The Real Brokerage Inc.: Form 6-K - Filed by newsfilecorp.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 6-K


REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of November 2022

Commission File Number: 001-40442


THE REAL BROKERAGE INC.

(Registrant)


133 Richmond Street West, Suite 302

Toronto, Ontario M5H 2L3 Canada

(Address of Principal Executive Offices)


Indicate by check mark whether the Registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☐            Form 40-F  ☒

Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the Registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐



SIGNATURES

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

 

THE REAL BROKERAGE INC.

 

(Registrant)

 

 

 

Date November 10, 2022

By

/s/ Tamir Poleg

 

 

Tamir Poleg

 

 

Chief Executive Officer



EXHIBIT INDEX

Exhibit   Description of Exhibit
     
99.1   Management's Discussion and Analysis For the period ended September 30, 2022
     
99.2   Unaudited Interim Condensed Consolidated Financial Statements for the period ended September 30, 2022
     
99.3   Certification of Interim Filings - CEO
     
99.4   Certification of Interim Filings - CFO
     
99.5   Press Release dated November 10, 2022 - The Real Brokerage Inc. Announces Third Quarter 2022 Financial Results


The Real Brokerage Inc.: Exhibit 99.1 - Filed by newsfilecorp.com



Building Your Future, Together

The Real Brokerage Inc. (the "Company" or "Real") is a technology-powered real estate brokerage, using its innovative approach to change the way people buy and sell homes. Real's model focuses on creating value and financial opportunity for agents, enabling them to deliver a better experience to their clients.

Real creates financial opportunities for agents in four key ways:


 
1. Keep more commission
Our unique compensation structure favors the agent, allowing them to keep 85%-100% of commissions.


 
2. 100% mobile brokerage services
We are 100% mobile - so agents have what they need to close the deal at their fingertips and aren't paying for unused office space.


 
3. Build equity
Agents can earn equity through Real's incentive program that allows them to share in the wealth as they help to build a more valuable company.


 
4. Earn more with revenue sharing
Agents can earn a share of revenue generated by agents referred to Real. Each referral earns an agent 5% of Real's portion of an agents' gross commission income up to an annual cap.



2022 Highlights

Real was founded in 2014 and is headquartered in Toronto and New York City. We provide brokerage services for the real estate market in the United States and Canada. On September 30, 2022, Real was licensed in 44 states and the District of Columbia in the United States and in Alberta and Ontario, Canada. Real's fast-growing network of agents allows for strong relationship building, access to a nationwide referral network and seamless expansion opportunities.

6,700
Agents, Q3 2022
47
(44 states, D.C., and 2 provinces in Canada)
Q3 2022
$285.6M
Revenue, Q3 YTD 2022
$10.78B
Value of sold homes, YTD Q3 2022


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

MANGAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

INTRODUCTION

This Management's Discussion and Analysis (the "MD&A") is provided to enable a reader to assess the results of operations and financial condition of The Real Brokerage Inc. ("Real" or the "Company") for the three and nine- month period ended September 30, 2022, and 2021. This MD&A is dated November 10, 2022 and should be read in conjunction with unaudited interim condensed financial statements and related notes for the three and nine-month period ended September 30, 2022 and 2021 (the "Financial Statements"). Unless the context indicates otherwise, references to "Real", "the Company", "we", "us" and "our" in this MD&A refer to The Real Brokerage Inc. and its subsidiaries. All dollar amounts are in U.S. dollars unless otherwise stated.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

Certain information included in this MD&A contains forward-looking information within the meaning of applicable Canadian securities laws. This information includes, but is not limited to, statements made in "Business Overview and Strategy", "Results from Operations", and other statements concerning Real's objectives, its strategies to achieve those objectives, as well as statements with respect to management's beliefs, plans, estimates and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Forward-looking information generally can be identified by the use of forward-looking terminology such as "outlook", "objective", "may", "will", "would", "expect", "intend", "estimate", "anticipate", "believe", "should", "plan", "continue", or similar expressions suggesting future outcomes or events or the negative thereof. Such forward-looking information reflects management's current beliefs and is based on information currently available. All forward-looking information in this MD&A is qualified by the following cautionary statements.

Forward looking information necessarily involves known and unknown risks and uncertainties, which may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections, or conclusions will not prove to be accurate, assumptions may not be correct and objectives, strategic goals and priorities may not be achieved. A variety of factors, many of which are beyond Real's control, affect the operations, performance and results of the Company and its subsidiaries, and could cause actual results to differ materially from current expectations of estimated or anticipated events or results.

Although Real believes that the expectations reflected in such forward-looking information are reasonable and represent the Company's projections, expectations and beliefs at this time, such information involves known and unknown risks and uncertainties which may cause the Company's actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking information. See "Risks and Uncertainties" for further information. The reader is cautioned to consider these factors, uncertainties, and potential events carefully and not to put undue reliance on forward-looking information, as there can be no assurance that actual results will be consistent with such forward-looking information.

The forward-looking information included in this MD&A is made as of the date of this MD&A and should not be relied upon as representing Real's views as of any date subsequent to the date of this MD&A. Management undertakes no obligation, except as required by applicable law, to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise.

MARKET CONDITIONS AND INDUSTRY TRENDS

Our quarterly results are dependent on the economic conditions of the markets in which operate. The Company's revenue and income can experience considerable variations from quarter to quarter and year to year due to factors beyond the Company's control. The business is affected by the overall conditions of the real estate market, which is among other factors influenced by economic growth, interest rates, unemployment, inventory, and mortgage rate volatility. The Company's revenue from a real estate transaction is recorded only when a real estate transaction has been closed. Consequently, the timing of revenue recognition can materially affect quarterly results.

During the first nine months of the year, macroeconomic conditions in North America have contributed to a slowdown in the residential real estate market, impacting our business and financial results. In particular, as a result of a persistently high inflation rate in the U.S., the Federal Reserve Board has increased the federal funds rate by an aggregate of 300 basis points in the first nine months of 2022, and is expected to continue on this path. In connection with the rise in the federal funds rates, mortgage rates have also increased sharply, rising to 6.9% as of October 13, 2022 from 3.1% at the end of 2021.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Other events and conditions that may have an impact on our business include, but are not limited to, the ongoing conflict in Ukraine, volatility in the U.S. equity markets, and the ongoing effects of the COVID-19 pandemic. Collectively, these factors may contribute to slowed consumer demand, which can impact home affordability and negatively impact home price appreciation. Any further slowdown or additional challenging conditions in the U.S. residential real estate market could have a significant impact on our business and financial results in fourth quarter of 2022 and beyond. While we continue to assess the effects of the current slowdown on our business and financial results, the ultimate impact will depend on future developments, which are highly uncertain and difficult to predict, as well as the actions that we have taken, or will take, to minimize any current and future impact.

Our business could be negatively impacted by higher mortgage rates or further increases in mortgage rates. As mortgage rates rise, the number of home sale transactions tend to decrease as potential home sellers choose to stay with their lower mortgage rate rather than sell their home and pay a higher mortgage rate with the purchase of another home. Similarly, in higher interest rate environments, potential home buyers may choose to rent rather than pay higher mortgage rates. Changes in the interest rate environment and mortgage market are beyond our control and are difficult to predict and, as such, could have a material adverse effect on our business and profitability.

Total existing-home sales in the U.S., which consists of completed transactions that include single-family homes, townhomes, condominiums and co-ops, contracted to a seasonally adjusted annual rate of 4.7 million in September 2022, a significant decline from 6.1 million in December 2021, according to data reported by the National Association of Realtors. With the exceptions of January 2022, existing home sale volumes have declined in each month of 2022 through September. The impact of sale prices began to occur in the third quarter of 2022, with the median U.S. existing home price peaking at $413,800 in June 2022 and declining to $384,800 as of September 2022. However, average home prices remain well above levels experienced prior to the COVID-19 pandemic, and home price appreciation is still positive on a year-over-year basis. Despite the increase in borrowing costs for home buyers, in the nine-month period ended September 30, 2022, the overall impact of rising mortgage rate on the Company has been mostly offset by the significant growth demonstrated in the number of agents transacting on our platform.

BUSINESS OVERVIEW AND STRATEGY

Real is a growing technology-powered real estate brokerage in the United States and Canada. We focus our operations on development of technology that helps real estate agents perform better and building a scalable, efficient brokerage operation that is not dependent on a cost-heavy brick and mortar presence in the markets that we operate in.

As a licensed real estate brokerage, our revenue is generated, primarily, by processing real estate transactions which entitle us to commissions. We pay a portion of our commission revenue to our agents and brokers. Our strength is our ability to offer real estate agents a higher value, through a proprietary technology stack, at a lower cost, compared to other brokerages, while operating efficiently and scaling quickly with increased brokerage oversite.

Real has also identified a major opportunity in creating a seamless end-to-end home buying experience for consumers, and as such, a core component of our consumer vision strategy going forward will be adding ancillary services to develop a one-stop shop customer-facing portal. The goal is to pair our best-in-class technology with the trusted guidance of the agent-led experience to enhance the predictability, organization, and transparency for homebuyers, resulting in a more seamless and customer-friendly transaction process.

To this end, Real is focused on developing a comprehensive consumer-facing mobile application while looking to integrate existing and planned ancillary services. In January, Real acquired a title company, which has rebranded to Real Title and in September Real signed an agreement to acquire LemonBrew Lending, a tech-enabled home loan platform, licensed to provide a full suite of mortgage services across 20 states in the U.S. including Texas, California, and Florida.

Real is focused on building, buying, or partnering to deliver additional ancillary services within the medium-term as part of this holistic one-stop shop strategy. Real believes it can deliver value to shareholders by adding ancillary services with historically high margins and seeks to create a technology-enhanced game-changing experience for consumers.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Growth in Market Share

Following our listing on the TSX Venture Exchange (the "TSXV"), the Nasdaq Capital Market (the "NASDAQ"), and our subsequent graduation to Toronto Stock Exchange (the "TSX")  from the TSXV, as well as the launch of our Agent Equity Program, we entered a period of growth, driven by an increase in the number of agents joining us on a monthly basis, as well as higher productivity of those newer cohorts. This trend is well reflected in our results, and we expect to continue to capture market share going forward.

Our non-brick and mortar-based model is becoming increasingly desirable, enabling agents to work from anywhere, without being tied to a physical office by leveraging our best-in-class technology.

Focus on Technology


The real estate industry is generally considered to be very slow at adopting technology and as such, real estate transactions remain notoriously difficult to manage. We believe there is an opportunity to produce agent focused software products that will create differentiation between Real and other brokerages. We also acknowledge that profitability in our industry is closely tied to the improvement of internal operations efficiency through automation and the ability to scale and expand rapidly.

We see a tremendous potential in improving the home buying and selling experience for consumers using technology, while keeping real estate agents in the center of the transaction. This approach will enable consumers to experience a faster, smoother, and more enjoyable digital based journey, while still benefiting from the guidance of a human real estate expert throughout this exciting and highly emotional transaction. We are beginning to allocate resources towards building the technology, which will enable us to capitalize on this opportunity.

Recent developments

Normal Course Issuer Bid

On May 17, 2021, the TSXV accepted the Company's Notice of Intention to implement a normal course issuer bid ("NCIB"). Pursuant to the NCIB, the Company may, during the 12-month period commencing May 20, 2021, and ending May 20, 2022, purchase up to 7.2 million common shares of the Company ("Common Shares"), being approximately 5% of the total 143.4 million Common Shares issued and outstanding as of April 30, 2021.

On May 19, 2022, the Company announced that it is renewing the NCIB to be transacted through the facilities of the NASDAQ and other stock exchanges and/or alternative trading systems in the United States and/or Canada (other than the TSXV), if eligible. Pursuant to the NCIB, Real may purchase up to 8.9 million Common Shares, representing approximately 5% of the total 178.3 million Common Shares issued and outstanding as of May 19, 2022.

The Company appointed CWB Trust Services (the "Trustee") as the trustee for the purposes of arranging for the acquisition of Common Shares and to hold the Common Shares in trust for the purposes of satisfying restricted share unit ("RSU") obligations and to perform other administration matters related to the NCIB. Through the Trustee, RBC Capital Markets has been engaged to undertake purchases under the NCIB. RBC Capital Markets is required to comply with the TSXV and NASDAQ NCIB rules in respect of the purchases of Common Shares as the Trustee is considered to be a non-independent trustee by the TSXV for the purposes of the NCIB rules.

The Common Shares acquired will be held by the Trustee until the same are sold in the market with the proceeds to be transferred to designated participants or until the Common Shares are delivered to designated participants, in each case under the terms of the Company's equity incentive plans to satisfy the Company's obligations in respect of redemptions of vested RSUs held by such designated participants.

The Company repurchased 7.8 million Common Shares in the amount of $19.4 million as of September 30, 2022 pursuant to the NCIB. A total of 1.8 million Common Shares have been released from the trust to satisfy the Company's obligations in respect of redemptions of vested RSU held by designated participants.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

On July 26, 2022, the Common Shares commenced trading on the TSX under the symbol "REAX".  Concurrent to the graduation to the TSX, the Common Shares were voluntarily delisted from the TSXV. Trading of the Common Shares will continue on the NASDAQ under the same symbol, "REAX".

Business Model

Revenue share model

As the vast majority of real estate agents are independent contractors, we believe that it is our responsibility to create multiple revenue sources and improve financial opportunities for agents. Our attractive commission split coupled with the equity incentives for agents provide great opportunities. We are now offering agents the opportunity to earn revenue-share, paid out of Real's portion of commissions, for new agents that they personally refer to Real. The program launched in November 2019 is having a major impact on our agent count and revenue growth.

We are witnessing momentum in several markets, attributed to the enthusiasm generated locally by influential agents who continue to join Real and attract their colleagues to Real.

Agent's experience


We focus on creating an unparalleled agent experience through development of a unique and comprehensive mobile platform. At its core, our technology is an operating system that allows agents to build their business more rapidly, assisting them with their marketing, productivity, support, education, transaction management and more.

As part of those efforts, on August 8, 2021, we launched a new and improved agent mobile application that delivers our agents better visibility into their business, transactions, and financials. We continue to develop new features for the benefit of our agents.

Focus on teams

Real estate teams have a unique structure and are typically formed by a high producing agent who attracts other agents to work with them and enjoy the lead flow and mentoring provided by the team leader. To attract teams, we enhanced our team offering to include the full benefits of revenue sharing and the equity program. These incentive programs allow agents and brokers a financial mechanism to build teams across geographical boundaries in any of the markets that we serve. Agents and brokers can build teams without incurring significant additional expense, oversight responsibility or liability, at the same time preserving and enhancing their own personal brands. The growth in brokerage teams joining Real is having a positive impact, as reflected in this year's revenue growth.

Consumer vision

Our focus for the future is based on our belief that the home buying experience is broken. It is an outdated process riddled with problems in need of enhanced technology to bring it into the 21st century. In particular, the current status quo results in an experience that is too often:

We are building a one-stop-shop platform to provide home buyers and sellers with more predictability, organization and transparency. We believe that building a technology enhanced simplified and consumer platform combined with the help of a Real agent is the industry solution of the future


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

OBJECTIVES

Real seeks to become one of the leading real estate brokerages in the United States and Canada by reimagining the home buying experience by giving agents and consumers better technology while leaving agents at the center of the transaction. Using our proprietary technology, we look to provide agents with all the tools they need to successfully manage and market their business. Real plans to accomplish this through: (i) proprietary integration of technology and tools focused on facilitating and improving tasks performed by agents. (ii) the offering of attractive business terms to agents and creation of multiple potential revenue streams for agents. (iii) providing excellent support and service to our agents. (iv) the creation of a nationwide collaborative community of agents, and (v) offering wealth building opportunities through equity grants.

Leveraging the engagement of real estate agents and homebuyers and sellers, Real will seek to implement its holistic consumer vision, which will generate revenue through a variety of different channels.

PRESENTATION OF FINANCIAL INFORMATION AND NON-IFRS MEASURES

Presentation of financial information

Unless otherwise specified herein, financial results, including historical comparatives, contained in this MD&A are based on the Financial Statements, which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and the interpretations of the IFRS Interpretations Committee.

Non-GAAP measures

In addition to the reported IFRS measures, industry practice is to evaluate entities giving consideration to certain non-GAAP performance measures, such as earnings before interest, taxes, depreciation and amortization ("EBITDA") or adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA").

Management believes that these measures are helpful to investors because they are measures that the Company uses to measure performance relative to other entities. In addition to IFRS results, these measures are also used internally to measure the operating performance of the Company.

These measures are not in accordance with GAAP and have no standardized definitions, and as such, our computations of these non-GAAP measures may not be comparable to measures by other reporting issuers. In addition, Real's method of calculating non-GAAP measures may differ from other reporting issuers, and accordingly, may not be comparable.

Earnings before Interest, Taxes, Depreciation and Amortization

EBITDA is used as an alternative to net income because it excludes major non-cash items such as interest, taxes, and amortization, which management considers non-operating in nature. It provides useful information about our core profit trends by eliminating our taxes, amortization, and interest which provides a more accurate comparison between our competitors. A reconciliation of EBITDA to IFRS net income is presented under the section "Results from Operations" of this MD&A.

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization

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

Adjusted EBITDA is used as an addition to net income (loss) and comprehensive income (loss) because it excludes major non-cash items such as amortization, interest, stock-based compensation, current and deferred income tax expenses and other items management considers non-operating in nature.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

A reconciliation of Adjusted EBITDA to IFRS net income is presented under the section "Results from Operations" of this MD&A.

RESULTS FROM OPERATIONS

Select interim information (in thousands)

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2022     September 30, 2021     September 30, 2022     September 30, 2021  
Operating Results                        
    Total Revenues   111,633     38,798     285,638     71,202  
    Loss from Continuing Operations   (5,169 )   (1,064 )   (13,576 )   (7,835 )
    Total Comprehensive Loss
    Attributable to Owners of the
    Parent
  (5,440 )   (1,064 )   (13,960 )   (7,835 )
                         
Per Share Basis                        
      Basic and diluted loss per share (ii)   (0.029 )   (0.006 )   (0.077 )   (0.047 )
                         
EBITDA (i) (iii)   (4,979 )   (977 )   (12,482 )   (7,394 )
Adjusted EBITDA (i) (iii)   (1,900 )   (744 )   (5,891 )   (2,163 )

(i) Represents a non-GAAP measure. Real's method for calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly may not be comparable. For definitions and basis of presentation of Real's non-GAAP measures, refer to the non-GAAP measures section.

(ii) Basic and diluted loss per share are calculated based on weighted average of Common Shares outstanding during the period.

(iii) EBITDA and Adjusted EBITDA are calculated on a trailing twelve-month basis. Refer to non-GAAP measures section of this MD&A for further details.

Earnings before interest, taxes, depreciation and amortization (in thousands)

    For the Three Months Ended For the Nine Months Ended  
    September 30, 2022     September 30, 2021     September 30, 2022     September 30, 2021  
Net Loss and Comprehensive Loss   (5,440 )   (1,064 )   (13,960 )   (7,835 )
Add (Deduct):                        
Finance Costs   1,174     43     2,053     311  
Depreciation   87     44     225     130  
EBITDA   (4,179 )   (977 )   (11,682 )   (7,394 )


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Adjusted earnings before interest, taxes, depreciation, and amortization (in thousands)

      For the Three Months Ended     For the Nine Months Ended  
     September 30, 2022       September 30, 2021     September 30, 2022     September 30, 2021  
Net Loss and Comprehensive Loss   (5,440 )   (1,064 )   (13,960 )   (7,835 )
Add:                        
Finance expenses, net   1,174     43     2,053     311  
Depreciation   87     44     225     130  
Stock-Based Compensation   2,057     (80 )   5,288     4,713  
Listing Expenses   135     310     135     455  
Restructuring Expenses   62     3     62     63  
Extraordinary Expenses   25     -     306     -  
Adjusted EBITDA   (1,900 )   (744 )   (5,891 )   (2,163 )

Balance Sheet overview (in thousands)

    September 30, 2022     December 31, 2021  
ASSETS            
Current Assets   33,368     38,665  
Non-Current Assets   13,958     1,332  
TOTAL ASSETS   47,326     39,997  
             
LIABILITIES            
Current Liabilities   25,763     10,046  
Non-Current Liabilities   8,162     2,947  
TOTAL LIABILITIES   33,125     12,993  
TOTAL EQUITY   13,401     27,004  
TOTAL LIABILITIES AND EQUITY   47,326     39,997  

For the nine-month period ended September 30, 2022, total revenues amounted to $285.6 million compared to $71.2 million for the nine-month period ended September 30, 2021, thus demonstrating the effects of the Company's growth. The Company generates substantially all its revenue from commissions from the sale of real estate properties. Other sources of revenue include fee income from the brokerage-platform and other revenues relating to auxiliary services. The increase in revenues is attributable to an increase in productive agents on our platform, as well as expanding the number of states and countries in which we operate. We are continually investing in the acquisition of productive agents on our platform, which we anticipate will further translate into a larger transaction volume closed by our agents. As we further widen our footprint within the United States and Canada, we expect this momentum to progress.

For the nine-month period ended September 30, 2022, total cost of sales amounted to $261.9 million compared to $64.2 million for the nine-month period ended September 30, 2021. Cost of sales represents real estate commission paid to Company's agent as well as to outside brokerages in Canada and Title Fee Expenses.

Adjusted EBITDA excludes stock-based compensation expense related to our agent incentive program and stock options expense for full time employees and management personnel. Stock-based compensation expense is affected by awards granted and/or awards forfeited throughout the year as well as increases in fair value and is more fully disclosed in Note 10, Share-based payment arrangements, of the Financial Statements.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

A further breakdown in revenues (in thousands) generated during the period is included below:

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2022     September 30, 2021     September 30, 2022     September 30, 2021  
Major Service Lines                        
Commissions   110,259     38,613     281,764     70,799  
Title   484     -     1,392     -  
Fee Income   620     -     1,705     -  
Other   270     185     777     403  
Total Revenue   111,633     38,798     285,638     71,202  
                         
Timing of Revenue Recognition                        
Products and Services Transferred at a Point in Time   111,363     38,613     284,861     70,799  
Services transferred over time   -     403     -     403  
Revenue from Customers with Contracts   111,363     39,016     284,861     71,202  
                         
Other Revenue   270     (218 )   777     -  
Total Revenue   111,633     38,798     285,638     71,202  


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

A further breakdown in expenses (in thousands) during the period is included below:

    For the Three Months Ended     For the Nine Months Ended  
    September 30, 2022     September 30, 2021     September 30, 2022     September 30, 2021  
Cost of Sales   103,057     35,477     261,908     64,216  
                         
Operating Expenses                        
General and Administration Expense   5,544     2,043     17,034     7,195  
Salaries and Benefits   3,072     685     7,893     1,877  
Stock-Based Compensation (G&A)   184     311     2,236     2,346  
Administrative Expenses   421     380     1,243     506  
Professional Fees   1,409     535     4,380     1,936  
Depreciation   87     44     225     130  
Other General and Administrative Expenses   371     88     1,057     400  
Marketing Expenses   6,197     2,154     15,613     4,018  
Salaries and Benefits   84     55     367     228  
Stock-Based Compensation (Marketing - FTE)   12     10     (4 )   10  
Stock-Based Compensation (Marketing - Agents)   1,776     145     2,905     624  
Revenue Share   3,876     1,324     10,955     2,282  
Other Marketing and Advertising Cost   449     620     1,390     874  
Research and Development Expenses   1,146     145     3,865     3,297  
Salaries and Benefits   426     126     1,552     620  
Stock-Based Compensation (Research & Development)   85     (1,077 )   151     1,201  
Other Research and Development   635     1,096     2,162     1,476  
Total Cost of Sales and Operating Expenses   115,944     39,819     298,420     78,726  

We believe that growth can and should be balanced with profits and therefore plan and monitor spend responsibly to ensure we decrease our losses and work towards being EBITDA positive. Our loss as a percentage of total revenue was 5% for the nine-month period ended September 30, 2022, and 11% for the nine-month period ended September 30, 2021. More detailed explanations for movements in expenses represented above can be found in the paragraphs below.

The following table is presented in thousands:

    For the Nine Months Ended  
    September 30, 2022     September 30, 2021  
Revenues   285,638     71,202  
Cost of Sales   261,908     64,216  
Cost of Sales as a Percentage of Revenues   92%     90%  


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

The total cost of sales for the nine-month period ended September 30, 2022, was $261.9 million in comparison to $64.2 million for the nine-month period ended September 30, 2021. We typically pay our agents 85% of the gross commission earned on every real estate transaction with 15% of said commissions being paid to the Company. Agents pay the Company 15% of commissions until the commission paid to the Company totals $12,000, which is defined as the agent "cap" amount (the "Cap"). Each agent Cap cycle resets on an annual basis. As the total revenue increases, the total commission to agents' expense increases accordingly. Our margins are affected by the increase in the number of agents who achieve their Cap, the increase in volume and increases in unit prices, resulting in a downward pressure as we continue to attract high producing agents. We expect to offset this pressure and increase margins through the launch of title services "Real Title", the introduction of financial services, such as our "Instant Payments" program, by adding additional ancillary services and through the launch of our consumer product.

Our salaries and benefits expenses for the nine-month period ended September 30, 2022 was $9.8 million in comparison to $2.7 million for the nine-month period ended September 30, 2021. The increase in salaries and benefits expenses were mainly due to an increase in number of full-time employees from 50 on September 30, 2021 to 104 at September 30, 2022. The increase is attributable to Real's commitment to better serve its agents and to the growth and expansion of the Company. These investments in key management and employee personnel allow us to offer best in class service to our agents. As the Company continues in this period of growth, it is necessary to scale operations in order to support that growth. Increases in headcount, as well as the investments Real is making in its technology infrastructure, allow us to scale at an accelerated pace and serve as key contributors to our growth. With year over year revenue growth at 301%, we believe we have proven our ability to do so in a highly efficient manner and with minimal impact on our operational costs. Real's full-time employee ("FTEs")  to Agent ratio as of September 30, 2022 is 1:64 compared to 1:60 as of September 30, 2021. 

Our stock-based compensation expense for the nine-month period ended September 30, 2022 was $5.3 million in comparison to $4.7 million for the nine-month period ended September 30, 2021. The increase in stock-based compensation is primarily due to increase in agent base resulting in higher number of awards granted as part of our agent incentive program. For the nine-month period ended September 30, 2022 and September 30, 2021, we reclassified agent related stock compensation expense for from incentive stock options ("Options") and RSUs to Marketing expenses. For the nine-month period ended September 30, 2022 and September 30, 2021, stock-based compensation expense related to FTEs within Marketing and Research and Development are included in the Marketing and Research and Development expense categories.

The following table is presented in thousands:

    For the Nine Months Ended  
    September 30, 2022     September 30, 2021  
    Options Expense     RSU Expense     Total     Options Expense     RSU Expense     Total  
Marketing Expenses -
Agent Stock-Based Compensation
  871     2,034     2,905     624     532     1,156  
Marketing Expenses -
FTE Stock-Based Compensation
  (9 )   5     (4 )   10     -     10  
Research and Development -
FTE Stock-Based Compensation
  68     83     151     1,201     -     1,201  
General and Administrative -
FTE Stock-Based Compensation
  1,394     842     2,236     2,346     -     2,346  
Total Stock-Based Compensation Expense   2,324     2,964     5,288     4,181     532     4,713  

Our consultancy expenses for the nine-month period ended September 30, 2022 was $4.4 million in comparison to $1.9 million for the nine-month period ended September 30, 2021. The increase in consultancy expenses was largely due to an increase in legal and professional fees associated with the Expetitle acquisition and an increase in our broker and recruiter consulting fees as a result of our expanding geographic footprint.

Our marketing expenses the nine-month period ended September 30, 2022, was $15.6 million compared to $4.0 million for the nine-month period ended September 30, 2021, due to our efforts to attract agents. This increase is primarily comprised of $11.0 million in revenue share paid to agents, as part of our revenue share model and agent related stock-based compensation expense of $2.9 million. Agents earn revenue share for new agents that they personally refer to Real and are eligible for the equity incentive program based on certain attracting and performance criteria. Real chooses to limit its expenses paid using traditional marketing channels and focuses primarily on marketing through its agents as the main cost of acquisition. Therefore, as agent counts increase so does our expense related to the revenue share and equity incentive programs.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Our Research and Development expenses for the nine-month period ended September 30, 2022, was $3.9 million compared to $3.3 million for the nine-month period ended September 30, 2021. The minimal increase is primarily due to the capitalization of costs associated with developing our internal-use cloud-based residential real-estate transaction system. These costs are primarily related to costs incurred in relation to internally created software during the application development stage including costs for upgrades and enhancements that result in additional functionality.

Financial Instruments

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

On initial recognition, a financial asset is classified as measured at: fair value; Fair Value through Other Comprehensive Income (FVOCI) - debt investment; FVOCI - equity investment; or Fair Value through profit and loss (FVTPL).

Financial assets are not reclassified subsequent to their initial recognition unless the Company changes its business model for managing financial assets, in which case all affected financial assets are reclassified on the first day of the first reporting period following the change in the business model.

A financial asset is measured at amortized cost if it meets both of the following conditions as is not designated as FVTPL:

- it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as FVTPL:

- it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

- its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Company may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Financial assets - Business model assessment

The Company assesses the objective of the business model in which a financial asset is held at a portfolio level, because this best reflects the way the business is managed, and information is provided to management. The information considered includes:

- the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management's strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows;

- how the performance of the portfolio is evaluated and reported to the Company's management;

- the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

- how managers of the business are compensated - e.g., whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

- the frequency, volume, and timing of sales of financial assets in prior periods, the reasons for such sales and the expectations of future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales, consistent with the Company's continuing recognition of the assets.

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

Financial assets - Subsequent measurement and gains and losses

Financial assets at
FVTPL
These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss.
Financial assets at
amortized cost
These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.
Debt investments at
FVOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized in profit or loss. Other net gains and losses are recognized in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
Equity investments at
FVOCI
These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses recognized in OCI and are never reclassified to profit or loss.

Financial liabilities - Classification, subsequent measurement and gains and losses

Financial liabilities are classified as measured at amortized cost or FVTPL. A financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a derivative or it is designated as such on initial recognition. Financial liabilities at FVTPL are measured at fair value and their net gains and losses, including any interest expense, are recognized in profit or loss. Other financial liabilities are subsequently measured at amortized cost using the effective interest method. Interest expense and foreign exchange gains and losses are recognized in profit or loss. Any gain or loss on derecognition is also recognized in profit or loss.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

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.

A breakdown of financial instruments (in thousands) for the nine-month period ended September 30, 2022 is included below:

    For the Nine Month Period Ended September 30, 2022  
    Carrying Amount     Fair Value  
    Financial Assets Not
Measured at FV
      Other Financial
  Liabilities
     
Total
     
Level 1
     
  Total
 
Financial Assets Measured at
Fair Value (FV)
                             
Short Term Investments   -     -     -     9,786     9,786  
Total Financial Assets Measured at Fair Value (FV)   -     -     -     9,786     9,786  
Financial Assets Not Measured at
Fair Value (FV)
                             
Cash   21,943     -     21,943     -     -  
Trade Receivables   783     -     783     -     -  
Other Receivables   74     -     74     -     -  
Total Financial Assets Not
Measured at Fair Value (FV)
  22,800     -     22,800     -     -  
Financial Liabilities Not Measured at Fair Value (FV)                              
Accounts Payable   -     14,090     14,090     -     -  
Other Payables   -     11,610     11,610     -     -  
Total Financial Liabilities Not
Measured at Fair Value (FV)
  -     25,700     25,700     -     -  


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

SUMMARY OF QUARTERLY INFORMATION

The following table provides selected quarterly financial information (in thousands, except per share data) for the eight most recently completed financial quarters ended September 30, 2022. This information reflects all adjustments of a recurring nature that are, in the opinion of management, necessary to present a fair statement of the results of operations for the periods presented. Quarter-to-quarter comparisons of financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. The general increase in revenue and expense quarter over quarter is due to growth and expansion of the Company.

    2022     2021     2020  
    Q3     Q2     Q1     Q4     Q3     Q2     Q1     Q4  
Revenue   111,633     112,356     61,649     50,479     38,798     23,095     9,309     7,090  
Cost of Sales   103,057     103,064     55,787     46,371     35,477     20,667     8,072     6,342  
Gross Profit   8,576     9,292     5,862     4,108     3,321     2,428     1,237     748  
Administrative Expenses   5,544     6,116     5,374     3,378     2,043     2,847     2,305     1,737  
Marketing Expenses   6,197     5,700     3,716     3,790     2,154     1,214     650     305  
Research and Development Expenses   1,146     1,680     1,039     682     145     1,157     1,995     76  
Other Income (Loss)   (231 )   (257 )   (179 )   (249 )   -     -     -     (167 )
Operating Income (Loss)   (4,080 )   (3,947 )   (4,088 )   (3,493 )   (1,021 )   (2,790 )   (3,713 )   (1,203 )
Listing Expenses   135     -     -     -     -     -     -     32  
Finance Expenses, net   954     208     164     352     44     201     65     111  
Income (Loss) Before Tax   (5,169 )   (4,155 )   (4,252 )   (3,845 )   (1,065 )   (2,991 )   (3,778 )   (1,346 )
Non-controlling interest   (78 )   (53 )   (61 )   -     -     -     -     -  
Income (Loss) Attributable to the Owners of the Parent   (5,247 )   (4,208 )   (4,313 )   (3,845 )   (1,065 )   (2,991 )   (3,778 )   (1,346 )
Other Comprehensive Incomes (loss):                                                
Unrealized Gains (Losses) on Available for Sale Investment Portfolio   (142 )   (116 )   (277 )   (352 )   -     -     -     -  
Foreign Currency Translation Adjustment   (51 )   190     204     4     (1 )   (43 )   45     -  
Comprehensive income (loss)   (5,440 )   (4,134 )   (4,386 )   (4,193 )   (1,064 )   (2,948 )   (3,823 )   (1,346 )
Non-Operating Expenses:                                                
Finance expenses, net   1,174     377     502     699     43     158     110     111  
Depreciation   87     135     3     83     44     44     42     32  
Stock-Based Compensation   2,057     1,446     1,785     494     (80 )   2,045     2,748     802  
Listing Expenses   135     -     -     (99 )   310     145     -     -  
Restructuring Expense   62     -     -     54     3     60     -     -  
Extraordinary Expenses   25     155     126     -     -     -     -     -  
Adjusted EBITDA   (1,900 )   (2,021 )   (1,970 )   (2,962 )   (744 )   (496 )   (923 )   (401 )
Earnings per Share                                                
Basic and Diluted Loss per Share   (0.029 )   (0.023 )   (0.025 )   (0.021 )   (0.006 )   (0.053 )   (0.038 )   (0.009 )


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

LIQUIDITY AND CAPITAL RESOURCES

The Company has a capital structure comprised of, Common Shares, contributed capital, retained deficit, and accumulated other comprehensive loss. Our primary sources of liquidity are cash and cash flows from operations as well as cash raised from investors in exchange for issuance of Common Shares. The Company expects to meet all of its obligations and other commitments as they become due. The Company has various financing sources to fund operations and will continue to fund working capital needs through these sources along with cash flows generated from operating activities.

For the nine-month period ended September 30, 2022, cash and investments totaled $31.7 million, compared to $37.9 million at December 31, 2021. Cash is comprised of cash held in our banking and investment accounts. 

For the nine-month period ended September 30, 2022, financing activities used cash of $8.4 million. Cash flow used in financing activities primarily related to the repurchases of the Common Shares for satisfying RSU obligations pursuant to the NCIB totaling $6.9 million. Cash flows from investing activities used cash of $8.4 million mainly due to acquisition of Expetitle ($7.4 million). Cash flows from operations contributed $9.6 million in comparison to $2.3 million for the nine-month period ended September 30, 2021.

We believe that our existing balances of cash and cash flows expected to be generated from our operations will be sufficient to satisfy our immediate and ongoing operating requirements.

Our future capital requirements will depend on many factors, including our level of investment in technology, our rate of growth into new markets, and potential mergers and acquisitions. Our capital requirements may be affected by factors that we cannot control such as the residential real estate market, interest rates, and other monetary and fiscal policy changes to the manner in which we currently operate. To support and achieve our future growth plans, however, we may need or seek to obtain additional funding through equity or debt financing.

The following table presents liquidity (in thousands):

    For the Period Ended  
    September 30, 2022     December 31, 2021  
Cash and Cash Equivalents   21,943     29,082  
Restricted Cash   -     47  
Trade Receivables   783     254  
Other Receivables   74     23  
Short Term Investments[iii]   9,786     8,811  
Total Capital [i][ii]    32,586     38,217  

[i] - Total Capital is not a standard financial measure under GAAP and may not be comparable to similar measures reported by other entities.

[ii] - Represents a non-GAAP measure. Real's method for calculating non-GAAP measures may differ from other reporting issuers' methods and accordingly may not    be comparable.

[iii] - Investment securities are presented in the table below.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

The following table presents cash and short-term investments (in thousands):

 
 
Description
  Cost     Deposits /
(Withdrawals)
    Dividends,
Interest &
Income
    Gross
Unrealized
Gains / (Losses)
    Estimated
Fair Value
September 30, 2022
 
Cash Equivalents   6,087     (1,457 )   131     (77 )   4,684  
U.S. Government Bonds   5,033     (6 )   91     (214 )   4,904  
Municipal Bonds   2,900     1,277     34     (204 )   4,007  
Alternative Strategies   878     -     -     (39 )   839  
Investment Certificate   -     36     -     -     36  
Cash Equivalents and
Short Term Investments
  14,898     (150 )   256     (534 )   14,470  

The Company holds no debt obligations.

Contractual obligations

As of September 30, 2022, the Company had no guarantees, leases, off-balance sheet arrangements other than those noted in our results from operating activities. We have a lease for our New York office that expires on June 30, 2023. The monthly rent expense per the lease for the period ended September 30, 2022 is $7 thousand per month. The following is a schedule of Company's future lease payments under lease obligations:

    For the Period Ended  
    September 30, 2022     December 31, 2021  
Maturity analysis - contractual undiscounted cash flows            
Less than one year   63     94  
One year to five years   -     41  
More than five years   -     -  
Total undiscounted lease liabilities   63     135  
Lease liabilities included in the balance sheet   63     131  
Current   63     91  
Non-current   -     40  

Capital management framework

Real defines capital as equity. 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. For 2022, Real expects to be able to satisfy all of its financing requirements through use of some or all of the following: cash on hand, cash generated by operations, sale of securities held for investment, and through the public and private offerings of equity securities.

INVESTMENT SECURITIES AVAILABLE FOR SALE AT FAIR VALUE

The Company invested surplus funds from the financing activities with Insight Partners into a managed investment portfolio. Securities are purchased on behalf of the Company and are actively managed through multiple investment accounts. The Company follows a conservative investment approach with limited risk for investment activities and has allocated the funds in Level 1 assets to reduce market risk exposure.

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. For the nine-month period ended September 30, 2022, the total investment in securities available for sale at fair value was $9.8 million and is more fully disclosed in Note 12, Investment securities available for sale at fair value, of the Financial Statements.             


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

OTHER METRICS

Year-over-year quarterly revenue growth (in thousands)

    2022 2021  
    Q3     Q2     Q1     Q4     Q3     Q2  
Revenue                                    
Commissions   110,259     110,999     60,506     50,158     38,613     22,927  
      Commissions - YoY QTR   186%     384%     553%     612%     886%     799%  
Title Revenue   484     506     402     -     -     -  
      Title Revenue - YoY QTR   -     %     -     %     -     %     -     %     -     %     -     %  
Fee Income / Other Revenue   890     851     741     321     185     168  
      Fee Income / Other Revenue - YoY QTR   381%     407%     1,382%     613%     671%     282%  
Total Revenue   111,633     112,356     61,649     50,479     38,798     23,095  
      Total Revenue - YoY QTR   188%     386%     562%     612%     885%     790%  

SIGNIFICANT ACCOUNTING POLICIES AND OTHER EXPLANATORY INFORMATION

The preparation of the Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures as of the date of the Financial Statements. Actual results may differ from estimates under different assumptions and conditions.

Significant judgments include measure of share-based payment arrangements. Our significant judgments have been reviewed and approved by the Audit Committee for completeness of disclosure on what management believes would be relevant and useful to investors in interpreting the amounts and disclosures in the Financial Statements.

CHANGES IN ACCOUNTING POLICIES

Amendments to IAS 1, Presentation of Financial Statements ("IAS 1") and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors ("IAS 8") - Definition of Material

In October 2018, the IASB issued amendments to IAS 1 and IAS 8 to align the definition of "material" across the standards and to clarify certain aspects of the definition. The new definition states that, "information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity."  These amendments were effective January 1, 2020. The amendments to the definition of material have not had a significant impact on the Company's Financial Statements.

FUTURE CHANGES IN ACCOUNTING POLICIES

The Company monitors the potential changes proposed by the IASB and analyzes the effect that changes in the standards may have on the Company's operations. Standards issued but not yet effective up to the date of issuance of the Financial Statements are described below. This description is of the standards and interpretations issued that the Company reasonably expects to be applicable at a future date. The Company intends to adopt these standards when they become effective.

In January 2020, the IASB issued amendments to IAS 1 - Presentation of Financial Statements: Classification of Liabilities as Current or Non-Current to clarify how to classify debt and other liabilities as current or non-current, and in particular how to classify liabilities with an uncertain settlement rate and liabilities that may be settled by converting to equity. These amendments are effective on or after January 1, 2023. The Company does not expect any material impact from the adoption of these amendments.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

In May 2020, the IASB issued Annual Improvements to IFRSs 2018 - 2020 Cycle. The improvements have amended four standards with effective date January 1, 2022: i) IFRS 1 - First-time Adoption of International Financial Reporting Standards in relation to allowing a subsidiary to measure cumulative translation differences using amounts reported by its parent, ii) IFRS 9 - Financial Instruments in relation to which fees an entity includes when applying the "10 percent" test for derecognition of financial liabilities, iii) IAS 41 - Agriculture in relation to the exclusion of taxation cash flows when measuring the fair value of a biological asset, and iv) IFRS 16 - Leases in relation to an illustrative example of reimbursement for leasehold improvements. The Company does not expect any material impact from the adoption of these amendments.

In August 2020, the IASB issued a package of amendments to IFRS 9 - Financial Instruments, IAS 39 - Financial Instruments: Recognition and Measurement, IFRS 7 - Financial Instruments: Disclosures, IFRS 4 - Insurance Contracts and IFRS 16 - Leases in response to the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks. The amendments are aimed at helping companies to provide investors with useful information about the effects of the reform on those companies' financial statements. These amendments complement amendments issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The new amendments relate to:

 changes to contractual cash flows - a company will not be required to derecognize or adjust the carrying amount of financial instruments for changes required by the interest rate benchmark reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate;

 hedge accounting - a company will not have to discontinue its hedge accounting solely because it makes changes required by the interest rate benchmark reform if the hedge meets other hedge accounting criteria; and

 disclosures - a company will be required to disclose information about new risks that arise from the interest rate benchmark reform and how the company manages the transition to alternative benchmark rates.

These amendments are effective on or after January 1, 2021, with early adoption permitted.

In February 2021, the IASB issued amendments to IAS 1 - Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies which require companies to disclose their material accounting policy information rather than their significant accounting policies and provide guidance on how to apply the concept of materiality to accounting policy disclosures. These amendments are effective on or after January 1, 2023. The Company does not expect any material impact from the adoption of these amendments.

In February 2021, the IASB issued amendments to IAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates which clarify how companies should distinguish changes in accounting policies from changes in accounting estimates. These amendments are effective on or after January 1, 2023. The Company does not expect any material impact from the adoption of these amendments.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

Disclosure controls and procedures

The Company's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have designed controls to provide reasonable assurance that: (i) material information relating to the Company is made known to management by others, particularly during the period in which the annual and interim filings are being prepared; and (ii) information required to be disclosed by the Company in its annual and interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time frame specified in the securities legislation.

Based on the evaluations, the CEO and CFO have concluded that the Company's disclosure controls and procedures were adequate and effective.

Internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our internal control over financial reporting as of September 30, 2022 based on the criteria described in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of September 30, 2022.

Inherent limitations

It should be noted that in a control system, no matter how well conceived and operated, provide only reasonable, not absolute, assurance that the objectives of the control system are met. Given the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, including instances of fraud, if any, have been detected. These inherent limitations include, among other items: (i) that management's assumptions and judgments could ultimately prove to be incorrect under varying conditions and circumstances; (ii) the impact of any undetected errors; and (iii) controls may be circumvented by unauthorized acts of individuals, by collusion of two or more people, or by management override.

Related party transactions

The Company's key management personnel are comprised of the CEO, the CFO, the Chief Technology Officer, the Chief Operating officer, and other members of the executive team. Key management personnel compensation for the period consisted of the following:

    For the Nine Months Ended  
    September 30, 2022     September 30, 2021  
Stock-Based Compensation   1,628     2,571  
Salaries and Benefits   1,555     816  
Consultancy   -     180  
Compensation Expenses Related to Key Management   3,183     3,567  

RISKS AND UNCERTAINTIES

There are a number of risk factors that could cause future results to differ materially from those described herein. The risks and uncertainties described herein are not the only ones the Company faces. Additional risks and uncertainties, including those that the Company does not know about as of the date of this MD&A, or that it currently deems immaterial, may also adversely affect the Company's business. If any of the following risks occur, the Company's business may be harmed, and its financial condition and the results of operation may suffer significantly.

Limited operating history

Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. As a young company, we are subject to all the risks inherent in a developing organization, financing, expenditures, complications and delays inherent in a new business. Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive and evolving environment. Our business is dependent upon the implementation of our business plan. We may not be successful in implementing such plan and cannot guarantee that, if implemented, we will ultimately be able to attain profitability.

Managing Agent Growth

Real may not be able to scale its business quickly enough to meet the growing needs of its affiliated real estate professionals and if Real is not able to grow efficiently, its operating results could be harmed. As Real adds new real estate professionals, Real will need to devote additional financial and human resources to improving its internal systems, integrating with third-party systems, and maintaining infrastructure performance. In addition, Real will need to appropriately scale its internal business systems and our services organization, including support of our affiliated real estate professionals as its demographics expand over time. Any failure of or delay in these efforts could cause impaired system performance and reduced real estate professional satisfaction.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

These issues could reduce the attractiveness of Real to existing real estate professionals who might leave Real and result in decreased attraction of new real estate professionals and reduced revenue and financial results.

Additional financing

From time to time, Real may need additional financing to operate or grow its business. Real's ability to obtain additional financing, if and when required, will depend on investor and lender willingness, its operating performance, the condition of the capital markets and other facts, and Real cannot assure anyone that additional financing will be available to it on favorable terms when required, or at all. If Real raises additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of its Common Shares, and its existing shareholders may experience dilution. If Real is unable to obtain adequate financing or financing on terms satisfactory to it when it requires it, its ability to continue to support the operation or growth of its business could be significantly impaired and its operating results may be harmed.

Reliance on United States real estate market

Real's financial performance is closely tied to the strength of the residential real estate market in the United States, which is cyclical in nature and typically is affected by changes in conditions that are beyond Real's control. Macroeconomic conditions that could adversely impact the growth of the real estate market and have a material adverse effect on our business include, but are not limited to, economic slowdown or recession, increased unemployment, increased energy costs, reductions in the availability of credit or higher interest rates, increased costs of obtaining mortgages, an increase in foreclosure activity, inflation, disruptions in capital markets, declines in the stock market, adverse tax policies or changes in other regulations, lower consumer confidence, lower wage and salary levels, or the public perception that any of these events may occur. Unfavorable general economic conditions in the United States or other markets Real enters and operates within could negatively affect the affordability of, and consumer demand for, our services which could have a material adverse effect on our business and profitability. In addition, federal and state governments, agencies, and government-sponsored entities could take actions that result in unforeseen consequences to the real estate market or that otherwise could negatively impact Real's business.

Regulation of United States real estate market

Real operates in the real estate industry which is a heavily regulated industry subject to complex, federal, state, provincial and local laws and regulations and third-party organizations' regulations, policies and bylaws. Generally, the laws, rules and regulations that apply to Real's business practices include, without limitation, the Real Estate Settlement Procedures Act ("RESPA"), the Fair Housing Act, the Dodd-Frank Act, and federal advertising and other laws, as well as comparable state statutes; rules of trade organizations such as the National Association of Realtors, local Multiple Listing Services, and state and local Associations of Realtors, licensing requirements and related obligations that could arise from our business practices relating to the provision of services other than real estate brokerage services; privacy regulations relating to our use of personal information collected from the registered users of our websites; laws relating to the use and publication of information through the Internet; and state real estate brokerage licensing requirements, as well as statutory due diligence, disclosure, record keeping and standard-of-care obligations relating to these licenses.

Additionally, the Dodd-Frank Act contains the Mortgage Reform and Anti-Predatory Lending Act (the "Mortgage Act"), which imposes a number of additional requirements on lenders and servicers of residential mortgage loans, by amending certain existing provisions and adding new sections to RESPA and other federal laws.

It also broadly prohibits unfair, deceptive or abusive acts or practices, and knowingly or recklessly providing substantial assistance to a covered person in violation of that prohibition. The penalties for noncompliance with these laws are also significantly increased by the Mortgage Act, which could lead to an increase in lawsuits against mortgage lenders and servicers.

Maintaining legal compliance is challenging and increases business costs due to resources required to continually monitor business practices for compliance with applicable laws, rules and regulations, and to monitor changes in the applicable laws themselves.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Real may not become aware of all the laws, rules and regulations that govern its business, or be able to comply with all of them, given the rate of regulatory changes, ambiguities in regulations, contradictions in regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance.

Success of the platform

Our business strategy is dependent on our ability to develop platforms and features to attract new businesses and users, while retaining existing ones. Staffing changes, changes in user behavior, changes in agent growth rate or development of competing platforms may cause users to switch to alternative platforms or decrease their use of our platform. There is no guarantee that agents will use these features and we may fail to generate revenue. Additionally, any of the following events may cause decreased use of our platform:

 emergence of competing platforms and applications with novel technologies;

 inability to convince potential agents to join our platform;

 technical issues or delays in releasing, updating or integrating certain platforms or in the cross-compatibility of multiple platforms;

 security breaches with respect to our data;

 a rise in safety or privacy concerns; and

 an increase in the level of spam or undesired content on the network.

Management team

We are highly dependent on our management team, specifically our CEO. If we lose key employees, our business may suffer. Furthermore, our future success will also depend in part on the continued service of our key management personnel and our ability to identify, hire, and retain additional personnel. We do not carry "key-man" life insurance on the lives of our executive officers, employees, or advisors. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our business. Because of this competition, our compensation costs may increase significantly.

Monetization of platform

There is no guarantee that our efforts to monetize the Real platform will be successful. Furthermore, our competitors may introduce more advanced technologies that deliver a greater value proposition to realtors in the future. These factors individually or collectively may preclude us from effectively monetizing our business which would have a material adverse effect on our financial condition and results of operation.

Seasonality of operations

Seasons and weather traditionally impact the real estate industry in the jurisdictions where Real operates. Continuous poor weather or natural disasters negatively impact listings and sales. Spring and summer seasons historically reflect greater sales periods in comparison to fall and winter seasons. Real has historically experienced lower revenues during the fall and winter seasons, as well as during periods of unseasonable weather, which reduces Real's operating income, net income, operating margins and cash flow.

Real estate listings precede sales, and a period of poor listings activity will negatively impact revenue. Past performance in similar seasons or during similar weather events can provide no assurance of future or current performance, and macroeconomic shifts in the markets Real serves can conceal the impact of poor weather or seasonality.

Agent engagement

Our business model involves attracting real estate agents to our platform. There is no guarantee that growth strategies will bring new agents to our network. Changes in relationships with our partners, contractors, and businesses we retain to grow our network may result in significant increases in the cost to acquire new agents. In addition, new agents may fail to engage with our network to the same extent current agents are engaging with our network resulting in decreased use of our network.

Decreases in the size of our agent base and/or decreased engagement on our network may impair our ability to generate revenue.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

Managing growth of operations

Successful implementation of our business strategy requires us to manage our growth. Growth could place an increasing strain on our management and financial resources. To manage growth effectively, we need to continuously: (i) evaluate definitive business strategies, goals and objectives; (ii) maintain a system of management controls; and (iii) attract and retain qualified personnel, as well as develop, train and manage management-level and other employees. If we fail to manage our growth effectively, our business, financial condition or operating results could be materially harmed.

Competition

We compete with both start-up and established technology companies and brokerages. Our competitors may have substantially greater financial, marketing, and other resources than we do and may have been in business longer than we have or have greater name recognition and be better established in the technological or real estate markets than we are. If we are unable to compete successfully with other businesses in our existing market, we may not achieve our projected revenue and/or user targets which may have a material adverse effect on our financial condition.

Volatility

The market price of our Common Shares could fluctuate significantly in response to various factors and events, including, but not limited to: our ability to execute our business plan; operating results below expectations; announcements regarding regulatory developments with respect to the real estate industry; our issuance of additional securities, including debt or equity or a combination thereof, necessary to fund our operating expenses; announcements of technological innovations or new products by us or our competitors; and period-to-period fluctuations in our financial results. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our Common Shares.

An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect its underlying value. Investors could lose their entire investment. Because we can issue additional Common Shares, purchasers of our Common Shares may incur immediate dilution and experience further dilution.

As of the date of this MD&A, we are authorized to issue an unlimited number of Common Shares. Our board of directors (the "Board") has the authority to cause us to issue additional Common Shares without consent of any of shareholders. Consequently, our shareholders may experience further dilution in their ownership of our stock in the future, which could have an adverse effect on the trading market for our Common Shares.

Furthermore, our articles give our Board the right to create one or more new classes or series of shares. As a result, our Board may, without shareholder approval, issue shares of a new class or series with voting, dividend, conversion, liquidation, or other rights that could adversely affect the voting power and equity interests of the holders of our Common Shares, as well as the price of our Common Shares.

Cyber security threats

A cyber incident is an intentional or unintentional event that could threatens the integrity, confidentiality or availability of the Company's information resources. These events include, but are not limited to, unauthorized access to information systems, a disruption to our information systems, or loss of confidential information. Real's primary risks that could result directly from the occurrence of a cyber incident include operational interruption, damage to our public image and reputation, and/or potentially impact the relationships with our customers.

We have implemented processes, procedures, and controls to mitigate these risks, including, but not limited to, firewalls and antivirus programs and training and awareness programs on the risks of cyber incidents. These procedures and controls do not guarantee that the financial results may not be negatively impacted by such an incident.


THE REAL BROKERAGE, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 AND 2021
UNAUDITED

COVID-19 impact

Since early 2020, COVID-19 (including variants) has had significant impact on the global economy and the financial markets. This unprecedented situation has created considerable risks and uncertainties for the U.S.  real estate services industry by disrupting supply chain channels leading to lower housing inventory and making the existing home prices rise significantly.

For the period ended September 30, 2022, the effects of the COVID-19 pandemic on business worldwide have lessened. While we did not see adverse impacts of the COVID-19 pandemic on our financial results in the nine months ended September 30, 2022, the extent of the future impact of the ongoing COVID-19 pandemic on our financial results will depend largely on future developments, including the emergence of new variants of the COVID-19 virus, the severity and transmission rates of the new variants, the duration and extent of the spread of the virus, the timing, availability and effectiveness of vaccines and vaccination rates, and the prevalence of local, regional and national restrictions and regulatory orders in response to the ongoing COVID-19 pandemic, all of which are highly uncertain and difficult to predicted.

OUTSTANDING SHARE DATA

As of November 10, 2022, the Company had 178.5 million Common Shares issued and outstanding.

In addition, as of November 10, 2022 there were 24.2 million stock options outstanding with exercises prices ranging from $0.03 to $3.40 per share and expiry dates ranging from January 2026 to August 2032. Each stock option is exercisable for one Common Share. A total of 13,339 RSUs were outstanding. Once vested, a total of 13,339 Common Shares will be issuable pursuant to the outstanding RSUs.

SUBSEQUENT EVENTS

On September 23, 2022, the Company entered into a share purchase agreement between the Company, LemonBrew Lending Corp. ("LemonBrew Lending") and LemonBrew Technologies Corp. (the "Seller") pursuant to which the Company will acquire 100% of the issued and outstanding equity interests of LemonBrew Lending from the Seller for an aggregate purchase price of $1.25 million. The purchase price will be satisfied by (i) cash in the amount of $800 thousand and (ii) the issuance of such number of Common Shares (the "Consideration Shares") equal to $450 thousand divided by the 5-day volume weighted average trading price of the Common Shares on the NASDAQ immediately prior to the closing of the acquisition. The acquisition has been approved by the Board and is subject to a number of further conditions precedent, including, but not limited to: (i) the execution of employment and consulting agreement between Real and certain key officers and employees of LemonBrew Lending; (ii) approval of regulatory consents and (iii) other customary closing conditions. The Transaction is expected to close in the fourth quarter of 2022.

On November 3, 2022, the Company acquired, through a wholly owned subsidiary, all of the issued and outstanding common shares of Redline Real Estate Group (BC) Inc. ("Redline BC") pursuant to a share purchase agreement between the Company, Redline BC and Redline Realty Investments Inc. ("Redline Realty"). The acquisition, which includes Redline's real estate license to operate in British Columbia, will fuel the Company's expansion into Canada's third largest province.

ADDITIONAL INFORMATION

These documents, as well as additional information regarding Real, have been filed electronically on Real's website at www.onereal.com and under the Company's profile at www.sedar.com.



The Real Brokerage Inc.: Exhibit 99.2 - Filed by newsfilecorp.com


 


TABLE OF CONTENTS

  Page
Interim Condensed Consolidated Financial Statements (Unaudited):  
   
Interim Condensed Consolidated Statements of Financial Positions 2
   
Interim Condensed Consolidated Statements of Loss and Other Comprehensive Loss 3
   
Interim Condensed Consolidated Statements of Changes in Equity 4
   
Interim Condensed Consolidated Statement of Cash Flows 5
   
Notes to the Interim Condensed Consolidated Financial Statements 6-26


THE REAL BROKERAGE, INC.

INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITIONS

(Expressed in thousands of U.S. dollars)

UNAUDITED

    Unaudited     Audited  
    September 30, 2022     December 31, 2021  
ASSETS            
CURRENT ASSETS            
Cash and cash equivalents $ 21,943   $ 29,082  
Restricted cash   -     47  
Investments in available-for-sale securities at fair value   9,786     8,811  
Trade receivables   783     254  
Other receivables   74     23  
Prepaid expenses and deposits   782     448  
TOTAL CURRENT ASSETS   33,368     38,665  
NON-CURRENT ASSETS            
Intangible assets   366     451  
Goodwill   12,527     602  
Property and equipment   1,019     170  
Right-of-use assets   46     109  
TOTAL NON-CURRENT ASSETS   13,958     1,332  
TOTAL ASSETS   47,326     39,997  
             
LIABILITIES AND EQUITY            
CURRENT LIABILITIES            
Accounts payable and accrued liabilities   14,090     6,604  
Other payables   11,610     3,351  
Lease liabilities   63     91  
TOTAL CURRENT LIABILITIES   25,763     10,046  
NON-CURRENT LIABILITIES            
Lease liabilities   -     40  
Accrued stock-based compensation   7,922     2,268  
Warrants outstanding   240     639  
TOTAL NON-CURRENT LIABILITIES   8,162     2,947  
TOTAL LIABILITIES   33,125     12,993  
             
EQUITY            
EQUITY ATTRIBUTABLE TO OWNERS            
Share Premium   63,738     63,397  
Stock-based compensation reserves   10,274     6,725  
Deficit   (43,895 )   (30,127 )
Other Reserves   (539 )   (347 )
Treasury Stock, at cost   (16,390 )   (12,644 )
EQUITY ATTRIBUTABLE TO OWNERS   13,188     27,004  
Non-controlling interests   213     -  
TOTAL EQUITY   13,401     27,004  
TOTAL LIABILITIES AND EQUITY   47,326     39,997  


THE REAL BROKERAGE, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(Expressed in thousands of U.S. dollars, except for per share amounts)
UNAUDITED

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2022     2021     2022     2021  
Revenues $ 111,633     38,798     285,638     71,202  
Cost of Sales   103,057     35,477     261,908     64,216  
Gross Profit   8,576     3,321     23,730     6,986  
                         
General and administrative expenses   5,544     2,043     17,034     7,195  
Marketing expenses   6,197     2,154     15,613     4,018  
Research and development expenses   1,146     145     3,865     3,297  
Operating Loss   (4,311 )   (1,021 )   (12,782 )   (7,524 )
                         
Other income    (231 )   -     (667 )   -  
Listing expenses   135     -     135     -  
Finance expenses, net   954     43     1,326     311  
Net Loss   (5,169 )   (1,064 )   (13,576 )   (7,835 )
Non-controlling interest (NCI)   78     -     192     -  
Net Loss Attributable to the Owners of the Company   (5,247 )   (1,064 )   (13,768 )   (7,835 )
Other comprehensive income/(loss):                        
Unrealized loss on available for sale investment portfolio   (142 )   -     (535 )   -  
Foreign currency translation adjustment   (51 )   -     343     -  
Comprehensive Loss Attributable to Owners of the Company $ (5,440 )   (1,064 )   (13,960 )   (7,835 )
Comprehensive Income Attributable to NCI   78     -     192     -  
Comprehensive Loss $ (5,362 )   (1,064 )   (13,768 )   (7,835 )
Loss per share                        
Basic and diluted loss per share $ (0.03 )   (0.01 )   (0.08 )   (0.05 )
Weighted-average shares, basic and diluted   179,466     165,700     179,320     165,700  


THE REAL BROKERAGE, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. dollar in thousands)
UNAUDITED

    Share
Premium
    Stock-Based
Compensation
Reserve
    Foreign
Exchange
Translation
Reserve
    Investments
Revaluations
Reserve
    Deficit     Treasury
Stock
    Non-
Controlling
Interests
    Total Equity
(Deficit)
 
Balance at, January 1, 2021   21,668     2,760     -     -     (18,448 )   -     14,818     20,798  
Total loss and comprehensive loss   -     -     -     -     (7,835 )   -     -     (7,835 )
Exercise of warrants   26,475     -     -     -     -     -     -     26,475  
Acquisitions of commons shares for Restricted Share Unit (RSU) plan   -     -     -     -     -     (3,772 )   -     (3,772 )
Conversion of preferred shares into common shares   14,818     -     -     -     -     -     (14,818 )   -  
Exercise of stock options   47     -     -     -     -     -     -     47  
Equity-settled share-based payment   -     2,920     -     -     -     -     -     2,920  
Balance at, September 30, 2021   63,008     5,680     -     -     (26,283 )   (3,772 )   -     38,633  
                                                 
Balance at, January 1, 2022   63,397     6,725     5     (352 )   (30,127 )   (12,644 )   -     27,004  
Total loss   -     -     -     -     (13,768 )   -     192     (13,576 )
Total other comprehensive loss   -     -     343     (535 )   -     -     -     (192 )
Acquisitions of commons shares for Restricted Share Unit (RSU) plan   -     -     -     -     -     (6,911 )   -     (6,911 )
Release of vested common shares from employee benefit trusts   268     -     -     -     -     3,165     -     3,433  
Adjustment arising from change in non-controlling interest   -     -     -     -     -     -     21     21  
Exercise of stock options   73     -     -     -     -     -     -     73  
Equity-settled share-based payment   -     3,549     -     -     -     -     -     3,549  
Balance at, September 30, 2022   63,738     10,274     348     (887 )   (43,895 )   (16,390 )   213     13,401  


THE REAL BROKERAGE, INC.
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(U.S. dollar in thousands)
UNAUDITED

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2022     2021     2022     2021  
OPERATING ACTIVITIES                        
Net Loss $ (5,169 )   (1,064 )   (13,576 )   (7,835 )
Adjustments for:                        
Depreciation   87     42     225     129  
Equity-settled share-based payment transactions   1,113     (1,696 )   2,324     2,920  
Listing expenses   -     (36 )   -     (3 )
Gain on short-term investments   10     -     (125 )   -  
Finance costs, net   28     43     237     311  
Changes in operating asset and liabilities:                        
Restricted cash   -     -     47     -  
Trade receivables   (543 )   (66 )   (529 )   (158 )
Other receivables   (8 )   -     (51 )   198  
Prepaid expenses and deposits   517     (385 )   (334 )   (471 )
Accounts payable and accrued liabilities   1,966     2,711     7,486     5,140  
Accrued stock compensation   1,603     757     5,654     1,069  
Other payables   (3,493 )   728     8,259     984  
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES   (3,888 )   1,034     9,618     2,284  
                         
INVESTING ACTIVITIES                        
Purchase of property and equipment   (302 )   (22 )   (927 )   (65 )
Acquisition of subsidiary (Note 4 and Note 6)   -     -     (7,445 )   (1,100 )
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES   (302 )   (22 )   (8,372 )   (1,165 )
                         
FINANCING ACTIVITIES                        
Investment in securities   (5,422 )   -     (1,432 )   (8,890 )
Proceeds from exercise of Warrants   -     -     -     26,475  
Purchase of common shares for Restricted Share Unit
(RSU) Plan
  (1,219 )   (2,853 )   (6,911 )   (3,772 )
Proceeds from exercise of stock options   26     37     73     47  
Payment of lease liabilities   (23 )   (21 )   (68 )   (62 )
Cash distribution for non-controlling interest   (24 )   -     (67 )   -  
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   (6,662 )   (2,837 )   (8,405 )   13,798  
                         
Net change in cash and cash equivalents   (10,852 )   (1,825 )   (7,159 )   14,917  
                         
Cash and equivalents, beginning of the period   32,520     37,951     29,082     21,226  
Effect of exchange rate changes on cash and cash equivalents   275     (49 )   20     (66 )
CASH AND CASH EQUIVALENTS, END OF YEAR $ 21,943     36,077     21,943     36,077  
SUPPLEMETAL DISCLOSURE OF NON CASH ACTIVITIES                        
Cash grants payable as part of Expetitle acquisition $ -     -     75     -  
Share-based compensation as part of Expetitle acquisition $ -     -     4,325     -  
Release of vested common shares from benefit trusts $ 2,107     -     3,433     -  


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

1. GENERAL INFORMATION

The Real Brokerage Inc. ("Real" or the "Company") is a technology-powered real estate brokerage firm, licensed in over 44 U.S. states, the District of Columbia, and 2 provinces in Canada with over 6,700 agents. Real offers agents a mobile focused tech-platform to run their business, as well as attractive business terms and wealth building opportunities.

The consolidated operations of Real include the wholly-owned subsidiaries of Real Technology Broker Ltd. incorporated on June 29, 2014 in Israel, Real PIPE, LLC incorporated on November 5, 2020 under the laws of the state of Delaware, Real Broker MA, LLC incorporated on July 11, 2018 under the laws of the state of Delaware, Real Broker CT, LLC incorporated on July 11, 2018 under the laws of the state of Delaware, Real Broker, LLC (formerly Realtyka, LLC) incorporated on October 17, 2014 under the laws of the state of Texas,  Real Broker Commercial LLC incorporated on July 29, 2019 under the laws of the state of Texas, The Real Title Inc. incorporated on January 1, 2021 under the laws of the state of Delaware, Real Broker BC Ltd. incorporated on February 23, 2021 in the province of British Columbia, Real Broker AB Ltd. incorporated on February 23, 2021 in the province of Alberta, and Real Broker ON Ltd incorporate on August 27 2021 in the province of Ontario.

On May 17, 2021, the TSX Venture Exchange (the "TSXV") accepted the Company's Notice of Intention to implement a normal course issuer bid ("NCIB"). Pursuant to the NCIB, the Company may, during the 12-month period commencing May 20, 2021 and ending May 20, 2022, purchase up to 7.2 million common shares of the Company ("Common Shares"), constituting approximately 5% of the total 143.4 million Common Shares issued and outstanding as of April 30, 2021.

The Company appointed CWB Trust Services (the "Trustee") as the trustee for the purposes of arranging the acquisition of Common Shares and to hold the Common Shares in trust for the purposes of satisfying restricted share unit (each, an "RSU") payments as well as deal with other administration matters. Through the Trustee, RBC Capital Markets has been engaged to undertake purchases under the NCIB. 

The Common Shares acquired will be held by the Trustee until the same are sold in the market with the proceeds to be transferred to designated participants or until the Common Shares are delivered to designated participants, in each case under the terms of the Company's equity incentive plans to satisfy the Company's obligations in respect of redemptions of vested RSUs held by such designated participants. See Note 10.D for more information. A total of 1.8 million Common Shares have been released from the trust to satisfy the Company's obligations in respect of redemptions of vested RSU held by designated participants.

On May 19, 2022, the Company announced that it renewed the NCIB to be transacted through the facilities of the NASDAQ Capital Market ("NASDAQ") and other stock exchanges and/or alternative trading systems in the United States and/or Canada (other than the TSXV), if eligible. Pursuant to the NCIB, Real may purchase up to 8.9 million Common Shares, representing approximately 5% of the total 178.3 million Common Shares issued and outstanding as of May 19, 2022.

As of September 30, 2022, the Company has repurchased 7.8 million Common Shares in the amount of $19.4 million. The purpose of the purchase of common shares under the NCIB is to enable the Company to acquire shares to satisfy the RSU Plan (see Note 10(D) for more information). The NCIB shall terminate on the earlier of May 20, 2023 and the date on which the maximum number of Common Shares purchasable under the NCIB is acquired by the Company.

On July 26, 2022, the Company's Common Shares commenced trading on the Toronto Stock Exchange (the "TSX") under the symbol "REAX". Concurrent to the graduation to the TSX, the Common Shares were voluntarily delisted from the TSXV. Trading of the Common Shares will continue on the NASDAQ under the same symbol, "REAX".


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the interim condensed 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, 2021.

A. Basis of preparation

The unaudited interim condensed consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board (IASB). The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Company's annual audited consolidated financial statements for the period ended December 31, 2021. These unaudited interim condensed consolidated financial statements were authorized for issuance by the Company's Board of Directors on November 8, 2022.

All dollar amounts are in U.S. dollars unless otherwise stated.

B. Significant judgments, estimates and assumptions

The preparation of Real's unaudited interim condensed consolidated financial statements require management to make judgments, estimates and assumptions that affect the amounts reported. In the process of applying Real's accounting policies, management was required to apply judgment in certain areas. Estimates and assumptions made by management are based on events and circumstances that existed at the unaudited interim condensed consolidated balance sheet date. Accordingly, actual results may differ from these estimates.

The significant judgments, estimates and assumptions in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Company's annual consolidated financial statements for the years ended December 31, 2021 and 2020.

3. PIPE TRANSACTION

On December 2, 2020, the Company completed an equity investment in private equity funds indirectly controlled by Insight Holdings Group, LLC (the "Insight Partners") for gross proceeds of USD $20 million (approximately CAD $26.28 million)

Insight Partners were issued 17.3 million preferred units (the "Preferred Units") of a newly and wholly owned subsidiary of the Company, Real PIPE, LLC formed under the laws of the State of Delaware, that were exchangeable into the same number of Common Shares and 17.3 million Common Share purchase warrants of the Company ("Warrants"). Each Warrant entitled the holder to subscribe and purchase one Common Share at an exercise price of $1.48 (CAD $1.90) for a period of 5 years, subject to certain acceleration terms.

On June 15, 2021, in connection with the listing of Real's common shares on the NASDAQ, Real delivered an Acceleration Notice to certain funds managed by Insight Partners providing for the acceleration of the expiry date to June 30, 2021, of an aggregate 17.3 million, previously issued Warrants. All Warrants held by Insight Partners were exercised into Common Shares for gross proceeds of $26.6 million (CAD $32.8 million) on June 28, 2021.

On August 3, 2021, Insight Partners were issued an aggregate of 17.3 million Common Shares in exchange of the Insight Partners' Preferred Units in connection with the Forced Exchange Event.

4. REALTYCRUNCH ACQUISITION

On January 11, 2021, Real completed the acquisition of the business assets and intellectual property of RealtyCrunch Inc. (the "RealtyCrunch Transaction"). The RealtyCrunch Transaction was settled in cash for an aggregate purchase price of USD $1.1 million plus 184 Warrants. Each Warrant is exercisable into one Common Share at a price of CAD $1.36 for a period of four years. In connection with the RealtyCrunch Transaction, Real also granted 2.4 million stock options ("Options"), which vest over a 4-year period. The Company has determined that the acquisition meets the definition of business combinations within the scope of IFRS 3, Business Combination and has completed the determination to allocate the price among the assets purchased and amount attributable to goodwill. The expense incurred related to the acquisition was $38 thousand for the year ended December 31, 2021.


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

The following table summarizes the fair value of the acquired assets and assumed liabilities, with reference to the acquisition as of the acquisition date (in thousands):

    Balance at January 11, 2021  
Identifiable assets acquired and goodwill      
Proprietary Technology   563  
Goodwill   602  
Total Purchase Price   1,165  
Cash Paid   1,100  
Warrants Issued   65  

We have completed the valuation of the acquired assets and assumed liabilities and have assigned $563 thousand as the fair value of the Company's developed technology and $602 thousand  as the residual goodwill.

5. SCOTT BENSON REAL ESTATE INC.

On December 3, 2021, Real completed the acquisition of the common shares of Scott Benson Real Estate Inc in Ontario, Canada. The transaction was settled in nominal cash consideration for an aggregate purchase price of one Canadian dollar. The Company has determined that the acquisition meets the definition of business combinations within the scope of IFRS 3, Business Combination and recorded an immaterial gain from bargain purchase. The Company has 12 months from the date of purchase to determine the purchase price allocation among the purchased assets and liabilities assumed and do not expect material adjustments to the bargain gain that was recognized.

6. EXPETITLE ACQUISITION

On January 21, 2022, the Company completed the acquisition of 100% of the issued and outstanding equity interests of Expetitle, Inc. ("Expetitle") pursuant to a stock purchase agreement dated January 20, 2022 (the "Expetitle Transaction"). As part of the Expetitle Transaction, the Company also acquired 51% ownership of five subsidiaries of Expetitle Inc. The noncontrolling ownership interest in these five subsidiaries of Expetitle recognized at the acquisition date was measured by reference to the fair value of the non-controlling interest and amounted to $21 thousand. The aggregate purchase price for 100% of the issued and outstanding equity interests of Expetitle was comprised from cash consideration of $7.4 million payable at the closing of the Expetitle Transaction and contingent consideration of  $800 thousand in cash subject to escrow, that will be released after twelve (12) months upon the satisfaction or waiver of the following terms and conditions: (i) the key employees remain at their current position with the Company for at least twelve (12) months after the Closing Date and (ii) Expetitle will become licenced to operate in at least fifteen states, including the current states of operation, Florida, Georgia, and Texas. As of the reporting date,  the contingent terms are met and the company remeasured  the contingent consideration accordingly. The Company recognized a liability with a corresponding expense amounting to 800K.

As part of the Expetitle Transaction, Real also granted an aggregate of 700 thousand Options and an aggregate of 1.1 million RSUs to members of the Expetitle team. The fair value of those Options was $4.8 million from which $4.3 million was determined to be part of the consideration and $451 thousand that was recorded immediately to the statement of loss and comprehensive loss as post transaction employees compensation which vests immediately.  The Options are exercisable for a period of 3 years at $3.60 per Common Share. In addition, and as part of the transaction, the Company also provided cash grants to the Expetitle employees in the amount of $168 thousand. The Company has determined that the Expetitle Transaction meets the definition of business combinations within the scope of IFRS 3, Business Combination and has 12 months from the date of purchase to determine the purchase price allocation among the assets purchased and any amounts attributable to goodwill.


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

The following table represents the recognized amounts of assets acquired and liabilities assumed, total consideration, and cash flow related to the Expetitle acquisition (in thousands):

    Balance at January 21, 2022  
Recognized amounts of assets acquired and liabilities assumed      
Cash   80  
Other Current Assets   42  
In Trust Cash   960  
Accounts Payables and Accrued Liabilities   (103 )
Held in Trust Funds   (960 )
Other Payables   (19 )
Net Assets Acquired   -  
       
Consideration      
Cash   7,432  
Contingent consideration   -  
Cash grants to Employees recognized as liabilities   75  
Cash grants to Employees   93  
Equity-settled shared-based consideration   4,325  
Total Consideration   11,925  
       
Cash Flow      
Total Consideration   (11,925 )
Acquired Cash   80  
Cash grants to Employees recognized as liabilties   75  
Equity-settled share-based payment   4,325  
From Investing Activities Cash   (7,445 )


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

7. REVENUE

In the following table, revenue (in thousands) from contracts with customers is disaggregated by major service lines as well as timing of revenue recognition.

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2022     2021     2022     2021  
Main revenue streams                        
Commissions   110,259     38,613     281,764     70,799  
Title   484     -     1,392     -  
Fee Income   620     -     1,705     -  
Other   270     185     777     403  
Total Revenue   111,633     38,798     285,638     71,202  
                         
Timing of Revenue Recognition                        
Products transferred at a point in time   111,363     38,613     284,861     70,799  
Services transferred over time   -     403     -     403  
Revenue from Contracts with Customers   111,363     39,016     284,861     71,202  
                         
Other revenue   270     (218 )   777     -  
Total Revenues   111,633     38,798     285,638     71,202  

8. EXPENSES BY NATURE

In the following table, cost of sales represents real estate commission paid to Company's agent as well as to outside brokerages in Canada and Title Fee Expenses (in thousands).

    Three Months Ended
September 30, 
    Nine Months Ended
September 30,
 
        2022     2021     2022     2021  
Cost of Sales   103,057     35,477     261,908     64,216  
                         
Operating Expenses                        
General and Administrative Expenses   5,544     2,043     17,034     7,195  
Salaries and Benefits   3,072     685     7,893     1,877  
Stock Based Compensation   184     311     2,236     2,346  
Administrative Expenses   421     380     1,243     506  
Professional Fees   1,409     535     4,380     1,936  
Depreciation Expense   87     44     225     130  
Other General and Administrative Expenses   371     88     1,057     400  
Marketing Expenses   6,197     2,154     15,613     4,018  
Salaries and Benefits   84     55     367     228  
Stock Based Compensation for Employees   12     10     (4 )   10  
Stock Based Compensation for Agents   1,776     145     2,905     624  
Revenue Share   3,876     1,324     10,955     2,282  
Other Marketing and Advertising Cost   449     620     1,390     874  
Research and Development Expenses   1,146     145     3,865     3,297  
Salaries and Benefits   426     126     1,552     620  
Stock Based Compensation   85     (1,077 )   151     1,201  
Other Research and Development   635     1,096     2,162     1,476  
Total Cost of Sales and Operating Expenses   115,944     39,819     298,420     78,726  


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

Finance Expenses

The following table summarizes details behind Finance costs (in thousands) as reported in the unaudited interim condensed consolidated Statement of Income (Loss):

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
Description       2022     2021     2022     2021  
Unrealized Losses (Gains)   (14 )   34     (399 )   244  
Realized Losses (Gains)   48     -     101     -  
Bank Fees   126     21     289     44  
Finance Cost   (6 )   (12 )   536     23  
Remeasurement of contingent consideration   800           800        
Other   -     -     -     -  
Finance Expenses, net   954     43     1,326     311  

9. LOSS PER SHARE

BASIC AND DILUTED LOSS PER SHARE

Basic loss per share is computed by dividing the loss for the period by the weighted average number of 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, if potentially dilutive common shares outstanding during the period. The Company does not pay dividends or have participating shares outstanding.

The following table outlines the number of Common Shares (in thousands) and basis and diluted loss per share:

    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
        2022     2021     2022     2021  
Issued ordinary shares at the beginning
of the period
  178,330     163,000     170,483     158,595  
Effect of Warrant Exercise   678     -     8,525     4,405  
Effect of Conversion of Preferred Units   -     2,700     -     2,700  
Effect of share options exercised   458     -     312     -  
Weighted-average numbers of
Common Shares
  179,466     165,700     179,320     165,700  
                         
Loss per share                        
Basic and diluted loss per share   (0.03 )   (0.01 )   (0.08 )   (0.05 )


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

10. SHARE-BASED PAYMENT ARRANGEMENTS

A. Description of share-based payment arrangements

Stock option plan (equity-settled)

On January 20, 2016, the Company established a stock-option plan that entitles key management personnel and employees to purchase shares in the Company. Under the stock-option plan, holders of vested options are entitled to purchase shares based for the exercise price as determined at grant date.

On February 26, 2022, the Company established an omnibus incentive plan providing for up to 20% of the issued and outstanding Common Shares as of the date thereof (being 35.6 million Common Shares, less Common Shares previously outstanding under other equity inventive plans) to be issued as RSUs or Options to directors, officers, employees, and consultants of the Company (the "Omnibus Incentive Plan"). The Omnibus Incentive was approved by shareholders of the Company on June 13, 2022.

In connection with the graduation to the TSX, the Company amended it's Omnibus Incentive Plan (the "A&R Plan") on July 13,2022.  Pursuant to the A&R Plan, the maximum number of Common Shares issuable pursuant to outstanding Options at anytime shall be limited to 15% of the aggregate number of issued and outstanding Common Shares as of the date the applicable Award Date less the number of Common Shares issuable pursuant to Options under the A&R Plan or any other security based compensation arrangement of the Company. The A&R Plan provides that the maximum number of Common Shares issuable pursuant to RSUs shall not be restricted.

The following table depicts the the number of instruments granted (in thousands):

Grant Date Number of
Instruments
Vesting Conditions Contractual Life
of Options
Balance December 31, 2020 13,813    
On January, 2020 60 25% on first anniversary, then quarterly vesting 10 years
On March, 2020 244 immediate 10 years
On March, 2020 100 quarterly vesting 10 years
On March, 2020 250 25% on first anniversary, then quarterly vesting 10 years
On January, 2021 2,441 25% immediately, 25% on first anniversary, then quarterly vesting 10 years
On January, 2021 165 25% on first anniversary, then quarterly vesting 10 years
On January, 2021 1,670 quarterly vesting 10 years
On March, 2021 241 25% on first anniversary, then quarterly vesting 10 years
On March, 2021 114 quarterly vesting 10 years
On May, 2021 190 25% on first anniversary, then quarterly vesting 10 years
On May, 2021 705 3 years quarterly 10 years
On August, 2021 65 25% on first anniversary, then quarterly vesting 10 years
On August, 2021 450 quarterly vesting 10 years
On November, 2021 1,220 25% on first anniversary, then quarterly vesting 10 years
On November, 2021 559 3 years quarterly 10 years
Balance December 31, 2021 22,287    
       
On March, 2022 240 3 years quarterly vest 10 years
On May, 2022 320 3 years quarterly vest 10 years
On August, 2022 4,000 25% on first anniversary, then quarterly vesting 10 years
On August, 2022 145 3 years quarterly vest 10 years
Balance September 30, 2022 26,992    

B. Measurement of fair value

The fair value of the Options has been measured using the Black-Scholes formula which was also used to determine the Company's share value. Service and non-market performance conditions attached to the arrangements were not considered in measuring fair value. The inputs used in the measurement of the fair value at the grant and measurement date were as follows:


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED


    September 30, 2022     December 31, 2021  
Share price $ 1.44   $ 3.69  
Exercise price $ 1.54 to $2.45   $ 0.87 to $3.40  
Expected volatility (weighted-average)   108.0%     156.0%  
Expected life (weighted-average)   10 years     10 years  
Expected dividends   - %     - %  
Risk-free interest rate (based on US government bonds)   1.95 - 2.56%     1.45%  

Expected volatility has been based on an evaluation of historical volatility of the company's share price.

C. Reconciliation of outstanding stock-options

The following table outlines the number of options (in thousands) and weighted-average exercise price:

    September 30, 2022     December 31, 2021  
    Number of
Options
    Weighted-
Average
Exercise Price
    Number of
Options
    Weighted-
Average
Exercise Price
 
Outstanding at beginning of year   20,815   $ 0.81     12,851   $ 0.27  
Granted   4,705     1.61     8,474     1.70  
Forfeited/ Expired   (1,725 )   (1.78 )   (370 )   -  
Exercised   (250 )   (0.27 )   (140 )   (0.13 )
Outstanding at end of period   23,545   $ 0.89     20,815   $ 0.71  
Exercisable as at end of period   12,857           10,295        

The Options outstanding as of September 30, 2022 had a weighted average exercise price of $0.89 (December 31, 2021: $0.71) and a weighted-average contractual life of 10 years (December 31, 2021: 10 years).

D. Restricted share unit plan

Restricted share unit plan

On September 21, 2020, the Company established a restricted share unit plan (the "RSU Plan"). Under the RSU Plan agents are eligible to receive RSUs that, upon vesting, entitle the holder to a Common Share or cash payment in lieu of a Common Share. The RSUs are earned in recognition of personal performance and ability to attract agents to Real. The expense recognized in relation to these awards for the period ended September 30, 2022 was $3.0 million. The stock compensation attributable to agent growth was classified as marketing expense. The stock compensation award granted to FTEs was classified as a General and Administrative expense on the unaudited interim condensed consolidated statements of loss and comprehensive loss.

RSUs awarded in the agent incentive program purchase plan are based on a percentage of commission withheld to purchase Common Shares. These RSUs are expensed in the period in which those awards are deemed to be earned with a corresponding increase in liability. All awards under this plan are subject to a 12-month vesting period. The liability will be classified into equity after the 12-month holding period has passed. Agents pay the Company 15% of commissions until the commission paid to the Company totals $12,000, which is defined as the agent "cap" amount (the "Cap"). The Company granted an additional 25% of shares if an agent hasn't capped and 50% of shares if the agent has capped as a bonus after the 12-month vesting period has passed. The bonuses were adjusted to 15% pre-Cap and 30% post-cap when the Company surpassed the 5,000 agents milestone on June 16, 2022. The bonus RSUs are expensed in the period the original award is deemed earned with a corresponding increase in stock-based compensation reserve.

RSUs awarded for personal performance and the ability to attract agents earned in recognition of personal performance conditions and are subject to a 3-year vesting period. The Company recognizes this expense during the applicable vesting period based upon the best available estimate of the number of equity instruments expected to vest with a corresponding increase in stock-based compensation reserve.


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

The following table illustrates changes in the Company's stock compensation liability for the periods presented in thousands:

    Amount  
Balance at, December 31, 2020   15  
Stock Grant Liability Increase   2,482  
Stock Grants Released from liability to equity   (229 )
Balance at, December 31, 2021   2,268  
Stock Grant Liability Increase   8,819  
Stock Grants Released from liability to equity   (3,165 )
Balance at, September 30, 2022   7,922  

The following table illustrates the Company's stock activity (in thousands) for the restricted share unit plan.

    Amount  
Balance at, December 31, 2020   121  
Granted   3,951  
Vested and Issued   (76 )
Forfeited   (31 )
Balance at, December 31, 2021   3,965  
Granted   9,736  
Vested and Issued   (1,570 )
Forfeited   (424 )
Balance at, September 30, 2022   11,707  

Stock Based Compensation Expense

The following table provides a detailed breakdown of the stock-based compensation expense (in thousands) as reported in the Consolidated Statement of Loss and Comprehensive Loss.

    September 30, 2022     September 30, 2021  
    Options
Expense
    RSU
Expense
    Total     Options
Expense
    RSU
Expense
    Total  
Marketing Expenses - Agent Stock Based Compensation   871     2,034     2,905     624     532     1,156  
Marketing Expenses - FTE Stock Based Compensation   (9 )   5     (4 )   10     -     10  
Research and Development - FTE Stock Based Compensation   68     83     151     1,201     -     1,201  
General and Administrative - FTE Stock Based Compensation   1,394     842     2,236     2,346     -     2,346  
Total Stock Based Compensation   2,324     2,964     5,288     4,181     532     4,713  

11. CASH AND CASH EQUIVALENTS

The following table provides a detailed breakdown of the cash and cash equivalents (in thousands) as reported in the Consolidated Statements of Financial Positions:

    September 30, 2022     December 31, 2021  
Cash and Cash Equivalents   21,943     29,082  
Total Cash and Cash Equivalents   21,943     29,129  


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

12. 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   Cost     Deposit /
(Withdrawal)
    Dividends,
Interest &
Income
    Gross
Unrealized
Losses
    Estimated
Fair Value
September 30,
2022
 
U.S. Government Bonds   5,033     (6 )   91     (214 )   4,904  
Municipal Bonds   2,900     1,277     34     (204 )   4,007  
Alternative Strategies   878     -     -     (39 )   839  
Investment Certificate   -     36     -     -     36  
Short Term Investments   8,811     1,307     125     (457 )   9,786  

Investment securities are recorded at fair value. The company's investment securities portfolio consists primarily of cash investments and debt securities issued by U.S government agencies, local municipalities, and certain corporate entities. Alternative strategies include number of securities such as Bank Loans, Treasury Notes, Treasury futures, Currencies, FX Forwards, FX Futures, FX Swap, Corporate Debt, Federal Reserve Repos and mortgage-backed securities. The products in investment portfolio have maturity dates ranging from less than one year to over 20 years. All the instruments above have maturity date of over 90 days.

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 Income (Loss). An unrealized loss exists when the current fair value of an individual security is less than the amortized cost basis


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

13. PROPERTY AND EQUIPMENT, INTANGIBLE ASSETS

Reconciliation of Carrying Amounts (in thousands)

      Computer
Equipment
     
Software
    Furniture and
Equipment
     
Total
 
Cost                          
Balance at December 31, 2020     33     -     69     102  
Additions     172     -     -     172  
Balance at December 31, 2021     205     -     69     274  
Additions     246     681     -     927  
Balance at September 30, 2022     451     681     69     1,201  
Accumulated Depreciation                          
Balance at December 31, 2020     24     -     64     88  
Depreciation     15     -     1     16  
Balance at December 31, 2021     39     -     65     104  
Depreciation     53     25     -     78  
Balance at September 30, 2022     92     25     65     182  
                           
Carrying Amounts                          
Balance at December 31, 2021     166     -     4     170  
Balance at September 30, 2022     359     656     4     1,019  

       
Intangible Assets
     
Goodwill
     
Total
 
Cost                    
Balance at December 31, 2020     -     -     -  
Additions     563     602     1,165  
Balance at December 31, 2021     563     602     1,165  
Additions     -     11,925     11,925  
Balance at September 30, 2022     563     12,527     13,090  
Accumulated Depreciation                    
Balance at December 31, 2020     -     -     -  
Depreciation     113     -     113  
Balance at December 31, 2021     113     -     113  
Depreciation     84     -     84  
Balance at September 30, 2022     197     -     197  
                     
Carrying Amounts                    
Balance at December 31, 2021     451     602     1,053  
Balance at September 30, 2022     366     12,527     12,893  


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

14. CAPITAL AND RESERVES

Share capital and share premium

All Common Shares rank equally with regards to the Company's residual assets. Preference shareholders participate only to the extent of the face value of the shares. The following table is presented in thousands:

    Share Premium     Non-controlling Interests     Non-redeemable Preference Shares  
    September 30, 2022     December 31, 2021     September 30, 2022     December 31, 2021     September 30, 2022     December 31, 2021  
In issue at beginning
of year
  50,753     21,668     -     14,818     -     -  
Issued for cash   -     26,475     -     -     -     -  
Conversion   -     14,818     -     (14,818 )   -     -  
Exercise of stock options   73     207     -     -     -     -  
Acquisition of
common shares for
RSU Plan
  (6,911 )   (12,644 )   -     -     -     -  
Release of vested
common shares from
employee benefit trusts
  3,433     229     -     -     -     -  
Non-controlling interest   -     -     213     -     -     -  
In issue at end of year
- fully paid
  47,348     50,753     213     -     -     -  
 
Authorized shares
  Unlimited     Unlimited     Unlimited     Unlimited     66,000     66,000  


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

Share Consolidation and Share Split

On May 26, 2021, the Company consolidated all of its issued and outstanding Common Shares on the basis of one (1) post-consolidation Common Share for each four (4) pre-consolidation Common Shares.

On July 12, 2021, the Company implemented a forward split of all of its issued and outstanding Common Shares on the basis of four (4) post-split Common Shares for each one (1) pre-split Common Share.

Non- controlling interests

On December 2, 2020, the Company completed the Insight Partners investment whereby a wholly owned subsidiary of the Company issued 17.3 million Preferred Units at a price of $1.19 (CAD $1.52) per Preferred Unit. The Company also issued 17.3 million Warrants, each exercisable into one Common Share at a price of $1.48 (CAD $1.9)

On June 28, 2021, all Warrants held by the Insight Partners were exercised for an aggregate gross price of $26.6 million (CAD $32.8 million)

On August 3, 2021, the Insight Partners were issued an aggregate of 17.3 million Common Shares in the exchange of all of the Preferred Units.

On January 21, 2022, the Company completed the acquisition of 100% of the issued and outstanding equity interests of Expetitle. As part of this transaction, the company also acquired non-controlling interest of $21 thousand which includes the income/ (loss) allocated to non- controlling interest holders of certain subsidiaries of Expetitle.

15. CAPITAL MANAGEMENT

Real defines capital as its equity. It is comprised of Common Shares, contributed capital, retained deficit, and accumulated other comprehensive loss. The Company's capital management framework is designed to maintain a level of capital that funds the operations and business strategies and builds long-term shareholder value.

The Company's objective is to manage its capital structure in such a way as to diversify its funding sources, while minimizing its funding costs and risks. The Company expects to be able to satisfy all of its financing requirements through use of some or all of the following: cash on hand, cash generated by operations, sale of securities held for investment, and through the public and private offerings of equity securities.

Real's objective is met by retaining adequate liquidity to provide the possibility that cash flows from its assets will not be sufficient to meet operational, investing and financing requirements. There have been no changes to the Company's capital management policies during the periods ended September 30, 2022 and December 31, 2021.

The following table presents the Company's liquidity (in thousands):

    For the Period Ended  
    September 30, 2022     December 31, 2021  
Cash and Cash Equivalents   21,943     29,082  
Restricted Cash   -     47  
Trade Receivables   783     254  
Other Receivables   74     23  
Short Term Investments   9,786     8,811  
Total Liquidity   32,586     38,217  
Loans and Borrowings   -     -  


THE REAL BROKERAGE, INC.
NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED SEPTEMBER 30, 2022 and 2021
UNAUDITED

16. LEASE LIABILITY AND RIGHT OF USE ASSET

The Company leases corporate office in New York, NY under a lease agreement dated December 1, 2017, which expires on June 30, 2023. A summary of the changes in the right-of-use asset (in thousands) for the periods ended September 30, 2022, and December 31, 2021 is as follows:

    Right-of-Use Asset  
Cost      
Balance at December 31, 2020   502  
Additions   -  
Balance at December 31, 2021   502  
Additions   -  
Balance at September 30, 2022   502  
Accumulated Depreciation      
Balance at December 31, 2020   309  
Depreciation   84  
Balance at December 31, 2021   393  
Depreciation   63  
Balance at September 30, 2022   456  
       
Carrying Amounts      
Balance at December 31, 2021   109  
Balance at September 30, 2022   46  

On December 1, 2017, the Company entered into lease agreement which resulted in the lease liability of $131 thousand (undiscounted value of $135 thousand, discount rate 4%). This liability represents the monthly lease payment from January 1, 2022 to June 30, 2023. A summary of the changes in the lease liability (in thousands) during the periods ended September 30, 2022, and December 31, 2021 is as follows:

    September 30, 2022     December 31, 2021  
Maturity analysis - contractual undiscounted cash flows            
Less than one year   63     94  
One year to five years   -     41  
More than five years   -     -  
Total undiscounted lease liabilities   63     135  
Lease liabilities included in the balance sheet