Exhibit 99.1
Table of Contents
Page | |
Interim Condensed Consolidated Financial Statements (Unaudited): | |
Interim Condensed Consolidated Statements of Financial Positions | 2 |
Interim Condensed Consolidated Statements of Loss and Other Comprehensive Loss | 3 |
Interim Condensed Consolidated Statements of Changes in Equity | 4 |
Interim Condensed Consolidated Statement of Cash Flows | 5 |
Notes to the Interim Condensed Consolidated Financial Statements | 6 - 23 |
1 |
THE REAL BROKERAGE INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONS
(Expressed in thousands of U.S. dollars)
UNAUDITED
Unaudited | Audited | |||||||
June 30, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 17,165 | $ | 10,846 | ||||
Restricted cash | 29,580 | 7,481 | ||||||
Investments in financial assets | 10,911 | 7,892 | ||||||
Trade receivables | 1,925 | 1,547 | ||||||
Other receivables | 52 | 74 | ||||||
Prepaid expenses and deposits | 1,059 | 529 | ||||||
TOTAL CURRENT ASSETS | 60,692 | 28,369 | ||||||
NON-CURRENT ASSETS | ||||||||
Intangible assets | 3,314 | 3,708 | ||||||
Goodwill | 10,174 | 10,262 | ||||||
Property and equipment | 1,466 | 1,350 | ||||||
Right-of-use assets | - | 73 | ||||||
TOTAL NON-CURRENT ASSETS | 14,954 | 15,393 | ||||||
TOTAL ASSETS | 75,646 | 43,762 | ||||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | 1,146 | 474 | ||||||
Accrued liabilities | 21,280 | 11,866 | ||||||
Customer deposits | 29,580 | 7,481 | ||||||
Other payables | 1,354 | 1,188 | ||||||
Lease liabilities | - | 96 | ||||||
TOTAL CURRENT LIABILITIES | 53,360 | 21,105 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Warrants outstanding | 324 | 242 | ||||||
TOTAL NON-CURRENT LIABILITIES | 324 | 242 | ||||||
TOTAL LIABILITIES | 53,684 | 21,347 | ||||||
EQUITY | ||||||||
EQUITY ATTRIBUTABLE TO OWNERS | ||||||||
Share premium | 56,266 | 63,204 | ||||||
Stock-based compensation reserves | 32,024 | 25,083 | ||||||
Deficit | (62,217 | ) | (50,704 | ) | ||||
Other reserves | (272 | ) | (469 | ) | ||||
Treasury stock, at cost | (4,328 | ) | (14,962 | ) | ||||
EQUITY ATTRIBUTABLE TO OWNERS | 21,473 | 22,152 | ||||||
Non-controlling interests | 489 | 263 | ||||||
TOTAL EQUITY | 21,962 | 22,415 | ||||||
TOTAL LIABILITIES AND EQUITY | 75,646 | 43,762 |
The accompanying notes form an integral part of the consolidated financial statements.
2 |
THE REAL BROKERAGE INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Expressed in thousands of U.S. dollars, except for per share amounts)
UNAUDITED
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Revenues | $ | 185,332 | $ | 112,356 | $ | 293,177 | $ | 174,005 | ||||||||
Commissions and other agent-related costs | 167,573 | 103,064 | 264,610 | 158,851 | ||||||||||||
Gross Profit | 17,759 | 9,292 | 28,567 | 15,154 | ||||||||||||
General and administrative expenses | 9,654 | 6,116 | 18,292 | 11,490 | ||||||||||||
Marketing expenses | 10,266 | 5,700 | 17,950 | 9,416 | ||||||||||||
Research and development expenses | 1,579 | 1,680 | 3,103 | 2,719 | ||||||||||||
Operating Loss | (3,740 | ) | (4,204 | ) | (10,778 | ) | (8,471 | ) | ||||||||
Other income | 40 | 257 | 68 | 436 | ||||||||||||
Finance expenses, net | (272 | ) | (208 | ) | (577 | ) | (372 | ) | ||||||||
Net Loss | (3,972 | ) | (4,155 | ) | (11,287 | ) | (8,407 | ) | ||||||||
Net income attributable to noncontrolling interests | 146 | 53 | 226 | 114 | ||||||||||||
Net Loss Attributable to the Owners of the Company | (4,118 | ) | (4,208 | ) | (11,513 | ) | (8,521 | ) | ||||||||
Other comprehensive income/(loss): | ||||||||||||||||
Cumulative (gain)/loss on investments in debt instruments classified as FVTOCI reclassified to profit or loss | 42 | (116 | ) | 135 | (393 | ) | ||||||||||
Foreign currency translation adjustment | (85 | ) | 190 | 62 | 394 | |||||||||||
Total Comprehensive Loss Attributable to Owners of the Company | (4,161 | ) | (4,134 | ) | (11,316 | ) | (8,520 | ) | ||||||||
Total Comprehensive Income Attributable to NCI | 146 | 53 | 226 | 114 | ||||||||||||
Total Comprehensive Loss | (4,015 | ) | (4,081 | ) | (11,090 | ) | (8,406 | ) | ||||||||
Loss per share | ||||||||||||||||
Basic and diluted loss per share | (0.02 | ) | (0.02 | ) | (0.06 | ) | (0.05 | ) | ||||||||
Weighted-average shares, basic and diluted | 179,764 | 178,330 | 178,252 | 178,330 |
The accompanying notes form an integral part of the consolidated financial statements.
3 |
THE REAL BROKERAGE INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. dollar in thousands)
UNAUDITED
Share Premium | Stock-Based Compensation Reserve | Foreign Exchange Translation Reserve | Investments Revaluations Reserve | Deficit | Treasury Stock | Non-Controlling Interests |
Total Equity | |||||||||||||||||||||||||
Balance at, January 1, 2023 | 63,204 | 25,083 | 290 | (759 | ) | (50,704 | ) | (14,962 | ) | 263 | 22,415 | |||||||||||||||||||||
Total loss and income | - | - | - | - | (11,513 | ) | - | 226 | (11,287 | ) | ||||||||||||||||||||||
Total other comprehensive loss | - | - | 62 | 135 | - | - | - | 197 | ||||||||||||||||||||||||
Acquisitions of commons shares for Restricted Share Unit (RSU) plan | - | - | - | - | - | (1,411 | ) | - | (1,411 | ) | ||||||||||||||||||||||
Release of treasury shares | (12,045 | ) | - | - | - | - | 12,045 | - | - | |||||||||||||||||||||||
Issuance of Restricted Share Units | 4,794 | (4,794 | ) | - | - | - | - | - | - | |||||||||||||||||||||||
Exercise of stock options | 313 | (101 | ) | - | - | - | - | - | 212 | |||||||||||||||||||||||
Equity-settled share-based payment | - | 11,836 | - | - | - | - | - | 11,836 | ||||||||||||||||||||||||
Balance at, June 30, 2023 | 56,266 | 32,024 | 352 | (624 | ) | (62,217 | ) | (4,328 | ) | 489 | 21,962 | |||||||||||||||||||||
Balance at, January 1, 2022 | 63,397 | 6,725 | 5 | (352 | ) | (30,127 | ) | (12,644 | ) | - | 27,004 | |||||||||||||||||||||
Total loss | - | - | - | - | (8,521 | ) | - | 114 | (8,407 | ) | ||||||||||||||||||||||
Total other comprehensive loss | - | - | 394 | (393 | ) | - | - | - | 1 | |||||||||||||||||||||||
Acquisitions of commons shares for Restricted Share Unit (RSU) plan | - | - | - | - | - | (5,692 | ) | - | (5,692 | ) | ||||||||||||||||||||||
Release of vested common shares from employee benefit trusts | 93 | - | - | - | - | 1,233 | - | 1,326 | ||||||||||||||||||||||||
Adjustment arising from change in non-controlling interest | - | - | - | - | - | - | 21 | 21 | ||||||||||||||||||||||||
Exercise of stock options | 47 | - | - | - | - | - | - | 47 | ||||||||||||||||||||||||
Equity-settled share-based payment | - | 4,111 | - | - | - | - | - | 4,111 | ||||||||||||||||||||||||
Balance at, June 30, 2022 | 63,537 | 10,836 | 399 | (745 | ) | (38,648 | ) | (17,103 | ) | 135 | 18,411 |
The accompanying notes form an integral part of the consolidated financial statements.
4 |
THE REAL BROKERAGE INC.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. dollar in thousands)
UNAUDITED
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net Loss | $ | (3,972 | ) | $ | (4,155 | ) | $ | (11,287 | ) | $ | (8,407 | ) | ||||
Adjustments for: | ||||||||||||||||
Depreciation | 284 | 135 | 553 | 138 | ||||||||||||
Equity-settled share-based payment | 6,075 | 274 | 11,836 | 1,211 | ||||||||||||
Finance costs | 116 | 100 | 299 | 209 | ||||||||||||
Loss on short term investments | - | (339 | ) | - | (135 | ) | ||||||||||
Stock Compensation Payable (RSU) | - | 2,481 | - | 4,051 | ||||||||||||
Changes in operating asset and liabilities: | ||||||||||||||||
Trade receivables | (526 | ) | 111 | (378 | ) | 14 | ||||||||||
Other receivables | 23 | 21 | 22 | (43 | ) | |||||||||||
Prepaid expenses and deposits | (306 | ) | 149 | (530 | ) | (851 | ) | |||||||||
Accounts payable | 776 | 517 | 672 | 565 | ||||||||||||
Accrued liabilities | 6,333 | 3,554 | 9,414 | 4,955 | ||||||||||||
Customer deposits | 14,144 | (1,590 | ) | 22,099 | 11,281 | |||||||||||
Other payables | 641 | 7 | 166 | 471 | ||||||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 23,588 | 1,265 | 32,866 | 13,459 | ||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||
Purchase of property and equipment | (110 | ) | (249 | ) | (250 | ) | (625 | ) | ||||||||
Acquisition of subsidiaries | - | - | - | (7,445 | ) | |||||||||||
Investment Deposits in Debt Instruments held at FVTOCI | (3,223 | ) | 3,989 | (3,729 | ) | 3,989 | ||||||||||
Investment Withdrawals in Debt Instruments held at FVTOCI | 845 | - | 845 | - | ||||||||||||
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | (2,488 | ) | 3,740 | (3,134 | ) | (4,081 | ) | |||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Purchase of common shares for Restricted Share Unit (RSU) Plan | (810 | ) | (1,180 | ) | (1,411 | ) | (5,692 | ) | ||||||||
Proceeds from exercise of stock options | 146 | 24 | 212 | 47 | ||||||||||||
Payment of lease liabilities | (16 | ) | (22 | ) | (96 | ) | (45 | ) | ||||||||
Cash disbursements for non-controlling interest | (43 | ) | - | (43 | ) | |||||||||||
NET CASH USED IN FINANCING ACTIVITIES | (680 | ) | (1,221 | ) | (1,295 | ) | (5,733 | ) | ||||||||
Net change in cash, cash equivalents and restricted cash | 20,420 | 3,783 | 28,437 | 3,645 | ||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | 26,411 | 28,988 | 18,327 | 29,129 | ||||||||||||
Fluctuations in foreign currency | (87 | ) | (252 | ) | (19 | ) | (254 | ) | ||||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE | $ | 46,745 | $ | 32,520 | $ | 46,745 | $ | 32,520 | ||||||||
SUPPLEMENTAL DISCLOSURE OF NON CASH ACTIVITIES | ||||||||||||||||
Share-based compensation as part of Expetitle acquisition | - | - | - | 4,325 | ||||||||||||
Increase in non-controlling interest | 146 | - | 226 | - |
The accompanying notes form an integral part of the consolidated financial statements.
5 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
1. General Information
The Real Brokerage Inc. (“Real” or the “Company”) is a technology-powered real estate brokerage firm, licensed in 47 U.S. states, the District of Columbia, and 4 provinces in Canada. Real offers agents a mobile focused tech-platform to run their business.
The consolidated operations of Real include the wholly-owned subsidiaries of Real, including those wholly-owned subsidiaries involved in the brokerage, title and mortgage business operations. The Company also has investments in joint ventures which are accounted for using the equity method.
On May 17, 2021, the TSX Venture Exchange (the “TSXV”) accepted the Company’s Notice of Intention to implement a normal course issuer bid (“NCIB”). On May 19, 2022, the Company announced that it renewed its NCIB to be transacted through the facilities of the NASDAQ Capital Market (“NASDAQ”) and other stock exchanges and/or alternative trading systems in the United States and/or Canada. Pursuant to the NCIB, Real was able to purchase up to 8.9 million common shares of the Company (“Common Shares”), representing approximately 5% of the total 178.3 million Common Shares issued and outstanding as of May 19, 2022. On May 24, 2023, the Company announced that it renewed its NCIB pursuant to which, Real may purchase up to approximately 9.0 million Common Shares, representing approximately 5% of the total 180 million Common Shares issued and outstanding as of May 18, 2023. Purchases will be made at prevailing market prices and may be conducted during the twelve-month period ended May 28, 2024.
The NCIB is being conducted to acquire Common Shares for the purposes of satisfying restricted share unit (each, an “RSU”) obligations. The Company appointed CWB Trust Services (the “Trustee”) as the trustee for the purposes of arranging the acquisition of Common Shares and to hold the Common Shares in trust for the purposes of satisfying RSU payments as well as deal with other administrative matters. Through the Trustee, RBC Capital Markets was engaged to undertake purchases under the NCIB.
During the six-month period ended June 30, 2023, the Company repurchased 1.1 million Common Shares in the amount of $1.4 million.
On July 26, 2022, the Company’s Common Shares commenced trading on the Toronto Stock Exchange (the “TSX”) under the symbol “REAX”. Concurrent to the graduation to the TSX, the Common Shares were voluntarily delisted from the TSXV. Trading of the Common Shares continues on the NASDAQ under the same symbol, “REAX”.
2. Summary of Significant Accounting Policies
The principal accounting policies applied in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2022.
A. Basis of preparation
The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Company’s annual audited consolidated financial statements for the period ended December 31, 2022. These unaudited interim condensed consolidated financial statements were authorized for issuance by the Company’s Board of Directors on August 8, 2023.
All dollar amounts are in U.S. dollars unless otherwise stated.
6 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
B. Significant judgments, estimates and assumptions
The preparation of Real’s unaudited interim condensed consolidated financial statements require management to make judgments, estimates and assumptions that affect the amounts reported. In the process of applying Real’s accounting policies, management was required to apply judgment in certain areas. Estimates and assumptions made by management are based on events and circumstances that existed at the unaudited interim condensed consolidated balance sheet date. Accordingly, actual results may differ from these estimates.
The significant judgments, estimates and assumptions in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2022.
3. EXPETITLE ACQUISITION
On January 20, 2022, the Company completed the acquisition of 100% of the issued and outstanding equity interests of Expetitle, Inc. (“Expetitle”) pursuant to a stock purchase agreement (the “Expetitle Transaction”). Expetitle had developed technology that simplifies the paper-intensive and time-intensive title and eEscrow process, reducing errors and saving time. Agents and homebuyers can navigate the entire closing experience in a few clicks using Expetitle’s mobile app. As part of the Expetitle Transaction, the Company also acquired 51% ownership of five subsidiaries of Expetitle. The noncontrolling ownership interest in these five subsidiaries of Expetitle recognized at the acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $21 thousand. The aggregate purchase price for 100% of the issued and outstanding equity interests of Expetitle was comprised of cash consideration of $7.4 million payable at the closing of the Expetitle Transaction and contingent consideration of $600 thousand in cash subject to escrow, that would be released after twelve (12) months upon the satisfaction or waiver of the following terms and conditions: (i) the key employees remain at their current position with the Company for at least twelve (12) months after the closing of the Expetitle Transaction and (ii) Expetitle will become licenced to operate in at least fifteen states, including the then current states of operation, Florida, Georgia, and Texas. In addition, certain Expetitle employees were entitled to a cash payment of $200 thousand subject to the same terms as set out for the contingent consideration. The contingent terms were met and the $800 thousand that was in escrow was released on January 23, 2023.
As part of the Expetitle Transaction, Real granted an aggregate of 700 thousand incentive stock options (“Options”) and an aggregate of 1.1 million RSUs to shareholders and members of the Expetitle team. The fair value of those Options was $4.8 million from which $4.3 million was determined to be part of the consideration and $451 thousand that was recorded immediately to the statement of loss and comprehensive loss as post transaction employee compensation which vests immediately. The Options are exercisable for a period of 3 years at $3.60 per Common Share. In addition, and as part of the transaction, the Company provided cash grants to the Expetitle employees in the amount of $168 thousand.
We have completed the valuation of the acquired assets and assumed liabilities and have assigned $3.4 million as the fair value of the Company’s developed technology and $8.4 million as the residual goodwill. Goodwill represents expected synergies, future income and growth potential, and other intangibles that do not qualify for separate recognition. None of the goodwill arising from this acquisition is expected to be deductible for tax purposes.
7 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
The following table summarizes the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the Expetitle Transaction (in thousands):
Balance at January 21, 2022 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Cash | 80 | |||
Other Current Assets | 42 | |||
In Trust Cash | 960 | |||
Goodwill | 8,393 | |||
Intangible Assets | 3,364 | |||
Accounts Payables and Accrued Liabilities | (103 | ) | ||
Held in Trust Funds | (960 | ) | ||
Other Payables | (19 | ) | ||
Net Assets Acquired | 11,757 | |||
Cash Flow | ||||
Total Consideration | (11,757 | ) | ||
Acquired Cash | 80 | |||
Equity-settled share-based payment | 4,325 | |||
Cash from Investing Activities | (7,352 | ) |
4. REdline real estate group acquisition
On November 3, 2022, the Company acquired, through a wholly owned subsidiary, all of the issued and outstanding common shares of Redline Real Estate Group (BC) Inc. (“Redline BC”) pursuant to a share purchase agreement between the Company, Redline BC and Redline Realty Investments Inc. (“Redline Realty”). The acquisition, which includes Redline’s real estate license to operate in British Columbia, fueled the Company’s expansion into Canada’s third largest province. The transaction was settled in nominal cash consideration for an aggregate purchase price of one Canadian dollar. The Company has determined that the Redline Transaction meets the definition of business combinations within the scope of IFRS 3, Business Combination. The measurement period ends as soon as the company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date.
The following table summarizes the fair value of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition date (in thousands):
Balance at November 3, 2022 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Cash & Cash in Trust | 30 | |||
Amount Held in Trust | (30 | ) | ||
Net Assets Acquired | - | |||
Consideration | - |
8 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
5. LEMONBREW LENDING ACQUISITION
On December 9, 2022, pursuant to the terms of a share purchase agreement dated September 23, 2022 between the Company, LemonBrew Lending Corp. (“LemonBrew Lending”) and LemonBrew Technologies Corp. (“LemonBrew Technologies”), the Company acquired 100% of the issued and outstanding equity interests of LemonBrew Lending from the seller for an aggregate purchase price of $1.25 million (the “LemonBrew Transaction”). The purchase price was satisfied by (i) cash in the amount of $800 thousand and (ii) the issuance of 351,837 Common Shares (the “Consideration Shares”) at a deemed issued price of $1.279 per share. The issued price of the Consideration Shares is equal to the product of $450,000 divided by the 5-day volume weighted average trading price of the Common Shares on the NASDAQ immediately prior to the closing of the LemonBrew Transaction.
In connection with the closing of the LemonBrew Transaction, the Company entered into agreements with management and key employees of LemonBrew Lending (the “LemonBrew Key Employee Agreements”). The LemonBrew Key Employment Agreements provide for performance-based milestone payments of $2.5 million payable over 36 months following closing of the LemonBrew Transaction, of which $2 million will be payable in cash and $500 thousand will be payable in restricted share units of the Company. The performance-based milestones are:
● | LemonBrew achieving at least $500 thousand in EBITDA for the first 12-month period following closing, $1 million in EBITDA for the second 12-month period following closing, and $2 million in EBITDA for the third 12-month period following closing | |
● | Certain employees remaining in their roles to be established with Real during the transaction |
These payments are considered separate from the aggregate purchase price. Management believes that there is no likelihood of achieving the performance-based milestones and has not recognized any expenses related to the performance-based milestone payment.
The Company has determined that the LemonBrew Transaction meets the definition of business combinations within the scope of IFRS 3, Business Combination. The measurement period ends as soon as the company receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable. However, the measurement period shall not exceed one year from the acquisition date.
9 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
The following table summarizes the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the LemonBrew Transaction (in thousands). The following amounts are provisional and will be adjusted during the measurement period, and additional assets or liabilities may be recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date:
Balance at December 9, 2022 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Current Assets | 27 | |||
Other Assets | 119 | |||
Goodwill | 1,179 | |||
Accounts Payables and Accrued Liabilities | (11 | ) | ||
Other Payables | (64 | ) | ||
Net Assets Acquired | 1,250 | |||
Consideration | ||||
Cash | 800 | |||
Common shares issued | 450 | |||
Total Consideration | 1,250 | |||
Cash Flow | ||||
Total Consideration | (1,250 | ) | ||
Equity-settled share-based payment | 450 | |||
Cash From Investing Activities | (800 | ) |
6. Revenue
In the following table, revenue (in thousands) from contracts with customers is disaggregated by major service lines as well as timing of revenue recognition.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Main revenue streams | ||||||||||||||||
Commissions | 181,437 | 110,999 | 287,043 | 171,505 | ||||||||||||
Title | 948 | 506 | 1,546 | 908 | ||||||||||||
Mortgage Income | 362 | - | 494 | - | ||||||||||||
Fee Income | 1,409 | 639 | 2,352 | 1,085 | ||||||||||||
Other | 1,176 | 212 | 1,742 | 507 | ||||||||||||
Total Revenue | 185,332 | 112,356 | 293,177 | 174,005 | ||||||||||||
Timing of Revenue Recognition | ||||||||||||||||
Products and Services Transferred at a Point in Time | 185,332 | 112,356 | 293,177 | 174,005 | ||||||||||||
Revenue from Contracts with Customers | 185,332 | 112,356 | 293,177 | 174,005 |
10 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
7. Expenses By Nature
In the following table, cost of sales represents real estate commission paid to Company’s agents as well as to outside brokerages in Canada and Title Fee Expenses (in thousands).
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Commissions and other agent-related costs | 167,573 | 103,064 | 264,610 | 158,851 | ||||||||||||
Operating Expenses | ||||||||||||||||
General and Administrative Expenses | 9,654 | 6,116 | 18,292 | 11,490 | ||||||||||||
Salaries and Benefits | 4,689 | 2,656 | 9,167 | 4,821 | ||||||||||||
Stock Based Compensation | 1,128 | 931 | 2,087 | 2,052 | ||||||||||||
Administrative Expenses | 905 | 471 | 1,590 | 822 | ||||||||||||
Professional Fees | 1,968 | 1,552 | 3,615 | 2,971 | ||||||||||||
Depreciation Expense | 284 | 135 | 553 | 138 | ||||||||||||
Other General and Administrative Expenses | 680 | 371 | 1,280 | 686 | ||||||||||||
Marketing Expenses | 10,266 | 5,700 | 17,950 | 9,416 | ||||||||||||
Salaries and Benefits | 203 | 171 | 310 | 283 | ||||||||||||
Stock Based Compensation for Employees | 11 | (27 | ) | 22 | (16 | ) | ||||||||||
Stock Based Compensation for Agents | 1,640 | 547 | 3,181 | 1,129 | ||||||||||||
Revenue Share | 7,684 | 4,376 | 13,118 | 7,078 | ||||||||||||
Other Marketing and Advertising Cost | 728 | 633 | 1,319 | 942 | ||||||||||||
Research and Development Expenses | 1,579 | 1,680 | 3,103 | 2,719 | ||||||||||||
Salaries and Benefits | 748 | 734 | 1,406 | 1,126 | ||||||||||||
Stock Based Compensation | 75 | (7 | ) | 124 | 66 | |||||||||||
Other Research and Development | 756 | 953 | 1,573 | 1,527 | ||||||||||||
Total Cost of Sales and Operating Expenses | 189,072 | 116,560 | 303,955 | 182,476 |
Finance Expenses
The following table summarizes details behind Finance costs (in thousands) as reported in the unaudited interim condensed consolidated Statement of Income (Loss):
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
Description | 2023 | 2022 | 2023 | 2022 | ||||||||||||
Unrealized Losses (Gains) | 123 | (132 | ) | 81 | (385 | ) | ||||||||||
Realized Losses (Gains) | 77 | 1 | 85 | 53 | ||||||||||||
Bank Fees | 156 | 108 | 278 | 163 | ||||||||||||
Finance Costs | (84 | ) | 232 | 133 | 541 | |||||||||||
Other | - | (1 | ) | - | - | |||||||||||
Total Finance Expenses | 272 | 208 | 577 | 372 |
8. Loss Per Share
Basic and Diluted loss per share
Basic loss per share is computed by dividing the loss for the period by the weighted average number of Common Shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) less any preferred dividends for the period by the weighted average number of Common Shares outstanding plus, any potentially dilutive Common Shares outstanding during the period. The Company does not pay dividends or have participating shares outstanding.
11 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
The following table outlines the number of Common Shares (in thousands) and basic and diluted loss per share:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Issued Common Shares at the beginning of the period | 178,629 | 174,746 | 178,201 | 170,483 | ||||||||||||
Effect of Warrant Exercise | - | 3,584 | - | 7,847 | ||||||||||||
Effect of Treasury Issuance | 205 | - | - | |||||||||||||
Effect of Share Options Exercise | 930 | - | 51 | |||||||||||||
Weighted-average numbers of Common Shares | 179,764 | 178,330 | 178,252 | 178,330 | ||||||||||||
Loss per share | ||||||||||||||||
Basic and diluted loss per share | (0.02 | ) | (0.02 | ) | (0.06 | ) | (0.05 | ) |
9. Share-Based Payment Arrangements
A. Description of share-based payment arrangements
Stock option plan (equity-settled)
On January 20, 2016, the Company established a stock option plan (the “Stock Option Plan”) that entitles key management personnel and employees to purchase shares in the Company. Under the Stock Option Plan, holders of vested Options are entitled to purchase Common Shares for the exercise price as determined at the grant date.
On February 26, 2022, the Company established an omnibus incentive plan providing for up to 20% of the issued and outstanding Common Shares as of the date thereof (being 35.6 million Common Shares, less RSUs and Options outstanding under other equity inventive plans) to be issued as RSUs or Options to directors, officers, employees, and consultants of the Company (the “Omnibus Incentive Plan”). The Omnibus Incentive Plan was approved by shareholders of the Company on June 13, 2022.
In connection with the graduation to the TSX, the Company amended its Omnibus Incentive Plan (the “A&R Plan”) on July 13, 2022, and the Company’s shareholders approved the A&R Plan on June 9, 2023. Pursuant to the A&R Plan, the maximum number of Common Shares issuable pursuant to outstanding Options at any time shall be limited to 15% of the aggregate number of issued and outstanding Common Shares as of the applicable award date less the number of Common Shares issuable pursuant to Options under the A&R Plan or any other security based compensation arrangement of the Company. In addition, the Company is authorized to grant up to 70,000,000 RSUs pursuant to the A&R Plan. The RSU limit is separate and distinct from the maximum number of Common Shares reserved for issuance pursuant to Options under the A&R Plan.
12 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
The following table depicts the number of Options granted apart from the Company’s various acquisitions (in thousands):
Grant Date | Number of Options | Vesting Conditions | Contractual Life of Options | |||||
Balance January 1, 2022 | 22,287 | |||||||
On March, 2022 | 240 | 3 years quarterly vest | 10 years | |||||
On May, 2022 | 320 | 3 years quarterly vest | 10 years | |||||
On August, 2022 | 4,000 | 25% on first anniversary, then quarterly vesting | 10 years | |||||
On August, 2022 | 145 | 3 years quarterly vest | 10 years | |||||
On November, 2022 | 55 | 3 years quarterly vest | 10 years | |||||
On December, 2022 | 10 | 3 years quarterly vest | 10 years | |||||
Balance December 31, 2022 | 27,057 | |||||||
Balance January 1, 2023 | 27,057 | |||||||
On March, 2023 | 1,500 | 16.7% on first anniversary, then quarterly vesting | 10 years | |||||
On March, 2023 | 15 | 3 years quarterly vest | 10 years | |||||
On June, 2023 | 65 | 3 years quarterly vest | 10 years | |||||
Balance June 30, 2023 | 28,637 |
B. Measurement of fair value
The fair value of the Options has been measured using the Black-Scholes formula which was also used to determine the Company’s share value. Service and non-market performance conditions attached to the arrangements were not considered in measuring fair value. The inputs used in the measurement of the fair value at the grant and measurement date were as follows:
June 30, 2023 | December 31, 2022 | |||||||
Share price | $ | 1.91 | $ | 1.05 | ||||
Exercise price | $ | 1.25 to $1.40 | $ | 1.35 to $2.45 | ||||
Expected volatility (weighted-average) | 108.0 | % | 108.0 | % | ||||
Expected life (weighted-average) | 10 years | 10 years | ||||||
Expected dividends | - | % | - | % | ||||
Risk-free interest rate (based on US government bonds) | 3.62 – 3.65 | % | 1.95 – 2.89 | % |
Expected volatility has been based on an evaluation of historical volatility of the company’s share price.
C. Reconciliation of outstanding stock-options
The following table outlines the number of Options (in thousands) and weighted-average exercise price:
June 30, 2023 | December 31, 2022 | |||||||||||||||
Number of Options | Weighted-Average Exercise Price | Number of Options | Weighted-Average Exercise Price | |||||||||||||
Outstanding at beginning of year | 21,746 | $ | 0.87 | 20,815 | $ | 0.71 | ||||||||||
Granted | 1,580 | 1.26 | 4,770 | 1.61 | ||||||||||||
Forfeited/ Expired | (191 | ) | (1.78 | ) | (2,450 | ) | (2.35 | ) | ||||||||
Exercised | (395 | ) | (0.27 | ) | (1,389 | ) | (0.23 | ) | ||||||||
Outstanding at end of period | 22,740 | $ | 0.90 | 21,746 | $ | 0.87 | ||||||||||
Exercisable as at end of period | 13,665 | 11,046 |
The Options outstanding as of June 30, 2023 had a weighted average exercise price of $0.90 (December 31, 2022: $0.90) and a weighted-average contractual life of 10 years (December 31, 2022: 10 years).
13 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
D. Restricted share unit plan
Restricted share unit plan
Under the Company’s agent performance grant program, the Company issues RSUs to agents based on an agent meeting certain performance metrics, and successfully attracting other performing agents to the Company. Each RSU entitles the holder to one Common Share or cash payment in lieu of a Common Share. The RSUs have a three-year vesting term and are subject to forfeiture in certain circumstances. The Company recognizes expense from the issuance of these RSUs during the applicable vesting period based upon the best available estimate of the number RSUs expected to vest with a corresponding increase in stock-based compensation reserve. The expense recognized from the issuance of RSU awards for the six-month period ended June 30, 2023 was $2.5 million, and was classified as marketing expense.
Under the Company’s agent stock purchase program, agents purchase RSUs, which vest after a year, using a percentage of the agent’s commission that is withheld by the Company. Each RSU entitles the holder to one Common Share or cash payment in lieu of a Common Share. The RSUs are expensed in the period in which they are issued with a corresponding increase in equity. Each agent pays the Company 15% of commissions until the commission paid to the Company totals that agent’s “cap” amount (the “Cap”). As an incentive to participate in the program, the Company issues additional RSUs (“Bonus RSUs”) with a value of (i) 15% of the commission withheld (the percentage was 30% prior to June 16, 2022) if an agent has not met the Cap and (ii) 30% of the commission withheld (the percentage was 50% prior to June 16, 2022) if an agent has met the Cap. The Bonus RSUs have a one-year vesting term and are subject to forfeiture in certain circumstances. The RSUs purchased under the program and the Bonus RSUs are expensed when they are issued with a corresponding increase in stock-based compensation reserve.
Stock compensation awards granted to full time employees (“FTEs”) are classified as a General and Administrative, Research & Development, or Marketing expense based on the appropriate department within the interim Condensed Consolidated Statements of Loss and Other Comprehensive Loss.
The following table illustrates the Company’s stock activity (in thousands of units) for the restricted share unit plan.
Units | ||||
Balance at, December 31, 2021 | 3,965 | |||
Granted | 16,053 | |||
Vested and Issued | (2,504 | ) | ||
Forfeited | (606 | ) | ||
Balance at, December 31, 2022 | 16,908 | |||
Granted | 10,342 | |||
Vested and Issued | (3,788 | ) | ||
Forfeited | (1,391 | ) | ||
Balance at, June 30, 2023 | 22,071 |
14 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
Stock Based Compensation Expense
The following table provides a detailed breakdown of the stock-based compensation expense (in thousands) as reported in the Consolidated Statement of Loss and Comprehensive Loss.
For the Six Months Ended | ||||||||||||||||||||||||
June 30, 2023 | June 30, 2022 | |||||||||||||||||||||||
Options Expense | RSU Expense | Total | Options Expense | RSU Expense | Total | |||||||||||||||||||
Marketing Expenses – Agent Stock Based Compensation | 687 | 2,494 | 3,181 | 520 | 609 | 1,129 | ||||||||||||||||||
Marketing Expenses – FTE Stock Based Compensation | 4 | 18 | 22 | (16 | ) | - | (16 | ) | ||||||||||||||||
Research and Development – FTE Stock Based Compensation | 54 | 70 | 124 | 23 | 43 | 66 | ||||||||||||||||||
General and Administrative – FTE Stock Based Compensation | 1,389 | 698 | 2,087 | 684 | 1,368 | 2,052 | ||||||||||||||||||
Total Stock Based Compensation (i) | 2,134 | 3,280 | 5,414 | 1,211 | 2,020 | 3,231 |
(i) Stock Based Compensation Expense excludes Stock Based Compensation recognized under Cost of Goods Sold.
On May 20, 2021, the Company began transacting under the NCIB to purchase up to 7.2 million of its Common Shares representing approximately 5% of the total 143 million Common Shares issued and outstanding as of April 30, 2021. On May 19, 2022, the Company announced that it renewed the NCIB. Pursuant to the renewed NCIB, Real may purchase up to 8.9 million Common Shares, representing approximately 5% of the total 178.3 million Common Shares issued and outstanding as of May 19, 2022. The purpose of the purchase of Common Shares under the NCIB is to enable the Company to acquire shares to satisfy its RSU grants for shares. On May 24, 2023, the Company announced that it renewed its NCIB pursuant to which, Real may purchase up to 9 million common shares of the Company, representing approximately 5% of the total 180 million Common Shares issued and outstanding as of May 18, 2023. The NCIB shall terminate on the earlier of May 28, 2024 and the date on which the maximum number of Common Shares purchasable under the NCIB is acquired by the Company.
The Company appointed the Trustee for the purposes of arranging for the acquisition of the Common Shares and to hold the Common Shares in trust for the purposes of satisfying restricted share unit payments as well as deal with other administration matters. Through the Trustee, RBC Capital Markets was engaged to undertake purchases under the NCIB for the purposes of the RSU Plan, the Omnibus Incentive Plan, and the A&R Plan.
10. CasH AND CASH EQUIVALENTS
In the statement of financial position, cash and bank balances comprise cash (i.e. cash on hand and demand deposits) and cash equivalents. Cash equivalents are short-term (generally with original maturity of three months or less), highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.
Bank balances for which use by the Company is subject to third party contractual restrictions are included as part of cash unless the restrictions result in a bank balance no longer meeting the definition of cash. Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers. The Company recognizes a corresponding customer deposit liability until the funds are released. Once the cash is transferred from escrow, the Company reduces the respective customers’ deposit liability.
15 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
11. Investments in Available for Sale Securities at Fair Value
The following table provides a detailed breakdown of short term investments (in thousands) as reported in the Consolidated Statements of Financial Positions:
Description | Estimated Fair Value December 31, 2022 | Deposit / (Withdraw) | Gross Unrealized Gains / (Losses) | Estimated Fair Value June 30, 2023 | ||||||||||||
Cash Investments | - | 2,823 | - | 2,823 | ||||||||||||
Fixed Income | 6,997 | 886 | 130 | 8,013 | ||||||||||||
Fixed Income – Mutual Funds | 840 | (845 | ) | 5 | - | |||||||||||
Investment Certificate | 55 | 20 | - | 75 | ||||||||||||
Short Term Investments | 7,892 | 2,884 | 135 | 10,911 |
Investment securities are recorded at fair value. The Company’s investment securities portfolio consists primarily of cash investments, debt securities issued by U.S. government agencies, local municipalities and certain corporate entities. The products in the Company’s investment portfolio have maturity dates ranging from less than one year to over 20 years.
The fair value of investment securities is impacted by interest rates, credit spreads, market volatility, and liquidity conditions. Net unrealized gains and losses in the portfolio are included in Other Comprehensive Income (Loss). An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.
12. Property and Equipment
Reconciliation of Carrying Amounts (in thousands)
Computer Equipment | Software | Furniture and Equipment | Total | |||||||||||||
Cost | ||||||||||||||||
Balance at December 31, 2021 | 205 | - | 69 | 274 | ||||||||||||
Additions | 413 | 995 | 164 | 1,572 | ||||||||||||
Balance at December 31, 2022 | 618 | 995 | 233 | 1,846 | ||||||||||||
Additions (Adjustment) | - | - | (58 | ) | (58 | ) | ||||||||||
Additions | 28 | 223 | - | 250 | ||||||||||||
Balance at June 30, 2023 | 646 | 1,218 | 175 | 2,038 | ||||||||||||
Accumulated Depreciation | ||||||||||||||||
Balance at December 31, 2021 | 39 | - | 65 | 104 | ||||||||||||
Acquired Depreciation | 92 | 26 | 137 | 255 | ||||||||||||
Depreciation | 79 | 57 | 1 | 137 | ||||||||||||
Balance at December 31, 2022 | 210 | 83 | 203 | 496 | ||||||||||||
Depreciation (Adjustment) | - | - | (67 | ) | (67 | ) | ||||||||||
Depreciation | 55 | 83 | 5 | 143 | ||||||||||||
Balance at June 30, 2023 | 265 | 166 | 141 | 572 | ||||||||||||
Carrying Amounts | ||||||||||||||||
Balance at December 31, 2022 | 408 | 912 | 30 | 1,350 | ||||||||||||
Balance at June 30, 2023 | 381 | 1,052 | 34 | 1,466 |
16 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
13. INTANGIBLE ASSETS AND GOODWILL
We record goodwill associated with acquisitions of businesses when the purchase price of the business exceeds the fair value of the net tangible and identifiable assets acquired. We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that indicate goodwill may be impaired. For the year ended December 31, 2022, we performed an assessment of goodwill which did not result in an impairment charge for the year.
Reconciliation of Carrying Amounts (in thousands)
Intangible Assets | Goodwill | Total | ||||||||||
Cost | ||||||||||||
Balance at December 31, 2021 | 563 | 602 | 1,165 | |||||||||
Additions | 3,370 | 9,660 | 13,030 | |||||||||
Balance at December 31, 2022 | 3,933 | 10,262 | 14,195 | |||||||||
Additions (Adjustment) | - | (88 | ) | (88 | ) | |||||||
Balance at June 30, 2023 | 3,933 | 10,174 | 14,107 | |||||||||
Accumulated Depreciation | ||||||||||||
Balance at December 31, 2021 | 113 | - | 113 | |||||||||
Depreciation | 112 | - | 112 | |||||||||
Balance at December 31, 2022 | 225 | - | 225 | |||||||||
Depreciation | 394 | - | 394 | |||||||||
Balance at June 30, 2023 | 619 | - | 619 | |||||||||
Carrying Amounts | ||||||||||||
Balance at December 31, 2022 | 3,708 | 10,262 | 13,970 | |||||||||
Balance at June 30, 2023 | 3,314 | 10,174 | 13,488 |
17 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
14. Capital and Reserves
Share capital and share premium
All Common Shares rank equally with regards to the Company’s residual assets. Preference shareholders participate only to the extent of the face value of the shares. The following table is presented in thousands:
Share Premium | Non-controlling Interests | Non-redeemable Preference Shares | ||||||||||||||||||||
June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | |||||||||||||||||
In issue at beginning of year | 48,242 | 50,753 | 263 | - | - | - | ||||||||||||||||
Issued for cash | - | - | - | - | - | - | ||||||||||||||||
Conversion | - | - | - | - | - | - | ||||||||||||||||
Exercise of stock options | 313 | 663 | - | - | - | - | ||||||||||||||||
Common shares acquired | (1,411 | ) | (8,060) | - | - | - | - | |||||||||||||||
Release of vested common shares from employee benefit trusts | 4,794 | 4,886 | - | - | - | - | ||||||||||||||||
Non-controlling interest | - | - | 226 | 263 | - | - | ||||||||||||||||
In issue at end of year – fully paid | 51,938 | 48,242 | 489 | 263 | - | - | ||||||||||||||||
Authorized shares | Unlimited | Unlimited | Unlimited | Unlimited | 66,000 | 66,000 |
15. Capital Management
Real defines capital as its equity. It is comprised of Common Shares, contributed capital, retained deficit and accumulated other comprehensive loss. The Company’s capital management framework is designed to maintain a level of capital that funds the operations and business strategies and builds long-term shareholder value.
The Company’s objective is to manage its capital structure in such a way as to diversify its funding sources, while minimizing its funding costs and risks. The Company sets the amount of capital in proportion to the risk and adjusts considering changes in economic conditions and the characteristic risk of underlying assets. To maintain or adjust the capital structure, the Company may repurchase shares, return capital to shareholders, issue new shares or sell assets to reduce debt.
Real’s objective is met by retaining adequate liquidity to provide the possibility that cash flows from its assets will not be sufficient to meet operational, investing and financing requirements. There have been no changes to the Company’s capital management policies during the periods ended June 30, 2023, and December 31, 2022.
The following table presents the Company’s liquidity (in thousands):
For the Period Ended | ||||||||
June 30, 2023 | December 31, 2022 | |||||||
Cash | 17,165 | 10,846 | ||||||
Other Receivables | 52 | 74 | ||||||
Investments in Financial Assets | 10,911 | 7,892 | ||||||
Total | 28,128 | 18,812 |
18 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
16. Lease Liability and Right of Use Asset
The Company leases a corporate office in New York, NY under a lease agreement dated December 1, 2017, which expired on June 30, 2023. A summary of the changes in the right-of-use asset (in thousands) for the periods ended June 30, 2023, and December 31, 2022 is as follows:
Right-of-Use Asset | ||||
Cost | ||||
Balance at December 31, 2021 | 502 | |||
Additions | 107 | |||
Balance at December 31, 2022 | 609 | |||
Additions (Adjustment) | (69 | ) | ||
Balance at June 30, 2023 | 540 | |||
Accumulated Depreciation | ||||
Balance at December 31, 2021 | 393 | |||
Acquired Depreciation | 59 | |||
Depreciation | 84 | |||
Balance at December 31, 2022 | 536 | |||
Depreciation (Adjustment) | (12 | ) | ||
Depreciation | 16 | |||
Balance at June 30, 2023 | 540 | |||
Carrying Amounts | ||||
Balance at December 31, 2022 | 73 | |||
Balance at June 30, 2023 | - |
The lease liability resulted from the lease agreement is $131 thousand (undiscounted value of $135 thousand, discount rate 4%). This liability represents the monthly lease payment from January 1, 2022 to June 30, 2023. A summary of the changes in the lease liability (in thousands) during the periods ended June 30, 2023, and December 31, 2022 is as follows:
June 30, 2023 | December 31, 2022 | |||||||
Maturity analysis – contractual undiscounted cash flows | ||||||||
Less than one year | - | 96 | ||||||
One year to five years | - | - | ||||||
More than five years | - | - | ||||||
Total undiscounted lease liabilities | - | 96 | ||||||
Lease liabilities included in the balance sheet | - | 96 | ||||||
Current | - | 96 | ||||||
Non-current | - | - |
17. OTHER PAYABLES
The other payables primarily consist of bonus payable. The contingent consideration recognized in 2022 as part of the closing of the Expetitle Transaction was released on January 23, 2023 upon the satisfaction of the following terms and conditions: (i) the key employees from Expetitle remained at their current position with the Company for at least twelve (12) months after the closing date of the Expetitle Transaction and (ii) Expetitle became licenced to operate in at least fifteen states, including the then current states of operation, Florida, Georgia, and Texas.
June 30, 2023 | December 31, 2022 | |||||||
Contingent Consideration | - | 600 | ||||||
Bonus Payables | 1,054 | 203 | ||||||
Other Payables | 300 | 385 | ||||||
Total Other Payables | 1,354 | 1,188 |
19 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
18. Financial Instruments – Fair Value and Risk Management
Accounting classifications and fair value (in thousands)
For the Year Ended December 31, 2022 | ||||||||||||||||||||||||
Carrying Amount | Fair Value | |||||||||||||||||||||||
Financial Assets Not Measured at FV | Other Financial Liabilities | Total | Level 1 | Level 2 | Total | |||||||||||||||||||
Financial Assets Measured at Fair Value (FV) | ||||||||||||||||||||||||
Investments in Financial Assets | - | - | - | 7,892 | - | 7,892 | ||||||||||||||||||
Total Financial Assets Measured at Fair Value (FV) | - | - | - | 7,892 | - | 7,892 | ||||||||||||||||||
Financial Liabilities Measured at Fair Value (FV) | ||||||||||||||||||||||||
Warrants | - | - | - | - | 242 | 242 | ||||||||||||||||||
Total Financial Liabilities Measured at Fair Value (FV) | - | - | - | - | 242 | 242 | ||||||||||||||||||
Financial Assets Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Cash and Cash Equivalents | 10,846 | - | 10,846 | - | - | - | ||||||||||||||||||
Restricted Cash | 7,481 | - | 7,481 | - | - | - | ||||||||||||||||||
Trade Receivables | 1,547 | - | 1,547 | - | - | - | ||||||||||||||||||
Other Receivables | 74 | - | 74 | - | - | - | ||||||||||||||||||
Total Financial Assets Not Measured at Fair Value (FV) | 19,948 | - | 19,948 | - | - | - | ||||||||||||||||||
Financial Liabilities Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Accounts Payable | - | 474 | 474 | - | - | - | ||||||||||||||||||
Accrued Liabilities | - | 11,866 | 11,866 | - | - | - | ||||||||||||||||||
Customer Deposits | - | 7,481 | 7,481 | - | - | - | ||||||||||||||||||
Other Payables | - | 1,188 | 1,188 | - | - | - | ||||||||||||||||||
Total Financial Liabilities Not Measured at Fair Value (FV) | - | 21,009 | 21,009 | - | - | - |
For the Period Ended June 30, 2023 | ||||||||||||||||||||||||
Carrying Amount | Fair Value | |||||||||||||||||||||||
Financial Assets Not Measured at FV | Other Financial Liabilities | Total | Level 1 | Level 2 | Total | |||||||||||||||||||
Financial Assets Measured at Fair Value (FV) | ||||||||||||||||||||||||
Investments in Financial Assets | - | - | - | 10,911 | - | 10,911 | ||||||||||||||||||
Total Financial Assets Measured at Fair Value (FV) | - | - | - | 10,911 | - | 10,911 | ||||||||||||||||||
Financial Liabilities Measured at Fair Value (FV) | ||||||||||||||||||||||||
Warrants | - | - | - | - | 324 | 324 | ||||||||||||||||||
Total Financial Liabilities Measured at Fair Value (FV) | - | - | - | - | 324 | 324 | ||||||||||||||||||
Financial Assets Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Cash and Cash Equivalents | 17,165 | - | 17,165 | - | - | - | ||||||||||||||||||
Restricted Cash | 29,580 | - | 29,580 | - | - | - | ||||||||||||||||||
Trade Receivables | 1,925 | - | 1,925 | - | - | - | ||||||||||||||||||
Other Receivables | 52 | - | 52 | - | - | - | ||||||||||||||||||
Total Financial Assets Not Measured at Fair Value (FV) | 48,722 | - | 48,722 | - | - | - | ||||||||||||||||||
Financial Liabilities Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Accounts Payable | - | 1,146 | 1,146 | - | - | - | ||||||||||||||||||
Accrued Liabilities | - | 21,280 | 21,280 | - | - | - | ||||||||||||||||||
Customer Deposits | - | 29,580 | 29,580 | - | - | - | ||||||||||||||||||
Other Payables | - | 1,354 | 1,354 | - | - | - | ||||||||||||||||||
Total Financial Liabilities Not Measured at Fair Value (FV) | - | 53,360 | 53,360 | - | - | - |
20 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
A. Transfers between levels
During the periods ended June 30, 2023, and December 31, 2022, there have been no transfers between Level 1, Level 2 and Level 3.
B. Financial risk management
The Company has exposure to the following risks arising from financial instruments:
‒ credit risk (see (ii));
‒ liquidity risk (see (iii));
‒ market risk (see (iv)); and
‒ investment risk (see (v)).
i. Risk management framework
The Company’s activity exposes it to a variety of financial risks, including credit risk, liquidity risk, market risk and investment risk. These financial risks are managed by the Company under policies approved by the Board of Directors. The principal financial risks are actively managed by the Company’s finance department, within the policies and guidelines.
On an ongoing basis, the finance department actively monitors the market conditions, with a view of minimizing exposure of the Company to changing market factors, while at the same time limiting the funding costs of the Company.
The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
ii. Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers. The receivables are processed through an intermediary trustee, as part of the structure of every deal, which ensures collection on the close of a successful transaction. In order to mitigate the residual risk, the Company contracts exclusively with reputable and credit-worthy partners.
The carrying amount of financial assets and contract assets represents the maximum credit exposure.
Trade receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers other factors may influence the credit risk of the customer base, including the default risk associated with the industry and the country in which the customers operate.
The Company does not require collateral in respect to trade and other receivables. The Company does not have trade receivable and contract assets for which no loss allowance is recognized because of collateral.
Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different CGUs based on the following common credit risk characteristics – geographic region, credit information about the customer and the type of home purchased.
21 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
Loss rates are based on actual credit loss experience. These rates are multiplied by scalar factors to reflect differences between economic conditions during the period over which the historical data has been collected, compared to current conditions of the Company’s view of economic conditions over the expected lives of the receivables.
As of June 30, 2023, the exposure to credit risk for trade receivables and contract asset (in thousands) by geographic region was as follows:
June 30, 2023 | December 31, 2022 | |||||||
US | 1,808 | 1,105 | ||||||
Other Regions | 117 | 442 | ||||||
Trade Receivables | 1,925 | 1,547 |
iii. Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to maintaining liquidity is to ensure, as far as possible, that it will have sufficient cash and cash equivalents and other liquid assets to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
iv. Market risk
Market risk is the risk that changes in market prices – e.g. foreign exchange rates, interest rates and equity prices – will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Currency risk
The Company is exposed to transactional foreign currency risk to the extent there is a mismatch between currencies in which purchases and receivables are denominated and the respective functional currencies of the Company. The currencies in which transactions are primarily denominated are US dollars, Israeli shekel and Canadian dollar.
Sensitivity analysis
A reasonably possible strengthening (weakening) of the U.S. dollar (USD), Israeli shekel (ILS), or Canadian Dollar (CAD) against all other currencies in which the Company operates as of June 30, 2023 and December 31, 2022 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The following table is presented in thousands:
Average Rate | Period-end Spot Rate | |||||||||||||||
Strengthening | Weakening | Strengthening | Weakening | |||||||||||||
Balance at, June 30, 2023 | ||||||||||||||||
CAD (-5% movement) | 198 | (198 | ) | 267 | (267 | ) | ||||||||||
ILS (-5% movement) | 11 | (11 | ) | 41 | (41 | ) | ||||||||||
Balance at, December 31, 2022 | ||||||||||||||||
CAD (-5% movement) | 355 | (355 | ) | 456 | (456 | ) | ||||||||||
ILS (-5% movement) | 2 | (2 | ) | 6 | (6 | ) |
Foreign Currency Risk Management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.
22 |
THE REAL BROKERAGE INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 2023 and 2022
UNAUDITED
The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities (in thousands) at the reporting date are as follows:
Liabilities | Assets | |||||||||||||||
June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | |||||||||||||
CAD | (26,631 | ) | (7,058 | ) | 20,995 | 3,474 | ||||||||||
ILS | (122 | ) | (82 | ) | 7,651 | 7,724 | ||||||||||
Total Exposure | (26,753 | ) | (7,140 | ) | 28,646 | 11,198 |
v. Investment risk
The Company invested funds from the Insight Partners financing transaction into a managed investment portfolio, exposing it to risk of losses based on market fluctuations. Securities are purchased on behalf of the Company and are actively managed through multiple investment accounts. Funds apportioned for investment are allocated accordingly to the investment guidelines set forth by Management. Investments are made in U.S. currency.
The Company follows a conservative investment approach with limited risk for investment activities and has allocated the funds in Level 1 assets to reduce market risk exposure.
Information about the Company’s investment activity is included in Note 11.
19. COMMITMENTS AND CONTINGENCIES
The Company may have various other contractual obligations in the normal course of operations. The Company is not materially contingently liable with respect to litigation, claims and environmental matters, including those that could result in material mandatory damages or other relief. Any expected settlement of claims in excess of amounts recorded will be charged to profit or loss as and when such determination is made.
20. RELATED PARTY TRANSACTIONS
Balances and transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The Company’s key management personnel are comprised of its Chief Executive Officer, Chief Financial Officer, President, Chief Technology Officer, and Chief Marketing Officer, and other members of the executive team. Executive officers participate in the A&R Plan (see Note 9.A). Directors and officers of the Company control approximately 37.75% of the voting shares of the Company. The remuneration of key management personnel and directors of the Company who are part of related parties is set out below (in thousands):
Period Ended | ||||||||
June 30, 2023 | June 30, 2022 | |||||||
Salaries and Benefits | 1,046 | 1,009 | ||||||
Stock-Based Compensation | 1,731 | 642 | ||||||
Compensation Expenses for Related Parties | 2,777 | 1,651 |
21. SUBSEQUENT EVENTS
On July 28, 2023, Real announced that it’s application for a voluntary delisting of its common shares from the Toronto Stock Exchange (the “TSX”) has been approved by the Company’s Board of Directors and the TSX. It is expected that the Common Shares will be delisted from the TSX effective as of close of markets on August 11, 2023. The Common Shares will continue to be listed and trade on the Nasdaq Capital Market (the “NASDAQ”) under the symbol “REAX”.
23 |