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EXPI > SEC Filings for EXPI > Form 10-Q on 7-Nov-2013All Recent SEC Filings

Show all filings for EXP REALTY INTERNATIONAL CORP

Form 10-Q for EXP REALTY INTERNATIONAL CORP


7-Nov-2013

Quarterly Report


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 September 30, 2013, and for the three and nine month periods ended September 30, 2013, as well as our future results.

OVERVIEW

We were incorporated as a Delaware company on July 30, 2008 and recently completed a merger transaction and now have five subsidiaries; eXp Acquisition Corp., eXp Realty, LLC, eXp Realty of Connecticut, LLC, eXp Realty Washington, Inc., and eXp Realty of Canada, Inc.

We are a cloud-based real estate brokerage organization operating in 29 states. As a cloud-based real estate brokerage for the residential real estate market has embraced and adopted a number of cloud-based technologies in order to grow into an international brokerage without the burden of physical bricks and mortar or redundant staffing costs. Following the closing of the merger agreement with eXp Realty International, Inc., the business of eXp Realty, LLC became our principal operating business.

RECENT BUSINESS DEVELOPMENTS

The Company continued its geographic expansion into new US States (and into sub-markets within those states) laying the infrastructure for future growth and agent aggregation. The Company added 71 new agents during the first 9 months of 2013. The Company also entered the international market for the very first time during the first 9 months of 2013 with the launch of operations in the Canadian Province of Ontario. In October, 2013 the Company signed on a 19 agent team based in Atlanta, Georgia and anticipates integrating a number of brokerages and agent teams into the Company during the next 12 months.

EXP's Cloud Office is the Company office for brokers, agents, management and staff. This Cloud Office is where the Company's community meets to transact business, collaborate, train, exchange, and socialize. Additionally, The Cloud Office is where professional relationships and friendships are initiated and strengthened. To that end, the Company has upgraded its Cloud Office to an enhanced platform starting in October 2013. Our Cloud Office now has improved audio, visual and presentation capabilities, and an increased capacity that will accommodate our existing and continual growing agent base. The Company has also started development of a new, customized end-to-end transaction and revenue sharing management platform. We anticipate this new system to be operational in the first quarter of 2014.

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.

COMPARATIVE FINANCIAL INFORMATION FROM OUR RESULTS OF OPERATIONS

Three months ended September 30, 2013

Revenues

During the current three month period ended September 30, 2013 net revenues increased $1.43 million to $3.07 million as compared to the prior three month period ended September, 2012 when we generated $1.64 million. The increase as compared to the prior period is a direct result of the increased sales agent base and higher sales volume realized.

Operating Expenses



                                 Three Months Ended
                                    September 30,
                                2013            2012           Change

Operating expenses:
Cost of revenues             $ 2,615,845     $ 1,367,709     $ 1,248,136
General and administrative       893,045         206,601         686,444
Professional fees                194,621          60,687         133,934
Sales and marketing               21,497          31,722         (10,225 )
Total operating expenses     $ 3,725,008     $ 1,666,719     $ 2,058,289

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 $1.25 million in the current three month period ended September 30, 2013 as compared to the prior three month period ended September, 2012 was driven by the substantially higher amount of net revenues.

General and administrative includes costs related to wages, stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The merger transaction entailed an exchange of option awards thus triggering a modification to the outstanding awards and an additional $512 thousand of cost recognized in the three months ended September 30, 2013. Also, an additional $70 thousand of vested options cost was recognized in the same period. No stock compensation cost was recognized in the prior three month period ending September 30, 2012. Salaries and wages increased $102 thousand in the three month period ending September 30, 2013 as compared to the three month period ended September 30, 2012 as a result of increased executive compensation associated with the addition our president and of our chief operating officer.

Professional fees include costs related to legal, accounting, and other consultants. Costs were up $134 thousand in the three month period ending September 30, 2013 as compared to the nine month period ended September 30, 2012 due to legal and audit fees associated with the merger transaction 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 shows in the three month period ending September 30, 2013 as compared to the three month period ending September 30, 2012.

Nine months ended September 30, 2013

Revenues

During the current nine month period ended September 30, 2013 net revenues increased $3.42 million to $8.21 million as compared to the prior nine month period ended September, 2012 when we generated $4.79 million. The increase as compared to the prior period is a direct reflection from the increased sales agent base and higher sales volume realized.

Operating Expenses



                                  Nine Months Ended
                                    September 30,
                                2013            2012           Change

Operating expenses:
Cost of revenues             $ 6,839,199     $ 4,038,589     $ 2,800,610
General and administrative     1,919,627         588,120       1,331,507
Professional fees                335,703         140,509         195,194
Sales and marketing               63,527          79,881         (16,354 )
Total operating expenses     $ 9,158,056     $ 4,847,099     $ 4,310,957

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 $2.8 million in the current nine month period ended September 30, 2013 as compared to the prior nine month period ended September, 2012 was driven by the substantially higher amount of net revenues.

General and administrative includes costs related to wages, stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The merger transaction entailed an exchange of option awards thus triggering a modification to the outstanding awards and an additional $512 thousand of cost recognized in the nine months ended September 30, 2013. Also, an additional $338 thousand of vested options cost was recognized in the same period. The Company also recognized $122,720 of cost associated with the issuance common stock for services during the current nine month period ending September 30, 2012. No stock compensation cost was recognized in the prior nine month period ending September 30, 2012. Salaries and wages increased $320 thousand in the nine month period ending September 30, 2013 as compared to the nine month period ending September 30, 2012 as a result of increased executive compensation associated with the addition our president and of our chief operating officer.

Professional fees include costs related legal, accounting, and other consultants. Costs were up $195 thousand in the nine month period ending September 30, 2013 as compared to the nine month period ending September 30, 2012 due to legal and audit fees associated with the merger transaction recently completed.

Sales and marketing include costs related to lead capture, digital and print media, and trade shows, in addition to other promotional materials. The Company spent approximately $19 thousand less in trade shows during the nine month period ending September 30, 2013 as compared to the nine month period ending September 30, 2012.

LIQUIDITY AND CAPITAL RESOURCES



                       September 30,       December 31,
                           2013                2012           Change

Current assets        $       443,073     $      207,989     $ 235,084
Current liabilities          (356,528 )         (357,176 )         648
Net working capital   $        86,545     $     (149,187 )   $ 235,732

The Company's net working capital increased $236 thousand during the current nine month period ending September 30, 2013 as compared to December 31, 2012. The increase is primarily attributable to the increase in cash as well as the increase in accounts receivable.

The following table presents our cash flows for the nine months ended September 30, 2013 and 2012:

                                                     Nine Months Ended
                                                       September 30,
                                                    2013          2012         Change
Cash provided by (used in) operating activities   $  90,463     $ (21,675 )   $ 112,138
Cash (used in) investing activities                    (493 )           -          (493 )
Cash provided by financing activities                77,235         6,774        70,461
Net change in cash                                $ 167,205     $ (14,901 )   $ 182,106

Net cash provided by operating activities for the nine months ended September 30, 2013 was approximately $90 thousand as compared to a use of $22 thousand for the nine months ended September 30, 2012. Our cash provided in the first nine months of 2013 was primarily from an increase in accrued expenses, $32 thousand, operating advances from related parties of $38 thousand, and the balance from operating income, $19 thousand. Cash used by operating activities for the first nine months ended 2012 was primarily driven from a decrease in accrued expenses.

Net cash used in investing activities for the acquisition of fixed assets was $493 and $0 for the nine months ended September 30, 2013 and September 30, 2012 respectively.

Net cash provided by financing activities for the nine months ended September 30, 2013 comprised of $90 thousand of net proceeds from the issuance of 419,955 shares of common stock at prices ranging from $0.15 to $0.30 per share, which was partially offset from principal payments of $15 thousand on an outstanding notes payable obligation. Net cash used by financing activities for the nine months ended September 30, 2012 comprised of $15 thousand of advances from related parties, which was partially offset from principal payments of $8 thousand on an outstanding notes payable obligation.

We believe that our current cash and cash equivalents in addition to forecasted cash flow to be provided from operations will be sufficient to fund capital expenditures, operations, and our current obligations for at least the next twelve months. 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 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 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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