Attached files
| file | filename |
|---|---|
| EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT - MOPALS.COM, INC. | f10q0611ex31i_mortgagebrks.htm |
| EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT - MOPALS.COM, INC. | f10q0611ex32i_mortgagebrks.htm |
| EXCEL - IDEA: XBRL DOCUMENT - MOPALS.COM, INC. | Financial_Report.xls |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 10-Q
______________________________
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x 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 June 30, 2011
or
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 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)(Zip Code)
(877) 410-4848
(Registrant’s telephone number, including area code)
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 (§232.405 of this chapter) 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 “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.
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Large accelerated filer
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o
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Accelerated filer
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o
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Non-accelerated filer
(Do not check if a smaller reporting company)
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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 August 15, 2011
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Common Stock, $.0001 par value
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38,854,099
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MORTGAGEBROKERS.COM HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
June 30, 2011
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 and Results of Operations
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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Item 4.
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Controls 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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SIGNATURES
2
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 three months and six months ended June 30, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011.
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-14.
3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 June 30, 2011 and 2010. The following information should be read in conjunction with the consolidated interim financial statements for the period ending June 30, 2011 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 the name of our Company 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 June 30, 2011, we had 358 licensed mortgage agents operating across Canada. As at June 30, 2011, our Company had 11 full-time employees and 1 full-time contract staff for a total of 12 full-time staff.
The Company’s 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. The Company also has regional offices in Mississauga - Ontario, Calgary - Alberta, and Glace Bay - Nova Scotia, Canada.
Results of Operations
Three months ended June 30, 2011 compared to three months ended June 30, 2010
Reported gross revenue in our second quarter decreased by approximately 8% in 2011, as compared to that of 2010, to $4,092,600. 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 decrease of approximately 6% in the foreign exchange rate over the period in 2011 from its comparative in 2010 that the Company was exposed to as all of our operations are currently in Canada; and,
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Ø
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slowing of business due to the general economy suppressing the real estate market in Canada.
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The Company experienced no significant revenue trend changes within the period as compared to the comparable period in 2010 with respect to geographic variations in margin or the absolute amounts of lender’s commissions. Quarter over quarter, the Company experienced typical seasonal fluctuations where, based on historical averages, the first quarter of the year typically represents 18% of the Company’s annual sales, the second quarter typically represents 25%, the third quarter typically represents 31% and the fourth quarter typically represents 26%.
The Company’s reported operating expenses during the period decreased by approximately 6% as compared to that of 2010, to $4,238,585. Like revenue, the consolidated comparative decrease in total operating expenses is also affected by a 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 second quarter in 2010 to that of 2011. The primary components that comprise our operating expenses are stock-based compensation, agent commissions, salaries and benefits and general and administrative expenses, which are explained in detail as follows:
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·
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The expenses during the period associated with our agent stock-based compensation program increased modestly in 2011 as compared to 2010, primarily due to 38% decrease in our stock price between the periods. Management has no control or influence over our stock price and there are no visible trends in stock-based compensation as they may relate to our results of operations to-date.
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4
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·
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85% 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, was fairly consistent as compared to that of 2010 mainly due to a slowing of business and the general economy that is suppressing the real estate market in Canada.
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·
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9% of the operating expenses in the reporting period were associated with salaries and benefits. Reported salaries and benefit expenses increased by 9% as compared to that of 2010.
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·
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5% of our operating expenses in the reporting period were associated with general and administrative expenses. General and administrative expenses decreased 35% to $228,052 in 2011as compared to that of 2010 as the Company entered into a cost sharing program with a related third-party company.
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Six months ended June 30, 2011 compared to six months ended June 30, 2010
Reported gross revenue in our first half of 2011 decreased by 8% as compared to the same period in 2010. This relative trend is affected with a material foreign exchange decrease of approximately 6% for the period in 2011 from 2010 that the Company was exposed to as all of our operations are currently in Canada. In Canadian dollars, reported gross revenue in the first half of 2011 as compared to that of 2010 decreased by 13%, associated primarily with a slowing of business due to the general economy suppressing the real estate market in Canada. The Company experienced no significant revenue trend changes within the period or as compared to the comparable period in 2010 with respect to geographic variations in margin or the absolute amounts of lender’s commissions.
The Company’s reported operating expenses our first half of 2010 decreased by 5% as compared to the same period in 2010. Like revenue, the consolidated comparative decrease in total operating expenses is affected by a 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 first half in 2010 to that of 2011. In Canadian dollars, reported total operating expenses in the first half of 2011, as compared to that of 2010, decreased by 11%. The primary components that comprise our operating expenses and contribute to this trend are agent commissions, salaries and benefits and general and administrative expenses:
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·
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83% of the operating expenses in our first half of 2011 were associated with agent commissions. Reported agent commission fees as a percent of revenue was relatively flat from the first half of 2010 as compared to that of 2011. In consideration of the decrease in the foreign exchange rate between the periods of approximately 6% (all of our operations are in Canada while we report in USD), actual commission fee expenses in Canadian dollars decreased 8% from the same period in 2010 as compared to in our first half of 2011, associated, in part, with the loss of a mortgage agent team early in the first quarter of 2010, an increase in commission splits for select larger producing mortgage agent teams (as in general, the company is a 90/10 commission split organization and total revenue decreased by 13% in Canadian dollars) as well as a general slowing of business due to the general economy suppressing the real estate market in Canada.
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·
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10% of the operating expenses in the first half of 2010 were associated with salaries and benefits. Reported salaries and benefits increased by 3% for 2011 as compared to that of 2010.
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·
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5% of our operating expenses in the first half of 2010 were associated with general and administrative expenses. General and administrative expenses decreased by 47% from the first half of 2010 to $373,943 in 2011 as the Company entered into a cost sharing program with a related third-party company.
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Liquidity and Capital Resources
At June 30, 2011, we had $1,971,697 in cash, $49,584 in prepaid expenses, $78,617 in equipment and equipment under capital leases for a total of $2,099,898 in assets. Comparatively as at December 31, 2010, we had $752,422 in cash; $43,765 in prepaid expenses, $87,061 in equipment and equipment under capital leases for a total of $883,248 in assets.
At June 30, 2011, we had $2,159,351 in accounts payable and accrued liabilities, $183,212 in employee tax deductions payable, $1,218,809 in loans payable to related parties and $31,406 in accrued stock-based compensation for a total of $3,592,778 in liabilities. Comparatively as at December 31, 2010, the Company had $1,266,166 in accounts payable and accrued liabilities, $231,023 in employee tax deductions payable, $482,832 in loans payable to related parties and $29,881 in accrued stock-based compensation for a total of $2,009,902 in liabilities.
5
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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·
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Over the first six months of 2011, there were foreign exchange differences in the price of the Canadian dollar (that the Company was 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, 2010 (0.9946) to March 31, 2011 (0.9645), the value of the Canadian dollar increased by 3 % relative to the US dollar with an average over the period of 0.9768 relative to the US dollar.
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·
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The Company’s cash position increased by 162% over the second quarter, augmented with a foreign exchange balance primarily associated with the following:
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o
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the Company gained $470,136 in cash from operating activities over the second quarters of 2011as the first half of the year is seasonally the slowest;
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o
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the Company gained $724,803 in cash from financing activities over the second quarter of 2011 as we received a shareholder loan;
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o
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the Company lost $4,804 in cash from investing activities over the second quarter of 2011; and
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o
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the Company had an increase in foreign exchange balances of $29,140 over the period.
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·
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Accounts payable increased by 69% over the reporting period. The bulk of this payable amount is work in progress payable to mortgage agents following the completion of mortgage agent origination compliance procedures and can build up significantly if mortgage agents delay providing their files to our back office for compliance review when they are busy. Work in progress mortgage agent commissions payable are typically outstanding for 10 business days.
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·
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The Company 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 $183,212. 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 the Company’s Canadian subsidiaries. The liability currently bears interest at 9% annually.
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The Company reported a net loss from operations for the first half of 2011 of $310,136 with a net increase in cash from operating, investing and financing activities of $1,190,135 during the same period. If the Company grows its mortgage agent book of business and the associated commission fees above current levels while continuing to manage the expenses within existing envelopes, it expects 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 the Company grows beyond its available working capital resources, experience unforeseen impacts to cash flow, or experience a prolonged market downturn, the Company 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 its working capital needs. The Company is also actively exploring restructuring to reduce the expenses from operations.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies
The 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.
6
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 7 to the financial statements found here-in for the reporting period.
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 six months reporting period ended June 30, 2011, the Company reported a net loss from operations of $334,295 with a net increase in cash from operating, investing and financing activities of $1,190,135 during the same period. Certain conditions noted below raise 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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Smaller reporting companies are not required to provide the information required by this item.
Item 4. 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 financial officer, with the participation of the Company’s management, have concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2011, 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.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting during the first half of the year ended June 30, 2011, 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.
7
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Current Litigation
MortgageBrokers.com Financial Group of Companies Inc. v. Mortgage Brokers City Inc.
On January 25, 2010, MortgageBrokers.com Financial Group of Companies Inc. (“FGOC”), a wholly owned subsidiary of MortgageBrokers.com Holdings Inc., commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against a number of parties including Mortgage Brokers City Inc. and its principals who were former mortgage agents of the Company. The statement of claim filed by FGOC asserted a number of claims in the aggregate amount of approximately CAD $19 million, arising out of loan agreements and mortgage agent license agreements with the defendants. In addition, claims were made against the defendants for passing off their brokerage for that of the plaintiffs including continuing to operate a brokerage with all of the trappings they had been using to identify their brokerage when working for the plaintiffs, after their agreement with the plaintiffs had been terminated.
The Company also sought injunctive relief from the Superior Court of Justice in Ontario for the defendants’ actions after a licensing agreement was terminated. On March 31, 2010, Mr. Justice Beaudoin dismissed the injunction.
On April 5, 2010, the defendants counter claimed against a number of parties including FGOC in the Superior Court of Justice in Ontario, Canada. The counter claim asserted a number of claims in the amount of $550,000 arising out of commission holdbacks by the Company. The counter claim was settled following the plaintiffs paying out agent commissions of $223,734 and placing $373,244 with the Court pending a resolution to the plaintiff’s original claim.
The matter is still before the courts and is expected to be heard later in 2011. The Company reasonably expects, at a minimum, to recover a portion, if not all of the funds it placed in trust with the Courts.
MortgageBrokers.com Financial Group of Companies Inc. v. Ralph Canonaco et. al.
On March 5, 2010, FGOC commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against Ralph Canonaco. The statement of claim filed by FGOC asserted the failed collection of a liquidated debt in the amount of $500,000 arising out of a brokerage agreement.
On September 9, 2010, Ralph Canonaco and various other parties commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against FGOC and various other related parties. The statement of claim filed by Ralph Canonaco et. al. asserted fraud, fraudulent misrepresentation and conspiracy in the amount of $35,000,000, unjust enrichment in the amount of $950,000, breach of trust and misappropriation of trust funds in the amount of $50,000, and breach of contract in the amount of $50,000, arising out of a brokerage agreement and the associated services provided.
Ralph Canonaco et. al. via their counsel have communicated to the Company to not file a defence to the counter-claim as the parties would like to settle with the Company. The actions are currently stayed pending a mediation scheduled to be held in the summer of 2011. Company management believes that the Company will recover a reasonable portion of its original claim if not all and that the counterclaim is vexatious and frivolous and has no grounds to proceed.
HSBC Bank Canada v. MortgageBrokers.com Financial Group of Companies Inc. et. al.
On February 2, 2011, HSBC Bank Canada commenced an action in the Court of Queen’s Bench of Alberta, Canada against various entities, including FGOC et. al. The statement of claim filed asserted claims of breach of agreement, conspiracy and concealment and is claiming $651,000 plus costs and interest arising out of a real estate transaction and mortgage funding.
Company management will vigorously defend itself in this action and believes that the Company has no liability in this matter. The statement of claim specifically notes that the Company had a duty to supervise the mortgage agent and in fact did supervise that mortgage agent.
Other Matters in the Normal Course of Business
The Company or its subsidiaries are 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.
8
Item 1A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. (Removed & Reserved)
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
31.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 Interactive Data File (Form 10-Q for the quarterly period ended June 30, 2011 furnished in XBRL).
9
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
(Duly Authorized Officer and Principal Executive Officer)
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Dated: August 15, 2011
10
 MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
UNAUDITED
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MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
CONTENTS
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Condensed Consolidated Interim Balance Sheets
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F2
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Condensed Consolidated Interim Statements of Operations and Comprehensive (Loss) ((Income(Loss)
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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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F5-14
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F-1
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Balance Sheets
June 30, 2011 and December 31, 2010
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June 30, 2011 (Unaudited)
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December 31, 2010
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ASSETS
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Current Assets
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Cash and cash equivalents
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$ | 1,971,697 | $ | 752,422 | ||||
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Prepaid expenses
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49,584 | 43,765 | ||||||
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Total Current Assets
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2,021,281 | 796,187 | ||||||
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Equipment, net (note 3)
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77,336 | 85,598 | ||||||
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Equipment Under Capital Leases (note 4)
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1,281 | 1,463 | ||||||
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Total Assets
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$ | 2,099,898 | $ | 883,248 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
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Current Liabilities
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Accounts payable and accrued liabilities
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2,159,351 | 1,266,166 | ||||||
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Advances from related parties (note 5)
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1,218,809 | 482,832 | ||||||
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Employee tax deductions payable (note 6)
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183,212 | 231,023 | ||||||
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Stock-based compensation accrual - current portion (note 7a)
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7,395 | 7,395 | ||||||
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Total Current Liabilities
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3,568,767 | 1,987,416 | ||||||
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Stock-based Compensation Accrual (note 7b)
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24,011 | 22,486 | ||||||
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Total Liabilities
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3,592,778 | 2,009,902 | ||||||
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Commitments and Contingencies (notes 1 and 14)
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||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
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Capital Stock
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Preferred stock, $0.0001 par value; 5,000,000 shares authorized, none issued
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- | - | ||||||
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Capital stock, $0.0001 par value; 100,000,000 shares
authorized; 38,854,099 (2010: 38,854,099) issued and
outstanding (note 8)
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3,885 | 3,885 | ||||||
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Additional Paid-in Capital
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6,018,363 | 6,018,363 | ||||||
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Additional Paid-in Capital - Warrants (note 9)
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175,365 | 175,365 | ||||||
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Treasury Stock (note 10)
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(27,286 | ) | (27,286 | ) | ||||
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Accumulated Other Comprehensive Income
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68,964 | 100,895 | ||||||
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Accumulated Deficit
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(7,732,171 | ) | (7,397,876 | ) | ||||
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Total Stockholders' Deficit
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(1,492,880 | ) | (1,126,654 | ) | ||||
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Total Liabilities and Stockholders' Deficit
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$ | 2,099,898 | $ | 883,248 | ||||
(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 Statement of Operations and Comprehensive (Loss)
For the Three and Six Months Ended June 30, 2011 and 2010
Unaudited
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Six
Months
Ended
June 30, 2011
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Six Months
Ended
June 30,2010
|
Three
Months
Ended
June 30, 2011
|
Three
Months
Ended
June 30,2010
|
|||||||||||||
|
Revenues
|
$
|
7,019,806
|
7,598,990
|
4,092,600
|
$
|
4,465,119
|
||||||||||
|
Expenses
|
||||||||||||||||
|
Commission and agent fees
|
6,125,845
|
6,282,989
|
3,589,209
|
3,938,153
|
||||||||||||
|
Salaries and benefits
|
729,430
|
706,003
|
365,408
|
334,381
|
||||||||||||
|
General and administrative expenses
|
373,943
|
707,868
|
228,052
|
343,926
|
||||||||||||
|
Stock based compensation (note 14 a and 14b)
|
1,525
|
(9,860)
|
709
|
(24,650)
|
||||||||||||
|
Stock based compensation
|
-
|
(34,247)
|
(104,069)
|
|||||||||||||
|
Occupancy costs
|
112,000
|
76,569
|
52,719
|
34,619
|
||||||||||||
|
Depreciation expense
|
11,358
|
17,133
|
2,488
|
8,566
|
||||||||||||
|
Total Operating Expenses
|
7,354,101
|
7,746,455
|
4,238,585
|
4,530,926
|
||||||||||||
|
(Loss) from Operations
|
(334,295)
|
(147,465)
|
)
|
(145,985)
|
(65,807)
|
|||||||||||
|
Net (Loss)
|
(334,295)
|
(147,465)
|
(145,985)
|
(65,807)
|
||||||||||||
|
Foreign Currency Translation Adjustment
|
31,931
|
(8,177)
|
5,360
|
(20,032)
|
||||||||||||
|
Comprehensive (Loss)
|
$
|
(302,364)
|
(155,642)
|
(140,625)
|
$
|
(85,839)
|
||||||||||
|
Net (loss) per share - Basic and Diluted
during the period
|
$
|
(0.00)
|
(0.00)
|
(0.00)
|
$
|
(0.00)
|
||||||||||
|
Weighted Average Number of Shares (note 12)
|
||||||||||||||||
|
Outstanding During the Periods -Basic
|
38,854,099
|
42,939,099
|
38,854,099
|
42,939,099
|
||||||||||||
|
Diluted
|
38,854,099
|
42,939,099
|
38,854,099
|
42,939,099
|
||||||||||||
(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
Six Months Ended June 30, 2011 and 2010
Unaudited
|
2011
|
2010
|
|||||||
|
Cash Flows from Operating Activities
|
||||||||
|
Net (Loss)
|
$
|
(334,295)
|
$
|
(147,465)
|
||||
|
Adjustments to reconcile Net Loss to net cash used in operating activities:
|
||||||||
|
Depreciation
|
11,358
|
17,133
|
||||||
|
Employee stock-based compensation
|
-
|
(9,860)
|
||||||
|
Stock-based compensation accrual
|
1,525
|
(34,247)
|
||||||
|
(Increase) decrease in net assets:
|
||||||||
|
Referral fees held in trust
|
-
|
2,825
|
||||||
|
Prepaid expense
|
(4,544)
|
(14,500)
|
||||||
|
Accounts payable and Accrued Liabilities
|
796,092
|
58,742
|
||||||
|
Trust liability
|
-
|
(2,825)
|
||||||
|
Net Cash Provided by (Used in) Operating Activities
|
470,136
|
(130,197
|
)
|
|||||
|
Cash Flows from Investing Activities
|
||||||||
|
Purchase of equipment
|
(4,804)
|
(416)
|
||||||
|
Net Cash Used in Investing Activities
|
(4,804)
|
(416)
|
||||||
|
Cash Flows from Financing Activities
|
||||||||
|
Repayment of advances from related party
|
724,803
|
(104,018)
|
||||||
|
(Decrease) in bank indebtedness
|
-
|
(36,833)
|
||||||
|
Net Cash Provided (Used in) by Financing Activities
|
724,803
|
(140,851)
|
||||||
|
Net(Decrease) Increase in Cash
|
1,190,135
|
(271,464)
|
||||||
|
Foreign Exchange on Balances
|
29,140
|
(10,114)
|
||||||
|
Cash - Beginning of Period
|
752,422
|
2,012,964
|
||||||
|
Cash - End of Period
|
$
|
1,971,697
|
$
|
1,731,386
|
||||
|
Supplemental Cash Flow Information
|
||||||||
|
Interest paid
|
$
|
$
|
6,534
|
|||||
|
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
June 30, 2011
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 six month period ended June 30, 2011, the Company generated a net loss of $334,295 (for the year ended December 31, 2010, the Company generated a net loss of $494,009). 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.
F-5
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
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) 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, 2010 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 June 30, 2011 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 December 2010, the FASB issued ASU 2010-28, Intangibles – Goodwill and Other (Topic 350). ASU 2010-28 addresses when to perform step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts. The amendments are effective for fiscal years, and interim periods within years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not expect the adoption of the guidance will have a material impact on its financial statements.
In June 2011, the FASB issued an accounting standards update that eliminates the option to present components of other comprehensive income as part of the statement of changes in equity and requires an entity to present items of net income and other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance also requires an entity to present on the face of the financial statements reclassification adjustments from other comprehensive income to net income. This guidance will be effective for fiscal years beginning after December 15, 2011, which will be the Company’s fiscal year 2012, with early adoption permitted. The Company does not expect the adoption of the guidance will have a material impact on the Company’s consolidated financial statements.
F-6
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
2.
|
Summary of Significant Accounting Policies (continued)
|
In May 2011, the FASB issued an accounting standards update that clarifies and amends the existing fair value measurement and disclosure requirements. This guidance will be effective prospectively for interim and annual periods beginning after December 15, 2011, which will be the Company’s fiscal year 2012, with early adoption prohibited. The Company does not expect the adoption of the guidance will have a material impact on the Company’s consolidated financial statements.
|
3.
|
Equipment, net
|
|
Net Book Value
|
Net Book Value
|
|||||||||||||||
|
Accumulated
|
June 30,
|
December 31,
|
||||||||||||||
|
Cost
|
Depreciation
|
2011
|
2010
|
|||||||||||||
|
Furniture and equipment
|
$
|
203,184
|
$
|
140,467
|
$
|
62,717
|
$
|
67,578
|
||||||||
|
Computer equipment
|
43,436
|
28,817
|
14,619
|
11,765
|
||||||||||||
|
Leasehold improvements
|
-
|
-
|
-
|
6,255
|
||||||||||||
|
$
|
246,620
|
$
|
169,284
|
$
|
77,336
|
$
|
85,598
|
|||||||||
4. Equipment Under Capital Leases
|
2011
|
2010
|
|||||||
|
Computer equipment
|
$ | 7,321 | $ | 7,165 | ||||
|
less: accumulated depreciation
|
(6,040 | ) | (5,702 | ) | ||||
| $ | 1,281 | $ | 1,463 | |||||
The equipment under the capital leases is depreciated on a 30% declining balance.
|
5.
|
Advances from Related Parties
|
As of June 30, 2011, the controlling shareholder and Chief Executive Officer of the Company and several companies controlled by this same individual had advanced $1,218,809 (as at December 31, 2010 - $482,832) to fund the working capital of the Company. The advances are unsecured, non-interest bearing and due on demand.
|
6.
|
Employee Tax Deductions Payable
|
The Company is in arrears on the tax withholdings due to Canada Revenue Agency (“CRA”) related to employee source deductions on salaries. CRA has registered a Certificate in the Canadian Federal Court and the Property Register of Ontario for the amount owing to CRA. The liability currently bears interest at 9% annually.
|
7.
|
Stock-based Compensation Accrual
|
The Company has accrued expenses for stock-based compensation:
|
a.
|
As of June 30, 2011, the Company has accrued, as stock-based compensation payable, 493,000 (as of December 31, 2010 – 493,000) common shares at a price of $0.015 (December 31, 2010 -$0.015) per share for a total of $7,395 (December 31, 2010 - $7,395) payable to the parties referred to in note 14c.
|
F-7
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
7.
|
Stock-based Compensation Accrual (continued)
|
|
b.
|
As of June 30, 2011, the Company has accrued, as stock-based compensation 1,600,750 (December 31, 2010 – 1,499,053) common shares at a price of $0.015 (December 31, 2010 - $0.015) per share for a total of $24,011 (December 31, 2010 - $22,486) payable to the parties referred to in note 14a, 14b and 14c.
|
8. 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 June 30, 2011.
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:
|
June 30 , 2011
|
December 31, 2010
|
|||||||
|
Number of Warrants Outstanding at Beginning of Period:
|
422,494
|
844,988
|
||||||
|
Number of Warrants Exercised:
|
-
|
-
|
||||||
|
Warrants Expired:
|
-
|
422,494
|
||||||
|
Number of Warrants Outstanding at End of Period:
|
422,494
|
422,494
|
||||||
|
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:
F-8
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
8. Capital Stock (continued)
|
YEAR
|
Date of Issue
|
Anniversary Stock Issued
|
Price
|
Value
|
|||||||||
|
2007
|
July 7, 2007
|
478,000 | $ | 0.42 | $ | 200,760 | |||||||
|
2008
|
September 11, 2008
|
490,500 | $ | 0.11 | $ | 53,955 | |||||||
|
Subtotal
|
968,500 | ||||||||||||
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 June 30, 2011, the Company has issued 968,500 (December 31, 2010 – 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.
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 June 30, 2011, 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 June 30, 2011. The Company is currently in the process of amending the existing employment agreements which are expected to be executed in 2011. 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.
F-9
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
9.
|
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 June 30, 2011, 233,078 (December 31, 2010 - 233,078) of the warrants were exercised at an average price of $0.28 (December 31, 2010 - $0.28). During the period ended June 30, 2011, Nil warrants expired (for the year ended December 31, 2010, 422,494 with a value of $159,818). As of June 30, 2011 and December 31, 2010, 1,456,898 warrants have expired, 233,078 warrants have been exercised and 422,494 warrants remain outstanding.
|
10.
|
Treasury Stock
|
During 2010, the Company acquired 38,800 common shares of the Company on the open market, at an average price of $0.05 per share for a total of $2,052. 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 June 30, 2011 and December 31, 2010 is 82,900 at a total price of $27,286.
|
11.
|
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. During the six-month period ended June 30, 2011, the lease agreement was terminated, therefore the Company is no longer committed to any office rent agreements.
|
12.
|
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.
|
|
June 30, 2011
|
December 31, 2010
|
||||||
|
Weighted average number of common shares outstanding
|
38,854,099
|
42,357,126
|
||||||
|
Warrants
|
422,494
|
422,494
|
||||||
|
Stock Based Compensation payable (RE/MAX)
|
493,000
|
493,000
|
||||||
|
Stock Based Compensation payable (Other)
|
1,600,750
|
1,499,053
|
||||||
|
Stock Based Compensation payable (Employee)
|
-
|
-
|
||||||
|
Weighted-average number of diluted common shares outstanding
|
41,370,343
|
44,771,673
|
||||||
F-10
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
13.
|
Comparative Figures
|
Certain figures for the period have been reclassified to conform to the current period’s financial statement presentation.
|
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:
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
|
F-11
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
14.
|
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
|
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
|
F-12
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
14.
|
Commitments and Contingencies (cont’d)
|
c) REMAX
Pursuant to the 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 had 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. The REMAX agreement was cancelled in June 2009, therefore the Company is no longer committed to issuing common shares on the anniversary dates after June 2009.
d) The Company has signed lease agreements for computer and office equipment. Committed annual payments are as follows:
|
2011
|
$
|
2,008
|
||
|
2012
|
$
|
3,552
|
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:
|
2011
|
$ | 4,974 | ||
|
2012
|
$ | 3,418 |
f) Contingencies
On January 25, 2010, MortgageBrokers.com Financial Group of Companies Inc. (“FGOC”), a wholly-owned subsidiary of MortgageBrokers.com Holdings Inc., commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against a number of parties including Mortgage Brokers City Inc. and its principals, who were former mortgage agents of the Company. The statement of claim filed by FGOC asserted a number of claims in the aggregate amount of approximately CDN $19 million, arising out of loan agreements and mortgage agent license agreements with the defendants. In addition, claims were made against the defendants for passing off their brokerage for that of the plaintiffs including continuing to operate a brokerage after agreement termination, with all of the trappings they had been using to identify their brokerage when working for the plaintiffs. On April 5, 2010, the defendants counter claimed against a number of parties including FGOC in the Superior Court of Justice in Ontario, Canada. The counter claim asserted a number of claims in the amount of $550,000 arising out of commission holdbacks by the Company. The counter claim was settled following the Company paying out agent commissions of $223,734 and placing $373,244 with the Court pending a resolution to the Company’s original claim. The matter is still before the courts and is expected to be heard later in 2011. Company management will vigorously defend itself in this action and believes that the Company has no liability in this matter.
F-13
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
June 30, 2011
Unaudited
|
14.
|
Commitments and Contingencies (cont’d)
|
f) Contingencies (cont’d)
On March 5, 2010, FGOC commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against Ralph Canonaco. The statement of claim filed by FGOC asserted the failed collection of a liquidated debt in the amount of $500,000 arising out of a brokerage agreement. On September 9, 2010, Ralph Canonaco and various other parties commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against FGOC and various other related parties. The statement of claim filed by Ralph Canonaco et. al. asserted fraud, fraudulent misrepresentation and conspiracy in the amount of $35,000,000, unjust enrichment in the amount of $950,000, breach of trust and misappropriation of trust funds in the amount of $50,000, and breach of contract in the amount of $50,000, arising out of a brokerage agreement and the associated services provided. Ralph Canonaco et. al. via their counsel have communicated to the Company to not file a defence to the counter-claim as the parties would like to settle with the Company. The actions are currently stayed pending a mediation scheduled to be held in the summer of 2011. Company management will vigorously defend itself in this action and believes that the Company has no liability in this matter.
On February 2, 2011, HSBC Bank Canada commenced an action in the Court of Queen’s Bench of Alberta, Canada against various entities, including FGOC et. al. The statement of claim filed asserted claims of breach of agreement, conspiracy and concealment and is claiming $651,000 plus costs and interest arising out of a real estate transaction and mortgage funding. Company management will vigorously defend itself in this action and believes that the Company has no liability in this matter.
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.
F-14