensation program in the fourth quarter 2009 and there were no employee stock-based compensation expenses accrued for in the third quarter of 2010, as compared to a $147,308 charge accrued in 2009.
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·
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On October 27, 2006, Trisan Equitable Corporation (“Trisan”) commenced an action in the Ontario Superior Court in Ontario, Canada against several parties including the `Company, its subsidiary MortgageBrokers.com Inc., and Alex Haditaghi, our principal shareholder, sole director and chief executive officer. 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. Our balance sheet as at June 30, 2009, reflected an accrual of $644,018 (CDN$748,671) plus interest of $99,818 (CDN$116,039) related to the Trisan legal judgment. 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 settlement agreement did 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. As a result, the Company reported a negative charge, in the amount of $739,258 during the comparable reporting period in 2009, to reverse the accrued legal judgement expenses. Removing the recovery of accrued legal judgement expenses, an item that skews the Company’s expense analysis for comparison analysis, the Company’s reported operating expenses during the period decreased by approximately 25% as compared to that of 2009.
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·
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86% of the operating expenses in the reporting period were associated with agent commissions. Reported agent commission fees in the reporting period, as a percent of revenue, were flat for 2010 as compared to that of 2009. Actual commission fee expenses decreased 27% from the same period in 2009 to 2010, associated in part to the net effect of an approximately 5.6% increase in foreign exchange between periods and the loss of a sizeable mortgage agent team in the first quarter of 2010. This is congruent with observed top-line revenue trends (as in general, the company is a 90/10 commission split organization and total revenue decreased by 27%).
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7.6% of the operating expenses in the reporting period were associated with salaries and benefits. Reported salaries and benefits decreased by 17% for 2010 as compared to that of 2009 associated with strategic staffing reductions.
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4% of our operating expenses in the reporting period were associated with general and administrative expenses. General and administrative expenses increased 9% to $161,054 in 2010 as compared to that of 2009. This increase was primarily associated with errors and omission insurance expense and agent recovery timing differences between 2009 and 2010.
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Nine months ended September 30, 2010 compared to nine months ended September 30, 2009
Reported gross revenue in our first nine months decreased by approximately 6% in 2010, as compared to that of 2009, to $11,291,909. This relative trend is generally attributed, in large part, to the net effect of:
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Ø
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a general increase of approximately 13% in foreign exchange over the period in 2010 from our comparative in 2009 that we were was exposed to as all of our operations are currently in Canada;
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Ø
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the loss of a large mortgage origination agent team, at the time representing approximately 29% of our national book of business, early in our first quarter of 2010; and
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Ø
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the organic growth of our book of business and increases due to ongoing recruitment efforts.
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We experienced no significant revenue trend changes within the period as compared to the comparable period in 2009 with respect to geographic variations in margin or the absolute amounts of lender’s commissions. Quarter over quarter, we experienced typical seasonal fluctuations where, based on historical averages, the first quarter of the year typically represents 17% of our annual sales, the second quarter typically represents 24%, the third quarter typically represents 32% and the fourth quarter typically represents 27%.
We reported operating expenses during our first nine months of 2010 as being flat as compared to the same period in 2009. Like revenue, the consolidated comparative increase in total operating expenses is also affected by a 13 % increase in average value of the Canadian dollar (where all of our operations take place) as compared to the United States dollar (what we report in for filing purposes) from our first nine months in 2009 to that of 2010. In Canadian dollars, reported total operating expenses in the first nine months of 2010 as compared to that of 2009 decreased by 12%. The primary components that comprise our operating expenses and contribute to this trend are agent commissions, salaries and benefits and general and administrative expenses:
3
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·
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83% of the operating expenses in our first nine months of 2010 were associated with agent commissions. Reported agent commission fees as a percent of revenue was relatively flat from the first nine of 2009 as compared to that of 2010. In consideration of the increase in the foreign exchange rate between the periods of approximately 13% (all of our operations are in Canada while we report in USD), actual commission fee expenses in Canadian dollars decreased 17% from the same period in 2009 as compared to in our first nine months of 2010, associated, in part, with the loss of a mortgage agent team early in the first quarter of 2010. This is congruent with observed top-line revenue trends (as in general, the company is a 90/10 commission split organization and total revenue decreased by 17% in Canadian dollars).
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9% of the operating expenses in the first nine months of 2010 were associated with salaries and benefits. Reported salaries and benefits decreased by 14% for 2010 as compared to that of 2009 associated with strategic staffing reductions.
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8% of our operating expenses in the first nine months of 2010 were associated with general and administrative expenses. General and administrative expenses increased 73% from the first nine months of 2009 to $868,922 in 2010. This increase was associated primarily with our incurring additional legal expenses during the first nine months of 2010, errors and omission insurance expense and agent recovery timing differences between 2009 and 2010 and an increase in business development and marketing costs in 2010 over 2009.
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Liquidity and Capital Resources
At September 30, 2010, we had $1,230,067 in cash, $37,913 in prepaid expenses, $86,341 in equipment and equipment under capital leases for a total of $1,354,321 in assets. Comparatively as at December 31, 2009, we had $2,012,964 in cash; $2,767 of referral fees held in trust, $19,236 in prepaid expenses, $108,903 in equipment and equipment under capital leases a total of $2,143,870 in assets.
At September 30, 2010, we had $1,469,362 in accounts payable and accrued liabilities, $236,481 in employee tax deductions payable, $338,027 in loans payable to a related party, $74,037 in accrued stock-based compensation and $12,148 in bank indebtedness related to an unsecured term loan for a total of $2,130,055 in liabilities. Comparatively as at December 31, 2009 at the beginning of the reporting period, the Company had $1,987,786 in accounts payable and accrued liabilities, $219,759 in employee tax deductions payable, $359,138 in loans payable to a related party, $98,199 in accrued stock-based compensation, $65,104 in bank indebtedness related to an unsecured term loan and $2,767 in trust liability associated with agent referral commissions payable awaiting transfer pending the completion of associated administration for a total of $2,732,753 in liabilities.
Management makes the following comments regarding the most significant factors affecting Company liquidity and capital resources and their measured trends over the reporting period:
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Over the first nine months of 2010, there were nominal foreign exchange differences in the price of the Canadian dollar (that we were exposed to as all of our operations are currently in Canada) as compared to the US dollar ( what we report in on a consolidated basis). From December 31, 2009 (0.9515) to September 30, 2010 (0.9718), the value of the Canadian dollar increased by 2.1% relative to the US dollar with an average over the period of 0.9653 relative to the US dollar.
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Cash decreased by 39% or $782,897 over the first nine months of 2010 primarily associated with the following:
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o
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we lost $746,900 in cash from operating activities over the first nine months of 2010 as the first quarter of the year is seasonally the slowest, there was a general decrease in revenue associated with a loss of an origination team early in the first quarter and we incurred additional legal fees associated with the departure of this origination team;
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we lost $79,435 in cash from financing activities over the first nine months of 2010 as we paid down a shareholder loan ($25,134) and a bank loan ($54,301); and,
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o
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we had an increase in foreign exchange balances of $43,854 over the period.
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Accounts payable decreased by 26% over the reporting period. The bulk of this payable amount is work in progress payable following completion of mortgage agent origination compliance procedures. Work in progress payable is lower over the reporting period matching a decrease in mortgage originations associated with the loss of one of our larger mortgage agent teams early in the first quarter of 2010 as previously reported. Work in progress mortgage agent commissions payable are typically outstanding for 10 business days.
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4
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We are is in arrears on the tax withholdings due to Canada Revenue Agency (“CRA”) related to employee salaries. As at the end of the reporting period, the company had a tax liability with CRA of $236,481. CRA has registered a Certificate in the Canadian Federal Court and the Property Register of Ontario for the amount owing to CRA against one of our Canadian subsidiaries. Currently the company has an arrangement with CRA whereby we make payments on this outstanding amount decreasing both principle and interest monthly. The liability currently bears interest at 9% annually.
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Bank indebtedness decreased by 81% as we continue to pay down our loan facility with a lender. At September 30, 2010, there was a reported outstanding balance of $12,148.
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We reported a net loss from operations for the first nine months of 2010 of $175,833 with a net decrease in cash from operating, investing and financing activities of $826,751 during the same period. If we grow our mortgage agent book of business and the associated commission fees above current levels while continuing to manage our expenses within existing envelopes, we expect to achieve consistent positive earnings from operations and should have adequate working capital for the near future to fund normal operations. In the event that we grow beyond our available working capital resources, experience unforeseen impacts to cash flow, or experience a prolonged market down turn, we will need to rely upon the issuance of common stock and additional capital contributions from shareholders and/or loans from shareholders and third-party lenders to meet our working capital needs.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
Revenue Recognition
Revenue consists of mortgage brokerage fees, finders’ fees and insurance commissions. The revenues from brokerage fees and finders’ fees are recognized after the funding of a customer’s mortgage and when the collection of brokerage or finders fees is reasonably assured which typically occurs when the fees are advanced from the lender. Insurance commission revenues are recognized when collection is reasonably assured which typically occurs when the insurance commission fees from the insurance provider are advanced.
Share-based Payment
The Company adopted the disclosure requirements of SFAS No. 123R, "Share-Based Payment" ("SFAS No. 123R" and now codified as “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 SFAS No. 123R or 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. SFAS No. 123R or 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 to the audited 2009 financial statements.
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 nine months reporting period ended September 30, 2010, the Company reported a net loss from operations of $175,833 with a net decrease in cash from operating, investing and financing activities of $826,751 during the same period. Certain conditions noted below raise doubt about the Company’s ability to continue as a going concern.
5
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 continue to achieve profitable operations. Management’s plan is to increase gross revenue by expanding the sales force. In addition, management plans to carefully manage expenses and capital investments related to scalability, to establish sustainable operational profitability through our growth and to secure additional funds through future debt or equity financings. Management is also examining various restructuring options that might reduce our cost structure. Current economic conditions may impact our ability to recruit mortgage agents or may result in changes by lenders to our commission fee schedules, both of which would have a negative impact on our revenue growth. As our mortgage agent teams develop and grow, they may have additional leverage with the Company to request an increase in their proportionate share of commission fees which would result in decreased gross margins for the Company. Also, financing 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 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.
Off-Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.
ITEM 4T. CONTROLS AND PROCEDURES
Disclosure controls and procedures
Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our 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)), as of the end of such period, are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
There have been no significant changes in our internal controls over financial reporting during the first nine months ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
This Quarterly Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Quarterly Report.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
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Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the Company; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the company's assets that could have a material effect on the financial statements.
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Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2010. In making this assessment, our management used the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various 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 1A. RISK FACTORS
Not Applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4: (REMOVED AND RESERVED)
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS
(a) Exhibits
31.1 Certification of the CEO and CFO Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
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.
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MORTGAGEBROKERS.COM HOLDINGS, INC.
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By: /s/ Alex Haditaghi
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Alex Haditaghi
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Principal Executive Officer,
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Principal Accounting Officer,
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President, Secretary and Director
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Dated: November 18, 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.
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NAME
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TITLE
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DATE
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/s/ Alex Haditaghi
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President, Secretary and Director
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November 18, 2010
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Alex Haditaghi
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9
 MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
UNAUDITED
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MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSDED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
SEPTEMBER 30, 2010 AND 2009
CONTENTS
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Condensed Consolidated Interim Balance Sheet
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F2
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Condensed Consolidated Interim Statements of Operations and Comprehensive (Loss) Income
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F3
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Condensed Consolidated Interim Statements of Cash Flows
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F4
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Notes to Condensed Consolidated Interim Financial Statements
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F5-16
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F-1
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Balance Sheet
September 30, 2010 and December 31, 2009
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September 30,
2010
(Unaudited)
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December 31,
2009
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ASSETS
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Current Assets
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Cash
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$
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1,230,067
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$
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2,012,964
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Referral fees held in trust – restricted(note 3)
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-
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2,767
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Prepaid expenses
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37,913
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19,236
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Total Current Assets
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1,267,980
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2,034,967
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Equipment, net (note 4)
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84,776
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106,935
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Equipment Under Capital Leases (note 5)
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1,565
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1,968
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Total Assets
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$
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1,354,321
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$
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2,143,870
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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Current Liabilities
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Bank indebtedness – current portion (note 6)
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$
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12,148
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$
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65,104
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Accounts payable and accrued liabilities
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1,469,362
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1,987,786
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Advances from related party – current portion (note 7)
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338,027
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359,138
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Trust liability (note 3)
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-
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2,767
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Employee tax deductions payable (note 8)
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236,481
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219,759
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Stock-based compensation accrual - current portion (note 9a)
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14,790
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19,720
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||||||
|
Employee stock-based compensation accrual (note 9b)
|
1,650
|
1,650
|
||||||
|
Total Current Liabilities
|
2,072,458
|
2,655,924
|
||||||
|
Stock-based Compensation Accrual (note 9c)
|
57,597
|
76,829
|
||||||
|
Total Liabilities
|
2,130,055
|
2,732,753
|
||||||
|
Commitments and Contingencies (notes 1 and 14)
|
||||||||
|
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; 42,939,099 (2009: 42,976,548) issued and
outstanding (note 10)
|
4,298
|
4,298
|
||||||
|
Additional Paid-in Capital
|
6,018,171
|
5,858,352
|
||||||
|
Additional Paid-in Capital - Warrants (note 11)
|
175,363
|
335,183
|
||||||
|
Subscription (Cancellation) of Stock
|
(220
|
)
|
(220
|
)
|
||||
|
Treasury Stock (note 12)
|
(27,285
|
)
|
(25,234
|
)
|
||||
|
Accumulated Other Comprehensive Income
|
133,639
|
142,605
|
||||||
|
Accumulated Deficit
|
(7,079,700)
|
(6,903,867
|
)
|
|||||
|
Total Stockholders' Deficit
|
(775,734
|
)
|
(588,883
|
)
|
||||
|
Total Liabilities and Stockholders' Deficit
|
$
|
1,354,321
|
$
|
2,143,870
|
||||
(The accompanying notes are an integral part of these condensed consolidated interim financial statements.)
F-2
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Statements of Operations and Comprehensive (Loss) Income
For the Three and Nine Months Ended September 30, 2010 and 2009
Unaudited
|
Nine
Months
Ended
2010
|
Nine Months
Ended
2009
|
Three
Months
Ended
2010
|
Three
Months
Ended
2009
|
|||||||||||||
|
(Restated-
Note 18)
|
(Restated-
Note 18)
|
|||||||||||||||
|
Revenues
|
$
|
11,291,909
|
$
|
12,022,101
|
3,692,919
|
$
|
5,024,799
|
|||||||||
|
Expenses
|
||||||||||||||||
|
Commission and agent fees
|
9,494,108
|
10,157,206
|
3,211,119
|
4,422,329
|
||||||||||||
|
Salaries and benefits
|
988,778
|
1,155,308
|
282,775
|
342,511
|
||||||||||||
|
General and administrative expenses
|
868,922
|
500,902
|
161,054
|
147,425
|
||||||||||||
|
Recovery of Legal Judgement
|
-
|
(739,258)
|
-
|
(739,258)
|
||||||||||||
|
Employee stock based compensation(note 14c i)
|
-
|
410,187
|
-
|
147,308
|
||||||||||||
|
Stock based compensation (note 14c ii)
|
(4,930)
|
(28,280)
|
4,930
|
22,569
|
||||||||||||
|
Stock based compensation (note 14a, 14b, and 14c i)
|
(19,232)
|
(11,983)
|
15,015
|
(2,516)
|
||||||||||||
|
Occupancy costs
|
114,431
|
103,278
|
37,862
|
33,158
|
||||||||||||
|
Depreciation expense
|
25,665
|
20,323
|
8,532
|
7,171
|
||||||||||||
|
Total Operating Expenses
|
11,467,742
|
11,567,683
|
3,721,287
|
4,380,697
|
||||||||||||
|
(Loss) Income from Operations
|
(175,833)
|
454,418
|
(28,368)
|
644,102
|
||||||||||||
|
Other Expenses
|
-
|
3,446
|
-
|
926
|
||||||||||||
|
Net (Loss) Income
|
(175,833)
|
450,972
|
(28,368)
|
643,176
|
||||||||||||
|
Foreign Currency Translation Adjustment
|
8,966
|
(37,065)
|
17,143
|
4,886
|
||||||||||||
|
Comprehensive (Loss) Income
|
$
|
(166,867)
|
413,907
|
(11,225)
|
$
|
648,062
|
||||||||||
|
Net (Loss) Income per share - Basic and Diluted during the period
|
$
|
(0.00)
|
0.01
|
(0.00)
|
$
|
0.01
|
||||||||||
|
Weighted Average Number of Shares (note 15)
|
||||||||||||||||
|
Outstanding During the Periods -Basic
|
42,939,099
|
42,976,548
|
42,939,099
|
42,976,548
|
||||||||||||
|
Diluted
|
42,939,099
|
48,934,101
|
42,939,099
|
48,934,101
|
||||||||||||
(The accompanying notes are an integral part of these condensed consolidated interim financial statements.)
F-3
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Statement of Cash Flows
Nine Months Ended September 30, 2010 and 2009
Unaudited
|
2010
|
2009
|
|||||||
|
Cash Flows from Operating Activities
|
(Restated-
Note 18)
|
|||||||
|
Net (Loss) Income
|
$
|
(175,833)
|
$
|
450,972
|
||||
|
Adjustments to reconcile Net (Loss) Income to net cash used in operating activities:
|
||||||||
|
Depreciation
|
25,665
|
20,323
|
||||||
|
Employee stock-based compensation
|
(4,930)
|
410,187
|
||||||
|
Stock-based compensation accrual
|
(19,232)
|
(40,263)
|
||||||
|
Recovery of legal Judgement
|
-
|
(739,258)
|
||||||
|
(Increase) decrease in net assets:
|
||||||||
|
Referral fees held in trust
|
2,821
|
12,111
|
||||||
|
Prepaid expense
|
(14,963)
|
65,473
|
||||||
|
Accounts payable and Accrued Liabilities
|
(557,607)
|
(150,985)
|
||||||
|
Trust liability
|
(2,821)
|
(12,111)
|
||||||
|
Net Cash Provided by (Used in) Operating Activities
|
(746,900
|
)
|
16,449
|
|||||
|
Cash Flows from Investing Activities
|
||||||||
|
Purchase of equipment
|
(416)
|
(4,929
|
)
|
|||||
|
Net Cash Used in Investing Activities
|
(416)
|
(4,929
|
)
|
|||||
|
Cash Flows from Financing Activities
|
||||||||
|
Repayments of obligation under capital leases
|
-
|
(1,700
|
)
|
|||||
|
Repayment of advances from related party
|
(25,134)
|
(96,590
|
)
|
|||||
|
(Decrease) in bank indebtedness
|
(54,301)
|
(48,089
|
)
|
|||||
|
Net Cash(Used in) Provided by Financing Activities
|
(79,435)
|
(146,379
|
)
|
|||||
|
Net(Decrease) in Cash
|
(826,751)
|
(134,859)
|
||||||
|
Foreign Exchange on Balances
|
43,854
|
168,586
|
||||||
|
Cash - Beginning of Period
|
2,012,964
|
1,262,321
|
||||||
|
Cash - End of Period
|
$
|
1,230,067
|
$
|
1,296,048
|
||||
|
Supplemental Cash Flow Information
|
||||||||
|
Interest paid
|
$
|
6,534
|
$
|
15,085
|
||||
|
Income taxes paid
|
$
|
-
|
$
|
-
|
||||
(The accompanying notes are an integral part of these condensed consolidated interim financial statements.)
F-4
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
September 30, 2010
Unaudited
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 nine month period ended September 30, 2010, the Company generated a net loss of $175,833 (for the year ended December 31, 2009, the Company generated net income of $863,679). 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.
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:
F-5
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
2. Summary of Significant Accounting Policies(Continued)
a) Interim Financial Statements
The accompanying interim unaudited financial information has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The interim financial statements should be read in conjunction with the Company's annual financial statements, notes and accounting policies included in the Company's annual report on form 10 K for the year ended December 31, 2009 as filed with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, (consisting only of normal recurring adjustments and changes in estimates, where appropriate) are necessary to present fairly the financial position of the Company as of September 30, 2010 and the related operating results and cash flows for the interim period presented have been made. The results of operations of such interim period are not necessarily indicative of the results of the full year.
b) 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., MBKR Franchising Inc. and MBKR Holdings, Inc. All significant inter-company transactions and balances have been eliminated upon consolidation.
c) Recent Accounting Pronouncements
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 years 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.
ASU No. 2010-13 was issued in April 2010, and will clarify the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted.
F-6
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
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. This program was cancelled in 2009 and final payments were reconciled and paid out in the first quarter of 2010.
4. Equipment, net
|
Net Book Value
|
Net Book Value
|
|||||||||||||||
|
Accumulated
|
September 30,
|
December 31,
|
||||||||||||||
|
Cost
|
Depreciation
|
2010
|
2009
|
|||||||||||||
|
Furniture and equipment
|
$
|
179,941
|
$
|
113,831
|
$
|
66,110
|
$
|
83,121
|
||||||||
|
Computer equipment
|
34,978
|
23,313
|
11,665
|
14,202
|
||||||||||||
|
Leasehold improvements
|
20,046
|
13,045
|
7,001
|
9,612
|
||||||||||||
|
$
|
234,965
|
$
|
150,189
|
$
|
84,776
|
$
|
106,935
|
|||||||||
5. Equipment Under Capital Leases
|
2010
|
2009
|
|||||||
|
Computer equipment
|
$
|
6,925
|
$
|
6,748
|
||||
|
less: accumulated depreciation
|
(5,360
|
)
|
(4,780
|
)
|
||||
|
$
|
1,565
|
$
|
1,968
|
|||||
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 CDN $150,000. The line of credit bears interest at Royal Bank of Canada's prime plus 0.5% per annum, and is collateralized 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.
7. Advances from Related Party
As of September 30, 2010, the controlling shareholder and Chief Executive Officer of the Company had advanced $338,027 (as at December 31, 2009 - $359,138) to fund the working capital of the Company. The advances are unsecured, non-interest bearing and due on demand.
F-7
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
8. 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 $7,500 between November 1, 2010 to April 1, 2011 and an additional payment of $15,000 dated May 1, 2011 with the remaining balance due in June 2011.. 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. The liability currently bears interest at 9% annually.
9. Stock-based Compensation Accrual
The Company has accrued expenses for stock-based compensation:
|
a.
|
As of September 30, 2010, the Company has accrued, as stock-based compensation payable, 493,000 (As of December 31, 2009 – 493,000) common shares at a price of $0.03(As of December 31, 2009 $0.04) per share for a total of $14,790 (As of December 31, 2009 $19,720) payable to the parties referred to in note 14c( ii).
|
|
b.
|
As of September 30, 2010, the Company has accrued employee stock-based compensation of 15,000 (As of December 31, 2009 -15,000) common shares for a total of $1,650 (2009 - $1,650) under its Equity Compensation Plan referred to in note 10. 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.
|
|
c.
|
As of September 30, 2010, the Company has accrued, as stock-based compensation 1,919,897 (December 31, 2009 – 1,970,729) common shares at a price of $0.03 (December 31, 2009 - $0.04) per share for a total of $57,597 (2009 - $76,829) payable to the parties referred to in note 14a, 14b and 14c.
|
10. 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 September 30, 2010.
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;
|
F-8
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
10. Capital Stock(cont’d)
The following summarizes the warrants issued, outstanding, exercisable, expired and exercised related to the company’s private placement that closed on June 9, 2006:
|
September 30,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Number of Warrants Outstanding at Beginning of Period:
|
844,988
|
1,267,482
|
||||||
|
Number of Warrants Exercised:
|
-
|
-
|
||||||
|
Warrants Expired:
|
422,494
|
422,494
|
||||||
|
Number of Warrants Outstanding at End of Period:
|
422,494
|
844,988
|
||||||
|
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.
|
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.
F-9
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
10. Capital Stock(cont’d)
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 September 30, 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 September 30, 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.
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.
11. 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 September 30, 2010, 233,078 of the warrants were exercised at an average price of $0.28.
F-10
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
11. Additional Paid-in Capital – Warrants(cont’d)
As of September 30, 2010, 1,456,898 warrants have expired, 233,078 warrants have been exercised and 422,494 warrants remain outstanding and exercisable.
12. Treasury Stock
During 2010, the Company acquired 40,800 common shares of the Company on the open market, at an average price of $0.05 per share for a total of $2,051. In 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. The total treasury stock held at September 30, 2010 is 82,900 at a total price of $27,285.
13. 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 14(f) for further details.
14. 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:
F-11
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
14. Commitments and Contingencies(cont’d)
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
|
||
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
|
|
| Determination Date: | 5 year anniversary of Effective Date |
F-12
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
14. 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 in 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
|
F-13
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
14. 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 signed lease agreements for computer and office equipment. Committed annual payments are as follows:
|
|
2010
|
$
|
1,413
|
||
|
2011
|
$
|
4,023
|
||
|
2012
|
$
|
3,559
|
|
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
|
$
|
2,140
|
||
|
2011
|
$
|
10,274
|
||
|
2012
|
$
|
3,425
|
|
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
|
$
|
25,737
|
||
|
2011
|
$
|
102,950
|
||
|
2012
|
$
|
60,054
|
|
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 amount to $223.
|
F-14
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
14. Commitments and Contingencies (Cont’d)
|
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 September 30, 2010, 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.
|
15. 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. The warrants and stock-based compensation payable have been excluded from diluted loss per share as they would decrease the loss per share.
16. Comparative Figures
Certain figures for the period have been reclassified to conform to the current period’s financial statement presentation.
17. Subsequent Events
In 2010, 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.
F-15
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Interim Financial Statements
September 30, 2010
Unaudited
18. 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 comparative balances.
|
|
|
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 comparative balances.
|
The effect on the, consolidated statement of operations and comprehensive loss and consolidated statement of cash flows for the three and nine month period as at September 30, 2009 is as follows:
|
Nine Months Ended September 30, 2009
|
As reported
|
As restated
|
Adjustment
|
|||||||||
|
Consolidated Statement of Operations and Comprehensive (Loss)
|
||||||||||||
|
Employee stock based compensation expense
|
$
|
36,909
|
$
|
410,187
|
$
|
373,278
|
||||||
|
Salaries and Benefits
|
1,158,189
|
1,155,308
|
(2,881
|
)
|
||||||||
|
Net income (Loss)
|
821,369
|
450,972
|
(370,397)
|
|||||||||
|
Three Months Ended September 30, 2009
|
||||||||||||
|
Consolidated Statement of Operations and Comprehensive (Loss)
|
||||||||||||
|
Employee stock based compensation expense
|
$
|
58,105
|
$
|
147,308
|
$
|
89,203
|
||||||
|
Salaries and Benefits
|
333,260
|
342,511
|
9,251
|
|||||||||
|
Net income (Loss)
|
741,630
|
643,176
|
(98,454)
|
|||||||||
|
Consolidated Statement of Cash Flows
|
||||||||||||
|
Net income (Loss)
|
821,369
|
450,972
|
(370,397)
|
|||||||||
|
Employee stock based compensation
|
36,909
|
410,187
|
373,278
|
|||||||||
|
Accounts Payable and Accrued Liabilities
|
(148,104)
|
(150,985)
|
(2,881)
|
|||||||||