Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read together with our condensed consolidated financial statements and related notes appearing elsewhere
in this report. This discussion contains forward-looking statements based upon current expectations that involve numerous risks,
uncertainties and assumptions. Our actual results could differ materially from those anticipated in these forward-looking statements
for many reasons. Those reasons include, without limitation, those described at the beginning of this report under “Statement
regarding forward-looking statements,” as well as those that may be set forth elsewhere in this report. Except as otherwise
required by law, we do not intend to update any information contained in these forward-looking statements.
The
following discussion also addresses matters we consider important for an understanding of our financial condition as of September
30, 2016, and results of operations for the three and nine month periods ended September 30, 2016, as well as our future results.
OVERVIEW
eXp World Holdings, Inc., formerly known
as eXp Realty International Corporation (the “Company” or “eXp”), was incorporated in the State of Delaware
in July 2008. The Company operates a cloud-based real estate company division (“eXp Realty”) currently in 41 States,
the District of Columbia, and in Alberta, Canada. As of September 30, 2016, the Company also operated a residential mortgage loan
origination company which operates in California, Arizona, New Mexico, Virginia and Texas. As a cloud-based company, eXp has embraced
and adopted a number of cloud-based technologies in order to grow an international real estate brokerage without the burden of
physical bricks and mortar or redundant staffing costs.
Continued Accelerated Growth
– During the three-month
period ending September 30, the Company expanded U.S. geographic reach to 41 states, including the additions of Alaska, New Jersey,
and Utah. The Company increased its net real estate brokerage agent and broker base as of September 30, 2016 by 151%, from 721
to 1,816 agents as compared to September 30, 2015; and increased its net sales by 120% from $16.45 million to $36.18 million for
the nine months ended September 30, 2016 as compared to September 30, 2015.
RECENT BUSINESS DEVELOPMENTS
On April 6, 2016, the company announced that it had entered
into an agreement with Virbela, LLC (“VirBELA”), one of the leading developers of 3-D, avatar-based, immersive online
worlds, the same type of environments that the Company has utilized since its inception in building its real estate brokerage.
On August 26, 2016, the Company launched its new VirBELA-powered Cloud Campus and migrated all of its real estate agents, brokers
and staff into the new environment to facilitate and accommodate engagement by and among the Company’s fast growing base
of real estate professionals. With this new Cloud Campus, the Company will be able to support a larger number of individuals on
campus than the previous campus which the company licensed from Avaya.
Significant Director Additions
- On July 26, 2016, the
Company introduced Rick Miller and Randall Miles as new independent members of its Board of Directors.
Rick Miller has held senior leadership positions in companies
ranging from a Fortune 10 to a startup. His extensive experience as a turnaround specialist and an expert in sustainable growth
has been applied as an executive inside organizations and as a confidant advising from outside companies. Mr. Miller began his
career as a sales trainee at Sperry/Unisys and left 15 years later as Divisional VP/GM of North America. He later served as President,
COO, and as a Board member at internet startup OPUS360 where he led the company's successful IPO. Mr. Miller was later recruited
by Lucent Technologies to lead their $21B world-wide sales efforts. Later, he was named President, Lucent Government Solutions.
Mr. Miller also served as CEO at the Balance & Stretch Center, a non-profit focused on supporting children with diabetes. Mr.
Miller is currently CEO at Being Chief, LLC where he serves as an advisor to a broad range of Chiefs, across a diverse number of
industries. He is also an author and public speaker. Mr. Miller's success and unconventional approach has been highlighted in Harvard
Business Review, Selling Power, USA Today, Yahoo, and MSN Business. Most recently, Mr. Miller was named to serve on the Executive
Committee for the Strategic Innovation Lab at Case University's Weatherhead School of Management, focusing on sustainable growth.
Mr. Miller has earned a Bachelor of Arts degree in Management from Bentley University and a Master's degree in Business Administration
from Columbia University.
Randall Miles has held senior leadership positions in global
financial services, financial technology and investment banking companies for more than 25 years. His extensive investment banking
background at bulge bracket, regional and boutique firms advising financial services companies on strategic and financial needs
has crossed many disciplines.
Mr. Miles' transactional and advisory experience is complemented
by leadership of public and private equity backed financial technology, specialty finance and software companies including as Chairman
and CEO at LIONMTS, where he was nominated for the Ernst & Young Entrepreneur of the Year award; CEO at Syngence Corporation;
COO of AtlasBanc Holdings Corp.; and, CEO of Advantage Funding/NAFCO Holdings which grew to in excess of $1 billion.
Mr. Miles is currently Managing Partner at SCM Capital Group,
a global strategic and financial advisory firm and Senior Managing Director at Tigress Financial Partners, a full service institutional
broker dealer where is he is head of Investment Banking. Most recently, Mr. Miles served as Senior Managing Director, Head of FIG
and COO, Investment Banking at Cantor Fitzgerald & Co. Mr. Miles has held senior leadership roles at Oppenheimer & Co.;
D.A. Davidson and & Co.; The First Boston Corporation (Credit Suisse); Meridian Capital; and, Greenwich Capital Markets. Mr.
Miles has broad public, private and nonprofit board experience and has been active for many years in leadership roles with the
Make-A-Wish Foundation. He presently serves on the boards of Kuity, Corp. and Posiba, Inc. as Vice Chairman and Chairman respectively.
Mr. Miles holds a BBA from the University of Washington and holds FINRA licenses Series 7, 24, 63 and 79.
The Company believes that the additions of Mr. Miller and Mr.
Miles to its Board of Directors will provide the Company with experienced counsel as it continues to grow and expand operationally
and as it matures within the public markets. In addition, the Company believes that Mr. Miller and Mr. Miles will provide greater
independence and oversight while being actively engaged in the Company’s progression.
On July 29, 2016, the Company announced that Russ Cofano had
joined the Company as Chief Strategy Officer and General Counsel. Mr. Cofano brings more than twenty-five-years of real estate
industry experience to the Company. Mr. Cofano most recently served as Senior Vice President of industry relations for MOVE, Inc.
operator of REALTOR.com® developing strategy and building relationships with the real estate industry's leading organizations,
MLSs and technology companies. Mr. Cofano has also served as Chief Executive Officer for the Missouri REALTORS®, the largest
trade association in the state of Missouri, and as Vice President and General Counsel for John L. Scott Real Estate, consistently
ranked as one of the largest real estate brokerage companies in the nation. He has also served as an advisor to a number of REALTOR®
associations and MLSs and as CEO of a real estate CRM technology company. The Company believes that the addition of Mr. Cofano
will help the Company manage the rapid rate of growth within its real estate division, and develop and pursue new strategic initiatives
across each of its operating divisions while identifying and mitigating risk. On September 23, 2016, Mr. Cofano was promoted to
President and General Counsel and is now responsible for all day to day operations of the Company and its subsidiaries.
The Company and its subsidiaries are also planning to hire key
employees in mid-level management over the next year to facilitate expanding operational growth and to help evaluate potential
new business lines in strategic areas at the operational level.
Corporate Governance
- The Company’s efforts to
enhance corporate governance as the Company expands and matures include the significant addition of independent directors Miller
and Miles. The Company believes the following developments represent steps to address some of the material weaknesses in the Company’s
internal control over financial reporting:
The Company now has three independent directors, representing
half of the current Board seats.
On July 26, 2016, the Board of Directors established an Audit
Committee, comprised of independent directors Miller and Miles.
The Board determined that Mr. Miles qualifies as an “audit
committee financial expert” within the meaning of the rules and regulations promulgated by the SEC.
In October 2016, the Board of Directors established a Governance Committee; comprised of directors Miller, Sanford, and Miles.
Agent Ownership
- In 2016 the Company extended equity
incentive programs whereby agents and brokers could become eligible for awards of the Company’s common stock through the
achievement of production and agent attraction benchmarks. Agents who qualify, and who remain with the Company in good standing
for the duration of a 3-year period following their eligibility notice, can be awarded shares, thereby allowing them to increase
their ownership stake in the Company, in further fulfillment of the objective to be an agent-owned brokerage. Towards the end of
2015 the Company set forth and announced what it anticipates will constitute the performance-based incentive programs for the foreseeable
future and beyond any particular calendar year. Going forward, the number of shares awarded for performance-based achievements
will correspond with the number of agents who are in the organization and, as a result, with the growth and value of our agent-owned
company and its underlying stock. The Company, in this way, is maintaining value of awards for those agents who join us in the
future, while recognizing the accomplishments and contributions of those who are with us today, minimizing dilution. In 2016, the
Company is also continuing a program whereby agents and brokers can elect to receive 5% of their commission payable in the form
of restricted Company common stock.
Enterprise Application
- To date,
the Company has evolved through substantial dependence on independent third-party software and applications which, when taken together,
constitute a patchwork that has sustained and supported the Company’s growth but which could become unwieldy prospectively,
both for the Company and for its agents and brokers. As the Company continues to introduce and execute on a number of initiatives
aimed at accelerating expansion, it has commenced development of an enterprise application in order to move away from the integrations
of external systems. The Company continues to work on the development of the enterprise application which the Company hopes will
enable it to scale the growth of its real estate brokerage operations without experiencing limitations on functionality.
Building Corporate Infrastructure
- To address the rapid
growth in agent count, the Company is exerting considerable effort to build scalable systems and processes to support this growth.
Some of these include:
|
·
|
We hired a controller to manage the accounting department
|
|
·
|
Migrated to a new accounting system and supporting service providers
|
|
·
|
Retained an outside HR consultant to enhance the HR process and well-position
the Company to handle new employee growth
|
|
·
|
Retained new outside law firms to handle real estate brokerage compliance,
litigation and IP-related matters
|
|
·
|
Retained a new insurance brokerage firm to assess potential gaps in
insurance coverage and make application for renewal policies
|
MARKET CONDITIONS AND TRENDS
The United States housing market was adversely impacted beginning
in 2006 by the combination of a number of factors, including but not limited to more stringent lending guidelines, increased unemployment,
and an overall macroeconomic decline. Overall U.S. sales volume declined as did the market value of homes which in turn created
a swell in foreclosures and mortgage defaults. It was this combination of factors which, in part, served as the impetus for the
Company’s business model as traditional real estate brokerages on a large scale experienced a diminishment of revenues without,
in many cases, a corresponding reduction in fixed expenses, resulting in an erosion of profits. While markets throughout much of
the United States have recovered, recent commentary by the Chief Economist for the National Association of REALTORS® suggests
that the recovery may have reached its apex. The Company still estimates that a significant number of real estate brokerages today
are not profitable or are marginally profitable due to the impact of high or fixed overhead and a costly struggle to drive higher
productivity among their agents. In the event that market activity slows, many traditional real estate brokerage owners will again
be pressured by an operating cost structure that isn’t responsive to cyclical turns in the market with overhead costs that
hold steady or continue to climb.
Market activity and home values are susceptible to macroeconomic
conditions, including, among others, monetary policy decisions by the Federal Reserve Bank relative to interest rates; employment
growth or decline; population trends; and, the re-entry into the market of former homeowners who suffered delinquencies, foreclosures,
short-sales, or bankruptcies during the downturn. These factors, coupled with uncertain Federal Reserve policy, suggests that the
real estate industry could continue to see growth in sales during the upcoming fiscal year but at the same time could experience
a decline. In either turn, the Company expects to adhere to its low-cost, high-engagement model, affording a growing number of
agents and brokers increased income and ownership opportunities while offering a scalable solution to brokerage owners looking
to survive and thrive in a wide range of economic conditions.
Technology continues to disrupt traditional business models
in many different ways. eXp Realty as a residential real estate brokerage generally speaking only maintains the physical footprint
of a brokerage that is required by the states we operate in rather than trying to have an office on every corner. With the continual
improvement of high speed internet availability, we tend to see the office be more and more mobile for all agents and brokers.
We believe that in some cases the physical office actually detracts from collaboration rather than encourages it. We plan on continuing
to pursue these efforts through the use of the Cloud Campus and other mobile collaboration platforms. We believe this is beneficial
for agents, brokers, and consumers and is a far easier business model to facilitate and grow than one requiring management of the
hundreds or thousands of physical offices that would be necessary in a traditional approach in order to cover the geographic footprint
that eXp World Holdings currently covers. The eXp Cloud Office has enabled would be real estate brokers who join the Company to
shed enormous overhead expenses and staffing costs while still retaining a percentage of commissions generated by the agents they
attract while availing themselves of an opportunity to scale their business in a way that traditional models do not easily support.
Potential challenges for eXp Realty and other brokerages come
our way through the large third party syndicators. The relevancy of a brokerage in the face of a significant percentage of lead
generation for the agents who work for the firm being generated through third party portals does raise the question of relevancy
to the agents that work for the brand. We see this as a real threat to us as a real estate brokerage and we are proactively developing
low cost lead generation platforms that our agents can take advantage of which provide significant cost savings vs going through
third party syndicators.
As a small brokerage covering a large geographic area, it is
relatively easy for eXp Realty to generate leads at a lower cost than the portals however as we grow this may become harder and
harder to do. In the first quarter of 2015 we launched the Making It Rain program for our agents and brokers to take advantage
of. Agents participating in this program have seen leads generated by participants in a range between $7.00 - $40.00 per lead.
Leads may become more expensive over time and in some cases may exceed the cost of leads from other third party syndicators so
we need to be aware of this and continually innovate on behalf of our agents and brokers again with the goal of being relevant
in their business. If agents believe that their business is generated from third party syndicators then it may follow that agents
may pursue the lowest expense brokerage in order to maximize their income.
One of the ways that we believe we have been able to grow into
as many states and remain relevant is by adopting an agile mindset as a company. In this context eXp Realty continues to regularly
deliver value to its agents and brokers, and by prioritizing work based on what our agents and brokers have told us they want,
we have been able to develop a company framework that is relevant to our agents and brokers. We have started to implement the Net
Promoter Score (“NPS”) into how we evaluate ourselves as a company, as well as introducing NPS into how we support
our agents and manage transaction flow. By using both NPS and more agile management style, systems we have been able to launch
and implement value added features and benefits in short order. We believe this offers us a unique advantage in terms of developing
value for our agents and brokers. We believe that using tools like NPS and having an Agile management mindset provides us with
a way to stay more relevant to our agents and brokers in an always changing business. We expect that more and more brokerages will
eventually use tools similar to NPS and Agile in their management process which may again reduce the speed at which we are able
to add value compared to other brokerages however at this point in time we feel this does give us a competitive advantage in growing
eXp Realty.
COMPARATIVE FINANCIAL INFORMATION FROM OUR RESULTS
OF OPERATIONS
Three months ended September 30, 2016, compared to the
three months ended September 30, 2015
Revenues
During the current three-month period ended September 30, 2016
net revenues increased $8.34 million to $15.76 million as compared to the three-month period ended September 30, 2015 when we generated
$7.42 million. The increase as compared to the prior period is a direct result of the increases in sales agent base by over 150%
to over 1,800 in 41 states and Canada, resulting in higher sales volume realized.
Operating Expenses
|
|
Three months Ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
13,294,452
|
|
|
$
|
6,354,951
|
|
|
$
|
6,939,501
|
|
General and administrative
|
|
|
16,810,567
|
|
|
|
(661,707
|
)
|
|
|
17,472,274
|
|
Professional fees
|
|
|
140,804
|
|
|
|
138,001
|
|
|
|
2,803
|
|
Sales and marketing
|
|
|
158,968
|
|
|
|
77,011
|
|
|
|
81,957
|
|
Total operating expenses
|
|
$
|
30,404,791
|
|
|
$
|
5,908,256
|
|
|
$
|
24,496,535
|
|
Cost of revenues includes costs related to sales agent commissions
and revenue sharing. These costs are highly correlated with recognized net revenues. As such, the increase of $6.94 million in
the current three-month period ended September 30, 2016 as compared to the three-month period ended September 30, 2015 was driven
by the higher amount of net revenues and agent commission rates.
General and administrative includes costs related to wages,
stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The increase of $17.47 million
in general and administrative costs in the three-month period ended September 30, 2016 as compared to the three-month period ending
September 30, 2015 was driven primarily from an increase of $14.6 million in stock option expense of which approximately $14.1
million was attributable to changes in the intrinsic value and $581 thousand in payroll expense.
Professional fees include costs related to legal, accounting,
and other consultants. Costs increased $3 thousand during the three-month period ending September 30, 2016 as compared to the three-month
period ended September 30, 2015. Professional fees fluctuate on a periodic basis in correlation to non-recurring transactions.
Sales and marketing include costs related to lead capture, digital
and print media, and trade shows, in addition to other promotional materials. The cost increase of approximately $82 thousand was
due to increased cost in lead capture and other internet marketing for the three-month period ending September 30, 2016 as compared
to the three-month period ending September 30, 2015.
Nine months ended September 30, 2016, compared to the
nine months ended September 30, 2015
Revenues
During the current nine-month period ended September 30, 2016
net revenues increased $19.73 million to $36.18 million as compared to the nine-month period ended September 30, 2015 when we generated
$16.45 million. The increase as compared to the prior period is a direct result of the increased sales agent base and higher sales
volume realized.
Operating Expenses
|
|
Nine months ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
$
|
30,868,564
|
|
|
$
|
14,000,222
|
|
|
$
|
16,868,342
|
|
General and administrative
|
|
|
25,801,423
|
|
|
|
5,457,334
|
|
|
|
20,344,089
|
|
Professional fees
|
|
|
414,197
|
|
|
|
313,436
|
|
|
|
100,761
|
|
Sales and marketing
|
|
|
358,396
|
|
|
|
166,374
|
|
|
|
192,022
|
|
Total operating expenses
|
|
$
|
57,442,580
|
|
|
$
|
19,937,366
|
|
|
$
|
37,505,214
|
|
Cost of revenues includes costs related to sales agent commissions
and revenue sharing. These costs are highly correlated with recognized net revenues. As such, the increase of $16.87 million in
the current nine-month period ended September 30, 2016 as compared to the nine-month period ended September 30, 2015 was driven
by the higher amount of net revenues and agent commission rates.
General and administrative includes costs related to wages,
stock compensation, dues, operating leases, utilities, travel, and other general overhead expenses. The increase of $20.34 million
in general and administrative costs in the nine-month period ended September 30, 2016 as compared to the nine-month period ending
September 30, 2015 was driven primarily from an increase of $21.2 million in stock option expense of which $20.4 million was related
to changes in the intrinsic value and $1.2 million in payroll expense.
Professional fees include costs related to legal, accounting,
and other consultants. Costs increased approximately $101 thousand during the nine-month period ending September 30, 2016 as compared
to the nine-month period ended September 30, 2015 due to higher accounting fees associated with the preparation of its annual report
in addition to legal fees associated with the changes to our Corporate governance during the period.
Sales and marketing include costs related to lead capture, digital
and print media, trade shows, in addition to other promotional materials. The cost increase of approximately $192 thousand was
due to increased cost in lead capture, internet marketing, and printing materials for the nine-month period ending September 30,
2016 as compared to the nine-month period ending September 30, 2015.
LIQUIDITY AND CAPITAL RESOURCES
|
|
September 30,
|
|
|
December 31,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
3,215,709
|
|
|
$
|
1,146,521
|
|
|
$
|
2,069,188
|
|
Current liabilities
|
|
|
(1,544,064
|
)
|
|
|
(664,210
|
)
|
|
|
(879,854
|
)
|
Net working capital
|
|
$
|
1,671,645
|
|
|
$
|
482,311
|
|
|
$
|
1,189,334
|
|
The Company’s net working capital increased $1.2 million
during the nine-month period ended September 30, 2016 as compared to December 31, 2015. This increase was primarily driven from
an increase in accounts receivable as of September 30, 2016 as compared to December 31, 2015. The increased receivables were primarily
driven by higher total sales volumes during the period ended September 30, 2016 resulting from our increased sales agent base.
The following table presents our cash flows for the nine months
ended September 30, 2016 and 2015:
|
|
Nine months ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$
|
637,881
|
|
|
$
|
219,073
|
|
|
$
|
418,808
|
|
Cash used in investment activities
|
|
|
(281,203
|
)
|
|
|
(37,821
|
)
|
|
|
(243,382
|
)
|
Cash used in financing activities
|
|
|
–
|
|
|
|
(63,059
|
)
|
|
|
63,059
|
|
Net change in cash
|
|
$
|
356,678
|
|
|
$
|
118,193
|
|
|
$
|
238,485
|
|
Net cash provided by operating activities for the nine months
ended September 30, 2016 was approximately $638 thousand as compared to $219 thousand for the nine months ended September 30, 2015.
Our increase in cash provided by operations for the first nine months of 2016 was primarily caused by the increased participation
in the Agent Equity Program which some agents have been paid a portion of their commission income in the form of common stock of
the Company resulting in reduced cash outflows for the nine months ended September 30, 2016.
Net cash used in investing activities for the acquisition of
fixed assets was $281 thousand and $38 thousand for the nine months ended September 30, 2016 and September 30, 2015, respectively.
The increase in spending on investing activities is associated with the Company’s efforts devoted to creating its enterprise
application.
The Company did not engage in any material financing transactions
as of September 30, 2016. Net cash used in financing activities for the nine months ended September 30, 2015 primarily consisted
of $62 thousand used to pay down principal on its notes payable.
Our future capital requirements will depend on many factors,
including our level of investment in technology and our rate of growth into new markets. Our capital requirements may be affected
by factors which we cannot control such as the residential real estate market, interest rates, and other monetary and fiscal policy
changes in which we currently operate. We may have a greater need to fund our business by using our cash and cash equivalents,
which could not continue indefinitely without raising additional capital. We believe that we currently have sufficient liquidity
and capital resources to meet our existing obligations over the next twelve months.
The Company anticipates that it may desire to raise some financing
to help expand operations during the next twelve months through debt and/ or equity instruments, depending on the availability
of such financing on terms acceptable to the Company.
We currently have no bank debt or line of credit facilities.
In the event that additional financing is required in the future, we may not be able to raise it on terms acceptable to us or at
all. If we are unable to raise additional capital when desired, our business and results of operations will likely suffer.
CRITICAL ACCOUNTING ESTIMATES
There has been no change in our critical accounting estimates
as previously disclosed in our Annual Report on Form 10-K for the period ended December 31, 2015.
Non-GAAP Measurements
Prior to becoming a public company in 2013, we issued approximately
7.7 million stock options convertible into restricted shares of our common stock at a weighted average exercise price of $0.14
per share. As a private Company, we recognized the related compensation cost associated with these grants under the intrinsic value
method in accordance with US GAAP. As required by US GAAP for private companies, and in accordance with the intrinsic value method,
we are required to re-measure the intrinsic value at each reporting date through the date of exercise or other settlement, while
recognizing the applicable changes in the intrinsic value as a component of operations in the accompanying consolidated statements
of operations. Subsequent to becoming a public, and until such time as the options previously issued under the intrinsic value
are exercised, canceled, forfeited or modified, we are required to continue to apply the intrinsic value.
Upon becoming a public company, we value stock options at their
grant date fair value, and recognize the associated compensation cost systematically over the requisite service or performance
period, with no consideration given to market changes in the underlying equity instruments or other assumptions used for valuation
purposes on the grant date. If we had the ability to reasonably estimate the fair value of options issued at our inception as a
private company, all associated expenses would have been recognized in periods prior to those presented in this report.
The Securities and Exchange Commission (“SEC”) has
adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures that are not in accordance
with U.S. generally accepted accounting principles (“U.S. GAAP”), such as EBITDA, omission of non-recurring or infrequent
items, and other omissions of non-cash items whether recurring or non-recurring. These measures are derived on the basis of methodologies
other than in accordance with U.S. GAAP.
We believe that the omission of non-cash
income or expense
based on fluctuations in the Company’s stock price, significantly outside of its control, is more reflective of the key factors
that affect our operating performance. Since the equity-linked instruments were issued early in our existence, and there being
no further performance requirements associated with earning the awards, we believe that omitting these fluctuations provide a useful
supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations.
Our management does not evaluate the Company’s performance, either financial or operational, inclusive of fluctuations in
the intrinsic value of the awards issued prior becoming a public company.
Eliminating non-cash fluctuations for awards fully earned in
prior periods, has limitations as an analytical tool, and you should not consider these omissions either in isolation or as a substitute
for analyzing our results as reported under U.S. GAAP. Some of these limitations are:
|
·
|
this measure does not reflect changes in, or cash requirements for, our working capital needs;
|
|
·
|
this measure does not reflect the further issuance of equity and equity-linked instruments based on grant date fair values with continuing performance and service requirements;
|
|
·
|
this measure does not reflect historical cash expenditures or future requirements for expenditures or contractual commitments.
|
The following table represents the impacts of the intrinsic
value variances on our results of operations for the periods presented:
|
|
Three Months Ended Sept 30, 2016
|
|
|
Three Months Ended Sept 30, 2015
|
|
|
Nine Months Ended Sept 30, 2016
|
|
|
Nine Months Ended Sept 30, 2015
|
|
Net income (loss) attributable to common shareholders
|
|
|
(14,647,098
|
)
|
|
|
1,517,108
|
|
|
|
(21,272,872
|
)
|
|
|
(3,497,863
|
)
|
Increase (decrease) in intrinsic value
|
|
|
14,088,341
|
|
|
|
(1,527,334
|
)
|
|
|
20,456,078
|
|
|
|
2,478,942
|
|
Adjusted net income (loss) attributable to common shareholders
|
|
|
(558,757
|
)
|
|
|
(10,226
|
)
|
|
|
(816,794
|
)
|
|
|
(1,018,921
|
)
|
OFF-BALANCE SHEET ARRANGEMENTS
We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that are material to our stockholders.