EXHIBIT 99.2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of The Real Brokerage Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of The Real Brokerage Inc. and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of loss and other comprehensive loss, shareholder’s equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Brightman Almagor Zohar & Co.
Brightman Almagor Zohar & Co
Certified Public Accountants
A Firm in The Deloitte Global Network
Tel Aviv, Israel
March 16, 2023
We have served as the Company’s auditor since 2014.
2 |
THE REAL BROKERAGE, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Expressed in thousands of U.S. dollars)
December 31, 2022 | December 31, 2021 | |||||||
As of | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 10,846 | $ | 25,818 | ||||
Restricted cash | 7,481 | 3,311 | ||||||
Investments in financial assets | 7,892 | 8,811 | ||||||
Trade receivables | 1,547 | 254 | ||||||
Other receivables | 74 | 23 | ||||||
Prepaid expenses and deposits | 529 | 448 | ||||||
TOTAL CURRENT ASSETS | 28,369 | 38,665 | ||||||
NON-CURRENT ASSETS | ||||||||
Intangible assets | 3,708 | 451 | ||||||
Goodwill | 10,262 | 602 | ||||||
Property and equipment | 1,350 | 170 | ||||||
Right-of-use assets | 73 | 109 | ||||||
TOTAL NON-CURRENT ASSETS | 15,393 | 1,332 | ||||||
TOTAL ASSETS | 43,762 | 39,997 | ||||||
LIABILITIES AND EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | 474 | 54 | ||||||
Accrued liabilities | 11,866 | 8,818 | ||||||
Customer Deposits | 7,481 | 3,311 | ||||||
Other payables | 1,188 | 40 | ||||||
Lease liabilities | 96 | 91 | ||||||
TOTAL CURRENT LIABILITIES | 21,105 | 12,314 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Lease liabilities | - | 40 | ||||||
Warrants outstanding | 242 | 639 | ||||||
TOTAL NON-CURRENT LIABILITIES | 242 | 679 | ||||||
TOTAL LIABILITIES | 21,347 | 12,993 | ||||||
EQUITY | ||||||||
EQUITY ATTRIBUTABLE TO OWNERS | ||||||||
Share premium | 63,204 | 63,397 | ||||||
Stock-based compensation reserves | 25,083 | 6,725 | ||||||
Deficit | (50,704 | ) | (30,127 | ) | ||||
Other reserves | (469 | ) | (347 | ) | ||||
Treasury share, at cost | (14,962 | ) | (12,644 | ) | ||||
EQUITY ATTRIBUTABLE TO OWNERS | 22,152 | 27,004 | ||||||
Non-controlling interests | 263 | - | ||||||
TOTAL EQUITY | 22,415 | 27,004 | ||||||
TOTAL LIABILITIES AND EQUITY | $ | 43,762 | $ | 39,997 |
The accompanying notes form an integral part of the consolidated financial statements.
3 |
THE REAL BROKERAGE, INC.
CONSOLIDATED STATEMENTS OF LOSS AND OTHER COMPREHENSIVE LOSS
(Expressed in thousands of U.S. dollars, except for per share amounts)
December 31, 2022 | December 31, 2021 | |||||||
For the Year Ended | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
Revenues | $ | 381,756 | $ | 121,681 | ||||
Commissions and other agent-related costs | 349,806 | 110,587 | ||||||
Gross Profit | 31,950 | 11,094 | ||||||
General and administrative expenses | 24,155 | 10,573 | ||||||
Marketing expenses | 22,674 | 7,808 | ||||||
Research and development expenses | 4,867 | 3,979 | ||||||
Operating Loss | (19,746 | ) | (11,266 | ) | ||||
Other income | 729 | 249 | ||||||
Listing expenses | (151 | ) | - | |||||
Finance expenses, net | (1,167 | ) | (662 | ) | ||||
Net Loss | (20,335 | ) | (11,679 | ) | ||||
Net Income Attributable to Noncontrolling Interests | 242 | - | ||||||
Net Loss Attributable to Owners of the Company | (20,577 | ) | (11,679 | ) | ||||
Other comprehensive income/(loss): | ||||||||
Cumulative (Gain)/Loss on Investments in Debt Instruments Classified as at FVTOCI Reclassified to Profit or Loss | (407 | ) | (352 | ) | ||||
Foreign currency translation adjustment | 285 | 5 | ||||||
Total Comprehensive Loss Attributable to Owners of the Company | (20,699 | ) | (12,026 | ) | ||||
Total Comprehensive Income Attributable to NCI | 242 | - | ||||||
Total Comprehensive Loss | (20,457 | ) | (12,026 | ) | ||||
Loss per share | ||||||||
Basic and diluted loss per share | (0.12 | ) | (0.07 | ) | ||||
Weighted-average shares, basic and diluted | $ | 178,201 | $ | 170,483 |
The accompanying notes form an integral part of the consolidated financial statements.
4 |
THE REAL BROKERAGE, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. dollar in thousands)
Share Premium | Share-Based Payments Reserve | Foreign Exchange Translation Reserve | Investments Revaluations Reserve | Deficit | Treasury Shares | Non-Controlling Interests | Total Equity (Deficit) | |||||||||||||||||||||||||
Balance at, January 1, 2021 | 21,668 | 2,760 | - | - | (18,448 | ) | - | 14,818 | 20,798 | |||||||||||||||||||||||
Total loss and comprehensive loss | - | - | 5 | (352 | ) | (11,679 | ) | - | - | (12,026 | ) | |||||||||||||||||||||
Exercise of warrants | 26,475 | - | - | - | - | - | - | 26,475 | ||||||||||||||||||||||||
Acquisitions of commons shares for Restricted Share Unit (RSU) plan | - | - | - | - | - | (12,644 | ) | - | (12,644 | ) | ||||||||||||||||||||||
Proceeds from sale of treasury shares | 229 | - | - | - | - | - | - | 229 | ||||||||||||||||||||||||
Conversion of preferred shares into common shares | 14,818 | - | - | - | - | - | (14,818 | ) | - | |||||||||||||||||||||||
Exercise of stock options | 207 | - | - | - | - | - | - | 207 | ||||||||||||||||||||||||
Equity-settled share-based payments | - | 3,965 | - | - | - | - | - | 3,965 | ||||||||||||||||||||||||
Balance at, December 31, 2021 | 63,397 | 6,725 | 5 | (352 | ) | (30,127 | ) | (12,644 | ) | - | 27,004 | |||||||||||||||||||||
Balance at, January 1, 2022 | 63,397 | 6,725 | 5 | (352 | ) | (30,127 | ) | (12,644 | ) | - | 27,004 | |||||||||||||||||||||
Balance | 63,397 | 6,725 | 5 | (352 | ) | (30,127 | ) | (12,644 | ) | - | 27,004 | |||||||||||||||||||||
Total loss | - | - | - | - | (20,577 | ) | - | 242 | (20,335 | ) | ||||||||||||||||||||||
Total other comprehensive loss | - | - | 285 | (407 | ) | - | - | - | (122 | ) | ||||||||||||||||||||||
Acquisitions of common shares for Restricted Share Unit (RSU) plan | - | - | - | - | - | (8,060 | ) | - | (8,060 | ) | ||||||||||||||||||||||
Release of treasury shares | (5,742 | ) | - | - | - | - | 5,742 | - | - | |||||||||||||||||||||||
Issuance of Restricted Share Units | 4,886 | (4,886 | ) | - | - | - | - | - | - | |||||||||||||||||||||||
Exercise of stock options | 663 | (398 | ) | - | - | - | - | - | 265 | |||||||||||||||||||||||
Shares issued as part of Expetitle and LemonBrew Acquisitions | - | 4,775 | - | - | - | - | - | 4,775 | ||||||||||||||||||||||||
Adjustment arising from change in non-controlling interests | - | - | - | - | - | - | 21 | 21 | ||||||||||||||||||||||||
Equity-settled share-based payments | - | 18,867 | - | - | - | - | - | 18,867 | ||||||||||||||||||||||||
Balance at, December 31, 2022 | 63,204 | 25,083 | 290 | (759 | ) | (50,704 | ) | (14,962 | ) | 263 | 22,415 | |||||||||||||||||||||
Balance | 63,204 | 25,083 | 290 | (759 | ) | (50,704 | ) | (14,962 | ) | 263 | 22,415 |
The accompanying notes form an integral part of the consolidated financial statements.
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THE REAL BROKERAGE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. dollar in thousands)
December 31, 2022 | December 31, 2021 | |||||||
For the Year Ended | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Loss | $ | (20,335 | ) | $ | (11,679 | ) | ||
Adjustments for: | ||||||||
Depreciation | 333 | 213 | ||||||
Equity-settled share-based payments | 16,201 | 4,030 | ||||||
Finance costs | 167 | 565 | ||||||
Gain on short term investments | - | (223 | ) | |||||
Changes in operating asset and liabilities: | ||||||||
Trade receivables | (1,293 | ) | (137 | ) | ||||
Other receivables | (51 | ) | 198 | |||||
Prepaid expenses and deposits | (81 | ) | (359 | ) | ||||
Accounts payable | 420 | - | ||||||
Accrued liabilities | 5,316 | 5,789 | ||||||
Customer deposits | 4,170 | - | ||||||
Other payables | 1,148 | 3,287 | ||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 5,995 | 1,684 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of property and equipment | (1,408 | ) | (172 | ) | ||||
Acquisition of subsidiaries (Note 7,8, and 9) | (8,152 | ) | (1,099 | ) | ||||
Dividends received from equity instruments designated at FVTOCI | 637 | - | ||||||
Proceeds on disposal of equity instruments held at FVTOCI | (125 | ) | - | |||||
NET CASH USED IN INVESTING ACTIVITIES | (9,048 | ) | (1,271 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Investment in securities | - | (8,940 | ) | |||||
Proceeds from exercise of warrants | - | 26,475 | ||||||
Purchase of common shares for Restricted Share Unit (RSU) Plan | (8,060 | ) | (12,644 | ) | ||||
Stock Compensation Payable (RSU) | - | 2,253 | ||||||
Proceeds from exercise of stock options | 265 | 207 | ||||||
Payment of lease liabilities | (35 | ) | (84 | ) | ||||
Dividends paid for non-controlling interest | (19 | ) | - | |||||
NET CASH USED IN FINANCING ACTIVITIES | (7,849 | ) | 7,267 | |||||
Net change in cash, cash equivalents and restricted cash | (10,902 | ) | 7,680 | |||||
Cash, cash equivalents and restricted cash, beginning of year | 29,129 | 21,273 | ||||||
Fluctuations in foreign currency | 100 | 176 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH BALANCE, ENDING BALANCE | $ | 18,327 | $ | 29,129 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: | ||||||||
Share-based compensation as part of Expetitle consideration | 4,325 | - | ||||||
Share-based compensation reclass from liability to equity | 2,268 | - | ||||||
Share-based compensation as part of LemonBrew consideration | 450 | - | ||||||
Increase in ROU against lease liabilities | - | 84 | ||||||
Warrants liability from acquisition | - | 65 |
The accompanying notes form an integral part of the consolidated financial statements
6 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
1. GENERAL INFORMATION
The Real Brokerage Inc. (“Real” or the “Company”) is a technology-powered real estate brokerage firm, licensed in over 45 U.S. states, the District of Columbia, and 3 provinces in Canada with over 8,000 agents. Real offers agents a mobile focused tech-platform to run their business.
The consolidated operations of Real include the wholly-owned subsidiaries of Real Technology Broker Ltd. incorporated on June 29, 2014 in Israel, Real PIPE, LLC incorporated on November 5, 2020 under the laws of the state of Delaware, Real Broker MA, LLC incorporated on July 11, 2018 under the laws of the state of Delaware, Real Broker CT, LLC incorporated on July 11, 2018 under the laws of the state of Delaware, Real Broker, LLC (formerly Realtyka, LLC) incorporated on October 17, 2014 under the laws of the state of Texas, Real Broker Commercial LLC incorporated on July 29, 2019 under the laws of the state of Texas, The Real Title Inc. incorporated on January 1, 2021 under the laws of the state of Delaware, Real Broker BC Ltd. incorporated on February 23, 2021 in the province of British Columbia, Real Broker AB Ltd. incorporated on February 23, 2021 in the province of Alberta, and Real Broker ON Ltd incorporated on August 27 2021 in the province of Ontario, One Real Mortgage (formerly LemonBrew Lending) incorporated on March 15, 2009 under the laws of the state of New Jersey.
On May 17, 2021, the TSX Venture Exchange (the “TSXV”) accepted the Company’s Notice of Intention to implement a normal course issuer bid (“NCIB”). Pursuant to the NCIB, the Company was able to purchase, during the 12-month period ended May 20, 2022, up to million common shares of the Company (“Common Shares”), constituting approximately of the total million Common Shares issued and outstanding as of April 30, 2021.
The Company appointed CWB Trust Services (the “Trustee”) as the trustee for the purposes of arranging the acquisition of Common Shares and to hold the Common Shares in trust for the purposes of satisfying restricted share unit (each, an “RSU”) payments as well as deal with other administration matters. Through the Trustee, RBC Capital Markets was engaged to undertake purchases under the NCIB.
The Common Shares acquired are held by the Trustee until the same are sold in the market with the proceeds to be transferred to designated participants or until the Common Shares are delivered to designated participants, in each case under the terms of the Company’s equity incentive plans to satisfy the Company’s obligations in respect of redemptions of vested RSUs held by such designated participants. See Note 13.D for more information. A total of million Common Shares have been released from the trust to satisfy the Company’s obligations in respect of redemptions of vested RSUs held by designated participants.
On May 19, 2022, the Company announced that it renewed the NCIB to be transacted through the facilities of the NASDAQ Capital Market (“NASDAQ”) and other stock exchanges and/or alternative trading systems in the United States and/or Canada (other than the TSXV), if eligible. Pursuant to the NCIB, Real may purchase up to million Common Shares, representing approximately of the total million Common Shares issued and outstanding as of May 19, 2022.
During 2022, the Company repurchased 8.1 million. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares to satisfy the RSU Plan (see Note 13.D for more information). The NCIB shall terminate on the earlier of May 20, 2023 and the date on which the maximum number of Common Shares purchasable under the NCIB is acquired by the Company. million Common Shares in the amount of $
On July 26, 2022, the Company’s Common Shares commenced trading on the Toronto Stock Exchange (the “TSX”) under the symbol “REAX”. Concurrent to the graduation to the TSX, the Common Shares were voluntarily delisted from the TSXV. Trading of the Common Shares continues on the NASDAQ under the same symbol, “REAX”.
7 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently to all the years presented.
A. Basis of preparation
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). These consolidated financial statements were authorized for issuance by the Board of Directors on March 16, 2023.
B. Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to December 31 of each year. Control is achieved when the Company:
● | Has the power over the investee | |
● | Is exposed, or has rights, to variable returns from its involvement with the investee | |
● | Has the ability to use its power to affect its returns |
The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, the results of subsidiaries acquired or disposed of during the year are included in profit or loss from the date the Company gains control until the date when the Company ceases to control the subsidiary.
Where necessary, adjustments are made to the financial statements of subsidiaries to ensure subsidiaries’ accounting policies are in line with Company’s accounting policies.
All intragroup assets and liabilities, equity, income, expenses, and cash flows relating to transactions between the members of the Company and its subsidiaries are eliminated on consolidation.
C. Functional and presentation currency
These consolidated financial statements are presented in U.S. dollars, which is the Company’s functional currency. All amounts have been rounded to the nearest thousands of dollars, unless otherwise noted.
D. Foreign currency
Foreign currency transactions and balances
Transactions in foreign currencies are initially recognized in the financial statements using exchange rates prevailing on the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated to the relevant functional currency at the exchange rates prevailing at the reporting date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities denominated in a foreign currency and measured at historical cost are translated at the exchange rate prevalent at the date of transaction. Foreign currency differences arising on translation are recognized in the income statement for determination of net profit or loss during the period.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the functional currency at exchange rates at the reporting date. The income and expenses of foreign operations and cash flows are translated using average exchange rates during the period. Any differences arising on such translation are recognized in other comprehensive income. Such differences are included in the foreign currency translation reserve “FCTR” within other components of equity. When a foreign operation is disposed of, in part or in full, the relevant amount in the FCTR is transferred to profit or loss.
8 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
E. Operating segments
In measuring its performance, the Company does not distinguish or group its operations on a geographical or on any other basis, and accordingly has a single reportable operating segment. Management has applied judgment by consolidating its cost generating units (CGU) into one single reportable segment for disclosure purposes. Such judgment considers the nature of the operations, and an expectation of operating segments within a reportable segment, which have similar long-term economic characteristics.
The Company’s Chief Executive Officer is the chief operating decision maker, and regularly reviews operations and performance on an aggregated basis. The Company does not have any significant customers or any significant groups of customers.
F. Reclassification
Certain prior year amounts in the consolidated financial statements and the notes thereto have been reclassified where necessary to conform to the current year presentation. These reclassifications did not affect the prior period total assets, total liabilities, stockholders’ deficit, net loss or net cash used in operating activities.
G. Revenue from contracts with customers
The Company generates substantially all its revenue from commissions from the sale of real estate properties. Other sources of revenue include fee income from the brokerage-platform and other revenues relating to auxiliary services.
The Company is contractually obligated to provide services for the fulfillment of transfer of real estate between agents, buyers, and sellers. The Company satisfies its performance obligations through closing of a transaction and provides services between the agents and buyers and sellers as a principal. Accordingly, the Company will recognize revenues in the gross amount of consideration, to which it expects to be entitled to.
Please see Note 10 for more Information about the Company’s revenues from contracts with customers.
Performance obligations and revenue recognition policies
Revenue is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue upon the satisfaction of its performance obligation when it transfers control over a good or service to a customer.
9 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
The following table provides information about the nature and timing of the satisfaction of performance obligations in contracts with customers, including significant payment terms, and related revenue recognition policies.
Type of product or service | Nature of timing of satisfaction of performance obligations including significant payment terms | Revenue recognition policies | ||
Commissions from real estate contracts | Customers obtain control of real estate property on the closing date, which ordinarily when consideration is received | Revenue is recognized at a point in time as the purchase agreement is closed and the sale is executed | ||
Service contracts with real estate agents | Under service contracts with real estate agents, they enroll in an annual subscription plan to use the tech-platform | Revenue is recognized over time as the company provides promised services to real estate agents on a paid subscription plan | ||
Title Fees (Escrow and Title Insurance) | Customers obtain control of real estate property on the closing date, which ordinarily when consideration is received | Revenue is recognized at a point in time when the transaction is closed and paid | ||
Mortgage Broker | Customers obtain control of real estate property on the closing date, which ordinarily when consideration is received | Revenue is recognized at a point in time when the loan has been funded |
The Company’s real estate agents receive remuneration in the form of share-based compensation transactions, whereby those agents are entitled to restricted share units. In addition, the Company grants its employees and members of the board of directors remuneration in the form of share-based compensation transactions, whereby employees and the board of directors render services in consideration for equity instruments.
Share-based payment arrangements
The grant-date fair value excluding the effect of non-market equity-settled share-based payment arrangements granted to employees is generally recognized as an expense, with a corresponding increase in equity, over the vesting period of the awards. The amount recognized as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognized is based on the number of awards that meet the related service and non-market performance conditions at the vesting date.
Restricted share unit plan
Under the restricted share unit plans, eligible participants receive restricted share units (RSUs), which generally vest over a period of one to three years. The expense in relation to RSUs earned in recognition of personal performance conditions is recognized at grant-date fair value during the applicable vesting period based on the best available estimate of the number of equity instruments expected to vest with a corresponding increase in stock–based payments reserve. The expense in relation to RSUs purchased in the agent stock purchase plan are recognized at grant-date fair value with a corresponding increase in equity. Please see Note 13.D for more information about the Company’s restricted share unit.
I. Income tax
Income tax expenses comprise of current and deferred tax. It is recognized in profit or loss, or items recognized directly in equity or in other comprehensive income.
The Company has determined that interest and penalties related to income taxes, including uncertain tax treatments, do not meet the definition of income taxes, and therefore accounted for them under IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
10 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Current tax
Current tax is comprised of expected payable or receivable on the taxable income or loss for the year and any adjustment to the tax payable or receivable in respect of previous years. The amount of current tax payable or receivable is the best estimate of the tax amount expected to be paid or received that reflects uncertainty related to income taxes, if any. It is measured using the tax rates enacted or substantively enacted at the reporting date.
Current tax assets and liabilities are offset only if certain criteria are met.
Deferred tax
Deferred taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxes are not recognized for:
‒ | Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss; and |
‒ | Temporary differences related to investments in subsidiaries to the extent that the Company is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future. |
Deferred tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differences. If the amount of taxable temporary differences is insufficient to recognize a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Company. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Unrecognized deferred tax assets are reassessed at each reporting date and recognized to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at the reporting date, and reflects uncertainty related to income taxes, if any.
The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the Company expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset only if certain criteria are met.
J. Property and equipment
Recognition and measurement
Items of property and equipment are measured at cost, which includes capitalized borrowing costs, less accumulated depreciation and any accumulated impairment losses. If significant parts of an item of property and equipment have different useful lives, then they are accounted for as separate items (significant components) of property and equipment.
Any gain or loss on disposal of an item of property and equipment is recognized in profit or loss.
Subsequent expenditures
Subsequent expenditures are capitalized only if it is probable that future economic benefits associated with the expenditure will flow to the Company.
11 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Depreciation
Depreciation is calculated to write off the cost of items of property and equipment less their estimated residual values using the straight-line method over their estimated useful lives and is generally recognized in profit or loss.
The estimated useful lives of property and equipment for current and comparative periods are as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT
Computer equipment: | 3 years |
Furniture and fixtures: | 5-10 years. |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if appropriate.
K. Financial instruments
Recognition and initial measurement
Financial assets and financial liabilities are recognized on the Company’s consolidated statements of financial position when Real becomes party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.
Classification and subsequent measurement
Financial assets – Policy
Financial Assets:
Financial assets are comprised of investments in equity and debt securities, trade and other receivables, cash and cash equivalents and other financial assets.
Initial recognition:
All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement:
Financial assets measured at amortized cost:
Financial assets held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding are measured at amortized cost using effective interest rate (EIR) method. The EIR amortization is recognized as finance income in the Statement of Income.
12 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
The Company while applying above criteria has classified the following financial assets at amortized cost
- Trade receivables
- Other financial assets.
- Investment in debt securities
Financial assets at fair value through other comprehensive income (FVTOCI):
Financial assets that are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding are subsequently measured at FVTOCI. Fair value movements in financial assets at FVTOCI are recognized in other comprehensive income.
Equity instruments held for trading are classified as at fair value through profit or loss (FVTPL). For other equity instruments the Company classifies the same as at FVTOCI or FVTPL. The classification is made on initial recognition and is irrevocable. Fair value changes on equity investments at FVTOCI, excluding dividends, are recognized in other comprehensive income (OCI).
Financial assets at fair value through profit or loss (FVTPL):
Financial assets are measured at fair value through profit or loss if it does not meet the criteria for classification as measured at amortized cost or at fair value through other comprehensive income. All fair value changes are recognized in the Statement of Income.
A financial asset is measured at amortized cost if it meets both of the following conditions as is not designated as FVTPL:
‒ | it is held within a business model whose objective is to hold assets to collect contractual cash flows; and |
‒ | its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:
‒ | it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and |
‒ | its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
13 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Financial assets – Business model assessment
The Company assesses the objective of the business model in which a financial asset is held at a portfolio level, because this best reflects the way the business is managed, and information is provided to management. The information considered includes:
‒ | the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows; |
‒ | how the performance of the portfolio is evaluated and reported to the Company’s management; |
‒ | the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; |
‒ | how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and |
‒ | the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and the expectations of future sales activity. |
Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales, consistent with the Company’s continuing recognition of the assets.
Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.
Financial assets – Subsequent measurement and gains and losses
Financial assets at FVTPL | These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. |
Financial assets at amortized cost | These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss. |
Debt investments at FVOCI | These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss. |
Equity investments at FVOCI | These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses recognized in OCI and are never reclassified to profit or loss. |
Financial liabilities – Classification, subsequent measurement and gains and losses
Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and their net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.
14 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Derecognition
Financial assets
The Company derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred or in which the Company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
Financial liabilities
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The Company also derecognizes a financial liability when its terms are modified and the cash flows or the modified liability are substantially different, in which case a new financial liability based on the modified terms is recognized at fair value.
On derecognition of a financial liability, the difference between the carrying amount extinguished and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss.
Offsetting
Financial assets and financial liabilities are offset and the net amount presented on the consolidated statements of financial position, only when the Company has a legally enforceable right to offset the amounts and it intends either to settle them on a net basis or to realize the asset and settle the liability simultaneously.
L. Share capital
i. | Common shares |
Incremental costs directly attributable to the issue of ordinary shares are recognized as a deduction from equity. Income tax relating to transactions costs of an equity transaction are accounted for in accordance with IAS 12.
ii. | Preferred Shares |
Preferred shares are the shares that pay a fixed dividend prior to any distributions to the holders of the issuer’s common stock. This payment is typically cumulative, so any delayed prior payments must be paid to the preferred stockholders before distributions can be made to the holders of common stock. As of December 31, 2019, the Company’s preferred shares were classified as liability, due to the rights of the holders to require a cash settlement not within the control of the Company. On June 5, 2020, the preferred shares were converted into equity. As of December 31, 2022, the Company does not have preferred shares.
iii. | Non – controlling interests |
Non-controlling interests represents the portion of net income and net assets which the Company does not own, either directly or indirectly. It is presented as “Attributable to non-controlling interests” separately in the Consolidated Statements of Loss, and separately from shareholders’ equity in the Consolidated Statements of Financial Position.
M. Goodwill
Goodwill is the excess of the consideration transferred over the net identifiable assets acquired and liabilities assumed in a business combination. Goodwill is tested annually for impairment, or more regularly if certain indicators are present. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units (CGU) that are expected to benefit from the synergies of the combination and represent the lowest level at which the goodwill is monitored for internal management purposes. The recoverable amount is the higher of the fair value less cost to sell and the value in use; where the value in use is the present value of the future cash flows. Goodwill is evaluated for impairment by comparing the recoverable amount of the Company’s operating segments to the carrying amount of the operating segments to which the goodwill relates. If the recoverable amount is less than the carrying amount an impairment charge is determined. We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that indicate goodwill may be impaired. For the year ended December 31, 2022 and 2021, we performed an assessment of goodwill related to our previous business acquisition which did not result in an impairment charge for either of the years.
15 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
N. Impairment
Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss is recognized in the consolidated statement of loss and other comprehensive loss consistent with the function of the assets, for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows. Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal each reporting period.
O. Provisions
Provisions are recognized when present (legal or constructive) obligations as a result of a past event will lead to a probable outflow of economic resources and amounts can be estimated reliably. Provisions are measured at management’s best estimate of the expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation.
The Company performs evaluations to identify onerous contracts and, where applicable, records provisions for such contracts. All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resources as a result of present obligations is considered remote, no liability is recognized.
P. Leases
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements (i.e. changes in lease term) of the lease liability.
The lease liability is initially measured at the present value of lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate.
Lease payments included in the measurement of the lease liability comprise the following:
‒ | fixed payments, including in-substance fixed payments; |
‒ | variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; |
‒ | amounts expected to be payable under a residual value guarantee; and |
‒ | the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early. |
16 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
Short-term leases and leases of low-value assets
The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of machinery that have a lease term of 12 months or less and leases of assets that are less than $5 per month including IT equipment. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
Q. Business combinations
Business combinations are accounted for under the purchase method. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 ‘Business Combinations’, are recognized at their fair value at the acquisition date, except certain assets and liabilities required to be measured as per the applicable standards.
Goodwill is recognized when the fair value of purchase consideration and non-controlling interests exceeds the fair value of identifiable net assets acquired on the acquisition date. Goodwill arising on acquisitions is reviewed for impairment annually. Where the fair values of the identifiable assets and liabilities exceed the cost of acquisition, the Company assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the surplus is credited to the consolidated statements of profit or loss in the period of acquisition.
Where it is not possible to complete the determination of fair values by the date on which the first post-acquisition financial statements are approved, a provisional assessment of fair value is made and any adjustments required to those provisional fair values are finalized within twelve months of the acquisition date.
Those provisional amounts are adjusted through goodwill during the measurement period, or additional assets or liabilities are recognized to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date. These adjustments are called measurement period adjustments. The measurement period does not exceed twelve months from the acquisition date.
Any non-controlling interest in an acquiree is measured at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets. This accounting choice is made on a transaction-by-transaction basis.
Acquisition expenses are charged to consolidated statements of profit or loss.
If the Company acquires a group of assets in a company that does not constitute a business in accordance with IFRS 3, the cost of the acquired group of assets is allocated to the individual identifiable assets acquired based on their relative fair value.
17 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
R. Accounting policy development
New and amended IFRS Accounting Standards that are effective for the current year
In the current year, the Company has applied a number of amendments to IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2022. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. Amendments to IFRS 3 Reference to the Conceptual Framework The Company has adopted the amendments to IFRS 3 Business Combinations for the first time in the current year. The amendments update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework. They also add to IFRS 3 a requirement that, for obligations within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, an acquirer applies IAS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21 Levies, the acquirer applies IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date.
Amendments to IAS 16 Property, Plant and Equipment-Proceeds before Intended Use
The Company has adopted the amendments to IAS 16 Property, Plant and Equipment for the first time in the current year. The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced before that asset is available for use, i.e. proceeds while bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Consequently, an entity recognizes such sales proceeds and related costs in profit or loss. The entity measures the cost of those items in accordance with IAS 2 Inventories.
The amendments also clarify the meaning of ‘testing whether an asset is functioning properly’. IAS 16 now specifies this as assessing whether the technical and physical performance of the asset is such that it is capable of being used in the production or supply of goods or services, for rental to others, or for administrative purposes. If not presented separately in the statement of comprehensive income, the financial statements shall disclose the amounts of proceeds and cost included in profit or loss that relate to items produced that are not an output of the entity’s ordinary activities, and which line item(s) in the statement of comprehensive income include(s) such proceeds and cost.
Standards, interpretations, and amendments to standards not yet effective and not yet applied
Amendments to IAS 1 Presentation of Financial Statements—Classification of Liabilities as Current or Non-current
The amendments to IAS 1 affect only the presentation of liabilities as current or non-current in the statement of financial position and not the amount or timing of recognition of any asset, liability, income or expenses, or the information disclosed about those items.
The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period, specify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability, explain that rights are in existence if covenants are complied with at the end of the reporting period, and introduce a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services.
The amendments are applied retrospectively for annual periods beginning on or after January 1, 2024, with early application permitted. At the date of authorization of these financial statements, the Company has not applied the following new and revised IFRS Accounting Standards that have been issued but are not yet effective.
In February 2021, the International Accounting Standards Board issued narrow-scope amendments to IAS 1, Presentation of Financial Statements, IFRS Practice Statement 2, Making Materiality Judgements and IAS 8, Accounting Polices, Changes in Accounting Estimates and Errors. The amendments are effective for annual periods beginning on or after January 1, 2023, although earlier application is permitted. The amendments will require the disclosure of material accounting policy information rather than disclosing significant accounting policies and clarifies how to distinguish changes in accounting policies from changes in accounting estimates. We are currently assessing the impacts of the amended standards, but do not expect that our financial disclosure will be materially affected by the application of the amendments.
18 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
In May 2021, the International Accounting Standards Board issued targeted amendments to IAS 12, Income Taxes. The amendments are effective for annual periods beginning on or after January 1, 2023, although earlier application is permitted. With a view to reducing diversity in reporting, the amendments will clarify that companies are required to recognize deferred taxes on transactions where both assets and liabilities are recognized, such as with leases and asset retirement (decommissioning) obligations. Based upon our current facts and circumstances, we do not expect our financial performance or disclosure to be materially affected by the application of the amended standard.
S. Revenue Share
The Company has a revenue sharing plan where its agents and brokers can receive additional commission income from real estate transactions consummated by agents and brokers they have attracted to the Company. Agents and brokers are eligible for revenue share based on the number of qualifying active agents they have attracted to the Company. Revenue shares are included as part of Marketing Expenses in the consolidated statements of loss and other comprehensive loss.
T. Warrants Accounting
Warrants are a financial instrument that allow the holder to purchase stock of the issuer at a specified price during the warrant term. The Company classifies a warrant to purchase shares of its common stock as a liability on its consolidated statements of financial position as this warrant is a free-standing financial instrument that may require the Company to transfer consideration upon exercise. Each warrant is initially recorded at fair value on date of grant using the Black-Scholes model and net of issuance costs, and it is subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrant are recognized as a component of other income (expense), net in the consolidated statement of operations and comprehensive loss. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrant.
U. Intangible Assets
The Company’s intangible assets are finite lived and consist primarily of acquired trade name, technology and customer relationships. Each intangible asset is amortized on a straight-line basis over its useful life of 5 years. The Company evaluates its intangible assets for recoverability and potential impairment, or as events or changes in circumstances indicate the carrying value may be impaired.
During the year ended December 31, 2022, the Company purchased million Common Shares which were classified as Treasury shares.
3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In preparing these consolidated financial statements, management has made judgments estimates and assumptions that affect the application of the Company’s accounting policies which are described in Note 2 and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively.
19 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Information about assumptions and estimation uncertainties that have significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:
– | Deferred taxes |
Deferred tax assets are recognized only if management assesses that these tax assets can be offset against positive taxable income within a foreseeable future. This judgment is made by management on an ongoing basis and is based on budgets and business plans for the coming years. These budgets and business plans are reviewed and approved by the Board of Directors. Since inception, the Company has reported losses, and consequently, the Company has unused tax losses. The deferred tax assets are currently not deemed to meet the criteria for recognition as management is not able to provide any convincing positive evidence that deferred tax assets should be recognized. Therefore, management has concluded that deferred tax assets should not be recognized on December 31, 2022.
– | Measurement of fair values |
The Company regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as a broker quotes or pricing services, is used to measure fair values, then the Company assesses the evidence obtained from third parties to support the conclusion of these valuations meet the requirements of the standards, including the level in the fair value hierarchy in which the valuations should be classified.
When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
‒ | Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. |
‒ | Level 2: inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). |
‒ | Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). |
If the inputs used to measure the fair value of an asset or liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Further information about assumptions made in measuring fair values is included in the following notes:
‒ | Note 13 – share-based payment arrangements; and |
‒ | Note 23 – financial instruments. |
4. PIPE TRANSACTION
On December 2, 2020, the Company completed an equity investment by private equity funds indirectly controlled by Insight Holdings Group, LLC (the “Insight Partners”) for gross proceeds of USD $ million (approximately CAD $ million)
Insight Partners was issued 17.3 million preferred units (the “Preferred Units”) of a newly and wholly owned subsidiary of the Company, Real PIPE, LLC formed under the laws of the State of Delaware, that were exchangeable into the same number of Common Shares and million Common Share purchase warrants of the Company (“Warrants”). Each Warrant entitled the holder to subscribe and purchase one Common Share at an exercise price of $1.48 (CAD $ ) for a period of 5 years, subject to certain acceleration terms. The Preferred Units were exchangeable, at any time at Insight Partners’ option, and at the option of the Company on the earlier of: (i) the listing the Common Shares on a nationally recognized stock exchange in the United States; (ii) the Company’s market capitalization equaling or exceeding US$500 million for a 30-consecutive trading day period; or (iii) immediately prior to a transaction by which the Company is acquired by a third party on an arms’ length basis (each, a “Forced Exchange Event”), into Common Shares on a one-for-one basis
20 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
On June 15, 2021, in connection with the listing of the Common Shares on the NASDAQ, Real delivered an Acceleration Notice to certain funds managed by Insight Partners providing for the acceleration of the expiry date to June 30, 2021, of an aggregate 26.6 million (CAD $32.8 million) on June 28, 2021. million, previously issued Warrants. All Warrants held by Insight Partners were exercised into Common Shares for gross proceeds of $
On August 3, 2021, Insight Partners was issued an aggregate of million Common Shares in exchange of the Insight Partners’ Preferred Units in connection with the Forced Exchange Event.
5. REALTYCRUNCH ACQUISITION
On January 11, 2021, Real completed the acquisition of the business assets and intellectual property of RealtyCrunch Inc. (the “RealtyCrunch Transaction”). RealtyCrunch is a collaboration web and mobile app for home buyers and real estate agents. Launched in September 2020, it had attracted over 2,000 real estate agents in the US who use it to streamline communication and document signing with their clients. The RealtyCrunch Transaction was settled in cash for an aggregate purchase price of USD $1.1 million plus 184 thousand Warrants. Each Warrant is exercisable into one Common Share at a price of CAD $ for a period of four years. In connection with the RealtyCrunch Transaction, Real also granted million stock options (“Options”), which vest over a 4-year period and are not considered part of aggregate purchase price. The Company has determined that the acquisition meets the definition of business combinations within the scope of IFRS 3, Business Combination and has completed the determination to allocate the price among the assets purchased and amount attributable to goodwill. The expense incurred related to the acquisition was $ thousand for the year ended December 31, 2021.
The following table summarizes the fair value of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition date (in thousands):
SCHEDULE OF FAIR VALUES OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES
Balance at, January 11, 2021 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Proprietary Technology | 563 | |||
Goodwill | 602 | |||
Net Assets Acquired | 1,165 | |||
Consideration | 1,100 | |||
Warrants Issued | 65 |
We have completed the valuation of the acquired assets and assumed liabilities and have assigned $563 thousand as the fair value of the Company’s developed technology and $602 thousand as the residual goodwill. Goodwill represents expected synergies, future income and growth potential, and other intangibles that do not qualify for separate recognition. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.
6. SCOTT BENSON REAL ESTATE INC.
On December 3, 2021, Real completed the acquisition of the common shares of Scott Benson Real Estate Inc in Ontario, Canada. The transaction was settled in nominal cash consideration for an aggregate purchase price of one Canadian dollar. The Company determined that the acquisition meets the definition of business combinations within the scope of IFRS 3, Business Combination and recorded an immaterial gain from bargain purchase. We have completed the valuation of the acquired assets and assumed liabilities and have assigned $23 thousand as the fair value of the Company’s intangible assets.
21 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
The following table summarizes the fair value of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition date (in thousands):
SCHEDULE OF FAIR VALUES OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES
Balance at, December 3, 2021 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Intangible Asset | 23 | |||
Net Assets Acquired | 23 | |||
Consideration | - | |||
Bargain gain from acquisition | 23 |
7. EXPETITLE ACQUISITION
On January 20, 2022, the Company completed the acquisition of 100% of the issued and outstanding equity interests of Expetitle, Inc. (“Expetitle”) pursuant to a stock purchase agreement (the “Expetitle Transaction”). Expetitle had developed technology that simplifies the paper-intensive and time-intensive title and eEscrow process, reducing errors and saving time. Agents can navigate the entire closing experience in a few clicks using Expetitle’s mobile app. As part of the Expetitle Transaction, the Company also acquired 51% ownership of five subsidiaries of Expetitle Inc. The noncontrolling ownership interest in these five subsidiaries of Expetitle recognized at the acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $21 thousand. The aggregate purchase price for 100% of the issued and outstanding equity interests of Expetitle was comprised of cash consideration of $7.4 million payable at the closing of the Expetitle Transaction and contingent consideration of $600 thousand in cash subject to escrow, that would be released after twelve (12) months upon the satisfaction or waiver of the following terms and conditions: (i) the key employees remain at their current position with the Company for at least twelve (12) months after the closing of the Expetitle Transaction and (ii) Expetitle will become licenced to operate in at least fifteen states, including the current states of operation, Florida, Georgia, and Texas. As of the reporting date, the contingent terms are met and the company remeasured the contingent consideration accordingly. The Company recognized a liability with a corresponding expense amounting to $ thousand.
As part of the Expetitle Transaction, Real also granted an aggregate of 1.1 million RSUs to shareholders and members of the Expetitle team. The fair value of those Options was $ million from which $4.3 million was determined to be part of the consideration and $ thousand that was recorded immediately to the statement of loss and comprehensive loss as post transaction employees compensation which vests immediately. The Options are exercisable for a period of 3 years at $ per Common Share. In addition, and as part of the transaction, the Company provided cash grants to the Expetitle employees in the amount of $168 thousand. thousand Options and an aggregate of
We have completed the valuation of the acquired assets and assumed liabilities and have assigned $3.4 million as the fair value of the Company’s developed technology and $8.4 million as the residual goodwill. Goodwill represents expected synergies, future income and growth potential, and other intangibles that do not qualify for separate recognition. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.
22 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
The following table represent the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the Expetitle Transaction (in thousands):
SCHEDULE OF FAIR VALUES OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES
Balance at January 21, 2022 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Cash | 80 | |||
Other Current Assets | 42 | |||
In Trust Cash | 960 | |||
Goodwill | 8,393 | |||
Intangible Assets | 3,364 | |||
Accounts Payables and Accrued Liabilities | (103 | ) | ||
Held in Trust Funds | (960 | ) | ||
Other Payables | (19 | ) | ||
Net Assets Acquired | 11,757 | |||
Cash Flow | ||||
Total Consideration | (11,757 | ) | ||
Acquired Cash | 80 | |||
Equity-settled share-based payment | 4,325 | |||
Cash from Investing Activities | (7,352 | ) |
8. REDLINE REAL ESTATE GROUP ACQUISITION
On November 3, 2022, the Company acquired, through a wholly owned subsidiary, all of the issued and outstanding common shares of Redline Real Estate Group (BC) Inc. (“Redline BC”) pursuant to a share purchase agreement between the Company, Redline BC and Redline Realty Investments Inc. (“Redline Realty”). The acquisition, which includes Redline’s real estate license to operate in British Columbia, will fuel the Company’s expansion into Canada’s third largest province. The transaction was settled in nominal cash consideration for an aggregate purchase price of one Canadian dollar. The Company has determined that the Redline Transaction meets the definition of business combinations within the scope of IFRS 3, Business Combination and has 12 months from the date of purchase to determine the purchase price allocation among the assets purchased and any amounts attributable to goodwill.
The following table summarizes the fair value of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition date (in thousands):
SCHEDULE OF FAIR VALUES OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES
Balance at November 3, 2022 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Cash & Cash in Trust | 30 | |||
Amount Held in Trust | (30 | ) | ||
Net Assets Acquired | - | |||
Consideration | - |
9. LEMONBREW LENDING ACQUISITION
On December 9, 2022, pursuant to the terms of a share purchase agreement dated September 23, 2022 between the Company, LemonBrew Lending Corp. (“LemonBrew Lending”) and LemonBrew Technologies Corp. (“LemonBrew Technologies”), the Company acquired 100% of the issued and outstanding equity interests of LemonBrew Lending from the seller for an aggregate purchase price of $1.25 million (the “LemonBrew Transaction”). The purchase price was satisfied by (i) cash in the amount of $800 thousand and (ii) the issuance of Common Shares (the “Consideration Shares”) at a deemed issued price of $ per share. The issued price of the Consideration Shares is equal to the product of $ divided by the 5-day volume weighted average trading price of ‘the Common Shares on the NASDAQ immediately prior to the closing of the LemonBrew Transaction.
23 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
In connection with the closing of the LemonBrew Transaction, the Company entered into agreements with management and key employees of LemonBrew Lending (the “LemonBrew Key Employee Agreements”). The LemonBrew Key Employment Agreements provide for performance-based milestone payments of $2.5 million payable over 36 months following closing of the LemonBrew Transaction, of which $2 million with be payable in cash and $500 thousand will be payable in restricted share units of the Company. The performance-based milestones are:
● | LemonBrew achieving at least $500 thousand in EBITDA for the first 12-month period following closing, $1 million in EBITDA for the second 12-month period following closing, and $2 million in EBITDA for the second 12-month period following closing | |
● | Samir Dedhia and Jason Doshi remaining in their roles to be established with Real during the transaction |
These payments are considered separate from the aggregate purchase price. Management believes that there is no likelihood of achieving the performance-based milestone and has not recognized any expenses related to the performance-based milestone payment.
The Company has determined that the LemonBrew Transaction meets the definition of business combinations within the scope of IFRS 3, Business Combination and has 12 months from the date of purchase to determine the purchase price allocation among the assets purchased and any amounts attributable to goodwill.
The following table represents the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the LemonBrew Lending acquisition (in thousands). The following amounts are provisional and will be adjusted during the measurement period, and additional assets or liabilities may be recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date:
SCHEDULE OF FAIR VALUES OF THE ACQUIRED ASSETS AND ASSUMED LIABILITIES
Balance at December 9, 2022 | ||||
Recognized amounts of assets acquired and liabilities assumed | ||||
Cash | 12 | |||
Other Current Assets | 15 | |||
Other Assets | 119 | |||
Goodwill | 1,250 | |||
Accounts Payables and Accrued Liabilities | (11 | ) | ||
Other Payables | (64 | ) | ||
Net Assets Acquired | 1,321 | |||
Consideration | ||||
Consideration Paid | 800 | |||
Equity-settled shared-based consideration | 450 | |||
Total Consideration | 1,250 | |||
Cash Flow | ||||
Total Consideration | (1,250 | ) | ||
Equity-settled share-based payment | 450 | |||
Cash From Investing Activities | (800 | ) |
24 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
10. REVENUE
A. | Revenue streams and disaggregation of revenue from contracts with customers |
In the following table, revenue (in thousands) from contracts with customers is disaggregated by major service lines as well as timing of revenue recognition.
SCHEDULE OF REVENUE STREAMS AND DISAGGREGATION OF REVENUE FROM CONTRACTS WITH CUSTOMERS
December 31, 2022 | December 31, 2021 | |||||||
For the Year Ended | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
Main revenue streams | ||||||||
Commissions | 376,254 | 120,957 | ||||||
Title | 1,869 | - | ||||||
Mortgage Income | 19 | - | ||||||
Fee Income | 2,378 | 711 | ||||||
Other | 1,236 | 13 | ||||||
Total Revenue | 381,756 | 121,681 | ||||||
Timing of Revenue Recognition | ||||||||
Products transferred at a point in time | 381,756 | 121,681 | ||||||
Revenue from Contracts with Customers | 381,756 | 121,681 |
11. EXPENSES BY NATURE
In the following table, cost of sales represents real estate commission paid to Company’s agents as well as to outside brokerages in Canada and Title Fee Expenses (in thousands).
SCHEDULE OF ATTRIBUTION OF EXPENSES BY NATURE TO THEIR FUNCTION
December 31, 2022 | December 31, 2021 | |||||||
For the Year Ended | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
Commissions and other agent-related costs | 349,806 | 110,587 | ||||||
Operating Expenses | ||||||||
General and Administration Expense | 24,155 | 10,573 | ||||||
Salaries and Benefits | 11,733 | 3,748 | ||||||
Stock Based Compensation for employees | 2,778 | 1,333 | ||||||
Administrative Expenses | 1,803 | 1,006 | ||||||
Professional Fees | 5,893 | 3,425 | ||||||
Depreciation Expense | 333 | 213 | ||||||
Other General and Administrative Expenses | 1,615 | 848 | ||||||
Marketing Expenses | 22,674 | 7,808 | ||||||
Salaries and Benefits | 478 | 327 | ||||||
Stock Based Compensation for Employees | 1 | 135 | ||||||
Stock Based Compensation for Agents | 5,519 | 2,194 | ||||||
Revenue Share | 14,975 | 4,454 | ||||||
Other Marketing and Advertising Cost | 1,701 | 698 | ||||||
Research and Development Expenses | 4,867 | 3,979 | ||||||
Salaries and Benefits | 2,012 | 840 | ||||||
Stock Based Compensation for employees | 212 | 1,545 | ||||||
Other Research and Development | 2,643 | 1,594 | ||||||
Total Cost of Sales and Operating Expenses | 401,502 | 132,947 |
25 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Finance Expenses
The following table summarizes details behind Finance costs (in thousands) as reported in the consolidated Statement of Income (Loss):
SCHEDULE OF FINANCE COST
Description | December 31, 2022 | December 31, 2021 | ||||||
For the Year Ended | ||||||||
Description | December 31, 2022 | December 31, 2021 | ||||||
Unrealized Losses (Gains) | (397 | ) | 574 | |||||
Realized Losses (Gains) | 24 | - | ||||||
Bank Fees | 400 | 97 | ||||||
Finance Cost | 540 | (13 | ) | |||||
Contingent Consideration | 600 | - | ||||||
Other | - | 4 | ||||||
Finance Expenses, net | 1,167 | 662 |
A. | Basic and Diluted loss per share |
Basic loss per share is computed by dividing the loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) less any preferred dividends for the period by the weighted average number of shares of common stock outstanding plus, if potentially dilutive common shares outstanding during the period. The Company does not pay dividends or have participating shares outstanding.
SCHEDULE OF DETAILED INFORMATION ABOUT LOSS PER SHARE
(in thousands of shares) | December 31, 2022 | December 31, 2021 | ||||||
For the Year Ended | ||||||||
(in thousands of shares) | December 31, 2022 | December 31, 2021 | ||||||
Issued Common Shares at the beginning of the period | 170,483 | 161,721 | ||||||
Effect of Warrant Exercise | 8,526 | 8,762 | ||||||
Effect of Treasury Return | (1,049 | ) | - | |||||
Effect of Treasury Issuance | 21 | - | ||||||
Effect of Share Options Exercised | 220 | - | ||||||
Weighted-average numbers of Common Shares | 178,201 | 170,483 | ||||||
Loss per share | ||||||||
Basic and diluted loss per share | (0.12 | ) | (0.07 | ) |
A. | Description of share-based payment arrangements |
Stock option plan (equity-settled)
On January 20, 2016, the Company established a stock-option plan that entitles key management personnel and employees to purchase shares in the Company. Under the stock-option plan, holders of vested options are entitled to purchase shares for the exercise price as determined at grant date.
On February 26, 2022, the Company established an omnibus incentive plan providing for up to 20% of the issued and outstanding Common Shares as of the date thereof (being million Common Shares, less Common Shares previously outstanding under other equity inventive plans) to be issued as RSUs or Options to directors, officers, employees, and consultants of the Company (the “Omnibus Incentive Plan”). The Omnibus Incentive was approved by shareholders of the Company on June 13, 2022.
26 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
In connection with the graduation to the TSX, the Company amended its Omnibus Incentive Plan (the “A&R Plan”) on July 13, 2022. Pursuant to the A&R Plan, the maximum number of Common Shares issuable pursuant to outstanding Options at anytime shall be limited to 15% of the aggregate number of issued and outstanding Common Shares as of the applicable Award Date less the number of Common Shares issuable pursuant to Options under the A&R Plan or any other security based compensation arrangement of the Company. In addition, the Company is authorized to grant up to RSUs pursuant to the A&R Plan. The RSU limit is separate and distinct from the maximum of Common Shares reserved for issuance pursuant to Options under the A&R Plan.
Share-based payment transactions of the acquiree in a business combination
When the share-based payment awards held by the employees of an acquiree (acquiree awards) are replaced by the Company’s share-based payment awards (replacement awards), both the acquiree awards and the replacement awards are measured in accordance with IFRS 2 (“market-based measure”) at the acquisition date. The portion of the replacement awards that is included in measuring the consideration transferred in a business combination equals the market-based measure of the acquiree awards multiplied by the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of the acquiree award. The excess of the market-based measure of the replacement awards over the market-based measure of the acquiree awards included in measuring the consideration transferred is recognized as remuneration cost for post-combination service.
However, when the acquiree awards expire as a consequence of a business combination and the Company replaces those awards when it does not have an obligation to do so, the replacement awards are measured at their market-based measure in accordance with IFRS 2. All of the market-based measure of the replacement awards is recognized as remuneration cost for post-combination service.
At the acquisition date, when the outstanding equity-settled share-based payment transactions held by the employees of an acquiree are not exchanged by the Company for its share-based payment transactions, the acquiree share-based payment transactions are measured at their market-based measure at the acquisition date. If the share-based payment transactions have vested by the acquisition date, they are included as part of the non-controlling interest in the acquiree. However, if the share-based payment transactions have not vested by the acquisition date, the market-based measure of the unvested share-based payment transactions is allocated to the non-controlling interest in the acquiree based on the ratio of the portion of the vesting period completed to the greater of the total vesting period or the original vesting period of the share-based payment transaction. The balance is recognized as remuneration cost for post-combination service.
27 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
SCHEDULE OF TERMS AND CONDITIONS OF SHARE-BASED PAYMENT ARRANGEMENT
Grant Date | Number of Instruments | Vesting Conditions | Contractual Life of Options | |||||
Balance December 31, 2020 | 13,813 | |||||||
On January, 2020 | 60 | 25% on first anniversary, then quarterly vesting | years | |||||
On March, 2020 | 244 | immediate | years | |||||
On March, 2020 | 100 | quarterly vesting | years | |||||
On March, 2020 | 250 | 25% on first anniversary, then quarterly vesting | years | |||||
On January, 2021 | 2,441 | 25% immediately, 25% on first anniversary, then quarterly vesting | years | |||||
On January, 2021 | 165 | 25% on first anniversary, then quarterly vesting | years | |||||
On January, 2021 | 1,670 | quarterly vesting | years | |||||
On March, 2021 | 241 | 25% on first anniversary, then quarterly vesting | years | |||||
On March, 2021 | 114 | quarterly vesting | years | |||||
On May, 2021 | 190 | 25% on first anniversary, then quarterly vesting | years | |||||
On May, 2021 | 705 | 3 years quarterly | years | |||||
On August, 2021 | 65 | 25% on first anniversary, then quarterly vesting | years | |||||
On August, 2021 | 450 | quarterly vesting | years | |||||
On November, 2021 | 1,220 | 25% on first anniversary, then quarterly vesting | years | |||||
On November, 2021 | 559 | 3 years quarterly | years | |||||
Balance December 31, 2021 | 22,287 | |||||||
On March, 2022 | 240 | 3 years quarterly vest | years | |||||
On May, 2022 | 320 | 3 years quarterly vest | years | |||||
On August, 2022 | 4,000 | 25% on first anniversary, then 4 years quarterly vesting | years | |||||
On August, 2022 | 145 | 3 years quarterly vest | years | |||||
On November, 2022 | 55 | 3 years quarterly vest | years | |||||
On August, 2022 | 10 | 3 years quarterly vest | years | |||||
Balance December 31, 2022 | 27,057 |
B. | Measurement of fair values |
SCHEDULE OF INDIRECT MEASUREMENT OF FAIR VALUE OF SHARES GRANTED DURING PERIOD
December 31, 2022 | December 31, 2021 | |||||||
Share price | $ | 1.05 | $ | 3.69 | ||||
Exercise price | $ to $ | $ to $ | ||||||
Expected volatility (weighted-average) | 108.0 | % | 156.0 | % | ||||
Expected life (weighted-average) | years | years | ||||||
Expected dividends | - | % | - | % | ||||
Risk-free interest rate (based on US government bonds) | – % | 1.45 | % |
Expected volatility has been based on an evaluation of historical volatility of the company’s share price.
28 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
C. | Reconciliation of outstanding stock-options |
SCHEDULE OF NUMBER AND WEIGHTED AVERAGE EXERCISE PRICES OF SHARE OPTIONS
December 31, 2022 | December 31, 2021 | |||||||||||||||
Number of Options | Weighted-Average Exercise Price | Number of Options | Weighted-Average Exercise Price | |||||||||||||
Outstanding at beginning of year | 20,815 | $ | 0.71 | 12,851 | $ | 0.27 | ||||||||||
Granted | 4,770 | 1.61 | 8,474 | 1.70 | ||||||||||||
Forfeited/ Expired | (3,883 | ) | (1.47 | ) | (370 | ) | - | |||||||||
Exercised | (1,389 | ) | (0.23 | ) | (140 | ) | (0.13 | ) | ||||||||
Outstanding at end of year | 20,313 | $ | 0.90 | 20,815 | $ | 0.71 | ||||||||||
Exercisable as at end of year | 11,046 | 10,295 |
The stock-options outstanding as of December 31, 2022 had a weighted average exercise price of $ (December 31, 2021: $ ) and a weighted-average contractual life of years (December 31, 2021: years).
D. | Restricted share unit plan |
Restricted share unit plan
On September 21, 2020, the Company established a restricted share unit plan (the “RSU Plan”). Under the RSU Plan agents are eligible to receive RSUs that, upon vesting, entitle the holder to a Common Share or cash payment in lieu of a Common Share. The RSUs are earned in recognition of personal performance and ability to attract agents to Real. The expense recognized in relation to these awards for the period ended December 31, 2022 was $ million. The stock compensation attributable to agent growth was classified as marketing expense. The stock compensation award granted to FTEs was classified as a General and Administrative expense on the audited consolidated statements of loss and comprehensive loss.
RSUs awarded in the agent incentive program purchase plan are based on a percentage of commission withheld to purchase Common Shares. These RSUs are expensed in the period in which those awards are deemed to be earned with a corresponding increase in equity.
RSUs awarded for personal performance and the ability to attract agents earned in recognition of personal performance conditions and are subject to a 3 year vesting period. The Company recognizes this expense during the applicable vesting period based upon the best available estimate of the number of equity instruments expected to vest with a corresponding increase in stock-based compensation reserve.
29 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
The following table illustrates the Company’s stock activity (in thousands of units) for the restricted share unit plan.
SCHEDULE OF STOCK ACTIVITY FOR RESTRICTED SHARE UNIT PLAN
Units | ||||
Balance at, December 31, 2020 | 121 | |||
Granted | 3,951 | |||
Vested and Issued | (76 | ) | ||
Forfeited | (31 | ) | ||
Balance at, December 31, 2021 | 3,965 | |||
Granted | 16,053 | |||
Vested and Issued | (2,504 | ) | ||
Forfeited | (606 | ) | ||
Balance at, December 31, 2022 | 16,908 |
The following table provides a detailed breakdown of the stock-based compensation expense as reported in the Consolidated Statement of Loss and Comprehensive Loss.
Stock Based Compensation Expense
SCHEDULE OF OF EFFECT OF SHARE-BASED PAYMENTS ON ENTITY'S PROFIT OR LOSS
Options Expense | RSU Expense | Total | Options Expense | RSU Expense | Total | |||||||||||||||||||
December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
Options Expense | RSU Expense | Total | Options Expense | RSU Expense | Total | |||||||||||||||||||
Marketing Expenses – Agent Stock Based Compensation | 1,215 | 4,304 | 5,519 | 1,188 | 1,006 | 2,194 | ||||||||||||||||||
Marketing Expenses – FTE Stock Based Compensation | - | 1 | 1 | 135 | - | 135 | ||||||||||||||||||
Research and Development – FTE Stock Based Compensation | 111 | 101 | 212 | 1,545 | - | 1,545 | ||||||||||||||||||
General and Administrative – FTE Stock Based Compensation | 1,702 | 1,076 | 2,778 | 1,316 | 17 | 1,333 | ||||||||||||||||||
Total Stock Based Compensation Expense | 3,028 | 5,482 | 8,510 | 4,184 | 1,023 | 5,207 |
On May 20, 2021 the Company began transacting under the NCIB to purchase up to of its common shares representing approximately of the total Common Shares issued and outstanding as of April 30, 2021. Purchases were made at prevailing market prices commencing on or about May 20, 2021 and ending on the earlier of: (i) one year from such commencement; or (ii) the date on which the Company had purchased the maximum number of Shares under the NCIB. The purpose of the purchase of Common Shares under the NCIB is to enable the Company to acquire shares to satisfy its RSU obligations. As of December 31, 2022, there were million shares purchased in the amount of $ million.
The Company appointed CWB Trust Services as the Trustee for the purposes of arranging for the acquisition of the Common Shares and to hold the Common Shares in trust for the purposes of satisfying restricted share unit payments well as deal with other administration matters. Through the trustee, RBC Capital Markets was engaged to undertake purchases under the NCIB for the purposes of the RSU Plan. RBC Capital Markets is required to comply with the TSXV NCIB rules in respect of the purchases of Common Shares as the Trustee is considered to be a non-independent trustee by the TSXV for the purposes of the NCIB rules.
14. CASH AND CASH EQUIVALENTS
In the statement of financial position, cash and bank balances comprise cash (i.e. cash on hand and demand deposits) and cash equivalents. Cash equivalents are short-term (generally with original maturity of three months or less), highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather for investment or other purposes.
30 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Bank balances for which use by the Company is subject to third party contractual restrictions are included as part of cash unless the restrictions result in a bank balance no longer meeting the definition of cash. Restricted cash consists of cash held in escrow by the Company’s brokers and agents on behalf of real estate buyers. The Company recognizes a corresponding customer deposit liability until the funds are released. Once the cash is transferred from escrow, the Company reduces the respective customers’ deposit liability.
For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts which are repayable on demand and form an integral part of the Company’s cash management. Such overdrafts are presented as short-term borrowings in the statement of financial position.
15. INVESTMENTS IN AVAILABLE FOR SALE SECURITIES AT FAIR VALUE
The following table provides a detailed breakdown of short-term investments (in thousands) as reported in the Consolidated Statements of Financial Positions:
SCHEDULE OF DETAILED INFORMATION ABOUT INVESTMENT IN AVAILABLE FOR SALE SECURITIES AT FAIR VALUE
Description | Estimated Fair Value December 31, 2021 | Deposit / (Withdraw) | Dividends, Interest & Income | Gross Unrealized Losses | Estimated Fair Value December 31, 2022 | |||||||||||||||
U.S. Government Bonds | 5,033 | 528 | 91 | (172 | ) | 5,480 | ||||||||||||||
Municipal Bonds | 2,900 | (1,220 | ) | 34 | (197 | ) | 1,517 | |||||||||||||
Bond Mutual Funds | 878 | - | - | (38 | ) | 840 | ||||||||||||||
Investment Certificate | - | 55 | - | - | 55 | |||||||||||||||
Short Term Investments | 8,811 | (637 | ) | 125 | (407 | ) | 7,892 |
Investment securities are recorded at fair value. The Company’s investment securities portfolio consists primarily of cash investments, debt securities issued by U.S government agencies, local municipalities and certain corporate entities. The products in investment portfolio have maturity dates ranging from less than one year to over 20 years.
The fair value of investment securities is impacted by interest rates, credit spreads, market volatility, and liquidity conditions. Net unrealized gains and losses in the portfolio are included in Other Comprehensive Income (Loss). An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis.
31 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
16. PROPERTY AND EQUIPMENT
Reconciliation of Carrying Amounts (in thousands)
SCHEDULE OF DETAILED INFORMATION ABOUT PROPERTY, PLANT AND EQUIPMENT
Computer Equipment | Software | Furniture and Equipment | Total | |||||||||||||
Cost | ||||||||||||||||
Balance at December 31, 2020 | 33 | - | 69 | 102 | ||||||||||||
Additions | 172 | - | - | 172 | ||||||||||||
Depreciation | ||||||||||||||||
Depreciation on Acquired Assets | ||||||||||||||||
Balance at December 31, 2021 | 205 | - | 69 | 274 | ||||||||||||
Additions | 413 | 995 | 164 | 1,572 | ||||||||||||
Balance at December 31, 2022 | 618 | 995 | 233 | 1,846 | ||||||||||||
Accumulated Depreciation | ||||||||||||||||
Balance at December 31, 2020 | 24 | - | 64 | 88 | ||||||||||||
Depreciation | 15 | - | 1 | 16 | ||||||||||||
Balance at December 31, 2021 | 39 | - | 65 | 104 | ||||||||||||
Beginning balance | 39 | - | 65 | 104 | ||||||||||||
Depreciation on Acquired Assets | 92 | 26 | 137 | 255 | ||||||||||||
Depreciation | 79 | 57 | 1 | 137 | ||||||||||||
Balance at December 31, 2022 | 210 | 83 | 203 | 496 | ||||||||||||
Ending balance | 210 | 83 | 203 | 496 | ||||||||||||
Carrying Amounts | ||||||||||||||||
Balance at December 31, 2021 | 166 | - | 4 | 170 | ||||||||||||
Ending balance | 166 | - | 4 | 170 | ||||||||||||
Balance at December 31, 2022 | 408 | 912 | 30 | 1,350 | ||||||||||||
Ending balance | 408 | 912 | 30 | 1,350 |
17. INTANGIBLE ASSETS AND GOODWILL
We review goodwill for impairment on an annual basis in the fiscal fourth quarter or on an interim basis if an event occurs or circumstances change that indicate goodwill may be impaired. For the year ended December 31, 2022 and 2021, we performed an assessment of goodwill related to our previous business acquisition which did not result in an impairment charge for either of the years.
Reconciliation of Carrying Amounts (in thousands)
SCHEDULE OF DETAILED INFORMATION ABOUT INTANGIBLE ASSETS
Intangible Assets | Goodwill | Total | ||||||||||
Cost | ||||||||||||
Balance at December 31, 2020 | - | - | - | |||||||||
Additions | 563 | 602 | 1,165 | |||||||||
Depreciation | ||||||||||||
Balance at December 31, 2021 | 563 | 602 | 1,165 | |||||||||
Additions | 3,370 | 9,660 | 13,030 | |||||||||
Balance at December 31, 2022 | 3,933 | 10,262 | 14,195 | |||||||||
Accumulated Depreciation | ||||||||||||
Balance at December 31, 2020 | - | - | - | |||||||||
Depreciation | 113 | - | 113 | |||||||||
Balance at December 31, 2021 | 113 | - | 113 | |||||||||
Beginning balance | 113 | - | 113 | |||||||||
Depreciation | 112 | - | 112 | |||||||||
Balance at December 31, 2022 | 225 | - | 225 | |||||||||
Ending balance | 225 | - | 225 | |||||||||
Carrying Amounts | ||||||||||||
Balance at December 31, 2021 | 451 | 602 | 1,053 | |||||||||
Ending balance | 451 | 602 | 1,053 | |||||||||
Balance at December 31, 2022 | 3,708 | 10,262 | 13,970 | |||||||||
Ending balance | 451 | 602 | 1,053 |
32 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Share capital and share premium
All Common Shares rank equally with regards to the Company’s residual assets. Preference shareholders participate only to the extent of the face value of the shares. The following table is presented in thousands:
SCHEDULE OF DETAILED INFORMATION ABOUT RESERVES WITHIN EQUITY
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||||||||
Share Premium | Non-controlling Interests | Non-redeemable Preference Shares | ||||||||||||||||||||||
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||||||||
In issue at beginning of year | 50,753 | 21,668 | - | 14,818 | - | - | ||||||||||||||||||
Issued for cash | - | 26,475 | - | - | - | - | ||||||||||||||||||
Conversion | - | 14,818 | - | (14,818 | ) | - | - | |||||||||||||||||
Exercise of stock options | 663 | 207 | - | - | - | - | ||||||||||||||||||
Common shares acquired | (8,060 | ) | (12,644 | ) | - | - | - | - | ||||||||||||||||
Release of vested common shares from employee benefit trusts | 4,886 | 229 | - | - | - | - | ||||||||||||||||||
Non-controlling interest | - | - | 263 | - | - | - | ||||||||||||||||||
In issue at end of year – fully paid | 48,242 | 50,753 | 263 | - | - | - | ||||||||||||||||||
Authorized shares | 66,000 | 66,000 |
33 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Share Consolidation and Share Split
On May 26, 2021, the Company consolidated all of its issued and outstanding Common Shares on the basis of one (1) post-consolidation Common Share for each four ( ) pre-consolidation Common Shares.
On July 12, 2021, the Company implemented a forward split of all of its issued and outstanding Common Shares on the basis of four ( ) post-split Common Shares for each one (1) pre-split Common Share.
Non- controlling interests
On December 2, 2020, the Company completed the Insight Partners investment whereby a wholly owned subsidiary of the Company issued 17.3 million Preferred Units at a price of $1.19 (CAD $ ) per Preferred Unit. The Company also issued 17.3 million Warrants, each exercisable into one Common Share at a price of $1.48 (CAD $ )
On June 28, 2021, all Warrants held by Insight Partners were exercised for an aggregate gross price of $26.6 million (CAD $32.8 million)
On August 3, 2021, Insight Partners was issued an aggregate of million Common Shares in the exchange of all of the Preferred Units.
On January 21, 2022, the Company completed the acquisition of 100% of the issued and outstanding equity interests of Expetitle. As part of this transaction, the Company also acquired non-controlling interest of $21 thousand which includes the income/(loss) allocated to non- controlling interest holders of certain subsidiaries of Expetitle.
19. CAPITAL MANAGEMENT
Real defines capital as its equity. It is comprised of, Common Shares, contributed capital, retained deficit and accumulated other comprehensive loss. The Company’s capital management framework is designed to maintain a level of capital that funds the operations and business strategies and builds long-term shareholder value.
The Company’s objective is to manage its capital structure in such a way as to diversify its funding sources, while minimizing its funding costs and risks The Company sets the amount of capital in proportion to the risk and adjusts considering changes in economic conditions and the characteristic risk of underlying assets. To maintain or adjust the capital structure, the Company may repurchase shares, return capital to shareholders, issue new shares or sell assets to reduce debt.
Real’s objective is met by retaining adequate liquidity to provide the possibility that cash flows from its assets will not be sufficient to meet operational, investing and financing requirements. There have been no changes to the Company’s capital management policies during the periods ended December 31, 2022 and 2021.
The following table presents the Company’s liquidity (in thousands):
SCHEDULE OF DETAILED INFORMATION ABOUT LIQUIDITY
December 31, 2022 | December 31, 2021 | |||||||
For the Year Ended | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
Cash | 10,846 | 25,818 | ||||||
Other Receivables | 74 | 23 | ||||||
Short Term Investments | 7,892 | 8,811 | ||||||
Total | 18,812 | 34,652 |
34 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
20. LEASE LIABILITY AND RIGHT OF USE ASSET
On December 1, 2017, the Company entered into lease agreement. The Company leases corporate office in New York, NY under a lease agreement dated December 1, 2017, which expires on June 30, 2023. A summary of the changes in the right-of-use asset (in thousands) for the periods ended December 31, 2022, and December 31, 2021 is as follows:
SCHEDULE OF DETAILED INFORMATION ABOUT RIGHT-OF-USE ASSETS
Right-of-Use Asset | ||||
Cost | ||||
Balance at December 31, 2020 | 502 | |||
Additions | - | |||
Acquired Depreciation | ||||
Depreciation | ||||
Balance at December 31, 2021 | 502 | |||
Additions | 107 | |||
Balance at December 31, 2022 | 609 | |||
Accumulated Depreciation | ||||
Balance at December 31, 2020 | 309 | |||
Depreciation | 84 | |||
Balance at December 31, 2021 | 393 | |||
Acquired Depreciation | 59 | |||
Depreciation | 84 | |||
Balance at December 31, 2022 | 536 | |||
Carrying Amounts | ||||
Balance at December 31, 2021 | 109 | |||
Balance at December 31, 2022 | 73 |
The lease liability resulted from the lease agreement is $131 thousand (undiscounted value of $135 thousand, discount rate 4%). This liability represents the monthly lease payment from January 1, 2022 to June 30, 2023. Additionally, the Company acquired leases related to offices in North Carolina and New Jersey (ending on September 30, 2023) as part of the LemonBrew Transaction. The associated leases were transferred to the Company on December 9, 2022. A summary of the changes in the lease liability (in thousands) during the periods ended December 31, 2022, and December 31, 2021 is as follows:
SCHEDULE OF DETAILED INFORMATION ABOUT CHANGES IN THE LEASE LIABILITY DURING THE YEARS
December 31, 2022 | December 31, 2021 | |||||||
Maturity analysis – contractual undiscounted cash flows | ||||||||
Less than one year | 96 | 94 | ||||||
One year to five years | - | 41 | ||||||
More than five years | - | - | ||||||
Total undiscounted lease liabilities | 96 | 135 | ||||||
Lease liabilities included in the balance sheet | 96 | 131 | ||||||
Current | 96 | 91 | ||||||
Non-current | - | 40 |
21. OTHER PAYABLES
The other payables primarily consist of contingent consideration payable as part of closing of the Expetitle Transaction. This was be released after twelve (12) months upon the satisfaction of the following terms and conditions: (i) the key employees from Expetitle remained at their current position with the Company for at least twelve (12) months after the Closing Date and (ii) Expetitle became licenced to operate in at least fifteen states, including the current states of operation, Florida, Georgia, and Texas.
SCHEDULE OF OTHER PAYABLES
December 31, 2022 | December 31, 2021 | |||||||
Other Payables | 588 | 40 | ||||||
Contingent Consideration | 600 | - | ||||||
Total Other Payables | 1,188 | 40 |
22. CUSTOMER DEPOSITS
Customer deposits consist of escrow funds payables. This is the 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.
35 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
23. FINANCIAL INSTRUMENTS – FAIR VALUE AND RISK MANAGEMENT
Accounting classifications and fair value (in thousands)
SCHEDULE OF CARRYING VALUES OF FINANCIAL INSTRUMENTS
For the Year Ended December 31, 2021 | ||||||||||||||||||||||||
Carrying Amount | Fair Value | |||||||||||||||||||||||
Financial Assets Not Measured at FV | Other Financial Liabilities | Total | Level 1 | Level 2 | Total | |||||||||||||||||||
Financial Assets Measured at Fair Value (FV) | ||||||||||||||||||||||||
Investments in Financial Assets | - | - | - | 8,811 | - | 8,811 | ||||||||||||||||||
Total Financial Assets Measured at Fair Value (FV) | - | - | - | 8,811 | - | 8,811 | ||||||||||||||||||
Financial Liabilities Measured at Fair Value (FV) | ||||||||||||||||||||||||
Warrants | - | - | - | - | 639 | 639 | ||||||||||||||||||
Total Financial Liabilities Measured at Fair Value (FV) | - | - | - | - | 639 | 639 | ||||||||||||||||||
Financial Assets Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Cash and Cash Equivalents | 25,818 | - | 25,818 | - | - | - | ||||||||||||||||||
Restricted Cash | 3,311 | - | 3,311 | - | - | - | ||||||||||||||||||
Trade Receivables | 254 | - | 254 | - | - | - | ||||||||||||||||||
Other Receivables | 23 | - | 23 | - | - | - | ||||||||||||||||||
Total Financial Assets Not Measured at Fair Value (FV) | 29,406 | - | 29,406 | - | - | - | ||||||||||||||||||
Financial Liabilities Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Accounts Payable | - | 54 | 54 | - | - | - | ||||||||||||||||||
Accrued Liabilities | - | 8,818 | 8,818 | - | - | - | ||||||||||||||||||
Customer Deposits | - | 3,311 | 3,311 | - | - | - | ||||||||||||||||||
Other Payables | - | 40 | 40 | - | - | - | ||||||||||||||||||
Total Financial Liabilities Not Measured at Fair Value (FV) | - | 12,223 | 12,223 | - | - | - |
36 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
For the Year Ended December 31, 2022 | ||||||||||||||||||||||||
Carrying Amount | Fair Value | |||||||||||||||||||||||
Financial Assets Not Measured at FV | Other Financial Liabilities | Total | Level 1 | Level 2 | Total | |||||||||||||||||||
Financial Assets Measured at Fair Value (FV) | ||||||||||||||||||||||||
Investments in Financial Assets | - | - | - | 7,892 | - | 7,892 | ||||||||||||||||||
Total Financial Assets Measured at Fair Value (FV) | - | - | - | 7,892 | - | 7,892 | ||||||||||||||||||
Financial Liabilities Measured at Fair Value (FV) | ||||||||||||||||||||||||
Warrants | - | - | - | - | 242 | 242 | ||||||||||||||||||
Total Financial Liabilities Measured at Fair Value (FV) | - | - | - | - | 242 | 242 | ||||||||||||||||||
Financial Assets Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Cash and Cash Equivalents | 10,846 | - | 10,846 | - | - | - | ||||||||||||||||||
Restricted Cash | 7,481 | - | 7,481 | - | - | - | ||||||||||||||||||
Trade Receivables | 1,547 | - | 1,547 | - | - | - | ||||||||||||||||||
Other Receivables | 74 | - | 74 | - | - | - | ||||||||||||||||||
Total Financial Assets Not Measured at Fair Value (FV) | 19,948 | - | 19,948 | - | - | - | ||||||||||||||||||
Financial Liabilities Not Measured at Fair Value (FV) | ||||||||||||||||||||||||
Accounts Payable | - | 474 | 474 | - | - | - | ||||||||||||||||||
Accrued Liabilities | - | 11,866 | 11,866 | - | - | - | ||||||||||||||||||
Customer Deposits | - | 7,481 | 7,481 | - | - | - | ||||||||||||||||||
Other Payables | - | 1,188 | 1,188 | - | - | - | ||||||||||||||||||
Total Financial Liabilities Not Measured at Fair Value (FV) | - | 21,009 | 21,009 | - | - | - |
37 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
A. | Transfers between levels |
During the year ended December 31, 2022 and 2021, there have been no transfers between Level 1, Level 2 and Level 3.
B. | Financial risk management |
The Company has exposure to the following risks arising from financial instruments:
‒ | credit risk (see (ii)); |
‒ | liquidity risk (see (iii)); |
‒ | market risk (see (iv)); and |
‒ | investment risk (see (v)). |
i. | Risk management framework |
The Company’s activity exposes it to a variety of financial risks, including credit risk, liquidity risk, market risk and investment risk. These financial risks are managed by the Company under policies approved by the Board of Directors. The principal financial risks are actively managed by the Company’s finance department, within the policies and guidelines.
On an ongoing basis, the finance department actively monitors the market conditions, with a view of minimizing exposure of the Company to changing market factors, while at the same time limiting the funding costs of the Company.
The Company’s Audit Committee oversees how management monitors compliance with the Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Company.
ii. | Credit risk |
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Company’s receivables from customers. The receivables are processed through an intermediary trustee, as part of the structure of every deal, which ensures collection on the close of a successful transaction. In order to mitigate the residual risk, the Company contracts exclusively with reputable and credit-worthy partners.
The carrying amount of financial assets and contract assets represents the maximum credit exposure.
Trade receivables
The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers other factors may influence the credit risk of the customer base, including the default risk associated with the industry and the country in which the customers operate.
The Company does not require collateral in respect to trade and other receivables. The Company does not have trade receivable and contract assets for which no loss allowance is recognized because of collateral.
Loss rates are calculated using a ‘roll rate’ method based on the probability of a receivable progressing through successive stages of delinquency to write-off. Roll rates are calculated separately for exposures in different CGUs based on the following common credit risk characteristics – geographic region, credit information about the customer and the type of home purchased.
38 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Loss rates are based on actual credit loss experience. These rates are multiplied by scalar factors to reflect differences between economic conditions during the period over which the historical data has been collected, compared to current conditions of the Company’s view of economic conditions over the expected lives of the receivables.
As of December 31, 2022, the exposure to credit risk for trade receivables and contract asset (in thousands) by geographic region was as follows:
SCHEDULE OF DETAILED INFORMATION ABOUT CREDIT RISK TRADE RECEIVABLES AND CONTRACT ASSET BY GEOGRAPHIC REGION
December 31, 2022 | December 31, 2021 | |||||||
US | 1,105 | 230 | ||||||
Other Regions | 442 | 24 | ||||||
Trade Receivables | 1,547 | 254 |
The Company uses an allowance matrix to measure the ECLs of trade receivables from individual customers, which comprise a very large number of small balances.
iii. | Liquidity risk |
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to maintaining liquidity is to ensure, as far as possible, that it will have sufficient cash and cash equivalents and other liquid assets to meet its liabilities when they are due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
iv. | Market risk |
Market risk is the risk that changes in market prices – e.g. foreign exchange rates, interest rates and equity prices – will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.
Currency risk
The Company is exposed to transactional foreign currency risk to the extent there is a mismatch between currencies in which purchases and receivables are denominated and the respective functional currencies of the Company. The currencies in which transactions are primarily denominated are US dollars, Israeli shekel and Canadian dollar.
Sensitivity analysis
A reasonably possible strengthening (weakening) of the US dollar (USD), Israeli shekel (ILS), or Canadian Dollar (CAD) against all other currencies in which the Company operates as of December 31, 2022 and December 31, 2021 would have affected the measurement of financial instruments denominated in a foreign currency and affected equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. The following table is presented in thousands:
SCHEDULE OF DETAILED INFORMATION ABOUT NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS
Average Rate | Period-end Spot Rate | |||||||||||||||
Strengthening | Weakening | Strengthening | Weakening | |||||||||||||
Balance at, December 31, 2022 | ||||||||||||||||
CAD (-5% movement) | 355 | (355 | ) | 456 | (456 | ) | ||||||||||
ILS (-5% movement) | 2 | (2 | ) | 6 | (6 | ) | ||||||||||
Balance at, December 31, 2021 | ||||||||||||||||
CAD (-5% movement) | 43 | (43 | ) | 4 | (4 | ) | ||||||||||
ILS (-5% movement) | 39 | (39 | ) | 54 | (54 | ) |
39 |
THE REAL BROKERAGE, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2022 AND 2021
Foreign Currency Risk Management
The Company undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilizing forward foreign exchange contracts.
The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities (in thousands) at the reporting date are as follows:
SCHEDULE OF DETAILED INFORMATION ABOUT FOREIGN CURRENCY RISK MANAGEMENT
Liabilities | Assets | |||||||||||||||
December 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||
CAD | (7,058 | ) | (1,331 | ) | 3,474 | 3,291 | ||||||||||
ILS | (82 | ) | (1,420 | ) | 7,724 | 191 | ||||||||||
Total Exposure | (7,140 | ) | (2,751 | ) | 11,198 | 3,482 |
v. | Investment risk |
The Company invested funds from the Insight Partners financing transaction into a managed investment portfolio, exposing it to risk of losses based on market fluctuations. Securities are purchased on behalf of the Company and are actively managed through multiple investment accounts. Funds apportioned for investment are allocated accordingly to the investment guidelines set forth by Management. Investments are made in U.S. currency.
The Company follows a conservative investment approach with limited risk for investment activities and has allocated the funds in Level 1 assets to reduce market risk exposure.
Information about the Company’s investment activity is included in Note 15.
24. COMMITMENTS AND CONTINGENCIES
The Company may have various other contractual obligations in the normal course of operations. The Company is not contingently liable with respect to litigation, claims and environmental matters, including those that could result in mandatory damages or other relief. Any expected settlement of claims in excess of amounts recorded will be charged to profit or loss as and when such determination is made.
25. RELATED PARTY TRANSACTIONS
Balances and transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The Company’s key management personnel are comprised of the CEO, the CFO, the CTO, and the CMO, and other members of the executive team. Executive officers participate in the Company’s Amended and Restated Omnibus Incentive Plan (see Note 13.A). Directors and officers of the Company control approximately 37.70% of the voting shares of the Company. The remuneration of key management personnel and directors of the Company who are part of related parties is set out below (in thousands):
SCHEDULE OF DETAILED INFORMATION ABOUT RELATED PARTY
December 31, 2022 | December 31, 2021 | |||||||
For the Year Ended | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
Salaries and Benefits | 2,435 | 1,476 | ||||||
Stock-Based Compensation | 2,164 | 2,412 | ||||||
Consultancy | - | 270 | ||||||
Compensation Expenses for Related Parties | 4,599 | 4,158 |
40 |