UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: JUNE 30, 2010
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
COMMISSION FILE NUMBER: 333-142907
WORLD MORTGAGE EXCHANGE GROUP, INC.
-----------------------------------
(Exact name of small business issuer as specified in its charter)
Florida 76-0835007
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4470 Chamblee Dunwoody Road, Suite 250
Atlanta, Georgia 30338
----------------------------------------
(Address of principal executive offices)
404-255-8800
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(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). |_| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated file"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). |X| Yes |_| No
APPLICABLE ONLY TO CORPORATE ISSUERS
As of June 30, 2010, the Company had authorized 100,000,000 shares of $.01 par
value common stock of which 16,704,862 shares of common stock were issued and
outstanding.
WORLD MORTGAGE EXCHANGE GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements .............................................. 2
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ......................................... 13
Item 3. Quantitative and Qualitative Disclosure About Market Risk ......... 15
Item 4. Controls and Procedures ........................................... 15
Item 4T. The information required by Item 4t is contained in Item 4.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................................. 16
Item 1A. Risk Factors ...................................................... 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds ....... 23
Item 3. Defaults upon senior securities ................................... 23
Item 4. Submission of matters to a vote of security holders ............... 23
Item 5. Other information ................................................. 23
Item 6. Exhibits .......................................................... 23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLD MORTGAGE EXCHANGE GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
June 30, December 31,
2010 2009
----------- ------------
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents ...................... $ 2,151 $ -
----------- -----------
Total Current Assets ......................... $ 2,151 $ -
----------- -----------
Non-Current Assets:
Inventory ...................................... $ 35,000 $ -
Goodwill ....................................... $ - $ -
----------- -----------
Total Non-Current Assets ..................... $ 35,000 $ -
----------- -----------
Total Current and Non-Current Assets ......... $ 37,151 $ -
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable ............................... $ - $ 16,096
Accrued compensation-related party ............. - -
Due to related parties ......................... - -
----------- -----------
Total Current Liabilities .................... - 16,096
----------- -----------
Non-Current Liabilities:
Convertible debenture ............................ 35,000 -
Advance from affiliates and private investors .... 101,000 -
----------- -----------
Total Non-Current Liabilities ................ $ 136,000 $ -
----------- -----------
Total Current and Non-Current Liabilities .... $ 136,000 $ 16,096
----------- -----------
Commitments: ..................................... - -
Stockholders' Deficit:
Common stock, $.01 par value 100,000,000 shares
authorized 16,704,862 and 14,154,243 shares
issued and outstanding ........................ 167,048 167,048
Additional paid in capital ..................... 557,161 557,161
Deficit accumulated during the development stage (823,058) (740,305)
----------- -----------
Total Stockholders' Deficit .................. (98,849) (16,096)
----------- -----------
Total Liabilities and Stockholders' Deficit $ 37,151 $ -
=========== ===========
See Accompanying Notes to the Unaudited Financial Statements
3
WORLD MORTGAGE EXCHANGE GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENTS OF OPERATIONS
For the
period from
July 5, 2006
For the Three Months Ended For the Six Months Ended (Inception)
June 30, June 30, to June 30,
2010 2009 2010 2009 2010
------------ ------------ ------------ ------------ ------------
Operating Revenue
Rental Revenue ................... $ 1,125 $ - $ 1,125 $ - $ 1,125
------------ ------------ ------------ ------------ ------------
Total Revenue ...................... 1,125 - 1,125 - 1,125
Operating expenses
General and administrative ....... $ 30,106 $ 16,631 $ 83,878 $ 40,582 $ 804,749
------------ ------------ ------------ ------------ ------------
Total operating expenses ........... 30,106 16,631 83,878 40,582 804,749
Other Expense
Equity in losses of investment ..... - - - - (4,278)
Interest expense - related party ... - - - - (10,456)
------------ ------------ ------------ ------------ ------------
Total other expenses ............... - - - - (14,734)
------------ ------------ ------------ ------------ ------------
Net Loss from continuing operations (28,981) (16,631) (82,753) (40,582) (818,358)
Discontinuing operations ........... - - - - (65,791)
------------ ------------ ------------ ------------ ------------
Net Loss ........................... $ (28.981) $ (16,631) (82,753) $ (40,548) (884,149)
============ ============ ============ ============ ============
Net Loss per Share-Basic and Diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00) $ (0.08)
============ ============ ============ ============ ============
Weighted Average Number of Shares
Outstanding during the Period-
Basic and Diluted .............. 16,704,862 16,704,862 16,704,862 14,734,276 12,556,016
============ ============ ============ ============ ============
See Accompanying Notes to the Unaudited Financial Statements
4
WORLD MORTGAGE EXCHANGE GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
UNAUDITED STATEMENTS OF CASH FLOWS
For the Period
For the Six Months July 5, 2006
Ended (Date of Inception)
June 30, to June 30,
2010 2009 2010
--------- --------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ............................................................... $ (82,753) $ (40,582) $ (884,149)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization ......................................................... - - 5,294
Depreciation ......................................................... - - 756
Impairment loss ...................................................... - - 5,294
Stock issued for services ............................................ - 500 3,412
Stock issued for services-related parties ............................ - 10,000 159,966
Bad debt expense-related party ....................................... - - -
Accrued rent and rent expense paid through issuance of common stock - 6,000 43,500
Equity in loss of investment in affiliate ............................ - - 4,278
Loss on disposal of fixed assets ..................................... - - 1,763
Amortization of stock issued for prepaid expenses .................... - - 100
Changes in Operating Assets and Liabilities
Accounts receivable .................................................. - - -
Judgment receivable .................................................. - - -
Prepaid expenses ..................................................... - - -
Inventory ............................................................ - - -
Accounts payable ..................................................... (16,096) 17 -
Accrued expenses ..................................................... - 11,570 -
Accrued compensation-related parties ................................. - - -
Accrued interest-related party ....................................... - - -
--------- --------- ----------
Net Cash Used in Operating Activities .............................. (98,849) (12,495) (659,786)
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property for inventory ................................ (35,000) - -
Purchase of equipment ................................................ - - (2,519)
Investment in subsidiaries ........................................... - - (50,239)
Cash paid for acquisition of intangible asset ........................ - - (10,000)
--------- --------- ----------
Net Cash Used in Investing Activities .............................. (35,000) - (62,758)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from related party advances ................................. - 12,495 307,204
Repayments of related party advances ................................. - - (15,269)
Advance from affiliates and private investors ........................ 35,000 - -
Proceeds from notes payable-related party ............................ - - 162,109
Proceeds from convertible notes payable-related party ................ - - 45,300
Proceeds from sale of common stock-related party ..................... - - 64,700
Proceeds from sale of long-term bond ................................. 101,000 - 101,000
Net Liabilities distributed in spin off .............................. - - 59,652
--------- --------- ----------
Net Cash Provided by Financing Activities .......................... 136,000 (12,495) 724,696
--------- --------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents ................... 2,151 - 2,151
--------- --------- ----------
Cash at Beginning of Period ............................................ - - -
--------- --------- ----------
Cash at End of Period .................................................. $ 2,151 $ - $ 2,151
========= ========= ==========
Supplementary Cash Flow Information:
Cash paid for income taxes ............................................. $ - $ - $ -
========= ========= ==========
Cash paid for interest ................................................. $ - $ - $ 2,111
========= ========= ==========
Non Cash Investing and Financing Activities
Common stock issued in connection with acquisition of intangible asset $ - $ - $ 588
========= ========= ==========
Common stock issued for prepaid expense related party ................ $ - $ - $ 15,000
========= ========= ==========
Common stock issued for accrued expenses - related party ............. $ - $ 16,000 $ -
========= ========= ==========
Common stock issued for debt and accrued compensation - related party $ - $ 21,806 $ 35,000
========= ========= ==========
Common stock issued for debt and accrued interest - related party .... $ - $ - $ 411,667
========= ========= ==========
See Accompanying Notes to the Unaudited Financial Statements
5
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America and the rules and regulations of the United States
Securities and Exchange Commission for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all the information and footnotes necessary for a
comprehensive presentation of financial position, results of operations, or cash
flows. It is management's opinion, however, that all material adjustments
(consisting of normal recurring adjustments) have been made which are necessary
for a fair financial statement presentation. The results for the interim period
are not necessarily indicative of the results to be expected for the full year.
Management has evaluated subsequent events, and the impact on the reported
results and disclosures, through August 12, 2010 which is the date these
financial statements are available for issuance.
The unaudited interim financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K, which contains the audited
financial statements and notes thereto, together with the Management's
Discussion and Analysis, for the year ended December 31, 2009. The interim
results for the period ended June 30, 2010 are not necessarily indicative of the
results for the full fiscal year.
NOTE 2 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------------------------------
NATURE OF OPERATIONS
World Mortgage Exchange Group, Inc. (formerly Pop Starz Records, Inc.)
(the "Company") is a Florida corporation incorporated on July 5, 2006. The
Company's business purpose is to develop, produce, license, acquire and
distribute recorded music, primarily in the Hip Hop and Pop genres which now has
been abandoned. The Company business focus has been changed to real estate
effective September 2009 to coincide with the change of management and board of
directors members.
The Company's initial focus will be on the purchase and sale of real
property. In order to assist buyers in securing financing, the Company has
developed a 49 year mortgage payment program.
To fully implement our business plan, the Company will require a
significant capital infusion the extent of which cannot be reasonably forecast
at this time. If we issue shares of our common stock, existing shareholders will
experience significant dilution. Any debt financing may not be available or if
available, may not be available on terms suitable for the Company. We currently
have no commitment for funding.
DEVELOPMENT STAGE
The Company's financial statements are presented as those of a development
stage enterprise. Activities during the development stage primarily include
related party debt and equity-based financing, acquisition and creation of
intellectual properties and certain research and development activities to
improve current technological concepts.
6
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Significant estimates in 2010 and 2009 include, stock issued for services,
stock issued to convert outstanding debt, estimated useful life of equipment,
and a 100% valuation allowance for deferred taxes due to the Company's
continuing and expected future losses.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with a maturity of three months or less and
money market accounts to be cash equivalents. At June 30, 2010, the Company had
cash and cash equivalents in the amount of $2,151, as compared to no cash and
cash equivalents for the period ended December 31, 2009.
EARNINGS PER SHARE
Basic earnings/(loss) per share is computed by dividing net loss by
weighted average number of shares of common stock outstanding during each
period. Diluted earnings/(loss) per share is computed by dividing net
income/(loss) by the weighted average number of shares of common stock, common
stock equivalents and potentially dilutive securities outstanding during each
period. Diluted earnings/(loss) per common share is not presented because it is
anti-dilutive. For the three and six month ended June 30, 2010 and 2009, and for
the period from July 5, 2006 (inception) to June 30, 2010, respectively, the
Company did not have any outstanding dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosures of information about
the fair value of certain financial instruments for which it is practicable to
estimate the value. For purpose of this disclosure, the fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than in a forced sale or
liquidation.
The carrying amount reported in the balance sheet for judgment receivable,
accounts payable, accrued expenses, accrued compensation - related party, and
amounts due to related parties approximates its fair market value based on the
short-term maturity of these instruments.
SEGMENT INFORMATION
The Company follows Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information." During
2010, the Company only operated in one segment; therefore, segment information
has not been presented.
7
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
STOCK-BASED COMPENSATION
Stock based compensation is accounted for under SFAS No. 123R,
"Share-Based Payment." SFAS No. 123R requires recognition in the financial
statements of the cost of employee and director services received in exchange
for an award of equity instruments over the period the employee or director is
required to perform the services in exchange for the award (presumptively the
vesting period). SFAS No. 123R also requires measurement of the cost of employee
and director services received in exchange for an award based on the grant-date
fair value of the award. The Company accounts for non-employee share-based
awards in accordance with EITF No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquisition, or in Conjunction with
Selling, Goods or Services."
RECENT ACCOUNTING PRONOUNCEMENTS
On April 1, 2009, the Company implemented the provisions of ASC 805
"Business Combinations" ("ASC 805") which provides revised guidance for
recognizing and measuring identifiable assets and goodwill acquired. The
standard now requires the assets acquired, liabilities assumed, and any
non-controlling interest to be measured at their fair values as of the
acquisition date. ASC 805 also requires expensing of acquisition related costs
and restructuring costs, and re-measurement of earn out provisions at fair
value. This standard is effective for any of the Company's business combinations
on or after April 1, 2009. The adoption of this standard did not have any effect
on the Company's consolidated financial statements.
On April 1, 2009, the Company implemented the provisions ASC 820, "Fair
Value Measurements and Disclosures" ("ASC 820"). ASC 820 provides a consistent
definition of fair value that focuses on exit price, prioritizes the use of
market-based inputs over entity-specific inputs for measuring fair value and
establishes a three-level hierarchy for fair value measurements. The Provisions
of ASC 820, as issued, are effective for the fiscal years beginning after
November 15, 2007. In February 2008, the Financial Accounting Standards Board,
or FASB delayed the effective date for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (that is, at least
annually) to fiscal years beginning after November 15, 2008, and interim periods
within those fiscal years for items within the scope. The adoption of this
standard did not have any effect on the Company's consolidated financial
statements.
In April 2009, the FASB released FSP SFAS 157-4, Determining Fair Value
When Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly ("SFAS No. 157-4").
SFAS No. 157-4 supersedes SFAS No. 157-3. SFAS No. 157-4 provides guidance on
how to determine the fair value of assets and liabilities when the volume and
level of activity for the asset/liability has significantly decreased. SFAS No.
157-4 also provides guidance on identifying circumstances that indicate a
transaction is not orderly. In addition, SFAS No. 157-4 requires disclosure in
interim and annual periods of the inputs and valuation techniques used to
measure fair value and a discussion of changes in valuation techniques. SFAS No.
157-4 is effective for interim and annual periods ending after June 15, 2009
(June 30, 2009 for the Company) and shall be applied prospectively. SFAS No.
157-4 does not have a material impact on the preparation of and disclosures in
the Company's financial statements.
8
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
In May 2009, the FASB issued SFAS No. 165, Subsequent Events ("SFAS No.
165"). SFAS No. 165 establishes general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. It requires
entities to disclose the date through which it has evaluated subsequent events
and the basis for that date. SFAS No. 165 is effective for interim and annual
periods ending after June 15, 2009. The Company adopted SFAS No. 165 on June 30,
2009 (see note 10 in the notes to the financial statements included in this
Report on Form 10-K).
In June 2009, the FASB, issued ASC 105 which is the single source of
authoritative nongovernmental U.S. generally accepted accounting principles, or
GAAP, superseding existing FASB, American Institute of Certified Public
Accountants, or AICPA, Emerging Issues Task Force, or EITF, and related
accounting literature. This standard reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included is relevant Securities and Exchange
Commission guidance organized using the same topical structure in separate
sections. This standard was effective for financial statements issued for
reporting periods that end after September 15, 2009. The Company adopted this
standard for the interim period ending September 26, 2009. The adoption of this
standard did not have a material impact on our financial statements, however, it
did change our references to GAAP in our consolidated financial statements.
In June 2009, the FASB issued authoritative guidance that eliminates the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity and requires on-going qualitative
reassessments of whether an enterprise is the primary beneficiary of a variable
interest entity. This guidance is effective for fiscal years beginning after
November 15, 2009. The adoption of this guidance is not anticipated to have a
material impact on the Company's consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140 ("SFAS No. 166"). The
objective of SFAS No. 166 is to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash
flows; and a transferor's continuing involvement, if any, in transferred
financial assets. SFAS No. 166 removes the concept of a qualifying
special-purpose entity from Statement 140 and removes the exception from
applying FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, to qualifying special-purpose entities. Additionally, SFAS No. 166
defines the term participating interest to establish specific conditions for
reporting a transfer of a portion of a financial asset as a sale, and also
requires that a transferor recognize and initially measure at fair value all
assets obtained (including a transferor's beneficial interest) and liabilities
incurred as a result of a transfer of financial assets accounted for as a sale.
SFAS No. 166 is effective for fiscal periods ending after November 15, 2009
(January 1, 2010 for the Company). The Company is currently evaluating the
impacts and disclosures related to SFAS No. 166.
9
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB
Interpretation No. 46(R) ("SFAS No. 167"). SFAS No. 167 amends guidance in
Interpretation 46 (R) for determining whether an entity is a variable interest
entity in addition to subjecting enterprises to a number of other requirements
including, among other things: (i) requiring an enterprise to perform an
analysis to determine whether the enterprise's variable interest or interests
give it a controlling financial interest in a variable interest entity and
specifies the characteristics the primary beneficiary of a variable interest
entity must have to be designated as such; (ii) requiring an enterprise to
assess whether it has an implicit financial responsibility to ensure that a
variable interest entity operates as designed when determining whether it has
the power to direct the activities of the variable interest entity that most
significantly impact the entity's economic performance; (iii) requiring the
ongoing reassessments of whether an enterprise is the primary beneficiary of a
variable interest entity; (iv) the elimination of the quantitative approach
previously required for determining the primary beneficiary of a variable
interest entity, and (v) adding an additional reconsideration event for
determining whether an entity is a variable interest entity when any changes in
facts and circumstances occur such that investors of the equity investment at
risk, as a group, lose the power from voting or similar rights of the investment
to direct the activities of the entity that have the most significant impact on
the entity's economic performance. SFAS No. 167 is effective for fiscal and
interim periods ending after November 15, 2009 (January 1, 2010 for the
Company). The Company is currently evaluating the impacts and disclosures
related to SFAS No. 167.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles, a
replacement of FASB Statement No. 162 ("SFAS No. 168"). SFAS No. 168 establishes
the FASB Accounting Standards Codification as the source of authoritative
accounting principles recognized by FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with GAAP.
SFAS No. 168 is effective for fiscal and interim periods ending after September
15, 2009 (September 30, 2009 for the Company). The Company is currently
evaluating the impacts and disclosures related to SFAS No. 168.
Effective September 15, 2009, the Company adopted a new accounting
standard that establishes the Financial Accounting Standards Board ("FASB")
Accounting Standards Codification ("ASC") as the exclusive reference to be
applied in the preparation of financial statements in conformity with GAAP.
Accordingly, all references to legacy guidance issued under previously
recognized authoritative literature have been removed in the third quarter of
fiscal 2009. The Company's adoption of this authoritative guidance changed how
it references GAAP in its disclosures.
In October 2009, the FASB issued guidance on the accounting for
multiple-deliverable revenue arrangements. This guidance establishes a selling
price hierarchy for determining the selling price of a deliverable; eliminates
the residual method of allocation and requires arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the
relative selling price method; and requires a vendor to determine its best
estimate of selling price in a manner consistent with that used to determine the
selling price of the deliverable on a stand-alone basis. This guidance also
expands the required disclosures related to a vendor's multiple-deliverable
revenue arrangements. The guidance is effective beginning February 1, 2011 with
early adoption permitted. The Company does not believe the adoption of this
standard will have a material impact on our consolidated results of operations,
financial condition, cash flows, or disclosures.
10
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
In October 2009, the FASB issued ASU No. 2009-13, "Revenue Recognition
(Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB
Emerging Issues Task Force)," which amends ASC 605-25, "Revenue Recognition:
Multiple-Element Arrangements." ASU No. 2009-13 addresses how to determine
whether an arrangement involving multiple deliverables contains more than one
unit of accounting and how to allocate consideration to each unit of accounting
in the arrangement. This ASU replaces all references to fair value as the
measurement criteria with the term selling price and establishes a hierarchy for
determining the selling price of a deliverable. ASU No. 2009-13 also eliminates
the use of the residual value method for determining the allocation of
arrangement consideration. Additionally, ASU No. 2009-13 requires expanded
disclosures. This ASU will become effective for us for revenue arrangements
entered into or materially modified on or after April 1, 2011. Earlier
application is permitted with required transition disclosures based on the
period of adoption. We are currently evaluating the impact of this standard on
our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-14, "Software (Topic 985):
Certain Revenue Arrangements That Include Software Elements (a consensus of the
FASB Emerging Issues Task Force)." ASU No. 2009-14 amends ASC 985-605,
"Software: Revenue Recognition," such that tangible products, containing both
software and non-software components that function together to deliver the
tangible product's essential functionality, are no longer within the scope of
ASC 985-605. It also amends the determination of how arrangement consideration
should be allocated to deliverables in a multiple-deliverable revenue
arrangement. This ASU will become effective for us for revenue arrangements
entered into or materially modified on or after April 1, 2011. Earlier
application is permitted with required transition disclosures based on the
period of adoption. We are currently evaluating the impact of this standard on
our consolidated financial statements. Both ASU No. 2009-13 and ASU No. 2009-14
must be adopted in the same period and must use the same transition disclosures.
In January 2010, the FASB issued an update that improves the requirements
related to fair value measurements and disclosures about transfers between Level
1, Level 2 and Level 3 assets and the disaggregated activity in the roll forward
for Level 3 fair value measurements. These new disclosures are effective for
fiscal years beginning after December 15, 2010 and for interim periods within
those fiscal years. The Company does not expect the adoption of these expanded
disclosures to have a material impact on its consolidated financial statements.
In February 2010, the FASB issued Accounting Standards Update ("ASU") No.
2010-09 ("ASU 2010-09"), which amends ASC 855 to address certain implementation
issues related to an entity's requirement to perform and disclose
subsequent-events procedures. The new guidance clarifies that management must
evaluate, as of each reporting period, events or transactions that occur after
the balance sheet date through the date that the financial statements are
issued. Management must perform its assessment for both interim and annual
financial reporting periods. ASU 2010-09 also exempts SEC filers from disclosing
the date through which subsequent events have been evaluated. The adoption of
this amended standard did not have a material impact on the company's
consolidated financial statements.
IMPACT OF NEW ACCOUNTING STANDARDS
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position, or cash flow.
11
World Mortgage Exchange Group, Inc.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 3 - GOING CONCERN
- ----------------------
As reflected in the accompanying financial statements, the Company has a
net loss of $83,878, net cash used in operations of $98,849 for the six months
ended June 30, 2010, a working capital surplus of $2,151, a deficit accumulated
during the development stage of $823,058 and a stockholders' deficit of $98,849
at June 30, 2010 indicating lack of profitability in the past and raising doubt
about future liquidity
In addition, the Company is in the development stage and has not yet
generated any revenues. The ability of the Company to continue as a going
concern is dependent upon the Company's ability to further implement its
business plan and to continue to raise funds through debt or equity raises. The
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.
NOTE 4 - CONVERTIBLE DEBENTURES
During March of 2010, the Company issued a $35,000 convertible debenture
to Matthew King which will mature in March of 2013. The note will pay an
annualized rate of return equal to 7% and can be converted at any time for the
greater of $1.00 per share or 80% of the last 10 days bid price.
NOTE 5 - ADVANCE FROM AFFILAITES AND PRIVATE INVESTORS
During March of 2010, the Company received $101,000 from affiliates to
provide operating capital. The Advancement will be re-paid at an annualized rate
of return equal to 7%.
NOTE 6 - STOCKHOLDERS' EQUITY (DEFICIT)
- ---------------------------------------
At June 30, 2010, the authorized capital of the company consists of
100,000,000 shares of common stock with a par value of $0.01. On June 30, 2010,
there are 16,704,862 shares issued and outstanding.
In March 2009, the Company issued 930,619 shares of common stock to a
related party for repayment of advances made to the Company in the amount of
$9,312. The Company also issued 600,000 shares of common stock to a related
party for accrued rent and rent expense.
In March 2009 the Company issued 50,000 shares of common stock for
professional services.
During March 2009, the Company issued 970,000 shares of common stock to
officers and directors for services rendered. The shares were valued based on
the closing trading price on the date the shares were earned, and ranged between
$.01 and $.03.
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
There is no subsequent event to disclose.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS
The statements contained in this report that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements are made based upon
management's current expectations and beliefs concerning future developments and
their potential effects upon the Company. There can be no assurance that future
developments affecting the Company will be those anticipated by management.
Actual results may differ materially from those included in the forward-looking
statements.
Readers are also directed to other risks and uncertainties discussed
herein and in other documents filed by the Company with the Securities and
Exchange Commission. The Company undertakes no obligation to update or revise
any forward-looking information, whether as a result of new information, future
developments or otherwise.
OVERVIEW AND HISTORY
World Mortgage Exchange Group, Inc., formerly known as Pop Starz Records,
Inc. (the "Company", "WMEG", "we", or "our") was incorporated July 5, 2006,
under the laws of the State of Florida. The Company's original business purpose
was to develop, produce, license, acquire and distribute recorded music,
primarily in the popular Hip Hop and Pop genres. We were not successful with
this business venture.
On September 8, 2009 shareholders owning a majority of our issued and
outstanding shares of common stock were sold in a private transaction. In
connection therewith, each of the Company's officers and directors tendered
their resignation. Concurrently therewith, we appointed new officers and
directors.
The Company's new officers and directors were not familiar with the music
or recording industry and changed the Company's business focus to real estate.
CURRENT BUSINESS STRATEGY
The Company's initial focus will be on the purchase and sale of real
property. In order to assist buyers in securing financing, the Company has
developed a 49 year mortgage payment program.
To fully implement our business plan, the Company will require a
significant capital infusion the extent of which cannot be reasonably forecast
at this time. If we issue shares of our common stock, existing shareholders will
experience significant dilution. Any debt financing may not be available or if
available, may not be available on terms suitable for the Company. We currently
have no commitment for funding.
EFFECT OF STATUS AS A "SHELL" COMPANY
Because we are a shell company as defined under the Rules of the
Securities and Exchange Commission, we are disqualified from using a short form
of registration statement (S-8) for the issuance of employee stock options.
Furthermore, holders of restricted securities issued while we were or are a
shell company may not re-sell the restricted securities pursuant to SEC Rule 144
for a period of one year after we cease to be a shell and have filed the
necessary report with the SEC to that effect.
13
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
In March 2010 we closed on our first transaction as part of our new
business plan. We purchased a single family detached home in Ackerman,
Mississippi. The purchase price was financed by issuing the seller a convertible
debenture for $35,000.
We generated revenues from continuing operations during the three and six
months ended June 30, 2010 of $1,125 from the Ackerman, Mississippi property. We
did not generate any revenue from continuing operations during the three and six
months ended June 30, 2009.
During the three months ended June 30, 2010 we incurred general and
administrative expenses totaling $30,106, as compared to $16,631 for the same
period in the prior year. The increase in the current year was due primarily to
an increase in expenses to implement new business plan.
During the six months ended June 30, 2010 we incurred general and
administrative expenses totaling $83,878, as compared to $40,582 for the same
period in the prior year. The increase in the current year was due primarily to
an increase in expenses to implement new business plan.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2010, we have current assets in the amount of $2,151 and
non-current assets in the form of inventory in the amount of $35,000, as
compared to no current or non-current assets on December 31, 2009.
Our operations to date have been funded by loans and capital contributions
made by our affiliates and private investors.
We have no total current liabilities as of June 30, 2010 as compared to
$16,096 at December 31, 2009. The primary reason for this decrease is the
$16,096 we owed at December 31, 2009 was repaid. We have a working capital
surplus of $2,151. Unless we secure additional financing, of which there can be
no assurance, or begin to generate revenues in excess of expenses, we will not
be able to meet our obligations beyond the current surplus.
Due to our operating losses and deficits, our independent auditors in
their financial statements have raised doubts about our ability to continue as a
going concern. Despite these historical losses, management believes that due to
the new business model it will be able to satisfy ongoing operating expenses
through related party advances until such time as we are able to consummate a
business combination or begin operations. There can be no assurance that any
financing will be available, or if available, will be offered on terms that will
not adversely impact our shareholders.
For the six months ended June 30, 2010, we used cash in operating
activities of $98,849 as compared to $12,495 for the period ended June 30, 2009.
For the six months ended June 30, 2010 and 2009, we did not use any cash
in investing activities.
For the six months ended June 30, 2010, we received net cash provided by
financing activities of $101,000 as compared to $12,495 for the six months ended
June 30, 2009. During 2010, we received cash from affiliates and private
investors of $101,000. During 2009, we received cash from related party loans
and advances of $12,495.
14
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations are based upon our condensed financial statements, which have been
prepared pursuant to the rules and regulations of the SEC. Certain information
related to our organization, significant accounting policies and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. The preparation of the financial statements in accordance
with accounting principles generally accepted in the United States requires us
to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. On an ongoing basis, we evaluate
our estimates related to (i) useful lives of depreciable lives of assets; (ii)
income tax valuation allowances; (iii) valuation assumptions for share-based
payments. We base our estimates on historic experience and various other factors
related to each circumstance. Actual results could differ from those estimates
based upon future events, which could include, among other risks, changes in the
business environment in which we operate.
There are several accounting policies that we believe are significant to
the presentation of our financial statements and require management's most
difficult, complex or subjective judgments about matters that are inherently
uncertain. We believe our most critical accounting policies include (i) use of
estimates, which is described more fully above and (ii) the carrying values of
goodwill and other long-lived assets. Our significant accounting policies and
critical accounting estimates are disclosed more fully in our Annual Report on
Form 10-K for the year ended December 31, 2009. We do not believe there have
been significant changes to our critical accounting policies and estimates
subsequent to December 31, 2009.
OFF BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements. We do not
anticipate entering into any off-balance sheet arrangements during the next 12
months.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of our disclosure controls
and procedures, as defined in Rule 13a-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the
period covered by this Annual Report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this Annual Report, our disclosure controls and procedures
were effective to ensure that the information we are required to disclose in the
reports that we file or submit under the Exchange Act is (i) recorded,
processed, summarized and reported within the time periods specified in the l's
rules and forms and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as the
principal executive and financial officers, respectively, to allow timely
decisions regarding required disclosure.
15
It should be noted that any system of disclosure controls and procedures,
however well designed and operated, can provide only reasonable, and not
absolute, assurance that the objectives of the system will be met. In addition,
the design of any control system is based in part upon certain assumptions about
the likelihood of future events. We believe that the controls and procedures
currently in place provide reasonable assurance of the effectiveness of the
controls and procedures.
CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING
There was no change in the internal control over financial reporting that
occurred during the fiscal quarter ended June 30, 2010, that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of August 9, 2010, date the financial statements are available for
issuance, the Company is not involved in any legal proceedings.
ITEM 1A. RISK FACTORS
RISKS ASSOCIATED WITH THE COMPANY'S PROSPECTIVE BUSINESS AND OPERATIONS
IT IS UNLIKELY THAT WE WILL BE ABLE TO SUSTAIN PROFITABLE OPERATIONS IN THE NEAR
FUTURE.
We have had limited operations to date. We have incurred significant
start-up costs. There can be no assurance that we will be able to generate
sufficient revenues or cash flows to finance our operations and existing
obligations. Even if we are able to successfully expand our operations and
increase revenues, there can be no assurance that we will be able to operate
profitably.
It is critical to our success that we continue to devote financial
resources to implement our business plan. We expect that our operating expenses
will increase significantly, especially with respect to sales and marketing. As
we increase spending, there can be no assurance that we will be able to operate
on a profitable basis. As a result, we may not be able to sustain profitable
operations.
WE LACK ADEQUATE WORKING CAPITAL.
Our auditors have issued a going concern opinion. We do not currently have
adequate capital to implement our business plan. If our working capital
estimates prove wrong or if we are not successful in obtaining additional
financing, our business operations will suffer.
We may require both short-term financing for operations and long-term
capital to fund our expected growth if we want to fully implement our business
plan and take advantage of evolving market conditions. Additional financing may
not be available to us, or if available, then it may not be available upon terms
and conditions acceptable to us. Any equity financing may be dilutive to
shareholders, and debt financing, if available, would increase expenses and may
involve restrictive covenants.
We may be required to raise additional capital, at times and in amounts,
which are uncertain, especially under the current capital market conditions.
Under these circumstances, if we unable to acquire additional capital or is
required to raise it on terms that are less satisfactory than desired, it may
have a material adverse effect on its financial condition.
16
REAL ESTATE DEVELOPMENT AND MORTGAGE BANKING REQUIRE THE AVAILABILITY OF
SIGNIFICANT CAPITAL.
In order for us to purchase real estate or offer mortgage financing, we
will require a significant capital infusion. In addition, we may have to look to
more traditional lending sources in order to close our transactions. If we do
not have sufficient capital to self finance our operations, given our limited
operating history and lack of cash flow, obtaining additional funding sources
will be very difficult as financial institution lending practices have become
increasingly restrictive.
THE ONGOING DOWNTURN IN THE GENERAL ECONOMY AND THE REAL ESTATE MARKET COULD
NEGATIVELY IMPACT OUR BUSINESS AND FINANCIAL RESULTS.
Periods of economic slowdown or recession, significantly reduced access to
credit, declining employment levels, decreasing demand for real estate,
declining real estate values or the perception that any of these events may
occur can adversely impact our business model. The declining real estate market
in the United States, the availability and cost of credit, increased
unemployment, volatile oil prices, declining consumer confidence and the
instability of United States banking and financial institutions, have
contributed to increased volatility, an overall economic slowdown and diminished
expectations for the economy and markets going forward. The fragile state of the
credit markets, the fear of a global recession for an extended period and the
current economic environment will impact our planned business activities.
WE WILL OPERATE IN A HIGHLY COMPETITIVE BUSINESS WITH NUMEROUS COMPETITORS, MOST
OF WHOM WILL HAVE GREATER FINANCIAL AND OPERATIONAL RESOURCES THAN IT DOES.
We will compete in a variety of service disciplines. Each of these
business areas is highly competitive on a national as well as on a regional and
local level. We will experience competition not only from other national real
estate service providers, but also from global real estate service providers,
boutique real estate advisory firms, consulting and appraisal firms. Depending
on the product or service, we also face competition from other real estate
service providers, institutional lenders, insurance companies, investment
banking firms and investment managers.
OUR ABILITY TO ACCESS CREDIT AND CAPITAL MARKETS MAY BE ADVERSELY AFFECTED BY
FACTORS BEYOND OUR CONTROL, INCLUDING TURMOIL IN THE FINANCIAL SERVICES
INDUSTRY, VOLATILITY IN FINANCIAL MARKETS AND GENERAL ECONOMIC DOWNTURNS.
Market disruptions such as those currently being experienced in the United
States and other countries may increase our cost of borrowing or adversely
affect our ability to access sources of liquidity. These disruptions include
turmoil in the financial services and real estate industries, including
substantial uncertainty surrounding particular lending institutions and, and
general economic downturns. If we are unable to access credit at competitive
rates or at all, or if our short-term or long-term borrowing costs dramatically
increase, our ability to finance our operations, meet our short-term obligations
and implement our operating strategy could be adversely affected.
IF WE FAIL TO COMPLY WITH LAWS AND REGULATIONS APPLICABLE TO OUR PLANNED
BUSINESS OPERATIONS, WE MAY INCUR SIGNIFICANT FINANCIAL PENALTIES.
Our business operations will be subject to numerous federal, state and
local laws and regulations specific to the services performed. If we fail to
maintain our licenses or violate any of the regulations applicable to our
licenses, then we may be required to pay fines or our licenses suspended or
revoked.
17
SECURING REQUIRED LICENSING CAN BE COSTLY AND RESULT IN UNANTICIPATED DELAYS.
We will have to secure a number of business licenses in order for us to
commence operations and implement our business strategy. Securing proper
licensing can be costly and take long periods of time. If we cannot secure
proper licensing on a timely basis, our business will be adversely affected.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS COULD SIGNIFICANTLY IMPEDE OUR ABILITY TO
RESPOND TO ADVERSE CHANGES IN THE PERFORMANCE OF OUR OPERATIONS.
Because real estate is relatively illiquid, our ability to promptly
facilitate a sale of one or more properties or investments in our programs in
response to changing economic, financial and investment conditions may be
limited. In particular, these risks could arise from weakness in the market for
a property, changes in the financial condition or prospects of prospective
purchasers, changes in regional, national or international economic conditions,
and changes in laws, regulations or fiscal policies of jurisdictions in which
the property is located. Fees from the disposition of properties would be
materially affected if we are unable to facilitate a significant number of
property dispositions.
UNINSURED AND UNDERINSURED LOSSES MAY ADVERSELY AFFECT OPERATIONS.
We have not yet secured any type of insurance nor can we be assured that
any insurance that we obtain will provide adequate coverage. As a result, we may
incur losses due to insurance deductibles, co-payments on insured losses or
uninsured losses. In the event of a substantial property loss or personal
injury, the insurance coverage may not be sufficient to pay the full damages ...
Under these circumstances, the insurance proceeds we receive if any, might not
be adequate to restore the Company's economic position with respect to the
property. In the event of a significant loss at one or more of the properties in
the Company's operations. In this event, securing additional insurance, if
possible, could be significantly more expensive.
MORTGAGE LENDING PRACTICES HAVE BECOME MORE REGULATED.
Relaxed lending guidelines over the past few years have resulted in a
significant increase in foreclosures. As a result, lending policies have been
tightened. Even if we successfully implement a 49 year term mortgage, there can
be no assurance that prospective buyers will be able to qualify for the
mortgage.
PROSPECTIVE HOME BUYERS MAY NOT BE RECEPTIVE TO OUR 49 YEAR MORTGAGES.
Mortgages with longer terms will result in lower monthly payments and
greater affordability to home buyers. However, some home buyers may not
participate in the program as their equity interest in the property will
increase at a much slower rate than otherwise in a traditional 30 year mortgage.
Moreover, the interest payable over the loan term will be significantly greater
than the interest paid on a 30 year mortgage.
ANY AGREEMENT WE ENTER INTO WITH MANAGEMENT WILL NOT BE NEGOTIATED AT ARM'S
LENGTH.
Some of our officers serve on our Board of Directors. The Board of
Directors will set the salary level for our officers. As a result, our officers
will be able to set their own compensation level. While we believe that the
compensation that we will pay our officers will be equivalent to salaries paid
to other executives in similarly situated developmental stage companies, there
will be an inherent conflict of interest in the compensation payable to our
officers and our working capital requirements.
18
COMPETITION
The purchase and sale of real estate and mortgage underwriting are highly
competitive, rapidly evolving and subject to constant change. We will compete
against large multi-national corporations as well as real estate developers,
banks and other financial institutions. We expect that as we establish a market
niche, competition will arise from a variety of sources, both domestically and
internationally.
Many of our potential competitors will have:
o greater financial, technical, personnel, promotional and marketing
resources;
o longer operating histories; and
o greater exposure to financial institutions.
We believe that existing industry competitors are likely to continue to
expand their offerings. Moreover, because there are few, if any, substantial
barriers to entry, we expect that new competitors are likely to enter the market
and attempt to market a similar product which would result in greater
competition. We cannot be certain that we will be able to compete successfully
in this extremely competitive market.
OUR SUCCESS WILL BE LARGELY DEPENDENT UPON OUR KEY EXECUTIVE OFFICERS AND OTHER
KEY PERSONNEL.
Our success will be largely dependent upon the continued employment of our
current officers. The loss of their services would have a material adverse
effect on us. We do not maintain key man insurance on their life. Although we
believe that we would be able to locate a suitable replacement, we cannot assure
you that we would be able to do so. In addition, our future operating results
will substantially depend upon our ability to attract and retain highly
qualified financial, technical, creative and administrative personnel.
OUR OPERATING RESULTS MAY PROVE UNPREDICTABLE.
Our operating results are likely to fluctuate significantly in the future
due to a variety of factors, many of which are outside of our control. Factors
that may affect our future operations include the condition of the real estate
market, mortgage rates, employment rate, market acceptance of our products and
services, unforeseen competition, limited working capital and changing market
dynamics.
REAL ESTATE INVESTMENTS ARE RISKY AND WILL INHIBIT OUR CASH FLOW.
We will be subject to risks associated with the direct ownership of real
estate, such as decreases in real estate values, overbuilding, increased
competition and other risks related to local or general economic conditions,
increases in operating costs and property taxes, changes in zoning laws,
casualty or condemnation losses, possible environmental liabilities, regulatory
limitations on rent and fluctuations in rental income. Our inability to gauge
these risks will adversely impact our operations.
19
DEPRECIATING PROPERTY VALUES WILL ADVERSELY AFFECT THE VALUE OF ANY MORTGAGES
THAT WE HOLD.
We may make loans that are collateralized, in whole or in part, by real
estate. Accordingly, the value of a loan may be detrimentally affected if the
real estate collateral declines in value. To that extent, we will be subject to
the risks generally incident to the ownership of real property, including:
uncertainty of cash flow to meet fixed and other obligations; adverse changes in
local market conditions, population trends, neighborhood values, community
conditions, general economic conditions, local employment conditions, interest
rates and real estate tax rates; changes in fiscal policies; changes in
applicable laws and regulations (including tax laws); and uninsured losses and
other risks that are beyond our control. In addition, to the extent that we
become the owner of real estate as a result of a foreclosure, we could be
exposed to significant carrying costs prior to the liquidation of the asset and
may be unable to realize the value assigned to the asset upon liquidation. RISKS
RELATED TO OUR COMMON STOCK
OUR STOCK PRICE MAY BE VOLATILE.
The market price of our common stock has historically been volatile. We
believe investors should expect continued volatility in our stock price as a
result of various factors, including:
1. Low daily trading volume,
2. Generally large spreads between quoted bid and offer prices,
3. Uncertainty of the company's future,
4. Sales of substantial amounts of our common stock by existing
stockholders, including short sales,
5. Company disclosures regarding the results of various stages of our
exploration operations.
Such volatility may make it difficult or impossible for you to obtain a
favorable selling price for our shares.
THERE IS A LIMITED MARKET FOR OUR COMMON STOCK.
Although the Company's common stock is listed for trading on the
Over-the-Counter Electronic Bulletin Board, the trading market in the common
stock has substantially less liquidity than the average trading market for
companies quoted on other national stock exchanges and our price may fluctuate
dramatically. A public trading market having the desired characteristics of
depth, liquidity and orderliness depends on the presence in the marketplace of
willing buyers and sellers of our common stock at any given time. This presence
depends on the individual decisions of investors and general economic and market
conditions over which we have no control. Due to limited trading volume, the
market price of the Company's common stock may fluctuate significantly in the
future, and these fluctuations may be unrelated to the Company's performance.
General market price declines or overall market volatility in the future could
adversely affect the price of the Company's common stock, and the current market
price may not be indicative of future market prices.
WE MAY ISSUE ADDITIONAL COMMON SHARES IN THE FUTURE WHICH WOULD DILUTE THE
OUTSTANDING SHARES.
The prices at which we sell these securities and other terms and
provisions will depend on prevailing market conditions and other factors in
effect at that time, all of which are beyond our control.
20
THE COMPANY DOES NOT EXPECT TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
The Company has never paid cash dividends on its common stock and has no
plans to do so in the foreseeable future. The Company intends to retain
earnings, if any, to develop and expand its business.
WE HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN
THE ABSENCE OF WHICH, SHAREHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.
Recent federal legislation, including the Sarbanes-Oxley Act of 2002, has
resulted in the adoption of various corporate governance measures designed to
promote the integrity of the corporate management and the securities markets.
Some of these measures have been adopted in response to legal requirements.
Others have been adopted by companies in response to the requirements of
national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on
which their securities are listed. Among the corporate governance measures that
are required under the rules of national securities exchanges and NASDAQ are
those that address board of directors' independence, audit committee oversight,
and the adoption of a code of ethics. While our board of directors has adopted a
Code of Ethics and Business Conduct, we have not yet adopted any of these
corporate governance measures. It is possible that if we were to adopt some or
all of these corporate governance measures, shareholders would benefit from
somewhat greater assurances that internal corporate decisions were being made by
disinterested directors and that policies had been implemented to define
responsible conduct. For example, in the absence of audit, nominating and
compensation committees comprised of at least a majority of independent
directors, decisions concerning matters such as compensation packages to our
senior officers and recommendations for director nominees may be made by a
majority of directors who have an interest in the outcome of the matters being
decided. Prospective investors should bear in mind our current lack of corporate
governance measures in formulating their investment decisions.
WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR
INDEPENDENT AUDITORS.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"),
the Securities and Exchange Commission adopted rules requiring public companies
to include a report of management on the company's internal controls over
financial reporting in their annual reports, including Form 10-K. In addition,
the independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting as
well as the operating effectiveness of the company's internal controls ..
We expect to expend significant resources in developing the necessary
documentation and testing procedures required by SOX 404, there is a risk that
we will not comply with all of the requirements imposed thereby. At present,
there is no precedent available with which to measure compliance adequacy.
Accordingly, there can be no positive assurance that we will receive a positive
attestation from our independent auditors. In the event we identify significant
deficiencies or material weaknesses in our internal controls that we cannot
remediate in a timely manner or we are unable to receive a positive attestation
from our independent auditors with respect to our internal controls, investors
and others may lose confidence in the reliability of our financial statements
and our ability to obtain equity or debt financing could suffer.
21
"PENNY STOCK" RULES MAY MAKE BUYING OR SELLING THE COMMON STOCK DIFFICULT AND
SEVERELY LIMIT THEIR MARKET AND LIQUIDITY.
Trading in the Company's common stock is subject to certain regulations
adopted by the SEC commonly known as the "Penny Stock Rules". The Company's
common stock qualifies as penny stock and is covered by Section 15(g) of the
Securities and Exchange Act of 1934, as amended (the "1934 Act"), which imposes
additional sales practice requirements on broker/dealers who sell the Company's
common stock in the market. The "Penny Stock" rules govern how broker/dealers
can deal with their clients and "penny stock". For sales of the Company's common
stock, the broker/dealer must make a special suitability determination and
receive from clients a written agreement prior to making a sale. The additional
burdens imposed upon broker/dealers by the "penny stock" rules may discourage
broker/dealers from effecting transactions in the Company's common stock, which
could severely limit its market price and liquidity. This could prevent
investors from reselling our common stock and may cause the price of the common
stock to decline.
A SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK MAY CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE.
If our stockholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. These sales also
may make it more difficult for us to sell equity or equity-related securities in
the future at a time and price that we deem reasonable or appropriate.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Various statements contained herein, including those that express a
belief, expectation, or intention, as well as those that are not statements of
historical fact, are forward-looking statements. We use words such as "believe,"
"intend," "expect," "anticipate," "plan," "may," "will," "should" and similar
expressions to identify forward-looking statements. The forward-looking
statements in this private placement memorandum speak only as of the date
hereof. We disclaim any obligation to update these statements unless required by
applicable securities laws, and we caution you not to rely on them unduly. You
are further cautioned that any forward-looking statements are not guarantees of
future performance. Our beliefs, expectations and intentions can change as a
result of many possible events or factors, not all of which are known to us or
are within our control, and a number of risks and uncertainties could cause
actual results to differ materially from those anticipated in the
forward-looking statements. Such factors, risks and uncertainties include, but
are not limited to:
o liquidity and availability of additional or continued sources of
financing;
o the continued weakening national economy in general and the residential
real estate market in particular;
o the continued global credit crisis and capital market disruption;
o changes in general economic and business conditions, including interest
rat3es and the availability of financing;
o our ability to compete effectively in markets that are material to us;
o significant variability in our cash flow;
o our ability to retain current management and hire key employees;
o our ability to comply with laws and regulations;
22
o reliance on third parties to assist us in our developmental stages; and
o trends in pricing for residential real estate.
THE RISKS SET FORTH ABOVE SHOULD NOT BE CONSTRUED AS A COMPLETE LIST OF THE
RISKS WHICH MAY AFFECT THE COMPANY'S BUSINESS, THE OFFERING OR THE RISKS WHICH
YOU FACE AS A PROSPECTIVE INVESTOR. THE SECURITIES OFFERED INVOLVE A HIGH DEGREE
OF RISK AND MAY RESULT IN THE LOSS OF YOUR ENTIRE INVESTMENT. ANY PERSON
CONSIDERING THE PURCHASE OF THESE SECURITIES SHOULD BE AWARE OF THESE AND OTHER
FACTORS SET FORTH IN THIS MEMORANDUM AND SHOULD CONSULT WITH HIS, HER OR ITS
LEGAL, TAX AND FINANCIAL ADVISORS PRIOR TO MAKING AN INVESTMENT IN SECURITIES.
THE SECURITIES SHOULD ONLY BE PURCHASED BY PERSONS WHO CAN AFFORD TO LOSE ALL OF
THEIR INVESTMENT.
ITEM 2. SALE OF UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEED
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
Set forth below is a list of exhibits to this quarterly report on Form
10Q.
Exhibit
Number Description
- ------- --------------------------------------------------------------------
31.1 * Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
31.2 * Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934,
as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
32.1 * Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.
32.2 * Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley act of 2002.
(1) Secretary of State of Florida Name change
* Filed herewith
23
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
World Mortgage Exchange Group, Inc.
Date: August 12, 2010 By: /s/Ron Reeser
-------------
Ron Reeser
Chief Executive Officer
Date: August 12, 2010 By: /s/ Brian James
---------------
Brian James
Chief Financial Officer
24