MortgageBrokers.com Holdings Inc. Rated 'Outperform,' Target Price $4.06 by Beacon Equity Research Thursday April 26, 7:32 am ET
DALLAS--(BUSINESS WIRE)--MortgageBrokers.com (OTCBB: MBKR - News) has been rated "Outperform" with a target price of $4.06 by Beacon Equity Research Analyst, Victor Sula, Ph.D. ADVERTISEMENT
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In the report, the analyst writes, "MortgageBrokers.com has experienced significant growth over the last year and is becoming an important player in the North America mortgage market. The majority of its growth is attributable to its business model, which capitalizes on benefits and synergies from consolidation in a fragmented mortgage brokerage industry.
"By FY2007-end, in approximately less than two years of operations, MBKR had 192 licensed mortgage agents, 11 retail storefronts in Canada and an estimated $2.0 billion in aggregated annual mortgage origination books of business. In addition, the Company's imminent entrance into the US mortgage market, as well as partnership alliances with RE/MAX and MaxWell add to MBKR's revenue generating capacity and support our 2007 expectations for growth exceeding 500%.
"Strong growth in its sales force has enabled MBKR to report an average growth in revenue of 103% quarter over quarter since Q2, 2005, signaling that the Company's business model has been well received by the mortgage agent market place. In addition, compared to Q1FY06, mortgage volumes have increase 248%. The Company expects it will sustain this level of growth through 2007."
Other companies in the mortgage industry include American Home Mortgage Investment (NYSE:AHM - News), Centerline Holding (NYSE:CHC - News) and Countrywide Financial (NYSE:CFC - News).
Beacon Equity Research Disclosure
The analysts contributing to this report do not hold any shares of MortgageBrokers.com Holdings (MBKR). Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. The analyst(s) writing this report recognize and aspire to all of the CFA Institute Guidelines for Independent Research. Beacon Equity Research ("Beacon") certifies that no part of the analysts' compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analysts in the report. Beacon has directly been compensated BER has been compensated forty thousand restricted shares of MortgageBrokers.com directly from the company for an enrollment its research program. These shares have been registered, and are now free to trade at anytime. BER holds all forty thousand shares as of the publication of this report, but reserves the right to sell shares at any time following the issuance of this report. It is the policy of BER to liquidate any shares received as compensation or purchased. Selling of shares may cause the price of the stock to become depressed, and potential investors should consider this prior to making an investment. Principals of BER have also purchased an additional ten thousand free trading shares in the open prior to the issuance of this report, and reserve the right to purchase up to a total of one hundred thousand free trading shares in the open market following the release of this report. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. As such, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change.
Contact: Beacon Equity Research Jeff Bishop, 469-361-6239 editor*beaconequityresearch.com www.BeaconEquityResearch.com or MortgageBrokers.com Holdings Alex Haditaghi, CEO, 1-877-410-4848
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The following information should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this form 10-KSB.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Report contains certain financial information and statements regarding our operations and financial prospects of a forward-looking nature. Although these statements accurately reflect management's current understanding and beliefs, we caution you that certain important factors may affect our actual results and could cause such results to differ materially from any forward-looking statements which may be deemed to be made in this Prospectus. For this purpose, any statements contained in this Prospectus which are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "intend", "expect", "believe", "anticipate", "could", "estimate", "plan", or "continue" or the negative variations of these words or comparable terminology are intended to identify forward-looking statements. There can be no assurance of any kind that such forward-looking information and statements in any way reflect our actual future operations and/or financial results, and any of such information and statements should not be relied upon either in whole or in part in any decision to invest in the shares. Many of the factors, which could cause actual results to differ from forward looking statements, are outside our control. These factors include, but are not limited to, the factors discussed above under "Risk Factors."
Organization and Nature of Business
MortgageBrokers.com, Holdings Inc. (the "Company") registered a change of name with the state of Delaware in February 2005. We were formerly known as MagnaData, Inc. and organized under the laws of the State of Delaware on February 6, 2003.
Our planned operations consist of becoming a financial services company centered around mortgage finance, brokerage, sales and consulting in Canada, the United States and the European Union ("E.U."). Operations are presently conducted through our subsidiaries, Mortgagebrokers.com, Inc. (Ontario corporation) and MortgageBrokers.com Financial Group of Companies, Inc (Canadian federal corporation ) in Canada only.
We are currently devoting substantially all of our efforts to establishing a new business.
During the first half of 2005, management developed its business model, business plans and strategic market plans that included: organization of the company and divisions; identification of our sales channels and associated supply chain; development of marketing strategic plans and sales execution strategies; preparation of a financial plan, risk and capital structure planning models, and mortgage origination 'book of business' recruitment models; developing cash flow forecasts and an operating budget; identifying markets to raise additional equity capital and debt financing; embarking on research and development activities; performing employment searches and preparing agent contracts; and, recruiting and hiring technicians, management and industry specialists.
We began to establish book keeping practices in mid 2005 to account for multiple subsidiaries, sales channels, and products and services with an initial focus on two profit center sales channels, namely: the mortgage broker sales channel - a national network of fully commissioned mortgage broker agent teams operating store front retail branch locations; and, the real estate sales channel - servicing strategic real estate partner lead referrals regionally supported with our network of mortgage agents.
During the last half of 2005, we began to execute our business strategy and generate revenue. These activities included the recruitment and licensing of several mortgage broker mortgage origination 'books of business' in our mortgage broker sales channel. We have also commenced discussions with strategic market partners in our real estate sales channel. We have incurred expenses in the establishment of sales management resources and the launch of our mortgage broker and real estate sales channels. We received revenue from these operations.
In the first two quarters of 2006, we continued to execute, test and refine our business strategy of recruiting and licensing mortgage brokerage books of business across Canada and solidifying our first two real estate strategic alliance partners, namely: Maxwell Realty Inc. and RE/MAX Ontario-Atlantic Canada Inc. Our first two real estate strategic alliance partners provide us with added market access initially in Alberta, Ontario and Eastern Canada and eventually in the United States and the E.U. Our existing real estate strategic alliances established in the last two quarters of 2006 with long term service agreements amount to a $30 billion mortgage origination sales opportunity annually.
RE/MAX Ontario-Atlantic has licensed over 7,000 Sales Associates and closed over 150,000 real estate transactions in 2005. In the audited financial statements for 2005, we announced the signing of a letter of intent with RE/MAX, who commands a real estate sales associate network of over 20,000 agents in 29 countries. During the first quarter of 2006, we announced that RE/MAX and MortgageBrokers.com have executed a 10 year strategic alliance marketing, referral and revenue sharing agreement, renewable for an additional ten years, completing the relationship.
In the first quarter 2006, service level agreements and strategic market licensure Agreements were executed with our strategic real estate alliance partners. The assets of Lending Source Canada Inc. in Alberta, Canada were acquired by our company in exchange for stock in our company to provide a platform for servicing our real estate strategic alliance partner, Maxwell Realty Inc. in Alberta. Maxwell is a growing organization of more than 650 real estate professionals since its launch in September 1999 and currently has 23 franchised offices throughout Alberta and British Columbia. Maxwell was an important strategic partner for MortgageBrokers.com who wanted to ensure that its compelling and sustainable mortgage origination model for the real estate industry resonated across Canada.
Our investment banking relationship with vFinance, Inc. of Florida was solidified in the first quarter of 2006 to provide the company on-going consulting services related to investment capital, and mergers and acquisitions.
In February, 2006, we issued a Private Placement Memorandum ("PPM") to accredited and qualified investors on a prospectus exempt basis offering the sale of a minimum of 2,000,000 shares and a maximum of 6,000,000 shares at $1.00 per share pursuant to the execution of a 10 year strategic alliance license agreement with RE/MAX Ontario-Atlantic Canada Inc. In June 1 st , 2006 this private placement was completed and 2,112,470 shares at $1.00 per share for the amount of $2,112,470 were issued. A payment of $1,852,344.00 was received and promissory notes for the balance of $260,126 were executed. Through the last quarter of 2005 and first quarter of 2006, we executed notes for unsecured debt to RE/MAX Ontario-Atlantic Canada Inc. which were convertible to stock at the same price as offered through the private placement ($1.00 per share). These notes were converted to shares on June 12, 2006. Investors who subscribed for shares in the private placement received rights for 1 warrant priced at a 30% discount to market for each share subscribed for, executable at a rate of 20% per year and each warrant executable in a given year having a 30 day expiry following the 5 successive anniversary dates to the private placement closure date of June 1st. By December 31, 2006, the Company had collected $25,000 in Promissory Notes receivable leaving a balance outstanding of $240,000.
Pursuant to a ten year licensing agreement dated January 30, 2006 and amended May 25, 2006, and pursuant to the execution of a one year renewable service level agreement by the RE/MAX Franchisee, the Company is committed to issuing to RE/MAX at no cost, warrants for common stock of the Company based on referrals leading to funded mortgage origination volume. The RE/MAX Warrant-Based Compensation Program issues warrants as follows based on current formulae:
Annual Volume: defined as the total funded mortgage origination volume from RE/MAX lead referral executed per 12 month period following the Effective Date and subsequent 12 month periods following the anniversary dates of the Effective Date Number of Warrants: USD $3,000 US worth of warrants divided by the Strike Price per CDN $10 million dollars in Annual Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. Earnings Period: Series IV warrants are earned in the first 3 years following the Effective Date Additional Vestment: SERIES IV warrants are fully vested on the 5th anniversary of the Effective Date
Per a three year renewable agreement dated April 12, 2006 and pursuant to the execution of a service level agreement by the Maxwell Franchisee, the Company is committed to issuing to Maxwell, at no cost, warrants for common stock of the Company based on referrals leading to funded mortgage origination volume. The Maxwell Warrant-based Compensation Program, which issues warrants that are divided amongst the Maxwell Franchisor, Franchisee and referring Sales Agent.
Annual Volume: defined as the total funded mortgage origination volume from Maxwell lead referral executed per 12 month period following the Effective Date and subsequent 12 month periods following the anniversary dates of the Effective Date Number of Warrants: USD $3,000 worth of warrants divided by the Strike Price per CDN $10 million in Annual Volume, adjusted on a pro rata basis, no minimum or maximum thresholds. The warrants are convertible in common shares on a 1:1 basis. Earnings Period: Series III warrants are earned in the first 5 years following the Effective Date Additional Vestment: the warrants are fully vested on the fifth anniversary of the Effective Date.
The company was founded to address market demands and opportunities for change within the mortgage brokerage industry in North America. After deconstructing the existing origination business models, the company developed a revolutionary business paradigm built on resolving long standing mortgage brokerage industry issues and creating a sustainable and compelling strategic partnership opportunity for market supply chain providers.
Since launching the "Broker Channel Recruitment & Ownership Program" in August of 2005, the company is now registered with Provincial regulators to conduct business in the Provinces of Newfoundland, Prince Edward Island, Nova Scotia, Ontario, Manitoba, Saskatchewan Alberta and British Columbia with plans in place to reach the other remaining Provinces in the coming year.
Operationally we continue to integrate our Managing Partners and loan originators. This includes both migrating their operations and technology but also integrating new books of business they originate. From Q3 to Q4, our funding of new mortgage applications from our network of brokers increased 14.2% and tracking to remain flat in Q1 of 2007, typically the slowest quarter for applications during the fiscal year. The results in Q4, 2006, represented 37.1% of the entire year's activities for the company, and Q3 and Q4 combined represents 70.5% of the entire years activities, an indication that our acquisitions and organic growth are transitioning into operational results.
On October 24th, 2005, we approved the issuance of 1,000,000 shares of restricted common stock to Mercatus & Partners Limited pursuant to a Stock Purchase Agreement for the total net proceeds of $630,000 to be paid to the company in December, 2005. On June 18, 2006, correspondence was directed to Mercatus informing them of the Company's decision to cancel this transaction and formally requesting the 1,000,000 shares of Company stock to be returned. The common shares were recalled and cancelled officially on September 8, 2006.
Marketing Activity:
Through the licensing agreements with RE/MAX and Maxwell Realty Inc., we believe that the company's industry and consumer marketing activity will substantively increase. This will likely occur on a broader scale in print, television, radio, point of sale displays and on-line as well as through joint marketing initiatives in local real estate offices and communities. Mortgage origination is closely tied to the real estate transaction and these local alliances are an important factor in brand recognition.
In July 2006, leveraging RE/MAX market relationships, the MortgageBrokers.com relationship with RE/MAX was launched with an insert in the National Post newspaper.
On July 31, 2006, Kathy Bevan of REM magazine (Real Estate Magazine) published a ½ page story on RE/MAX and its partnership with MortgageBrokers.com. The story, which was featured in REM's August issue, discussed how RE/MAX identified their relationship with MortgageBrokers.com as revolutionary in their industry and that it would significantly benefit their agent sales force and their customers.
The company has continued to develop it's brand through investing in the development of marketing materials geared to the RE/MAX agent explaining the benefits of the partnership to the RE/MAX agents and their customer as well as creating marketing materials for the MortgageBrokers.com recruitment sales force team across Canada to explain the company's value proposition.
We have also worked diligently to launch the next version of our website to incorporate new tools to assist our ever growing mortgage sales force, our customers and our alliance partners.
Business Development Activity:
As of March 31, 2007, we have 192 licensed mortgage agents/ loan officers in our national origination sales force network. At the present time, the Company believes it has in excess of $2.0 billion in mortgage origination books of business in the agent recruitment pipeline. As of August, 2006 the company had established a national retail branch team network of 11 retail branch offices.
Commitments by the company to issue shares associated with agent recruitment signing bonuses and mortgage agent long term licensing agreements are non dilutive to shareholders for the first 4,000,000 shares issued for these purposes, since they are in an all-stock transaction through shares which were owned by the Chairman and CEO of MortgageBrokers.com Alex Haditaghi, thereby ensuring no dilution to the current shareholders takes place associated with this growth.
As part of this non-dilution growth strategy, as reported in the amended RE/MAX agreement (see Form 8K filing on June 14, 2006), Mr. Haditaghi agreed to invest up to 4,000,000 shares from his personal holdings of MortgageBrokers.com Class A stock into the Company's Mortgage Broker Recruitment and Licensing program to accelerate the recruitment and licensure of industry leading, long term value minded mortgage originators. It is expected that as much as CDN $5 billion in mortgage origination volume maybe recruited through this initiative that is non-dilutive with existing shareholders.
The company relationship with its Strategic partner RE/MAX continued its strong growth for 2006. Both RE/MAX and MortgageBrokers.com announced the selection of Manulife Financial as the new administrator of the Retirement Savings Program for RE/MAX Real Estate Agents. The company made the announcement with its strategic alliance partner RE/MAX Ontario-Atlantic Inc. (RE/MAX). Under the terms of the MortgageBrokers.com and RE/MAX strategic alliance, a portion of revenue generated on a funded mortgage referral will be contributed towards the Retirement Savings Program for the referring Real Estate Agent. Manulife Financial will support the continuing administration of this Program - the first of its scope in the Canadian Real Estate Industry. A corporate mini site was developed in Manulife website to provide additional information for Remax Sales associate about this program at www.manulife.ca/remax.
Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 19 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were Cdn$381 billion (US$341 billion) as at September 30, 2006.
Human Resources Activity:
As we continue to expand our business model to other geographical territories, the company will continue to seek out qualified candidates to expand our management team to sustain our growth strategies. To date the company has assembled a class act of industry veterans and retained the services of professionals outside the industry to continue to grow the company.
The company has successfully recruited a Regional Sales Manager for Atlantic Canada to recruit mortgage brokers and manage the expected expansion of our RE/MAX Ontario-Atlantic relationship, ensuring that have a corporate presence in Atlantic Canada. Due to this employee's existing contractual agreements with their existing employer, further details are not available at this time.
In January 2007, the Company hired a new Director of Marketing who will be responsible for establishing national brand advertising and point of sale materials.
Liquidity and Capital Resources
As at December 31, 2006, we had $1,238,357 in cash; $30,320 of Referral Fees held in trust, $78,445 in prepaid expenses, $98,571 in equipment and recognized $5,198 in equipment in capital leases for a total of $1,450,891 in assets. Comparatively as at December 31, 2005, we had $169,093 in cash and a total of $275,818 in total assets. The Company had $407,346 in accounts payable, $213,547 in accrued liabilities, $204,868 in loans payable to a related party, $30,320 payable in a Trust Liability, $5,589 in obligations under capital leases, $1,155,066 in stock-based compensation accrual and $98,682 in bank indebtedness related to an unsecured line of credit for a total of $2,115,418 in liabilities as at December 31, 2006. Comparatively as at December 31, 2005, we had $171,596 in accounts payable and accrued liabilities, $332,865 in loans payable to a related party, $118,160 in unsecured convertible notes payable, $625,911 in accrued employee stock-based compensation and $94,578 in bank indebtedness related to an unsecured line of credit for a total of $1,343,110 in liabilities.
While the company works towards profitability in executing it's business plan, we will rely upon the issuance of common stock and additional capital contributions from shareholders to fund expenses. There are no guarantees that we will be successful in the industry.
While the accrual and issue of warrant-based compensation represents an immediate charge to the Company's bottom line at this early stage in it's growth, the Company believes that the benefits of leveraging the Company's capital structure to rapidly build a long term quality origination sales force and sales referral pipeline far outweigh the short term expense as we build a long term, sustainably profitable partnership with our market partners whose interests are aligned with those of shareholders.
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
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