3. Restatement of Previously Issued Financial Statements

12 Months Ended

Dec. 31, 2017

Accounting Changes and Error Corrections [Abstract]

3. Restatement of Previously Issued Financial Statements

The Company has restated its consolidated financial statements as of and for the fiscal years ended December 31, 2016 and December 31, 2015. In addition, the Company has restated its quarterly Consolidated Statements of Operations for each of the first three quarterly periods in fiscal 2017, 2016 and 2015, as presented in Note 13, Unaudited Quarterly Financial Data.

These errors were discovered by management during the course of its preparation of this Annual Report and the audit of the financial results for fiscal year 2017. The effect of the restatements on the Company’s Balance Sheets is not material and the restatements have no effect on reported cash flow from operations. The nature and impact of these adjustments are described below and detailed in the tables below.

Equity-Based Payments

During the first quarter of 2018 in preparation of our annual report and financial statement audit, the Company identified an error as a result of applying incorrect accounting guidance for equity-based payments for non-employees in its previously reported Consolidated Statement of Operations. In prior periods, the Company had erroneously accounted for these option grants to non-employees in the same manner that it had accounted for option grants to employees during that same time frame. The error resulted in an overstatement of stock option expense in the amount of $4,514,158 and $264,795 for the years ended December 31, 2016 and December 31, 2015, respectively. The adjustments made to the income statement are set out in the table below. Based on this error, these same equity instruments to non-employees also understated expense in the fiscal year ended December 31, 2014 by $173,859. Accordingly, we restated the ending balance of additional paid in capital and accumulated deficit as of December 31, 2014 on the Consolidated Statements of Stockholders’ Equity.

In this same time frame, we identified an error in the accounting treatment for equity grants made to employees as a result of applying incorrect accounting guidance for equity-based payments for employees in its previously reported Consolidated Statement of Operations. In prior periods, the Company had accounted for these option grants to employees using the intrinsic value method. The Company concluded that it should have utilized the calculated value method. The error resulted in an overstatement of stock option expense in the amount of $15,329,588 and $2,499,457 for the years ended December 31, 2016 and December 31, 2015, respectively. The adjustments made to the income statement are set out in the table below. Based on this error, these same equity instruments to employees overstated expense in the fiscal year ended December 31, 2014 by $441,814. Accordingly, we restated the ending balance of additional paid in capital and accumulated deficit as of December 31, 2014 on the Consolidated Statement of Stockholders’ Equity.

We also identified an error in the accounting treatment for equity grants made to non-employees in connection with our Agent Growth Incentive Plan. The error was the result of an incorrect application of the equity-based payments for non-employees which requires remeasurement of each award at each reporting date throughout the vesting period. The correction of this error resulted in an understatement of expenses by $1,215,188 and $121,704 for the years ended December 31, 2016 and December 31, 2015, respectively. Based on this error, these same equity grants to non-employees overstated expense in the fiscal year ended December 31, 2014 by $91. Accordingly, we restated the ending balance of additional paid in capital and accumulated deficit as of December 31, 2014 on the Consolidated Statement of Stockholder’s Equity.

We previously did not recognize costs associated with a 20% discount to the fair value determined each month when issuing shares under our Agent Equity Program. The restated financial statements now include these additional charges as cost of sales expense in the restated periods.

Other Adjustments 

In addition to the errors described above, the restated financial statements also include adjustments to correct certain other immaterial errors. Specifically, we previously recorded certain agent fees as revenue. These fees should be reported on a net basis as a reduction to the cost of sales expense. The restated financial statements now include the revisions in the restated periods.

eXp World Holdings Inc.

Consolidated Statement of Operations

For the fiscal year ended December 31, 2016

	As Previously Reported on Form 10-K			Stock Option Expense Adjustment			Agent Incentive Stock Compensation Expense Adjustment			Other Adjustments			As Restated
Net revenues	$	54,179,511			–			–			(623,786	)	$	53,555,725
Operating expenses
Cost of revenues		46,726,533			–			336,197			(623,786	)		46,438,944
General and administrative		32,237,501			(19,843,746	)		878,991			–			13,272,746
Professional fees		645,024			–			–			–			645,024
Sales and marketing		570,844			–			–			–			570,844
Total expenses		80,179,902			19,843,746	)		1,215,188			(623,786	)		60,927,558
Net income (loss) from operations		(26,000,391	)		19,843,746			(1,215,188	)		–			(7,371,833	)
Other income		15			–			–			–			15
Interest expense		(370	)		–			–			–			(370	)
Total other income and (expenses)		(355	)		–			–			–			(355	)
Net income (loss) from operations before income tax expense		(26,000,746	)		19,843,746			(1,215,188	)		–			(7,372,188	)
Income tax expense		(42,528	)		–			–			–			(42,528	)
Net income (loss)		(26,043,274	)		19,843,746			(1,215,188	)		–			(7,414,716	)
Net loss attributable to non-controlling interest in subsidiary		29,801			–			–			–			29,801
Net income (loss) attributable to common shareholders	$	(26,013,473	)		19,843,746			(1,215,188	)		–			(7,384,915	)
Net loss per share attributable to common shareholders
Basic from continuing operations	$	(0.51	)	$	0.39		$	(0.02	)	$	(0.00	)	$	(0.14	)
Diluted from continuing operations	$	(0.51	)	$	0.39		$	(0.02	)	$	(0.00	)	$	(0.14	)
Weighted average shares outstanding
Basic		51,081,949			51,081,949			51,081,949			51,081,949			51,081,949
Diluted		51,081,949			51,081,949			51,081,949			51,081,949			51,081,949

eXp World Holdings Inc.

Consolidated Statement of Operations

For the fiscal year ended December 31, 2015

	As Previously Reported on Form 10-K			Stock Option Expense Adjustment			Agent Incentive Stock Compensation Expense Adjustment			Other Adjustments			As Restated
Net revenues	$	22,866,787			–			–			(402,481	)	$	22,464,306
Operating expenses
Cost of revenues		19,456,409			–			71,637			(402,481	)		19,125,564
General and administrative		7,257,961			(2,764,252	)		50,067			–			4,543,776
Professional fees		439,763			–			–			–			439,763
Sales and marketing		211,456			–			–			–			211,456
Total expenses		27,365,589			(2,764,252	)		121,704			(402,481	)		24,320,560
Net income (loss) from operations		(4,498,802	)		2,764,252			(121,704	)		–			(1,856,254	)
Other income		23			–			–			–			23
Interest expense		(1,127	)		–			–			–			(1,127	)
Total other income and (expenses)		(1,104	)		–			–			–			(1,104	)
Net income (loss) from operations before income tax expense		(4,499,906	)		2,764,252			(121,704	)		–			(1,857,358	)
Income tax expense		(103,069	)		–			–			–			(103,069	)
Net income (loss)		(4,602,975	)		2,764,252			(121,704	)		–			(1,960,427	)
Net loss attributable to non-controlling interest in subsidiary		21,526			–			–			–			21,526
Net income (loss) attributable to common shareholders	$	(4,581,449	)		2,764,252			(121,704	)		–			(1,938,901	)
Net loss per share attributable to common shareholders
Basic from continuing operations	$	(0.09	)	$	0.06		$	(0.00	)	$	(0.00	)	$	(0.04	)
Diluted from continuing operations	$	(0.09	)	$	0.06		$	(0.00	)	$	(0.00	)	$	(0.04	)
Weighted average shares outstanding
Basic		49,409,266			49,409,266			49,409,266			49,409,266			49,409,266
Diluted		49,409,266			49,409,266			49,409,266			49,409,266			49,409,266