EXP World Holdings, Inc. - Annual Report: 2014 (Form 10-K)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

or

☐ 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)

1321 King Street, Suite 1
Bellingham, WA 98229
(Address of principal executive offices and Zip Code)

Registrant’s telephone number, including area code: (360) 685-4206

Securities registered pursuant to section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act:

Common Stock, par value $0.00001 per share (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐    No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐    No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 ☒    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 ☒    No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes ☐    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.

Large accelerated filer ☐    Accelerated filer ☐    Non-accelerated filer ☐    Smaller reporting company ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐    No ☒

The aggregate market value of the voting and nonvoting common equity held by non-affiliates of eXp Realty International Corporation was $2,329,987 based on 6,753,586 shares of common stock held by non-affiliates and last sales price prior to June 30, 2014, being $0.345 per share.

The number of shares of the registrant's $0.00001 par value common stock outstanding as of March 31, 2015 was 48,566,909.

TABLE OF CONTENTS

Statement Regarding Forward-Looking Statements

Certain statements contained in this report on Form 10-K 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 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. Except as otherwise required by law, including the securities law of the United States, we undertake no obligation to publicly update or revise any forward-looking statement.

PART I

Item 1. Business

Corporate Overview

eXp Realty, LLC is a cloud-based real estate brokerage operating in 30 states. As a cloud-based real estate brokerage for the residential real estate market, eXp Realty, LLC 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. Following the closing of the merger agreement with eXp Realty International, Inc. in September 2013, described in more detail below, the business of eXp Realty, LLC became our principal business.

Acquisition of eXp Realty International, Inc.

On August 15, 2013, we and eXp Acquisition Corp., a Washington corporation and wholly-owned subsidiary of our company, entered into a merger agreement with eXp Realty International, Inc., and as a result of the closing of this agreement, eXp Realty International, Inc. merged into eXp Acquisition Corp. with eXp Acquisition Corp. remaining as the surviving corporation and the separate existence of eXp Realty International, Inc. ceasing at the effective time of the merger. The merger of eXp Realty International, Inc. and eXp Acquisition Corp. was completed on September 27, 2013.

After the closing of this agreement, the subsidiaries of eXp Realty International, Inc. became the subsidiaries of eXp Acquisition Corp. These subsidiaries are:

(i) eXp Realty, LLC, a Washington limited liability company organized on January 30, 2007 and 100% owned by eXp Acquisition Corp. From its inception, eXp Realty, LLC has been engaged in the marketing and sale of residential real estate with the goal of being the first truly cloud-based, full service, global real estate brokerage company delivering around-the-clock access to collaborative tools and professional development for managing real estate brokers and agents. The business model was created in order to increase brokers’ and agents’ listings and sales and reduce their overhead and capital requirements.

(ii) eXp Realty of Connecticut, LLC, a Connecticut limited liability company whereby eXp Realty, LLC is allocated 100% of all profits and losses;

(iii) eXp Realty Washington, Inc., a Washington corporation and 100% owned by eXp Realty, LLC; and

(iv) eXp Realty of Canada, Inc., a Canadian corporation and 100% owned by eXp Realty, LLC.

The organization and ownership structure of our company subsequent to the closing of the merger agreement is as summarized in the paragraphs above is as follows:

Corporate History

We were incorporated in the State of Delaware on July 30, 2008. In connection with and prior to the closing of the acquisition of eXp Realty International, Inc., effective September 9, 2013, we changed our name from “Desert Canadians Ltd.” to “eXp Realty International Corporation” and effected a 35 new for 1 old forward stock split of our authorized and issued and outstanding shares of common stock. As a result, our authorized capital was increased from 220,000,000 shares of common stock to 7,700,000,000 shares of common stock and our issued and outstanding shares of common stock was increased on the basis of 35 new shares for 1 old share.

Description of Business 

Operations

We launched our operation in October 2009 with a small number of agents in Washington and Arizona, and have grown to a team of approximately 530 real estate professionals, and operate in various geographic markets as discussed in detail below.

We operate over the internet through our website, http://exprealty.com and rely on a cloud-based platform to provide our residential real estate brokerage services. Through our website, buyers can search real-time property listings, and sellers list their properties and gain exposure across the various markets we operate within. We also provide buyers and sellers access to a network of professional, consumer-centric agents and brokers.

Internally, we use our technology to provide agents, teams of agents, and brokerage owners with opportunities for increased profitability, reduced risk, and greater levels of professional development while fostering an organizational culture that values collaboration, strength of community, and commitment to serving the consumer’s best interests. We provide agents, teams of agents, and brokerage-owners with the systems, support, professional development and infrastructure to survive and then thrive in unpredictable and, at times, challenging economic conditions. This includes delivering 24/7 access to collaborative tools and training for real estate brokers and agents.

We have adopted a number of cloud-based technologies. Among the technologies we use to operate our business, is our 3D, fully-immersive, cloud office complex which has conference rooms, training centers, individual offices, and in which our management, staff, agents and brokers all work on a daily basis learning from, sharing with, transacting business with, and socializing with their colleagues from different geographic regions by utilizing avatars and USB headsets. In these virtual spaces agents and brokers meet for state-based sales meetings, attend live interactive training and classes, go over commission disbursement authorization forms, build websites and online branding materials, and work on purchase and sales agreements. Moreover, in these virtual spaces new managing brokers are evaluated and approved, our management meets to discuss strategy and vision, and personnel interviews occur. These are the only spaces where our senior management and our entire team report to work, manage projects and functional  teams, attend classes, strategize, collaborate, and innovate. Furthermore, our cloud office has a fully-staffed transaction and administration office, and a fully-staffed web development, search engine optimization and technical support office. Thus, our cloud office provides agents, teams of agents and brokers with training, education, coaching, mentoring, transaction support, broker support, and technical support. Consequently, our cloud office is our company office for brokers, agents, management and staff, and the cloud office has also eliminated redundant staffing costs. The utilization of this cloud office platform permits us to serve our entire geographic reach.

We also serve real estate agents, which are independent contractors affiliated with our company, teams of agents, and real estate brokers by providing a full suite of back office functions ranging from paperless file sharing and transaction management, web design, social media, digital campaigns, customer relationship management platforms, business coaching, tech support, and live training that places a premium on engagement, discussion and collaboration.

Furthermore, we allow our brokers, some of whom are former real estate brokerage owners, to leverage our infrastructure to reduce their fixed costs and be empowered to build scalable teams of agents in any of the markets that we serve while preserving and enhancing the broker’s personal brand. In this way our brokers can attract agents and build a co-brand in any of markets currently served by the company without any additional capital requirements.

Fee Structure

Our fee structure resulting directly from the cloud office and its impact on profitability has enabled us to offer our agents and brokers a relatively high minimum split of 80% of the gross commission generated from transactions.

We retain 20% of the gross commission generated from the same transactions. At the point (should it arrive) in the agent’s or broker’s anniversary year with our company that the 20% we retain adds up to $16,000 (effectively when the agent or broker closes transactions resulting in $80,000 in gross commission income) the agent’s or broker’s split graduates to 100% of gross commission for the balance of the agent’s or broker’s anniversary year less adjusted fees.

Unlike agents and brokers at most of our national competitors, our agents and brokers do not pay a royalty or franchise fee. Because we do not house agents in physical brick and mortar offices our agents and brokers also do not pay desk or office fees that are commonplace among competitors. Our agents pay a small monthly technology fee, a modest tuition fee for eXp University (curriculum of professional development classes and real estate vision and training), a transaction processing fee and a liability insurance fee. Our fee structure is favorable in relation to our competitors.

Revenue Sharing Plan

Our cloud office and its impact on profitability has enabled us to introduce and maintain a 7-level gross revenue sharing plan which each of our agents and brokers can participate in and from which they can realize significant monthly and annual residual overrides on the gross commission income resulting from transactions consummated by agents and brokers who they have attracted to our company, effectively contributing to our growth.

A number of our competitors have introduced residual income plans to their agents and brokers in an effort to incentivize growth but those companies’ cost structures, many of which are overhead-intensive, have led to plans where the residual income is either calculated on net profit, which is unpredictable or unattainable and over which the agent has no control, is capped or structurally offers lower opportunity for payout.

Our gross revenue sharing program has the potential to pay out tens and hundreds of thousands of dollars monthly to our individual agents and brokers. Our gross revenue sharing plan also unties one of the industry’s longstanding compensation challenges for the industry’s professionals by providing a vehicle with which agents and brokers can truly, and comfortably, reduce their sales activity in the future and ultimately potentially retire with a vested monthly revenue share plan distribution.

Consistent with our commitment to enabling and empowering agents and brokers in pursuit of building a scalable business and organization, our revenue sharing plan allows brokers and agents a financial mechanism to build teams across borders without incurring any expense, oversight responsibility, or liability.

Our Markets

Our primary market is the United States. Currently, we operate in the following markets in the United States under the name of eXp Realty LLC, exp Realty of Connecticut, LLC, or eXp Realty of Washington, Inc.: Alabama; Arizona; California; Colorado; Connecticut; Florida; Georgia; Illinois; Indiana; Kentucky; Louisiana; Maine; Maryland; Massachusetts; Michigan; Nevada; New Hampshire; New Mexico; New York; North Carolina; Oklahoma; Oregon; Pennsylvania; South Carolina; Tennessee; Texas; Virginia; and Washington. We are qualified to do business and operate in California, through a wholly-owned subsidiary, eXp Realty Washington, Inc.

We also have a wholly owned subsidiary, eXp Realty Canada, Inc. which is licensed to do business in Calgary, Alberta and Toronto, Ontario.

Competition

We compete with local, regional and national and international residential real estate brokerages to attract agents, teams of agents, brokers and consumers. We compete primarily on the basis of our culture, collaboration, utilization of systems and technologies, including our cloud office platform to reduce costs, provide relevant and substantial professional development opportunities, and provide our agents and brokers with an opportunity to generate more business and participate in the growth of our company. We believe that we are the only national real estate brokerage in the United States presently using a 3D immersive office environment in place of physical brick and mortar locations and as such, we believe that we are well-positioned in our competitive landscape.

Intellectual Property

“eXp Realty” is one of our registered trademarks in the United States. We have also placed the marks “3D MLS” and “3D Listing Service” and “RE Tech Campus” on the United States Patent and Trademark Office’s Supplemental Register. We also own the rights to the domain name “http://exprealty.com”.

We intend to aggressively assert our rights under trade secret, unfair competition, trademark and copyright laws to protect our intellectual property, including product design, product research and concepts and recognized trademarks. These rights are protected through the acquisition of patents and trademark registrations, the maintenance of trade secrets, the development of trade dress, and, where appropriate, litigation against those who are, in our opinion, infringing these rights.

While there can be no assurance that registered trademarks will protect our proprietary information, we intend to assert our intellectual property rights against any infringer. Although any assertion of our rights could result in a substantial cost to, and diversion of effort by, our company, management believes that the protection of our intellectual property rights will be a key component of our operating strategy.

Seasonality of Business

Seasons and weather, while seemingly predictable, traditionally impact the real estate industry. Continuous poor weather or natural disasters negatively impact listings and sales. Spring and summer seasons historically reflect greater sales periods in comparison to fall and winter seasons. Seasonal or weather related lower revenue also reduces our operating income, net income, operating margins and cash flow.

Real estate listings precede sales and a period of poor listings activity will negatively impact revenue. Past performance be it weather, seasons, prior month or prior quarter is no assurance of the following month’s or quarter’s revenue and macroeconomic shifts in the markets served could conceal the impact of poor weather and/or seasonality.

Home sales in successive quarters can fluctuate widely due to holidays, national or international emergencies, the school year calendar’s impact on relocation and/or interest rate changes or speculation of pending interest rate changes. Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, poor weather and natural disasters, combined with macroeconomic market changes may make it difficult to compare or analyze our financial performance effectively across successive quarters.

Furthermore, the residential real estate market and the real estate industry in general has a cyclical nature often defined by a protracted period of depressed revenues, values, and demand, inflated rates of foreclosure, and then economic relief. Consequently, our business is affected by such cycles.

Research and Development Costs During the Last Two Years

We did not incur any costs associated with research and development during each of the years ended December 31, 2014 and 2013.

Government Regulation

We serve the residential real estate industry which is regulated by federal, state and local authorities as well as private associations or state sponsored associations or organizations. We are required to comply with each state, province, county or country’s laws and as well as private governing bodies’ regulations, which combined results in a highly regulated industry.

We are also subject to federal and state regulations relating to employment, contractor, and compensation practices. All of our company’s agents and brokers are classified as independent contractors, which are subject to Internal Revenue Service and state law guidelines as they apply to this classification. The only exception is our managing brokers (one per each state where we are registered to conduct business) that are classified as part-time employees to fulfill state or local real estate business requirements.

Real Estate Regulation - Federal

The Real Estate Settlement Procedures Act of 1974 (“RESPA”) became effective on June 20, 1975. The RESPA requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. The RESPA also protects borrowers against certain abusive practices, such as kickbacks, and places limitations upon the use of escrow accounts.

The Department of Housing and Urban Development promulgated Regulation X, which implements RESPA.

The National Affordable Housing Act of 1990 amended RESPA to require detailed disclosures concerning the transfer, sale, or assignment of mortgage servicing. It also requires disclosures for mortgage escrow accounts at closing and annually thereafter, itemizing the charges to be paid by the borrower and what is paid out of the account by the servicer.

The Dodd-Frank Act bestowed the administration of RESPA from the Department of Housing and Urban Development to the new Consumer Financial Protection Bureau (“CFPB”). The CFPB has proposed new rules that can potentially adversely impact the lending and residential real estate industries with new regulatory risk.

In addition, federal fair housing laws generally make it illegal to discriminate against protected classes of individuals in housing or brokerage services. Other federal regulations protect the privacy rights of consumers, which affects our opportunities to solicit new clients.

Real Estate Regulation - State and Local Level

States licensing laws and/or requirements vary from state to state. In general, all individuals and entities lawfully conducting businesses as real estate brokers, agents or sales associates must be licensed in the state in which they carry on business and at all times be in compliance.

States will require a real estate broker to be employed by the brokerage firm or permit an independent contractor classification, and the broker may work for another broker conducting business on behalf of the sponsoring broker.

States may require a person licensed as a real estate agent, sales associate or salesperson, be affiliated with a broker in order to engage in licensed real estate brokerage activities or allow the agent, sales associate or salesperson to work for another agent, sales associate or salesperson conducting business on behalf of the sponsoring agent, sales associate or salesperson. Agents, sales associates or salespersons are generally classified as independent contractors; however, real estate firms can offer employment.

Generally, a limited liability company such as eXp Realty, LLC engaged in the real estate brokerage business must obtain an entity real estate broker license (although in some states the licenses are personal to individual brokers). In order to obtain this license, most jurisdictions require that a member or manager of the limited liability company be licensed individually as a real estate broker in that jurisdiction. If applicable, this member or manager is responsible for supervising the licensees and the entity’s real estate brokerage activities within the state.

Real estate licensees, whether they are brokers, salespersons, individuals, agents or entities, must follow the state’s real estate licensing laws and regulations. These laws and regulations generally specify minimum duties and obligations of these licensees to their clients and the public, as well as standards for the conduct of business, including contract and disclosure requirements, record keeping requirements, requirements for local offices, escrow trust fund management, agency representation, advertising regulations and fair housing requirements.

In each of the states where we have operations, we assign appropriate personnel to manage and comply with laws and regulations be it equal to, or greater than federal law.

Most states have local regulations (city or county government) that govern the conduct of the real estate brokerage business. Local regulations generally require additional disclosures by the parties to a real estate transaction or their agents or brokers, or the receipt of reports or certifications, often from the local governmental authority, prior to the closing or settlement of a real estate transaction as well as prescribed review and approval periods for documentation and broker conditions for review and approval.

Third-Party Rules

Beyond federal, state and local governmental regulations, the real estate industry is subject to rules established by private real estate groups and/or trade organizations, including, among others, state Associations of REALTORS® (AOR), and local Associations of REALTORS® (AOR), the National Association of Realtors® (NAR), and local Multiple Listing Services (MLSs). “REALTOR” and “REALTORS” are registered trademarks of the National Association of REALTORS®.

Each third party organization generally has prescribed policies, bylaws, codes of ethics or conduct, and fees and rules governing the actions of members in dealings with other members, clients and the public, as well as how the third party organization’s brand and services may or may not be deployed or displayed.

We assign appropriate personnel to manage and comply with third party organization policies and bylaws.

Employees

We presently have approximately 15 full-time employees, 5 of whom oversee and manage all of our company’s transactions globally, and approximately 31 part-time employees.

All of our agents and brokers are classified as independent contractors. The only exceptions are our managing brokers (one per each state where we are registered to conduct business) that are classified as part-time employees to fulfill state or local real estate business requirements. Currently, we have approximately 530 agents and brokers.

Our operations are overseen directly by management that engages our employees to carry on our business. Our management oversees all responsibilities in the areas of corporate administration, business development, and research. We intend to expand our current management to retain skilled directors, officers, and employees with experience relevant to our business focus. Our management’s relationships with agents, brokers, technology providers, and customers will provide the foundation through which we expect to grow our business in the future. We believe that the skill-set of our management team will be a primary asset in the development of our brands and trademarks.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition or results of operations in future periods. The risks described below are not the only risks facing our company. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.

Risks Related to Our Business and Industry

We have experienced net losses in recent years, and because we have a limited operating history, our ability to fully and successfully develop our business is unknown.

Although we reported net earnings for the year ended December 31, 2014, we had a history of net losses in all prior fiscal years since our inception in October 2009 . Our ability to realize consistent, meaningful revenues and profit over a sustained period has not been established and cannot be assured.

While we believe we have made significant progress in revenue growth over the last several years, for us to achieve continued success, our services must receive broad market acceptance by consumers and we must continue to manage costs effectively. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. Therefore, we may experience operating losses and net losses in the future, which could make it difficult to fund our operations, finance acquisitions and achieve our plans for continued growth, any of which could cause the market price of our common stock to decline.

Despite our ongoing efforts to build revenue growth, both organically and through acquisitions, and to control the anticipated expenses associated with the continued development, marketing and provision of our services, we may not be able to generate significant net income from operations in the future.

Our profitability is tied to the strength of the residential real estate market, which is subject to a number of macroeconomic conditions beyond our control.

Our profitability is closely related to the strength of the residential real estate market which traditionally follows economic cycles and which can be impacted by national, state and local production, distribution, and consumption of goods and services from the economy. Macroeconomic conditions that could adversely impact our business include, but are not limited to, economic slowdown or recession, increased unemployment, increased energy costs, reductions in the availability of credit, increased costs of obtaining mortgages, an increase in foreclosure activity, rising interest rates, inflation, disruptions in capital markets, declines in the stock market, adverse tax policies or changes in other regulations, lower consumer confidence, lower wage and salary levels, war or terrorist attacks, natural disasters, or actions taken by the Federal Reserve Board to regulate the supply of money, or the public perception that any of these events may occur. In addition, federal and state governments, agencies and government-sponsored entities such as Fannie Mae and Freddie Mac could take actions that result in unforeseen consequences or that otherwise could negatively impact our business.

We cannot guarantee that we will be able to grow in the various local markets that we serve.

To capture and retain market share in the various local markets that we serve, we must compete successfully against other brokerages for agents and brokers and for the consumer relationships that they bring. Our competitors could lower the fees that they charge to agents and brokers or could raise the compensation structure for those agents. Our competitors may have access to greater financial resources than us, allowing them to undertake expensive local advertising or marketing efforts. In addition, our competitors may be able to leverage local relationships, referral sources, strong local brand and name recognition that we have not established. Our competitors could, as a result, have greater leverage in attracting new and established agents in the market and in generating business among local consumers. Our ability to grow in the local markets that we serve will depend on our ability to compete with these local brokerages.

The utilization of a 3D cloud based immersive office as a suitable substitute for a physical brick and mortar location is a new and unproven strategy and we cannot guarantee that we will be able to operate and grow within its confines.

Currently, our cloud office adequately supports the needs of our agent population located across 29 states and Ontario, Canada. We cannot guarantee that our cloud office platform will continue to support our agent population and meet our business needs as we grow. The effectiveness of our cloud office platform is tied to a number of variables at any given time including server capacity and concurrent users. In addition, the use of the cloud office platform, and the use generally of 3D immersive office environments as an acceptable substitute among agents and brokers for physical office locations is unproven. We cannot guarantee that industry rank and file will adopt or accept cloud-based 3D office environments as a substitute for a physical office environment.

Improvement in the health of the real estate market could alleviate the need among brokerage owners for alternatives to traditional brick and mortar models in order to achieve profitability.

Sustained growth in the economy generally has accelerated and sustained improvement in the residential real estate industry which could cause sufficient levels of sales activity and generate revenues that would support traditional brick and mortar models, reducing the demand for cloud-based alternatives which could adversely impact our profit margins.

We face significant risk to our brand and revenue if we fail to meet federal, state, foreign, county, or private associations and governing boards laws and regulations.

We operate in a heavily regulated industry with regulated labor classifications which present significant risk in general for each potential instance where we fail to maintain compliance.

Our brokers can be classified as an employee or independent contractor and we could potentially misclassify or fail to consistently achieve compliance. Classifications and compliance are subject to the Internal Revenue Service regulations and applicable state law guidelines and penalties.

Our agents are only classified as independent contractors and we could potentially misclassify or fail to consistently achieve compliance. Classifications and compliance are subject to the Internal Revenue Service regulations and applicable state law guidelines and penalties.

Classifications, regulations and guidelines for brokers and agents are subject to judicial and agency interpretation as well as periodic changes. Changes, or any indication of changes, may adversely impact our workforce classifications, expenses, compensation, commission structure, roles and responsibilities and broker organization.

Beyond workforce regulations and classifications, there exist complex, heavily regulated federal, state, foreign, local authority laws and regulations and national, state, foreign and local third party organization’s regulations, policies and bylaws governing our real estate business.

In general, the laws, rules and regulations that apply to our business practices include, without limitation, the federal Real Estate Settlement Procedures Act, the federal Fair Housing Act, the Dodd-Frank Act, and federal advertising and other laws, as well as comparable state statutes; rules of trade organization such as NAR, local MLSs, and state and local AORs; licensing requirements and related obligations that could arise from our business practices relating to the provision of services other than real estate brokerage services; privacy regulations relating to our use of personal information collected from the registered users of our websites; laws relating to the use and publication of information through the Internet; and state real estate brokerage licensing requirements, as well as statutory due diligence, disclosure, record keeping and standard-of-care obligations relating to these licenses.

Maintaining legal compliance is challenging and increases our costs due to resources required to continually monitor business practices for compliance with applicable laws, rules and regulations, and to monitor changes in the applicable laws themselves.

We may not become aware of all the laws, rules and regulations that govern our business, or be able to comply with all of them, given the rate of regulatory changes, ambiguities in regulations, contradictions in regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance.

If we fail, or we have alleged to have failed, to comply with any existing or future applicable laws, rules and regulations, we could be subject to lawsuits and administrative complaints and proceedings, as well as criminal proceedings. Our noncompliance could result in significant defense costs, settlement costs, damages and penalties.

Our business licenses could be suspended or revoked, our business practices enjoined, or we could be required to modify our business practices, which could materially impair, or even prevent, our ability to conduct all or any portion of our business. Any such events could also damage our reputation and impair our ability to attract and service home buyers, home sellers and agents, as well our ability to attract brokerages, brokers, teams of agents and agents to our company, without increasing our costs.

We do carry general liability insurance; however, insurance may not cover all claims or claims of these types or may be inadequate to protect us from all liability.

Further, if we lose our ability to obtain and maintain all of the regulatory approvals and licenses necessary to conduct business as we currently operate, our ability to conduct business may be harmed. Lastly, any lobbying or related activities we undertake in response to mitigate liability of current or new regulations could substantially increase our operating expenses.

If we do not remain an innovation leader in the real estate industry, we may not be able to grow our business and leverage our costs to achieve profitability.

Innovation has been critical to our ability to compete against other brokerages for clients and agents. For example, we have pioneered the utilization of a 3D immersive online office environment which reduces our need for office space and facilitates the transaction of business away from an office. As others follow our practices or develop innovative practices, our ability to achieve profitability may diminish or erode. For example, certain other brokerages could develop or license cloud-based office platforms that are equal to or superior to our company’s. If we do not remain on the forefront of innovation we may not be able to achieve or sustain profitability.

Our value proposition for agents and brokers includes allowing them to participate aggressively in the gross revenues of our company and is not typical in the real estate industry. If agents and brokers do not understand our value proposition or value its attributes, we may not be able to attract, retain and incentivize agents.

Participation in our gross revenue sharing plan represents a key component of our agent and broker value proposition. Agents and brokers may not understand or appreciate its value. In addition, agents may not appreciate other components of our value proposition including the cloud office platform, the mobility it affords, the systems and tools that we provide to agents and brokers, and the professional development opportunities we create and deliver. If agents and brokers do not understand the elements of our agent value proposition, or do not perceive it to be more valuable than the models used by most competitors, we may not be able to attract, retain and incentivize new and existing agent’s and broker’s to grow our revenues.

As we pursue opportunities to increase revenues, our profit margins may decline sharply.

We may implement changes to the business model and operations to improve revenues that cause a disproportionate increase in our expenses and cost of goods sold, or reduce profit margins. For example, we may allocate resources to acquiring lower margin brokerage models, the development of a mortgage servicing division, a commercial real estate division, a title and escrow company or a continuing education division. These decisions could involve significant start-up costs that may only be recovered after lengthy periods of time. Any of these attempts to improve our revenues could result in a disproportionate increase in our expenses and in reduced profit margins.

Our operating results are subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of successive quarters difficult.

Seasons and weather, while seemingly predictable, traditionally impact the real estate industry. Continuous poor weather or natural disasters negatively impact listings and sales. Spring and summer seasons historically reflect greater sales periods in comparison to fall and winter seasons. Seasonal or weather related lower revenue also reduces our operating income, net income, operating margins and cash flow.

Real estate listings precede sales and a period of poor listings activity will negatively impact revenue. Past performance be it weather, seasons, prior month or prior quarter is no assurance or predictor of the following month’s or quarter’s revenue and macroeconomic shifts in the markets served could conceal the impact of poor weather or seasonality.

Home sales in successive quarters can fluctuate widely due to holidays, national or international emergencies, the school year calendar’s impact on relocation and/or interest rate changes or speculation of pending interest rate changes. Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, poor weather and natural disasters, combined with macroeconomic market changes may make it difficult to compare or analyze our financial performance effectively across successive quarters.

If we fail to protect the privacy of employees, independent contractors, or consumers or personal information that they share with us, our reputation and business could be significantly harmed.

Tens of thousands of consumers have shared personal information with us during the normal course of business of residential real estate transactions, plus hundreds of independent contractors and employees combined have entrusted us with personal information. This includes, but is not limited to, social security numbers, annual income amounts and sources, consumer names, addresses, telephone and cell phone numbers, and email addresses.

Our application, disclosure and safeguard of the information is regulated by federal and state privacy laws. To comply with privacy laws, we invested resources and adopted a privacy policy outlining the use and care as well as how and with whom we may share personal information. This policy includes informing consumers, independent contractors and employees that we will not share their personal information with third parties without their consent unless required by law.

Privacy policies and compliance with federal and state privacy laws presents risk and could incur legal liability for failing to maintain compliance. We may not become aware of all privacy laws, changes to privacy laws, or third party privacy regulations governing the real estate business, or be unable to comply with all of these regulations, given the rate of regulatory changes, ambiguities in regulations, contradictions in regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance.

Our policy and safeguards could be deemed insufficient if third parties with whom we have shared personal information fail to protect the privacy of that information. Our legal liability could include significant defense costs, settlement costs, damages and penalties, plus, damage our reputation with consumers, which could significantly damage our ability to attract and maintain customers. Any or all of these consequences would result in meaningful unfavorable impact on our brand, business model, revenue, expenses, income and margins.

Our business could be adversely affected if we are unable to expand, maintain and improve the systems and technologies upon which we rely on to operate.

As the number of agents and brokers in our company grows, our success will depend on our ability to expand, maintain and improve the technology that supports our business operations, including, but not limited to, our cloud office platform. Loss of key personnel or the lack of adequate staffing with the requisite expertise and training could impede our efforts in this regard. If our systems and technologies lack capacity or quality sufficient to service agents and their clients, then the number of agents who wish to use our products could decrease, the level of client service and transaction volume afforded by our systems could suffer, and our costs could increase. In addition, if our systems, procedures or controls are not adequate to provide reliable, accurate and timely financial and other reporting, we may not be able to satisfy regulatory scrutiny or contractual obligations with third parties and may suffer a loss of reputation. Any of these events could negatively affect our financial position.

Our business, financial condition and reputation may be substantially harmed by security breaches, interruptions, delays and failures in our systems and operations.

The performance and reliability of our systems and operations are critical to our reputation and ability to attract agents, teams of agents and brokers into our company as well as our ability to service home buyers and sellers. Our systems and operations are vulnerable to security breaches, interruption or malfunction due to certain events beyond our control, including natural disasters, such as earthquakes, fire and flood, power loss, telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. In addition, we rely on third party vendors to provide the cloud office platform and to provide additional systems and related support. If we cannot continue to retain these services on acceptable terms, our access to these systems and services could be interrupted. Any security breach, interruption, delay or failure in our systems and operations could substantially reduce the transaction volume that can be processed with our systems, impair quality of service, increase costs, prompt litigation and other consumer claims, and damage our reputation, any of which could substantially harm our financial condition.

Failure to protect intellectual property rights could adversely affect our business.

Our intellectual property rights, including existing and future trademarks, trade secrets, patents and copyrights, are important assets of the business. We have taken measures to protect our intellectual property, but these measures may not be sufficient or effective. We may bring lawsuits to protect against the potential infringement of our intellectual property rights; other companies, including our competitors, could make claims against us alleging our infringement of their intellectual property rights. Any significant impairment of our intellectual property rights could harm our business.

We intend to evaluate other brokerages for acquisition in order to accelerate growth and may not succeed in identifying suitable candidates or may acquire brokerages that negatively impact us.

As part of our growth strategy, we plan to evaluate the potential acquisitions of other real estate brokerages. We may be unable to identify brokerages that we deem to be suitable acquisition candidates. If we do complete an acquisition, our evaluation may prove faulty and the acquisition may prove unsuccessful. In addition, an acquisition may prove unsuccessful to us because of our inability to effectively execute post-acquisition strategy. We may be unable to successfully integrate acquired brokerages’ agents, systems and personnel. An acquisition could negatively impact our culture or undermine its core values. Acquisitions could disrupt our existing operations or cause management to neglect to focus adequately on our core business. Acquisition agents and brokers may reject our systems and technologies. An acquisition could cause potentially dilutive issuances of equity securities, incurrence of debt, contingent liabilities, or could cause us to assume or incur unknown or unforeseen liabilities.

Unfavorable general economic conditions in the United States and other markets that we enter and operate within could negatively impact our financial performance.

Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States and other markets we enter and operate within could negatively affect the affordability of, and consumer demand for, our services in the United States. Under difficult economic conditions, consumers may seek to reduce spending by forgoing real estate purchases. Lower consumer demand for our services in the United States and other markets could reduce our profitability.

We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business and financial condition.

We cannot predict with certainty the cost of defense, the cost of prosecution, insurance coverage or the ultimate outcome of litigation and other proceedings filed by or against us, including remedies or damage awards, and adverse results in such litigation and other proceedings, including treble damages, may harm our business and financial condition. Such litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, commercial arrangements, negligence and fiduciary duty claims arising from our company owned brokerage operations, actions against our title company alleging it knew or should have known others were committing mortgage fraud, standard brokerage disputes like the failure to disclose hidden defects in the property such as mold, vicarious liability based upon conduct of individuals or entities outside of our control, including our agents, brokers, third-party service or product provides, antitrust claims, general fraud claims and employment law claims, including claims challenging the classification of our employees as independent contractors and compliance with wage and hour regulations, and claims alleging violations of RESPA or state consumer fraud statutes. In addition, class action lawsuits can often be particularly vexatious litigation given the breadth of claims, the large potential damages claimed and the significant costs of defense. The risks of litigation become magnified, and the costs of settlement increase, in class actions in which the courts grant partial or full certification of a large class. In the case of intellectual property litigation and proceedings, adverse outcomes could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of business processes or technology that is subject to third party patents or other third party intellectual property rights. In addition, we may be required to enter into licensing agreements (if available on acceptable terms) and be required to pay royalties.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. We are currently aware of one such legal proceeding in the State of California and our errors and omissions insurance carrier is vigorously defending our position. Our deductible is $2,500 and exposure to the claim has limited potential to materially adverse effect on our business, financial condition or operating results. However, litigation is subject to inherent uncertainties and an adverse result in these, or other matters, may arise from time to time that may harm our business.

We may suffer significant financial harm and loss of reputation if we do not comply, cannot comply, or are alleged to have not complied with applicable laws, rules and regulations concerning our classification and compensation practices for the agents in our owned-and-operated brokerage.

All agents in our owned-and-operated brokerage operations have been retained as independent contractors, either directly or indirectly through third-party entities formed by these independent contractors for their business purposes. With respect to our independent contractor agents, and like most brokerages, we are subject to the Internal Revenue Service regulations and applicable state law guidelines regarding independent contractor classification. These regulations and guidelines are subject to judicial and agency interpretation, and it might be determined that the independent contractor classification is inapplicable to any of our agents. Further, if legal standards for classification of agents as independent contractors change or appear to be changing, it may be necessary to modify our compensation and benefits structure for these agents in some or all of our markets, including by paying additional compensation or reimbursing expenses.

In the future we could incur, substantial costs, penalties and damages, including back pay, unpaid benefits, taxes, expense reimbursement and attorneys’ fees, in defending future challenges by agents to our agent classification or compensation practices.

Risk Related to Our Stock

Glenn Sanford, our executive and financial officer and director, owns a significant percentage of our stock, and as a result, the trading price for our shares may be depressed and he can take actions that may be adverse to your interests.

Glenn Sanford, our executive officer and director, beneficially owns approximately 40.9% of our outstanding common stock as of March 31, 2015. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with a controlling stockholder. Mr. Sanford may have the ability to influence significantly all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, consolidation or sale of all or substantially all of our assets. In addition, Mr. Sanford could dictate the management of our business and affairs. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders.

Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.

We are authorized to issue up to 7,700,000,000 shares of common stock, of which 48,566,909 shares are issued and outstanding as of March 31, 2015. Our board of directors has the authority to cause us to issue additional shares of common stock without consent of any of our stockholders. Consequently, the stockholders may experience more dilution in their ownership of our stock in the future.

Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.

Although our common stock is currently listed for quotation on the OTCQB (Symbol “EXPI”) operated by the OTC Markets Group, trading through the OTCQB is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.

Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.

We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.

Trading of our stock is restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our common stock.

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Item 1B. Unresolved Staff Comments

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Properties

Our principal corporate office has approximately 900 square feet and is located at 1321 King St. Suite 1, Bellingham, WA 98229 in a leased facility. The lease expires on November 30, 2016. This facility accommodates our principal administrative and finance operations. We occupy very minimal leased office spaces in a number of the US states that we operate strictly in order to comply with state regulatory and licensing requirements and, in certain instances, to provide office space to our managing state brokers and drop-in space for our agents. In certain of these instances, the state managing brokers are financially responsible for a significant portion of the rental expense associated with a leased office space. In certain instances, we make a financial contribution to a state managing broker’s leased office space rental obligation for which we are not legally responsible. We generally do not provide office space for the agent workforce other than for drop-in service. We do not own any real property. We believe that leased facilities are adequate to meet current needs and that additional facilities will be available for lease to meet future needs.

Item 3. 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 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is quoted on the OTCQB operated by the OTC Markets Group under the trading symbol “EXPI”. The following table shows the low and high bid for our common stock during the last year as trading began in January 2014. These prices represent inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual transactions.

Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects. We cannot assure you that there will be a market for our common stock in the future.

Transfer Agent

Our transfer agent is Island Stock Transfer with an office at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.

Holders of Our Common Stock

As of March 31, 2015, there are 48,566,909 issued and outstanding shares of our common stock held by a total of approximately 78 stockholders of record.

Dividends

We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Although there are no restrictions that limit the ability to pay dividends on our common stock, our intention is to retain future earnings, if any, for use in our operations and the expansion of our business.

Securities Authorized for Issuance under Equity Compensation Plans

The following table summarizes certain information regarding our equity compensation plan as at December 31, 2014:

2013 Stock Option Plan

On September 27, 2013, we adopted a stock option plan. The purpose of the stock option plan is to retain the services of valued key employees, directors, officers and consultants and to encourage such persons with an increased initiative to make contributions to our company. Under the stock option plan, eligible employees, consultants and certain other persons who are not eligible employees, may receive awards of “non–qualified stock options”. Individuals, who, at the time of the option grant, are employees of our company or any related company (as defined in the stock option plan) who are subject to tax in the United States may receive “incentive stock options”, and non–United States residents may receive awards of “non-qualified stock options”. The number of shares of our common stock issuable under the plan is 10,000,000. As of March 31, 2015, there were stock options to purchase an aggregate of 7,369,229 shares of our common stock outstanding.

Recent Sales of Unregistered Securities

None

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In February of 2015 we re-purchased and retired 12,530 shares of our common stock for $3,133 in cash

Item 6. Selected Financial Data

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 7. 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 December 31, 2014, and 2013, as well as our future results.

OVERVIEW

We are a cloud-based real estate brokerage organization operating in 30 states. As a cloud-based real estate brokerage for the residential real estate market, we have 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.

We completed the acquisition of eXp Realty International, Inc. and its affiliates in September 2013. Following the closing of this acquisition, the business of eXp Realty, LLC became our principal operating business. We now have the following subsidiaries: eXp Acquisition Corp., eXp Realty, LLC, eXp Realty of Connecticut, LLC, eXp Realty Washington, Inc., and eXp Realty of Canada, Inc.

RECENT BUSINESS DEVELOPMENTS

In 2014, the Company experienced year-over-year growth that positions it as one of the fastest growing real estate brokerages in the United States. The Company continued its geographic expansion into new US States (and into sub-markets within those states) in 2014, and also expanded its reach into Canada with the addition of a large group of agents based out of Calgary, Alberta. In 2015, the Company anticipates continuing its geographic expansion into new markets, and thus far in 2015, has commenced operations in the State of Tennessee. The Company added approximately 70 new agents during the three months ended December 31, 2014 and 180 new agents in calendar year 2014.

As of January 1, 2015, the Company added Brad Andersohn to its staff as Director of Education and Industry Outreach. Mr. Andersohn previously served as Director of Zillow Academy where he developed and maintained a significant following of real estate professionals who participated in and benefited from his instruction using online platforms. In 2015, the Company has also transitioned all of its agents, brokers and staff into a new campus-style, Cloud Office environment which is significantly larger than the Company’s previous environments and which, in addition to serving as the locus for the Company’s office and workplace for agents, staff and brokers, will serve as a destination point for real estate professionals within the industry, irrespective of their brokerage affiliation, seeking exposure to, and participation and immersion in, a busy calendar of networking, training, education, and professional development classes, seminars, and events as part of the Company’s RE Tech Campus initiative, which is being administered and overseen by Mr. Andersohn. In addition to providing valuable instruction to agents and brokers industry-wide, the RE Tech Campus initiative will also expose increasing numbers of real estate professionals to the benefits and opportunities available through the utilization of an engaging and interactive Cloud-Based environment, all of which are leveraged by the Company’s own agents as part of the development and growth of their own businesses, and most of which are not accessible through traditional brokerages with a brick-and-mortar foundation.

In early 2015, the Company also launched a lead generation program for the benefit of its agents and brokers, utilizing a number of different strategies as well as data the company possesses as a result of its memberships in a large and growing number of multiple listing services across the United States and Canada. The program, called “Making it Rain” has, thus far in its earliest stages, generated leads for company agents and brokers at up to a 75% discount compared to what agents and brokers across the industry are paying for leads through subscriptions and contracts with popular third-party syndicators. As 2015 progresses, the Company anticipates continuing to develop and expand the Making it Rain program, thereby providing a direct benefit to the Company’s agents and brokers as well as an additional revenue source to the Company.

In 2015, the Company anticipates that it will begin to implement measures to increase the depth of its presence within states and provinces in which it operates (and in new states and provinces in which it launches) through the expansion and development of a regional, state or provincial leadership structure permitting the Company to capitalize on, among other things, its relatively low cost of entry into markets and submarkets whose agent demographics and population generally are less supportive of competitors opening and supporting a franchise or traditional model.

2014 was the first year in which the Company instituted a program whereby agents and brokers could become eligible for awards of the Company’s common stock through the achievement of production and agent attraction benchmarks. Agents who qualify, and who remain with the Company in good standing for the duration of a 3 year period following their eligibility notice, will be awarded shares, thereby allowing them to increase their ownership stake in the organization, in further fulfillment of the Company’s objective to be an agent-owned brokerage. To that end, in 2015, in addition to leaving the 2014 incentive program in place, the Company anticipates instituting a direct purchase plan whereby agents and brokers can elect to set aside a percentage of commission or revenue sharing dollars towards the purchase of discounted Company common stock.

In 2014, the Company has, and in 2015 it expects to continue 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 scalable growth. Presently, both the Company’s rate of growth based on agent count, as well as its rate of retention among existing agents has increased significantly. In 2014 the Company introduced formal, dedicated “support” staffing roles for its agents and brokers, which has helped to streamline and improve an introduction to new agents, maintain agent access, adoption, engagement, participation, education and socialization. This has allowed the Company to leverage its technological advantages and continue to pave a path to an increasingly robust culture of collaboration across borders, personal interaction among agents and staff; continued entry into new markets both domestic and abroad at relatively minimal cost; and, an enhanced consumer service and experience, all of which ultimately should assist the Company as it continues to foster and sustain improved rates of growth and retention on a consistent basis.

In 2014 the Company also introduced a new agent website platform for all of its agents at no cost to them, that provides end consumers with some of the most accurate and up-to-date data available anywhere relative to market activity in any of the markets the Company serves. The platform has also enabled the Company to overhaul its consumer-facing website - www.exprealty.com - providing an experience for consumers that, over time, the Company believes will ultimately rival those made available and controlled by some of the larger non-brokerage aggregators of data across marketplaces and their websites. These new websites introduced by the Company are fully functional on all devices, including mobile devices, and include IDX (Internet Data Exchange) and customer relationship management (CRM) features. This initiative now permits the Company to more efficiently provide optimized sites to its agents and directly to consumers, capable of increased consumer lead generation benefiting the agent; and, which allows the Company to further harness and aggregate Multiple Listing Service data in a more centralized yet farther-reaching manner, effectively syndicating data across increased numbers of channels. In this regard, the Company maintains a competitive advantage through its sizeable geographic footprint which grants it access to, at present, more than 70 different property data and listing services (“Multiple Listing Services”) across its markets.

The Company will continue to look for additional ways to create efficiencies within its technology and web-development team, allowing it further to leverage the Company’s technological capabilities and expertise and to build upon the value that it offers to buyers and sellers of real estate while maintaining a streamlined approach without compromising quality. The Company will continue 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. The Company also expects to continue to make available to its agents opportunities for savings and efficiency in pursuit of their business goals and career objectives whenever possible whether in the form of discounts or service enhancements, continuing education opportunities, or otherwise.

The Company upgraded its Cloud Office to an enhanced platform in March of 2015. Our Cloud Office now has an increased capacity that will accommodate our existing and continual growing agent base. We have invested in a second server for agent services and agent onboarding outside of what we refer to as the Cloud Campus. This is where our agent onboarding staff work with agents new to eXp Realty prior to integrating into the larger campus where the larger trainings take place. Currently the Cloud-campus can accommodate 80 simultaneous sessions and agent services can accommodate 10 simultaneous sessions. We anticipate increasing the session count for the Cloud-campus in the near future as well as launching other servers for various meetings and collaboration sessions.

MARKET CONDITIONS AND TRENDS

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. It was this combination of factors which, in part, served as the impetus for the Company’s business model as traditional real estate brokerages on a large scale experienced a diminishment of revenues without, in many cases, a corresponding reduction in fixed expenses, resulting in an erosion of profits. While markets throughout much of the United States have recovered, the Company still estimates that a significant number of real estate brokerages today are not profitable or are marginally profitable due to the impact of high or fixed overhead and a costly struggle to drive higher productivity among their agents.

Continued upward trends in market activity and continued acceleration of home values is susceptible to macroeconomic conditions, including signals by the Federal Reserve Bank that it intends to raise interest rates which increases could take effect in 2015 and which could impact the ability of new home buyers seeking purchase money mortgages as well as existing borrowers with adjustable mortgage rates. In the event that market activity slows, many traditional brokerage owners will again be pressured by an operating cost structure that isn’t responsive to cyclical turns in the market with overhead costs that hold steady or continue to climb.

Technology continues to disrupt traditional business models in many different ways. Recently there has been a viral post in social media talking about the largest media company by market cap being Facebook and yet it generates none of their own content. It is supplied by its members. Uber now has one of the largest market caps for a transportation company and yet it does not own any of the underlying assets that being the automobiles. Those are owned by its drivers. Alibaba which went public last year as one of the all time largest IPO’s is an ecommerce company in China that doesn’t manage or own physical inventory. Everyone is familiar with Amazon which has its roots in books and which has no physical footprint bookstore. eXp Realty as a residential real estate brokerage generally speaking only maintains the physical footprint of a brokerage that is required by the states we operate in rather than trying to have an office on every corner. With the continual improvement of high speed internet everywhere we tend to see the office be more and more mobile for all agents and brokers in all areas of the business and we believe that in some cases the physical office actually detracts from collaboration rather than encourages it. We plan on continuing to pursue these efforts through the use of the Cloud-office and other mobile collaboration platforms. We believe this is great for the agents, brokers, and consumers who understand it but more importantly it is a much easier business model to facilitate and grow than trying to grow and manage the 100’s of physical offices that would be necessary to cover the geographic footprint that eXp Realty currently covers.

The eXp Realty Cloud Office has enabled would be brokerage owners who join the Company to shed enormous overhead expenses and staffing costs while still retaining a percentage of commissions generated by the agents they bring with them or attract and while availing themselves of an opportunity to scale their business in a way that traditional models do not easily support.

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. These factors, coupled with uncertain federal reserve policy, suggests that the real estate industry could continue to see growth in sales during the upcoming fiscal year but at the same time could experience a decline. In either turn, the Company expects to adhere to its low-cost, high-engagement model, affording a growing number of agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking to survive and thrive in a wide range of economic conditions.

We believe that the opportunities in the real estate business are what might be considered the industry’s Sacred Cows, or those things that the majority of agents and brokers believe to be the way it will always be but which will be challenged by up and coming companies. We are challenging the notion of there needing to be a physical office in order to run a growing and thriving real estate brokerage model. There are many broker owners that believe this is necessary and will challenge eXp Realty for pursuing this path and may suggest that it is bad for the agent and the consumer in order to defend what has been the model for so many years. There are millions of dollars being poured into start-ups all over the United States aimed at disrupting the cooperative commission model that we rely on as a brokerage in order to continue to be profitable. If someone figures out a way to credibly crack the commission model this may adversely impact eXp Realty as well as many other more traditional real estate brokerages. We are not focusing our energy there as a brokerage however we do look to see what is happening in the industry in order to stay ahead and relevant to our agents and brokers who are our effective customers and partners.

Potential challenges for eXp Realty and other brokerages come our way through the large third party syndicators. The relevancy of a brokerage in the face of a significant percentage of lead generation for the agents who work for the firm being generated through third party portals does raise the question of relevancy to the agents that work for the brand. We see this as a very real threat to us as a brokerage and we are proactively developing low cost lead generation platforms that our agents can take advantage of which provide significant cost savings vs going through third party syndicators. As a small brokerage covering a large geographic area it is relatively easy for eXp Realty to generate leads at a lower cost than the portals however as we grow this may become harder and harder to do. In the first quarter of 2015 we launched the Making It Rain program for our agents and brokers to take advantage of. Over 10% of our agent base signed up and since then we have seen leads generated by participants in a range between $7.00 - $40.00 / lead. Leads may become more expensive over time and in some cases may exceed the cost of leads from other third party syndicators so we need to be aware of this and continually innovate on behalf of our agents and brokers again with the goal of being relevant in their business.

If agents believe that their business is generated from third party syndicators then it may follow that agents may pursue the lowest expense brokerage in order to maximize their income.

Over the last number of years, again propelled by technology, numerous firms whether brokerage, vendor or even those outside of the real estate brokerage business have used education as a major attractor in order to develop a following and/or customers. ActiveRain was one of the first companies to push into education with ActiveRain University. They were later acquired by Market Leader which was eventually purchased by Trulia and most recently acquired by Zillow. Zillow had their own educational outreach initiatives called Zillow Academy. Both of these initiatives were facilitated by eXp Realty’s own Brad Andersohn when he was with the respective companies, first at ActiveRain and then eventually at Zillow prior to all of the consolidation of the above companies. Chris Smith and Jimmy Mackin provide free classes and training in support of their company Curaytor. Numerous real estate coaches provide training and classes in facilitation of selling coaching services. Brian Buffini, the largest real estate coaching business in the world, does livestream events where brokerages and others can sponsor these events to provide education to real estate professionals for free while facilitating a flow of coaching clients to the Buffini organization. Education is a differentiator however the space is getting crowded. Even outside of the real estate space, free education is part of the larger MOOC movement or Massive Open Online Course movement where major Universities and Educational Institutions are taking some of their most popular classes and putting them online so that individuals can take the classes and in some cases get degrees at a very low cost if not free from certain institutions. Technology has allowed for this disrupting of education such that education is less valuable as a differentiator and yet not offering education is definitely a detractor of a brokerage business model.

Agile Management Systems: One of the ways that we believe that we have been able to grow into as many states and again in our opinion remain relevant is by adopting an agile mindset as a company. By running eXp Realty by regularly delivering value to our agents and brokers, and by prioritizing work based on what our agents and brokers have told us they want we have been able to develop a company framework that is relevant to our agents and brokers. We have started to implement the Net Promoter Score into how we evaluate ourselves as a company, as well as introducing NPS into how we support our agents and manage transaction flow. By using both NPS and more agile management style systems we have been able to launch and implement value added features and benefits in short order. We believe this offers us a unique advantage in terms of developing value for our agents and brokers. Recently our CEO during the Indy Track at Inman asked the group of Indy brokers during a Q&A, as a follow up on what did they measure, where the typical answers were profit and agent count, if any of them used NPS with their agents. None of the broker owners used or understood the metric. We feel that using tools like NPS and having an Agile management mindset provides us with a way to stay more relevant to our agents and brokers in an always changing business. We expect that more and more brokerages will eventually use tools similar to NPS and Agile in their management process which may again reduce the speed at which we are able to add value compared to other brokerages however at this point in time we feel this does give us a competitive advantage in growing eXp Realty.

COMPARATIVE FINANCIAL INFORMATION FROM OUR RESULTS OF OPERATIONS

Twelve months ended December 31, 2014

Revenues

During the year ended December 31, 2014 net revenues increased $2.67 million to $13.37 million as compared to the year ended December 31, 2013 when we generated $10.70 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

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 $2.19 million in the current year ended December 31, 2014 as compared to the year ended December 31, 2013 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 decrease in general administrative in the year ended December 31, 2014 was attributable to a $795 thousand decrease in stock option expense which was offset by an increase of $253 thousand in payroll expense as compared to the year ended December 31, 2013.

Professional fees include costs related to legal, accounting, and other consultants. Costs were down $148 thousand in the year ended December 31, 2014 as compared to the year ended December 31, 2013 primarily due to legal and audit fees associated with the merger transaction completed in September of 2013.

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 $16 thousand more primarily due to more internet marketing and promotional material created in the year ended December 31, 2014 as compared to the year ended December 31, 2013.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s net working capital increased $223 thousand during the current year ending December 31, 2014 as compared to December 31, 2013. The increase is primarily attributable to an increase in cash and accounts receivable offset by accrued expenses and current portion of debt.

The following table presents our cash flows for the years ended December 31, 2014 and 2013:

Net cash provided by operating activities for the year ended December 31, 2014 was approximately $244 thousand as compared to $16 thousand for the year ended December 31, 2013. Our cash provided in the year ended December 31, 2014 was primarily provided from increased gross margin earned and collected from sales.

Net cash used in investing activities for the acquisition of fixed assets was $49 thousand and $40 thousand for the years ended December 31, 2014 and December 31, 2013; respectively. In 2014 we brought a new transactional processing software into production which we started building in 2013.We spent approximately $42 thousand on the project in 2014 and $38 thousand in 2013.

Net cash provided by financing activities for year ended December 31, 2014 comprised of $59 thousand of net proceeds from the issuance of 198,333 shares of common stock at $0.30 per share. Net cash provided by financing activities for year ended December 31, 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 and repurchase of $10,000 of ownership interest in eXp Realty, LLC.

Our operating cash flows in 2014 increased by approximately $228 thousand as compared to 2013. Depending on our future growth initiative and other market factors we may need to raise additional cash in order to fund capital expenditures, operations, and our current obligations over 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 short-term debt obligation with a principal balance of approximately $62,000 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 November of 2016.

OFF-BALANCE SHEET ARRANGEMENTS

We have no 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of eXp Realty International Corporation

Bellingham, Washington

We have audited the accompanying consolidated balance sheets of eXp Realty International Corporation (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2014. eXp Realty International Corporation’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of eXp Realty International Corporation as of December 31, 2014 and 2013, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America.

/s/ Haynie & Company

Salt Lake City, Utah

March 31, 2015

EXP REALTY INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

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

EXP REALTY INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

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

EXP REALTY INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

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

EXP REALTY INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

eXp Realty International Corporation

Notes to the Condensed Consolidated Financial Statements

December 31, 2014

(Expressed in U.S. dollars)

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 30 States and in both Alberta and 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.

Basis of presentation and fiscal year

The accompanying audited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), and are expressed in US dollars. As disclosed in our 8-K filed September 27^th, 2013 the Company has changed its fiscal year end to December 31. We may have reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation.

Principles of consolidation

The accompanying consolidated financial statements include the accounts of eXp Realty International Corporation and its subsidiaries eXp Acquisition Corp; eXp Realty, LLC; eXp Realty Washington, Inc.; eXp Realty of Canada, Inc.; and eXp Realty of Connecticut, LLC. All inter-company accounts and transactions have been eliminated upon consolidation.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related provisions for doubtful accounts, legal contingencies, income taxes, revenue recognition, stock-based compensation, expense accruals, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Cash and cash equivalents

The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.

Restricted cash

The Company’s restricted cash balance of $141,508 and $38,198 at December 31, 2014 and 2013, respectively, consists of cash held by our brokers and agents on behalf real estate buyers that are in escrow. Since the Company does not have rights to the cash a corresponding customer deposit liability in the same amounts are recognized in the consolidated balance sheets. When a sales transaction closes the restricted cash transfers to the sellers and the corresponding deposit liability is reduced.

Fair value

The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The methodology establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:

The Company's financial instruments, including cash, accounts receivable, restricted cash, accounts payable, accrued expenses and other current liabilities are carried at cost, which approximates their fair value due to the short-term maturity of these instruments.

Concentration of credit risk, significant customers, and significant suppliers

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, accounts receivable and restricted cash.

The Company deposits its cash with financial institutions that management believes to be of high credit quality, and these deposits may, on occasion, exceed federally insured limits.

A portion of the Company’s accounts receivable are derived from non-commission based technology fees. These accounts receivable are typically unsecured. Allowances for doubtful accounts are estimated based on historically collection experience and periodically reviewed by management. For the periods presented we did not experience any material bad debts.

Foreign currency translation

Management has adopted ASC 740, Foreign Currency Translation Matters as it pertains to its foreign currency translation. The Company’s functional and reporting currency is the United States dollar. 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.

Property and equipment

Property and equipment are stated at cost. Depreciation and amortization is computed using the straight-line method over the estimated useful lives.

Computer hardware and software:     3 to 5 years

Furniture, fixtures and equipment:     5 to 7 years

Maintenance and repairs are expensed as incurred. Expenditures that substantially increase an asset’s useful life or improve an asset’s functionality are capitalized.

Impairment of long-lived assets

In accordance with the accounting guidance for the impairment or disposal of long-lived assets, the Company periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. As of the years ending December 31, 2014 and 2013, the Company has not recorded any charges for impairment of long-lived assets.

Stock-based compensation

Stock-based compensation costs, consisting of restricted stock and options, for eligible employees, directors, and contractors are measured at fair value on the date of grant and are expensed over the requisite service period using a straight line method for each award.

Revenue recognition

Revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service has been delivered, and collectability of the resulting receivable is reasonably assured.

Commission Revenue

The Company derives the majority of its revenue from commissions earned as agents in residential real estate transactions. Commission revenue is recognized upon closing of a transaction, net of any rebate or commission discount or transaction fee adjustment. Other commission revenue is generated from company leads, referrals, and other related fees.

Non-Commission Revenue

Non-commission revenues are derived primarily from agent and broker training fees, known as “eXp University tuition” and technology fees. Technology fee revenues are recognized over the term of the agreements as the contracted services are delivered.

Advertising costs

Advertising costs are expensed as incurred and included in sales and marketing expense in the accompanying consolidated statements of operations.

Income taxes

Deferred tax assets and liabilities arise from the differences between the tax basis of an asset or liability and its reported amount in the financial statements as well as from net operating loss and tax credit carry forwards. The measurement of current and deferred tax assets and liabilities is based on provisions of enacted tax laws; the effects of future changes in tax laws or rates are not anticipated. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period adjusted for the change during the period in deferred tax assets and liabilities. For U.S. income tax returns, the open taxation years subject to examination range from 2010 to 2014. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period.

Comprehensive income (loss)

Comprehensive income (loss) comprised of foreign currency loss of $1,542 and $0 for the years ended December 31, 2014 and 2013, respectively.

Net income (loss) per share

Basic net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of shares of common stock outstanding during the period. Diluted income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding plus, if dilutive, potential common shares outstanding during the period. Potential common shares are composed of incremental shares of common stock issuable upon the exercise of potentially dilutive stock options.

Recently issued accounting pronouncements

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. The objective of this update is to 1) remove inconsistencies and weaknesses in revenue requirements, 2) provide a robust framework for addressing revenue recognition issues, 3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets 4) provide more useful information to users of financial statements through improved disclosure requirements, and 5) simplify the preparation of financial statements. This update is effective in annual reporting periods beginning after December 15, 2016 and the interim periods within that year. The Company will be evaluating the impact of this update as it pertains to the Company’s financial statements and other required disclosures on an on-going basis until its eventual adoption and incorporation.

Prepaid and other current assets consisted of the following:

Property and equipment, net consisted of the following:

Depreciation and amortization expense for the years ended December 31, 2014 and 2013 was $14,493 and $4,442, respectively.

Accrued expenses consisted of the following:

Notes payable consisted of the following:

During the years ended December 31, 2014 and 2013 the Company recognized interest expense of $942 and $2,034, respectively.

On September 9, 2013 the Company increased the authorized shares of our $0.00001 par value common stock from 220,000,000 to 7,700,000,000 and effected a thirty-five-to-one forward stock split of the issued and outstanding shares of common stock.

In February of 2014 we issued 198,333 shares of common stock for cash to investors in private placements for $0.30 per share for net receipts of cash totaling $59,450.

Throughout 2014 we issued 573,259 shares of common stock for services valued at $136,494 to consultants and directors.

In March 2013, the Company issued 365,015 shares of common stock to satisfy $109,500 due to related parties. The amounts due were composed of $92,668 of cash advances and $16,832 of expense reimbursements outstanding at the time of issuance. Also, in association with this transaction the related party agreed to forgive $7,799 of expenses paid on behalf of the Company.

In April 2013 we issued 613,598 shares of common stock for services valued at $122,720 to vendors.

In September 2013 our CEO forfeited and the Company subsequently cancelled 1,393,350,000 (post-split) shares of common stock.

In September 2013 we issued 37,163,549 shares of common stock to shareholders of eXp Realty International Inc. as part of the business combination.

In November 2013 we issued 200,000 shares of common stock for services valued at $60,000 to vendors. We also issued 220,000 shares of common stock as a performance award valued at $66,000.

In December 2013 a shareholder forfeited and the Company subsequently cancelled 315,015 shares of common stock.

Throughout 2013 we issued 419,955 shares of common stock for cash to investors in private placements between $0.15 and $0.30 per share for receipts of cash totaling $90,235.

During the years ended December 31, 2014 and 2013 the Company approved the issuance of stock options to certain employees, officers, directors, and service provider at the sole discretion of the Board of Directors.

As of December 31, 2014, all option awards granted were done so prior to the Company being public.

As such, the Company has and will continue to account for those awards based on the intrinsic value method and re-measure the intrinsic value at each reporting date through the date of exercise or other settlement. The Company will continue to do so for these previously granted awards unless an award is modified, repurchased, or cancelled. 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.

The Company’s stock option activity is as follows:

The following table summarizes information about stock options outstanding at December 31, 2014:

For the year ended December 31, 2014 the Company’s stock options had an intrinsic value between $0.03 and $0.17 as compared to the year ended December 31, 2013 which had an intrinsic value between $0.03 and $0.17. The Company recognized stock option expense of $96,604 and $378,998 for the year ended December 31, 2014 and December 31, 2013, respectively.

In 2013 as part of the merger each outstanding option to purchase shares of eXp Realty International, Inc. were converted into options entitling the holder to purchase such number of shares of our common stock that is equal to 7.5 times the number of shares of eXp Realty International, Inc. This transaction required accounting recognition consistent with a modification of an award and the incremental cost associated with this modification to be recognized as of the date of modification. On September 27, 2013 the Company recognized an additional $512,197 of incremental cost associated with this conversion.

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

The Company is subject to United States federal and state income taxes at an approximate rate of 38.25%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:

Deferred tax assets consist of the following at:

At December 31, 2014, the Company had federal net operating losses of approximately $150 thousand which will begin to expire in 2029 and could be subject to certain limitations under section 382 of the Internal Revenue Code.

The Company has provided a valuation allowance at December 31, 2014 and 2013 of $384,140 and $408,222  respectively for its net deferred tax assets as it cannot conclude it is more likely than not all of the estimated net deferred tax assets will be realized. The valuation allowance decreased by $24,082 and increased $354,541 in 2014 and 2013, respectively.

As of December 31, 2014 and 2013, the Company did not have any unrecognized tax benefits. The Company's policy is to recognize interest and penalties related to income tax matters in income tax expense. The Company currently has no federal or state tax examinations in progress nor has it had any federal or state tax examinations since its inception.

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. Amounts due to related parties were non-interest bearing, unsecured and due on demand. 

The Company had advances outstanding to the current President in the amount of $6,000 and $8,200 as of December 31, 2014 and December 31, 2013 respectively.

In March of 2013 the former President of the Company agreed to forgive $1,519 for expenses paid on behalf of the Company. Also, in the same month another related party agreed to forgive $7,799 in expense reimbursements in association with settling other debts owed via the issuance of stock. See footnote 6 above for further details.

Operating lease

The Company has three operating leases for office space as of December 31, 2014. The non-cancelable leases expire on August 31, 2015, July 31, 2016 and November 30, 2016 respectively. Base monthly payments are $2,801 per month. At December 31, 2014 the remaining obligations under these arrangements due is $32,012 and $20,411 in 2015 and 2016, respectively.

Legal proceedings

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.

We know of no material, active or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

In February of 2015 we re-purchased and retired 12,530 shares of our common stock for $3,133 in cash.

In March of 2015 the shareholders approved and adopted the 2015 Equity Incentive Plan whereby 8,000,000 shares of common stock of the Company have been reserved to provide payments of various forms to incentivize employees, consultants, and directors of the Company. Additional information relating to this plan can be found in our Definitive Schedule 14C filed March 30, 2015 with the SEC.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as such items are defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)) as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of the end of the period covered by this Annual Report were not effective. The ineffectiveness of our disclosure controls and procedures was due to the existence of material weaknesses identified below.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2014.

The disclosure controls and procedures are controls and procedures that are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014. In making its evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.

Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2014.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The determination that our internal control over financial reporting was not effective was based on the identification of the following material weaknesses:

Our management, including our Chief Executive Officer and Chief Financial Officer, acknowledge that because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None

PART III

Item 10. Directors, Executive Officers and Corporate Governance

(a) Directors and Executive Officers

The following individuals serve as directors and executive officers of our company. All directors of our company hold office until the next annual meeting of our stockholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

Business Experience

The following is a brief account of the education and business experience during at least the past five years of each director and executive officer, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.

Glenn Sanford

Since early 2002, Glenn Sanford has been actively involved in the online real estate space. In early 2007, Mr. Sanford launched eXp Realty, LLC which, using a combination of web and traditional bricks and mortar, grew to three offices and into two states. After the drop off of the market in late 2008, Mr. Sanford and his executive team went back and rewrote the entire business model in recognition of the “perfect storm” of lower revenues, fixed or rising overhead costs, and a consumer with more information and access than ever before. eXp Realty International, Inc. was launched in October 2009 as the first truly cloud-based national real estate brokerage which meant giving up the traditional bricks and mortar environment and moving to a fully-immersive 3D virtual office environment where agents, brokers and staff collaborate across borders while learning and transacting business from anywhere in the world. Since that time eXp Realty International, Inc. has quickly grown to 25 states throughout the United States and is in the process of expanding internationally.

From 2005 to 2007, Mr. Sanford ran a large mega-agent team and consulted to Keller Williams International as a member of the Agent Technology Council in the areas of online client acquisition, client conversion and technology. Mr. Sanford was also a significant contributor to Keller Williams Internet Lead Generation Masterminds.

Prior to real estate, Mr. Sanford was active at the executive level with a number of technology-related companies. In 1998, Mr. Sanford founded and served as President for eShippers.com, an online e-commerce and logistics company.

We believe Mr. Sanford is qualified to serve on our board of directors because of his business and management experience.

Jason Gesing

Jason Gesing is an attorney licensed in Massachusetts and New Hampshire.

Mr. Gesing joined eXp Realty, LLC in March 2010 and joined eXp Realty International, Inc. in September 2012 as its Chief Business Development Officer and held this position until June 2013. Since June 2013, he has been eXp Realty International, Inc.’s President. With over a decade of experience in real estate in various capacities, Mr. Gesing holds broker's licenses in Massachusetts, New Hampshire, and Maine.

Mr. Gesing has been practicing law at Gesing Law Offices, LLP from 2009, and was an attorney with Murphy, Hesse, Toomey & Lehane, LLP in Boston, MA from 2002 to 2010. In his capacity as a lawyer, he has a broad base of experience in corporate, municipal, real estate, compliance, health care, construction, litigation, and administrative law, and advising clients on day to day issues and managing crises. He has acted in a variety of roles and undertaken a variety of matters including: corporate counsel; municipal counsel; hospital counsel; leasing, licensing and contract negotiation; governance and compliance; appearances before administrative hearing officers and state judges; defense of management in unfair labor practice charges; collective bargaining; internal investigations; and, owner representative in construction matters.

Mr. Gesing obtained a Bachelor of Arts (Magna Cum Laude) in 1996 from Syracuse University, and a Juris Doctor in 2002 from Boston College Law School.

We believe Mr. Gesing is qualified to serve on our board of directors because of his business and legal experience.

Darren Jacklin

For over 19 years, Darren Jacklin has traveled four continents and over 40 countries mentoring entrepreneurs and business owners on specific and measurable strategies that they can consistently use to increase their income, transform their obstacles into cash flow and turn their passion into profits.

His uncanny ability to increase wealth and success by uncovering hidden assets, overlooked opportunities and undervalued possibilities has captured the attention of Tiger 21, The Wall Street Journal, Yahoo Finance, NBC TV, CBS TV, Global TV international radio stations, magazines and newspapers, movie producers, best-selling authors, CEO’s and business experts worldwide.

Darren Jacklin currently sits on paid international boards of directors of public companies and advisory boards. Darren has personally trained over 150 Fortune 500 companies such as Microsoft, AT&T, Black & Decker, Barclays Bank, as well as high school, college, university students and professional athletes and has connected with people in more than 126 countries.

We believe Mr. Jacklin is qualified to serve on our board of directors because of his business experience and venture capital background.

Family Relationships

There are no family relationships between our directors or executive officers.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has been involved in any of the following events during the past ten years:

(a) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

(b) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

(c) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;

(d) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

(e) being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

(f) being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Code of Ethics

We have not adopted a code of ethics because our board of directors believes that our small size does not merit the expense of preparing, adopting and administering a code of ethics. Our board of directors intends to adopt a code of ethics when circumstances warrant.

Security Holder Nominating Procedures

We do not have any formal procedures by which our stockholders may recommend nominees to our board of directors.

Committees of the Board of Directors

We do not have a nominating, compensation or audit committee, nor do we have an audit committee financial expert. As such, our entire Board of Directors acts as our audit committee and handles matters related to compensation and nominations of directors.

Audit Committee

We do not have a separately-designated standing audit committee, and only one of our Board members is “independent.”  The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board of Directors when performing the functions of that would generally be performed by an audit committee. The Board of Directors approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board of Directors reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who owned more than 10% of the Company’s common stock (collectively, “Reporting Persons”) to file reports of ownership and changes in ownership of common stock and other securities of the Company on Forms 3, 4 and 5 with the SEC. Reporting Persons were required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they filed. Based solely on review of reports received by the Company or written representations from the Reporting Persons, the Company believes that with respect to the fiscal year ended December 31, 2014, all of the Reporting Persons complied with all applicable Section 16(a) filing requirements.

Item 11. Executive Compensation

The particulars of the compensation paid to:

No disclosure is provided for any executive officer (other than our principal executive officer), whose total compensation did not exceed $100,000 for the last completed fiscal year.

Compensation of Executive Officers

As of December 31, 2014 and 2013, we had no formal compensation plans in place for our named executives with regards to expected remuneration including both salary or potential bonus programs.

Except as disclosed below, eXp Realty International Corporation and its subsidiaries have not entered into any employment agreement or consulting agreement with their directors or executive officers.

Glenn Sanford

eXp Realty International Corporation and its subsidiaries have not entered into any written employment agreement or consulting agreement with Glenn Sanford. In consideration for his services in 2014 and 2013, we paid Mr. Sanford an annual base salary of $54,000 and $60,513, respectively. In addition, he was paid revenue share, commissions, and incentives for growth initiatives totaling $183,111 and $142,060 in 2014 and 2013, respectively.

Jason Gesing

eXp Realty International Corporation and its subsidiaries have not entered into any written employment agreement or consulting agreement with Jason Gesing. In consideration for his services in 2014 and 2013, we paid Mr. Gesing an annual base salary of $74,138 and $59,582, respectively. In addition, he was paid revenue share, commissions, and incentives for growth initiatives totaling $15,488 and $30,466 in 2014 and 2013, respectively.

Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.  Our directors and executive officers may receive stock options and stock grants at the discretion of our board of directors in the future. We do not have any bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options or stock grants may be granted at the discretion of our board of directors. Both our CEO and also our President are participants in the company’s revenue share plan and would continue to receive those benefits similar to all other agents and brokers in eXp Realty on a long term basis. Any revenue share bonuses that are paid to Officers and Directors would discontinue at the point that they are no longer in an Executive position with the company, however revenue share benefits based on their position in the revenue share system would continue as would be consistent with the revenue share plan. 

Resignation, Retirement, Other Termination, or Change in Control Arrangements

We have no plans or arrangements with respect to remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.

Outstanding Equity Awards at Fiscal Year End

Compensation of Directors

Two of our three current directors are also officers of the Company. These directors are compensated for their services acting as executives. Additionally, all directors are compensated $2,000 per month for directorship activities which is paid in common stock. Directors are reimbursed for reasonable out-of-pocket expenses incurred.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Principal Stockholders and Management

The following table provides certain information regarding the ownership of our common stock, as of March 31, 2015 by:

Notes

⁽¹⁾ Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.

⁽²⁾ Percentage of ownership is based on 48,566,909 shares of our common stock issued and outstanding as of March 31, 2015 in addition to 5,551,660 of estimated exercisable shares through May 29, 2015.

⁽³⁾ Includes 21,233,936 shares of our common stock and stock options to acquire 1,617,000 shares of our common stock.

⁽⁴⁾ Includes of 205,456 shares of our common stock and stock options to acquire 1,674,130 shares of our common stock.

⁽⁵⁾ Includes 53,336 shares of our common stock.

⁽⁶⁾ Consists of 16,066,475 shares of our common stock.

⁽⁷⁾ Includes 21,492,728 shares of our common stock and stock options to acquire 3,291,130 shares of our common stock.

Changes in Control

We are unaware of any arrangement the operation of which may at a subsequent date result in a change of control of our company.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Persons

Except as disclosed herein, there have been no transactions since January 1, 2012 or proposed transactions in which the amount involved exceeds the lesser of $120,000 or one percent of the average of the smaller reporting company's total assets at year end for the last two completed fiscal years in which any of our directors, executive officers or beneficial holders of more than 5% of the outstanding shares of our common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.

As of December 31, 2013 we were indebted to Glenn Sanford, our director and executive officer for $18,232 for expenses paid for on behalf of our company.

The Company had advances outstanding to the current President in the amount of $6,000 and $8,200 as of December 31, 2014 and December 31, 2013 respectively.

These amounts are presented on the accompanying balance sheets under the caption accounts receivable, related parties.

Director Independence

We currently act with three directors, consisting of Glenn Sanford, Jason Gesing, and Darren Jacklin. Our common stock is quoted on the OTCQB operated by the OTC Markets Group, which does not impose any director independence requirements. Under NASDAQ Marketplace Rule 5605(a)(2), a director is not considered to be independent if he is also an executive officer or employee of the company. Using this definition of independent director, we determined that one of our directors, Darren Jacklin, is an “independent director” as that term is defined by NASDAQ Marketplace Rule 5605(a)(2). 

Item 14. Principal Accounting Fees and Services

Principal Accounting Fees

The following table sets forth fees billed or accrued by our independent registered accountants during the fiscal years ended December 31, 2014 and 2013: 

Audit fees consist of fees billed for professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by an independent registered accountant in connection with statutory and regulatory filings or engagements. The principal accountant for 2014 was Haynie and Company.

Audit-related fees consists of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements, which are not reported under “Audit Fees.” There were no audit related fees provided in the fiscal year end December 31, 2014 and 2013.

Tax fees consist of fees billed for professional services for tax compliance, tax advice, and tax planning.

The principal accountant for the current year and for the most recently completed fiscal year is not expected to present at the stockholder’s meeting, will not be able to make a statement if desired, and will not be available to respond to questions.

All other fees consist of fees for products and services other than the services reported above.  There were no management consulting services provided in the fiscal year end December 31, 2014 and 2013.

Pre-Approval Policies and Procedures

Our board of directors pre-approves all services provided by our independent registered accountants. All of the above services were reviewed and approved by our board of directors before such services were rendered.

Our board of directors has considered the nature and amount of fees billed by Haynie & Company and believes that the provision of services for activities unrelated to the audit is compatible with maintaining the independence of Haynie & Company.

PART IV

Item 15. Exhibits, Financial Statement Schedules

EXHIBITS

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.