UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number: 333-168025
EXP
REALTY INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 333-168025 | 98-0681092 |
| (State or other jurisdiction | (Commission | (IRS Employer |
| of incorporation) | File Number) | Identification No.) |
1325 Lincoln Street, Suite 1
Bellingham, WA 98229
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code: (360) 685-4206
N/A
(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o | Smaller reporting company x |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 15, 2014 the registrant’s outstanding common stock consisted of 48,013,650 shares.
TABLE OF CONTENTS
| Page | ||
| Forward Looking Statements | 3 | |
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 4 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 |
| Item 4. | Controls and Procedures | 15 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 16 |
| Item 2. | Unregistered Sales of Equity Securities | 16 |
| Item 3. | Defaults Upon Senior Securities | 16 |
| Item 4. | Mine Safety Disclosures | 16 |
| Item 5. | Other information | 16 |
| Item 6. | Exhibits | 16 |
| 2 |
Statement Regarding Forward-Looking Statements
Certain statements contained in this report on Form 10-Q contains certain forward-looking statements which are intended to be covered by the safe harbors created thereby. All statements, other than statements of historical facts, are forward-looking statements. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions identify forward-looking statements, but are not the exclusive means of doing so. Forward-looking statements may include statements about matters such as: future revenues; future industry market conditions; future changes in our capacity and operations; future operating and overhead costs; operational and management restructuring activities (including implementation of methodologies and changes in the board of directors); future employment and contributions of personnel; tax and interest rates; capital expenditures and their impact on us; nature and timing of restructuring charges and the impact thereof; productivity, business process, rationalization, investment, acquisition, consulting, operational, tax, financial and capital projects and initiatives; contingencies; environmental compliance and changes in the regulatory environment; and future working capital, costs, revenues, business opportunities, debt levels, cash flows, margins, earnings and growth.
These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical and current trends, current conditions, possible future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees, representations or warranties and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. Some of those risks and uncertainties include the risk factors set forth in this report and our Annual Report on Form 10-K for our prior fiscal year ended December 31, 2013, and the following: current global economic and capital market uncertainties; potential dilution to our stockholders from our recapitalization and balance sheet restructuring activities; potential inability to continue to comply with government regulations; adoption of or changes in legislation or regulations adversely affecting our businesses; permitting constraints or delays, business opportunities that may be presented to, or pursued by, us; changes in the United States or other monetary or fiscal policies or regulations; changes in generally accepted accounting principles; geopolitical events; potential inability to implement our business strategies; potential inability to grow revenues organically; potential inability to attract and retain key personnel; assertion of claims, lawsuits and proceedings against us; potential inability to maintain an effective system of internal controls over financial reporting; potential inability or failure to timely file periodic reports with the SEC; potential inability to list our securities on any securities exchange or market. Occurrence of such events or circumstances could have a material adverse effect on our business, financial condition, results of operations or cash flows or the market price of our securities. All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. We undertake no obligation to publicly update or revise any forward-looking statement.
| 3 |
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
eXp Realty International Corporation
(unaudited)
March 31, 2014
| Page | |
| Condensed Consolidated Balance Sheets | 5 |
| Condensed Consolidated Statements of Operations | 6 |
| Condensed Consolidated Statements of Cash Flows | 7 |
| Notes to the Condensed Consolidated Financial Statements | 8 |
| 4 |
EXP REALTY INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| March 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 100,954 | $ | 100,056 | ||||
| Restricted cash | 55,075 | 38,198 | ||||||
| Accounts receivable, net of allowance $3,149 and $2,329, respectively | 135,283 | 99,640 | ||||||
| Accounts receivable, related party | 11,265 | 8,200 | ||||||
| Prepaids and other assets | 78,727 | 39,793 | ||||||
| TOTAL CURRENT ASSETS | 381,304 | 285,887 | ||||||
| OTHER ASSETS | ||||||||
| Fixed assets, net | 76,077 | 44,854 | ||||||
| TOTAL OTHER ASSETS | 76,077 | 44,854 | ||||||
| TOTAL ASSETS | $ | 457,381 | $ | 330,741 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT) | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 93,659 | $ | 55,826 | ||||
| Customer deposits | 55,075 | 38,198 | ||||||
| Accrued expenses | 211,909 | 130,244 | ||||||
| Due to related parties | 13,076 | 18,232 | ||||||
| Accrued interest | 8,002 | 7,537 | ||||||
| TOTAL CURRENT LIABILITIES | 381,721 | 250,037 | ||||||
| LONG TERM LIABILITIES | ||||||||
| Notes payable | 61,887 | 61,887 | ||||||
| TOTAL LIABILITIES | 443,608 | 311,924 | ||||||
| Commitments and Contingencies | – | – | ||||||
| STOCKHOLDERS' EQUITY / (DEFICIT) | ||||||||
| Common Stock, 7,700,000,000 shares, $0.00001 par value authorized; 47,993,650 and 47,795,317 issued and outstanding at March 31, 2014 and December 31, 2013, respectively | 480 | 478 | ||||||
| Additional paid-in capital | 1,643,701 | 1,531,821 | ||||||
| Accumulated deficit | (1,629,401 | ) | (1,513,482 | ) | ||||
| Accumulated other comprehensive (loss) | (1,007 | ) | – | |||||
| TOTAL EQUITY / (DEFICIT) | 13,773 | 18,817 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY / (DEFICIT) | $ | 457,381 | $ | 330,741 | ||||
The accompanying notes are an integral part of these consolidated statements.
| 5 |
EXP REALTY INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| Net Revenues | $ | 2,384,069 | $ | 1,972,310 | ||||
| Operating expenses | ||||||||
| Cost of revenues | 2,021,207 | 1,604,196 | ||||||
| General and administrative | 386,840 | 475,636 | ||||||
| Professional fees | 79,642 | 55,803 | ||||||
| Sales and marketing | 14,448 | 23,549 | ||||||
| Total expenses | 2,502,137 | 2,159,184 | ||||||
| Net income from operations | (118,068 | ) | (186,874 | ) | ||||
| Other income and (expenses) | ||||||||
| Other income | 2,614 | – | ||||||
| Interest expense | (465 | ) | (642 | ) | ||||
| Total other income and (expenses) | 2,149 | (642 | ) | |||||
| Loss before income tax expense | (115,919 | ) | (187,516 | ) | ||||
| Income tax expense | – | (12,272 | ) | |||||
| Net loss | (115,919 | ) | (199,788 | ) | ||||
| Net loss per share - basic and diluted | (0.00 | ) | (0.00 | ) | ||||
| Weighted average shares outstanding - basic and diluted | 47,874,503 | 173,505,961 | ||||||
| Other comprehensive (loss) | ||||||||
| Foreign currency translation (loss) | (1,007 | ) | – | |||||
| Comprehensive loss | $ | (116,926 | ) | $ | (199,788 | ) | ||
The accompanying notes are an integral part of these consolidated statements.
| 6 |
EXP REALTY INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Three Months Ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (115,919 | ) | $ | (199,788 | ) | ||
| Adjustments to reconcile net loss to cash used in operating activities: | ||||||||
| Depreciation | 1,027 | 847 | ||||||
| Stock compensation expense | 24,159 | 210,884 | ||||||
| Stock option expense | 28,273 | – | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (35,643 | ) | 51,602 | |||||
| Accountants receivable, related party | (3,065 | ) | (6,004 | ) | ||||
| Prepaids and other assets | (38,934 | ) | 6,290 | |||||
| Accounts payable | 37,833 | 27,768 | ||||||
| Accrued expenses | 81,665 | 22,946 | ||||||
| Due to related parties | (5,156 | ) | 16,400 | |||||
| Accrued interest | 465 | 642 | ||||||
| NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | (25,295 | ) | 131,587 | |||||
| INVESTMENT ACTIVITIES | ||||||||
| Acquisition of property and equipment | (32,250 | ) | (326 | ) | ||||
| CASH (USED) BY INVESTMENT ACTIVITIES | (32,250 | ) | (326 | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common stock | 59,450 | 33,734 | ||||||
| Principal payments of notes payable | – | (6,000 | ) | |||||
| Advances from related parties | – | – | ||||||
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | 59,450 | 27,734 | ||||||
| Net change in cash | 1,905 | 158,994 | ||||||
| Effect of foreign exchange on cash | (1,007 | ) | – | |||||
| Cash and cash equivalents, beginning of period | 100,056 | 58,308 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 100,954 | $ | 217,302 | ||||
| – | – | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS FOR: | ||||||||
| Cash paid for interest | $ | – | $ | – | ||||
| Cash paid for taxes | $ | – | $ | 5,060 | ||||
The accompanying notes are an integral part of these consolidated statements.
| 7 |
eXp Realty International Corporation
Notes to the Condensed Consolidated Financial Statements
March 31, 2014
(Expressed in U.S. dollars)
1. Background and Basis of Presentation
eXp Realty International Corporation formerly known as Desert Canadians, Ltd. (the “Company” or “eXp”) was incorporated in the State of Delaware on July 30, 2008. In September of 2013 we completed a merger transaction with eXp Acquisition Corp. (surviving corporation) and eXp Realty International Inc. and its subsidiaries. Upon completion of the merger eXp Realty International Inc. ceased to exist. Also in connection with the merger agreement and immediately thereafter our board of directors also approved a change in our fiscal year end from June 30 to December 31.
The Company is a cloud-based real estate brokerage operating in 29 States and in Ontario, Canada. As a cloud-based real estate brokerage for the residential real estate market, eXp has embraced and adopted 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 interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
2. Summary of Significant Accounting Principles
Basis of Presentation and Fiscal Year
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States, and are expressed in US dollars. All material intercompany accounts and transactions have been eliminated in consolidation. As disclosed in our 8-K filed September 27th, 2013 the Company has changed its fiscal year end to December 31.
Use of Estimates
The preparation of financial statements in conformity with US generally accepted accounting principles 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 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.
| 8 |
Foreign currency translation
The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in Canadian dollars and management has adopted ASC 740, Foreign Currency Translation Matters. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Other Comprehensive Loss
Other comprehensive loss for the three months ended March 31, 2014 consisted of foreign exchange translation. Other comprehensive loss for the three months ended March 31, 2013 was nil.
Recently Issued Accounting Pronouncements
There have been no recently issued accounting pronouncements through the date of this report that we believe will have a material impact on our financial position, results of operations, or cash flows.
3. Related Party Transactions
As of March 31, 2014, the Company was indebted to the CEO of the Company for $13,076 for expenses paid for on behalf of the Company. As of December 31, 2013, the Company was indebted to the CEO of the Company for $18,232 for expenses paid for on behalf of the Company and advances. Amounts due to related parties were non-interest bearing, unsecured and due on demand.
4. Stockholders’ Equity
During the 3 months ended March 31, 2014, we issued 198,333 shares of common stock for cash to investors in private placements of $0.30 per share for receipts of cash totaling $59,450.
5. Stock Based Compensation
The Company has approved the issuance of stock options to certain employees, officers, directors, and service providers at the sole discretion of the Board of Directors.
The Company accounts for stock based compensation based on the intrinsic value of the awards and re-measures the intrinsic value at each reporting date through the date of exercise or other settlement. The final measure of compensation cost is recognized at the intrinsic value of the instrument at the date it is settled. Compensation cost for each period until settlement is based on the change in the intrinsic value of the instrument in each reporting period.
The Company’s currently issued stock options vest over periods ranging from 0 to 4 years and are exercisable for a period of 10 years.
| 9 |
The Company’s stock option activity is as follows:
| Options | Weighted Avg Price | Intrinsic Value | ||||||||||
| Balance, December 31, 2013 | 7,674,000 | $ | 0.14 | $ | 0.16 | |||||||
| Granted | – | – | – | |||||||||
| Exercised | – | – | – | |||||||||
| Forfeited | – | – | – | |||||||||
| Balance, March 31, 2014 | 7,674,000 | $ | 0.14 | $ | 0.16 | |||||||
| Exercisable at March 31, 2014 | 4,551,660 | $ | 0.13 | $ | 0.17 | |||||||
| Vested at March 31, 2014 | 5,586,438 | $ | 0.14 | $ | 0.16 | |||||||
For the three months ended March 31, 2014 the Company’s stock options had an intrinsic value between $0.03 and $0.17. The Company recognized stock option expense of $28,273 and $0 for the three months ended March 31, 2014 and March 31, 2013, respectively.
6. Commitments and Contingencies
The Company is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of management the ultimate liability with respect to current proceedings and claims will not have a material adverse effect upon the Company’s financial position or results of operations.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read together with our financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve numerous risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons. Those reasons include, without limitation, those described at the beginning of this report under “Statement regarding forward-looking statements,” as well as those that may be set forth elsewhere in this report. Except as otherwise required by law, we do not intend to update any information contained in these forward-looking statements. The following discussion also addresses matters we consider important for an understanding of our financial condition and results of operations as of March 31, 2014, and for the three month period ended March 31, 2014, as well as our future results.
OVERVIEW
eXp Realty International Corporation, formerly known as Desert Canadians, Ltd. (the “Company” or “eXp”), was incorporated in the State of Delaware on July 30, 2008. In September of 2013 we completed a merger transaction with eXp Acquisition Corp. (surviving corporation) and eXp Realty International Inc. and its subsidiaries. Upon completion of the merger eXp Realty International Inc. ceased to exist. Also in connection with the merger agreement and immediately thereafter our board of directors also approved a change in our fiscal year end from June 30 to December 31.
| 10 |
The Company is a cloud-based real estate brokerage operating in 29 States and in Ontario, Canada. As a cloud-based real estate brokerage for the residential real estate market, eXp has embraced and adopted 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.
On April 18, 2014, Steve Alamin resigned as the Company’s Chief Operating Officer and as a member of our Board of Directors.
RECENT BUSINESS DEVELOPMENTS
The Company has continued its geographic expansion into new US States (and into sub-markets within those states). The Company added approximately 20 new agents during the three months ended March 31, 2014. The Company has also closed its first transaction in the Canadian Province of Ontario.
In 2014 the Company expects to introduce and execute on a number of initiatives aimed at accelerating expansion and looks fully to integrate a number of systems that will support our scalable growth.
In pursuit of the vision of becoming a brokerage that, uniquely within the industry, is owned to a substantial degree by its agents and brokers, the Company plans to adopt a formal stock compensation plan, the components of which will include equity issuances to agents based on productivity and contributions to Company growth and equity grants which can be leveraged to attract iconic agents within particular marketplaces. In addition, the Company proposes to adopt an Employee Stock Purchase Plan which will permit the voluntary allocation by agents of a percentage of gross commission income on transactions and/or revenue share dollars earned to the purchase of Company stock.
The Company has a competitive advantage through its sizeable geographic footprint which grants us access to, at present, some 45 different property data and listing services (“Multiple Listing Services”) across our markets. In 2014, the Company expects to continue streamlining, in part through service agreements with third-party vendors, its market-based consumer-facing web sites into one single site in the United States and one in Canada. This process will permit us more efficiently to maintain and optimize our corporate-owned sites; and, will permit us to harness and aggregate Multiple Listing Service data in a more centralized yet farther-reaching manner, effectively syndicating data across increased numbers of channels.
With the efficiencies created within our technology and web-development team, in 2014 the Company can begin to look at ways in which it can leverage its technological capabilities and expertise to build upon the value that it offers to buyers and sellers of real estate. The Company may also begin to explore and identify potential strategic partners that have developed technologies, applications or other proprietary assets of value within the real estate space and that would benefit from access to the resources we possess internally as well as those made possible by our geographic reach, mobility and interconnectivity.
Over the past year, the Company has received numerous expressions of interest from parties whose principal business is in the brokerage of commercial real property. The Company will continue to determine the feasibility of various ways in which to accommodate this interest and potentially pursue the engagement of this segment of the real estate industry.
In March, 2014 the Company began the process of launching a new customized transaction management platform designed further to streamline our transaction management and administrative functions enabling scalable growth without the immediate necessity of significant increases in staffing. The new platform offers our agents and brokers enhanced reporting features and report generating capabilities and will, in the next phase of its development to be completed later in this year, provide agents and brokers with access to critical information relative to the composition and production of agent and broker teams that they’ve assembled and grown as well as the revenue share dollars derived from those efforts.
| 11 |
MARKET CONDITIONS AND TRENDS
eXp estimates over 50% of real estate brokerages today are not profitable due to the impact of high or fixed overhead and a costly struggle to drive higher productivity among their agents. These brokerages (many small to medium size) want to keep their long-term branding and reputation for excellence but want out from under their high costs to operate. Their current cost structure isn’t responsive to cyclical turns and the overhead costs continue to climb. The way in which buyers and sellers of real estate conduct research, initiate appointments, and even make offers has ever increasingly shifted from the traditional retail office to various online technologies. Even the most successful, established, and credible owners in the industry are struggling to remain competitive in the eyes of the agents they need to attract, retain and compensate in order to remain profitable.
Our Cloud Office has enabled brokerage owners to shed enormous overhead expenses and staffing costs while still retaining a percentage of commissions generated by their agents. Brokers through the use of our technology can now add additional agents and leverage their professional reputation and credibility both within and outside of their local or regional markets at little to no expense. The Cloud Office provides a scalable solution and a return to profitability for these existing small to medium sized brokerage owners.
The United States housing market was adversely impacted beginning in 2006 by the combination of a number of factors, including but not limited to more stringent lending guidelines, increased unemployment, and an overall macroeconomic decline. Overall U.S. sales volume declined as did the market value of homes which in turn created a swell in foreclosures and mortgage defaults. Data relative to the amount of time a property takes to sell, units available for resale, and pricing suggests that throughout much of the United States, markets have recovered even as borrowing costs for mortgages increased from historic lows, as tightened lending standards remain in place and as new qualified mortgage rules, introduced in January 2014, take effect. Market conditions prospectively are susceptible to impact from, among other factors, employment growth or decline, population trends, the re-entry into the market of former homeowners who suffered delinquencies, foreclosures, short-sales, or bankruptcies during the downturn, and changes in Federal Reserve monetary policy and federal fiscal policy.
Based on these among other factors we expect to see continued growth in sales within the real estate industry in the upcoming fiscal year.
COMPARATIVE FINANCIAL INFORMATION FROM OUR RESULTS OF OPERATIONS
Three months ended March 31, 2014
Revenues
During the current three month period ended March 31, 2014 net revenues increased $412 thousand to $2.38 million as compared to the prior three month period ended March 31, 2013 when we generated $1.97 million. The increase as compared to the prior period is a direct result of the increased sales agent base and higher sales volume realized.
| 12 |
Operating Expenses
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Operating expenses: | ||||||||||||
| Cost of revenues | $ | 2,021,207 | $ | 1,604,196 | $ | 417,011 | ||||||
| General and administrative | 386,840 | 475,636 | (88,796 | ) | ||||||||
| Professional fees | 79,642 | 55,803 | 23,839 | |||||||||
| Sales and marketing | 14,448 | 23,549 | (9,101 | ) | ||||||||
| Total operating expenses | $ | 2,502,137 | $ | 2,159,184 | $ | 342,953 | ||||||
Cost of revenues includes costs related to sales agent commissions and revenue sharing. These costs are highly correlated with recognized net revenues. As such, the increase of $417 thousand in the current three month period ended March 31, 2014 as compared to the prior three month period ended March 31, 2013 was driven by the higher amount of net revenues and agent commission rates.
General and administrative includes costs related to wages, stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The decrease in general and administrative costs in the three month period ended March 31, 2014 as compared to the three month period ending March 31, 2013 was driven from a decrease in stock compensation cost of $187 thousand which was offset by increased salaries and wages of $49 thousand and stock option expense of $28 thousand and other miscellaneous costs of $21 thousand respectively.
Professional fees include costs related to legal, accounting, and other consultants. Costs were up $24 thousand in the three month period ending March 31, 2014 as compared to the three month period ended March 31, 2013 due to legal and audit fees associated with the annual audit recently completed.
Sales and marketing include costs related to lead capture, digital and print media, trade shows, in addition to other promotional materials. The Company spent approximately $9 thousand less in trade show and email marketing related activities in the three month period ending March 31, 2014 as compared to the three month period ending March 31, 2013.
LIQUIDITY AND CAPITAL RESOURCES
| March 31, | December 31, | |||||||||||
| 2014 | 2013 | Change | ||||||||||
| Current assets | $ | 381,304 | $ | 285,887 | $ | 95,417 | ||||||
| Current liabilities | (381,721 | ) | (250,037 | ) | 131,684 | |||||||
| Net working capital | $ | (417 | ) | $ | 35,850 | $ | 36,267 | |||||
The Company’s net working capital decreased $36 thousand during the current three month period ending March 31, 2014 as compared to December 31, 2013. The decrease is primarily attributable to an additional accruals related to both commissions payable from higher sales and payroll taxes.
| 13 |
The following table presents our cash flows for the three months ended March 31, 2014 and 2013:
| Three Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Cash provided by (used in) operating activities | $ | (25,295 | ) | $ | 131,587 | $ | (156,882 | ) | ||||
| Cash (used in) investing activities | (32,250 | ) | (326 | ) | (31,924 | ) | ||||||
| Cash provided by financing activities | 59,450 | 27,734 | 31,716 | |||||||||
| Net change in cash | $ | 1,905 | $ | 158,994 | $ | (157,089 | ) | |||||
Net cash used in operating activities for the three months ended March 31, 2014 was approximately $25 thousand as compared to an amount provided by of $132 thousand for the three months ended March 31, 2013. Our cash used in operations the first three months of 2014 was primarily caused from increases in accounts receivable of $36 thousand and an increase in prepaid expenses of $39 thousand. In addition the Company paid a higher commission rate to its agents in the three month period ended March 31, 2014 as compared to March 31, 2013. Cash provided by operating activities for the first three months ended 2013 was primarily generated from decreases in accounts receivable of $52 thousand in addition to increases of accounts payable of $28 thousand and accrued expenses of $23 thousand.
Net cash used in investing activities for the acquisition of fixed assets was $32,250 and $326 for the three months ended March 31, 2014 and March 31, 2013 respectively.
Net cash provided by financing activities for the three months ended March 31, 2014 comprised of $59 thousand of net proceeds from the issuance of restricted common stock. Net cash provided by financing activities for the three months ended March 31, 2013 comprised of $34 thousand of net proceeds from the issuance of common stock, which was partially offset from principal payments of $6 thousand on an outstanding notes payable obligation.
Our future capital requirements will depend on many factors, including our level of investment in technology and our rate of growth into new markets. Our capital requirements may be affected by factors which we cannot control such as the residential real estate market, interest rates, and other monetary and fiscal policy changes in which we currently operate. We may have a greater need to fund our business by using our cash and cash equivalents, which could not continue indefinitely without raising additional capital. We believe that we currently have sufficient liquidity and capital resources to meet our existing obligations over the next twelve months.
We currently have no bank debt or line of credit facilities. In the event that additional financing is required, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business and results of operations will likely suffer.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
We currently have one long-term debt obligation with a principal balance of $62 thousand accruing interest at 3% and is payable in full during April 2015. We also have non-cancelable operating lease agreements with various expiration dates through August 2014.
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
Item 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC , and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report we carried out an evaluation of the effectiveness of our disclosure controls and procedures with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was not accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
The determination that our disclosure controls and procedures were not effective was based on the following material weaknesses in our internal control over financial reporting, which were identified in our Annual Report on Form 10-K for the year ended December 31, 2013:
| • | Insufficient corporate governance policies. Not all of our corporate processes are formally documented. Decisions made by the board and carried out by management may not be consistently applied or completed timely thereby increasing the likelihood of potential misunderstandings or incorrect implementation regarding key decisions affecting our operations and management. | |
| • | Lack of segregation of accounting duties. We currently do not have a sufficient number of employees to segregate our accounting and recording functions. | |
| • | Our lack of independent directors exercising an oversight role increases the risk of management override and potential fraud. | |
| • | We do not have an independent audit committee with a defined financial expert to provide the appropriate level of monitoring of our financial reporting process. |
In light of these material weaknesses, we performed additional analysis and procedures in order to conclude that our financial statements included in this report were fairly stated in accordance with accounting principles generally accepted in the United States. Accordingly, we believe that despite our material weaknesses, our financial statements included in this report are fairly stated, in all material respects, in accordance with United States generally accepted accounting principles.
CHANGES IN INTERNAL CONTROL
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the three months ended March 31, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. There are no matters pending or threatened that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended March 31, 2014 the Company issued 198,333 shares of restricted common stock for net cash proceeds of $59,450 at a price of $0.30 per share. We issued these shares to U.S. individuals, relying on section 4(A)(2) of the Securities Act of 1933.
No repurchases of the Compay’s equity securities were made by the Company or “affiliated purchasers” during the three months ended March 31, 2014.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 5. OTHER INFORMATION
None.
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Item 6. EXHIBITS
| Exhibit | Exhibit | |
| Number | Description | |
| 2.1 | Merger Agreement dated August 15, 2013 with eXp Realty International, Inc. and eXp Acquisition Corp. (incorporated by reference on Form 8-K, filed on August 20, 2013) | |
| 3.1 | Certificate of Incorporation (incorporated by reference from our Registration Statement on Form S-1, filed on July 7, 2010) | |
| 3.2 | Certificate of Amendment of Certificate of Incorporation dated effective September 9, 2013 (incorporated by reference from our Form 8-K, filed on September 9, 2013) | |
| 3.3 | Bylaws (incorporated by reference from our Registration Statement on Form S-1, filed on July 7, 2010) | |
| 31.1 | Certification of the Chief Executive and Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 99.1 | Temporary Hardship Exemption | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document* |
| * | To be furnished by amendment per Temporary Hardship Exemption under Regulation S-T. |
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| eXp Realty International Corporation | |
| (Registrant) | |
| Date: May 15, 2014 | /s/ Glenn Sanford |
| Glenn Sanford | |
| Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer, Chairman of the Board and Director |
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