Note 5 - Related Party Transactions

12 Months Ended

Jun. 30, 2014

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 5 – RELATED PARTY TRANSACTIONS

President/Chief Executive Officer and Director

The Company entered into an Employment Agreement (the “COO EA”) with a Director as its Interim Chief Operating and Chief Financial Officer effective February 7, 2013. Pursuant to the terms of the COO EA, the Company agreed to pay an annual compensation of $240,000. For the year ended June 30, 2014, the Company recorded compensation expense of $213,627, of which $6,624 was paid in stock in lieu of cash and $4,158 in health insurance benefits. For the year ended June 30, 2013 the Company recorded compensation expense of $100,000 and $1,104 in health insurance benefits. On August 28, 2013, upon the resignation of the Company’s former President and Chief Executive Officer, this individual assumed the role of President and Chief Executive Officer.

Executive Vice-President and Director

The Company entered into an Employment Agreement (the “EA”) with its Executive Vice-President effective January 1, 2011. Pursuant to the terms of the EA, the Company agreed to pay an annual compensation of $200,000, a monthly car allowance of $700, and a monthly allowance of $1,290 for health benefits for the officer and his family. On January 1, 2014, the agreement was renewed for one year. For the years ended June 30, 2014 and 2013, the Company recorded (i) $205,916 and $250,000 in compensation expense, of which $16,667 was paid in stock for the year ended June 30, 2013 (ii) recorded $8,400 and $8,400 in car allowance, and (iii) $4,158 and $4,418 in life and health insurance benefits.

Former President/Chief Executive Officer and Director

The Company entered into an Employment Agreement (the “Agreement”) with its President/Chief Executive Officer effective January 1, 2011. Pursuant to the terms of the Agreement, the Company issued 750,000 shares of Common Stock valued at $525,000 as a signing bonus to induce him to enter into the Agreement, agreed to pay an annual compensation of $225,000, a monthly car allowance of $750, and a monthly allowance of $800 for health benefits for the officer and his family. On January 1, 2012, the annual compensation was increased to $250,000 pursuant to the terms of Agreement. For the years ended June 30, 2014 and 2013, the Company recorded (i) $141,444 and $243,750 in compensation expense, of which $18,750 was paid in stock for the year ended June 30, 2013 (ii) recorded $4,500 and $9,000 in car allowance, and (iii) $4,158 and $4,418 in life and health insurance benefits. On August 28, 2013, this individual resigned as the President and Chief Executive Officer and Director.

Other Directors

February 7, 2013, the Company entered into a two-year consulting agreement with an entity controlled by one of the Company’s directors. The agreement calls for monthly compensation of $15,000 per month for strategic advisory and investor relation services. For the years ended June 30, 2014 and 2013, the Company recorded consulting expense of $60,000 and $75,000, respectively. $7,500 of the fees paid during the twelve months ending June 30, 2014 were paid in stock in lieu of cash. This director has agreed to suspend providing investor relation services to the Company until a future date agreed upon by the parties.

One of the Company’s directors is a principal stockholder of a management company that provides two revolving warehouse lines of credit to the Company. Amounts outstanding on the credit lines as of June 30, 2014 and June 30, 2013 were $14,942,781 and $15,688,725 which were offset by $14,942,781 and $15,688,725 of funding receivables as of June 30, 2014 and June 30, 2013, respectively (See Note 9).

Former Directors

On March 15, 2011, the Company entered into an employment agreement with a director of the Company in connection with the acquisition of United Community Mortgage Corp. The term of the employment agreement is for two years, with automatic one-year extensions unless notice is given by either party. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The agreement provides for an annual base salary of $120,000 with increases based upon increases in originations at the respective branch and incentive payments upon securing additional branches for PSMI. The Company recorded total compensation expense of $148,247 and $124,469 for the years ended June 30, 2014 and 2013, respectively.

On July 1, 2011, the Company entered into an employment agreement with a director of the Company, in connection with the acquisition of Brookside Mortgage, LLC (“Brookside”). The term of the employment agreement is for two years, with automatic one-year extensions unless notice is given by either party. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The agreement provides for an annual base salary of $120,000 plus a bonus equal to 25% of the net profit earned by Brookside branch in excess of $400,000 annual profits earned. On November 1, 2012, the Company agreed to revise the employment agreement making the term at will with sixty days’ notice from either party and provided additional overrides based on production. The revised agreement has not been executed. The Company recorded total compensation expense of $227,731 and $194,256 for the years ended June 30, 2014 and 2013, respectively. Effective January 16, 2014, this individual resigned from all positions with the Company.

On August 8, 2011, the Company entered into an employment agreement with a director of the Company in connection with the acquisition of Fidelity Mortgage Company. The term of the employment agreement is for two years, with automatic one-year extensions unless notice is given by either party. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The individual remains a regional vice president of one of the Company’s corporate lending centers. The agreement provides that for each full year of employment, a bonus equal to 12.5 basis points of the loan production and 50% of net profit of the Fidelity branch in excess of $500,000 earned will be paid to the individual. Bonuses are to be earned upon closing of each loan and paid on a fixed interval basis. On January 1, 2013, the Company amended the employment agreement to provide additional bonuses based on production and removed any bonus opportunity based on profitability. The Company recorded total compensation expense of $470,237 and $1,188,058 for the years ended June 30, 2014 and 2013, respectively. In January 2014, this individual resigned from all positions with the Company.

The Company leases an office space in a building that is 100% owned by this former director. The terms of the operating lease under a non-cancellable lease agreement expire on September 1, 2015, and required a monthly rent of $21,720. Total rent paid for the office lease for the years ended June 30, 2014 and 2013 were $123,723 and $268,066, respectively. The lease was terminated upon the resignation of this former director in January 2014.

Effective November 1, 2011, the Company entered into an employment agreement with a director of the Company, in connection with our acquisition of IMP. The individual resigned as a director concurrent with the capital raise completed on February 5, 2013. The term of his employment agreement is for two years, with automatic one-year extensions unless notice is given by either party. The agreement provides for an annual base salary of $120,000 plus a bonus equal to 25% of the net profit earned by the branch in excess of $400,000 annual profits earned. On March 11, 2013, the Company agreed to revise the employment agreement making the term at will with sixty days’ notice from either party and provided additional overrides based on production. The revised agreement has not been executed. The Company recorded total compensation expense of $98,920 and $169,453 in bonus and over-ride commissions for the years ended June 30, 2014 and 2013, respectively. On January 31, 2014, this individual resigned from all positions with the Company.

On March 29, 2012, a management company this individual is a principal of provided a revolving line of credit to the Company in the amount of $100,000. The line of credit was unsecured, bears a 6% annual rate of interest and was due on March 20, 2013. Upon maturity in March 2013, the line of credit was not renewed.

This individual is the principal of a third party processing company that provided processing services for loans funded in our former Iowa branch. The per file fees charged are believed to be under market pricing. The fees are paid by the borrower at closing and are not paid directly by the Company. Upon this individuals departure from the Company, the Company ceased utilizing any services from this third party processing company.

Other Employees

Effective January 1, 2013, the Company amended an employment agreement with the Vice President – Mountain Division. Under the new agreement, the term has been modified to at will with 60 days’ notice from either party. The employee is paid an annual salary of $95,000 and receives bonuses based on production. Additionally, the employee is eligible to receive 50% of the net profits of the Fidelity Mortgage branch on annual net income in excess of $500,000. The Company recorded total compensation expense of $420,828 and $905,924 for the years ended June 30, 2014 and 2013, respectively. On January 31, 2014, this individual resigned from all positions with the Company.

Loans Receivable

Loans receivable from a related party as of June 30, 2014 and 2013 consists of:

	Original loan		Balance due June 30, 2014		Balance due June 30, 2013
Secured loans to Nationwide bearing annual interest at 6% with no defined payment terms	$	167,000	$	88,898	$	88,898
Accrued interest due from Nationwide		-		10,668		5,334
	$	167,000	$	99,566	$	94,232
Less allowance for uncollectible amounts		-		-		-
	$	167,000	$	99,566	$	94,232

The Company entered into two Commercial Security Agreements dated November 16, 2006 and February 16, 2007 (the “Security Agreements”) with Nationwide securing the loan amount of $167,000 with 150,000 shares of the Company’s own Common Stock held by Nationwide.  On June 15, 2012, the Company renegotiated the Security Agreements with Nationwide and agreed to amend (i) the annual interest rate on the Security Agreement to 6%, and (ii) the maturity date to September 30, 2013. On May 13, 2014, the Company extended the maturity date to October 15, 2014. All other terms and conditions of the Security Agreement remained the same. The Company recorded interest income of $5,334 and $5,334 from the loan receivable from Nationwide for each of the years ended June 30, 2014 and 2013. Subsequent to June 30, 2014, NWBO made payments to the Company totaling $12,110 which represented payment of all accrued interest as well as principal reduction.

Loan Agreements

On March 13, 2014, the Company entered into a Loan Agreement (the “Loan Agreement”) with LB MERCHANT PSMH-1, LLC, an entity controlled by Michael Margolies, a director of the Company (the “Lender”). Under the terms of the Loan Agreement, the Lender agreed to loan $500,000 for operating expenses of the Company and its operating subsidiary, as well as to fund growth of the Company. The funds were received by the Company on March 13, 2014. The loan is evidenced by a 10% Promissory Note (the “Note”) which bears interest at 10% per annum. In addition, the Lender received four tenths (0.40) of one common stock purchase warrant (the “Warrants”) for each $0.80 loaned to the Company (totaling 300,000 Warrants), and such Warrants were issued as directed by the Lender with the Lender receiving 50,000 Warrants and Jeffrey R. Smith, a director and Executive Vice President of the Company receiving 50,000 Warrants. The remaining 200,000 Warrants were issued to Citizens State Bank. Each five-year Warrant is exercisable at $0.40 per share, subject to adjustment in the event of the issuance of additional common shares or common stock equivalents at less than the exercise price. The Warrants also provide for cashless exercise. The Warrants are not transferable or assignable without the prior consent of the Company.

Effective February 12, 2014, the Company entered into a short-term Loan Agreement dated February 10, 2014 (the “Loan Agreement”) with James Miller and Michael Margolies, directors of the Company, Kevin Gadawski, a director, CEO and CFO of the Company, and Richard Carrington, a shareholder (collectively the “Lenders” and each a “Lender”). Under the terms of the Loan Agreement, the Lenders agreed to loan an aggregate of $385,000 for operating expenses of the Company and its operating subsidiary, as well as to fund growth of the Company. The funds were received by the Company beginning on February 13, 2014, through February 18, 2014. The loans are evidenced by one-year 10% Convertible Promissory Notes (the “Notes”) which bear interest at 10% per annum. In addition, each Lender received one common stock purchase warrant (the “Warrants”) for each $2.50 loaned to the Company. The Warrants also provide for cashless exercise. The Warrants are not transferable or assignable without the prior consent of the Company. Mr. Margolies and Mr. Gadawski converted their notes into the Preferred Stock transaction completed April 1, 2014. Mr. Miller and Mr. Carrington’s notes were repaid on April 3, 2014.