UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~June~~September 30, 2020

☐ 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: 001-38493

EXP WORLD HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware		98-0681092
(State or other jurisdiction		(IRS Employer
of incorporation)		Identification No.)

2219 Rimland Drive, Suite 301

Bellingham, WA 98226

(Address of principal executive offices and Zip Code)

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


Common Stock, par value $0.00001 per share	EXPI	NASDAQ
(Title of Each Class)	(Trading Symbol)	(Name of each exchange on which registered)

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 every Interactive Data File required to be submitted 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has selected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

There were, ~~68,532,510~~69,952,115 shares of the registrant’s Common Stock, $0.00001 par value, outstanding as of ~~June~~September 30, 2020.

Table of Contents

TABLE OF CONTENTS

Table of Contents

FORWARD LOOKING STATEMENTS

This Quarterly Report ~~and our other public filings contain~~contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements ~~give~~are not based on historical facts but rather represent current expectations ~~or forecasts of future events.~~ and assumptions.

Forward-looking statements can be identified by words such as “believe,” “expect,” “anticipate,” “estimate,” “project,” “plan,” “should,” “intend,” “may,” “will,” “would,” “potential” and similar ~~expressions to future periods. Forward-looking statements are not based on historical facts but rather represent current expectations and assumptions.~~expressions. Forward-looking statements include statements we make about matters such as: ~~future revenues;~~the economic and social effects of the COVID-19 pandemic; growth of our agent and broker base; expansion of our business into foreign markets; demand for virtual meeting places and other remote working solutions; integration of the Showcase business; development and growth of our affiliated services; 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;~~; productivity, business process, ~~rationalization,~~ investment, ~~acquisition and acquisition integrations, consulting,~~ operational, ~~tax,~~ financial and capital projects and initiatives; changes in the regulatory environment; and future working capital, costs, revenues, business opportunities, cash flows, margins, earnings and growth.

Forward-looking statements ~~relate~~involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the ~~future and are subject to many~~forward-looking statements. These risks ~~assumptions,~~ and uncertainties ~~including those risks set forth~~are described under the heading “Risk Factors” in ~~this report~~Part I, Item 1A, and ~~as described~~elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, and in Part I,II, Item ~~IA Risk Factors incorporated by reference. Although we believe the expectations reflected in the~~1A of this Quarterly Report.

Forward-looking statements are based on currently available operating, financial and market information and are inherently uncertain. Investors should not place undue reliance on forward-looking statements, which speak only as of the date they are ~~reasonable, actual~~made and are not guarantees of future performance. Actual future results ~~developments~~ and ~~business decisions could~~trends may differ materially from ~~those contemplated by~~ such forward-looking statements. The environment in which we operate is highly competitive and rapidly changing and it is not possible for our management to predict all risks, as new risks emerge from time to time, such as the rapidly evolving environment and uncertainties relating to the outbreak of a novel strain of coronavirus, that causes COVID-19. The coronavirus continues to spread globally and was declared a pandemic by the World Health Organization in March 2020. As of the end of the second quarter of fiscal year 2020, the COVID -19 pandemic has not had a significant impact on our results of operations, however given the continuous volatility resulting from the ongoing pandemic, the potential effect of COVID-19 may not be fully reflected in our results of operations and financial performance until future periods, if at all.

~~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 statements whether as a result of new information, future developments or otherwise, except as may be required by law.

Table of Contents

PART 1 – FINANCIAL INFORMATION

Item 1.FINANCIAL STATEMENTS

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In ~~thousands)~~thousands, except share amounts and per share data)


	June 30, 2020	December 31, 2019	September 30, 2020	December 31, 2019
	(unaudited)		(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$ 63,551	$ 40,087	$ 91,871	$ 40,087
Restricted cash	17,405	6,987	22,115	6,987
Accounts receivable, net of allowance for credit losses of $1,260 and allowance for bad debt of $137, respectively	52,543	28,196
Accounts receivable, net of allowance for credit losses of $1,346 and allowance for bad debt of $137, respectively			93,482	28,196
Prepaids and other assets	3,302	3,549	3,056	3,549
TOTAL CURRENT ASSETS	136,801	78,819	210,524	78,819
Property, plant, and equipment, net	6,080	5,428	6,751	5,428
Operating lease right-of-use assets	902	1,264	839	1,264
Other noncurrent assets	7	16	7	16
Intangible assets, net	2,837	2,677	3,521	2,677
Goodwill	8,248	8,248	10,558	8,248
TOTAL ASSETS	$ 154,875	$ 96,452	$ 232,200	$ 96,452

LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$ 1,642	$ 2,593	$ 2,610	$ 2,593
Customer deposits	17,405	6,987	22,115	6,987
Accrued expenses	53,839	31,034	91,333	31,034
Current portion of long-term payable	970	916	1,492	916
Current portion of lease obligation - operating lease	727	435	720	435
TOTAL CURRENT LIABILITIES	74,583	41,965	118,270	41,965
Long-term payable, net of current portion	1,585	1,530	2,749	1,530
Long-term lease obligation - operating lease, net of current portion	175	829	118	829
TOTAL LIABILITIES	76,343	44,324	121,137	44,324
EQUITY
Common Stock, $0.00001 par value 220,000 shares authorized; 70,579 issued and 68,532 outstanding in 2020; 66,199 issued and 65,274 outstanding in 2019	1	1
Common Stock, $0.00001 par value 220,000,000 shares authorized; 72,321,867 issued and 69,952,115 outstanding in 2020; 66,199,308 issued and 65,273,944 outstanding in 2019			1	1
Additional paid-in capital	160,643	130,682	187,675	130,682
Treasury stock, at cost: 2,047 and 925 shares held, respectively	(20,610)	(8,623)
Treasury stock, at cost: 2,369,752 and 925,364 shares held, respectively			(29,953)	(8,623)
Accumulated deficit	(61,853)	(70,293)	(46,883)	(70,293)
Accumulated other comprehensive income	147	200	71	200
Total eXp World Holdings, Inc. stockholders' equity	78,328	51,967	110,911	51,967
Equity attributable to noncontrolling interest	204	161	152	161
TOTAL EQUITY	78,532	52,128	111,063	52,128
TOTAL LIABILITIES AND EQUITY	$ 154,875	$ 96,452	$ 232,200	$ 96,452

See Notes to the Condensed Consolidated Financial Statements

Table of Contents

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except share amounts and per share data)

(UNAUDITED)


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019	2020	2019	2020	2019
Revenues	$ 353,525	$ 266,705	$ 624,946	$ 423,739	$ 564,017	$ 282,179	$ 1,188,963	$ 705,918
Operating expenses
Commissions and other agent-related costs	319,164	244,587	562,570	387,129	517,169	259,141	1,079,739	646,270
General and administrative expenses	25,155	23,204	52,015	42,905	30,130	23,597	82,145	66,503
Sales and marketing expenses	887	1,071	1,831	1,960	1,495	1,083	3,326	3,043
Total operating expenses	345,206	268,862	616,416	431,994	548,794	283,821	1,165,210	715,816
Operating income (loss)	8,319	(2,157)	8,530	(8,255)	15,223	(1,642)	23,753	(9,898)
Other expense (income)
Other expense (income), net	11	(10)	49	25
Other expense
Other expense, net					80	173	129	198
Equity in losses of unconsolidated affiliates	12	-	34		-	-	34	-
Total other expense (income), net	23	(10)	83	25
Total other expense, net					80	173	163	198
Income (loss) before income tax expense	8,296	(2,147)	8,447	(8,280)	15,143	(1,815)	23,590	(10,096)
Income tax expense	61	48	70	212	225	32	295	243
Net income (loss)	8,235	(2,195)	8,377	(8,492)	14,918	(1,847)	23,295	(10,339)
Net loss attributable to noncontrolling interest	40	-	63	-	52	-	115	-
Net income (loss) attributable to eXp World Holdings, Inc.	$ 8,275	$ (2,195)	$ 8,440	$ (8,492)	$ 14,970	$ (1,847)	$ 23,410	$ (10,339)

Earnings (loss) per share
Basic	$ 0.12	$ (0.04)	$ 0.13	$ (0.14)	$ 0.22	$ (0.03)	$ 0.35	$ (0.17)
Diluted	$ 0.11	$ (0.04)	$ 0.12	$ (0.14)	$ 0.20	$ (0.03)	$ 0.32	$ (0.17)
Weighted average shares outstanding
Basic	67,756	61,526	66,751	61,138	69,256,733	63,197,495	67,603,551	61,834,376
Diluted	72,661	61,526	72,050	61,138	75,653,407	63,197,495	73,548,056	61,834,376

Comprehensive income (loss):
Net income (loss)	$ 8,235	$ (2,195)	$ 8,377	$ (8,492)	$ 14,918	$ (1,847)	$ 23,295	$ (10,339)
Comprehensive loss attributable to noncontrolling interests	40	-	63		52	-	115	-
Net income (loss) attributable to eXp World Holdings, Inc.	8,275	(2,195)	8,440	(8,492)	14,970	(1,847)	23,410	(10,339)
Other comprehensive income (loss):
Foreign currency translation (loss) gain, net of tax	244	48	(53)	63	(76)	77	(129)	140
Comprehensive income (loss) attributable to eXp World Holdings Inc.	$ 8,519	$ (2,147)	$ 8,387	$ (8,429)
Comprehensive income (loss) attributable to eXp World Holdings, Inc.					$ 14,894	$ (1,770)	$ 23,281	$ (10,199)

See Notes to the Condensed Consolidated Financial Statements

Table of Contents

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In ~~thousands)~~thousands, except share amounts and per share data)

(UNAUDITED)

Accumulated

Additional

Other

Common Stock

Treasury Stock

Paid-In

Accumulated

Comprehensive

Noncontrolling

Total

Shares

Amount

Shares

Amount

Capital

Deficit

Income (Loss)

Interest

Equity
Balance, December 31, 2018

60,609

$ 1

-

$ -

$ 90,756

$ (60,765)

$ (11)

$ -

$ 29,981

-

-

-

-

-

-

-

-

Net loss

-

-

-

-

-

(6,296)

-

-

(6,296)
Shares issued for stock options exercised

134

-

-

-

216

-

-

-

216
Agent growth incentive stock compensation

136

-

-

-

3,669

-

-

-

3,669
Stock option compensation

-

-

-

-

1,215

-

-

-

1,215
Agent equity stock compensation

620

-

-

-

6,210

-

-

-

6,210
Foreign currency translation gain

-

-

-

-

-

-

15

-

15
Repurchase of common stock

-

-

358

(3,647)

-

-

-

-

(3,647)
Balance, March 31, 2019

61,499

$ 1

358

$ (3,647)

$ 102,066

$ (67,061)

$ 4

$ -

$ 31,363
Net loss

-

-

-

-

-

(2,195)

-

-

(2,195)
Shares issued for stock options exercised

537

-

-

-

690

-

-

-

690
Agent growth incentive stock compensation

149

-

-

-

3,587

-

-

-

3,587
Stock option compensation

-

-

-

1,831

-

-

-

1,831
Agent equity stock compensation

935

-

-

-

10,234

-

-

-

10,234
Foreign currency translation gain

-

-

-

-

-

-

48

-

48
Repurchase of common stock

-

-

460

(4,898)

-

-

-

-

(4,898)
Balance, June 30, 2019

63,120

$ 1

818

$ (8,545)

$ 118,408

$ (69,256)

$ 52

$ -

$ 40,660

-

Balance, December 31, 2019

66,199

$ 1

925

$ (8,623)

$ 130,682

$ (70,293)

$ 200

$ 161

$ 52,128
Net income (loss)

165

(23)

142
Shares issued for stock options exercised

1,785

1,828

1,828
Agent growth incentive stock compensation

127

2,551

2,551
Stock option compensation

1,073

1,073
Agent equity stock compensation

917

8,794

8,794
Foreign currency translation (loss)

(297)

(297)
Repurchase of common stock

991

(10,305)

(10,305)
Contributions by noncontrolling interests

86

86
Balance, March 31, 2020

$ 69,028

$ 1

1,916

$ (18,928)

$ 144,928

$ (70,128)

$ (97)

$ 224

$ 56,000
Net income (loss)

-

-

-

-

-

8,275

-

(40)

8,235
Shares issued for stock options exercised

415

-

-

-

639

-

-

-

639
Agent growth incentive stock compensation

208

-

-

-

3,346

-

-

-

3,346
Stock option compensation

-

-

-

-

1,227

-

-

-

1,227
Agent equity stock compensation

928

-

-

-

10,503

-

-

-

10,503
Foreign currency translation (loss)

-

-

-

-

-

-

244

-

244
Repurchase of common stock

-

-

131

(1,682)

-

-

-

-

(1,682)
Contributions by noncontrolling interests

-

-

-

-

-

-

-

20

20
Balance, June 30, 2020

70,579

$ 1

2,047

$ (20,610)

$ 160,643

$ (61,853)

$ 147

$ 204

$ 78,532



								Accumulated
						Additional		Other
	Common Stock		Treasury Stock			Paid-In	Accumulated	Comprehensive	Noncontrolling	Total
	Shares	Amount	Shares	Amount		Capital	Deficit	Income (Loss)	Interest	Equity
Balance, December 31, 2018	60,609,102	$ 1	-	$ -		$ 90,756	$ (60,765)	$ (11)	$ -	$ 29,981
Net loss	-	-	-	-		-	(6,296)	-	-	(6,296)
Shares issued for stock options exercised	134,260	-	-	-		216	-	-	-	216
Agent growth incentive stock compensation	136,194	-	-	-		3,669	-	-	-	3,669
Stock option compensation	-	-	-	-		1,215	-	-	-	1,215
Agent equity stock compensation	620,287	-	-	-		6,210	-	-	-	6,210
Foreign currency translation gain	-	-	-	-		-	-	15	-	15
Repurchase of common stock	-	-	357,752	(3,647)		-	-	-	-	(3,647)
Balance, March 31, 2019	61,499,843	$ 1	357,752	$ (3,647)		$ 102,066	$ (67,061)	$ 4	$ -	$ 31,363
Net loss	-	-	-	-		-	(2,195)	-	-	(2,195)
Shares issued for stock options exercised	536,613	-	-	-		690	-	-	-	690
Agent growth incentive stock compensation	149,008	-	-	-		3,587	-	-	-	3,587
Stock option compensation		-	-	-		1,831	-	-	-	1,831
Agent equity stock compensation	935,177	-	-	-		10,234	-	-	-	10,234
Foreign currency translation gain	-	-	-	-		-	-	48	-	48
Repurchase of common stock	-	-	460,093	(4,898)		-	-	-	-	(4,898)
Balance, June 30, 2019	63,120,641	$ 1	817,845	$ (8,545)		$ 118,408	$ (69,256)	$ 52	$ -	$ 40,660
Net loss	-	-	-	-		-	(1,847)	-	-	(1,847)
Shares issued for stock options exercised	1,224,756	-	-	-		646	-	-	-	646
Agent growth incentive stock compensation	878,083	-	-	-		2,603	-	-	-	2,603
Stock option compensation		-	-	-		1,060	-	-	-	1,060
Agent equity stock compensation	1,252,540	-	-	-		11,110	-	-	-	11,110
Foreign currency translation gain	-	-	-	-		-	-	77	-	77
Repurchase of common stock	-	-	968,100	(9,104)		-	-	-	-	(9,104)
Balance, September 30, 2019	66,476,020	$ 1	1,785,945	$ (17,649)		$ 133,827	$ (71,103)	$ 129	$ -	$ 45,205

								Accumulated
						Additional		Other
	Common Stock		Treasury Stock			Paid-In	Accumulated	Comprehensive	Noncontrolling	Total
	Shares	Amount	Shares	Amount		Capital	Deficit	Income (Loss)	Interest	Equity
Balance, December 31, 2019	66,199,308	$ 1	925,364	$ (8,623)		$ 130,682	$ (70,293)	$ 200	$ 161	$ 52,128
Net income (loss)	-	-	-	-	-	-	165	-	(23)	142
Shares issued for stock options exercised	1,785,048	-	-	-	-	1,828	-	-	-	1,828
Agent growth incentive stock compensation	127,106	-	-	-		2,551	-	-	-	2,551
Stock option compensation		-	-	-		1,073	-	-	-	1,073
Agent equity stock compensation	916,528	-	-	-		8,794	-	-	-	8,794
Foreign currency translation (loss)	-	-	-	-	-	-	-	(297)	-	(297)
Repurchase of common stock	-	-	991,241	(10,305)		-	-	-	-	(10,305)
Contributions by noncontrolling interests	-	-	-	-	-	-	-	-	86	86
Balance, March 31, 2020	69,027,990	$ 1	1,916,605	$ (18,928)		$ 144,928	$ (70,128)	$ (97)	$ 224	$ 56,000
Net income (loss)	-	-	-	-		-	8,275	-	(40)	8,235
Shares issued for stock options exercised	415,241	-	-	-		639	-	-	-	639
Agent growth incentive stock compensation	207,612	-	-	-		3,346	-	-	-	3,346
Stock option compensation	-	-	-	-		1,227	-	-	-	1,227
Agent equity stock compensation	928,320	-	-	-		10,503	-	-	-	10,503
Foreign currency translation gain	-	-	-	-		-	-	244	-	244
Repurchase of common stock	-	-	131,173	(1,682)		-	-	-	-	(1,682)
Contributions by noncontrolling interests	-	-	-	-		-	-	-	20	20
Balance, June 30, 2020	70,579,163	$ 1	2,047,778	$ (20,610)		$ 160,643	$ (61,853)	$ 147	$ 204	$ 78,532
Net income (loss)	-	-	-	-		-	14,970	-	(52)	14,918
Shares issued for stock options exercised	653,023	-	-	-		2,244	-	-	-	2,244
Agent growth incentive stock compensation	468,884	-	-	-		2,980	-	-	-	2,980
Stock option compensation	-	-	-	-		1,879	-	-	-	1,879
Agent equity stock compensation	620,797	-	-	-		19,929	-	-	-	19,929
Foreign currency translation (loss)	-	-	-	-		-	-	(76)	-	(76)
Repurchase of common stock	-	-	321,974	(9,343)		-	-	-	-	(9,343)
Balance, September 30, 2020	72,321,867	$ 1	2,369,752	$ (29,953)		$ 187,675	$ (46,883)	$ 71	$ 152	$ 111,063

See Notes to the Condensed Consolidated Financial Statements

Table of Contents

EXP WORLD HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(UNAUDITED)

Six Months Ended June 30,

2020

2019
OPERATING ACTIVITIES

Net income (loss)

$ 8,377

$ (8,492)
Reconciliation of net income (loss) to net cash provided by operating activities:

Depreciation expense

1,551

823
Amortization expense - intangible assets

230

151
Amortization expense - long-term payable

107

100
Allowance for credit losses/bad debt on receivables

1,123

1
Equity in loss of unconsolidated affiliates

34

-
Agent growth incentive stock compensation expense

6,765

7,257
Stock option compensation

2,300

3,046
Agent equity stock compensation expense

19,297

16,444
Changes in operating assets and liabilities:

Accounts receivable

(25,471)

(33,356)
Prepaids and other assets

318

(35)
Customer deposits

10,418

3,597
Accounts payable

(951)

431
Accrued expenses

21,938

34,809
NET CASH PROVIDED BY OPERATING ACTIVITIES

46,036

24,776

INVESTING ACTIVITIES

Purchases of property, plant and equipment

$ (2,273)

$ (1,907)
Acquisition of businesses, net of cash acquired

-

(500)
Intangible assets acquired

(389)

(178)
Other investing activities

(25)

-
NET CASH USED IN INVESTING ACTIVITIES

(2,687)

(2,585)
FINANCING ACTIVITIES

Repurchase of common stock

(11,987)

(8,545)
Proceeds from exercise of options

2,467

906
Transactions with noncontrolling interests

106

-
NET CASH USED IN FINANCING ACTIVITIES

(9,414)

(7,639)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash

(53)

96
Net change in cash, cash equivalents and restricted cash

33,882

14,648
Cash, cash equivalents and restricted cash, beginning balance

47,074

23,041
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE

$ 80,956

$ 37,689

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:

Cash paid for income taxes

$ 224

$ 229

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Lease liabilities arising from obtaining right-of-use assets

$ 18

$ 357
Termination of lease liabilities

183

-
Property, plant and equipment purchases in accounts payable

24

22


	Nine Months Ended September 30,
	2020	2019
OPERATING ACTIVITIES
Net income (loss)	$ 23,295	$ (10,339)
Reconciliation of net income (loss) to net cash provided by operating activities:
Depreciation expense	2,403	1,381
Amortization expense - intangible assets	382	235
Amortization expense - long-term payable	152	154
Allowance for credit losses on receivables/bad debt on receivables	1,209	1
Equity in loss of unconsolidated affiliates	34	-
Agent growth incentive stock compensation expense	10,476	10,760
Stock option compensation	4,179	4,106
Agent equity stock compensation expense	39,226	27,555
Changes in operating assets and liabilities:
Accounts receivable	(66,490)	(18,611)
Prepaids and other assets	494	(745)
Customer deposits	15,128	5,384
Accounts payable	16	3
Accrued expenses	58,702	19,891
NET CASH PROVIDED BY OPERATING ACTIVITIES	89,206	39,775

INVESTING ACTIVITIES
Purchases of property, plant and equipment	$ (3,691)	$ (3,404)
Acquisition of businesses, net of cash acquired	(1,362)	(500)
Intangible assets acquired	(573)	(210)
Other investing activities	(25)	-
NET CASH USED IN INVESTING ACTIVITIES	(5,651)	(4,114)

FINANCING ACTIVITIES
Repurchase of common stock	(21,330)	(17,649)
Proceeds from exercise of options	4,710	1,552
Transactions with noncontrolling interests	106	-
NET CASH USED IN FINANCING ACTIVITIES	(16,514)	(16,097)

Effect of changes in exchange rates on cash, cash equivalents and restricted cash	(129)	44

Net change in cash, cash equivalents and restricted cash	66,912	19,608
Cash, cash equivalents and restricted cash, beginning balance	47,074	23,041
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING BALANCE	$ 113,986	$ 42,649

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for income taxes	$ 676	$ 265
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Termination of lease liabilities	$ 200	$ -
Lease liabilities arising from obtaining right-of-use assets	33	1,454
Property, plant and equipment purchases in accounts payable	111	30
Liabilities incurred associated with a business acquisition	1,500	-
Liabilities assumed in business acquisition	140	-
Intangible assets in accounts payable	-	140

See Notes to the Condensed Consolidated Financial Statements

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eXp World Holdings, Inc.

Notes to the Condensed Consolidated Financial Statements

(UNAUDITED)

(Amounts in thousands, except share amounts and per share ~~data and as noted otherwise)~~data)

1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

eXp World Holdings, Inc. (collectively with its subsidiaries, the “Company” or “eXp”) was incorporated in the State of Delaware on July 30, 2008. Through various operating subsidiaries, the Company primarily operates a cloud-based real estate brokerage operating throughout the United States and most of the Canadian provinces, as well as an emerging innovation and technology services company that supports the real estate brokerage operations and third party customers operating in a number of industries. In the fourth quarter of 2019, the Company began real estate brokerage operations in the United Kingdom (U.K.) and Australia. The Company focuses on 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. eXp World Technologies, LLC, a wholly-owned direct subsidiary of the Company, represents its innovation and technology division, which now holds the VirBELA brand. VirBELA is an immersive technology platform for businesses, events, and education that provides a virtual experience for workers, attendees, students, and other users to communicate, collaborate, meet, and socialize.

In the fourth quarter of 2019, the Company made capital contributions in consideration for an ownership interest in First Cloud Investment Group, LLC (“First Cloud”), a Nevada limited liability company, with the remaining ownership interest held by certain independent agents and brokers. First Cloud was organized for the purpose of managing IntroLend First Cloud, LLC (“IntroLend First Cloud”), a Delaware limited liability company and an indirect subsidiary of the Company that provides mortgage origination for end-consumers. Under the terms of the operating agreement, the Company will maintain 50% equity ownership interest in First Cloud. During the start-up phase, eXp holds an interest in First Cloud greater than 50%. As eXp agents invest in First Cloud, agents’ interests will increase until the interest for both eXp and the aggregate agents’ interests each equal 50%. Refer to Note 1113 – Variable Interest Entities for more information.

In the fourth quarter of 2019, the Company and its newly formed subsidiary, eXp Silverline Ventures, LLC, entered into an agreement to purchase a 50% ownership interest in Silverline Title & Escrow, LLC (“Silverline”) with the remaining ownership interest held by a third-party investment entity. Silverline represents an unconsolidated equity investment by eXp Silverline Ventures, LLC. Silverline is a title agency that performs, among other functions, core title agent services (for which liabilities arises), including the evaluation of searches to determine the insurability of title, the clearance of underwriting objections, the issuance of polices on behalf of insurance companies, and, where customary, the issuance of title commitments and the conducting of title searchers.

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form ~~10-~~Q10-Q and Article 10-01 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.

These interim financial statements should be read in conjunction with the audited consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 12, 2020 (“2019 Annual Report”). The Company’s condensed consolidated financial statements as of and for the ~~six~~three and nine months ended ~~June~~September 30, 2020 are reported in thousands, whereas the Company’s consolidated financial statements as of and for the year ended December 31, 2019 were reported in whole dollars in the 2019 Annual Report.

In our opinion, the accompanying interim unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Operating results for the three- and ~~six-month~~nine-month periods ended ~~June~~September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of eXp World Holdings, Inc., its wholly-owned subsidiaries, and those entities where the Company has greater than 50% ownership or where the Company exercises control over the operations. If the Company has a variable interest in an entity but it is not the primary beneficiary of the entity or exercises control over the operations and has less than 50% ownership, it will use the

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equity method or the cost method of accounting for investments. The Company uses the equity method of accounting for entities in which the Company holds a 50% or less investment and exercises significant influence. Entities in which the Company has less than a 20% investment and where the Company does not exercise significant influence are accounted for under the cost method. Intercompany transactions and balances are eliminated upon consolidation. See Note 1113 – Variable Interest Entities.

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Noncontrolling Interest

The Company determined that First Cloud is a variable interest entity (“VIE”), as the Company is the primary beneficiary that has both the power to direct the activities that most significantly impact the VIE and a variable interest that potentially could be significant to the VIE. The Company treats the interest in First Cloud that it does not own as noncontrolling interest. The noncontrolling interest balance is adjusted each period to reflect the allocation of net income (loss) and other comprehensive income (loss) attributable to the noncontrolling interest, as shown in the condensed consolidated statements of comprehensive income (loss). The noncontrolling interest balance in the condensed consolidated balance sheets represents the proportional share of the equity of the joint venture ~~entities,~~entity, which is attributable to the minority shareholders.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 to allowance for doubtful accounts, legal contingencies, income taxes, revenue recognition, stock-based compensation, goodwill, 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.

Reclassifications

The Company has reclassified certain amounts in prior-period financial statements to conform to the current period’s presentation, specifically the allowance for credit losses/bad debt on receivables is now separately disclosed as its own line item on the Company’s Condensed Consolidated Statement of Cash Flows, previously it was included in the accounts receivable line item.

Cash and cash equivalents

The Company considers all highly liquid investments with maturity when purchased of three months or less to be cash equivalents. From time to time, the Company’s cash deposits exceed federally insured limits. The Company has not experienced any losses resulting from holding deposits in accounts in excess of federal insurance limits.

Restricted cash

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown on the condensed consolidated statements of cash flows.


	December 31, 2019	December 31, 2018	December 31, 2019	December 31, 2018
Cash and cash equivalents	$ 40,087	$ 20,538	$ 40,087	$ 20,538
Restricted cash	6,987	2,503	6,987	2,503
Total cash, cash equivalents, and restricted cash, beginning balance	$ 47,074	$ 23,041	$ 47,074	$ 23,041

	June 30, 2020	June 30, 2019	September 30, 2020	September 30, 2019
Cash and cash equivalents	$ 63,551	$ 31,523	$ 91,871	$ 34,736
Restricted cash	17,405	6,166	22,115	7,913
Total cash, cash equivalents, and restricted cash, ending balance	$ 80,956	$ 37,689	$ 113,986	$ 42,649

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Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers. The Company recognizes a corresponding customer deposit liability until the funds are released. Once the cash transfers from escrow, the Company reduces the respective customers’ deposit liability.

Stock-based compensation

Stock-based compensation is comprised of agent growth incentive programs, agent equity program, and stock option awards. Stock-based compensation is more fully disclosed in Note 6 – Equity. The Company accounts for stock-based compensation granted to employees and non-employees using a fair value method. Stock-based compensation awards are measured at the grant date fair value and stock based compensation is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of forfeitures. The Company reduces recorded stock-based compensation for forfeitures when they occur.

Recognition of compensation cost for an award with a performance condition is based on the probable outcome of that performance condition being met.

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Goodwill

Goodwill represents the excess of the consideration paid over the estimated fair value of assets acquired and liabilities assumed in a business combination. The Company evaluates goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that would more likely than not indicate that the fair value of the goodwill is below its carrying value. Generally, this evaluation begins with a qualitative assessment to determine if the fair value of the reporting unit is more likely than not less than its carrying value. The test for impairment requires management to make judgments relating to future cash flows, growth rates and economic and market conditions. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred.

Revenue recognition

The Company generates substantially all of its revenue from real estate brokerage services and generates a de minimis portion of its revenues from software subscription and professional services.

Real Estate Brokerage Services

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing residential real estate transactions. The Company is contractually obligated to provide services for the fulfillment of transfers of residential real estate between buyers and sellers. The Company provides these services itself and controls the services necessary to legally transfer the residential real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a residential real estate transaction. As principal, and upon satisfaction of the performance obligation, the Company recognizes revenue in the gross amount of consideration to which the Company expects to be entitled.

Revenue is derived from assisting home buyers and sellers in listing, marketing, selling, and finding residential real estate. Commissions earned on real estate transactions are recognized at the completion of a residential real estate transaction once the Company has satisfied the performance obligation. Agent related fees are currently recorded as a reduction to commissions and other agent related costs.

Software Subscription and Professional Services

Subscription revenue is derived from fees from customers to access the Company’s virtual reality software platform. The terms of subscriptions do not provide customers the right to take possession of the software. Subscription revenue is generally recognized ratably over the contract term.

Professional services revenue is derived from implementation and consulting services. Professional services revenue is typically recognized over time as the services are rendered, using an efforts-expended (labor hours) input method.

Software subscription and professional services revenue accounts for less than 1% of all revenue for the three and ~~six~~nine months ended ~~June~~September 30, 2020 and 2019.

The Company does not currently collect sales and use taxes on fees from agents and brokers and assumes responsibility to pay these costs to the appropriate taxing authorities.

Disaggregated revenue

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The Company primarily operates as a real estate brokerage firm. The vast majority of the Company’s revenue is derived from providing a single service, real estate brokerage services, to purchasers and sellers of homes in the U.S. See Note 1012 – Segment information for details regarding segment and geographic information.

Management believes that no disaggregation of revenue from services to customers currently exists that would provide additional insight into the future recognition of revenue and cash flows.

Recently Adopted Accounting Principles and Change in Accounting Principle

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). ASU 2016-13 modifies the measurement of expected credit losses of certain financial instruments, requiring entities to estimate an expected lifetime credit loss on financial assets. The ASU amends the impairment model to utilize an expected loss methodology and replaces the incurred loss methodology for financial instruments including trade receivables. The amendment requires entities to consider other factors, such as economic conditions and future economic conditions. The Company adopted ASU 2016-13 effective January 1, 2020 and concluded it did not have a material impact on either the financial position, results of operations, cash flows, or related disclosures of the Company. There was no impact on beginning balance retained earnings upon adoption of this ASU. See Note 3 – Expected Credit Losses for more information.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which removes certain disclosure requirements related to the

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fair value hierarchy, such as removing the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2, modifies existing disclosure requirements related to measurement uncertainty and adds new disclosure requirements, such as disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurement. The Company adopted ASU 2018-13 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15 – Intangibles – Goodwill and Other Internal-Use Software (Subtopic 350-40) – Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract (“ASU 2018-15”). The amendments in this update apply to an entity who is a customer in a hosting arrangement accounted for as a service contract. ASU 2018-15 requires a customer in a hosting arrangement to capitalize certain implementation costs. Costs associated with the application development stage of the implementation should be capitalized and costs with the other stages should be expensed. The Company adopted ASU 2018-15 on January 1, 2020 and concluded it did not have an impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 – Income Taxes (Topic 740) (“ASU 2019-12”). ASU 2019-12 removes certain exceptions for investments, intraperiod allocations and interim calculations and adds guidance to reduce complexity in accounting for income taxes. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020; early adoption is permitted. The Company is still assessing the amendments of ASU 2019-12 and the impact the amendments will have on the Company’s consolidated financial statements and related disclosures.

3.EXPECTED CREDIT LOSSES

The Company is exposed to credit losses primarily through trade and other financing receivables arising from revenue transactions. The Company uses the aging schedule method to estimate current expected credit losses (“CECL”) based on days of delinquency, including information about past events and current economic conditions. The Company’s accounts receivable is separated into three categories to evaluate allowance under the CECL impairment model. The receivables in each category share similar risk characteristics. The three categories include agent non-commission based fees, agent short-term advances, and commissions receivable for real estate property settlements.

The Company analyzed ~~collectability~~uncollectable accounts for the three categories of receivables and concluded that only agent non-commission based fees receivables and agent short-term advances carry any risk of expected credit losses. Current economic conditions and forecasts of future economic conditions do not affect expected credit losses of or ~~collectability of~~uncollectable real estate property settlements. The collection of these payments ~~are~~is in-substance guaranteed because they represent commission payments on closed transactions, and the Company has no historical experience or expectation of losses related to these receivables. Receivables from real estate property settlements totaled ~~$49,186~~$90,981 as of ~~June~~September 30, 2020. As of

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~~June~~ September 30, 2020, agent non-commission based fees receivable and short-term advances totaled ~~$3,357,~~$3,847, of which the Company recognized expected credit losses of ~~$1,260.~~$1,346.

The Company increases the allowance for expected credits losses when the Company determines all or a portion of a receivable is ~~uncollectible.~~uncollectable. The Company recognizes recoveries as a decrease to the allowance for expected credit losses.

Changes in the allowance were not material for the ~~six~~three and nine months ended ~~June~~September 30, 2020.

4.PLANT, PROPERTY AND EQUIPMENT, NET

Fixed assets, net consisted of the following:


	June 30, 2020	December 31, 2019	September 30, 2020	December 31, 2019
Computer hardware and software	$ 10,983	$ 8,431	$ 11,890	$ 8,431
Furniture, fixture, and equipment	20	21	20	21
Total depreciable property and equipment	11,003	8,452	11,910	8,452
Less: accumulated depreciation	(4,929)	(3,378)	(5,845)	(3,378)
Depreciable property, net	6,074	5,074	6,065	5,074
Assets under development	6	354	686	354
Property, plant and equipment, net	$ 6,080	$ 5,428	$ 6,751	$ 5,428

For the three months ended ~~June~~September 30, 2020 and 2019, depreciation expense was ~~$794~~$852 and ~~$455,~~$559, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, depreciation expense was ~~$1,551~~$2,403 and ~~$823,~~$1,381, respectively.

5.GOODWILL AND INTANGIBLE ASSETS

Goodwill was $10,558 as of September 30, 2020 and $8,248 as of December 31, 2019.

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5.~~GOODWILL AND INTANGIBLE ASSETS~~

~~Goodwill was $8,248~~On July 31, 2020, the Company acquired Showcase Web Sites, LLC (“Showcase”) for total consideration of $3.0 million, including goodwill of $2.3 million. The Showcase acquisition has been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired, and assumed liabilities based on their estimated fair values as of ~~June 30, 2020~~the acquisition date, as determined by management. The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill. Goodwill generated from the acquisition is primarily attributable to an assembled workforce and ~~December 31, 2019.~~planned expansion of Showcase into new markets.

Due to the ongoing COVID-19 pandemic, the Company assessed the current economic environment and its goodwill for impairment during the ~~six~~nine months ended ~~June~~September 30, 2020. The current assessment combined with the performance and expected forecast in relation to the results of the annual impairment test performed for 2019 indicated that it was not more likely than not that goodwill was impaired.

Definite-lived intangible assets were as follows:


	June 30, 2020			December 31, 2019			September 30, 2020			December 31, 2019
	Gross	Accumulated	Net Carrying	Gross	Accumulated	Net Carrying	Gross	Accumulated	Net Carrying	Gross	Accumulated	Net Carrying
	Amount	Amortization	Amount	Amount	Amortization	Amount	Amount	Amortization	Amount	Amount	Amortization	Amount
Trade name	$ 1,169	$ (185)	$ 984	$ 1,169	$ (127)	$ 1,042	$ 1,446	$ (214)	$ 1,232	$ 1,169	$ (127)	$ 1,042
Existing technology	948	(206)	742	559	(99)	460	1,267	(288)	979	559	(99)	460
Non-competition agreements	125	(66)	59	125	(45)	80	125	(77)	48	125	(45)	80
Customer relationships	740	(117)	623	740	(80)	660	980	(135)	845	740	(80)	660
Software	225	-	225	225	-	225	225	-	225	225	-	225
Licensing agreement	210	(6)	204	210	-	210	210	(18)	192	210	-	210
Total intangible assets	$ 3,417	$ (580)	$ 2,837	$ 3,028	$ (351)	$ 2,677	$ 4,253	$ (732)	$ 3,521	$ 3,028	$ (351)	$ 2,677

Definite-lived intangible assets are amortized using the straight-line method over ~~its~~an asset’s estimated useful life. Amortization expense for definite-lived intangible assets for the three months ended ~~June~~September 30, 2020 and 2019 was ~~$126~~$152 and ~~$78,~~$83, respectively. Amortization expense for definite-lived intangible assets for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019 was ~~$230~~$382 and ~~$151,~~$235, respectively.

In connection with the Showcase acquisition, the Company acquired identifiable intangible assets. The purchase price allocation to identifiable intangible assets acquired were valued at a total of $652, including $277 for tradename, $135 for existing technology, and $240 for customer contracts.

The allocation of the fair value of the acquired business was based on preliminary valuations of the estimated net fair value of the assets acquired. The fair value estimates of the assets acquired are subject to adjustment during the measurement period (up to one year from the acquisition date of July 31, 2020).

6.EQUITY

As of ~~June~~September 30, 2020, the Company had ~~70,579~~72,321,867 shares of common stock issued and ~~68,532~~69,952,115 shares outstanding.

The Company’s shareholder approved equity plans are administered under the 2013 Stock Option Plan and the 2015 Equity Incentive Plan. The purpose of the equity plans is to retain the services of valued employees, directors, officers, agents, and consultants and to incentivize such persons to make contributions to the Company and motivate excellent performance.

Agent Equity Program

The Company provides agents and brokers the opportunity to elect to receive 5% of commissions earned from each completed residential real estate transaction in the form of common stock. If agents and brokers elect to receive portions

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of their commissions in common stock, they are entitled to receive the equivalent number of shares of common stock, based on the fixed monetary value of the commission payable. Prior to January 1, 2020, the Company recognized a 20% discount on these issuances as an additional cost of sales charge during the periods presented. Beginning in January 2020, the Company amended the Agent Equity Plan and changed the discount on issued shares from 20% to 10%.

During the three months ended ~~June~~September 30, 2020 and 2019, the Company issued approximately ~~928~~620,797 and ~~935~~1,252,540 shares of common stock, respectively, to agents and brokers for ~~$10,503~~$19,929 and ~~$10,234,~~$11,110, respectively, net of discount. During the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, the Company issued approximately ~~1,563~~2,465,645 and ~~1,555~~2,808,004 shares of common stock, respectively, to agents and brokers for ~~$19,297~~$39,226 and ~~$16,444,~~$27,554, respectively, net of discount.

Agent Growth Incentive Program

The Company administers an equity incentive program whereby agents and brokers become eligible to receive awards of the Company’s common stock through agent attraction and performance benchmarks. The incentive program encourages greater performance and awards agents with common stock based on achievement of performance milestones. Awards typically vest after

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performance benchmarks are reached and three years of subsequent service is provided to the Company. Share-based performance awards are based on a fixed-dollar amount of shares based on the achievement of performance metrics. As such, the awards are classified as liabilities until the number of share awards becomes fixed once the performance metric is achieved. For the three months ended ~~June~~September 30, 2020, the Company’s stock compensation attributable to the Agent Growth Incentive Program was ~~$3,246,~~$3,711, of which the total amount of stock compensation attributable to liability classified awards was ~~$483.~~$731. For the ~~six~~nine months ended ~~June~~September 30, 2020, the Company’s stock compensation attributable to the Agent Growth Incentive Program was ~~$6,765,~~$10,476, of which the total amount of stock compensation attributable to liability classified awards was ~~$1,525.~~$2,256. Stock compensation expense related to the Agent Growth Incentive Program is included in general and administrative expense in the condensed consolidated statements of comprehensive income (loss).

The following table illustrates changes in the Company’s stock compensation liability for the ~~six~~nine months ended ~~June~~September 30, 2020:


Balance, December 31, 2019		$ 277
Stock grant liability increase at March 31, 2020		1,042
Stock grants reclassified from liability to equity at March 31, 2020		(75)
Stock grant liability increase at June 30, 2020		483
Stock grants reclassified from liability to equity at June 30, 2020		(582)
Stock grant liability increase at September 30, 2020		731
Balance, ~~June~~September 30, 2020		$ ~~1,145~~1,876

Stock Option Awards

During the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company granted ~~248~~1,117,708 and ~~399~~1,516,751 stock options, respectively, to employees with an estimated grant date fair value of ~~$10~~$21.39 and ~~$9.69~~$18.32 per share, respectively. The fair value was calculated using a Black Scholes-Merton option pricing model.

On July 31, 2020, the Compensation Committee of the Company’s Board of Directors approved compensation changes for Glenn Sanford, Chief Executive Officer and Chairman of the Board of the Company. The Board-approved compensation package is composed of two option grants, each for 500,000 options. One of the 500,000 option grants for common stock in eXp subject to the terms of the Company’s 2015 Equity Incentive Plan, as amended, that shall vest monthly over three years. An additional 500,000 options to be granted subject to the terms of the Company’s 2015 Equity Incentive Plan, as amended, vesting quarterly over three years subject to certain performance metrics.

Stock Repurchase Plan

In December 2018, the Company’s board of directors (“the Board”) approved a stock repurchase program authorizing the Company to purchase up to $25 million of its common stock, which was later amended in November of 2019 to increase the authorized repurchase amount to $75 million. Purchases under the repurchase program may be made in the open market or through a 10b5-1 plan and are expected to comply with Rule 10b-18 under the Securities Exchange Act of 1934, as amended. The timing and number of shares repurchased depends upon market conditions. The repurchase program does not require the Company to acquire a specific number of shares. The cost of the shares that are repurchased is funded from available working capital.

The repurchase program began on January 2, 2019 and was discontinued in March 2020. In June 2020 the stock repurchase plan resumed due to the Company’s better than expected performance for the first half of 2020.

For accounting purposes, common stock repurchased under the stock repurchase programs is recorded based upon the settlement date of the applicable trade. Such repurchased shares are held in treasury and are presented using the cost method. During the three and ~~six~~nine months ended ~~June~~September 30, 2020, the Company repurchased ~~131~~321,974 and ~~1,122~~1,444,388 shares, respectively, of common stock at a total cost of ~~$1,682~~$9,343 and ~~$11,987,~~$21,330, respectively. These shares are considered issued but not outstanding.

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7.EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share is computed based on net income (loss) attributable to eXp ~~World Holdings Inc.~~ shareholders divided by the basic weighted-average shares outstanding during the period. Dilutive earnings per share is computed consistently with the basic computation while giving effect to all dilutive potential common shares and common share equivalents that were outstanding during the period. The Company uses the treasury stock method to reflect the potential dilutive effect of unvested stock awards and unexercised options. The Company uses the if-converted method to reflect the potential dilutive effect of the stock settled consideration in connection with the VirBELA acquisition.

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The following table sets forth the calculation of basic and diluted earnings per share attributable to common stock during the periods presented:


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019	2020	2019	2020	2019
Numerator:
Net income (loss) attributable to common stock	$ 8,275	$ (2,195)	$ 8,440	$ (8,492)	$ 14,970	$ (1,847)	$ 23,410	$ (10,339)
Denominator:		-				-
Weighted average shares - basic	67,756	61,526	66,751	61,138	69,256,733	63,197,495	67,603,551	61,834,376
Weighted average shares - diluted	72,661	61,526	72,050	61,138	75,653,407	63,197,495	73,548,056	61,834,376
Earnings (loss) per share:		-				-
Earnings (loss) per share attributable to common stock- basic	0.12	(0.04)	0.13	(0.14)	$ 0.22	$ (0.03)	$ 0.35	$ (0.17)
Earnings (loss) per share attributable to common stock- diluted	0.11	(0.04)	0.12	(0.14)	0.20	(0.03)	0.32	(0.17)

Total outstanding shares of common stock for the three months ended ~~June~~September 30, 2020 excluded 78,311 shares from the computation of diluted earnings per share because their effect would have been ~~anti-dilutive were 411.~~anti-dilutive.

Total outstanding shares of common stock for the ~~six~~nine months ended ~~June~~September 30, 2020 excluded 77,363 shares from the computation of diluted earnings per share because their effect would have been ~~anti-dilutive were 402.~~anti-dilutive.

8.FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. The fair value hierarchy prioritizes the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:

●

Level 1 – Inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs).

●

Level 2 – Inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary substantially).

●

Level 3 – Inputs are unobservable inputs that reflect the entity's own assumptions in pricing the asset or liability (used when little or no market data is available).

The Company holds funds in a money market account, which are considered Level 1 assets. The Company values its money market funds at fair value on a recurring basis.

As of ~~June~~September 30, 2020 and December 31, 2019, the fair value of the Company’s money market funds was ~~$18,369~~$33,378 and $18,281, respectively.

There have been no transfers between Level 1, Level 2 and Level 3 in the period presented. The Company did not have any Level 2 or Level 3 financial assets or liabilities in the period presented.

9.LEASES

The Company’s lease portfolio consists of office leases with lease terms ranging from less than one year to seven years, with the weighted average lease term being three years.

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Certain leases provide for increases in future lease payments once the term of the lease has expired, as defined in the lease agreements. These leases generally also include real estate taxes.

Short term leases, having a lease term at commencement of 12 months or less, are not capitalized and the expenses are recognized in the period incurred.

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Included below is other information regarding leases for the ~~six~~three and nine months ended ~~June~~September 30, 2020:


	Three Months Ended June 30,		Six Months Ended June 30,		Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019	2020	2019	2020	2019
Other information
Operating lease expense	$ 104	$ 28	$ 208	$ 52	$ 103	$ 77	$ 328	$ 136
Short-term lease expense	5	8	10	14	2	6	12	21
Cash paid for operating leases	107	29	204	59	103	77	327	136
Weighted-average remaining lease term (years)– operating leases⁽¹⁾	3.7	3	3.7	3
Weighted-average remaining lease term (years) – operating leases⁽¹⁾					3.8	3	3.8	3
Weighted-average discount rate – operating leases	4.851%	4.850%	4.851%	4.850%	4.851%	4.850%	4.851%	4.850%

(1)

The Company’s lease terms include options to extend the lease when it is reasonably certain the Company will exercise its option. Additionally, the Company considered any historical and economic factors in determining if a lease renewal or termination option would be exercised.

As of ~~June~~September 30, 2020, maturities of lease liabilities by fiscal year were as follows:


Remaining 2020	$ 198	$ 124
2021	314	311
2022	277	282
2023	165	165
2024	5	5
2025 and thereafter	6	6
Total lease payments	965	893
Less: interest	(63)	(54)
Total operating lease liabilities	$ 902	$ 839

10.DEBT

The Company issued unsecured promissory notes in the aggregate principal amount of $1.5 million in connection with the Showcase acquisition in July 2020. The promissory notes accrue interest of 8% per annum, and interest is payable monthly beginning six months after the closing date.

The first installment payment of outstanding principal in the amount of $0.5 million is due on July 31, 2021, the first anniversary of the closing date, with the second installment payment for the remaining $1.0 million of outstanding principal payable on July 31, 2022, the second anniversary of the closing date.

11.INCOME TAXES

The Company’s quarterly tax provision is based upon an estimated annual effective tax rate. The Company’s provision for income taxes has not been historically significant to the business as the Company has incurred operating losses to date. The company has non-U.S. activities and is subject to local country income tax. The provision for income taxes consists primarily of state taxes in jurisdictions in which the Company conducts business.

The Company’s provision for income taxes was $0.23 million and $0.30 million for the three and nine months ended September 30, 2020, respectively, with an effective tax rate of 1.38% and 1.22%, respectively, and $0.03 million and $0.24 million for the three and nine months ended September 30, 2019, respectively, with an effective tax rate of (2.29)% and (2.51)%, respectively. The effective tax rate differs from the U.S. statutory tax rate primarily due to the valuation allowances on the Company’s deferred tax assets as it is more likely than not that some or all of the Company’s deferred tax assets will not be realized.

12.SEGMENT INFORMATION

Historically, management has not made operating decisions nor assessed performance based on geographic locations. Rather, the chief operating decision maker makes operating decisions and assesses performance based on the products and services of identified operating segments. While management does consider real estate and brokerage services, technology services, and affiliated services to be identified operating segments, the profits and losses and assets of the acquired technology and affiliated services segment are not material.

Operating Segments

The Company primarily operates as a cloud-based real estate brokerage. The real estate brokerage business represents ~~99.8%~~99.7% and 99.9% of the total revenue of the Company for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, respectively. The real estate brokerage business represents ~~94.4%~~96.5% and 95.8% of the total assets of the Company as of ~~June~~September 30, 2020 and December 31, 2019, respectively.

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The Company offers software subscriptions to customers to access its virtual reality software platform. Additionally, the Company offers professional services for implementation and consulting services. However, the operations and assets of the technology segment are not managed by the Company’s chief operating decision-maker as a separate reportable segment.

Services provided through First Cloud and eXp Silverline are in the emerging stages of development as contributing segments and are not material to the Company’s total revenue, total net income (loss) or total assets as of ~~June~~September 30, 2020.

The Company aggregates the identified operating segments for reporting purposes.

Geographical Information

The Company primarily operates within the real estate brokerage markets in the United States and Canada. During the fourth quarter of 2019, the Company expanded operations into the UK and Australia.

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The Company’s management analyzes geographical locations on a forward-looking basis to identify growth opportunities. For the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019, approximately 4%5% and 2%, respectively, of the Company’s total revenue was generated outside of the U.S. Assets held outside of the U.S. were 7% and 9% as of ~~both June~~September 30, 2020 and December 31, ~~2019.~~2019

The Company’s technology services and affiliated services are currently provided primarily in the U.S.

~~11.~~13.VARIABLE INTEREST ENTITIES

A company is deemed to be the primary beneficiary of a VIE and must consolidate the entity if the company has both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company has concluded that First Cloud is a VIE and that it is the primary beneficiary as it has the power to direct the activities of First Cloud and has an economic interest that will absorb the losses and/or receive benefits that could be significant to the VIE. Accordingly, the Company consolidates the assets and liabilities and operating results of First Cloud in the condensed consolidated financial statements. The Company recognizes noncontrolling interest in the condensed consolidated balance sheets. The income or loss allocations reflected on the condensed consolidated statements of comprehensive income (loss) may create volatility in the reported results of operations, including net losses attributable to common stockholders.

The financial information of First Cloud is presented below.


	June 30, 2020	December 31, 2019	September 30, 2020	December 31, 2019
Assets
Cash	$ 320	$ 424	$ 337	$ 424
Accounts Receivable	24	-
Prepaids and other assets	42	2	18	2
Total assets	$ 386	$ 426	$ 355	$ 426

Liabilities & Equity
Membership interests payable	37	45	52	45
Accounts payable	3	15	18	15
Total liabilities	40	60	70	60
Total equity	346	366	285	366
Total liabilities & equity	$ 386	$ 426	$ 355	$ 426

	Six Months Ended June 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Revenues	$ 78	$ -	$ 122	$ -
Expenses	205	-	353	-
Net loss	$ (127)	$ -	$ (231)	$ -

~~12.~~~~SUBSEQUENT EVENTS~~

~~COVID-19~~

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. COVID-19 has caused a global health emergency and was declared a pandemic by the World Health Organization in March 2020. In an effort to slow and contain the spread of COVID-19, local, state, and national governments implemented various measures, which have impacted businesses worldwide.

As of the date of this quarterly report, the Company’s results of operations, liquidity and financial condition have not been significantly impacted; however, the Company will continue to monitor events and/or changes in circumstances. ~~While the Company is positioned to survive and thrive in a series of fluctuations in economic activity,~~ the full impact the economic situation will have on the Company’s results of operations or financial condition, and management’s judgment could change in the future due to the ongoing pandemic and the uncertainty around its magnitude and duration.

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~~Showcase Acquisition~~

On July 31, 2020, the Company acquired the equity ownership interests in Showcase Web Sites, L.L.C. (“Showcase”) for cash consideration of $1.5 million and promissory notes totaling $1.5 million (the “Showcase Acquisition”). Showcase is a technology company focused on agent website and consumer real estate portal technology. With this acquisition, the Company will be able to strategically focus on creating consumer home-search technology for utilization by our independent agents and brokers, as well as continued services offerings to third party clients of Showcase.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to inform the reader about matters affecting the financial condition and results of operations of eXp World Holdings, Inc. (the “Holding Company” or “eXp”) and its subsidiaries (collectively, “we,” “us”, “our”, or the “Company”). The following discussion should be read together with our condensed consolidated financial statements and related notes included elsewhere ~~within~~in this report. Management’s Discussion and Analysis of Financial Conditions and Results of Operations contain forward-looking statements. Our actual results could differ materially from those anticipated in these forward-looking statements. See ~~“Forward-Looking Statements” and “Part II – Item 1A. – Risk Factors” of this Quarterly Report and~~ “Item 1 A. – Risk Factors” in our Annual Report on Form 10- K for the fiscal year ended December 31, 2019 filed with the SEC on March 12, 2020 (“2019 Annual Report”), and Part II, “Item 1A. – Risk Factors” in this Quarterly Report for a discussion of certain risks, uncertainties and assumptions associated with these statements. All dollar amounts are in thousands except share amounts and per share data and as otherwise noted.

OVERVIEW

MARKET CONDITIONS AND INDUSTRY TRENDS

Our business is dependent on the economic conditions within the markets for which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability and supply and demand.

In periods of economic growth, demand typically increases resulting in increasing home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand. Additionally, regulations imposed by local, state, and federal government agencies, and geopolitical instability, can also negatively impact the housing markets for which we operate.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This new coronavirus has caused a global health emergency and was declared a pandemic by the World Health Organization in March 2020. Risks relating to the spread of coronavirus pushed the Federal Reserve to cut interest rates as part of an emergency action to protect the economy from its impact. In an effort to contain and slow the spread of COVID-19, throughout the first half of 2020 governments have implemented various measures, such as, ordering non-essential businesses to close, issuing travel advisories, cancelling large scale public events, ordering shelter-in-place for residents and requiring the public to practice social distancing. During the end of the second quarter, businesses slowly re-opened with certain restrictions and social distance practices.

For the first half of 2020, the COVID-19 pandemic ~~has~~ materially and adversely affected businesses worldwide. The magnitude and duration of the impact from COVID-19 are not fully known and cannot be reasonably estimated. While the pandemic has been ongoing for much of the fiscal year, there is still significant volatility and uncertainty surrounding the outlook of the global economy. The impact to the Company for the ~~second quarter~~nine months ended September 30, 2020 has been less significant than anticipated. We believe that once COVID-19 is further contained the economy will continue to rebound depending on the continued pace, rate, and effectiveness of lifting public health restrictions on businesses and individuals and how quickly people become comfortable engaging in public activities.

According to the National Association of Realtors (“NAR”), as of August 2020 the ~~coronavirus~~housing market is ~~leading~~past the recovery phase from the initial downturn during the beginnings of the COVID-19 pandemic. Current home sales are now at pre-pandemic level which is due to ~~fewer homebuyers, as well as listings being delayed.~~significant increase in demand. The ~~decline in consumer confidence~~sizable shift to remote work, which has led to current homeowners looking for larger homes and ~~measures taken to prevent~~vacation homes, and the spread of COVID-19 is bringing caution to buyers and sellers. The NAR is predicting COVID-19 could accelerate economic corrections and contribute to sharper but temporary drags on housing activity. While the effect of lowercontinued historic low interest rates ~~should offset some of~~have accelerated housing demand. These low mortgage rates are also allowing more buyers to enter the ~~negative impacts on housing demand, it is too early to determine whether the lower interest rates can overcome the current economic concerns and rising uncertainty.~~market. According to the NAR housing statistics, existing home sales ~~fell 9.7% in May, then~~continued to increase for the fourth consecutive month as of September 2020 with the existing-home median price growing 15% year of year. Historically, home sales experience a seasonal decline during the last four months of the year, however this September home sales increased ~~a record 20.7%, in June 2020.~~breaking with the historical pattern. The NAR reported that pending home sales ~~had a record comeback in May~~continued to increase for the fourth consecutive month of ~~44.3% and increased another 16.6% in June, which is an encouraging statistic as pending home sales are a forward-looking indicator of future home sales.~~positive contract activity. The index measures housing contract activity and is based on signed real estate contracts for existing single-family homes and condos. However, ~~since~~given the ~~NAR released this data there has been an increase in COVID-19 infection rates in key states in which we operate. As such,~~overall uncertainty of the global pandemic, we continue to monitor and assess any potential impacts of the pandemic on our business, results of operations and financial condition as well as recognize the uncertainty inherent in the NAR forecast.

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The Company is positioned to continue to ~~survive and thrive~~grow in light of a series of fluctuations in economic activity and is performing better than expected atthroughout the ~~of the first half of 2020.~~current year. However, depending on the continued course of the COVID-19 pandemic, specifically in key areas of operations, it is too early to predict the full extent of the effects the COVID-19 pandemic will have on our Company moving into the ~~latter part~~end of ~~the year.~~2020 and into 2021.

Inventory

Prior to ~~June~~September 30, 2020 increased demand and low mortgage rates caused inventory levels to decline to record lows. With government implemented actions in response to COVID-19, fewer individuals are listing their homes and ~~as a result~~construction of new homes has slowed. Due to these factors, year over year inventory has decreased further. According to the NAR, inventory of existing homes for sale in the U.S. was ~~1.6~~1.5 million as of ~~June~~September 2020 (preliminary) compared to ~~1.9~~1.8 million at the end of ~~June~~September 2019. The NAR indicated the need for new home construction due to the high demand of homes and the record-low inventory levels.

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Mortgage Rates

According to the NAR, mortgage rates on commitments for 30-year, conventional, fixed-rate mortgages averaged ~~3.2%~~3.0% for the ~~second~~third quarter of 2020, compared to ~~4.0%~~3.7% for the ~~second~~third quarter of 2019. Mortgage rates are forecasted to decrease to ~~3.0%~~2.9% throughout 2020 and increase minimally to ~~3.1%~~3.2% in 2021. ~~Despite forecasts,~~Mortgage rates are expected to remain low through 2021. Low mortgage rates are expected to continue to ~~be volatile. Although the Federal Reserve cut interest rates in an effort~~contribute to stabilize the economy in response to COVID-19, some lenders have increased interest rates in an effort to slow refinance activity. There is still uncertainty regarding the impact fluctuations in interest rates will have on the housing market and the economy due to the ongoing COVID-19 pandemic.overall high demand for home-buying.

Housing Affordability Index

Also, according to the NAR, the composite housing affordability index ~~increased~~decreased to ~~169.4~~158.9 for ~~May~~August 2020 (preliminary) from ~~150.8~~159.9 for ~~May~~August 2019. The housing affordability index continues to be at historically favorable levels. When the index is above 100, it indicates that a family earning the median income has sufficient income to purchase a median-priced home, assuming a 20 percent down payment and ability to qualify for a mortgage. The favorable housing affordability index is due to favorable mortgage rate conditions. However, ~~despite a cut~~as housing prices continue to climb due to low inventory and high demand, and the increase in ~~rates by~~ the ~~Federal Reserve in an effort~~unemployment rate compared to ~~stabilize the economy, unemployment increased sharply throughout the second quarter of 2020. It~~prior year it is still too early to predict the extent of the effects of these factors and the ongoing COVID-19 pandemic will have on unemployment and housing affordability.

Home Sales Transactions

According to the NAR, existing home sale transactions for ~~June~~September 2020 (preliminary) ~~decreased~~increased to ~~4.7~~6.5 million compared to ~~5.3~~5.4 million for ~~June~~September 2019. For the ~~six~~nine months ended ~~June~~September 30, 2020, eXp Realty settled home sales units were ~~81,535~~156,927 (whole units) resulting in sales volume of ~~$23.9~~$47.6 billion. Our home sale transactions growth was directly related to the growth of our agent base, which increased ~~54% to 31,091 agents~~56% from ~~20,162~~23,034 agents the prior comparative period. While home sales transactions remained strong during the second quarter of 2020, home sales transactions are expected to decline as a result of government implemented actions and rising uncertainty among buyers and sellers. The NAR ~~indicated that home sale~~anticipates transactions ~~will~~to continue with pace however due to low inventory level recovery may not be ~~temporarily interrupted for the next couple months. Beyond this, it is still too early to predict the full extent of the effects of COVID-19 on transactions.~~sustainable.

Existing Home Sales Price

According to the NAR, nationwide existing home sales average price for ~~June~~September 2020 (preliminary) was ~~$295~~$312 compared to ~~$285~~$272 in ~~June~~September 2019. During this same period, eXp Realty homes sales price averaged ~~$297~~$313 in the ~~second~~third quarter of 2020 compared to ~~$286~~$289 in the ~~second~~third quarter of 2019. ~~With rising uncertainly~~Due to low supply and ~~fewer listings in an already housing shortage environment, home~~high demand, the average sale ~~prices are likely~~price is expected to ~~remain steady.~~increase through 2021. However, it is still too early to predict the extent of the effects of the ongoing COVID-19 pandemic will have on home sales prices.

Continued Accelerated Growth

Our strength is attracting real estate agent and broker professionals that have contributed to our growth. As of ~~June~~September 30, 2020, we have grown our agent and broker base ~~54%~~56% to ~~31,091~~35,877 agents and brokers compared to ~~20,162~~23,034 as of ~~the June~~September 30, 2019.

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The following table sets forth the number of transactions, sales volume and commission revenue earned on real estate transactions:

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except transactions)

2020

2019

Change

2020

2019

Change

Transactions

Volume

Revenue

Transactions

Volume

Revenue

Transactions

Volume

Revenues

Volume

Revenue

Transactions

Volume

Revenue

Transactions

Volume

Revenues

81,535

$ 23,954,123

$ 624,946

58,144

$ 16,031,589

$ 423,739

23,391

$ 7,922,534

$ 201,207

156,927

$ 47,562,826

$ 1,188,963

96,711

$ 27,175,325

$ 705,918

60,216

$ 20,387,501

$ 483,045

We continue to increase our presence in the United States and Canada through the execution of our growth strategies, and in the fourth quarter of 2019, we expanded operations to the U.K. and Australia. The Company is ~~looking~~expecting to expand into other countries, including Mexico, South Africa, France, India, and Portugal, by the end of 2020. The rate of growth of our agent and broker base is difficult to predict and is subject to many factors outside of our control, including actions taken by our competitors and macroeconomic factors affecting the real estate industry in general. The ~~Company expects that~~Company’s agent base and transactions have not been significantly impacted throughout the ~~economic consequences~~global COVID-19 pandemic, however the full effect on these factors will continue to depend on the duration and severity of the COVID-19 ~~pandemic will slow our agent growth rate and our transaction in the latter half~~pandemic.

Table of ~~2020 depending on the duration of government implemented restrictions due to the COVID-19 pandemic.~~Contents

Agent Ownership

The Company maintains an equity incentive program whereby agents and brokers of eXp Realty can become eligible for awards of the Company’s common stock through the achievement of production and agent attraction benchmarks. Under our equity incentive program, agents and brokers who qualify are issued shares of the Company’s common stock.

The Company also administers a program whereby agents and brokers can establish a direct ownership interest in the Company as a stockholder. Agents and brokers can elect to receive 5% of their commission payable in the form of Company common stock which, as of January 2020, is now issued at a 10% discount to market on the date of issuance. This agent equity program continues to be another element in creating a culture of agent-ownership.

RECENT BUSINESS DEVELOPMENTS

Real Estate Brokerage Initiatives

Global Real Estate Cloud Brokerage

In the fourth quarter of 2019, the Company announced its first international ~~expansions~~expansion outside of North America into Australia and the U.K. ~~This is part~~During the third quarter of 2020, the Company announced its intention to expand its operations into France, India, Mexico, Portugal and South Africa by the end of the ~~Company’s initiative~~fiscal year, and, subsequent to ~~operate as a Global Real Estate Cloud Brokerage. We look forward to our cloud campus being populated by real estate professionals from around~~quarter-end, the ~~globe as they conduct business, collaborate with each other, and develop meaningful personal and professional relationships across borders and cultures.~~Company announced its entry into South Africa. In addition to these new countries, the Company continues to also focus on growth in the United ~~States. We continue to expand~~States and in Canada.

Agent and Employee Experience

The Company has embarked on an initiative to better understand both its agents and employee experience. In doing so, we have adopted many of the principles of the Net Promoter Score® (NPS) across many aspects of our organization. NPS is a measure of customer satisfaction and is measured on a scale between -100 and 100. A NPS above 50 is considered excellent. Whether it be the overall question "How likely are you to recommend eXp to your colleagues, friends, or family?" or more granular inquiries as to specific workflows or service offerings, we believe this will ensure we are delivering on the most important values to our agents and employees. In turn, this often leads to enthusiastic fans of eXp who will promote our Company and continue leading us through strong organic growth.

This also ties into one of our core values, transparency. While we strive for high satisfaction, a low or trending lower NPS is equally important to identify. The Company’s agent NPS is 7073 in the ~~second~~third quarter of 2020. As NPS scores are often leading indicators to agents and employees’ future actions, we are able to learn quickly what may be a ‘pain point’ or product that is not meeting its desired objective. We then take that information and translate it into action with an effort to remediate the specific root cause(s) driving the lower score. This fast and iterative approach has already led to improvements in such parts of our business such as agent onboarding, commission transaction processing, and employee benefits.

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Equity

Our agent compensation plans represent a key lever in our strategy to attract and retain independent agents and brokers. The costs attributable to these plans are also a significant component of our commission structure and results of operations. Prior to January 1, 2020, we issued share-based compensation to our agents and brokers at a 20% discount to the market price of our common stock, which changed to a 10% discount for issuances beginning in January 2020. Our operational strategy and the importance of the agent compensation plans to our strategy have not changed, however the financial impact of the change in the discount is expected to have a meaningful effect on our results of operations going forward. Our stock repurchase program and agent growth incentive program are more fully disclosed in Note 6 – Equity of the Notes to the Condensed Consolidated Financial Statements.

Technology Products and Services

We continue developing the core VirBELA software platform and its underlying infrastructure to accommodate for the ~~ever-increasing~~increasing use and scale required to support our eXp Realty division. In 2019, we released a new product centered on the concept of an open campus whereby small and independent organizations may utilize sub spaces as part of a larger campus similar to collaborative environments that currently exist in the physical brick and mortar world. In the first quarter of 2020, VirBELA began offering virtual events in conjunction with Event Farm. In the second quarter of 2020, VirBELA entered into a partnership with HTC VIVE, a premier virtual reality (VR) platform, to introduce VIVE Campus, a branded virtual campus to be part of a software launch in Q3 2020 in China.Farm Given the current environment due to the COVID-19 pandemic, there is an acute need for virtual ~~meetings and~~meetings. For the period ended September 30, 2020, VirBELA ~~is poised to grow with the~~has seen an increase in ~~demand.~~demand for virtual events and collaborative spaces for remote teams and as a result has introduced new products and features including, an expo hall, a concert stage for virtual entertainment, VR support for

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Oculus Rift and HTC VIVE, and screen sharing and video chat capabilities. Lastly, we expect to continue to service existing and new business-to-business enterprise level contracts in the coming year.

On July 31, 2020, the Company acquired the equity ownership interests in Showcase Web Sites, L.L.C. (“Showcase”) for cash consideration of $1.5 million and promissory notes in the aggregate principal amount of $1.5 million (the “Showcase Acquisition”). Showcase is a technology company focused on agent website and consumer real estate portal technology. With this acquisition, the Company will be able to strategically focus on creating consumer home-search technology for utilization by our independent agents and brokers, as well as continued services offerings to third party clients of Showcase.

Affiliated Services

Recent acquisitions and partnerships have allowed us to begin offering to customers more products and services complimentary to our real estate brokerage business. These affiliated services include mortgage origination, title, escrow, and settlement services, which we can now provide as a more inclusive offering in addition to our brokerage services. We anticipate continued growth and investment in these service offerings inthrough 2020; however, actual performance will depend directly on utilization by eXp Realty agents and brokers and the on-going and fluctuating government implemented restrictions due to the COVID-19 pandemic.

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Results of Operations

Three Months Ended ~~June~~September 30, 2020 compared to the Three Months Ended ~~June~~September 30, 2019


	Three Months Ended	% of	Three Months Ended	% of	Change		Three Months Ended	% of	Three Months Ended	% of	Change
	June 30, 2020	Revenue	June 30, 2019	Revenue	$	%	September 30, 2020	Revenue	September 30, 2019	Revenue	$	%

	(In thousands, except per share data)						(In thousands, except share amounts and per share data)
Statement of Operations Data:
Revenues	$ 353,525	100%	$ 266,705	100%	$ 86,820	33%	$ 564,017	100%	$ 282,179	100%	$ 281,838	100%
Operating expenses
Commissions and other agent-related costs	319,164	90%	244,587	92%	74,577	30%	517,169	92%	259,141	92%	258,028	100%
General and administrative expenses	25,155	7%	23,204	9%	1,951	8%	30,130	5%	23,597	8%	6,533	28%
Sales and marketing expenses	887	-%	1,071	-%	(184)	(17)%	1,495	-%	1,083	-%	412	38%
Total operating expenses	345,206	98%	268,862	101%	76,344	28%	548,794	97%	283,821	101%	264,973	93%
Operating income (loss)	8,319	2%	(2,157)	(1)%	10,476	486%	15,223	3%	(1,642)	(1)%	16,865	1027%
Other expense (income)
Other expense (income), net	11	-%	(10)	-%	21	214%
Equity in losses (earnings) of unconsolidated affiliates	12	-%	-	-%	12	100%
Total other expense (income), net	23	-%	(10)	-%	33	328%
Other expense
Other expense, net							80	-%	173	-%	(93)	54%
Total other expense, net							80	-%	173	-%	(93)	54%
Income (loss) before income tax expense	8,296	2%	(2,147)	(1)%	10,443	486%	15,143	3%	(1,815)	(1)%	16,958	934%
Income tax expense	61	-%	48	-%	13	27%	225	-%	32	-%	193	603%
Net income (loss)	8,235	2%	(2,195)	(1)%	10,430	475%	14,918	3%	(1,847)	(1)%	16,765	908%
Net loss attributable to noncontrolling interest	40	-%	-	-%	40	100%	52	-%	-	-%	52	-%
Net income (loss) attributable to eXp World Holdings, Inc.	8,275	2%	(2,195)	(1)%	10,470	477%	14,970	3%	(1,847)	(1)%	16,817	911%
Adjusted EBITDA (1)	$ 13,648	4%	$ 3,795	1%	$ 9,853	260%	$ 21,818	4%	$ 3,563	1%	$ 18,255	512%
Earnings per share
Earnings (loss) per share
Basic	$ 0.12		$ (0.04)		$ 0.16	405%	$ 0.22		$ (0.03)		$ 0.25	833%
Diluted	$ 0.11		$ (0.04)		$ 0.15	385%	$ 0.20		$ (0.03)		$ 0.23	767%
Weighted average shares outstanding
Basic	67,756		61,526				69,256,733		63,197,495
Diluted	72,661		61,526				75,653,407		63,197,495

(1)

Adjusted EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other measures derived in accordance with U.S. GAAP. For a definition of Adjusted EBITDA and a reconciliation of Adjusted EBITDA to net income, see “Non-U.S. GAAP Financial Measures.”

Revenue

Our total revenues were ~~$353.5~~$564.0 million for the three months ended ~~June~~September 30, 2020 compared to ~~$266.7~~$282.2 million for the same period in 2019, an increase of ~~$86.8~~$281.8 million, or ~~33%~~100%. Total revenues increased for the ~~second~~third quarter of 2020 primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count and closed transactions compared to the same period in 2019. Additionally, the average home sale price for eXp closed transactions increased ~~3.8%~~8% to ~~$297~~$313 during the three months ended ~~June~~September 30, 2020 from ~~$286~~$289 for the same period in 2019.

Commission and Other Agent Related Costs

Commission and other agent-related costs were ~~$319.2~~$517.2 million for the three months ended ~~June~~September 30, 2020 compared to ~~$244.5~~$259.1 million for the same period in 2019, an increase of ~~$74.5~~$258.0 million, or ~~30%~~100%. Commission and other agent related

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costs increased primarily as a result of a higher volume of settled real estate transactions related to the increase in our agent base.

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General and Administrative Expense

General and administrative expenses were ~~$25.2~~$30.1 million for the three months ended ~~June~~September 30, 2020 compared to ~~$23.2~~$23.6 million for the same period in 2019, an increase of $2$6.5 million or 8%28%. General and administrative expenses include costs related to wages, including stock compensation, and other general overhead expenses. General and administrative expenses increased primarily as a result of an increase of ~~$1.7~~$4.2 million in compensation related expenses including salaries, employee benefits, and payroll taxes and ~~processing.~~processing, an increase of $0.9 million in computer and software expenses, and an increase of $1.0 million in stock compensation expense These increases are a result of the Company’s increase in employee and agent count and an increase in our stock price compared to the prior period in 2019. This was offset by a decrease in travel expenses, ~~$0.7~~$0.3 million due travel restrictions as a result of the COVID-19 pandemic.

Sales and Marketing

Sales and marketing expenses were relatively consistent at $1$1.5 million and $1.1 million for the three months ended ~~June~~September 30, 2020 compared to the same ~~periods~~period in 2019.

Other Income (Expense)

There were no significant changes in other income (expense) for the three months ended ~~June~~September 30, 2020 compared to the same period in 2019.

Income Tax Benefit (Expense)

There were no significant changes in income tax expenses for the three months ended ~~June~~September 30, 2020 compared to the same period in 2019. ~~On March 27,~~During the third quarter of 2020, ~~Congress passed The~~the Coronavirus Aid, Relief, and Economic Security Act (“The CARES Act”) ~~in response to the COVID-19 pandemic. The CARES Act provides assistance to businesses in the form on loans and tax relief. At this time, the CARES Act has~~did not materially ~~impacted~~impact the Company’s results of operations.

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~~Six Months~~Nine months Ended ~~June~~September 30, 2020 compared to the ~~Six Months~~Nine months Ended ~~June~~September 30, 2019


	Six Months Ended	% of	Six Months Ended	% of	Change		Nine Months Ended	% of	Nine Months Ended	% of	Change
	June 30, 2020	Revenue	June 30, 2019	Revenue	$	%	September 30, 2020	Revenue	September 30, 2019	Revenue	$	%

	(In thousands, except per share data)						(In thousands, except share amounts and per share data)
Statement of Operations Data:
Revenues	$ 624,946	100%	$ 423,739	100%	$ 201,207	47%	$ 1,188,963	100%	$ 705,918	100%	$ 483,045	68%
Operating expenses
Commissions and other agent-related costs	562,570	90%	387,129	91%	175,441	45%	1,079,739	91%	646,270	92%	433,469	67%
General and administrative expenses	52,015	8%	42,905	10%	9,110	21%	82,145	7%	66,503	9%	15,642	24%
Sales and marketing expenses	1,831	-%	1,960	-%	(129)	(7)%	3,326	-%	3,043	-%	283	9%
Total operating expenses	616,416	99%	431,994	102%	184,422	43%	1,165,210	98%	715,816	101%	449,394	63%
Operating income (loss)	8,530	1%	(8,255)	(2)%	16,785	203%	23,753	2%	(9,898)	(1)%	33,651	340%
Other expense (income)
Other expense (income), net	49	-%	25	-%	24	96%
Other expense
Other expense, net							129	-%	198	-%	(69)	(35)%
Equity in losses of unconsolidated affiliates	34	-%	-	-%	34	100%	34	-%	-	-%	34	100%
Total other expense (income), net	83	-%	25	-%	58	230%
Total other expense, net							163	-%	198	-%	(35)	(18)%
Income (loss) before income tax expense	8,447	1%	(8,280)	(2)%	16,727	202%	23,590	2%	(10,096)	(1)%	33,686	334%
Income tax expense	70	-%	212	-%	(142)	(67)%	295	-%	243	-%	52	22%
Net income (loss)	8,377	1%	(8,492)	(2)%	16,869	199%	23,295	2%	(10,339)	(1)%	33,634	325%
Net loss attributable to noncontrolling interest	63	-%	-	-%	63	100%	115	-%	-	-%	115	100%
Net income (loss) attributable to eXp World Holdings, Inc.	8,440	1%	(8,492)	(2)%	16,932	199%	23,410	2%	(10,339)	(1)%	33,749	326%
Adjusted EBITDA⁽¹⁾	$ 19,376	3%	$ 3,022	1%	$ 16,354	541%	$ 41,193	3%	$ 6,584	1%	$ 34,609	526%
Earnings (loss) per share
Basic	$ 0.13		$ (0.14)		$ 0.27	190%	$ 0.35		$ (0.17)		$ 0.52	306%
Diluted	$ 0.12		$ (0.14)		$ 0.26	185%	$ 0.32		$ (0.17)		$ 0.49	288%
Weighted average shares outstanding
Basic	66,751		61,526				67,603,551		61,834,376
Diluted	72,050		61,526				73,548,056		61,834,376

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Revenue

Our total revenues were ~~$624.9~~$1,189.0 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$423.7~~$705.9 million for the same period in 2019, an increase of ~~$201.2~~$483.0 million, or ~~47%~~68%. Total revenues increased primarily as a result of an increase in real estate brokerage commissions, which is directly attributable to increases in our agent count and closed transactions compared to the same period in 2019. Additionally, the average home sale price for the ~~six month~~nine-month period ended ~~June~~September 30, 2020 for eXp closed transactions increased 7%8% to ~~$294~~$303 compared to ~~$275.7~~$281 for the same period in 2019.

Commission and Other Agent Related Costs

Commission and other agent-related costs were ~~$562.6~~$1,079.7 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$387.1~~$646.3 million for the same period in 2019, an increase of ~~$175.4~~$433.5 million, or ~~45%~~67%. Commission and other agent related costs increased primarily as a result of a higher volume of settled real estate transactions related to the increase in our agent base.

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General and Administrative Expense

General and administrative expenses were ~~$52.0~~$82.1 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to ~~$42.9~~$66.5 million for the same period in 2019, an increase of ~~$9.1~~$15.6 million or ~~21%~~24%. General and administrative expenses include costs related to wages, including stock compensation, and other general overhead expenses. General and administrative expenses increased primarily as a result of an increase of ~~$6.7~~$10.9 million in compensation related expenses including salaries, employee benefits, and payroll taxes and processing. $1.9 million in professional services, and $1.9 million in computer and software expenses. These increases are a direct result of the Company’s increase in employee and agent count from the prior period. ~~Additionally, $1.4 million of the increase is from professional fees including accounting, legal, and other consulting.~~ These expense increases are to support the Company’s sustained growth.

Sales and Marketing

Sales and marketing expenses were relatively consistent at ~~$2.0~~$3.0 million for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in 2019.

Other Income (Expense)

There were no significant changes in other income (expense) for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in 2019.

Income Tax Benefit (Expense)

There were no significant changes in income tax expenses for the ~~six~~nine months ended ~~June~~September 30, 2020 compared to the same period in 2019. On March 27, 2020, Congress passed The Coronavirus Aid, Relief, and Economic Security Act (“The CARES Act”) in response to the COVID-19 pandemic. The CARES Act provides assistance to businesses in the form on loans and tax relief. At this time, the CARES Act has not materially impacted the Company’s results of operations.

NON-U.S. GAAP FINANCIAL MEASURES

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with U.S. GAAP, we use Adjusted EBITDA, a non-U.S. GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance, and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S.GAAP.

We define the non-U.S. GAAP financial measure of Adjusted EBITDA to mean net income (loss), excluding other income (expense), income tax benefit (expense), depreciation and amortization; stock-based compensation expense, and stock option expense.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA. In particular, we believe the exclusion of stock and stock option expenses, provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations.

We are presenting the non-U.S. GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to Net Income (Loss), the closest comparable U.S. GAAP measure. Some of these limitations are that:

●

Adjusted EBITDA excludes stock-based compensation expense not related to the agent equity program (and related payroll tax expense) and stock option expense, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy; and

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●

Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation of fixed assets and amortization of acquired intangible assets and, although these are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future.

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The following tables present a reconciliation of Adjusted EBITDA to net income (loss), the most comparable U.S. GAAP financial measure, for each of the periods presented:


	Three Months Ended June 30,		Three Months Ended September 30,
	2020	2019	2020	2019
Net income (loss)	$ 8,235	$ (2,195)	$ 14,918	$ (1,847)
Other expense (income), net	23	(10)
Other expense, net			80	173
Income tax expense	61	48	225	32
Depreciation & amortization expense ⁽¹⁾	856	534	1,005	642
Stock compensation expense	3,246	3,587	3,711	3,503
Stock option expense	1,227	1,831	1,879	1,060
Adjusted EBITDA	$ 13,648	$ 3,795	$ 21,818	$ 3,563

(1)	Note, amortization to stock payable is included in the “Other expense (income)” line item.


	Six Months Ended June 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Net income (loss)	$ 8,377	$ (8,492)	$ 23,295	$ (10,339)
Other expense (income), net	83	25
Other expense, net			163	198
Income tax expense	70	212	295	243
Depreciation & amortization expense ⁽¹⁾	1,781	974	2,785	1,616
Stock compensation expense	6,765	7,257	10,476	10,760
Stock option expense	2,300	3,046	4,179	4,106
Adjusted EBITDA	$ 19,376	$ 3,022	$ 41,193	$ 6,584

(1)	Note, amortization to stock payable is included in the “Other expense (income)” line item.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are our cash and cash equivalents on hand and cash flows generated from our business operations. Our ability to generate sufficient cash flow from operations or to access certain capital markets is necessary to fund our operations and capital expenditures and meet obligations as they become due.

As of September 30, 2020, our cash and cash equivalents totaled $91.9 million. Cash equivalents are comprised of financial instruments with an original maturity of 90 days or less from the date of purchase, primarily money market funds. We hold no marketable securities.

For the ~~six~~nine month period ended ~~June~~September 30, 2020, the ~~coronavirus (“COVID-19”)~~COVID-19 pandemic has not had a material impact on our operations, and we anticipate that our existing balances of cash and cash equivalents and cash flows expected to be generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months. Our future capital requirements depend on many factors, including our level of investment in technology and, our rate of growth into new markets. Our capital requirements may also be affected by factors which we cannot control such as the residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate. Additionally, as the impact of the COVID-19 on the economy and operations evolves, we will continuously assess our liquidity needs. In the event of a sustained market deterioration, we may need or seek advantageously to obtain additional funding through equity or debt financing.

We currently do not hold any bank debt. If we are unable to raise additional capital when desired, our business, results of operations, and financial condition would likely suffer. As

The Company issued unsecured promissory notes in the aggregate principal amount of ~~June 30, 2020, our cash~~$1.5 million in connection with the Showcase acquisition in July 2020. The promissory notes accrue interest of 8% per annum, and ~~cash equivalents totaled $63.6 million. Cash equivalents are comprised~~interest is payable monthly beginning six months after the closing date.

The first installment payment of ~~financial instruments~~outstanding principal in the amount of $0.5 million is due on July 31, 2021, the first anniversary of the closing date, with ~~an original maturity~~the second installment payment for the remaining $1.0 million of ~~90 days or less from~~outstanding principal payable on July 31, 2022, the ~~date~~second anniversary of ~~purchase, primarily money market funds. We hold no marketable securities.~~the closing date.

For the ~~three~~three- and ~~six month period~~nine-month periods ended ~~June~~September 30, 2020, we purchased shares at an aggregate purchase price of ~~$1,682~~$9,343 and ~~$11,987,~~$21,330, respectively pursuant to our stock repurchase plan. These repurchases did not have a material effect on our liquidity or capital resources.

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Net Working Capital

Net working capital is calculated as the Company’s total current assets less its total current liabilities. The following table presents our net working capital as of ~~June~~September 30, 2020 and December 31, 2019:


	June 30, 2020	December 31, 2019	Change	September 30, 2020	December 31, 2019	Change
Current assets	$ 136,801	$ 78,819	$ 57,982	$ 210,524	$ 78,819	$ 131,705
Current liabilities	(74,583)	(41,965)	(32,618)	(118,270)	(41,965)	(76,305)
Net working capital	$ 62,218	$ 36,854	$ 25,364	$ 92,254	$ 36,854	$ 55,400

For the ~~six~~nine months ended ~~June~~September 30, 2020, net working capital increased ~~$25.4~~$55.4 million, or ~~69%~~150%, compared to December 31, 2019 primarily due to an increase in cash generated from operations ~~during~~for the ~~first half of 2020.~~period ended September 30,2020.

Cash Flows

The following table presents our cash flows for the ~~six~~nine months ended ~~June~~September 30, 2020 and 2019:


	Six Months Ended June 30,			Nine Months Ended September 30,
	2020	2019	Change	2020	2019	Change
Cash provided by operating activities	$ 46,036	$ 24,776	$ 21,261	$ 89,206	$ 39,775	$ 49,431
Cash used in investment activities	(2,687)	(2,585)	(102)	(5,651)	(4,114)	(1,537)
Cash used in financing activities	(9,414)	(7,639)	(1,775)	(16,514)	(16,097)	(417)
Effect of changes in exchange rates on cash, cash equivalents and restricted cash	(53)	96	(149)	(129)	44	(173)
Net change in cash, cash equivalents and restricted cash	$ 33,882	$ 14,648	$ 19,235	$ 66,912	$ 19,608	$ 47,304

For the ~~six~~nine months ended ~~June~~September 30, 2020, cash provided by operating activities increased ~~$21.2~~$49.4 million compared to the same period in 2019. The change resulted primarily from the increased volume of our sales transactions, decrease in net losses, increase in customer deposits and participation by our agents and brokers in our Agent Equity Program and Agent Growth Incentive Program.

For the ~~six~~nine months ended ~~June~~September 30, 2020, cash used in our investing activities were relatively flat compared to the prior year period.

For the ~~six~~nine months ended ~~June~~September 30, 2020, the increase in cash flows used in financing activities primarily were related to the repurchase of our common stock, partially offset by proceeds received from the exercise of stock options.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with U.S. GAAP requires us to make certain judgments and assumptions, based on information available at the time of our preparation of the financial statements, in determining accounting estimates used in the preparation of the statements.

Accounting estimates are considered critical if the estimate requires us to use judgments and/or make assumptions about matters that were uncertain at the time the accounting estimate was made and if different accounting estimates could have been used in the reporting period or changes in the accounting estimates are likely to occur that would have a material impact on our financial condition, results of operations or cash flows.

The Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2019, which provides a description of our critical accounting policies. There were no changes to critical accounting policies or estimates as reflected in our 2019 Annual Report. For additional information regarding our critical accounting policies and estimates, see the Critical Accounting Policies and Estimates section of MD&A included in our 2019 Annual Report.

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, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to market risk in the ordinary course of business. Our exposure to market risk results from fluctuations in interest rates and foreign currency exchange rates. Our primary operations are within the United States and most of the Canadian provinces. In the fourth quarter of 2019, the Company began operations in the U.K. and Australia. We do not enter into investments for trading purpose.

Interest Rate Risk

The Company holds funds in a money market account. We do not have material exposure to changes in fair value of these assets as a result of interest rates due to the short-term nature of our cash and cash equivalents.

Foreign Currency Risk

We have de minimis foreign currency risk related to our operations denominated in currencies other than the U.S. dollar. To date, foreign currency transactions gains and losses have not been material to our financial statements and we do not have a formal hedging program with respect to foreign currency.

Item 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~September 30, 2020 pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Based on the evaluation of our disclosure controls and procedures as of ~~June~~September 30, 2020, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of material weaknesses in our internal control over financial reporting and discussed below, our disclosure controls and procedures were not effective as of ~~June~~September 30, 2020.

In addition, no significant changes in the Company’s internal control over financial reporting occurred during the quarter ended ~~June~~September 30, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. As the Company’s workforce already operates in a remote environment, there was no material impact of COVID-19 on our day-to-day operations or our internal control over financial reporting.

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 ~~June~~September 30, 2020. 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 (2013).

The Company’s internal control over financial reporting was not effective as of ~~June~~September 30, 2020 due to the material weaknesses identified in connection with the preparation and audit of our consolidated financial statements for the year ended December 31, 2019, described below.

Under standards established by the Public Company Accounting Oversight Board of the United States, 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 on a timely basis.

Material Weaknesses:

General Information Technology Controls (“GITCs”) - We identified a material weakness related to GITCs in certain areas related to user access and program change-management over information technology (“IT”) systems utilized by the

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Company. Some of our business process controls (automated and manual) are dependent on the affected GITCs they too were deemed ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation; insufficient testing of changes; lack of training for our personnel on the importance of GITCs; and a lack of access control considerations in the design of the systems that could impact internal control over financial reporting.

Information and Communication, Control Activities and Monitoring – The Company also identified that it did not fully implement key components of the COSO framework, including control and monitoring activities relating to: (i) providing oversight over the system of internal control, (ii) overseeing the nature and scope of monitoring activities and management's evaluation and remediation of deficiencies, (iii) using appropriate processes and technology to assign responsibility and segregate duties as necessary, (iv) maintaining quality through processing, and (v) attracting, developing, and retaining sufficient and competent personnel to support the achievement of internal control objectives.

The Company’s independent registered public accounting firm, Deloitte and Touche LLP has audited the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 and expressed an adverse opinion, which is disclosed in Item 9A. of the Company’s Annual Report on Form 10-K.

Planned Remediation Actions:

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weaknesses are remediated, such that these controls are designed, implemented, and operating effectively in addition to implementing new monitoring controls to help mitigate the risks associated with the ineffective GITCs. The remediation actions include: (i) establishing an internal audit team to support the Company’s entire control environment and its ongoing internal controls development and monitoring; (ii) creating and filling an IT compliance oversight function; (iii) educating control owners concerning the principles and requirements of each control, with a focus on those related to user access and change-management over IT systems impacting financial reporting; (iv) developing and maintaining documentation underlying GITCs to promote knowledge transfer upon personnel and function changes; (v) developing enhanced controls and reviews related to changes in IT systems; (vi) performing an in-depth analysis of who should have access to perform key functions within the system that impact financial reporting and redesigning aspects of the system to better allow the access rights to be implemented; and (vii) adding additional manual controls to monitor information and data produced by the system to help mitigate the risks associated with ineffective GITCs.

We believe that these actions will remediate the material weaknesses. The weaknesses will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than the efforts noted above to remediate the previously reported material weaknesses, there have been no changes in our internal control over financial reporting during the period covered by this interim report on Form 10-Q that has materially affected or, are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Internal Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II – OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

From time to time, we are involved in ordinary routine litigation incidental to the conduct of our business, including matters that may be certified as class or collective actions.

There are no legal proceedings pending or, to our knowledge, threatened that we believe could have a material adverse impact on our business, reputation, results of operations or financial condition.

Item 1A. RISK FACTORS

There were no material changes to the risk factors reported in Part I, “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented in our Quarterly Report on Form 10-Q for the quarterly period ended ~~March 31,~~September 30, 2020. Because of the continuing uncertainty and potential consequences of the ongoing COVID-19 pandemic, we are restating the ~~new~~ risk factor that we included in our ~~last~~ Quarterly ~~Report.~~Report for the quarterly period ended March 31, 2020.

The coronavirus (“COVID-19”) pandemic may have a material adverse effect on our businesses, financial condition, and results of operations.

The COVID-19 pandemic is having a profound effect on the global economy and financial markets. In the United States ~~federal, state,~~ and ~~local~~abroad, governments continue to react to this evolving public health crisis by, among other actions, recommending or requiring the avoidance of gatherings of people or significantly or entirely curtailing activities categorized as non-essential. This unprecedented situation has created considerable risks and uncertainties for the U.S. real estate services industry in general and for the Company in particular, including those arising from the potential adverse effects on the economy as well as risks related to employees, independent agents, and consumers. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the extent and duration of the spread of the outbreak, the extent of governmental regulation (including, but not limited to, ~~local, state and/or federally~~ mandated “shelter in place” or other regulations that, for example, preclude or strictly limit open houses or in-person showings of properties), the impact on capital and financial markets and the related impact on consumer confidence and spending, and the magnitude of the financial and operational consequences to our agents and brokers, all of which are highly uncertain and cannot be predicted. ~~However, we believe the COVID-19 pandemic could have a material adverse impact on our business, results of operations and financial condition.~~

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

Issuer Purchases of Equity Securities

The following table provides information about repurchases of our common stock through the quarter ended ~~June~~September 30, 2020:


Period	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plans or programs	Total number of shares purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs⁽¹⁾	Approximate dollar value of shares that may yet be purchased under the plans or programs
4/1/20 - 4/30/20	-	$ -	-	$ -
5/1/20 - 5/31/20	-	-	-	-
6/1/20 - 6/30/20	131,173	12.82	131,173	60,824,199
7/1/20 - 7/31/20					165,967	$ 17.76	165,967	$ 60,658,232
8/1/20 - 8/31/20					87,055	34.24	87,055	60,571,177
9/1/20 - 9/30/20					68,952	41.17	68,952	60,502,225
Total	131,173	$ 12.82	131,173		321,974	$ 31.06	321,974

(1)

The repurchase program began on January 2, 2019 and was set to expire on June 28, 2019. On June 12, 2019, the Company, under authorization from the Board of Directors, amended the plan. The amended plan extended the repurchase program through December 31, 2019. On November 26, 2019, the Company announced the approval to increase the authorization limits of the Company’s stock repurchase program by the Board. The Board agreed to extend the stock repurchase program through the fourth quarter of 2020 and to increase the authorization for the stock repurchase program from $25 million to $75 million of the Company’s common stock. The Company discontinued the repurchase program in March 2020 and subsequently reinstated it in June 2020. The stock repurchase program is more fully disclosed in Note 6 – Equity of the Notes to the Condensed Consolidated Financial Statements.

Item 3.DEFAULTS UPON SENIOR SECURITIES

None.

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Item 4.MINE SAFETY DISCLOSURES

Not applicable.

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Item 5.OTHER INFORMATION

On June 24, 2020, Penny Sanford, a principal stockholder, entered into a stock trading plan in accordance with the requirement specified in Rule 10b5-1 of the Securities Exchange Act of 1934 (“Rule 10b5-1 Trading Plan”). The purpose of this plan is to achieve broader diversification of investments, while reducing the risk of over concentration in a particular investment. Under the terms of the Rule 10b5-1 Trading Plan, an authorized third-party broker will sell up to an aggregate of 240,000 shares of common stock of the Company beginning in July 2020. This Rule 10b5-1 Trading Plan is scheduled to terminate no later than July 29, 2021.None.

Item 6.EXHIBITS


Exhibit		Exhibit
Number		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated by reference from Appendix A to the Company’s Definitive Information Statement filed on October 9, 2018)

3.2		Certificate of Correction to the Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 24, 2020

3.3		Amended and Restated Bylaws (incorporated by reference from Appendix B to the Company’s Definitive Information Statement on Schedule 14C filed on October 9, 2018.

~~10.1~~		~~2020 Independent Contractor Agreement and Agent Equity Enrollment Form~~

31.1		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

3130

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SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		eXp World Holdings, Inc.
		(Registrant)

Date: ~~August 5,~~November 9, 2020		/s/ Jeff Whiteside
		Jeff Whiteside
		Chief Financial Officer (Principal Financial Officer)

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		Page
	Forward Looking Statements	3

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1817
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2827
Item 4.	Controls and Procedures	2827

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	3029
Item 1A.	Risk Factors	3029
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3029
Item 3.	Defaults Upon Senior Securities	3029
Item 4.	Mine Safety Disclosures	3129
Item 5.	Other information	3130
Item 6.	Exhibits	3130