UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
______________________________
FORM 10-Q
______________________________
| x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. |
FOR THE QUARTERLY PERIOD ENDED March 31, 2012
or
| o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 333-105778
MORTGAGEBROKERS.COM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE | 05-0554486 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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 x 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.
| Large accelerated filer | o | Accelerated filer | o |
| Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | x |
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.
| Class | | Outstanding at May 21, 2012 |
| Common Stock, $.0001 par value | | 1,294,993 |
MORTGAGEBROKERS.COM HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
March 31, 2012
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 2 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 5 |
| Item 4. | Controls and Procedures | 5 |
PART II – OTHER INFORMATION
| Item 1. | Legal Proceedings | 6 |
| Item 1A. | Risk Factors | 7 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 7 |
| Item 3. | Defaults Upon Senior Securities | 7 |
| Item 4. | Mine Safety Disclosures | 7 |
| Item 5. | Other Information | 7 |
| Item 6. | Exhibits | 7 |
SIGNATURES
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Basis of Presentation
The accompanying condensed and consolidated financial 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 ended March 31, 2012 are not necessarily indicative of results that may be expected for the year ending December 31, 2012.
The condensed consolidated interim 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-12.
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, 2011 as filed with the Securities and Exchange Commission on April 16, 2012.
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 March 31, 2012 and 2011. The following information should be read in conjunction with the consolidated interim financial statements for the period ending March 31, 2012 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 certificate of amendment 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:
| | 1. | 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; |
| | 2. | 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 Alberta and British Columbia; |
| | 3. | MBKR Holdings Inc. - a Canadian federally incorporated company, incorporated on November 24, 2008 for the intended centralization of back office services in Canada; and, |
| | 4. | MBKR Franchising Inc. - a Canadian federally incorporated company, incorporated on January 30, 2009 through which the Company is a mortgage brokerage franchisor selling theMortgageBrokers.com business system in Canada. |
In 2011, all human resources for the Company were consolidated into a related party company who provided back office corporate services to the Company on a cost allocation basis. As at March 31, 2012, our Company had staffing resources of 10 full-time equivalent staff.
The Company’s corporate offices are located at 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 March 31, 2012 compared to three months ended March 31, 2011
Reported gross revenue in our first quarter decreased by approximately 36% in 2012, as compared to that of 2011, to $1,886,945.This drop in revenue was primarily related to mortgage agent attrition between periods.
The Company experienced no significant revenue trend changes within the period as compared to the comparable period in 2011, with respect to geographic variations in margin or geographic variations in 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 29% in 2012, as compared to that of 2011, to $2,221,848. The primary components that comprise our operating expenses are agent commissions, salaries and benefits, general and administrative expenses and occupancy costs which are explained in detail as follows:
| · | 75% 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, increased by 1.4% as compared to that of 2011 suggesting that the Company experienced moderate margin erosion between the periods as the Company increased its commissions payable to select mortgage agents. |
| · | Approximately 18% of the operating expenses in the reporting period were associated with salaries and benefits. Reported salaries and benefit expenses increased by 10% as compared to the same period in 2011. The Company entered into a cost sharing program with a related third-party company. In 2011, all human resources for the Company were consolidated into a related third-party company who provided back office corporate services to the Company on a cost allocation basis. |
| · | 4% of our operating expenses in the reporting period were associated with general and administrative expenses. General and administrative expenses decreased 31% to $99,255 in 2012, as compared to that of 2011, as the Company entered into a cost sharing program with a related third-party company. |
| · | 1.8% of our operating expenses in the reporting period were associated with occupancy expenses. Occupancy expenses decreased by 33% to $40,038 in 2012, as compared to that of 2011, as the Company entered into a cost sharing program with a related third-party company and expense allocations were adjusted period over period. |
Liquidity and Capital Resources
On March 31, 2012, we had $530,378 in cash, $8,076 in prepaid expenses, and $42,182 in equipment and equipment under capital leases, for a total of $580,636 in assets. Comparatively, as at December 31, 2011, we had $909,491 in cash, $26,012 in prepaid expenses, and $63,951 in equipment and equipment under capital leases, for a total of $999,454 in assets.
On March 30, 2012, we had $694,200 in accounts payable and accrued liabilities, $114,090 in employee tax deductions payable, $2,768,883 in loans payable to related parties, and $18,007 in accrued stock-based compensation, for a total of $3,595,180 in liabilities. Comparatively, as at December 31, 2011, the Company had $1,067,351 in accounts payable and accrued liabilities, $144,594 in employee tax deductions payable, $2,409,646 in loans payable to related parties, and $17,980 in accrued stock-based compensation, for a total of $3,639,571 in liabilities.
Management makes the following comments regarding the most significant factors affecting Company’s liquidity and capital resources and their measured trends over the reporting period:
| · | The Company’s cash position decreased by 41.7% over the first three months, augmented with a foreign exchange balance primarily associated with the following: |
| o | The Company lost $697,610 in cash from operating activities over the first three months of 2012. This is attributed to, in part, the first half of the year typically being seasonally the slowest and mortgage agent attrition, resulting in business expenses exceeding our net revenue (after agent commissions are paid out) during the period. |
| o | The Company gained $359,237 in cash from financing activities over the first three months of 2012 as we received funds from a related-party to fund operations. |
| o | The Company had no gain or loss in cash from investing activities over the first three months of 2012. |
| · | Accounts payable decreased by approximately 35% 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. The loss of mortgage agents during this period had a negative impact on mortgage agent commissions payable at the end of the quarter ending March 31, 2012. |
| · | The Company is in arrears on the tax withholdings due to the 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 $114,090 (compared to $144,594 owed on December 31, 2011). CRA has registered a Certificate in the Canadian Federal Court and the Property Register of Ontario for the amount owed to CRA against one of the Company’s Canadian subsidiaries. This tax liability currently bears interest at 9% annually. The Company made lump sum monthly payments via post-dated cheques to pay down the outstanding balance by $30,504 during the reporting period. |
The Company reported a net loss from operations for the first three months of 2012 of $334,903, with a net decrease in cash from operating, investing and financing activities of $338,373 during the same period. The Company needs to grow its mortgage agent book of business and the associated commission fees above current levels, while continuing to manage the expenses within existing envelopes, if it expects to achieve positive earnings from operations.
In the event that the Company grows beyond its available working capital resources, experience unforeseen impacts to cash flow, or experiences 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.
As noted in the past three Form 10-Q reports for 2011 and Form 10-K for 2011, management has been actively exploring restructuring options to reduce overhead expenses. Based upon the 2011 year-end financial results of operations, the Board of Directors has decided to privatize our Canadian operations and amalgamate them with a private company under common control, as a result of the following factors:
1. current economic conditions and the ongoing loss of cash from operating activities;
2. the high costs associated with driving a high-service value proposition in an eroding margin brokerage marketplace in Canada;
3. current equity market conditions not being favorable for a publicly traded mortgage brokerage operation limiting the liquidity of our stock and company capitalization; and
4. the increasingly high costs associated with administering a publicly traded company.
The Company is actively seeking candidate companies for a reverse merger transaction or strategic acquisition. At the present time, the Company is in discussion with two candidate groups to complete the contemplated transaction. There is no timetable for completing this process. However, management will make best efforts to complete this restructuring by June 30, 2012.
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.
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 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 8 to the financial statements found herein 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 three months reporting period ended March 31, 2012, the Company reported a net loss from operations of $334,903, with a net decrease in cash from operating, investing and financing activities of $338,373 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.
As noted above and in the past three Form 10-Q reports for 2011, and on the Form 10-K for the period ending December 31, 2011, management has been actively exploring restructuring options to reduce overhead expenses. Based upon the 2011 year-end financial results of operations, the Board of Directors, has decided to privatize our Canadian operations and amalgamate them with a private company under common control. The Company is actively seeking candidate companies to for a reverse merger transaction or strategic acquisition. At the present time, the Company is in discussion with two candidate groups to complete the contemplated transaction. There is no timetable for completing this process. However, management will make best efforts to complete this restructuring by June 30, 2012.
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 March 31, 2012, 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 three month period ending March 31, 2012, 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.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
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 $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 counterclaimed against a number of parties including FGOC in the Superior Court of Justice in Ontario, Canada. The counterclaim asserted a number of claims in the amount of $548,625 arising out of commission holdbacks by the Company. The counterclaim was settled following the Company paying out agent commissions of $223,175 and placing $372,311 with the court pending a resolution to the Company’s original claim.
On March 20, 2012, Mortgage Brokers City Inc. refiled an amended statement of claim against FGOC and its senior management. On April 30, 2012, FGOC expanded its original statement of claim to include 40 of Mortgage Brokers City Inc.’s mortgage agents involved in the matter. On April 30, 2012, FGOC made a formal settlement offer to Mortgage Brokers City Inc. to settle all outstanding matters.
The matter is still before the courts and is expected to be heard later in 2012 or 2013. Company management will vigorously defend itself in this action and believes that the Company has no liability in this matter.
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 and other related parties. The statement of claim filed by FGOC alleged the failed collection of a liquidated debt in the amount of approximately $500,000 arising out of a brokerage agreement and unpaid promissory note by Ralph Canonaco and Baywood homes. On October 21, 2011, the parties agreed to dismiss this action and to incorporate FGOC’s claims for the approximately $500,000 in damages into the action filed by Ralph Canonaco and various other parties described below.
On September 9, 2010, Ralph Canonaco and his co-defendants commenced an action in the Ontario Superior Court of Justice in Ontario, Canada against FGOC and various other related parties for approximately $35 million in damages.
Management denies all of the allegations in the action and has retained counsel to vigorously defend itself in the counterclaim. Management believes that the claim is vexatious and frivolous and has no grounds to proceed. Management will be filing a counterclaim against Ralph Canonaco, Frank Canonaco, Baywood Homes, and other related parties, for over $12 million in damages for alleged failed collection of liquidated debts, promissory notes and unpaid broker fees on a $36 million in commercial financing arranged by FGOC, as well as for breach of contract.
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 17 different entities, including FGOC and a former FGOC mortgage broker. The statement of claim alleged breach of agreement, conspiracy, and concealment for damages of $649,373 and interest, arising out of a real estate transaction and mortgage funding. None of the above allegations were made directly against FGOC. An independent mortgage broker affiliated with FGOC is alleged to have been involved in a fraudulent real estate transaction and mortgage funding. HSBC Bank Canada alleges that FGOC should be vicariously liable for the independent mortgage brokers alleged conduct. FGOC’s independent mortgage brokers each have a $5 million Errors & Omissions Insurance Policy that protects FGOC from liability related to their independent mortgage brokers.
Management denies all of the allegations in the action and has retained counsel to vigorously defend itself in this action. Management believes that the FGOC has no liability in this matter.
Other Matters in the Normal Course of Business
The Company and/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.
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. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits
| 31.1 * | Certification of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 * | Certification of Principal Executive Officer and Principal Financial Officer of the Registrant pursuant to 18U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS ** | XBRL Instance Document |
| 101.SCH ** | XBRL Taxonomy Schema |
| 101.CAL ** | XBRL Taxonomy Calculation Linkbase |
| 101.DEF ** | XBRL Taxonomy Definition Linkbase |
| 101.LAB ** | XBRL Taxonomy Label Linkbase |
| 101.PRE ** | XBRL Taxonomy Presentation Linkbase |
* Furnished herewith.
** Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| MORTGAGEBROKERS.COM HOLDINGS, INC. |
By: /s/ Alex Haditaghi |
| Alex Haditaghi |
| Principal Executive Officer, |
| Principal Accounting Officer, |
President, Secretary and Director (Duly Authorized Principal Executive Officer and Principal Accounting Officer) |
| |
Dated: May 18, 2012
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS MARCH 31, 2012 AND 2011 UNAUDITED |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
MARCH 31, 2012 AND 2011
CONTENTS
| Condensed Consolidated Interim Balance Sheets | F2 |
| | |
| Condensed Consolidated Interim Statements of Operations and Comprehensive (Loss) | F3 |
| | |
| Condensed Consolidated Interim Statements of Cash Flows | F4 |
| | |
| Notes to Condensed Consolidated Interim Financial Statements | F5-12 |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Balance Sheets
March 31, 2012 and December 31, 2011
| | | March 31, 2012 (Unaudited) | | | December 31, 2011 | |
| ASSETS | |
| Current Assets | | | | | | |
| Cash | | $ | 530,378 | | | $ | 909,491 | |
| Prepaid expenses | | | 8,076 | | | | 26,012 | |
| Total Current Assets | | | 538,454 | | | | 935,503 | |
Equipment, net (note 3) | | | 41,817 | | | | 62,909 | |
Equipment Under Capital Leases (note 4) | | | 365 | | | | 1,042 | |
| Total Assets | | $ | 580,636 | | | $ | 999,454 | |
| LIABILITIES AND STOCKHOLDER’S DEFICIT | |
| Current Liabilities | | | | | | | | |
| Accounts payable and accrued liabilities | | | 694,200 | | | | 1,067,351 | |
| Advances from related parties (note 5) | | | 2,768,883 | | | | 2,409,646 | |
| Employee tax deductions payable (note 6) | | | 114,090 | | | | 144,594 | |
| Stock-based compensation accrual - current portion (note 7a) | | | 4,108 | | | | 4,108 | |
| Total Current Liabilities | | | 3,581,281 | | | | 3,625,699 | |
Stock-based Compensation Accrual (note 7b) | | | 13,899 | | | | 13,872 | |
| Total Liabilities | | | 3,595,180 | | | | 3,639,571 | |
Commitments and Contingencies (notes 1 and 11) | | | | | | | | |
| STOCKHOLDER’S 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; 1,294,993 (2011: 1,294,993) issued and outstanding (note 8) | | | 129 | | | | 129 | |
| Additional Paid-in Capital | | | 6,197,484 | | | | 6,197,484 | |
| | | | | | | | | |
| Treasury Stock | | | (27,286) | | | | (27,286) | |
| Accumulated Other Comprehensive Income | | | 112,916 | | | | 152,440 | |
| Accumulated Deficit | | | (9,297,787) | | | | (8,962,884) | |
| Total Stockholders' Deficit | | | (3,014,544) | | | | (2,640,117) | |
| Total Liabilities and Stockholders' Deficit | | $ | 580,636 | | | $ | 999,454 | |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Statements of Operations and Comprehensive (Loss)
For the Three Months Ended March 31, 2012 and 2011
Unaudited
| | | 2012 | | | 2011 | |
| | | | | | | |
| Revenue | | $ | 1,886,945 | | | $ | 2,927,206 | |
| | | | | | | | | |
| Expenses | | | | | | | | |
| Commission and agent fees | | | 1,657,596 | | | | 2,536,636 | |
| Salaries and benefits | | | 401,947 | | | | 364,022 | |
| General and administrative expenses | | | 99,255 | | | | 145,891 | |
| Stock-based compensation (note 7b) | | | 26 | | | | 816 | |
| Occupancy costs (note 9) | | | 40,038 | | | | 59,281 | |
| Depreciation expense | | | 22,986 | | | | 8,870 | |
| | | | | | | | | |
| Total Operating Expenses | | | 2,221,848 | | | | 3,115,516 | |
| | | | | | | | | |
| (Loss) from Operations and Before Income Taxes | | | (334,903) | | | | (188,310 | ) |
| | | | | | | | | |
| Provision for income taxes | | | - | | | | - | |
| | | | | | | | | |
| Net (Loss) | | | (334,903) | | | | (188,310 | ) |
| | | | | | | | | |
| Foreign Currency Translation Adjustment | | | (39,524 | ) | | | 26,571 | |
| | | | | | | | | |
| Total Comprehensive (Loss) | | | (374,427) | | | | (161,739 | ) |
| | | | | | | | | |
| Net (Loss) per Share – Basic (note 10) | | | (0.26) | | | | (0.15 | ) |
| Net (Loss) per Share - Diluted (note 10) | | | (0.26) | | | | (0.15 | ) |
| | | | | | | | | |
| Weighted Average Number of Shares Outstanding - Basic During the Period | | | 1,294,993 | | | | 1,295,136 | |
| | | | | | | | | |
| Weighted Average Number of Shares Outstanding - Diluted During the Period | | | 1,294,993 | | | | 1,295,136 | |
| | | | | | | | | |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Interim Statements of Cash Flows
For the Three Months ended March 31, 2012 and 2011
Unaudited
| | | 2012 | | | 2011 | |
| | | | | | | |
| Cash Flows from Operating Activities | | | | | | |
| Net (Loss) | | $ | (334,903) | | | $ | (188,310 | ) |
| Adjustments to reconcile net (loss) to net cash from operating activities: | | | | | | | | |
| Depreciation | | | 22,986 | | | | 8,870 | |
| Stock-based compensation accrual | | | 26 | | | | 816 | |
| (Increase) decrease in net assets: | | | | | | | | |
| Accounts payable and Employee tax deductions payable | | | (403,655) | | | | (221,299 | ) |
| Prepaids | | | 17,936 | | | | - | |
| | | | | | | | | |
| Net Cash provided by (used in) Operating Activities | | | (697,610) | | | | (399,923 | ) |
| | | | | | | | | |
| Cash Flows from Investing Activities | | | | | | | | |
| (Purchase) of equipment, net | | | - | | | | (4,714 | ) |
| | | | | | | | | |
| Net Cash used in Investing Activities | | | - | | | | (4,714 | ) |
| | | | | | | | | |
| Cash Flows from Financing Activities | | | | | | | | |
| Advances from related parties | | | 359,237 | | | | 413,574 | |
| | | | | | | | | |
| Net Cash provided by Financing Activities | | | 359,237 | | | | 413,574 | |
| | | | | | | | | |
| Net (decrease) increase in Cash | | | (338,373) | | | | 8,937 | |
| | | | | | | | | |
| Effect of exchange rates on Cash | | | (40,740) | | | | 19,400 | |
| | | | | | | | | |
| Cash - Beginning of period | | | 909,491 | | | | 752,422 | |
| | | | | | | | | |
| Cash - End of period | | $ | 530,378 | | | $ | 780,759 | |
| Supplemental Cash Flow Information | | | | | | | | |
| Interest paid | | $ | - | | | $ | 1,278 | |
| Income taxes paid | | $ | - | | | $ | - | |
(The accompanying notes are an integral part of these condensed consolidated interim financial statements.)
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
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.
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 three month period ended March 31, 2012, the Company generated a net loss of $334,903 (for the year ended December 31, 2011, the Company generated a net loss of $1,565,008). 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, 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 condensed interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
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, 2011 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 March 31, 2012 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 condensed interim 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.
3. Equipment, net
| | | | | | Net Book Value | | Net Book Value | |
| | | | Accumulated | | March 31, | | December 31, | |
| | Cost | | Depreciation | | 2011 | | 2011 | |
| | | | | | | | | |
| Furniture and equipment | | $ | 192,427 | | | $ | 158,454 | | | $ | 33,973 | | | $ | 51,184 | |
| Computer equipment | | | 41,731 | | | | 33,887 | | | | 7,844 | | | | 11,725 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | $ | 234,158 | | | $ | 192,341 | | | $ | 41,817 | | | $ | 62,909 | |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
Unaudited
4. Equipment Under Capital Leases
| | | March 31, 2012 | | | December 31, 2011 | |
| Computer equipment | | $ | 7,144 | | | $ | 7,007 | |
| less: accumulated depreciation | | | (6,779 | ) | | | (5,965 | ) |
| | | $ | 365 | | | $ | 1,042 | |
The equipment under the capital leases is depreciated on a 30% declining balance.
5. Advances from Related Parties
As of March 31, 2012, the controlling shareholder and Chief Executive Officer of the Company and a company controlled by this same individual had advanced $2,768,883 (as at December 31, 2011 - $2,409,646) 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 March 31, 2012, the Company has accrued, as stock-based compensation payable, 16,433 (as of December 31, 2011 – 16,433) common shares at a price of $0.25 (December 31, 2011 - $0.25) per share for a total of $4,108 (December 31, 2011 - $4,108) payable to certain parties whose agreement was cancelled in 2009. |
| b. | As of March 31, 2012, the Company has accrued, as stock-based compensation 55,588 (December 31, 2011 – 55,485) common shares at a price of $0.25 (December 31, 2011 - $0.25) per share for a total of $13,899 (December 31, 2011 - $13,872) payable to the parties referred to in note 11a and 11b. |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
Unaudited
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 March 31, 2012.
Common Stock
On June 9, 2006, the Company completed an offering in which it issued a total of 70,416 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 $30.00 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: |
| | | March 31, 2012 | | | December 31, 2011 | |
| | | | | | | |
| Number of Warrants Outstanding at Beginning of Period: | | | - | | | | 14,083 | |
| Number of Warrants Exercised: | | | - | | | | - | |
| Warrants Expired: | | | - | | | | 14,083 | |
| Number of Warrants Outstanding at End of Period: | | | - | | | | - | |
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 March 31, 2012, 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 March 31, 2012. 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 166,667, the adequacy of which will be evaluated annually.
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
Unaudited
9. Related Party Transactions
a) Shared services
During the first quarter of 2012, Pacific Mortgage Group Inc. (“PMGI”), charged the Company rent of $40,000 (2011 - $54,734). PMGI and the Company are under common control. The related cost is included in occupancy costs on the consolidated statement of operations and comprehensive (loss).
b) Broker Reward Programs
Radius Financial Inc. (“Radius”), a company under common control, funds a rewards program to compensate mortgage brokers under contract to the Company.
During the quarter ended March 31, 2012, the Company received broker rewards of $2,650 (2011 - $315) for its brokers from Radius which is included in accounts payable and accrued liabilities on the consolidated balance sheets.
c) Mortgage loan origination
The Company originates mortgages through its mortgage broker networks, earning the commissions related to these mortgage originations. During the quarter ended March 31, 2012, Radius paid $169,157 (2011- $43,748) in broker commissions to the Company. These amounts are recorded as revenues on the consolidated statement of operations and are calculated and paid on normal commercial terms.
10. 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.
| | | March 31, 2012 | | | December 31, 2011 | |
| Weighted average number of common shares outstanding | | | 1,294,993 | | | | 1,295,128 | |
| Stock Based Compensation payable (RE/MAX) | | | 16,433 | | | | 16,433 | |
| Stock Based Compensation payable (Other) | | | 55,588 | | | | 55,485 | |
| Weighted-average number of diluted common shares outstanding | | | 1,367,014 | | | | 1,367,046 | |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
Unaudited
11. 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 $30 per share or the twenty day average closing price following the Effective Date.
Since the conversion ratio of dollar value of warrants into shares is fixed, but the share price fluctuates, the accrual to expense the value of the warrants earned by the mortgage agents and strategic alliance partners will fluctuate with the share price at the end of each period.
The Company has entered into agreements with the following parties:
a) Independent Mortgage Agents/Loan Officers
Pursuant to a 5 year Mortgage Agent Agreement, the Company is committed to issuing warrants, at no cost, for common stock of the Company in two series to mortgage agents licensed with the Company based on their annual mortgage origination sales volume, which are summarized as follows based on current formulae:
Series I Warrants
| | “Average Volume”: | defined as the average best three out of five years in funded mortgage origination volume |
| | | |
| | Number of Warrants: | $8,257 worth of warrants divided by the Strike Price, per CDN $10 million in Average Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. |
| | | |
| | Earnings Period: | Series I warrants are earned in the first 5 years following the Effective Date; |
| | | |
| | Additional Vestment: | all SERIES I warrants are fully vested on the 5th anniversary of the Effective Date |
| | | |
| | Determination Date: | 5 year anniversary of Effective Date |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
Unaudited
11. 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 |
MORTGAGEBROKERS.COM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Interim Consolidated Financial Statements
March 31, 2012
Unaudited
11. Commitments and Contingencies(cont’d)
c) The Company has signed lease agreements for computer and office equipment. Committed annual payments are as follows:
d) 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.
Annual minimum lease payments (excluding utilities, taxes and common area maintenance expenses) are as follows:
e) 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 $18,952,500 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 counterclaim asserted a number of claims in the amount of $548,625 arising out of commission holdbacks by the Company. The counterclaim was settled following the Company paying out agent commissions of $223,175 and placing $373,311 with the Court pending a resolution to the Company’s original claim. Company management will vigorously defend itself in this action and believes that the Company has no liability in this matter.
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 $498,750 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 $34,912,500 unjust enrichment in the amount of $947,625, breach of trust and misappropriation of trust funds in the amount of $49,875, and breach of contract in the amount of $49,875, arising out of a brokerage agreement and the associated services provided. On December 21, 2011, FGOC filed a statement of defense and counterclaim. FGOC countered for the following: (i) $498,750 in liquidated damages, plus 6% per annum interest; (ii) approximately $722,190 in damages owed pursuant to an agreement; and (iii) $2,493,750 in interest and punitive damages. 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-12
