EXP World Holdings, Inc. - Quarter Report: 2015 September (Form 10-Q)

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

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

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

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]     No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (of for such shorter period that the registrant was required to submit and post such files). 
Yes [X]     No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]      Accelerated filer [   ]      Non-accelerated filer [   ]   Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
Yes [   ]    No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

As of November 10, 2015 the registrant’s outstanding common stock consisted of 49,899,091 shares.

TABLE OF CONTENTS

Statement Regarding Forward-Looking Statements

Certain statements contained in this report on Form 10-Q contains certain forward-looking statements which are intended to be covered by the safe harbors created thereby. All statements, other than statements of historical facts, are forward-looking statements. The words “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar expressions identify forward-looking statements, but are not the exclusive means of doing so. Forward-looking statements may include statements about matters such as: future revenues; future industry market conditions; future changes in our capacity and operations; future operating and overhead costs; operational and management restructuring activities (including implementation of methodologies and changes in the board of directors); future employment and contributions of personnel; tax and interest rates; capital expenditures and their impact on us; nature and timing of restructuring charges and the impact thereof; productivity, business process, rationalization, investment, acquisition, consulting, operational, tax, financial and capital projects and initiatives; contingencies; environmental compliance and changes in the regulatory environment; and future working capital, costs, revenues, business opportunities, debt levels, cash flows, margins, earnings and growth.

These statements are based on assumptions and assessments made by our management in light of their experience and their perception of historical and current trends, current conditions, possible future developments and other factors they believe to be appropriate. Forward-looking statements are not guarantees, representations or warranties and are subject to risks and uncertainties that could cause actual results, developments and business decisions to differ materially from those contemplated by such forward-looking statements. Some of those risks and uncertainties include the risk factors set forth in this report and our Annual Report on Form 10-K for our prior fiscal year ended December 31, 2014, and the following: current global economic and capital market uncertainties; potential dilution to our stockholders from our recapitalization and balance sheet restructuring activities; potential inability to continue to comply with government regulations; adoption of, or changes in legislation or regulations adversely affecting our businesses; permitting constraints or delays, business opportunities that may be presented to, or pursued by, us; changes in the United States or other monetary or fiscal policies or regulations; changes in generally accepted accounting principles; geopolitical events; potential inability to implement our business strategies; potential inability to grow revenues organically; potential inability to attract and retain key personnel; assertion of claims, lawsuits and proceedings against us; potential inability to maintain an effective system of internal controls over financial reporting; potential inability or failure to timely file periodic reports with the SEC; potential inability to list our securities on any securities exchange or market. Occurrence of such events or circumstances could have a material adverse effect on our business, financial condition, results of operations or cash flows or the market price of our securities. All subsequent written and oral forward-looking statements by or attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. We undertake no obligation to publicly update or revise any forward-looking statement.

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

eXp Realty International Corporation

(unaudited)

September 30, 2015

EXP REALTY INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

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

EXP REALTY INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

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

EXP REALTY INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

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

EXP REALTY INTERNATIONAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

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

eXp Realty International Corporation

Notes to the Condensed Consolidated Financial Statements

September 30, 2015

(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.

The Company is a cloud-based real estate brokerage operating in 31 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.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month period ended September 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015.

Basis of Presentation and Fiscal Year

The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States, and are expressed in US dollars.

Principles of Consolidation

The accompanying condensed unaudited financial statements include the accounts of eXp Realty International Corporation and its subsidiaries eXp Acquisition Corp; First Cloud Mortgage, Inc.; eXp Realty Associates, LLC; eXp Realty, LLC; eXp Realty of California, Inc.(formerly eXp Realty of Washington, Inc.); eXp Realty of Canada, Inc.; and eXp Realty of Connecticut, LLC. All material intercompany accounts and transactions have been eliminated upon consolidation.

Non-controlling interests

Non-controlling interests in the Company’s subsidiaries are reported as a component of equity, separate from the parent company’s equity. Results of operations attributable to the non-controlling interests are included in the Company’s condensed consolidated statements of operations and condensed consolidated statements of comprehensive income (loss).

On July 23, 2015 the Company formed First Cloud Mortgage, Inc. of which it holds an 80.5% majority and controlling interest. The other 19.5% non-controlling interest is owned by its President and its Vice President.

Use of Estimates

The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to 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.

Foreign currency translation

The Company’s functional and reporting currency is the United States dollar. Occasional transactions may occur in Canadian dollars and management has adopted ASC 830, Foreign Currency Translation Matters. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Average monthly rates are used to translate revenues and expenses. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.

Other Comprehensive Loss

Other comprehensive loss for the nine months ended September 30, 2015 and September 30, 2014 consisted of foreign exchange translation losses in the amount of $22,663 and $32, respectively.

Recently Issued Accounting Pronouncements

There have been no recently issued accounting pronouncements through the date of this report that the Company believes will have a material impact on the financial position, results of operations, or cash flows.

The Company had advances outstanding to the current President in the amount of $1,256 and $6,000 as of September 30, 2015 and December 31, 2014 respectively.

In February of 2015 we re-purchased and retired 12,530 shares of our common stock for $3,132 in cash.

During the nine months ended September 30, 2015, the Company issued 1,344,712 restricted shares of common stock to directors, employees, and contractors for services totaling $985,076.

At September 30, 2015 the Company had 7,170,229 stock options outstanding that were granted prior to Company becoming public in September 2013, which the Company accounts for based on the intrinsic value method and re-measures the intrinsic value at each reporting date through the date of exercise or other settlement. Compensation cost or benefit is recognized based on the change in intrinsic value at each reporting date. For the nine months ended September 30, 2015 the Company’s stock options had intrinsic values between $0.44 and $0.57 and the Company recognized a stock option expense of $2.74 million, which consists of a $2.48 million change in intrinsic value and $260 thousand in vesting costs. For the nine months ended September 30, 2014 the Company’s stock options had intrinsic values between $0.03 and $0.17 and recognized an expense of $74 thousand.

During the nine months ended September 30, 2015 the Company granted 237,750 stock options and has elected to account for fair value using the Black-Scholes option-pricing model. Expected volatility has been determined using the historical stock price. The expected term of options represents the period of time that options granted are expected to be outstanding giving consideration to vesting schedule. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. The Company recognized a stock option expense of $12,069 for the nine months ended September 30, 2015.

The Company is subject to legal proceedings and claims that arise in the ordinary course of business. In the opinion of management the ultimate liability with respect to current proceedings and claims will not have a material adverse effect upon the Company’s financial position or results of operations.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking statements based upon current expectations that involve numerous risks, uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons. Those reasons include, without limitation, those described at the beginning of this report under “Statement regarding forward-looking statements,” as well as those that may be set forth elsewhere in this report. Except as otherwise required by law, we do not intend to update any information contained in these forward-looking statements. The following discussion also addresses matters we consider important for an understanding of our financial condition and results of operations as of September 30, 2015, and for the nine month period ended September 30, 2015, as well as our future results.

OVERVIEW

eXp Realty International Corporation, formerly known as Desert Canadians, Ltd. (the “Company” or “eXp”), was incorporated in the State of Delaware on July 30, 2008. The Company is a cloud-based real estate brokerage operating in 31 States and in 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.

RECENT BUSINESS DEVELOPMENTS

The Company reported net revenue of $7,419,103 and net income of $1,509,720 for the 3 months ending September 30, 2015 which is primarily attributable to continued gains in agent count and the quality of production levels among those agents who are joining the Company, resulting in substantial increased revenues period over period.

As noted in the Company’s last quarterly filing, the intrinsic value of 7,170,229 outstanding stock options that were granted prior to the Company becoming public in September 2013 will continue to fluctuate as the compensation cost of these options is measured by the change in intrinsic value on each reporting date. The fair value of the Company’s stock price at September 30, 2015 gave rise to a decrease in the intrinsic value of these stock options as compared to the fair value at June 30, 2015 resulting in a non-cash benefit of $1.47 million that is classified as a reduction of general and administrative expense impacting the Company’s statement of operations for the three months ended September 30, 2015. As we primarily review our results with an emphasis on revenues and ultimate cash flows we do not believe the additional non-cash expense or benefit that has been or will be recognized in future periods from the change in fair value of these instruments will impact our long term strategic plan. Furthermore, until these instruments are either exercised, forfeited, or modified the change in intrinsic value will continue to add variability to our results of operations. We as a management team are cognizant of this variability and its impact on our financials, but do not currently include these changes when we are assessing our current performance or in our forward looking business plan.

The Company added 102 net new agents during the three months ended September 30, 2015 and 303 net new agents for the nine months ended September 30, 2015.

In September 2015, the Company commenced operations in the State of Hawaii, marking the first time that the Company has extended its reach beyond mainland North America. The Company continues to attract the attention and interest from brokers and agents in high profile markets including Hawaii, Southern California, and Colorado, and anticipates bringing some of these agents, particularly those with demonstrated histories of success in achieving growth, into the organization.

On September 10, 2015 the Company announced that it had formed majority-owned First Cloud Mortgage, Inc. (“First Cloud”), aimed at leveraging its platform and technologies to redefine the career and income opportunities available to reputable, service-oriented and compliance-minded mortgage professionals, while providing premium loan products and outstanding service to borrowers. First Cloud has obtained state mortgage broker licenses in Texas and New Mexico and has applications pending in California, Virginia, Georgia, and Arizona. First Cloud has also received approvals from, and established relationships with a number of wholesale lenders and other vendors, and anticipates beginning to originate loans in the end of the fourth quarter 2015 or beginning of the first quarter 2016.

For the three months ended September 30, 2015 the Company saw continued participation in its Agent Equity Program, which it announced previously whereby the Company’s agents and brokers are able to elect to have 5% of their gross commission income on transactions for payment in the form of the Company’s common stock at a 20% discount to the Company’s 30 day trailing average closing stock price. In furtherance of the Company’s commitment to agent ownership, the Agent Equity Program provides the opportunity for the Company’s agents and brokers to invest on their own behalf and for their own benefit, what they might otherwise pay in the form of a franchise fee at competing brokerages within the industry. In the short period since its introduction we have seen a significant participation from the Company’s agents and brokers who have enrolled in the program, increasing the ownership interest of participants, augmenting the shareholder base of the Company, and also creating a self-funding mechanism which provides the Company with capital to invest in initiatives and infrastructure aimed at stimulating continued growth.

Also in keeping with its objective to be an agent-owned brokerage, the Company continues to offer and administer a program whereby agents and brokers 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 three-year period following their eligibility notice, will be awarded shares thereby allowing them to increase their ownership stake in the organization. The board of directors has discretion to reduce the number of shares granted for these activities and modify vesting requirements, which the board will likely use over time to protect against too much dilution resulting from these awards.

The Company’s Making it Rain program was launched in early 2015 in response to the high cost of lead subscription programs marketed and sold by popular third-party data aggregators and syndicators such as Zillow and Trulia. The Making it Rain program provides lead generation services to the Company’s agents and brokers utilizing a number of proprietary strategies, including the aggregation of data gathered from memberships in a large number of multiple listing services across the United States and Canada all at up to a 75% discount to what agents would pay through individual syndicator subscriptions. The Company anticipates continuing to develop and expand the Making it Rain program, 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 adopted the Net Promoter System (NPS) methodology, asking each of its agents and brokers how likely they are to recommend their experience with the Company to another professional within the industry. The Company has conducted three NPS surveys to date and the results consistently have been in the favorable range of 73-81%. Moreover, the surveys yield substantive feedback from agents and brokers on ways in which the Company can augment and improve the agent experience. Management is encouraged by NPS results to date, and will use the broker responses in its effort towards providing the optimum experience for its agents and brokers in order to achieve continued rates of growth and retention that surpass industry standards.

The Company continues to be among the fastest growing, if not the fastest growing real estate brokerage in Austin, Texas since its April 23, 2015 announcement that Gene Frederick had joined the Company. Mr. Frederick previously was the top recruiter of real estate professionals in 2005, 2006, 2012, and 2013 at Keller Williams Realty, the brokerage with which he had been affiliated since 1994, and the largest real estate brokerage in the United States measured by agent count.

The Company continues to increase staffing levels in the areas of Agent Services, Technology Support and Transaction Support, leveraging technology to avoid redundancies in cost, while still delivering an interpersonal and engaging experience for its agents and brokers in support of their business objectives. The Company also maintains a staff dedicated to streamlining the onboarding of new agents; supporting access, adoption, engagement, participation, education and socialization within the Company’s Cloud Office. This has allowed the Company to continue to build an increasingly robust culture of collaboration across borders, personal interaction among agents and staff; and entry into new markets at relatively minimal cost.

MARKET CONDITIONS AND TRENDS

Beginning in 2006, the United States housing market was adversely impacted by a 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. housing 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, management estimates that a significant number of real estate brokerages remain unprofitable; and in the event that market activity slows, traditional brokerage owners will likely feel further pressured as they struggle to drive higher productivity from their existing agents within an operating structure that isn’t responsive to cyclical turns in the market.

Unlike traditional real estate agencies, eXp Realty generally limits its physical footprint to the space that is required by the states in which it operates, rather than establishing an office on every corner. With the continual improvement of high speed internet, the mobility and portability of “the office” has never been greater. Specifically, the eXp model enables entrepreneurial real estate professionals to shed the enormous overhead expenses and staffing costs associated with a traditional office, thereby restoring profitability, while still providing for a percentage of commissions generated by the agents they bring with them or attract. What’s more, agents are able to collaborate with one another and equip themselves of a broad spectrum of proprietary tools and services that facilitate scaling their business in a way that traditional models do not readily support.

Continued upward trends in market activity and acceleration of home values are susceptible to macroeconomic conditions, including signals by the Federal Reserve Bank that it still may raise interest rates in 2015, which could impact new home buyers seeking mortgages as well as existing borrowers with adjustable mortgage rates. The real estate market is also susceptible to impact from a number of other conditions, including employment growth or decline, population trends and the re-entry into the market of former homeowners who suffered delinquencies, foreclosures, short-sales, or bankruptcies during the downturn.

While management remains optimistic that trends point to continued expansion for 2016 and beyond 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.

COMPARATIVE FINANCIAL INFORMATION FROM OUR RESULTS OF OPERATIONS

Three months ended September 30, 2015

Revenues

During the current three month period ended September 30, 2015 net revenues increased $3.54 million to $7.42 million as compared to the prior three month period ended September 30, 2014 when we generated $3.88 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 $3.13 million in the current three month period ended September 30, 2015 as compared to the prior three month period ended September 30, 2014 was driven by the higher amount of net revenues and agent commission rates.

General and administrative includes costs related to wages, stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The decrease in general and administrative costs in the three month period ended September 30, 2015 as compared to the three month period ending September 30, 2014 was driven primarily from a change of $1.47 million benefit relating to intrinsic value of outstanding stock options offset by an increase of $235 thousand in wages expense.

Professional fees include costs related to legal, accounting, and other consultants. Costs increased $65 thousand during the three month period ending September 30, 2015 as compared to the three month period ended September 30, 2014 due to higher consulting fees of $69 thousand offset by lower legal fees of $4 thousand.

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 $27 thousand more in lead capture and $30 thousand more in internet marketing and promotional material created in the three month period ending September 30, 2015 as compared to the three month period ending September 30, 2014.

Nine months ended September 30, 2015

Revenues

During the current nine month period ended September 30, 2015 net revenues increased $6.64 million to $16.45 million as compared to the prior nine month period ended September 30, 2014 when we generated $9.81 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 $5.78 million in the current nine month period ended September 30, 2015 as compared to the prior nine month period ended September 30, 2014 was driven by the higher volume of net revenues and agent commission rates.

General and administrative includes costs related to wages, stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The increase in general and administrative costs of $4.09 million in the nine month period ended September 30, 2015 as compared to the nine month period ending September 30, 2014 was driven primarily from a change of $2.48 million in intrinsic value of the outstanding stock options in addition to $713 thousand in stock compensation expense and $519 thousand in wages.

Professional fees include costs related to legal, accounting, and other consultants. Costs increased $110 thousand during the nine month period ending September 30, 2015 as compared to the nine month period ended September 30, 2014 due to higher legal and consulting fees of $117 thousand offset by lower accounting fees of $7 thousand.

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 $56 thousand more in lead capture and $60 thousand more primarily due to more internet marketing and promotional material created in the nine month period ending September 30, 2015 as compared to the nine month period ending September 30, 2014.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s net working capital increased $188 thousand during the nine month period ending September 30, 2015 as compared to December 31, 2014. The increase is primarily attributable to positive cash flow provided by operations.

The following table presents our cash flows for the nine months ended September 30, 2015 and 2014:

Net cash provided by operating activities for the nine months ended September 30, 2015 was approximately $219 thousand as compared to $148 thousand for the nine months ended September 30, 2014. Our cash provided by operations for the first nine months of 2015 was primarily caused by increases in commission fees, as well as increased participation in the Agent Equity Program which some agents have been paid a portion of their commission income in the form of common stock of the Company thus resulting in $175 thousand less cash outflows for the nine months ended September 30, 2015.

Net cash used in investing activities for the acquisition of fixed assets was $37,821 and $39,174 for the nine months ended September 30, 2015 and September 30, 2014 respectively.

Net cash used by financing activities for the nine months ended September 30, 2015 of $63,059 was for the principal payment on notes payable of $61,877 and the repurchase and retirement of common stock in the amount of $3,132. Net cash provided by financing activities for the nine months ended September 30, 2014 comprised of $59,450 of net proceeds from the issuance of restricted common stock.

Our future capital requirements will depend on many factors, including our level of investment in technology and our rate of growth into new markets. Our capital requirements may be affected by factors which we cannot control such as the residential real estate market, interest rates, and other monetary and fiscal policy changes in which we currently operate. We may have a greater need to fund our business by using our cash and cash equivalents, which could not continue indefinitely without raising additional capital. We believe that we currently have sufficient liquidity and capital resources to meet our existing obligations over the next twelve months.

The Company anticipates that it may desire to raise some financing to help expand operations during the next twelve months through debt and/ or equity instruments, depending on the availability of such financing on terms acceptable to the Company.

We currently have no bank debt or line of credit facilities. In the event that additional financing is required in the future, 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.

CRITICAL ACCOUNTING ESTIMATES

Stock-Based Compensation (Intrinsic Value Method)

As of the date of this report we had 7,170,229 options under our 2013 Incentive Plan outstanding accounted for in accordance with intrinsic value method that were issued prior to becoming a public company. In accordance with US GAAP we are required to remeasure these awards at each reporting date through the date of exercise or other settlement. The changes are recorded as a component of earnings and included in general and administrative expenses. These fluctuations based on, among other factors, our thinly traded market, volatility, and potentially wide bid/asks spreads result in the need for our management to use estimates and judgements related to compensation cost recognition associated with these awards.

Based on our current analysis, a 10% change in fair value as of September 30, 2015 would potentially result in the recognition of approximately $462 thousand in compensation expense (benefit) during a three month period.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

We have non-cancelable operating lease agreements with various expiration dates through November of 2016.

OFF-BALANCE SHEET ARRANGEMENTS

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

Item 3.                   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4.                   CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report we carried out an evaluation of the effectiveness of our disclosure controls and procedures with the participation of our Chief Executive Officer and Chief Financial Officer. In making this assessment, management used the criteria for effective internal control over financial reporting described in the “Internal Control-Integrated Framework” (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was not accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

The determination that our disclosure controls and procedures were not effective was based on the following material weaknesses in our internal control over financial reporting, which were identified in our Annual Report on Form 10-K for the year ended December 31, 2014:

•          Insufficient corporate governance policies. Not all of our corporate processes are formally documented. Decisions made by the board and carried out by management may not be consistently applied or completed timely thereby increasing the likelihood of potential misunderstandings or incorrect implementation regarding key decisions affecting our operations and management.

•          Lack of segregation of accounting duties. We currently do not have a sufficient number of employees to segregate our accounting and recording functions.

•          Our lack of independent directors exercising an oversight role increases the risk of management override and potential fraud.

•          We do not have an independent audit committee with a defined financial expert to provide the appropriate level of monitoring of our financial reporting process.

In light of these material weaknesses, we performed additional analysis and procedures in order to conclude that our financial statements included in this report were fairly stated in accordance with accounting principles generally accepted in the United States. Accordingly, we believe that despite our material weaknesses, our financial statements included in this report are fairly stated, in all material respects, in accordance with United States generally accepted accounting principles.

CHANGES IN INTERNAL CONTROL

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the three months ended September 30, 2015 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.          LEGAL PROCEEDINGS

From time to time, we are involved in lawsuits, claims, investigations and proceedings that arise in the ordinary course of business. There are no matters pending or threatened that we expect to have a material adverse impact on our business, results of operations, financial condition or cash flows.

Item 2.          UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the nine months ended September 30, 2015 the Company did not issue any restricted common stock for cash proceeds.

During the nine months ended September 30, 2015 the Company repurchased and retired 12,530 shares of common stock for $3,132 in cash, all of which were repurchased during the first quarter of 2015.

Item 3.          DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.          MINE SAFETY DISCLOSURES

Not applicable.

Item 5.          OTHER INFORMATION

None.

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.