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MOMO > SEC Filings for MOMO > Form 10-K on 16-Apr-2013All Recent SEC Filings

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Form 10-K for MOPALS.COM, INC.


16-Apr-2013

Annual Report


Item 7. 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 fiscal years ended December 31, 2012 and 2011. The results of the Mortgage Brokerage Business is reported as discontinued operations as a result of the imminent Mortgage Brokerage Privatization. The following information should be read in conjunction with the audited consolidated financial statements for the period ending December 31, 2012 and notes thereto appearing elsewhere in this Form 10K.

Discontinued Operations

As mentioned in the past three quarterly Form 10Qs and the 2011 Form 10K, management had been actively exploring restructuring options to reduce Company overhead expenses. Based upon the 2011 year-end financial results, the 2012 financial results of operations and:

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,

our Director has decided to privatize the Canadian operations (the "Mortgage Brokerage Business") through a sale to a private company under common control ("Mortgage Brokerage Privatization"). In an effort to reduce overhead costs, and in exchange for the provision of ongoing working capital deficit funding, in late 2010, 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. Over 2012, in an effort to further reduce overhead expenses and in preparation for the inevitable Mortgage Brokerage Privatization, all brokerage services including mortgage brokerage licensure, branding, mortgage agent back office operations, training and technology platforms were transitioned to the same related party company in the latter half of 2012.

Management will make its best efforts to complete the Mortgage Brokerage Privatization within the first half of 2013, however, there is no timetable for its finalization.

As part of the contemplated Mortgage Brokerage Privatization of the Company, the following occurred:

1. the Company's subsidiaries have not renewed their provincial mortgage brokerage licensure in the various jurisdictions where they operate. As at December 31, 2012, the Company's subsidiaries had no active licenses empowering them to operate as a mortgage brokerage;

2. select individual mortgage agents were offered the opportunity to operate under the licensure of a related party company;

3. In late 2012, all human resources for the Company were consolidated into a related party company that provided back office corporate services to the Company on a cost allocation basis. As of December 31, 2012, there were two part time employees.

The primary activity that currently takes place in our Company in the latter half of 2012 relates to:

1. activities related to the contemplated Mortgage Brokerage Privatization;

2. activities related to the administration of the publicly reporting entity; and

3. administration of the business including management of trades payables.

Subsequent Event Note

On March 26, 2013, the Company entered into the Exchange Agreement by and among
(i) the Company, (ii) MoPals (Nevada); (iii) the Company Principal Shareholder and (iv) and the MoPals Nevada Shareholders. Pursuant to the terms of the Exchange Agreement, the Company acquired 100% of the issued and outstanding equity securities of MoPals (Nevada) in exchange for the issuance of 50,000,000 shares of the Company's Common Stock.

Immediately prior to and concurrent with execution of the Share Exchange, the Company entered into the Agreement of Sale pursuant to which the Company transferred to MortgageBrokers.com Canada Inc., a related party private Canada corporation controlled by Alex Haditaghi, all of the Company's equity interest in the Company's mortgage brokerage business and MortgageBrokers.com Canada Inc. agreed to assume any and all liabilities associated with the Company's mortgage brokers business, including, but not limited to the commitments, liabilities and contingent liabilities, effective immediately prior to closing of the Share Exchange. Pursuant to the Agreement of Sale, the Companys Principal Shareholder forfeited all rights to any monies owed to the Company Principal Shareholder by the Company associated with a shareholder loan of approximately $25,000 (the "Spin Out and Cancellation").


On March 26, 2013, articles of amendments were filed with the State of Delaware changing the name of our Company to MoPals.com, Inc. pursuant to the Spin Out and Cancellation and subsequent execution of the Exchange Agreement.

Mopals.com, Inc. is a development stage internet and mobile brand loyalty social media company.

Results of Operations

The continuing operations, had the following comparative results from operations:

1) No reported gross revenue in 2012 or 2011.

2) Operating expenses were consistent in 2012 at $179,329 as compared with $188,065 in 2011; and,

3) Loss from operations of $179,329 in 2012 as compared to a loss of $188,065 in 2011.

Loss from discontinued operations, the Mortgage Brokerage Business, was $508,477 in 2012 as compared to a net loss of $1,376,943 in 2011.

The overall net loss which includes continuing operations and discontinued operations was $687,806 as compared to a net loss of $1,565,008 in 2011.

Unusual or Infrequent Events that affect Reported Income

a) The Company financial results include results of the discontinued operations, as our director has decided to execute the Mortgage Brokerage Privatization, selling the Canadian operations, the Mortgage Brokerage Business, to a related party private corporation.
b) The decrease in net loss in 2012 over 2011 is a direct result of the cost saving measures that the Company made by outsourcing operations to a related third party in preparation for the Mortgage Brokerage Privatization.

Revenue Trend Analysis

Our continuing operations have no reported gross revenue in 2012 or 2011.

Within the discontinued operations, gross revenue in 2012 decreased by 73% to $3,638,185 as compared to 2011. Management believes the negative revenue growth experienced between 2012 over 2011 was directly related to a reduction in the number of company mortgage agents; an overall mortgage origination malaise due to uncertain economic pressures; and, a general lack of recruitment of quality mortgage brokers during recessionary times as agents do not want to undergo a brand change and possibly affect their mortgage origination further during a market down turn, especially towards a company whose ability to continue as a going concern is uncertain. As discussed in more detail in Item 1 within this Form 10-K, our sales management team experienced a decrease in the number of our mortgage agents by 26% in 2011 as compared to 2010 which would have had a direct negative impact to top-line revenue numbers.


The following summarizes the factors that affect our revenue and their associated trends in our discontinued operations:

1) Revenue from the Company's Mortgage Brokerage Business can be divided into three streams: broker fees charged predominately to private lender customers or commercial lender customers where-in the lender does not pay an origination commission fee; origination commission fees paid by most lenders and trust institutions, and creditor life insurance commissions paid by the insurance carrier. The Table below summarizes revenue for the last four fiscal periods by revenue stream:

                  Revenue Organized by Revenue Stream ($ CAD)

                                     YE 2010                              YE 2011                             YE 2012
                                              Fee ($) /                            Fee ($) /                          Fee ($) /
                                              Volume ($)                           Volume ($)                         Volume ($)
                             Revenue            (bps)             Revenue            (bps)            Revenue           (bps)
Broker Fee Revenue       $     1,249,929             8.48     $       947,344             7.38     $       4,903             0.11
Origination Commission
Revenue                  $    12,902,178            87.57     $    12,419,134            96.75     $   3,597,178            80.06
Insurance Revenue        $       134,993             0.92     $       131,917             1.03     $      36,104             0.80
Total Revenue            $    14,287,100            96.97     $    13,498,395           105.16     $   3,638,185            80.97
Funded Origination
Volume                   $ 1,473,397,412                      $ 1,283,568,143                      $ 449,310,757

a) Approximately 99% of the Company's revenue in 2012 came from origination commission fees.

b) Origination commission revenue, on a commission fee per origination volume basis has been fairly consistent over the past three years.

c) Broker Fee revenue decreased by 71% from 2011 to 2012. Management attributes this to general market volatility; the lack of large real estate financings (and associated broker fees) that have taken place during the economic down turn; and, a decrease in our agent count.

d) We currently earn additional commission revenue through the referral and placement of creditor insurance with Benesure Canada Inc. (now wholly owned by Manulife Canada). The Company earns revenue in the form of an upfront fee as well as an on-going trailer fee. In 2012, the Company earned 73% less commission fees over the respective year's funded volume as less consumers purchased insurance during uncertain economic conditions.

2) In 2012, approximately 53% of the Company's Mortgage Brokerage Business revenue came from multi-product depository banks and trust institutions. 44% of the Company's revenue came from monoline lenders who have a single product offering and sell exclusively through the mortgage broker sales channel. 3% of our revenue comes from broker fees associated with private lenders. Generally, revenue from depository banks has declined by 19% between 2010 and 2012. Revenue from monoline lenders has increased by 21% between 2010 and 2012. Our contracted mortgage brokers are required to find the best terms for a customer that meet the customer's needs. The Company has no control over directing associated deal flow. In general, the Company earns its highest fees from private lenders.

                  Revenue Organized by ender Category ($ CAD)

                                      F2010            F2011            F2012
LENDER CATEGORY
DEPOSITORY BANKS & TRUSTS (22*)   $ 10,195,053     $  8,353,089     $ 1,911,255
MONOLINE LENDERS (12*)            $  3,337,776     $  4,472,823     $ 1,608,573
PRIVATE LENDERS (26*)             $    754,271     $    672,483     $   118,357
TOTALS:                           $ 14,287,100     $ 13,498,395     $ 3,638,185


3) The Company's Mortgage Brokerage Business operates two sales channels for originating mortgages. Approximately 99.2% of our mortgage origination volume in 2012 is sourced directly through our mortgage broker sales channel. Approximately 0.8% of our mortgage origination volume in 2012 was sourced through our real estate sales channel wherein the Company established regional referral contracts with strategic alliance partners RE/MAX in Eastern Canada and Maxwell in Western Canada (as further described in Item 1 of this Form 10-K). In general, the Company, as well as its agents, in aggregate, earn up to 30 basis points less when deal flow is sourced through a strategic alliance partner via the real estate sales channel. The long term intended trade-off was that the Company expected to source significant mortgage origination volume through the real estate channel, although this has proven not be the case. The Table below summarizes mortgage origination by sales channel over the past three years:

  Mortgage Brokerage Business Origination Summarized by Sales Channel ($ CAD)

CHANNEL                             YE 2010             YE 2011            YE 2012
Mortgage Broker Sales Channel   $ 1,471,138,076     $ 1,273,737,399     $ 445,647,444
Real Estate Sales Channel       $     2,259,336     $     9,830,744     $   3,663,313
GRAND TOTAL                     $ 1,473,397,412     $ 1,283,568,143     $ 449,310,757

4) The Table below summarizes mortgage origination by sales territory across Canada over the past three years of the Company's Mortgage Brokerage Business and we provide the following comments:

TERRITORY             YE 2010             YE 2011            YE 2012
Ontario           $ 1,135,930,199     $   931,369,094     $ 285,470,727
Alberta           $   257,893,685     $   277,414,019     $ 135,897,483
Atlantic Canada   $    79,573,528     $    74,785,029     $  27,942,546
GRAND TOTAL       $ 1,473,397,412     $ 1,283,568,142     $ 449,310,756

a) 64% of our volume in 2012 was originated from the Province of Ontario, 30% of our volume in 2012 was originated from the Province of Alberta and 6% of our volume in 2012 was originated from Atlantic Canada;

b) Commission fees (as described in section 1 heretofore) do not vary by geographical region as our lenders are typically federally chartered and offer the same service in each territory;

c) There is no difference in per unit revenue on a basis point basis for origination from one sales territory to another, although the size of mortgages, in general, are greater in Alberta and Ontario than Atlantic Canada;

d) The Company has experienced negative growth in mortgage origination in Ontario which declined by approximately 69% in 2012 over 2011. Mortgage origination in Alberta decreased by 51% in 2012 over 2011 levels. Mortgage origination in Atlantic Canada has been flat between 2011 and 2012.

Expense Trend Analysis

Our continuing operation's total operating expenses have been flat in 2012 at $179,329 as compared to $188,065 in 2011.

Within our discontinued operations, the Company's Mortgage Brokerage Business operating expenses decreased by 63% in 2012 over 2011. The primary components that comprised the Company's discontinued operations operating expenses are agent commissions, salaries and benefits, general and administrative expenses, occupancy costs and stock-based compensation. Decreases in operating expenses associated with discontinued operations are a direct result of outsourcing various aspects of the Mortgage Brokerage Business to a related third party in preparation of the imminent Mortgage Brokerage Privatization.

Liquidity

At December 31, 2012, we had $6,078 in cash, $28,509 in prepaid expenses and $295,190 in assets held for sale associated with our discontinued operations for a total of $329,777 in assets. Comparatively, at December 31, 2011, we had $6,078 in cash, $3,381 in prepaid expenses and $989,995 in assets held for sale associated with our discontinued operations for a total of $999,454 in assets.

At December 31, 2012, we had $56,646 in accounts payable and accrued liabilities, $14,924 in accrued stock-based compensation and $3,675,923 in liabilities held for sale associated with our discontinued operations for a total of $3,747,493 in liabilities. Comparatively as of December 31, 2011, the Company had $52,906 in accounts payable and accrued liabilities, $17,980 in accrued stock-based compensation and $3,568,625 in liabilities held for sale associated with our discontinued operations for a total of $3,639,571 in liabilities.


Management makes the following comments regarding the most significant factors affecting Company liquidity and their measured trends over the reporting period as compared to 2011:

a) Cash and cash equivalents associated with continuing operations were flat at $6,078 in 2011 and 2012. This is associated with an unused investment and trading account of the Company.

b) Accounts payable and accrued liabilities were consistent year over year.

c) Liabilities held for sale associated with discontinuing operations increased by 3% to $3,675,923 in 2012 over 2011 associated primarily with increased financing from a related party company to fund working capital deficits in the Mortgage Brokerage Business, offset by a decrease in employee tax deductions payable and a decrease in accounts payable and accrued liabilities.

d) Stock-based compensation accruals fluctuate year to year. The accrual is valued based on stock prices at the end of the period, grant prices and vesting terms for which the Company has no direct influence. Thus, it is difficult to analyze related trends. The Company anticipates that it will continue to negotiate stock-based compensation arrangements to maximize working capital resources.

Capital Resources

Our continuing operations, after removing the revenue and expenses of the Mortgage Brokerage Business, had no reported gross revenue in 2012 or 2011.

Our discontinuing operations, the Mortgage Broker Business, had total revenue for the year ending December 31, 2012 of $3,638,185 (December 31, 2011 - $13,498,395). The Company realized net cash loss from operating activities associated with the combined continuing and discontinuing operations of $1,792,873. The Company decreased its total cash and cash equivalent position associated with the combined continuing and discontinuing operations at the end of 2012 to $82,816 from $909,491 the previous year. As at December 31, 2012, with no means to generate revenue, the Company relies upon loans from a related-party company to fund the Company's working capital deficits until such time as the Mortgage Brokerage Privatization finalizes.

Off-Balance Sheet Arrangements

None

Significant Accounting Policies and New Pronouncements

The following are the most significant accounting policies that have a substantive impact on the underlying discussions and analysis:

Revenue Recognition

Revenue consists of mortgage brokerage fees, finders' fees and insurance commissions. The revenue from brokerage fees and finders' fees are recognized upon the funding of a customer's mortgage and when the collection is reasonably assured which typically occurs when the brokerage fee or finders fees from the lender has been advanced. Insurance commission revenues are recognized when collection is reasonably assured which typically occurs when the insurance commission fees from the insurance provider has been advanced.


Share-based Payment

The Company adopted the disclosure requirements of ASC 718 (formerly SFAS No. 123R) "Share-Based Payment" ("ASC 718") for stock options and similar equity instruments (collectively, "options") issued to employees. The Company applies the fair value base method of accounting as prescribed by ASC 718. Under the fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. For stock options, the fair value is determined using an option-pricing model that takes into account the stock price at the grant date, the exercise price, the expected life of the option, the volatility of the underlying stock and the expected dividends on it, and the risk-free interest rate over the expected life of the option. For restricted stock, the fair value is determined based on the quoted market price. ASC 718 also applies to transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. Those transactions must be accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.

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