Exhibit 99.2
TABLE OF CONTENTS
| Report of Independent Registered Public Accounting Firm (PCAOB ID No. |
3 |
| Consolidated Financial Statements: | |
| Consolidated Statements of Financial Positions | 4 |
| Consolidated Statements of Loss and Other Comprehensive Loss | 5 |
| Consolidated Statements of Changes in Equity | 6 |
| Consolidated Statement of Cash Flows | 7 |
| Notes to the Consolidated Financial Statements | 8-35 |
| 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 statements of financial position of The Real Brokerage Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of loss and comprehensive loss, changes in equity and cash flows, for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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
Certified Public Accountants
A Firm in the Deloitte Global Network
March 14, 2024
We have served as the Company’s auditor since 2014.
| 3 |
THE REAL BROKERAGE INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONS
(Expressed in thousands of U.S. dollars)
| As of | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Investments in financial assets | ||||||||
| Trade receivables | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and deposits | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Property and equipment | ||||||||
| Right-of-use assets | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | ||||||||
| LIABILITIES AND EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Other payables | ||||||||
| Lease liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| NON-CURRENT LIABILITIES | ||||||||
| Warrants outstanding | ||||||||
| TOTAL NON-CURRENT LIABILITIES | ||||||||
| TOTAL LIABILITIES | ||||||||
| EQUITY | ||||||||
| EQUITY ATTRIBUTABLE TO OWNERS | ||||||||
| Share premium | ||||||||
| Stock-based compensation reserves | ||||||||
| Deficit | ( | ) | ( | ) | ||||
| Other reserves | ( | ) | ( | ) | ||||
| Treasury stock, at cost | ( | ) | ( | ) | ||||
| EQUITY ATTRIBUTABLE TO OWNERS | ||||||||
| Non-controlling interests | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | ||||||||
The accompanying notes form an integral part of the consolidated financial statements.
| 4 |
THE REAL BROKERAGE INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Expressed in thousands of U.S. dollars, except for per share amounts)
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Commissions and other agent-related costs | ||||||||
| Gross Profit | ||||||||
| General and administrative expenses | ||||||||
| Marketing expenses | ||||||||
| Research and development expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Other income (expenses), net | ( | ) | ||||||
| Listing expenses | ( | ) | ||||||
| Finance expenses, net | ( | ) | ( | ) | ||||
| Net Loss | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interests | ||||||||
| Net Loss Attributable to the Owners of the Company | ( | ) | ( | ) | ||||
| Other comprehensive income/(loss), Items that will be reclassified subsequently to profit or loss: | ||||||||
| Cumulative (gain)/loss on investments in debt instruments classified as FVTOCI reclassified to profit or loss | ( | ) | ||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Total Comprehensive Loss Attributable to Owners of the Company | ( | ) | ( | ) | ||||
| Total Comprehensive Income Attributable to NCI | ||||||||
| Total Comprehensive Loss | ( | ) | ( | ) | ||||
| Loss per share | ||||||||
| Basic and diluted loss per share | $ | ) | $ | ) | ||||
| Weighted-average shares, basic and diluted | ||||||||
The accompanying notes form an integral part of the consolidated financial statements.
| 5 |
THE REAL BROKERAGE INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. dollar in thousands)
Share Premium | Stock-Based Compensation Reserve | Foreign Exchange Translation Reserve | Investments Revaluations Reserve | Deficit | Treasury Stock | Equity Attributable to Owners | Non-Controlling Interests | Total Equity | ||||||||||||||||||||||||||||
| Balance at, January 1, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total loss and income | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total other comprehensive loss | ( | ) | ||||||||||||||||||||||||||||||||||
| Member draws | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Acquisitions of commons shares for Restricted Share Unit (RSU) plan | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Release of treasury shares | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of Restricted Share Units | ( | ) | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | ( | ) | ||||||||||||||||||||||||||||||||||
| Shares withheld for taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Equity-settled share-based payment | ||||||||||||||||||||||||||||||||||||
| Balance at, December 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at, January 1, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total loss and income | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total other comprehensive loss | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Acquisitions of commons shares for Restricted Share Unit (RSU) plan | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Release of treasury shares | ( | ) | ||||||||||||||||||||||||||||||||||
| Issuance of Restricted Share Units | ( | ) | ||||||||||||||||||||||||||||||||||
| Adjustment arising from change in non-controlling interest | ||||||||||||||||||||||||||||||||||||
| Exercise of stock options | ( | ) | ||||||||||||||||||||||||||||||||||
| Shares issue as part of Expetitle and LemonBrew Acquisitions | ||||||||||||||||||||||||||||||||||||
| Equity-settled share-based payment | ||||||||||||||||||||||||||||||||||||
| Balance at, December 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
The accompanying notes form an integral part of the consolidated financial statements.
| 6 |
THE REAL BROKERAGE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. dollar in thousands)
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments for: | ||||||||
| Depreciation and amortization | ||||||||
| Impairment of goodwill | ||||||||
| Equity-settled share-based payments | ||||||||
| Finance costs | ||||||||
| Changes in operating asset and liabilities: | ||||||||
| Trade receivables | ( | ) | ( | ) | ||||
| Other receivables | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ( | ) | ||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Customer deposits | ||||||||
| Other payables | ( | ) | ||||||
| NET CASH PROVIDED BY OPERATING ACTIVITIES | ||||||||
| INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of subsidiaries (Note 4 and 5) | ( | ) | ||||||
| Investment deposits in debt instruments held at FVTOCI | ( | ) | ( | ) | ||||
| Investment withdrawals in debt instruments held at FVTOCI | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Purchase of common shares for Restricted Share Unit (RSU) Plan | ( | ) | ( | ) | ||||
| Shares withheld for taxes | ( | ) | ||||||
| Proceeds from exercise of stock options | ||||||||
| Payment of lease liabilities | ( | ) | ( | ) | ||||
| Cash payment for contingent consideration | ( | ) | ||||||
| Dividends paid to non-controlling interest | ( | ) | ( | ) | ||||
| NET CASH USED IN FINANCING ACTIVITIES | ( | ) | ( | ) | ||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash, beginning of year | ||||||||
| Fluctuations in foreign currency | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH BALANCE, ENDING BALANCE | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES: | ||||||||
| Share-based compensation as part of Expetitle consideration | ||||||||
| Share-based compensation as part of LemonBrew consideration | ||||||||
The accompanying notes form an integral part of the consolidated financial statements
| 7 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
1. GENERAL INFORMATION
The Real Brokerage Inc. (“Real” or the “Company”) is a growing real estate technology company located in the United States and Canada. Real is taking a first principles approach to redefining the role of a real estate brokerage in the lives of agents and within the broader housing ecosystem. The Company focuses on developing technology to enhance real estate agent performance while building a scalable, efficient brokerage operation that is not dependent on a cost-heavy brick and mortar presence in the markets in which Real operates. Real’s goal is to establish the Company as the destination brokerage for agents, by offering an unmatched combination of technology, support, and financial incentives. Real’s vision is to transform home buying under the guidance of an agent via an integrated consumer portal and app, while growing attachment of ancillary services including mortgage brokerage and title insurance. Concurrently, Real plans to expand its suite of tools and products tailored for agents, including mobile banking, payment solutions, and wealth management tools, to facilitate their journey towards generational wealth.
The consolidated operations of Real include the subsidiaries of Real, including those involved in the brokerage, title and mortgage broker operations.
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”). On May 19, 2022, the Company announced that it renewed its 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. Pursuant to the NCIB, Real was able to purchase up to million common shares of the Company (“Common Shares”), representing approximately % of the total million Common Shares issued and outstanding as of May 19, 2022. On May 24, 2023, the Company announced that it renewed its NCIB pursuant to which, Real may purchase up to approximately million Common Shares, representing approximately % of the total million Common Shares issued and outstanding as of May 18, 2023. Purchases are made at prevailing market prices and may be conducted during the twelve-month period ended May 28, 2024.
The NCIB is being conducted to acquire Common Shares for the purposes of satisfying restricted share unit (each, an “RSU”) obligations. 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 RSU payments as well as to deal with other administrative matters. Through the Trustee, RBC Capital Markets was engaged to undertake purchases under the NCIB.
During
the year ended December 31, 2023, the Company repurchased million Common Shares in the amount of $
On June 15, 2021, the Company’s Common Shares commenced trading on the NASDAQ under the symbol “REAX”. On July 26, 2022, the Company’s Common Shares commenced trading on the Toronto Stock Exchange (the “TSX”) under the symbol “REAX”.
On July 28, 2023, the Company announced that its application for a voluntary delisting of its Common Shares from the TSX had been approved by the Company’s Board of Directors and the TSX. The Common Shares were delisted from the TSX effective as of close of markets on August 11, 2023. The Common Shares continue to be listed and traded on the “NASDAQ under the symbol “REAX”.
2. SUMMARY OF MATERIAL ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of the annual consolidated financial statements are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2022.
| 8 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
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 6, 2024.
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.
| 9 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
E. Operating segments
The Company uses judgement in determining its operating segments by taking into consideration the Chief Operating Decision Maker’s (“CODM”) assessment of overall performance and decisions such as resource allocations and delegation of authority.
The segment information disclosed in these consolidated Financial Statements reflects historical results consistent with the identifiable reportable segments of Real Brokerage Inc. and financial information that the Chief Operating Decision Maker (“CODM”) reviews to evaluate segmental performance and allocate resources among the segments. The CODM is the Company’s Chief Executive Officer.
Detailed segment information is disclosed in Note 8.
F. 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 relate to ancillary 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 recognizes revenues in the gross amount of consideration, to which it expects to be entitled to.
Please see Note 6 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.
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 | ||||
| Title Fees (Escrow and Title Insurance) | ||||
| Mortgage Broker |
The Company’s real estate agents receive remuneration in the form of share-based compensation, 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, whereby employees and the board of directors render services in consideration for equity instruments.
| 10 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
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 up to four years. The expense in relation to RSUs earned in recognition of service 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 equity. RSUs granted under the agent stock purchase plan are fully vested at grant date. The expense in relation to such RSUs is recognized at grant-date fair value with a corresponding increase in equity. Please see Note 10.D for more information about the Company’s restricted share unit.
H. 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.
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.
| 11 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
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.
I. Property and equipment
Recognition and measurement
Items of property and equipment are measured at cost 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.
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 recognized in profit or loss.
The estimated useful lives of property and equipment for current and comparative periods are as follows:
| Computer equipment: | |
| Furniture and fixtures: |
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted, if appropriate.
J. 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, restricted cash, and other financial assets.
| 12 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
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 marketplace (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.
The Company while applying above criteria has classified the following financial assets at amortized cost
| - | Trade receivables |
| - | Other financial assets. |
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.
A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as Financial assets at fair value through profit or loss (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. |
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; |
| 13 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
| ‒ | 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 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. |
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.
| 14 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
K. Share capital
i. Share Premium
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. 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.
L. 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 than for investment or other purposes.
Bank balances for which use by the Company is subject to third party contractual restrictions are included in Restricted cash in the statement of financial position. 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.
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, 2023 and 2022, we performed an assessment of goodwill related to our previous business acquisition which resulted in an impairment charge for the year ended December 31, 2023. (See Note 4. “Expetitle Acquisition”).
N. Intangible Assets
The Company’s intangible assets are finite lived and consist primarily of customer relationships. 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.
O. 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.
| 15 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
P. 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.
Q. 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.
As of December 31, 2023, the Company is not engaged in long term operational or capital lease arrangements for which right of use asset and lease liability were recognized.
R. 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.
| 16 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
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.
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 sharing payments 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. The warrant holder have the ability to exercise
Company shares held by the Company are recognized at cost of purchase and presented as a deduction from equity. Any gain or loss arising from a purchase, sale, issue or cancellation of treasury shares is recognized directly in equity.
During the year ended December 31, 2023, the Company purchased million Common Shares which were classified as Treasury shares and held in the CWB Trust.
| 17 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
V. Accounting policy development
New and amended IFRS Accounting Standards that are effective for the current year
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements – Disclosure of Accounting Policies
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 have assessed the impacts of the amended standards, which have had no material effect on our financial disclosures by the application of the amendments.
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.
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, 2023.
| – | Goodwill |
Goodwill is assessed annually for impairment, or more frequently if there are indicators of impairment, by comparing the carrying value of the CGU to which these assets are allocated to their recoverable amounts. The company principally uses discounted cash flows to estimate the recoverable amount of a CGU to which goodwill has been allocated, and market approaches inclusive of a control premium are used when applicable. Significant judgments and assumptions are required to determine the recoverable amount of a CGU, including forecasted cash flows, discount rates, long term growth rates. The recoverable amount is subject to sensitivity analysis given the uncertainty in preparing forecasts. Details of goodwill including the results of annual impairment tests, are presented in Note 14.
| – | Stock options |
In estimating the fair value of stock options granted to employees we use the Black-Scholes model which requires management to make significant assumptions including the expected life of the stock options, volatility and risk-free interest rate. The assumptions used to estimate the fair value of the stock options are disclosed in Note 10.
| 18 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
4. EXPETITLE ACQUISITION
On
January 20, 2022, the Company completed the acquisition of
As
part of the Expetitle Transaction, Real granted an aggregate of thousand incentive stock options (“Options”) and
an aggregate of
We
have completed the valuation of the acquired assets and assumed liabilities and have assigned $
The following table summarizes the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the Expetitle Transaction (in thousands):
| Balance at January 21, 2022 | ||||
| Recognized amounts of assets acquired and liabilities assumed | ||||
| Cash | ||||
| Other Current Assets | ||||
| In Trust Cash | ||||
| Goodwill | ||||
| Intangible Assets | ||||
| Accounts Payables and Accrued Liabilities | ( | ) | ||
| Held in Trust Funds | ( | ) | ||
| Other Payables | ( | ) | ||
| Net Assets Acquired | ||||
| Cash Flow | ||||
| Total Consideration | ( | ) | ||
| Acquired Cash | ||||
| Equity-settled share-based payment | ||||
| Cash from Investing Activities | ( | ) | ||
The
Company conducted an impairment test on its acquired goodwill during the fiscal year ended December 31, 2023. The test was performed
in accordance with the requirements of IAS 36, Impairment of Assets. As a result of the impairment test, it was determined that the carrying
amount of goodwill related to the Expetitle acquisition exceeded its recoverable amount. Consequently, the Company recognized a goodwill
impairment loss of $
| 19 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
5. 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
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 $
| ● | ||
| ● | Certain employees remaining in their roles to be established with Real during the transaction |
These performance-based payments are considered separate from the aggregate purchase price. Management believes it is a highly unlikely that the performance-based milestones will be achieved 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. The Company has completed the valuation of the acquired assets and assumed liabilities and have assigned $
The following table summarizes the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the LemonBrew Transaction (in thousands) following the completion of the purchase price allocation:
| Balance at December 9, 2022 | ||||
| Recognized amounts of assets acquired | ||||
| Intangible Assets | ||||
| Goodwill | ||||
| Net Assets Acquired | ||||
| Consideration | ||||
| Cash | ||||
| Common shares issued | ||||
| Total Consideration | ||||
| Cash Flow | ||||
| Total Consideration | ( | ) | ||
| Equity-settled share-based payment | ||||
| Cash From Investing Activities | ( | ) | ||
| 20 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
6. REVENUE
In the following table, revenue (in thousands) from contracts with customers is disaggregated by major service lines.
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Main revenue streams | ||||||||
| Commissions | ||||||||
| Title | ||||||||
| Mortgage Income | ||||||||
| Total Revenue | ||||||||
7. EXPENSES BY NATURE
In the following table, cost of sales represents real estate commissions paid to the Company’s agents, as well as to outside brokerages in Canada, and Title Fee Expenses (in thousands).
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Commissions and other agent-related costs | ||||||||
| Operating Expenses | ||||||||
| General and Administrative Expenses | ||||||||
| Salaries and Benefits | ||||||||
| Stock Based Compensation | ||||||||
| Administrative Expenses | ||||||||
| Professional Fees | ||||||||
| Depreciation Expense | ||||||||
| Other General and Administrative Expenses | ||||||||
| Marketing Expenses | ||||||||
| Salaries and Benefits | ||||||||
| Stock Based Compensation for Employees | ||||||||
| Stock Based Compensation for Agents | ||||||||
| Revenue Share | ||||||||
| Other Marketing and Advertising Cost | ||||||||
| Research and Development Expenses | ||||||||
| Salaries and Benefits | ||||||||
| Stock Based Compensation | ||||||||
| Other Research and Development | ||||||||
| Total Cost of Sales and Operating Expenses | ||||||||
| 21 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
Finance Expenses
The following table provides a detailed breakdown of Finance costs (in thousands) as reported in the consolidated Statement of Income (Loss):
| For the Year Ended | ||||||||
| Description | December 31, 2023 | December 31, 2022 | ||||||
| Unrealized Losses (Gains) | ( | ) | ||||||
| Realized Losses (Gains) | ( | ) | ||||||
| Bank Fees | ||||||||
| Finance Costs | ||||||||
| Remeasurement of contingent consideration | ||||||||
| Total Finance Expenses | ||||||||
8. OPERATING SEGMENTS DISCLOSURES
The businesses of the Company is divided operationally into three identified operating segments: North American Brokerage, Real Title and One Real Mortgage. North American Brokerage generates revenue by processing real estate transactions which entitles the Company to commissions. Real Title generates revenue by offering title insurance and closing services for residential and/or commercial transactions. One Real Mortgage derives revenue from premiums associated with facilitating mortgage transactions between borrowers and lenders.
The Company has determined that it operates as a single reporting segment - North American Brokerage which comprises of more than 90% of Group’s total revenue and net loss. The other two segments Real Title and One Real Mortgage are not considered as reporting segments as their revenue and net loss do not meet quantitative threshold set for reporting segments. These two segments are disclosed in an ‘other segments’ category below.
The presentation in this note for prior periods have been restated based on the current segment reporting.
Segment performance is evaluated based on income (loss) from operations and is measured consistently with income or loss in the consolidated financial statements.
The following table present significant information about the Company’s reportable operating segments as reported to the Company’s CODM:
| For the Year Ended December 31, 2023 | ||||||||||||
| North American Brokerage | Other Segments | Total | ||||||||||
| Revenues | ||||||||||||
| Commissions and other agent-related costs | ||||||||||||
| Gross Profit | ||||||||||||
| General and administrative expenses | ||||||||||||
| Marketing expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses), net | ( | ) | ( | ) | ||||||||
| Listing expenses | ||||||||||||
| Finance expenses, net | ( | ) | ( | ) | ( | ) | ||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||
| 22 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
| For the Year Ended December 31, 2022 | ||||||||||||
| North American Brokerage | Other Segments | Total | ||||||||||
| Revenues | ||||||||||||
| Commissions and other agent-related costs | ||||||||||||
| Gross Profit | ||||||||||||
| General and administrative expenses | ||||||||||||
| Marketing expenses | ||||||||||||
| Research and development expenses | ||||||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ||||||
| Other income (expenses), net | ||||||||||||
| Listing expenses | ( | ) | ( | ) | ||||||||
| Finance expenses, net | ( | ) | ( | ) | ||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ||||||
Segment revenue reported above represents revenue generated from external customers. There were no intersegment sales in the current and in the prior year.
The assets and liabilities of each segment are not reported to the CODM on a regular basis therefore they are not disclosed in these consolidated financial statements.
The amount of revenue from external customers, by geography, is shown in the table below:
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| United States | ||||||||
| Canada | ||||||||
| Total revenue by region | ||||||||
| 23 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
Basic loss per share is computed by dividing the loss for the period by the weighted average number of Common Shares 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 Common Shares outstanding plus, any potentially dilutive Common Shares outstanding during the period. The Company does not pay dividends or have participating shares outstanding.
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Issued Common Shares, Balance at the beginning of the year | ||||||||
| Warrant Exercises | ||||||||
| Treasury Return | ( | ) | ||||||
| Purchase of Shares | ( | ) | ||||||
| Release of Shares | ||||||||
| Issuance of Shares | ||||||||
| Exercise of Options | ||||||||
Weighted-average numbers of Common Shares | ||||||||
| Loss per share | ||||||||
| Basic and diluted loss per share | ) | ) | ||||||
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Options | ||||||||
| RSU | ||||||||
| Total | ||||||||
A. Description of share-based payment arrangements
Stock option plan (equity-settled)
On January 20, 2016, the Company established a stock option plan (the “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 Common Shares for the exercise price as determined at the grant date.
On
February 26, 2022, the Company established an omnibus incentive plan providing for up to
| 24 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
In
connection with the graduation to the TSX, the Company amended its Omnibus Incentive Plan (the “A&R Plan”) on
July 13, 2022, and the Company’s shareholders approved the A&R Plan on June 9, 2023. Pursuant to the A&R Plan, the maximum
number of Common Shares issuable pursuant to outstanding Options at any time shall be limited to
| Grant Date | Number of Options | Vesting Conditions | Contractual Life of Options | |||||
| Balance January 1, 2022 | ||||||||
| On March, 2022 | years | |||||||
| On May, 2022 | years | |||||||
| On August, 2022 | years | |||||||
| On August, 2022 | years | |||||||
| On November, 2022 | years | |||||||
| On December, 2022 | years | |||||||
| Balance December 31, 2022 | ||||||||
| Balance January 1, 2023 | ||||||||
| On March, 2023 | years | |||||||
| On March, 2023 | years | |||||||
| On June, 2023 | years | |||||||
| On August, 2023 | years | |||||||
| On November, 2023 | years | |||||||
| Balance December 31, 2023 | ||||||||
B. Measurement of fair value
| December 31, 2023 | December 31, 2022 | |||||||
| Share price | $ | to $ | $ | to $ | ||||
| Expected volatility (weighted-average) | - | % | ||||||
| Expected life (weighted-average) | years | years | ||||||
| Expected dividends | % | % | ||||||
| Risk-free interest rate (based on US government bonds) | – | – | ||||||
Expected volatility has been based on an evaluation of historical volatility of the company’s share price.
| 25 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
C. Reconciliation of outstanding stock-options
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Number of Options | Weighted-Average Exercise Price | Number of Options | Weighted-Average Exercise Price | |||||||||||||
| Outstanding at beginning of year | $ | | $ | | ||||||||||||
| Granted | ||||||||||||||||
| Forfeited/ Expired | ( | ) | ( | ) | ||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Outstanding at end of year | $ | $ | ||||||||||||||
| Exercisable at end of year | ||||||||||||||||
The Options outstanding as of December 31, 2023 had a weighted average exercise price of $ (December 31, 2022: $) and a weighted-average remaining contractual life of years (December 31, 2022: years).
D. Restricted share unit plan
Restricted share unit plan
Under the Company’s agent performance grant program, the Company issues RSUs to agents based on an agent meeting certain performance metrics, and successfully attracting other performing agents to the Company. The Company recognizes expense from the issuance of these RSUs during the applicable vesting period based upon the best available estimate of the number RSUs expected to vest with a corresponding increase in stock-based compensation reserve. The expense recognized from the issuance of RSU awards for the year ended December 31, 2023 was $ million, and was classified as marketing expense.
Under the Company’s agent stock purchase program, agents purchase RSUs, which vest after a year, using a percentage of the agent’s commission that is withheld by the Company. Each RSU entitles the holder to one Common Share. The RSUs are expensed in the period in which they are issued with a corresponding increase in equity. Each agent pays the Company 15% of commissions until the commission paid to the Company totals that agent’s “cap” amount (the “Cap”). As an incentive to participate in the program,
Stock compensation awards granted to full time employees (“FTEs”) are classified as a general and administrative, research and development, or marketing expense based on the appropriate department within the Consolidated Statements of Loss and Other Comprehensive Loss.
| 26 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
The following table illustrates the Company’s stock activity (in thousands of units) for the restricted share units under its equity plan. Once fully vested, all awards are settled in stock
| Restricted Share Units | ||||
| Balance at, December 31, 2021 | ||||
| Granted | ||||
| Vested and Issued | ( | ) | ||
| Forfeited | ( | ) | ||
| Balance at, December 31, 2022 | ||||
| Granted | ||||
| Vested and Issued | ( | ) | ||
| Forfeited | ( | ) | ||
| Balance at, December 31, 2023 | ||||
Stock Based Compensation Expense
| For the Year Ended | ||||||||||||||||||||||||
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Options Expense | RSU Expense | Total | Options Expense | RSU Expense | Total | |||||||||||||||||||
| COGS – Agent Stock Based Compensation | ||||||||||||||||||||||||
| Marketing Expenses – Agent Stock Based Compensation | ||||||||||||||||||||||||
| Marketing Expenses – FTE Stock Based Compensation | ||||||||||||||||||||||||
| Research and Development – FTE Stock Based Compensation | ||||||||||||||||||||||||
| General and Administrative – FTE Stock Based Compensation | ||||||||||||||||||||||||
| Total Stock Based Compensation | ||||||||||||||||||||||||
On May 20, 2021, the Company began transacting under the NCIB to purchase up to million of its Common Shares representing approximately of the total million Common Shares issued and outstanding as of April 30, 2021. On May 19, 2022, the Company announced that it renewed the NCIB. Pursuant to the renewed 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. The purpose of the purchase of Common Shares under the NCIB is to enable the Company to acquire shares to satisfy its RSU grants for shares. On May 24, 2023, the Company announced that it renewed its NCIB pursuant to which, Real may purchase up to million common shares of the Company, representing approximately of the total million Common Shares issued and outstanding as of May 18, 2023. The NCIB shall terminate on the earlier of May 28, 2024 or the date on which the maximum number of Common Shares purchasable under the NCIB is acquired by the Company.
The Company appointed 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 RSU payments as 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, the Option Plan, the Omnibus Incentive Plan, and the A&R Plan.
| 27 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
11. 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:
| Description | Estimated Fair Value December 31, 2022 | Deposit / (Withdraw) | Dividends, Interest & Income | Gross Unrealized Gains / (Losses) | Estimated Fair Value December 31, 2023 | |||||||||||||||
| Cash Investments | ||||||||||||||||||||
| Fixed Income | ||||||||||||||||||||
| Fixed Income – Mutual Funds | ( | ) | ||||||||||||||||||
| Investment Certificate | ||||||||||||||||||||
| Total | ||||||||||||||||||||
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 the Company’s
investment portfolio have maturity dates ranging from less than one year to over
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).
12. PROPERTY AND EQUIPMENT
Reconciliation of Carrying Amounts (in thousands)
| Computer Equipment | Software | Furniture and Equipment | Total | |||||||||||||
| Cost | ||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||
| Additions | ||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||
| Disposals | ( | ) | ( | ) | ||||||||||||
| Additions | ||||||||||||||||
Balance at December 31, 2023 | ||||||||||||||||
| Accumulated Depreciation | ||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||
| Depreciation | ||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||
| Disposals | ( | ) | ( | ) | ||||||||||||
| Depreciation | ||||||||||||||||
Balance at December 31, 2023 | ||||||||||||||||
| Carrying Amounts | ||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||
Balance at December 31, 2023 | ||||||||||||||||
| 28 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
13. INTANGIBLE ASSETS
The
Company’s intangible assets are finite lived and consist primarily of relationships which is amortized on a straight-line basis
over its useful life of
Reconciliation of Carrying Amounts (in thousands)
| Intangible Assets | ||||
| Cost | ||||
| Balance at December 31, 2021 | ||||
| Additions | ||||
| Balance at December 31, 2022 | ||||
| Purchase Price Allocation Adjustment | ||||
| Balance at December 31, 2023 | ||||
| Accumulated Depreciation | ||||
| Balance at December 31, 2021 | ||||
| Depreciation | ||||
| Balance at December 31, 2022 | ||||
| Depreciation | ||||
| Balance at December 31, 2023 | ||||
| Carrying Amounts | ||||
| Balance at December 31, 2022 | ||||
| Balance at December 31, 2023 | ||||
14. GOODWILL
We
record goodwill associated with acquisitions of businesses when the purchase price of the business exceeds the fair value of the net
tangible and intangible assets acquired. 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, 2023, as part
of the annual review, we performed an assessment of goodwill which resulted in an impairment charge for the goodwill allocated to Expetitle
CGU, which is presented as part of Other Segment (see Note 8). The recoverable amount of the CGU has been determined based on
the value in use. Value in use has been determined based on the estimated future cash flows, discounted at a discount rate of
| Realty Crunch | Expetitle | LemonBrew | Total | |||||||||||||
| Cost | ||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||
| Additions | ||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||
| Impairment | ( | ) | ( | ) | ||||||||||||
| Adjustments | ( | ) | ( | ) | ||||||||||||
| Balance at December 31, 2023 | ||||||||||||||||
| Carrying Amounts | ||||||||||||||||
| Balance at December 31, 2022 | ||||||||||||||||
| Balance at December 31, 2023 | ||||||||||||||||
| 29 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
Share capital and share premium
All Common Shares rank equally with regards to the Company’s residual assets. The following table is presented in thousands:
| Authorized | Issued and Paid | |||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2023 | December 31, 2022 | |||||||||
Ordinary shares no-par value | ||||||||||||
During
the year ended December 31, 2023, the company issued million shares as a result of exercise of stock options and
Total number of shares held in treasury is thousand and million as of December 31, 2023 and 2022 respectively.
16. LIQUIDITY AND CAPITAL RESOURCES
Real defines capital as its equity. It is comprised of share premium, stock-based compensation reserves, deficit, other reserves, treasury stock, and no-controlling interests. 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 by 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 years ended December 31, 2023, and December 31, 2022.
The following table presents the Company’s liquidity (in thousands):
| For the Year Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Cash | ||||||||
| Other Receivables | ||||||||
| Investments in Financial Assets | ||||||||
| Total | ||||||||
| 30 |
THE REAL BROKERAGE INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2023 and 2022
17. LEASE LIABILITY AND RIGHT OF USE ASSET
The Company leased a corporate office in New York, NY under a lease agreement dated December 1, 2017, which expired on June 30, 2023. A summary of the changes in the right-of-use asset (in thousands) for the years ended December 31, 2023, and December 31, 2022 is as follows:
| Right-of-Use Asset | ||||
| Cost | ||||
| Balance at December 31, 2021 | ||||
| Additions | ||||
| Balance at December 31, 2022 | ||||
| Additions (Adjustment) | ( | ) | ||
| Balance at December 31, 2023 | ||||
| Accumulated Depreciation | - | |||
| Balance at December 31, 2021 | ||||
| Acquired Depreciation | ||||
| Depreciation | ||||
| Balance at December 31, 2022 | ||||