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Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-12 · 565 added, 434 removed, 339 unchanged (75% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Loss

Consolidated Statements of Stockholders’

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERD PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of eXp World Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of eXp World Holdings, Inc.

and subsidiaries (the "Company") as of December 31, 2019, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for the year then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2020, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses.

We have audited the accompanying consolidated balance sheets of eXp World Holdings, Inc.

and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), equity, and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

The financial statements of the Company for the year ended December 31, 2018, before the effects of the adjustments to retrospectively apply the common stock split presentation discussed in Note 1 to the financial statements, were audited by other auditors whose report, dated March 18, 2019, expressed an unqualified opinion on those statements.

We have also audited the adjustments to the 2018 financial statements to retrospectively apply the change in presentation for common stock split, as discussed in Note 1 to the financial statements.

In our opinion, such retrospective adjustments are appropriate and have been properly applied.

However, we were not engaged to audit, review, or apply any procedures to the 2018 financial statements of the Company other than with respect to the retrospective adjustments, and accordingly, we do not express an opinion or any other form of assurance on the 2018 financial statements taken as a whole.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Commissions and Other Agent-Related Costs – Revenue Share expenses – Refer to Note 2 to the financial statements

Critical Audit Matter Description

The Company has a revenue sharing plan where its agents and brokers can receive commission income from real estate transactions consummated by agents and brokers they have attracted to the Company.

Agents and brokers are eligible for revenue share based on the number of Front-Line Qualifying Active agents they have attracted to the Company.

A Front-Line Qualifying Active agent is an agent or broker that an agent or broker has personally attracted to the Company who has met specific sales transaction volume requirements.

For the year ended December 31, 2020, the Company incurred $1.6 billion of commissions and other agent-related costs, which includes commissions paid to agents and brokers under the revenue sharing plan.

We identified the revenue sharing plan as a critical audit matter because the plan has a complex multi-tiered compensation structure involving highly automated system calculations to determine the commissions paid to agents and brokers.

This required an increased extent of audit effort to audit and evaluate the accuracy of commissions paid under the revenue share plan.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures performed related to the testing of the accuracy of expenses under the revenue sharing plan included the following, among others:

● We tested the effectiveness of controls over the revenue share expenses, including management’s controls over the calculation of commissions costs under the revenue sharing plan.

● With the assistance of our IT specialists, we:

o Identified the significant system used to process revenue share transactions and tested the general IT controls over the system, including testing of user access controls, change management controls, and IT operations controls.

o Performed testing of automated controls, as well as the controls designed to ensure the accuracy of revenue share expenses.

● We selected samples of commissions costs incurred for agents and brokers under the revenue sharing plan and recalculated the commissions based on the terms of the respective independent contractor agreements.

● For the samples selected:

o We tested the mathematical accuracy of the recorded commission by recalculating the revenue sharing allocation in accordance with the independent contractor agreements and traced the underlying transactions to third party documents including settlement statements, purchase agreements and bank statements.

o We tested the accuracy of the Front-Line Qualifying Agent count for agents and brokers by reading independent contractor agreements and obtained evidence of agents and brokers reaching the required sales transaction volume, including settlement statements.

/s/ Deloitte & Touche LLP

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of eXp World Holdings, Inc.

(the “Company”) and subsidiaries as of December 31, 2018, the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018, and the results of their operations and their cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America.

We have audited the consolidated statements of operations and comprehensive income (loss), equity, and cash flows of eXp World Holdings, Inc.

and subsidiaries (the “Company”) for the year ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”), before the effects of the adjustments to retrospectively apply the change in presentation for the common stock split described in Note 1.

In our opinion, the consolidated financial statements for the year ended December 31, 2018, before the effects of the adjustments to retrospectively apply the change in presentation for the common stock split described in Note 1, present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2018 , in conformity with accounting principles generally accepted in the United States of America (the 2018 consolidated financial statements before the effects of the adjustments discussed in Note 1 are not presented herein).

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in presentation for the common stock split described in Note 1 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by Deloitte & Touche LLP.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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/s/ BDO USA, LLP

We served as the Company’s auditor from 2017 to 2019.

Salt Lake City, Utah

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CONSOLIDATED BALANCE SHEETS

As of December 31,

(In thousands, except share amounts)

December 31, 2020

December 31, 2019

CURRENT ASSETS

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Restricted cash

Accounts receivable, net of allowance of $137,430 and $484,441, respectively

Accounts receivable, net of allowance for credit losses of $ 1,879 and allowance for bad debt of $ 137 , respectively

Prepaids and other assets

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Long-term payable, net of current portion

Long-term lease obligation - operating lease

Long-term lease obligation - operating lease, net of current portion

TOTAL LIABILITIES

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Common Stock, $ 0.00001 par value 220,000,000 shares authorized;

66,199,308 issued and 65,273,944 outstanding at December 31, 2019, 60,609,102 issued and 60,609,102 outstanding at December 31, 2018

146,677,786 issued and 144,143,292 outstanding in 2020;

132,398,616 issued and 131,473,252 outstanding in 2019 (1)

Additional paid-in capital

Treasury stock, at cost:

925,364 shares held at December 31, 2019

2,534,494 and 925,364 shares held, respectively

Accumulated deficit

Accumulated other comprehensive income (loss)

Total eXp World Holdings, Inc., stockholders' equity

Accumulated other comprehensive income

Total eXp World Holdings, Inc.

stockholders' equity

Equity attributable to noncontrolling interest

TOTAL LIABILITIES AND EQUITY

(1) All applicable period amounts have been adjusted to reflect the two -for-one stock split effected in the form of a stock dividend in February 2021.

See Note 1 – Description of Business and Basis of Presentation for details.

The accompanying notes are an integral part of these consolidated financial statements.

EXP WORLD HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share amounts and per share data)

Year Ended December 31,

Operating expenses

Commissions and other agent-related costs

General and administrative

Sales and marketing

Total expenses

Operating loss

Other (income) expense

Other (income) expense, net

Equity in (earnings) losses of unconsolidated affiliates

Total other (income) expense, net

Loss before income tax expense

General and administrative expenses

Sales and marketing expenses

Total operating expenses

Operating income (loss)

Other expense

Other expense (income), net

Equity in losses of unconsolidated affiliates

Total other expense (income), net

Income (loss) before income tax expense

Income tax expense

Net income (loss)

Net loss attributable to noncontrolling interest

Net loss attributable to eXp World Holdings, Inc.

Net loss per share

Net income (loss) attributable to eXp World Holdings, Inc.

Earnings (loss) per share (1)

Weighted average shares outstanding (1)

The accompanying notes are an integral part of these consolidated financial statements.

EXP WORLD HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

Net loss attributable to noncontrolling interests

Consolidated net loss attributable to eXp World Holdings Inc.

Other comprehensive loss:

Foreign currency translation gain (loss), net of tax

Comprehensive loss attributable to eXp World Holdings Inc.

Comprehensive income (loss):

Net income (loss)

Comprehensive loss attributable to noncontrolling interests

Net income (loss) attributable to eXp World Holdings, Inc.

Other comprehensive income (loss):

Foreign currency translation (loss) gain, net of tax

Comprehensive income (loss) attributable to eXp World Holdings, Inc.

(1) All applicable period amounts have been adjusted to reflect the two -for-one stock split effected in the form of a stock dividend in February 2021.

See Note 1 – Description of Business and Basis of Presentation for details.

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share amounts)

Year Ended December 31,

Common stock:

Balance, beginning of year

Balance, end of year

Treasury stock:

Other Comprehensive

Noncontrolling

Stockholders'

Paid-In Capital

Income (Loss)

Balance, December 31, 2017

$ (32,596,374)

Cumulative effect adjustment of the adoption of Accounting Standards Update 2018-07

Balance, beginning of year

Repurchases of common stock

Retirement of treasury stock

Balance, end of year

Additional paid-in capital:

Balance, beginning of year

Cumulative effect from the adoption of new accounting standards

Shares issued for acquisition

Exercise of options

Stock compensation expense

Stock option expense

Agent equity stock compensation expense

Foreign currency translation loss

Balance, December 31, 2018

$ (60,765,266)

Exercise of options

Stock compensation expense

Stock option expense

Agent equity stock compensation expense

Foreign currency translation gain

Repurchase of common stock

Shares issued for stock options exercised

Agent growth incentive stock compensation

Agent equity stock compensation

Stock option compensation

Retirement of treasury stock

Balance, end of year

Accumulated deficit:

Balance, beginning of year

Cumulative effect from the adoption of new accounting standards

Net income (loss)

Balance, end of year

Accumulated other comprehensive income (loss):

Balance, beginning of year

Foreign currency translation gain (loss)

Balance, end of year

Noncontrolling interest:

Balance, December 31, 2019

$ (8,623,212)

$ 130,682,916

$ (70,292,980)

Balance, beginning of year

Stock compensation

Contributions by noncontrolling interests

Balance, end of year

The accompanying notes are an integral part of these consolidated financial statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, except share amounts)

Year Ended December 31,

OPERATING ACTIVITIES

Reconciliation of net loss to net cash provided by operating activities:

Net income (loss)

Reconciliation of net income (loss) to net cash provided by operating activities:

Depreciation expense

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Amortization expense - long-term payable

Asset impairments

Allowance for credit losses on receivables/bad debt on receivables

Equity in loss of unconsolidated affiliates

Stock compensation expense

Stock option expense

Agent growth incentive stock compensation expense

Stock option compensation

Agent equity stock compensation expense

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Accrued expenses

Other operating activities

Long term payable

Other operating activities

NET CASH PROVIDED BY OPERATING ACTIVITIES

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Net change in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of year

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR

Cash, cash equivalents and restricted cash, beginning balance

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

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Intangible assets in accounts payable

Common stock issued for business acquisition

Termination of lease liabilities

Liabilities incurred associated with business acquisition

Fixed asset purchases in accounts payable

Property, plant and equipment purchases in accounts payable

Liabilities assumed in business acquisition

Common stock issued for business acquisition

The accompanying notes are an integral part of these consolidated financial statements.

eXp World Holdings, Inc.

Notes to the Consolidated Financial Statements

December 31, 2019

(Expressed in U.S.

dollars, except share and per share amounts unless otherwise noted)

Notes to Consolidated Financial Statements

(Amounts in thousands, except share and per share amounts, unless otherwise noted)

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

eXp World Holdings, Inc.

(collectively with its subsidiaries, the “Company”

or “eXp”) was incorporated in the State of Delaware on July 30, 2008.

(collectively with its subsidiaries, the “Company” or “eXp”) was incorporated in the State of Delaware on July 30, 2008.

Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States, and most of the Canadian provinces.

In the fourth quarter of 2019, the Company began operations in the United Kingdom (U.K.) and Australia.

During the previous five fiscal quarters, the Company began operations in the United Kingdom (U.K.), Australia, South Africa, Portugal, France, India, and Mexico.

The Company focuses on a number of cloud-based technologies in order to grow an international brokerage without the burden of physical bricks and mortar or redundant staffing costs.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles and are expressed in U.S.

The Company’s fiscal year end is December 31.

SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

The Company’s fiscal year end is December 31.

Common stock split

On January 19, 2021, the Company declared a two -for-one stock split of the Company’s common stock effected in the form of a stock dividend (the “Stock Split”) on each share of the Company’s outstanding Common Stock.

The stock dividend was issued on February 12, 2021 to holders of record of the Company’s Common Stock at the close of business on January 29, 2021.

All share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

Impact of the Stock Split

The impacts of the Stock Split were applied retroactively for all periods presented in accordance with applicable guidance.

Therefore, prior period amounts are different from those previously reported.

Certain amounts within the following tables may not foot due to rounding.

The following table illustrates changes in earnings (loss) per share and weighted average shares outstanding as previously reported prior to, and as adjusted subsequent to, the impact of the Stock Split retroactively adjusted for the years ended December 31, 2019 and 2018:

Year ended December 31,

As Previously Reported

Impact of Stock Split

As Previously Reported

Impact of Stock Split

Weighted average shares outstanding

Earnings (loss) per share

The following table illustrates changes in equity as previously reported prior to, and as adjusted subsequent to, the impact of the Stock Split retroactively adjusted for the years ended December 31, 2019 and 2018:

Year ended December 31,

As Previously Reported

Impact of Stock Split

As Previously Reported

Impact of Stock Split

Common stock:

Balance, beginning of year

Retirement of common stock

( 1,818,273 )

( 3,636,546 )

Shares issued for acquisition

Shares issued for stock options exercised

Agent growth incentive stock compensation

Agent equity stock compensation

Balance, end of year

Common stock, par value (1)

(1) The par value of common stock changed by less than one thousand dollars and shows no impact due to rounding.

Stock awards under the Company’s equity incentive program for agents, where the performance metric had been achieved, were adjusted retroactively to give effect to the Stock Split retroactively adjusted for the following periods:

Weighted Average Grant Date Fair Value

As Previously Reported

Impact of Stock Split

As Previously Reported

Impact of Stock Split

Balance, December 31, 2018

Vested and issued

( 1,494,633 )

( 2,989,266 )

( 1,355,184 )

Balance, December 31, 2019

The Company’s stock options were adjusted retroactively to give effect to the Stock Split for the following periods:

Weighted Average Exercise Price

As Previously Reported

Impact of Stock Split

As Previously Reported

Impact of Stock Split

Balance, December 31, 2018

( 2,261,122 )

( 4,522,244 )

Balance, December 31, 2019

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation

The accompanying audited consolidated financial statements include the accounts of eXp World Holdings, Inc., its subsidiaries and those entities where we have greater than 50% ownership or where we exercise control over the operations.

We use the equity method of accounting for entities in which we have a 50% or less investment and exercise significant influence.

Entities in which we have less than a 20% investment and where we do not exercise significant influence are accounted for under the cost method.

The accompanying consolidated financial statements include the accounts of eXp World Holdings, Inc., its wholly-owned subsidiaries, and including those entities in which we have a variable interest of which we are the primary beneficiary.

If the Company has a variable interest in an entity but it is not the primary beneficiary of the entity or exercises control over the operations and has less than 50% ownership, it will use the equity method or the cost method of accounting for investments.

Entities in which the Company has less than a 20% investment and where the Company does not exercise significant influence are accounted for under the cost method.

Intercompany transactions and balances are eliminated upon consolidation.

See Note 5 –

Variable Interest Entities.

Noncontrolling Interest

We have determined that one of our consolidated subsidiaries is a variable interest entity (“VIE”) and we have determined we are the primary beneficiary because we have a controlling financial interest, which includes both the power to direct the activities that most significantly impact the VIE and a variable interest that potentially could be significant to the VIE.

The noncontrolling interest balance is adjusted each period to reflect the allocation of net income (loss) and other comprehensive income (loss) attributable to the noncontrolling interest, as shown in our Consolidated Statements of Operations and our Consolidated Statements of Comprehensive Income (Loss), The noncontrolling interest balance in our Consolidated Balance Sheets represents the proportional share of the equity of the joint venture entities which is attributable to the minority shareholders.

Use of Estimates

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (“U.S.

GAAP”) 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 revenues and expenses during the reporting period.

The Company regularly evaluates estimates and assumptions related to allowance for doubtful accounts, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances.

The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.

To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Reclassifications

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation, specifically professional fees that were previously disclosed as its own line item that are now included in general and administrative expenses, depreciation and amortization that were previously disclosed as one line item that are now disclosed separately in the Company’s Consolidated Statements of Cash Flows, payroll tax liabilities have been reclassed from other accrued expenses to payroll payable and vacation benefit liabilities have been reclassed from vacation payable to payroll payable in Note 10 –

Accrued Expenses to our Consolidated Financial Statements.

Variable interest entities and noncontrolling interests

A company is deemed to be the primary beneficiary of a VIE and must consolidate the entity if the company has both:

(i) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

In 2019, the Company made capital contributions in consideration for an ownership interest in First Cloud Investment Group, LLC (“First Cloud”), a Nevada limited liability company providing mortgage origination for end-consumers, with the remaining ownership interests held by certain independent agents and brokers.

Under the terms of the operating agreement, the Company maintains at least a 50 % equity ownership interest in First Cloud.

The Company determined that First Cloud is a VIE, as the Company is the primary beneficiary that has both the power to direct the activities that most significantly impact the VIE and a variable interest that potentially could be significant to the VIE.

The Company treats the interest in First Cloud that it does not own as a noncontrolling interest.

The noncontrolling interest balance in the consolidated balance sheets represents the proportional share of the equity of the joint venture entity, which is attributable to the noncontrolling shareholders.

As of December 31, 2020, First Cloud’s operations are not material to the Company’s financial position or results of operations.

Joint ventures

The Company has investments in joint ventures.

A joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity through a jointly controlled entity.

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Joint ventures are accounted for using the equity method and are recognized initially at cost.

The Company has investments in a joint venture, Silverline Title & Escrow, LLC (“Silverline”), which operates and manages a title agency that performs, among other functions, core title agent services (for which liabilities arises), including the evaluation of searches to determine the insurability of title, the clearance of underwriting objections, the actual issuance of policies on behalf of insurance companies, and, where customary, the issuance of title commitments and the conducting of title searchers.

The Company owns a 50 % ownership interest in Silverline with the remaining ownership interest held by a third-party investment company.

The Company recognizes its share of income and expenses and equity movement in the venture in proportion to its percentage of ownership.

See Note 4 –

Investment in Joint Venture for additional information.

As of December 31, 2020, Silverline’s operations are not material to the Company’s financial position or results of operations.

Use of estimates

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (“U.S.

The Company regularly evaluates estimates and assumptions related to allowance for credit losses, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, and deferred income tax asset valuation allowances.

The actual results experienced by the Company may differ materially and adversely from the Company’s estimates.

To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Reclassifications

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.

These reclassifications had no impact on net income (loss) or total stockholders’ equity.

Cash and cash equivalents

The Company considers all highly liquid investments with maturity when purchased of three months or less to be cash equivalents.

From time to time, the Company’s cash deposits exceed federally insured limits.

The Company has not experienced any losses resulting from holding deposits in accounts in excess of federal insurance limits.

Cash and cash equivalents include cash on hand, money market instruments, and all other highly liquid investments purchased with an original or remaining maturity of three months or less at the date of acquisition.

Restricted cash

Restricted cash totaled $6,987,076 and $2,502,591 at December 31, 2019 and December 31, 2018, respectively.

Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers.

The Company recognizes a corresponding customer deposit liability until the funds are released.

Once the cash is transferred from escrow, the Company reduces the respective customers’ deposit liability.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet that sum to the total of the same such amounts shown on the statement of cash flows.

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Restricted cash

Total cash, cash equivalents, and restricted cash, beginning of period

Total cash, cash equivalents, and restricted cash, beginning balance

December 31, 2020

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Restricted cash

Total cash, cash equivalents, and restricted cash, end of year

Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers.

The Company recognizes a corresponding customer deposit liability until the funds are released.

Once the cash transfers from escrow, the Company reduces the respective customers’

deposit liability.

Total cash, cash equivalents, and restricted cash, ending balance

Fair value measurements

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Financial assets are marked to bid prices and financial liabilities are marked to offer prices.

Fair value measurements do

not include transaction costs.

Fair value measurements do not include transaction costs.

The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values.

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The Company values its money market funds at fair value on a recurring basis.

Accounts receivable and allowance for doubtful accounts

The majority of the Company’s accounts receivable is derived from non-commission based technology fees.

Accounts receivable and allowance for expected credit losses

The majority of the Company’s accounts receivable consists of commissions receivable on real estate property settlements, which are in-substance guaranteed because they represent commission payments on closed transactions.

The remaining accounts receivable is derived from non-commission based technology fees and short-term advances to agents and brokers.

These accounts receivable are typically unsecured.

The allowance for doubtful accounts is our estimate based on historical experience.

The allowance for expected credit losses is our estimate based on historical experience.

The Company periodically performs detailed reviews to assess the adequacy of the allowance.

The Company exercises significant judgment in estimating the timing, frequency and severity of losses.

The Company historically has not experienced material uncollectible accounts.

For the years ended December 31, 2019 and December 31, 2018, the allowance for uncollectible accounts is $137,430 and $484,441, respectively.

The Company uses the aging schedule method to estimate current expected credit losses (“CECL”) based on days of delinquency, including information about past events and current economic conditions.

The Company’s accounts receivable is separated into the three categories above to evaluate allowance under the CECL impairment model.

The receivables in each category share similar risk characteristics.

The Company analyzes uncollectable accounts for the three categories of receivables.

Based on historical information and future expectations, only agent non-commission based fees receivables and agent short-term advances carry any risk of expected credit losses.

Current economic conditions and forecasts of future economic conditions do not affect expected credit losses on uncollectable real estate property settlements.

The collection of these payments is in-substance guaranteed because they represent commission payments on closed transactions, and the Company has no historical experience or expectation of losses related to these receivables.

The Company increases the allowance for expected credits losses when the Company determines all or a portion of a receivable is uncollectable.

The Company recognizes recoveries as a decrease to the allowance for expected credit losses.

As of December 31, 2020 and 2019, receivables from real estate property settlements totaled $ 73,838 and $ 24,924 , respectively.

As of December 31, 2020, agent non-commission based fees receivable and short-term advances totaled $ 4,992 , of which the Company recognized expected credit losses of $ 1,879 .

As of December 31, 2019, agent non-commission based fees receivable and short-term advances totaled $ 3,409 , of which the Company recognized allowance for doubtful accounts of $ 137 .

Foreign currency translation

The Company’s functional and reporting currency is the United States dollar and the functional currency of the Company’s foreign subsidiaries is the local currency of their country of domicile.

Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date.

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Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the consolidated statements of operations in other (income) expense, net.

The Company does not employ any derivative or hedging strategy to offset the impact of foreign currency fluctuations.

The Company does not employ a hedging strategy to manage the impact of foreign currency fluctuations.

Fixed assets are stated at historical cost and are depreciated on the straight-line method over the estimated useful lives.

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Maintenance and repairs are expensed as incurred.

Expenditures that substantially increase an asset’s useful life or improve an asset’s functionality are capitalized.

The Company capitalizes the costs associated with developing its internal-use cloud-based residential real-estate transaction system.

Capitalized costs are primarily related to costs incurred in relation to internally created software during the application development stage including costs for upgrades and enhancements that result in additional functionality.

Leases are agreements, or terms within agreements, that convey the right to control the use of and receive substantially all of the economic benefit from an identified asset for a period of time in exchange for consideration.

The Company currently only possesses office space leases .

Right-of-use assets

The Company recognizes right-of-use (“ROU”) assets at the commencement date of the lease.

ROU assets are measured at cost, less accumulated depreciation and impairment losses, and are adjusted concurrent with the remeasurement of corresponding lease liabilities resulting from a change in future lease payments or a change in the assessment of whether any purchase, extension, or termination options will be exercised.

The cost of ROU assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received, if any.

Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the ROU assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

Lease liabilities

At the commencement date of a lease, the Company recognizes a lease liability measured at the present value of the lease payments to be made over the lease term.

Variable lease payments are recognized as expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the implicit interest rate in the lease is not readily determinable.

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced by the lease payments made.

In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets

The Company applies the short-term lease recognition exemption to leases that have a lease term of 12 months or less from the commencement date and which do not contain a purchase option.

The Company does not capitalize leases with a present value of below its minimum capitalization threshold as it would not materially affect the Company’s financial position or results of operations.

Lease payments on short-term leases and low-value leases are recognized as expense on a straight-line basis over the lease term.

Refer to Note 10 – Leases for more information.

Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination.

The Company evaluates goodwill for impairment annually in the fourth quarter.

The Company evaluates goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill is below its carrying value.

Generally, this evaluation begins with a qualitative assessment to determine if the fair value of the reporting unit is more likely than not less than its carrying value.

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In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred.

The Company did not recognize impairment for the years ended December 31, 2019 and 2018.

The Company did no t recognize an impairment for either of the years ended December 31, 2020 and 2019.

Intangible assets

The Company’s intangible assets are finite lived and consist primarily of trade name, technology and customer relationships.

Each intangible asset is amortized on a straight-line basis over its useful life, ranging from three to 10 years .

The Company evaluates its intangible assets for recoverability and potential impairment, or as events or changes in circumstances indicate the carrying value may be impaired.

The Company did not recognize impairment for the years ended December 31, 2019 and 2018.

The Company recognized an impairment of $ 225 for the year ended December 31, 2020.

No impairment was recognized for the year ended December 31, 2019.

Software development costs

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Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates and market factors.

Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding significant changes or planned changes in the use of the assets, as well as industry and economic conditions.

Estimating the fair value of individual reporting units requires the Company to make assumptions and estimates regarding significant changes or planned changes in the use of the assets, as well as industry and economic conditions.

These assumptions and estimates include projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors.

If current expectations of future growth rates are not met or market factors outside of our control change significantly, then our goodwill or intangible assets may become impaired.

If current expectations of future growth rates are not met or market factors outside of the Company’s control change significantly, then goodwill or intangible assets may become impaired.

Additionally, as goodwill and intangible assets associated with recently acquired businesses are recorded on the balance sheet at their estimated acquisition date fair values, those amounts are more susceptible to impairment risk if business operating results or macroeconomic conditions deteriorate.

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Our stock-based compensation is comprised of agent growth incentive programs, agent equity program, and stock option awards.

Our stock-based compensation is more fully disclosed in Note 12 - Stockholders’

Stock-based compensation is more fully disclosed in Note 11 – Stockholders’ Equity.

The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method.

Stock-based compensation awards are measured at the grant date fair value and is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures.

The Company reduces recorded stock-based compensation for forfeitures when they occur.

Stock-based compensation awards are measured at the grant date fair value and are recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures.

The Company reduces stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met.

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The Company generates substantially all of its revenue from real estate brokerage services and generates a de minimis portion of its revenues from software subscription and professional services.

The Company estimates revenue in instances where there is sufficient evidence that a real estate transaction has closed but all of the necessary documentation has not been received.

The recognition of any estimated revenue is verified through the passage of time.

As such, the Company does not have contracts with customers that provide variable consideration.

Real Estate Brokerage Services

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The Company, as principal, satisfies its obligation upon the closing of a residential real estate transaction.

As principal, and upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration to which the Company expects to be entitled.

As principal, and upon satisfaction of the performance obligation, the Company recognizes revenue in the gross amount of consideration to which the Company expects to be entitled.

Revenue is derived from assisting home buyers and sellers in listing, marketing, selling, and finding residential real estate.

Commissions earned on real estate transactions are recognized at the completion of a residential real estate transaction once we have satisfied the performance obligation.

Commissions earned on real estate transactions are recognized at the completion of a residential real estate transaction once the Company has satisfied the performance obligation.

Agent related fees are currently recorded as a reduction to commissions and other agent related costs.

Software Subscription and Professional Services

Subscription revenue is derived from fees from our customers to access the Company’s virtual reality software platform.

The terms of our subscriptions do not provide customers the right to take possession of the software.

Subscription revenue is derived from fees from customers to access the Company’s virtual reality software platform.

The terms of subscriptions do not provide customers the right to take possession of the software.

Subscription revenue is generally recognized ratably over the contract term.

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Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended (labor hours) input method.

Software subscription and professional services revenue accounts for less than 1% of all revenue for the year ended December 31, 2019.

The Company does not currently collect sales and use taxes on fees from agents and brokers and assumes responsibility to pay these costs to the appropriate taxing authorities.

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The Company primarily operates as a real estate brokerage firm.

The vast majority of our revenue is derived from providing a single service (real estate brokerage services) to purchasers and sellers of homes in the U.S.

See Note 16 –

Segment Information for details regarding segment and geographic information.

The vast majority of the Company’s revenue is derived from providing a single service, real estate brokerage services, to purchasers and sellers of homes in the U.S.

See Note 15 – Segment information for details regarding segment and geographic information.

Management believes that no disaggregation of revenue from services to customers currently exists that would provide additional insight into the future recognition of revenue and cash flows.

Revenue share expenses

The Company has a revenue sharing plan where its agents and brokers can receive additional commission income from real estate transactions consummated by agents and brokers they have attracted to the Company.

Agents and brokers are eligible for revenue share based on the number of frontline qualifying active (“FLQA”) agents they have attracted to the Company.

An FLQA agent is an agent or broker that an agent has personally attracted to the Company who has met specific real estate transaction volume requirements.

These additional commissions are earned on a multitiered basis by FLQA agents and brokers for real estate transactions within their downstream brokerage network.

Commissions to agents and brokers under the revenue sharing plan are included as part of commissions and other agent-related costs in the consolidated statements of comprehensive income (loss).

Advertising and marketing costs

Advertising and marketing costs are generally expensed in the period incurred.

Advertising and marketing expenses are included in the sales and marketing expense line item on the accompanying consolidated statements of operations.

Advertising and marketing expenses are included in the sales and marketing expense line item on the accompanying consolidated statements of comprehensive income (loss).

For the years ended December 31, 2020, 2019, and 2018, the Company incurred advertising and marketing expenses of $ 5,223 , $ 3,799 , and $ 2,961 , respectively.

Deferred tax assets and liabilities arise from the differences between the tax basis of an asset or liability and its reported amount in the financial statements as well as from net operating loss and tax credit carry forwards.

The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws;

the effects of future changes in tax laws or rates are not anticipated.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Income tax expense or benefit is the tax payable or refundable, respectively, for the period adjusted for the change during the period in deferred tax assets and liabilities.

The Company records income taxes using the asset and liability method.

Under this method, deferred income tax assets and liabilities are recorded based on the estimated future tax effects of differences between the financial statement and income tax basis of existing assets and liabilities.

These differences are measured using the enacted statutory tax rates that are expected to apply to taxable income for the years in which differences are expected to reverse.

The Company recognizes the effect on deferred income taxes of a change in tax rates in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized.

In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process whereby:

(i) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

income tax returns, the open taxation years subject to examination range from 2011 to 2020 .

Comprehensive loss

The Company’s only component of comprehensive loss are net losses and foreign currency translation adjustments.

Net loss per share

Basic net loss per share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the period.

Diluted loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding plus, if dilutive, potential common shares outstanding during the period.

Comprehensive income (loss)

The Company’s only components of comprehensive income (loss) are net income (losses) and foreign currency translation adjustments.

Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding plus, if potentially dilutive common shares outstanding during the period.

The Company does not pay dividends or have participating shares outstanding.

Prior period results have been adjusted to reflect the effect of the Stock Split.

Refer to Note 12 – Earnings (Loss) Per Share for details related to the calculations of basic and diluted earnings per share.

Recently adopted accounting principles

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842).

ASU 2016-02 is intended to improve the financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months on the balance sheet.

This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases.

In July 2018, the FASB issued ASU 2018-11 –

Leases (Topic 842) –

Targeted Improvements.

The amendments in ASU 2018-11 provide entities with an additional (and optional) transition method to adopt the

new leases standard.

Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with U.S.

GAAP (Topic 840, Leases ).

An entity that elects this additional (and optional) transition method must provide the required Topic 840 disclosures for all periods that continue to be in accordance with Topic 840.

The amendments do not change the existing disclosure requirements in Topic 840 (for example, they do not create interim disclosure requirements that entities previously were not required to provide).

The Company adopted ASU 2016-02 effective January 1, 2019 using the modified retrospective approach and elected the practical expedient to use the effective date of adoption as the application date for the leases whereby the prior periods were not restated.

There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of this adoption.

This standard did not have a material impact on the Company’s balance sheets or cash flows from operations and did not have a significant impact on the Company’s operating results.

The most significant impact was the recognition of right-of-use (ROU) assets and lease obligations on the balance sheet upon adoption on January 1, 2019.

The Company elected to utilize the transition guidance accounting policy elections available including, not recording a ROU lease asset and lease obligation for short term leases, to not separate lease and non-lease components, and to apply a portfolio discount rate to all leases similar in nature and term.

With the adoption of ASU 2016-02, the Company determined if an arrangement is a lease at inception and performed a lease classification assessment.

Based on this assessment, the Company concluded it only has operating leases.

Leases are included in ROU lease assets, current portion of lease obligations, and long-term lease obligations on the Company’s balance sheet.

Certain arrangements previously considered leases under Topic 840 were determined to not be leases under Topic 842.

Lease expense for short-term leases that, at the commencement date have a lease term of 12 months or less, is recorded in the Company’s consolidated statements of operations as incurred.

ROU lease assets represent the Company’s right to use an underlying asset for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

ROU lease assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease term.

The Company has determined to not separate lease components from non-lease components in the lease payments for its office space leases, which are currently the only leases the Company has under Accounting Standards Codification (“ASC”) 842 –

Leases (“ASC 842”).

The rate implicit in the lease was not readily determinable in the lease arrangements and as such, the Company used its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

The Company calculated the rate utilizing rate information provided from our lenders based on a secured line of credit adjusted for the average lease term of three years.

The ROU lease asset also includes any lease payments made in advance and excludes lease incentives.

The Company’s lease terms include options to extend the lease when it is reasonably certain that the Company will exercise its option.

The Company evaluates renewal options quarterly for any changes in assumptions.

Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.

Refer to Note 14 - Leases for more information.

In January 2017, the FASB issued ASU 2017-04 –

Intangibles –

Goodwill and Other (Topic 350).

ASU 2017-04 eliminates Step 2 from the goodwill impairment test.

Under ASU 2017-04, if a reporting unit’s carrying amount exceeds its fair value, the entity will record an impairment charge based on that difference.

The impairment charge will be limited to the amount of goodwill allocated to that reporting unit.

Previously, if the fair value of a reporting unit was lower than its carrying amount (Step 1), an entity was required to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2).

Additionally, under ASU 2017-04, entities that have reporting units with zero or negative carrying amounts will no longer be required to perform the qualitative assessment to determine whether to perform Step 2 of the

goodwill impairment test.

As a result, reporting units with zero or negative carrying amounts will generally be expected to pass the simplified impairment test;

however, additional disclosure will be required of those entities.

This ASU is effective in fiscal years beginning after December 15, 2019.

Early adoption on a prospective basis is permitted for annual and interim goodwill impairment testing dates after January 1, 2017.

The Company early adopted ASU 2017-04 effective January 1, 2019.

There were no significant adjustments to our financials or our disclosures under the new guidance.

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”).

ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets.

The ASU amends the impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables.

The amendment requires entities to consider other factors, such as economic conditions and future economic conditions.

The Company adopted ASU 2016-13 effective January 1, 2020 and concluded it did not have a material impact on either the financial position, results of operations, cash flows, or related disclosures of the Company.

There was no impact on beginning balance retained earnings upon adoption of this ASU.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removes certain disclosure requirements related to the fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement.

The Company adopted ASU 2018-13 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15 – Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”).

The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract.

ASU 2018-15 requires a customer in a hosting arrangement to capitalize certain implementation costs.

Costs associated with the application development stage of the implementation should be capitalized and costs with the other stages should be expensed.

The Company adopted ASU 2018-15 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

Recently issued accounting pronouncements

In December 2019, the FASB issued ASU 2019-12 –

Income Taxes (Topic 740).

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740).

ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes.

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early adoption is permitted.

The Company is still assessing the amendments of ASU 2019-12 and the impact the amendments will have on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) –

Disclosure Framework –

Changes to the Disclosure Requirements for Fair Value Measurement , which removes certain disclosure requirements related to the fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement.

ASU 2018-13 is effective beginning January 1, 2020;

early adoption is permitted.

Certain changes are applied retrospectively to each period presented and others are to be applied either in the period of adoption or prospectively.

The Company does not expect the amendments of ASU 2018-13 will have a significant impact on the Company’s consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments –

Credit Losses (Topic 326).

ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets.

ASU 2016-13 is effective for fiscal years and interim periods within those years beginning after December 15, 2019.

The Company does not expect the amendments of ASU 2016-13 to have a significant impact on the Company’s consolidated financial statements and related disclosures.

On November 29, 2018, (the “Acquisition Date”), the Company and its subsidiary, eXp World Technologies, LLC (“Purchaser) acquired substantially all the assets of VirBELA, LLC (VirBELA), a California limited liability company.

VirBELA provides a cloud-based environment focused on educational and innovative learning technologies to enhance global education experiences that empower individuals, teams, and organizations for clients in various industries.

Its model allows for a level of engagement and participation that can typically only be achieved with face-to-face instruction.

Its proprietary immersive 3D campus, which supports blended learning and big data assessment, is highly customizable to meet the branding and educational needs of clients.

VirBELA developed the Company’s current cloud campus called eXp World, which provides 24/7 access to collaborative tools, training and socialization for the Company’s real estate agents and employees.

The acquisition of VirBELA’s core group of products and services will allow eXp Realty to continue to accelerate its business in a sustainable and innovative way, which is consistent with our vision to expand the product offering to agents, teams and others who could benefit from their own, always available environments for collaboration.

The Company acquired the assets of VirBELA for a total purchase price of $10,607,800, consisting of cash of $7,000,000 and future payments of $3,607,800, that can be settled at the Company’s discretion with cash or

through the issuance of shares of the Company’s common stock.

A cash payment of $6,500,000 was paid at closing and 97,371 shares of the Company’s restricted common stock having a value of $1,000,000 was issued at closing.

On the acquisition date, the Company held $500,000 in accounts payable to secure the seller’s performance of certain post close obligations.

During the first quarter of 2019, the seller performed its post close obligations and the $500,000 was paid to the seller.

The remaining obligation will be paid in either cash or in the Company’s common stock, at its discretion, having a value of $1,000,000 on each of the first, second and third anniversaries of the Acquisition Date.

The fair value of future payment obligations was $2,607,800 as of the Acquisition Date and is remeasured at each reporting period since the Company could issue a variable number of shares of common stock based on a fixed monetary amount.

The discount of $392,200 will be amortized over the reporting periods using the effective interest method during fiscal years 2019, 2020 and 2021.

For the period ended December 31, 2019, the discount amortization was $ 139,723.

As of December 31, 2019, long-term payables, net of current portion and current portion of long-term payable was $832,946 and $916,240, respectively

The following table shows the allocation of the purchase price of VirBELA to the acquired identifiable assets, and goodwill:

Accounts receivable

Intangible assets

Total purchase price

The Acquisition was accounted for using the acquisition method of accounting under which the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired based on their estimated fair values as of the acquisition date, as determined by management.

The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill.

Goodwill generated from the Acquisition was primarily attributable to an assembled workforce and planned expansion of VirBELA into new markets.

The purchase price allocation to identifiable intangible assets acquired in the VirBELA acquisition was:

The Company adopted this amendment on January 1, 2021.

The Company has assessed the amendments of ASU 2019-12 and determined the amendments to have an immaterial impact on the Company’s consolidated financial statements and related disclosures.

The following discussion relates to acquisitions completed during the year ended December 31, 2020.

Neither of these business combinations were deemed material to the Company’s financial condition, results of operations, or cash flows.

No business combinations were executed during the year ended December 31, 2019.

Showcase Web Sites, L.L.C.

On July 31, 2020 , the Company acquired the equity ownership interests in Showcase Web Sites, L.L.C.

(“Showcase”) for cash consideration of $ 1.5 million using cash on hand and two-year promissory notes totaling $ 1.5 million (the “Showcase Acquisition”).

Showcase is a technology company focused on agent website and consumer real estate portal technology.

With this acquisition, the Company will be able to strategically focus on creating consumer home-search technology for utilization by independent agents and brokers, as well as continued services offerings to third party clients of Showcase.

The following table outlines the fair value of the acquired assets and liabilities from the Showcase Acquisition:

Identifiable assets acquired and goodwill

Accounts receivable, net

Prepaid & other current assets

Fixed assets, net

Showcase tradename

Existing technology

Non-competition agreements

Customer contracts

Total intangible assets purchased

The allocation of the fair value of the acquired business was based on valuations of the estimated net fair value of the assets acquired.

For tax purposes, goodwill is amortized over 15 years and is tax deductible.

The fair values of these net assets acquired are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques.

INVESTMENT IN JOINT VENTURE

During the quarter ended December 31, 2019, the Company, and its newly formed entity eXp Silverline Ventures, LLC entered into an agreement to purchase a 50% ownership interest in Silverline Title & Escrow, LLC (“Silverline”).

The remaining ownership interest is held by a third-party investment entity.

The purpose of the business of Silverline is to operate and manage a title agency that performs, among other functions, core title agent services (for which liabilities arises), including the evaluation of searches to determine the insurability of title, the clearance of underwriting objections, the actual issuance of polices on behalf of insurance companies, and, where customary, the issuance of title commitments and the conducting of title searchers.

The Company made an initial investment of $50,000 and the investment is accounted for under the equity method of accounting and reported as other noncurrent assets in the consolidated balance sheets.

As of December 31, 2019, the operations of Silverline are not material to the Company’s financial position or results of operations.

VARIABLE INTEREST ENTITIES

First Cloud Investment Group, LLC (“First Cloud”), a Nevada limited liability company, holds investment and profit interests in IntroLend First Cloud, LLC “IntroLend First Cloud”), a Delaware limited liability company that provides mortgage origination for end-consumers.

During the quarter ended December 31, 2019, the Company made capital contributions in consideration for an ownership interest in First Cloud with the remaining ownership interest held by certain of our independent agents and brokers.

First Cloud was organized for the purpose of managing IntroLend First Cloud, a wholly-owned indirect subsidiary of the Company.

The Company will always retain at least 50% of the outstanding equity ownership units in First Cloud.

During the start-up phase, eXp holds a greater than 50% interest in First Cloud.

As eXp agents continue to invest in First Cloud, agents’

interests will increase until the interest for both eXp and agents equal 50%.

First Cloud is considered a VIE.

A company is deemed to be the primary beneficiary of a VIE and must consolidate the entity if the company has both (1) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

T he Company has concluded that the Company is the primary beneficiary since the Company has the power to direct the activities of the entity and has an economic interest that will absorb the losses and/or receive benefits that could be significant to the VIE.

Accordingly, the Company consolidates the assets and liabilities and operating results in the consolidated financial statements.

The Company recognizes noncontrolling interest in the consolidated balance sheets.

The income or loss allocations reflected on the consolidated statement of operations may create volatility in the reported results of operations, including net losses attributable to common stockholders.

The financial information of First Cloud, which is included in the Company’s consolidated balance sheet and the consolidated statement of operations for the period of ownership is presented below.

As of December 31, 2019, the operations of First Cloud are not material to the Company’s financial position or results of operations.

December 31, 2019

Prepaid expenses

Security deposits

Liabilities & Equity

Membership interests payable

Accounts payable

Total liabilities

Members equity

Current year profit (loss)

Total liabilities & equity

Year Ended December 31, 2019

Customer relationships

Liabilities assumed

Deferred liabilities & other current liabilities

Total purchase price

Success Enterprises, LLC

On December 4, 2020, the Company acquired the equity ownership interests in Success Enterprises LLC (“Success”) and its related media properties, including SUCCESS ® print magazine, SUCCESS.com, SUCCESS ® newsletters, podcasts, digital training courses and affiliated social media accounts across platforms (the “Success Acquisition”).

On November 4, 2020, Sanford Enterprises, LLC (“Sanford Enterprises”), a wholly-owned entity of Mr.

Glenn Sanford, Chief Executive Officer and Chairman of the Board of the Company, purchased all of the membership equity interests in Success from Success Partners Holding Co, a third party media vendor to the Company, for $ 8.0 million in cash.

On December 4, 2020 , the Company completed the acquisition of Success from Sanford Enterprises, LLC for cash consideration of $ 8.0 million using cash on hand.

Refer to Note 16 – Related Party Transactions.

The following table outlines the fair value of the acquired assets and liabilities from the Success Acquisition:

Identifiable assets acquired and goodwill

Accounts receivable, net

Prepaid & other current assets

Fixed assets, net

Success tradename

Domains and social media

Customer relationships

Total purchase price

FAIR VALUE MEASUREMENT

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 2019 and 2018 :

December 31, 2019

Quoted Prices in Active Markets

Significant Other Observable Inputs

Significant Unobservable Inputs

Money market funds

December 31, 2018

Quoted Prices in Active Markets

Significant Other Observable Inputs

Significant Unobservable Inputs

Money market funds

There have been no transfers between Levels 1, Level 2 and Level 3 in the period presented.

The Company did not have any Level 2 or Level 3 financial assets or liabilities in the period presented.

The Company holds funds in a money market account, which are considered Level 1 assets.

The Company values its money market funds at fair value on a recurring basis.

As of December 31, 2020 and 2019, the fair value of the Company’s money market funds was $ 53,380 and $ 18,281 , respectively.

There have been no transfers between Level 1, Level 2, and Level 3 in the periods presented.

The Company did not have any Level 2 or Level 3 financial assets or liabilities in the periods presented.

PREPAIDS AND OTHER ASSETS

Prepaids and other assets consisted of the following:

As of December 31,

December 31, 2020

December 31, 2019

Prepaid expenses

1 unchanged sentence

Rent deposits

Other assets (includes inventory)

Total prepaid expenses

PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:

As of December 31,

December 31, 2020

December 31, 2019

Computer hardware and software

1 unchanged sentence

Total depreciable property and equipment

accumulated depreciation and amortization

accumulated depreciation

Depreciable property, net

1 unchanged sentence

Property, plant, and equipment, net

Depreciation expense for the years ended December 31, 2019 and 2018 was $2,057,242, and $869,657 respectively.

For the years ended December 31, 2020, 2019, and 2018, depreciation expense was $ 3,360 , $ 2,057 , and $ 870 , respectively.

GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill were:

As of December 31,

Acquisitions/(Impairment)

December 31, 2020

December 31, 2019

Total goodwill

Our goodwill was recorded in connection with the acquisition of VirBELA in November 2018 and represents fair value as of the acquisition date.

Goodwill was recorded in connection with the acquisitions of Showcase in July 2020 and Success in December 2020 and represents fair value as of the acquisition dates.

Each acquisition was accounted for using the acquisition method of accounting.

Under the acquisition method of accounting, the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired, and assumed liabilities based on their estimated fair values as of the acquisition date, as determined by management.

The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill.

The Company has a risk of future impairment to the extent that individual reporting unit performance does not meet projections.

Additionally, if current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of our control change unfavorably, the estimated fair value of our goodwill could be adversely affected, leading to a potential impairment in the future.

No events occurred that indicated it was more likely than not that our goodwill was impaired.

Additionally, if current assumptions and estimates, including projected revenues and income growth rates, terminal growth rates, competitive and consumer trends, market-based discount rates, and other market factors, are not met, or if valuation factors outside of the Company’s control change unfavorably, the estimated fair value of goodwill could be adversely affected, leading to a potential impairment in the future.

No events occurred that indicated it was more likely than not that goodwill was impaired.

Definite-lived intangible assets were as follows:

As of December 31, 2019

December 31, 2020

December 31, 2019

Existing technology

2 unchanged sentences

Licensing agreement

As of December 31, 2018

Existing technology

Non-competition agreements

Customer relationships

Includes capitalized software development costs and acquired technologies from the VirBELA asset purchase.

Amortization expense for definite-lived intangible assets was $326,501 in 2019 and $24,331 in 2018.

Intellectual property

Total intangible assets

For the years ended December 31, 2020, 2019, and 2018, amortization expense for definite-lived intangible assets was $ 629 , $ 327 , and $ 24 , respectively.

As of December 31, 2020, expected amortization related to definite-lived intangible assets will be:

3 unchanged sentences

Accrued expenses consisted of the following:

As of December 31,

December 31, 2020

December 31, 2019

Commissions payable

3 unchanged sentences

Other accrued expenses

Certain amounts have been reclassed from prior year presentation in the accrued expenses table above.

Specifically, $204,295 of payroll tax liabilities have been reclassed from other accrued expenses to payroll payable and $690,587 of vacation benefit liabilities have been reclassed from vacation payable to payroll payable .

The Company cancelled its $1,000,000 line of credit in May 2019 that was scheduled to mature in August 2019, as the Company had not had any borrowings against the line of credit.

STOCKHOLDERS’

As of December 31, 2019, the Company had 66,199,308 shares of common stock issued and 65,273,944 shares outstanding.

As of December 31, 2018, the Company had 60,609,102 shares of common stock issued and outstanding.

Our shareholder approved equity plans described below are administered under our 2013 Stock Option Plan and our 2015 Equity Incentive Plan.

The purpose of the equity plans is to retain the services of valued employees, directors, officers, agents, and consultants and to incentivize such persons to make contributions to our company and motivate excellent performance.

The Company issued unsecured promissory notes in the aggregate principal amount of $ 1.5 million in connection with the Showcase Acquisition in July 2020.

The promissory notes accrue interest of 8 % per annum, and interest is payable monthly beginning six months after the acquisition date.

The first installment payment of outstanding principal in the amount of $ 0.5 million is due on July 31, 2021, the first anniversary of the acquisition date, with the second installment payment for the remaining $ 1.0 million of outstanding principal payable on July 31, 2022, the second anniversary of the acquisition date.

The Company adopted ASU 2016-02 – Leases (Topic 842) effective January 1, 2019 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated.

There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of adoption.

ASU 2018-11 – Leases (Topic 842) – Targeted Improvements permits an entity to apply the new leases standard at the date of adoption.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with ASC 840 – Leases .

Operating leases

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years , with the weighted average lease term being three years .

Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements.

These leases generally also include real estate taxes.

Information as lessee under ASC 842

The Company reassessed all of leases to determine whether any expired or existing contracts were or contained a lease under ASC 842.

Expired or existing contracts previously considered leases under ASC 840 no longer meet the definition of a lease under ASC 842 and therefore, have been excluded from future lease payments.

The Company still maintains these agreements, along with other short-term leases that are not capitalized, and the expenses are recognized in the period incurred.

As of December 31, 2020, maturities of the operating lease liabilities by fiscal year were as follows:

Year Ending December 31,

2026 and thereafter

Total lease payments

Total operating lease liabilities

Included below is other information regarding leases for the year ended December 31, 2020.

Year Ended December 31,

Other information

Operating lease expense

Short-term lease expense

Cash paid for operating leases

Weighted-average remaining lease term (years) – operating leases (1)

Weighted-average discount rate – operating leases

(1) The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option.

Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.

Rent expense is recorded in general and administrative expense in the consolidated statements of comprehensive income (loss).

STOCKHOLDERS’ EQUITY

The following table represents a reconciliation of the Company’s common stock for the periods presented, adjusted to give effect to the Stock Split:

Year Ended December 31,

Common stock:

Balance, beginning of year

Retirement of common stock

( 3,636,546 )

Shares issued for acquisition

Shares issued for stock options exercised

Agent growth incentive stock compensation

Agent equity stock compensation

Balance, end of year

The Company’s shareholder approved equity plans described below are administered under the 2013 Stock Option Plan and the 2015 Equity Incentive Plan.

Although a limited number of awards under the plan remain outstanding, no awards have been granted under the 2013 Stock Option Plan since 2015.

Agent Equity Program

The Company provides agents and brokers the opportunity to elect to receive 5% of commissions earned from each completed residential real estate transaction in the form of common stock.

If such an election is made, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable.

The shares are issued at a 20% discount to market on the date of issuance.

Prior to 2020, we recognized a 20% discount on these issuances as an additional cost of sales charge during the periods

Beginning in January 2020, the Company amended the Agent Equity Plan and changed the discount on issued shares from 20% to 10% .

During the years ended December 31, 2019 and 2018, the Company issued 3,801,603 and 1,684,601 shares, respectively, of common stock to agents and brokers for total consideration of $37,767,851 and, $21,253,677, respectively for the settlement of commissions payable, inclusive of the 20% discount.

The Company provides agents and brokers the opportunity to elect to receive 5 % of commissions earned from each completed residential real estate transaction in the form of common stock (the “Agent Equity Program” or “AEP”).

If agents and brokers elect to receive portions of their commissions in common stock, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable.

Prior to January 1, 2020, the Company recognized a 20 % discount on these issuances as an additional cost of sales charge during the periods presented.

Effective in January 2020, the Company amended the AEP and adjusted the discount on issued shares from 20 % to 10 %.

For the years ended December 31, 2020, 2019, and 2018, the Company issued 5,762,470 , 7,603,206 , and 3,332,894 shares of common stock, respectively, to agents and brokers for $ 60,968 , $ 37,768 , and $ 21,254 , respectively, net of discount.

Agent Growth Incentive Program

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks.

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks (the “Agent Growth Incentive Program” or “AGIP”).

The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones.

Awards typically vest after performance benchmarks are reached and three years of subsequent service is provided to the Company.

In January 2019 , the Company amended the Agent Growth Incentive Program.

The amendment changed the share-based performance awards from a fixed-share amount to a fixed-dollar amount of shares based on the achievement of performance metrics.

The performance metrics did not change under the amended program.

The recognition of the award depends on which performance metric is achieved and the number of shares granted is calculated based on the fixed dollar amount of the respective award and the stock price on the last day of the month in which the agent achieves the performance metric.

Once it is probable an agent will reach the performance metric, the award is recognized as a liability.

Since the Company’s obligation on the grant date is based on a fixed monetary amount that will be settled with a variable number of shares upon achievement of the performance condition, ASC 480 –

Distinguishing Liabilities from Equity requires these awards to be classified as liabilities until the number of shares to be issued becomes fixed.

The awards become fixed once the performance metric is achieved.

The share price on the last day of the month the performance metric is met is used to calculate the number of shares to be awarded.

Upon achievement of the performance metric, the award is no longer considered a liability and is reclassified from a liability to equity.

For the year ended December 31, 2019, the Company’s stock compensation attributable to the Agent Growth Incentive Program was $13,299,784.

Of this amount, $900,535 is attributable to the liability classified Agent Growth Incentive Program awards.

The entire stock compensation expense related to the Agent Growth Incentive Program is included in general and administrative expense in the consolidated statement of operations.

The following table illustrates changes in the Company’s stock compensation liability during the year ended December 31, 2019:

Stock Compensation Liability Activity

Share-based performance awards are based on a fixed-dollar amount of shares based on the achievement of performance metrics.

As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved.

For the years ended December 31, 2020, 2019, and 2018, the Company’s stock compensation attributable to the AGIP was $ 15,239 , $ 13,959 , and $ 19,053 , respectively.

The total amount of stock compensation attributable to liability classified awards was $ 3,246 and $ 901 for the years ended December 31, 2020 and 2019, respectively, and none during 2018.

Stock compensation expense related to the AGIP is included in general and administrative expense in the consolidated statements of comprehensive income (loss).

The following table illustrates changes in the Company’s stock compensation liability for the periods presented:

Balance, December 31, 2018

Estimated stock awards

Stock awards reclassified from liability to equity

Stock grant liability increase year to date

Stock grants reclassified from liability to equity year to date

Balance, December 31, 2019

As of December 31, 2019, the Company had 1,866,483 unvested common stock awards and unrecognized compensation costs totaling $19,934,606 attributable to stock awards where the performance metric has been achieved and the number of shares awarded are fixed.

Stock grant liability increase year to date

Stock grants reclassified from liability to equity year to date

Balance, December 31, 2020

As of December 31, 2020, the Company had 6,550,390 unvested common stock awards, adjusted to give effect to the Stock Split and unrecognized compensation costs totaling $ 25,586 attributable to stock awards where the performance metric has been achieved and the number of shares awarded are fixed.

The cost is expected to be recognized over a weighted average period of 2.16 years.

The following table illustrates the Company’s stock activity for the Agent Growth Incentive Program for stock awards where the performance metric has been achieved for the following periods:

The following table illustrates the Company’s stock activity for the Agent Growth Incentive Program for stock awards where the performance metric has been achieved for the following periods, adjusted to give effect to the Stock Split:

Weighted Average

1 unchanged sentence

Vested and issued

( 2,989,266 )

( 1,355,184 )

Balance, December 31, 2019

Vested and issued

( 1,980,870 )

( 1,022,852 )

Balance, December 31, 2020

Stock Option Awards

Stock options are granted to directors, officers, certain employees, and consultants with an exercise price equal to the fair market value of common stock on the grant date, and the stock options expire 10 years from the date of grant.

These options have time-based restrictions with equal and quarterly graded vesting over a three-year period.

The fair value of the options issued was calculated using a Black-Scholes-Merton option-pricing model with the following assumptions:

2 unchanged sentences

5 - 6.25 years

6.25 - 10 years

Expected volatility

69.01 % - 116.16 %

91.0 % - 127.9 %

129.2 % - 153.7 %

Risk-free interest rate

0.21 % - 1.58 %

1.5 % - 2.7 %

Dividend yield

During the year ended December 31, 2019, the Company granted 776,746 stock options to employees with an estimated grant date fair value of $6,494,211.

The following table illustrates the Company’s stock option activity for the following periods:

The following table illustrates the Company’s stock option activity for the following periods, adjusted to give effect to the Stock Split:

Contractual Term

2 unchanged sentences

Balance, December 31, 2018

( 4,522,244 )

Balance, December 31, 2019

( 6,538,628 )

Balance, December 31, 2020

1 unchanged sentence

Vested at December 31, 2020

Range of stock option exercise prices at December 31, 2020:

$ 0.01 - $ 5.00 (average remaining life - 3.71 years)

$ 5.01 - $ 15.00 (average remaining life - 8.98 years)

$ 15.01 - $ 30.00 (average remaining life - 9.78 years)

The grant date fair value of options to purchase common stock is recorded as stock-based compensation over the vesting period.

As of December 31, 2019, unrecognized compensation cost associated with options to purchase common stock was $10,655,374, that is expected to be recognized over a weighted-average period of approximately 2 years.

As of December 31, 2020, unrecognized compensation cost associated with the Company’s outstanding stock options was $ 25,736 , which is expected to be recognized over a weighted-average period of approximately 1.23 years.

Stock Repurchase Plan

On December 27, 2018 the Company announced that our board of directors (“the Board”) approved a stock repurchase program authorizing us to purchase up to $25,000,000 of our common stock.

In December 2018, the Company’s board of directors (“the Board”) approved a stock repurchase program authorizing the Company to purchase up to $ 25.0 million of its common stock, which was later amended in November 2019 and again in June 2020 increasing the authorized repurchase amount to $ 75.0 million.

In December 2020, the Board approved another amendment to the repurchase plan, increasing the total amount authorized to be purchased from $ 75.0 million to $ 400.0 million.

Purchases under the repurchase program may be made in the open market or through a 10b5-1 plan and are expected to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

1 unchanged sentence

The repurchase program does not require the Company to acquire a specific number of shares.

The cost of the shares that are repurchased is funded from available working capital.

The repurchase program began on January 2, 2019 and was set to expire on June 28, 2019.

On June 12, 2019 the Company under authorization from the Board of Directors, amended the plan.

The amended plan extended the repurchase program through December 31, 2019.

On November 26, 2019, the Company announced the approval to increase the authorization limits of the Company’s stock repurchase program by the Board.

The Board agreed to extend the stock repurchase program through the fourth quarter of 2020 and increase the authorization for the stock repurchase program from $25 million to $75 million of the Company’s common stock.

The cost of the shares that are repurchased is funded from cash and cash equivalents on hand.

In December 2019, the Board approved the retirement of the Company’s common stock related to repurchases made during 2019.

On December 31, 2019, the Company retired 1,818,273 shares of common stock available in treasury valued at $ 18,433 .

For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the settlement date of the applicable trade.

Such repurchased shares are held in treasury and are presented using the cost method.

During the year ended December 31, 2019 the Company repurchased 2,743,637 shares of common stock at a total cost of $27,056,136.

These shares are considered issued but not outstanding.

In December 2019, the Company’s Board of Directors approved the retirement of the Company’s common stock related to repurchases made during 2019.

On December 31, 2019 the Company ret ired 1,818,273 of common stock available in treasury valued at $ 18,432,924 .

The components of the provision for income tax expense are as follows:

The following table shows the changes in treasury stock for the periods presented:

Year Ended December 31,

Treasury stock:

Balance, beginning of year

Repurchases of common stock

Retirement of treasury stock

( 1,818,273 )

Balance, end of year

EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed based on net income (loss) attributable to eXp shareholders divided by the basic weighted-average shares outstanding during the period.

Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period.

The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options.

Company uses the if-converted method to reflect the potential dilutive effect of a $ 1.0 million payment obligation relating to the November 2018 acquisition of Virbela, LLC, that may be paid in cash or common stock in November 2021.

The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented, adjusted to give effect to the Stock Split:

Year Ended December 31,

Net income (loss) attributable to common stock

Weighted average shares - basic

Dilutive effect of common stock equivalents

Weighted average shares - diluted

Earnings (loss) per share:

Earnings (loss) per share attributable to common stock- basic

Earnings (loss) per share attributable to common stock- diluted

For the years ended December 31, 2020, 2019, and 2018, total outstanding shares of common stock excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive were 283,842 , nil , and nil , respectively.

The following table provides the components of income (loss) before provision for income taxes by domestic and foreign subsidiaries:

Year Ended December 31,

The components of the provision for (benefit from) income tax expense are as follows:

Year Ended December 31,

Total current income tax provision

Total deferred income tax benefit

Total provision (benefit) for income taxes

The Company is subject to United States federal and state income taxes at an approximate rate of 24.58%.

The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

Year Ended December 31,

3 unchanged sentences

Share-based compensation

162m compensation limitation

Foreign tax rate differential

1 unchanged sentence

Prior year true up items

Deferred tax assets consist of the following at:

Deferred tax assets and liabilities consist of the following for the periods presented:

December 31, 2020

December 31, 2019

Deferred tax assets:

Net operating loss carryforward

Temporary differences

Accruals and reserves

Lease liability

7 unchanged sentences

Net deferred tax assets

At December 31, 2019, the Company had federal and state net operating losses of approximately $48.1 million and $37.5 million, respectively, which could be subject to certain limitations under section 382 of the Internal Revenue Code.

The Company accounts for deferred taxes under ASC Topic 740 – Income Taxes (“ASC 740”), which requires a reduction of the carrying amount of deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that such assets will not be realized.

Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically based on the ASC 740 more-likely-than-not realization threshold criterion.

This assessment considers matters such as future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations.

The evaluation of the recoverability of the deferred tax assets requires that the Company weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax assets will not be realized.

The weight given to the evidence is commensurate with the extent to which it can be objectively verified.

As of December 31, 2020, based on its assessment of the realizability of its net deferred tax assets, the Company continued to maintain a full valuation allowance against all of its federal and state net deferred tax assets.

The Company has provided a valuation allowance as of December 31, 2020 and 2019 of $ 22,116 and $ 19,271 , respectively, for its net deferred tax assets as it cannot conclude it is more likely than not all of the estimated deferred tax assets will be realized.

The valuation allowance increased by $ 2,845 and $ 12,696 in 2020 and 2019, respectively.

We intend to maintain a full valuation allowance until sufficient positive evidence exists to support reversal of all or some portion of the allowance.

Due to improvements in the Company’s operating results over the past year and anticipated growth in future periods, management believes that there is a reasonable possibility that, within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the valuation allowance will no longer be needed.

Release of the valuation allowance would result in the recognition of certain DTAs and a decrease to income tax expense for the period the release is recorded.

However, the exact timing and amount of the valuation allowance release are subject to change on the basis of the level of profitability that we are able to actually achieve.

As of December 31, 2020, the Company had federal, state, and foreign net operating losses of approximately $ 70.2 million, $ 33.1 million, and $ 2.2 million, respectively.

Out of the federal net operating loss, approximately $ 8.7 million will carry forward 20 years and can offset 100% of future taxable income;

and $ 61.5 million carries forward indefinitely and can offset 80% of taxable income.

Utilization of the net operating loss carryforwards are subject to various limitations due to the ownership change limitations provided by Internal Revenue Code (IRC) Section 382 and similar state provisions.

As of December 31, 2019, the Company conducted an IRC Section 382 analysis with respect to its net operating loss carryforwards and determined there was an insignificant limitation.

The Company has provided a valuation allowance at December 31, 2019 and 2018 of $19,271,163 and $6,574,712, respectively, for its net deferred tax assets as it cannot conclude it is more likely than not all of the estimated net deferred tax assets will be realized.

The valuation allowance increased by $12,696,451 and increased by $3,474,318 during the years ended December 31, 2019 and 2018, respectively.

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for applicable income taxes has been provided thereon.

As of December 31, 2019, the Company conducted an IRC Section 382 analysis with respect to its net operating loss carryforward and determined there was an immaterial limitation.

Undistributed earnings of the Company’s foreign subsidiaries are considered to be indefinitely reinvested and accordingly, no provision for applicable income taxes has been provided thereon.

Upon distribution of those earnings, the Company would be subject to withholding taxes payable to various foreign countries.

As of December 31, 2019, the undistributed earnings of the Company’s foreign subsidiaries were immaterial.

As of December 31, 2019, the Company maintains liabilities for uncertain tax positions.

As of December 31, 2020 and 2019, the undistributed earnings of the Company’s foreign subsidiaries were immaterial.

The Company maintains liabilities for uncertain tax positions.

These liabilities involve considerable judgment and estimation and are continuously monitored by management based on the best information available, including changes in tax regulations, the outcome of relevant court cases, and other information.

8 unchanged sentences

The unrecognized tax benefits relate primarily to state taxes.

As of December 31, 2019, the total amount of unrecognized tax benefits that would affect the Company effective tax rate, if recognized, is $60,685.

As of December 31, 2020 and 2019, the total amount of unrecognized tax benefits, inclusive of interest, that would affect the Company effective tax rate, if recognized, was nil and $ 61 , respectively.

The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense.

As of December 31, 2019, the Company accrued interest or penalties related to uncertain tax positions in the amount of $6,986.

As of December 31, 2020 and 2019, the Company accrued interest or penalties related to uncertain tax positions in the amount of nil and $ 7 , respectively.

The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception.

Because the Company has net operating loss carryforwards, there are open statues of limitations in which federal, state and foreign taxing authorities may examine the Company's tax returns for all years from December 31, 2011 through the current period.

The Company adopted ASU 2016-02 –

Leases (Topic 842) effective January 1, 2019 using the modified retrospective approach whereby the cumulative effect of adoption was recognized on the adoption date and prior periods were not restated.

There was no net cumulative effect adjustment to retained earnings as of January 1, 2019 as a result of adoption.

ASU 2018-11 –

Leases (Topic 842) –

Targeted Improvements permits an entity to apply the new leases standard at the date of adoption.

Consequently, an entity’s reporting for the comparative periods presented in the financial statements in which it adopts the new leases standard will continue to be in accordance with ASC 840 –

Operating Leases

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years, with the weighted average lease term being three years.

Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements.

These leases generally also include real estate taxes.

Information as Lessee under ASC 842

The Company reassessed all of our leases to determine whether any expired or existing contracts were or contained a lease under ASC 842.

Expired or existing contracts previously considered leases under ASC 840 no longer meet the definition of a lease under ASC 842 and therefore, have been excluded from future lease payments.

The Company still maintains these agreements, along with other short-term leases that are not capitalized, and the expenses are recognized in the period incurred.

As of December 31, 2019, maturities of the operating lease liabilities by fiscal year were as follows:

Year ending December 31,

Total lease payments

Total operating lease liabilities

Included below is other information regarding leases for the year ended December 31, 2019.

December 31, 2019

Other information

Operating lease expense

Short-term lease expense

Cash paid for operating leases

Weighted-average remaining lease term (years)–

operating leases (1)

Weighted-average discount rate –

operating leases

The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option.

Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.

Rent expense is recorded in General and Administrative expense in the consolidated statements of operations.

Information as Lessee under ASC 840 -2018

As previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018, future minimum lease payments under ASC 840 for operating leases were as follows:

Year ending December 31,

2023 and thereafter

COMMITMENTS AND CONTINGENCIES

From time to time, the Company is subject to potential liability under laws and government regulations and various claims and legal actions that may be asserted against us that could have a material adverse effect on our business, reputation, results of operations or financial condition.

Such litigation may include, but is not limited to, actions or claims relating to sensitive data, including our proprietary business information and intellectual property and that of our clients and personally identifiable information of our employees and contractors, cyber-attacks, data breaches and non-compliance with our contractual or other legal obligations.

There are no matters pending or, to our knowledge, threatened that are expected to have a material adverse impact on our business, reputation, results of operations or financial condition.

There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

From time to time, the Company is subject to potential liability under laws and government regulations and various claims and legal actions that may be asserted against us that could have a material adverse effect on the business, reputation, results of operations or financial condition.

Such litigation may include, but is not limited to, actions or claims relating to sensitive data, including proprietary business information and intellectual property and that of clients and personally identifiable information of employees and contractors, cyber-attacks, data breaches and non-compliance with contractual or other legal obligations.

There are no matters pending or, to the Company’s knowledge, threatened that are expected to have a material adverse impact on the business, reputation, results of operations, or financial condition.

There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial stockholder is an adverse party or has a material interest adverse to the Company’s interest.

SEGMENT INFORMATION

Historically, management has not made operating decisions and assessed performance based on geographic locations.

Rather, the chief operating decision maker makes operating decisions and assesses performance based on the products and services of our identified operating segments.

Rather, the chief operating decision maker makes operating decisions and assesses performance based on the products and services of the identified operating segments.

While management does consider real estate and brokerage services, the acquired technology and affiliated services provided to be identified operating segments, the profits and losses and assets of the acquired technology and affiliated series are not material.

1 unchanged sentence

The Company primarily operates as a cloud-based real estate brokerage.

The real estate brokerage business represents 99.9% and 95.8% of the total revenue and total assets, respectively, of the Company as of December 31, 2019.

In November 2018, the Company acquired substantially all of the assets of VirBELA, a virtual reality software platform.

The Company offers software subscriptions to customers to access our virtual reality software platform.

The real estate brokerage business represented 99.6 % and 99.9 % of the total revenue of the Company for the years ended December 31, 2020 and 2019, respectively.

The real estate brokerage business represents 98.9 % and 95.8 % of the total assets of the Company as of December 31, 2020 and 2019, respectively.

The Company offers software subscriptions to customers to access its virtual reality software platform.

Additionally, the Company offers professional services for implementation and consulting services.

However, as VirBELA is still primarily used as an internal resource for our operations, the operations and assets of VirBELA are not managed by the Company’s chief operating decision-maker as a separate reportable segment.

Services provided through our First Cloud and eXp Silverline ventures are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total, loss or total assets as of December 31, 2019.

The Company aggregates the identified operating segments for reporting purposes.

However, the operations and assets of the technology segment are not managed by the Company’s chief operating decision-maker as a separate reportable segment.

Services provided through First Cloud and eXp Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income (loss) or total assets as of December 31, 2020.

In 2020, the Company completed the Showcase and the Success acquisition.

These are considered technology and affiliated services to the business, respectively, and are not material to the Company’s total revenue, total net income (loss), or total assets for the year ended and as of December 31, 2020.

The Company aggregates the identified operating segments for reporting purposes and has one reportable segment.

Geographical Information

The Company primarily operates within the real estate brokerage markets in the United States and Canada.

During the fourth quarter, the Company expanded operations into the UK and Australia .

The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities.

For the year ended December 31, 2019, approximately 3% of the Company’s total net revenue was generated outside of the U.S.

During the previous two years, the Company expanded operations into the U.K., Australia, South Africa, France, India, Portugal, and Mexico.

The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities.

For the years ended December 31, 2020 and 2019, approximately 5 % and 2 %, respectively, of the Company’s total revenue was generated outside of the U.S.

Assets held outside of the U.S.

as of December 31, 2019 and 2018 were 9% and 3%, respectively.

The Company’s technology services and affiliated services are currently provided only in the U.S.

were 7 % and 2 % as of December 31, 2020 and 2019.

The Company’s technology services and affiliated services are currently provided primarily in the U.S.

RELATED PARTY TRANSACTIONS

On November 4, 2020, Sanford Enterprises , a wholly-owned entity of Mr.

Glenn Sanford, Chief Executive Officer and Chairman of the Board of the Company, purchased all of the membership equity interests in Success from Success Partners Holding Co, an unaffiliated third party, for cash consideration of $ 8.0 million.

In order to facilitate the Success Acquisition, the Company purchased all equity interests of Success from Sanford Enterprises for equal cash consideration of $ 8.0 million on December 4, 2020 .

Prior to the acquisition, the Company was the largest customer of Success.

DEFINED CONTRIBUTION SAVINGS PLAN

During the year ended December 31, 2018, the Company established a defined contribution savings plan to provide eligible employees with a retirement benefit that permits eligible employees the opportunity to actively participate in the process of building a personal retirement fund.

During 2018, the Company established a defined contribution savings plan to provide eligible employees with a retirement benefit that permits eligible employees the opportunity to actively participate in the process of building a personal retirement fund.

The Company sponsors the defined contribution savings plan.

In 2019, the Company began matching a portion of contributions made by participating employees.

The Company's cost for contributions to this plan was $654,038 and zero for the years ended December 2019 and 2018, respectively.

For the years ended December 31, 2020 and 2019, the Company's costs for contributions to this plan were $ 1,189 and $ 654 , respectively.

The Company did no t make any plan contributions during the year ended December 31, 2018.

SUBSEQUENT EVENTS

On March 2, 2021, the Company repaid all outstanding promissory notes issued to the previous owners of Showcase and notes payable assumed as part of the Showcase Acquisition.

The repayments totaling approximately $ 1.7 million represented the principal balance plus accrued interest and unpaid fees.

The repayments of the notes payable did not result in a gain or loss on early extinguishment.

SELECTED QUARTERLY DATA (UNAUDITED)

Provided below is selected unaudited quarterly financial data for 2020 and 2019, including earnings per share, adjusted to give effect to the Stock Split.

Commissions and other agent-related costs

Earnings (loss) per share

Weighted average shares outstanding

Commissions and other agent-related costs

Net (loss) income

Earnings (loss) per share

Weighted average shares outstanding

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data