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See the section of this Annual Report on Form 10-K titled “Forward-Looking Statements.”
−Removed: Risks Related to Our Industry
+Added: Risks Related to Our Industries
Our profitability is tied to the strength of the residential real estate market, which is subject to a number of general business and macroeconomic conditions beyond our control.
Our profitability is closely related to the strength of the residential real estate market, which is cyclical in nature and typically is affected by changes in national, state and local economic conditions, which are beyond our control.
−Removed: Macroeconomic conditions that could adversely impact the growth of the real estate market and have a material adverse effect on our business include, but are not limited to, economic slowdown or recession, increased unemployment, increased energy costs, reductions in the availability of credit or higher interest rates, increased costs of obtaining mortgages, an increase in foreclosure activity, inflation, disruptions in capital markets, declines in the stock market, adverse tax policies or changes in other regulations, lower consumer confidence, lower wage and salary levels, war or terrorist attacks, natural disasters or adverse weather events, or the public perception that any of these events may occur.
+Added: Macroeconomic conditions that could adversely impact the growth of the real estate market and have a material adverse effect on our business include, but are not limited to, economic slowdown or recession, increased unemployment, increased energy costs, reductions in the availability of credit or higher interest rates, increased costs of obtaining mortgages, an increase in foreclosure activity,
+Added: inflation, disruptions in capital markets, declines in the stock market, adverse tax policies or changes in other regulations, lower consumer confidence, lower wage and salary levels, war or terrorist attacks, natural disasters or adverse weather events, or the public perception that any of these events may occur.
Unfavorable general economic conditions, such as a recession or economic slowdown, in the U.S., Canada, or other markets we enter and operate within, could negatively affect the affordability of and consumer demand for, our services, which could have a material adverse effect on our business and profitability.
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General changes in consumer attitudes and behaviors could negatively impact homesale transaction volume.
−Removed: The real estate market is affected by changes in consumer attitudes and behaviors, including as a result of changing attitudes towards and behaviors related to home ownership.
+Added: The real estate market is affected by changes in consumer attitudes and behaviors, including as a result of changing attitudes toward and behaviors related to home ownership.
Certain real estate markets have or may experience a decline in homeownership based on changing social behaviors, including as a result of declining marriage and birth rates.
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These inventory trends are caused by many pressures outside of our control, including slow or accelerated new housing construction, macroeconomic conditions, real estate industry models that purchase homes for long-term rental or corporate use and other market conditions and behavioral trends discussed herein.
−Removed: During 2021, the U.S.
−Removed: generally experienced a decline in home inventory levels.
+Added: In January 2022, the U.S.
+Added: reported a record low for home inventory levels, which remained low through the remainder of 2022.
Continuing constraints on home inventory levels may adversely impact the volume of home sale transactions closed by our brokers and agents and, as such, could have a material adverse effect on our business and profitability.
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The average broker commission rate for a real estate transaction is a key determinant of our profitability and a material decrease in brokerage commission rates could have a material adverse effect on our business and profitability.
−Removed: The coronavirus (“COVID-19”) pandemic may have a material adverse effect on our businesses, financial condition, and results of operations.
−Removed: Since early 2020 and continuing, the COVID-19 pandemic and subsequent coronavirus variants and regional outbreaks have had a profound effect on the global economy and financial markets.
−Removed: and abroad, governments continue to react to this evolving public health crisis by, among other actions, recommending or requiring the avoidance of gatherings of people or significantly or entirely curtailing activities categorized as non-essential.
−Removed: This unprecedented situation has created considerable risks and uncertainties for the U.S.
−Removed: real estate services industry in general and for the Company in particular, including those arising from the potential adverse effects on the economy as well as risks related to employees, independent agents, and consumers.
−Removed: The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the extent and duration of the spread of the outbreak, the public health risks posed by new and future variants, the extent of governmental regulation (including, but not limited to, mandated “shelter in place” or other regulations that, for example, preclude or strictly limit open houses or in-person showings of properties), the impact on capital and financial markets and the related impact on consumer confidence and spending, and the magnitude of the financial and operational consequences to our agents and brokers, all of which are highly uncertain and cannot be predicted.
Our operating results are subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of successive quarters difficult.
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Past performance in similar seasons or during similar weather events can provide no assurance of future or current performance and macroeconomic shifts in the markets we serve can conceal the impact of poor weather or seasonality.
−Removed: Home sales in successive quarters can fluctuate widely due to a wide variety of factors, including holidays, national or international emergencies, the school year calendar’s impact on timing of family relocations, interest rate changes, speculation of pending interest
−Removed: rate changes and the overall macroeconomic market.
+Added: Home sales in successive quarters can fluctuate widely due to a wide variety of factors, including holidays, national or international emergencies, the school year calendar’s impact on timing of family relocations, interest rate changes, speculation of pending interest rate changes and the overall macroeconomic market.
Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, poor weather and natural disasters and macroeconomic market changes that may make it difficult to compare or analyze our financial performance effectively across successive quarters.
−Removed: Risks Related to our Business and Operations
−Removed: We may be unable to maintain our agent growth rate, which would adversely affect our revenue growth and results of operations.
−Removed: We have experienced rapid and accelerating growth in our real estate broker and agent base.
−Removed: During the year ended December 31, 2021, our agent and broker base grew to 71,137 agents and brokers, or by 72%, from 41,313 agents and brokers as of December 31, 2020.
−Removed: Because we derive revenue from real estate transactions in which our brokers and agents receive commissions, the amount and rate of growth of our revenue typically correlate to the amount and rate of growth of our agent and broker base, respectively.
−Removed: The rate of growth of our agent and broker base cannot be predicted and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general.
−Removed: We cannot assure that we will be able to maintain our recent agent growth rate or that our agent and broker base will continue to expand in future periods.
−Removed: A slowdown in our agent growth rate would have a material adverse effect on revenue growth and could adversely affect our business, results of operations, financial condition, and cash flows.
+Added: Homesale transaction volume can be impacted by natural disasters and other climate-related interruptions.
+Added: Natural disasters are occurring more frequently and/or with more intense effects and may impact general population trends.
+Added: Areas afflicted by natural disasters may experience a decline in home sale transaction volume due to home destruction and/or general population movement out of the afflicted area.
+Added: Such events can make it difficult or impossible for home owners and builders to sell their homes and result in slowdowns in home sale transaction volume.
+Added: Because the real estate industry relies on home sale transactions, climate crises can exacerbate negative financial results for real estate companies operating in particularly affected areas.
+Added: Risks Related to our General Business and Operations
We may be unable to effectively manage rapid growth in our business.
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These issues could reduce the attractiveness of our Company to existing real estate professionals who might leave the Company, as well as resulting in decreased attraction of new real estate professionals.
−Removed: Even if we are able to upgrade our systems and expand our staff, such expansion may be expensive, complex, and place increasing demands on our management.
+Added: Even if we are able to upgrade our systems and expand our employees, such expansion may be expensive, complex and place increasing demands on our management.
We could also face inefficiencies or operational failures as a result of our efforts to scale our infrastructure and we may not be successful in maintaining adequate financial and operating systems and controls as we expand.
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These efforts may reduce revenue and our margins and adversely impact our financial results.
−Removed: If we fail to grow in the various local markets that we serve or are unsuccessful in identifying and pursuing new business opportunities our long-term prospects and profitability will be harmed.
−Removed: To capture and retain market share in the various local markets that we serve, we must compete successfully against other brokerages for agents and brokers and for the consumer relationships that they bring.
−Removed: Our competitors could lower the fees that they charge to agents and brokers or could raise the compensation structure for those agents.
−Removed: Our competitors may have access to greater financial resources than us, allowing them to undertake expensive local advertising or marketing efforts.
−Removed: In addition, our competitors may be able to leverage local relationships, referral sources, and strong local brand and name recognition that we have not established.
−Removed: Our competitors could, as a result, have greater leverage in attracting new and established agents in the market and in generating business among local consumers.
−Removed: Our ability to grow in the local markets that we serve will depend on our ability to compete with these local brokerages.
−Removed: We may implement changes to our business model and operations to improve revenues that cause a disproportionate increase in our expenses or reduce profit margins.
−Removed: For example, we may allocate resources to acquiring lower margin brokerage models and have invested in the development of a mortgage servicing division, a commercial real estate division, a title and escrow company, a mortgage lending company, a personal development company and a continuing education division.
−Removed: Expanding our service offerings could involve significant up-front costs that may only be recovered after lengthy periods of time.
−Removed: The barrier to entry in new real estate markets is low given our cloud-based operating model;
−Removed: however, attempts to pursue new business opportunities could result in a disproportionate increase in our expenses and in reduced profit margins.
−Removed: In addition, expansion into new markets and business lines, including internationally, could expose us to additional compliance obligations and regulatory risks.
−Removed: If we fail to continue to grow in the local markets we serve or if we fail to successfully identify and pursue new business opportunities, our long-term prospects, financial condition, and results of operations may be harmed, and our stock price may decline.
−Removed: Our value proposition for agents and brokers includes allowing them to participate in the revenues of our Company and is not typical in the real estate industry.
−Removed: If agents and brokers do not understand our value proposition, we may not be able to attract, retain, and incentivize agents.
−Removed: Participation in our revenue sharing plan represents a key component of our agent and broker value proposition.
−Removed: Agents and brokers may not understand or appreciate its value due to the intricacies of our programs.
−Removed: In addition, agents may not appreciate other components of our value proposition, including the cloud office platform, the mobility it affords, the systems and tools that we provide to agents and brokers, and the professional development opportunities we create and deliver.
−Removed: If agents and brokers do not understand the elements of our agent value proposition, or do not perceive it to be more valuable than the models used by most competitors, we may not be able to attract, retain and incentivize new and existing agents and brokers to grow our revenues.
We may be unable to attract and retain additional qualified personnel.
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As of December 31, 2022, we had federal, state and foreign net operating losses carryforward due to prior years’ losses.
−Removed: The pre-fiscal 2018 federal, some state and foreign net operating losses will carry forward for a limited numbers of years.
−Removed: The Federal, as well as some state and foreign net operating losses generated in and after fiscal 2018 do not expire and can be carried forward indefinitely.
−Removed: We also have recorded federal research tax credits for the years 2019, 2020 and 2021 which will carry forward for 20 years and is expected to be fully utilized before expiration.
−Removed: A nominal portion of our net operating loss may expire unused and be unavailable to reduce future income tax liabilities, which may adversely affect our profitability.
−Removed: In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes, in any taxable year, may be limited if we experience an “ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.
+Added: The pre-fiscal 2018 federal, certain state and foreign net operating losses will carry forward for a limited number of years.
+Added: Federal, as well as, some state and foreign net operating losses generated in and after fiscal 2018, do not expire and can be carried forward indefinitely.
+Added: We also have recorded federal research tax credits for the years 2019, 2020, 2021 and 2022 which will carry forward for 20 years and are expected to be fully utilized before expiration.
+Added: A nominal portion of our net operating loss may expire, increasing future income tax liabilities which may adversely affect our profitability.
+Added: In addition, under Section 382 of the Internal Revenue Code of 1986, as amended, our ability to utilize net operating loss carryforwards or other tax attributes, in any taxable year, may be limited if we experience an "ownership change.” A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period.
Similar rules may apply under state tax laws.
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changes in the relative amounts of income before taxes in the various jurisdictions in which we operate that have differing statutory tax rates;
−Removed: changes in tax laws, tax treaties, and regulations or the interpretation of them, including the Tax Cuts and Jobs Act of 2017 (the “Tax Act”);
+Added: changes in tax laws, tax treaties and regulations or the interpretation of them, including the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) which requires research and experimental expenditures attributable to research conducted in the United States to be capitalized as of January 1, 2022 and amortized over a five-year period or expenditures attributable to research conducted outside the United States to be amortized over a 15 year period;
+Added: the Inflation Reduction Act of 2022 which imposes a 1% non-deductible excise tax on repurchase of stock that are made by U.S.
+Added: publicly traded corporations after December 31, 2022;
changes to our assessment about our ability to realize our deferred tax assets that are based on estimates of our future results, the prudence and feasibility of possible tax planning strategies and the economic and political environments in which we do business;
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Changes in corporate tax rates, the realization of net operating losses and other deferred tax assets relating to our operations, the taxation of foreign earnings and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets and could increase our future U.S.
−Removed: The utilization of a 3D cloud-based immersive office as a suitable substitute for a physical brick and mortar location is a new and unproven strategy and we cannot guarantee that we will be able to operate and grow within its confines.
−Removed: Currently, our cloud office adequately supports the needs of our agent population located across the markets we serve.
−Removed: We cannot guarantee that our cloud office platform will continue to support our agent population and meet our business needs as we grow.
−Removed: The effectiveness of our cloud office platform is tied to a number of variables at any given time, including server capacity and concurrent users.
−Removed: In addition, the use of the cloud office platform and the use generally of 3D immersive office environments as an acceptable substitute among agents and brokers for physical office locations is unproven.
−Removed: We cannot guarantee that industry rank and file will adopt or accept cloud-based 3D office environments as a substitute for a physical office environment in a sustainable, long-term manner.
−Removed: SUCCESS Lending is in a nascent state and is an unproven business model with regulatory, compliance, consumer trends and macroeconomic risks, many of which are beyond our control.
−Removed: The SUCCESS Lending business has a limited operating history and has encountered and will continue to encounter risks, uncertainties, difficulties, and expenses, including, without limitation, ongoing compliance with a complex and evolving regulatory environment, increasing its number of clients and loans, obtaining additional funding and service relationships on favorable terms as the company scales, and navigating an evolving macroeconomic landscape.
−Removed: If we are not able to timely and effectively respond to these requirements, or if risks arise outside our reasonable ability to respond effectively, our business may be harmed.
−Removed: Generally, the residential mortgage lending market involves a high degree of business and financial risk, which can result in substantial losses that could adversely affect our financial condition.
−Removed: Additionally, SUCCESS Lending relies on third-party sources, including credit bureaus, for credit, identification, employment and other relevant information in order to review and select qualified borrowers.
−Removed: If this information becomes unavailable, becomes more expensive to access or is incorrect, our business may be harmed.
−Removed: We are actively, and intend to continue, developing new products and services complementary to our brokerage business, and our failure to accurately predict their demand or growth could have an adverse effect on our business.
−Removed: We are actively, and intend in the future to continue, investing resources in developing new technology, services, products and other offerings complementary to our brokerage business.
−Removed: New business initiatives are inherently risky and may involve unproven business strategies and markets with which we have limited or no prior development or operating experience.
−Removed: Risks from these new initiatives include those associated with potential defects in the design, ongoing development and maintenance of technologies, reliance on data or user inputs that may prove inadequate or unavailable, failure to design products and services in a way that is more effective or affordable than competing third party products and services, and failure to scale businesses as they grow, among others.
−Removed: As a result of these risks, we could experience increased legal claims, reputational damage, financial loss or other adverse effects, which could be material.
−Removed: We can provide no assurance that we will be able to efficiently or effectively develop, commercialize and achieve market acceptance of new
−Removed: products and services.
−Removed: Additionally, the human and financial capital committed to develop new products and services may either be insufficient or result in expenses that exceed the revenue actually originated from these new products and services.
−Removed: In addition, our efforts to develop new products and services could distract management from current operations and could divert capital and other resources from our existing business, including our brokerage business.
−Removed: Failure to achieve the expected benefits of our investments may occur and could harm our business.
−Removed: Our subsidiary, SUCCESS Franchising, LLC, is in a nascent state, involves new regulatory compliance and may be unprofitable.
−Removed: Our SUCCESS Franchising business is developing a cowork franchise business that provides professional cowork spaces and affiliate and media services.
−Removed: It has a limited operating history and faces challenges, including an evolving business model, competition from the existing cowork business models, and a complex and evolving regulatory environment.
−Removed: These risks could challenge our business model, or otherwise harm our business .
We intend to evaluate acquisitions, mergers, joint ventures or investments in third-party technologies and businesses, but we may not realize the anticipated benefits from and may have to pay substantial costs related to, any acquisitions, mergers, joint ventures, or investments that we undertake.
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If we are not able to effectively integrate acquired businesses and assets or successfully execute on joint venture strategies, our operating results and prospects could be harmed.
−Removed: Since 2019, we have acquired new technology and operations and entered into joint venture arrangements.
−Removed: We will continue to look for opportunities to acquire technologies or operations that we believe will contribute to our growth and development, including our July 2020 acquisition of Showcase Web Sites, L.L.C., December 2020 acquisition of SUCCESS Enterprises LLC, and July 2021 launch of the SUCCESS Lending joint venture .
+Added: Since 2019, we have acquired new technology and operations and entered into various joint venture arrangements.
+Added: We will continue to look for opportunities to acquire technologies or operations that we believe will contribute to our growth and development, including our July 2022 acquisition of Zoocasa.
The success of our future acquisition strategy will depend on our ability to identify, negotiate, complete and integrate acquisitions.
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In addition to operating in Canada, we expanded our business into Australia and the United Kingdom in 2019 and into South Africa, India, Mexico, Portugal and France, during 2020 and into Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany in 2021.
+Added: During 2022 we commenced operations in the Dominican Republic, Greece, New Zealand, Chile and Poland and announced the opening of the Dubai market, which is expected to be fully operational in 2023.
Our international operations are subject to risks not generally experienced by our U.S.
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● uncertainties and effects of the implementation of the United Kingdom’s withdrawal of its membership from the European Union (referred to as Brexit), including financial, legal and tax implications;
−Removed: ● government and health organization restrictions within the international locations in which we operate in response to the COVID-19 pandemic, which can be significantly different than those imposed within U.S.
−Removed: jurisdictions;
−Removed: ● regional and country specific data protection and privacy laws including the GDPR.
+Added: ● regional and country specific data protection and privacy laws including the European Union’s General Data Protection Regulation (“GDPR”).
In addition, activities of agents and brokers outside of the U.S.
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Any significant impairment of our intellectual property rights could harm our business.
−Removed: We have identified material weaknesses in our internal control over financial reporting in the past and have remediated the previously identified material weaknesses in 2020.
−Removed: If our remedial measures in future years are unsuccessful or inadequate, our financial statements could include material misstatements.
−Removed: During its evaluation of the effectiveness of disclosure controls and procedures as of December 31, 2019, management identified material weaknesses in internal control over financial reporting.
−Removed: During 2020, we identified and implemented remedial measures to address the control deficiencies that led to the material weaknesses and our internal control over financial reporting was effective as of December 31, 2020 and 2021.
−Removed: However, there can be no assurance that remedial measures will prevent other control deficiencies or material weaknesses, and we may identify additional material weaknesses in our internal control over financial reporting in the future.
−Removed: If we identify additional material weaknesses in our internal control over financial reporting in the future, our ability to analyze, record and report financial information free of material misstatements, and to prepare our financial statements within the time periods specified by the rules and forms of the SEC may be adversely affected.
−Removed: The occurrence of, or failure to remediate, any further material weaknesses in our internal control over financial reporting may result in material misstatements, as well as negatively impact the reliability of our
−Removed: financial statements, our reputation, our business, and the trading price of our common stock, potentially leading to the suspension of trading on or delisting of our common stock from the NASDAQ stock exchange.
−Removed: Risks Related to our Technology
−Removed: If we do not remain an innovative leader in the real estate industry, we may not be able to grow our business and leverage our costs to achieve profitability.
−Removed: Innovation has been critical to our ability to compete against other brokerages for clients and agents.
−Removed: For example, we have pioneered the utilization of a 3D immersive online office environment in the real estate market which reduces our need for office space and facilitates the transaction of business away from an office.
−Removed: If competitors follow our practices or develop innovative practices, our ability to achieve profitability may diminish or erode.
−Removed: For example, certain other brokerages could develop or license cloud-based office platforms that are equal to or superior to ours.
−Removed: If we do not remain on the forefront of innovation, we may not be able to achieve or sustain profitability.
−Removed: The market for Internet products and services including, without limitation, 3D immersive experiences, virtual reality and augmented reality is characterized by rapid technological developments, evolving industry standards and consumer demands, and frequent new product introductions and enhancements.
−Removed: The Company’s future success will depend in significant part on its ability to continually improve the performance, features and reliability of its Internet-based virtual environment, its tools and other properties in response to both evolving demands of the marketplace and competitive product offerings, and there can be no assurance that the Company will be successful in doing so.
−Removed: In addition, the widespread adoption of new virtual reality and augmented reality applications through new technology developments could require fundamental changes in the Company’s services.
Our business could be adversely affected if we are unable to expand, maintain and improve the systems and technologies which we rely on to operate.
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The secure processing, maintenance and transmission of information are critical to our operations, especially the processing and closing of real estate transactions.
−Removed: Although we employ measures designed to prevent, detect, address, and mitigate these threats (including access controls, data encryption, vulnerability assessments, and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of critical data and confidential or proprietary information (our own or that of third parties, including potentially sensitive personally information of our clients and customers) and
−Removed: the disruption of business operations.
+Added: Although we employ measures designed to prevent, detect, address and mitigate these threats (including access controls, data encryption, vulnerability assessments and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of critical data and confidential or proprietary information (our own or that of third parties, including potentially sensitive personal information of our clients and customers) and the disruption of business operations.
Any such compromises to our security could cause harm to our reputation, which could cause customers to lose trust and confidence in us or could cause agents and brokers to stop working for us.
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and foreign privacy and other laws, reputational damage, loss of market value, litigation with third parties (which could result in our exposure to material civil or criminal liability), diminution in the value of the services we provide to our customers and increased cybersecurity protection and remediation costs (that may include liability for stolen assets or information), which in turn could have a material adverse effect on our competitiveness and results of operations.
+Added: We are actively and intend to continue, developing new products and services complementary to our brokerage business and our failure to accurately predict their demand or growth could have an adverse effect on our business.
+Added: We are actively and intend in the future to continue, investing resources in developing new technology, services, products and other offerings complementary to our brokerage business.
+Added: New business initiatives are inherently risky and may involve unproven business strategies and markets with which we have limited or no prior development or operating experience.
+Added: Risks from these new initiatives include those associated with potential defects in the design, ongoing development and maintenance of technologies, reliance on data or user inputs that may prove inadequate or unavailable, failure to design products and services in a way that is more effective or affordable than competing third-party products and services and failure to scale businesses as they grow, among others.
+Added: As a result of these risks, we could experience increased legal claims, reputational damage, financial loss or other adverse effects, which could be material.
+Added: We can provide no assurance that we will be able to efficiently or effectively develop, commercialize and achieve market acceptance of new products and services.
+Added: Additionally, the human and financial capital committed to develop new products and services may either be insufficient or result in expenses that exceed the revenue actually originated from these new products and services.
+Added: In addition, our efforts to develop new products and services could distract management from current operations and could divert capital and other resources from our existing business, including our brokerage business.
+Added: Failure to achieve the expected benefits of our investments may occur and could harm our business.
+Added: Risks Related to our Real Estate Business
+Added: We may be unable to maintain our agent growth rate, which would adversely affect our revenue growth and results of operations.
+Added: We have experienced rapid and accelerating growth in our real estate broker and agent base.
+Added: During the year ended December 31, 2022, our agent and broker base grew to 86,203 agents and brokers, or by 21%, from 71,137 agents and brokers as of December 31, 2021.
+Added: Because we derive revenue from real estate transactions in which our brokers and agents receive commissions, the amount and rate of growth of our revenue typically correlate to the amount and rate of growth of our agent and broker base, respectively.
+Added: The rate of growth of our agent and broker base cannot be predicted and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general.
+Added: We cannot assure that we will be able to maintain our recent agent growth rate or that our agent and broker base will continue to expand in future periods.
+Added: A slowdown in our agent growth rate would have a material adverse effect on revenue growth and could adversely affect our business, results of operations, financial condition and cash flows.
+Added: Inflation and rising interest rates have and may continue to contribute to declining real estate transaction volumes, which have and may continue to materially impact operating results, profits and cash flows.
+Added: Inflation and rising interest rates have generally impacted real estate transaction volumes in the U.S., Canada and other international markets.
+Added: During 2022, the Company has experienced declining transaction volume, which has had an impact on operating results in the last few months of 2022.
+Added: If we are not able to organically grow our market share, to offset the declining transactions, our operating results, profits and cash flow may be materially impacted in the event interest rates stay level or continue to rise.
+Added: The Company believes that it continues to be well positioned for growth in the current economic climate, due to our strong base of agent support, along with our efficient operating model, with lower fixed costs and no brick-and-mortar locations.
+Added: If we fail to grow in the various local markets that we serve or are unsuccessful in identifying and pursuing new business opportunities our long-term prospects and profitability will be harmed.
+Added: To capture and retain market share in the various local markets that we serve, we must compete successfully against other brokerages for agents and brokers and for the consumer relationships that they bring.
+Added: Our competitors could lower the fees that they charge to agents and brokers or could raise the compensation structure for those agents.
+Added: Our competitors may have access to greater financial resources than us, allowing them to undertake expensive local advertising or marketing efforts.
+Added: In addition, our competitors may be able to leverage local relationships, referral sources and strong local brand and name recognition that we have not established.
+Added: Our competitors could, as a result, have greater leverage in attracting new and established agents in the market and in generating business among local consumers.
+Added: Our ability to grow in the local markets that we serve will depend on our ability to compete with these local brokerages.
+Added: We may implement changes to our business model and operations to improve revenues that cause a disproportionate increase in our expenses or reduce profit margins.
+Added: For example, we may allocate resources to acquiring lower margin brokerage models and have invested in the development of a mortgage servicing division, a commercial real estate division, a title and escrow company, a mortgage lending company, a personal development company and a continuing education division.
+Added: Expanding our service offerings could involve significant up-front costs that may only be recovered after lengthy periods of time.
+Added: The barrier to entry in new real estate markets is low given our cloud-based operating model;
+Added: however, attempts to pursue new business opportunities could result in a disproportionate increase in our expenses and in reduced profit margins.
+Added: In addition, expansion into new markets and business lines, including internationally, could expose us to additional compliance obligations and regulatory risks.
+Added: If we fail to continue to grow in the local markets we serve or if we fail to successfully identify and pursue new business opportunities, our long-term prospects, financial condition and results of operations may be harmed and our stock price may decline.
+Added: Our value proposition for agents and brokers includes allowing them to participate in the revenues of our Company and is not typical in the real estate industry.
+Added: If agents and brokers do not understand our value proposition, we may not be able to attract, retain and incentivize agents.
+Added: Participation in our revenue sharing plan represents a key component of our agent and broker value proposition.
+Added: Agents and brokers may not understand or appreciate its value due to the intricacies of our programs.
+Added: In addition, agents may not appreciate other components of our value proposition, including the cloud office platform, the mobility it affords, the systems and tools that we provide to agents and brokers and the professional development opportunities we create and deliver.
+Added: If agents and brokers do not understand the elements of our agent value proposition, or do not perceive it to be more valuable than the models used by most competitors, we may not be able to attract, retain and incentivize new and existing agents and brokers to grow our revenues.
+Added: Risks Related to our Virbela Business
+Added: The utilization of a 3D cloud-based immersive office as a suitable substitute for a physical brick-and-mortar location is a new and unproven strategy and we cannot guarantee that we will be able to operate and grow within its confines.
+Added: Currently, our cloud office adequately supports the needs of our agent population located across the markets we serve.
+Added: We cannot guarantee that our cloud office platform will continue to support our agent population and meet our business needs as we grow.
+Added: The effectiveness of our cloud office platform is tied to a number of variables at any given time, including server capacity and concurrent users.
+Added: In addition, the use of the cloud office platform and the use generally of 3D immersive office environments as an acceptable substitute among agents and brokers for physical office locations is unproven.
+Added: We cannot guarantee that industry rank and file will adopt or accept cloud-based 3D office environments as a substitute for a physical office environment in a sustainable, long-term manner.
+Added: If we do not remain an innovative leader in the real estate industry, we may not be able to grow our business and leverage our costs to achieve profitability.
+Added: Innovation has been critical to our ability to compete against other brokerages for clients and agents.
+Added: For example, we have pioneered the utilization of a 3D immersive online office environment in the real estate market, which reduces our need for office space and facilitates the transaction of business away from an office.
+Added: If competitors follow our practices or develop innovative practices, our ability to achieve profitability may diminish or erode.
+Added: For example, certain other brokerages could develop or license cloud-based office platforms that are equal to or superior to ours.
+Added: If we do not remain on the forefront of innovation, we may not be able to achieve or sustain profitability.
+Added: The market for internet products and services including, without limitation, 3D immersive experiences, virtual reality and augmented reality is characterized by rapid technological developments, evolving industry standards and consumer demands and frequent new product introductions and enhancements.
+Added: The Company’s future success will depend in significant part on its ability to continually improve the performance, features and reliability of its internet-based virtual environment, its tools and other properties in response to both evolving demands of the marketplace and competitive product offerings and there can be no assurance that the Company will be successful in doing so.
+Added: In addition, the widespread adoption of new virtual reality and augmented reality applications through new technology developments could require fundamental changes in the Company’s services.
Risks Related to Legal and Regulatory Matters
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We operate in a heavily regulated industry subject to complex, federal, state, provincial and local laws and regulations within the markets in which we operate and third-party organizations’ regulations, policies and bylaws governing the real estate business.
−Removed: In general, the laws, rules and regulations that apply to our business practices include, without limitation, RESPA, the federal Fair Housing Act, the Dodd-Frank Act, the Exchange Act, and federal advertising and other laws, as well as comparable state statutes;
+Added: In general, the laws, rules and regulations that apply to our business practices include, without limitation, the Real Estate Settlement Procedures Act (“RESPA”), the federal Fair Housing Act, the Dodd-Frank Act, the Exchange Act and federal
+Added: advertising and other laws, as well as comparable state statutes;
rules of trade organizations such as NAR, local MLSs and state and local AORs;
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The penalties for noncompliance with these laws are also significantly increased by the Mortgage Act, which could lead to an increase in lawsuits against mortgage lenders and servicers.
−Removed: As we expand our business into new international markets, including the United Kingdom, Australia, South Africa, India, Mexico, Portugal, France, Puerto Rico, Brazil, Italy, Hong Kong, Colombia, Spain, Israel, Panama and Germany, we are subject to additional foreign governmental regulation.
+Added: As we expand our business into new international markets, including our existing international markets, we are subject to additional foreign governmental regulation.
Ensuring compliance with these newly applicable laws could substantially increase our operating expenses.
In addition, entry into these new markets exposes us to increased risk and liability.
−Removed: For example, the European Union’s General Data Protection Regulation (“GDPR”) confers significant privacy rights on individuals (including employees and independent agents), and materially increased penalties for violations.
A violation of any of these applicable laws could have a material adverse effect on our business.
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We are subject to risk of and are from time to time involved in, or may in the future be subject to, claims, suits, government investigations and proceedings arising from our business, including actions with respect to securities, intellectual property, privacy, information security, data protection or law enforcement matters, tax matters, labor and employment, including claims challenging the classification of our agents and brokers as independent contractors and compliance with wage and hour regulations and claims alleging violations of RESPA or state consumer fraud statutes and commercial arrangements.
−Removed: We are also subject to risk related to shareholder derivative actions, standard brokerage disputes like the failure to disclose hidden defects in a property such as mold, vicarious liability
−Removed: based upon conduct of individuals or entities outside of our control, including our agents, brokers, third-party service or product providers, and purported class action lawsuits.
+Added: We are also subject to risk related to shareholder derivative actions, standard brokerage disputes like the failure to disclose hidden defects in a property such as mold, vicarious liability based upon conduct of individuals or entities outside of our control, including our agents, brokers, third-party service or product providers and purported class action lawsuits.
We cannot predict with certainty the cost of defense, the cost of prosecution, insurance coverage or the ultimate outcome of litigation and other proceedings filed by or against us, including remedies or damage awards.
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In response to such limitations, we have and may, in the future, be required to modify our agent compensation practices in such markets.
−Removed: Failure to comply with applicable law, rules and regulations or failure to subsequently modify our business model in certain jurisdictions to effectively attract and retain agents and brokers negatively could negatively affect our business, results of operations or financial condition.
+Added: Failure to comply with applicable law, rules and regulations or failure to subsequently modify our business model in certain jurisdictions to effectively attract and retain agents and brokers could negatively affect our business, results of operations or financial condition.
The costs attributable to developing compliant agent compensation plans can be significant and could adversely affect our financial condition.
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Program requirements include corporate governance, incident planning, data management, system testing, vendor oversight and regulator notification rules.
−Removed: Now, other state regulatory agencies are expected to enact similar requirements following the adoption of the Insurance Data Security Model Law by the National Association of Insurance Commissioners that is consistent with the New York regulation.
+Added: Now, other state regulatory agencies are expected to enact similar requirements
+Added: following the adoption of the Insurance Data Security Model Law by the National Association of Insurance Commissioners that is consistent with the New York regulation.
Any significant violations of privacy and cybersecurity could result in the loss of new or existing business, litigation, regulatory investigations, the payment of fines, damages and penalties and damage to our reputation, which could have a material adverse effect on our business, financial condition and results of operations.
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Additionally, concern among potential home-buyers or sellers could keep them from using our services or require us to incur significant expense to alter our business practices or educate them about how we use personal information.
+Added: SUCCESS Lending and SUCCESS Franchising are new business initiatives with regulatory and compliance risks, many of which are beyond our control.
+Added: The SUCCESS Lending and SUCCESS Franchising businesses, both launched in 2021, have limited operating histories and have encountered and will continue to encounter risks, uncertainties, difficulties and expenses, including, without limitation, ongoing compliance with a complex and evolving regulatory environment.
+Added: If we are not able to timely and effectively respond to these requirements, or if risks arise outside our reasonable ability to respond effectively, our business and financial condition may be harmed.
+Added: Additionally, SUCCESS Lending relies on third-party sources, including credit bureaus, for credit, identification, employment and other relevant information in order to review and select qualified borrowers.
+Added: If this information becomes unavailable, becomes more expensive to access or is incorrect, our business may be harmed.
Risks Related to Our Stock
−Removed: Glenn Sanford, our Chairman and Chief Executive Officer, together with Penny Sanford, a significant shareholder, Jason Gesing, a director and the Chief Executive Officer of eXp Realty, and Gene Frederick, a director, own a significant percentage of our stock and have agreed to act as a group on any matter submitted to a vote of our stockholders.
+Added: Glenn Sanford, our Chairman and Chief Executive Officer, together with Penny Sanford, a significant shareholder, Jason Gesing, a director and our Chief Industry Relations Officer and Gene Frederick, a director and agent, own a significant percentage of our stock and have agreed to act as a group on any matter submitted to a vote of our stockholders.
As a result, the trading price for our shares may be depressed and they can take actions that may be adverse to the interests of our other stockholders .
−Removed: On January 25, 2022, Glenn Sanford, Penny Sanford, Jason Gesing, and Gene Frederick filed an amended Schedule 13D with the Securities and Exchange Commission, which disclosed that they beneficially owned approximately 54.2% of our outstanding common stock as of December 31, 2021, and that they had agreed to vote their shares as a group with respect to the election of directors and any other matter on which our shares of common stock are entitled to vote.
+Added: On November 2, 2022, Glenn Sanford, Penny Sanford, Jason Gesing and Gene Frederick filed an amended Schedule 13D with the Securities and Exchange Commission, which disclosed that they beneficially owned approximately 51.73% of our outstanding common stock as of September 30, 2022 and that they had agreed to vote their shares as a group with respect to the election of directors and any other matter on which our shares of common stock are entitled to vote.
This significant concentration of share ownership may adversely affect the trading price for our common stock because investors may perceive disadvantages in owning stock in a company with a controlling stockholder group.
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Sanford, Gesing and Frederick hold three of our seven board seats.
−Removed: This concentration of ownership and control could have the effect of delaying, deferring, or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.
+Added: concentration of ownership and control could have the effect of delaying, deferring, or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.
We are a “controlled company” within the meaning of Nasdaq rules and, as a result, we qualify for and intend to rely on, exemptions from certain corporate governance requirements.
−Removed: As of December 31, 2021, Glenn Sanford, Penny Sanford, Jason Gesing, and Gene Frederick beneficially owned approximately 54.2% of the total combined voting power of our outstanding common stock.
+Added: As of September 30, 2022, Glenn Sanford, Penny Sanford, Jason Gesing and Gene Frederick beneficially owned approximately 51.73% of the total combined voting power of our outstanding common stock.
Accordingly, we qualify as a “controlled company” within the meaning of Nasdaq corporate governance standards.
−Removed: Under NASDAQ rules, a company of which more than 50% of the voting power is held by an individual, group, or another company is a “controlled company” and may elect not to comply with certain NASDAQ corporate governance standards, including:
+Added: Under Nasdaq rules, a company of which more than 50% of the voting power Nasdaq is held by an individual, group, or another company is a “controlled company” and may elect not to comply with certain Nasdaq corporate governance standards, including:
● the requirement that a majority of the members of our board of directors be independent directors;
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As a result, we will not have a majority of independent directors, our compensation and our nominating and corporate governance committees will not consist entirely of independent directors and such committees may not be subject to annual performance evaluations.
−Removed: Consequently, our stockholders will not have the same protections afforded to stockholders
−Removed: of companies that are subject to all of the NASDAQ corporate governance rules and requirements.
+Added: Consequently, our stockholders will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance rules and requirements.
Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.
−Removed: Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.
+Added: Because we can issue additional shares of common stock and because we issue stock under Equity Incentive Plans, our stockholders may experience dilution in the future.
We are authorized to issue up to 900,000,000 shares of common stock, of which 171,656,030 shares were issued and 152,839,239 shares were outstanding as of December 31, 2022.
+Added: Additionally, the Company maintains a 2015 Equity Incentive Plan from which employees, agents, brokers and certain service providers of the Company and its affiliates can receive awards of the Company’s common stock.
+Added: As of December 31, 2022, there were 84,011,043 shares registered and authorized under the 2015 Equity Incentive Plan, of which 28,125,785 are available for future issuance.
Our Board of Directors has the authority to cause us to issue additional shares of common stock without consent of any of our stockholders.
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● adverse resolution of new or pending litigation or regulatory proceedings against us;
−Removed: ● government and health organization restrictions within the domestic and international locations in which we operate in response to the COVID-19 pandemic;
● changes in general market, economic and political conditions in the United States and global economies.
5 unchanged sentences
On August 4, 2021, the Company’s Board of Directors declared and subsequently paid its first cash dividend.
−Removed: The Company then declared and paid a subsequent dividend during the fourth quarter of the fiscal year ended December 31, 2021.
+Added: The Company then declared and paid subsequent dividends during each quarter of the fiscal year ended December 31, 2022.
There is no assurance that future dividends will be paid and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
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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.