UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from _____to_____
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller reporting company | |||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of May 15, 2024, the registrant had
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
| March 31, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Total current assets | ||||||||
| Noncurrent assets: | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other long-term assets | ||||||||
| Total noncurrent assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Contract liabilities | ||||||||
| Derivative liability | ||||||||
| Advances on future receipts | ||||||||
| Accrued acquisition cash consideration | ||||||||
| Notes payable, current | ||||||||
| Lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Noncurrent liabilities: | ||||||||
| Note payable, net of current | ||||||||
| Security deposits payable | ||||||||
| Lease liability, noncurrent | ||||||||
| Other liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - $ | ||||||||
| Common stock - $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity – La Rosa Holdings Corp. shareholders | ||||||||
| Noncontrolling interest in subsidiaries | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
1
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Sales and marketing | ||||||||
| General and administrative | ||||||||
| Stock-based compensation — general and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Change in fair value of derivative liability | ( | ) | ||||||
| Other income, net | ||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ||||
| Benefit from income taxes | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Less: Net loss attributable to noncontrolling interests in subsidiaries | ( | ) | ||||||
| Net loss after noncontrolling interest in subsidiaries | ( | ) | ( | ) | ||||
| Less: Deemed dividend | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
| Loss per share of common stock attributable to common stockholders | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average shares used in computing net loss per share of common stock attributable to common stockholders | ||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
2
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
| Preferred Stock | Additional | Total | Noncontrolling | |||||||||||||||||||||||||||||||||
| Three Months Ended | Series X | Common Stock | Paid-In | Accumulated | Stockholders’ | Interest In | Total | |||||||||||||||||||||||||||||
| March 31, 2024 | Shares | Par | Shares | Amount | Capital | Deficit | Equity | Subsidiaries | Equity | |||||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Issuance of common stock for acquisitions | ||||||||||||||||||||||||||||||||||||
| Equity awards issued with debt issuance | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for equity awards, net of shares withheld for taxes | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance as of March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Three Months Ended | Preferred Stock Series A | Preferred Stock Series X | Common Stock | Additional Paid-In | Accumulated | Total | ||||||||||||||||||||||||||||||
| March 31, 2023 | Shares | Par | Shares | Par | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||
| Balance as of December 31, 2022 | — | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of preferred stock | ||||||||||||||||||||||||||||||||||||
| Extinguishment of derivative liability related to exchange of convertible and related party debt | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Shares issued under employee agreements | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Amortization and deprecation | ||||||||
| Change in fair value of derivatives | ( | ) | ||||||
| Amortization of debt discount and financing fees | ||||||||
| Non-cash interest expense | ||||||||
| Provision for credit losses | ||||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Contract liabilities | ||||||||
| Security deposits payable | ||||||||
| Operating lease liabilities | ( | ) | ||||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash acquired through acquisition of businesses | ||||||||
| Net Cash Provided by Investing Activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Borrowings on bank line of credit | ||||||||
| Payments on bank line of credit | ( | ) | ||||||
| Proceeds from notes payable | ||||||||
| Deferred debt issuance costs | ( | ) | ||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Payments on advances on future receipts | ( | ) | ||||||
| Payments on post-acquisition consideration | ( | ) | ||||||
| Payments related to the public offering | ( | ) | ||||||
| Payments to related party | ( | ) | ||||||
| Issuance of preferred stock | ||||||||
| Withholding tax paid on behalf of employees on stock-based awards | ( | ) | ||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase in Cash and Restricted Cash | ||||||||
| Cash and Restricted Cash at Beginning of Period | ||||||||
| Cash and Restricted Cash at End of Period | $ | $ | ||||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash Paid During the Period for: | ||||||||
| Interest | $ | $ | ||||||
| Taxes | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Derivative liability embedded in debt instruments | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Convertible debt and related party debt exchanged for | $ | $ | ||||||
| Increase in accounts payable related to deferred offering costs | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Office leases acquired under operating lease obligations | $ | $ | ||||||
| Reconciliation of Cash and Restricted Cash | ||||||||
| Cash | $ | $ | ||||||
| Restricted Cash | ||||||||
| Cash and Restricted Cash | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The Company has made estimates and judgements affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited and reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to the Company’s going concern assessment. The carrying amounts of assets and liabilities presented in the unaudited condensed financial statements do not necessarily purport to represent realizable or settlement values.
The unaudited condensed consolidated financial statements include the financial statements of the Company, all entities that are wholly-owned by the Company, and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated. Business combinations consummated during the reporting period are reflected in the Company’s results effective from the date of acquisition through the end of the reporting period.
Results of the three-month period ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the Company as of and for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K. The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited financial statements referred to above.
Liquidity – Going Concern and Management’s Plans
On
March 31, 2024, the Company had a cash balance of $
On
April 1, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a
The Company is subject to the risks and challenges associated with companies at a similar stage of development. These include dependence on key individuals, successful development and marketing of its offerings, and competition with larger companies with greater financial, technical, and marketing resources. Furthermore, during the period required to achieve substantially higher revenue in order to become profitable, the Company will require additional funds that might not be readily available or might not be on terms that are acceptable to the Company. Until such time that the Company fully implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company. As such, the Company anticipates that its existing working capital, including cash on hand, and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements. The Company will be required to raise additional capital to service its promissory notes, to repay the principal balance of each of the notes, and to fund ongoing operations.
The Company has incurred recurring net losses, and the Company’s operations have not provided net positive cash flows. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company plans on continuing to expand via acquisition, which will help achieve future profitability, and the Company has plans to raise capital from outside investors, as it has done in the past, to fund operating losses and to provide capital for further business acquisitions. There can be no assurance the Company can successfully raise the capital needed.
Reclassifications
Certain items in the prior period’s condensed consolidated financial statements have been reclassified to conform to the current year presentation reflected in the financial statements. Specifically, stock-based compensation was separated from general and administrative expenses on the condensed consolidated statements of operations.
5
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
Recently Adopted Accounting Standards
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for the Company in the fiscal year beginning after December 15, 2023. The Company adopted the standard beginning in fiscal year 2024. The adoption did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. ASU 2023-06 will become effective for each amendment on the effective date of the SEC’s corresponding disclosure rule changes. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The ASU is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the ASU to determine its impact on the Company’s segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. The ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently evaluating the ASU to determine its impact on the Company’s income tax disclosures.
Note 2 — Business Combinations
The Company has completed a number of acquisitions in the first quarter of 2024 and will acquire additional businesses in the future. The results of businesses acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity, or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies.
To date, the assets acquired and liabilities assumed in the Company’s business combinations have primarily consisted of goodwill and finite-lived intangible assets, consisting primarily of franchise agreements, agent relationships, real estate listings, non-compete agreements, and right-of-use assets. The estimated fair values and useful lives of identifiable intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, the nature of the business acquired, and the specific characteristics of the identified intangible assets. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with the determination of fair values, the Company engages independent appraisal firms to assist with the valuation of intangible assets acquired and certain assumed obligations.
Transaction costs associated with business combinations are expensed as incurred.
6
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
During the first quarter of 2024, the Company
acquired majority ownership of the following franchisees of the Company: La Rosa Realty Georgia LLC (“Georgia”) and La Rosa
Realty California (“California”), and
| Winter Garden | Georgia | California | Total | |||||||||||||
| Acquired ownership | % | % | % | |||||||||||||
| Acquisition date | ||||||||||||||||
| Common stock issued | ||||||||||||||||
| Equity consideration — purchase price | $ | $ | $ | $ | ||||||||||||
| Noncontrolling interest | ||||||||||||||||
| Acquisition date fair value | $ | $ | $ | $ | ||||||||||||
| Purchase price allocation | $ | $ | $ | |||||||||||||
| Less fair value of net assets acquired: | ||||||||||||||||
| Cash | ||||||||||||||||
| Working capital (less cash) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Intangible identifiable assets | ||||||||||||||||
| Long-term assets | ||||||||||||||||
| Long-term liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| Net assets acquired | ||||||||||||||||
| Goodwill | $ | $ | $ | $ | ||||||||||||
Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through expansion and is not expected to be deductible for income tax purposes.
| Winter Garden | Georgia | California | Total | |||||||||||||
| Franchise agreement (10 to 11 years) | $ | $ | $ | $ | ||||||||||||
| Agent relationships (8 to 11 years) | ||||||||||||||||
| Real estate listings (1 year) | ||||||||||||||||
| Non-compete agreements (4 years) | ||||||||||||||||
| Total identifiable intangible assets acquired | $ | $ | $ | $ | ||||||||||||
| Three Months Ended | ||||
| March 31, 2024 | ||||
| Revenue | $ | |||
| Cost of revenue | $ | |||
| Gross profit | $ | |||
| Loss before provision for income taxes | $ | ( | ) | |
The following unaudited pro forma financial information presents the combined operating results of the Company, Winter Garden, Georgia, and California, as if each acquisition had occurred as of January 1, 2023. The unaudited pro forma financial information includes the accounting effects of the business combinations, including adjustments to the amortization of intangible assets. The unaudited pro forma information does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of the Company’s future consolidated results.
7
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | $ | $ | ||||||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | ( | ) | |||
| Weighted average shares used in computing net loss per share of common stock attributable to common stockholders | ||||||||
Note 3 — Assets
Accounts Receivable and Allowance for Credit Losses
The Company’s trade accounts receivable consist of balances due from agents, tenants, franchisees, and commissions for closings and are presented on the condensed consolidated balance sheet, net of the allowance for credit losses. The allowance is determined by a number of factors, including age of the receivable, current economic conditions, historical losses, and management’s assessment of the financial condition of the debtor. Receivables are written off once they are deemed uncollectible, which may arise when the debtor is deemed unable to pay the amounts owed to the Company. The allowance for credit Estimates of uncollectible accounts receivable is recorded to general and administrative expense.
Intangible Assets
Intangible assets consist of franchise agreements,
agent relationships, real estate listings, and non-compete agreements, and are initially recorded at fair value. Long-lived intangible
assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed
or amortized on a straight-line basis if such pattern cannot be reliably determined. The Company continues to assess potential triggering
events related to the value of its intangible assets and concluded that there were
| Weighted Average Remaining | March 31, 2024 | December 31, 2023 | ||||||||||||||||||||||||||
| Amortization Period | Gross Carrying | Accumulated | Net | Gross Carrying | Accumulated | Net | ||||||||||||||||||||||
| (in years) | Amount | Amortization | Amount | Amount | Amortization | Amount | ||||||||||||||||||||||
| Franchise agreement | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Agent relationships | ||||||||||||||||||||||||||||
| Real estate listings | ||||||||||||||||||||||||||||
| Non-compete agreements | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
8
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| March 31, | |||||
| 2024 | |||||
| 2024 – remainder of year | $ | ||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| 2028 | |||||
| Thereafter | |||||
| Total | $ | ||||
Note 4 — Liabilities
Fair Value Measurements
Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classified certain liabilities based on the following fair value hierarchy:
| ● | Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
| ● | Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and |
| ● | Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.
The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses reflected in the condensed consolidated financial statements approximate fair value due to their short-term maturities.
The Company determined that on March 31, 2024 the first warrant qualified as a derivative liability and was recorded at fair value on the date of issuance and will be re-measured at fair value each reporting period with the change reported in earnings.
9
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Derivative liability (See Note 5) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| 2024 | 2023 | |||||||
| Balance – January 1, | $ | $ | ||||||
| Issuance of derivative liability | ||||||||
| Extinguishment of derivative liability | ( | ) | ||||||
| Change in fair market value | ( | ) | ||||||
| Balance – March 31, | $ | $ | ||||||
The fair value of the derivative liability was computed using
the Black Scholes model both when issued and on the balance sheet date. To determine the fair value, the Company incorporated transaction
details such as the price of the Company’s common stock, contractual terms, maturity, and risk-free rates, as well as assumptions
about future financings, volatility, probability of contingencies, and holder behavior.
| February 20, | March 31, | |||||||
| 2024 | 2024 | |||||||
| Weighted average fair value | $ | | $ | |||||
| Dividend yield | ||||||||
| Expected volatility factor | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected life (in years) | ||||||||
Contract Liabilities and Performance Obligations
Contract liabilities consist of unsatisfied performance
obligations related to annual dues received at the start of the calendar year. As of March 31, 2024, the Company has approximately $
Note 5 — Borrowings
Line of Credit
The Company has a line of credit with Regions
Bank that allows for advances up to $
Economic Injury Disaster Loans
During the fourth quarter of 2023, the Company
acquired
10
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Economic Injury Disaster Loans | $ | $ | ||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Notes payable, net of current | $ | $ | ||||||
| March 31, | ||||
| 2024 | ||||
| 2024 – remainder of year | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
Convertible Note
On February 20, 2024, the Company entered into a securities purchase
agreement with an accredited investor for the issuance of a senior secured promissory note with an aggregate principal amount of $
11
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
The Company evaluated the terms of the securities purchase agreement and determined that the commitment shares and both warrants are freestanding instruments. The Company determined the commitment shares are classified as equity, which are initially recorded at fair value with no subsequent remeasurement. The Company determined that the first warrant is classified as a derivative liability, which is initially recorded at fair value with changes in fair value recorded in earnings. The second warrant and certain terms within the debt note are contingent upon certain possible events. The Company determined that the contingencies are not probable and, as such, are not recorded as contingent liabilities.
The Company incurred issuance costs that were directly attributable
to issuing the debt instrument in the amount of $
| March 31, | ||||
| 2024 | ||||
| Principal amount | $ | |||
| Unamortized debt discount | ( | ) | ||
| Net carrying value | $ | |||
The debt discount is reflected as a reduction
on the outstanding liability and is being amortized as non-cash interest expense using the effective interest method over the term of
the agreement. The Company accrued interest on the note totaling $
Cash Advance Agreement
On July 3, 2023, the Company entered into a standard
merchant cash advance agreement (the “Cash Advance”) with Cedar Advance LLC (“Cedar”) for the purchase and sale
of future receipts pursuant to which the Company sold in the aggregate $
12
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
Note 6 — Commitments and Contingencies
Leases
The Company has operating leases for office space
in several states. Lease terms are negotiated on an individual basis. Generally, the leases have initial terms ranging from
The Company leases its corporate office from an entity controlled by the Company’s CEO. In addition, some of the entities acquired in the fourth quarter of 2023 and the first quarter of 2024 lease their offices from their former owners, who now hold a minority interest in those entities.
Lease costs for the three-month periods ended March 31, 2024 and
2023 were $
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | ||||||
| Right-of-use assets obtained in exchange for lease liabilities | $ | $ | ||||||
During the first quarter of 2024, the Company acquired three franchisees,
two of which had remaining lease terms beyond twelve months, resulting in an increase of $
| March 31, | December 31, | |||||||
| 2024 | 2023 | |||||||
| Assets: | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Lease liability, current | $ | $ | ||||||
| Lease liability, noncurrent | ||||||||
| $ | $ | |||||||
The Company’s leases do not provide a readily
determinable implicit discount rate. The Company estimates its incremental borrowing rate as the discount rate based on the information
available at lease commencement. The weighted average discount rate is
13
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| March 31, | ||||
| 2024 | ||||
| 2024 – remainder of year | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total minimum lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease obligations | ||||
| Less: current portion | ( | ) | ||
| Long-term portion of lease obligations | $ | |||
There were no leases with residual value guarantees.
Legal Proceedings
From time to time the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of business. Such litigation and other proceedings may include, but are not limited to, actions relating to employment law and misclassification, intellectual property, commercial or contractual claims, brokerage or real estate disputes, or other consumer protection statutes, ordinary-course brokerage disputes like the failure to disclose property defects, commission disputes, and vicarious liability based upon conduct of individuals or entities outside of the Company’s control, including agents and third-party contractor agents. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur.
On February 13, 2023, Mr. Mark Gracy, who served
as the Company’s Chief Operating Officer from November 18, 2021 to November 15, 2022, filed a civil lawsuit in the Circuit Court
of Osceola County, Florida, seeking a jury trial and claiming that the Company breached his employment agreement by reducing his salary
and failing to pay him his full severance payments and is looking for payment of his alleged severance of $
On September 5, 2023, Mr. Anthony Freites, who was an alleged independent contractor of La Rosa Realty, LLC from January 13, 2013 until June of 2021, filed an amended complaint in the Circuit Court of Osceola County, Florida, seeking a jury trial and claiming that the Company breached his contract and is looking for payment of commissions on alleged closed real estate sales as an independent contractor in the amount unspecified but allegedly including actual damages, compensatory damages, attorney’s fees, costs, and prejudgment interest. On October 12, 2023, the Company filed a motion to dismiss Mr. Freites’ complaint, which is still pending.
14
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
On January 3, 2024, Ms. Sarah Palmer filed a putative national class action complaint against La Rosa Realty, LLC in the United States District Court, Middle District of Florida, Orlando Division. Ms. Palmer alleges that she received two (2) brief pre-recorded calls one week apart to her cell phone from La Rosa Realty, LLC presenting her an employment opportunity as a real estate agent. Ms. Palmer seeks an undisclosed amount of monetary damages from La Rosa Realty, LLC for the alleged would-be injurious, isolated and opportunistic employment gestures to her through a purported nationwide class action. Ms. Palmer claims that the defendant violated her privacy, annoyed and harassed her, constituted a nuisance, and occupied her telephone line. On March 12, 2024 La Rosa Realty, LLC filed a motion to dismiss the case with prejudice, which is still pending.
The Company believes that the above claims are without merit, and it will vigorously defend against such claims. Moreover, these claims, in the aggregate, would not have a material adverse effect on the Company’s financial condition, business, or results of operations, should the Company’s defense not be successful in whole or in part. Except as stated herein, there is no other action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers, threatened against or affecting our Company or our officers or directors in their capacities as such.
Note 7 — Warrants
Warrants are issued to consultants as compensation
or as part of certain capital raises which entitle the holder to purchase shares of the Company’s common stock at a fixed price.
As of March 31, 2024, the Company’s stock price was $
Warrants issued to two investors who loaned money to the Company, Emmis
Capital II, LLC and the Company’s CEO, Joseph La Rosa, on November 14, 2022 and December 2, 2022, respectively, included full ratchet
antidilutive protections. The original warrants each covered
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number | Exercise | Life | Intrinsic | |||||||||||||
| of Shares | Price | (in years) | Value | |||||||||||||
| Vested | $ | $ | ||||||||||||||
| Expected to vest | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
15
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance — December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Balance — March 31, 2024 | $ | |||||||
On February 20, 2024, the Company entered
into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note. As part of
the transaction, the Company issued two warrants, the first gives the investor the option to purchase
Under an agreement between the Company and the
Company’s underwriter, Alexander Capital, the Company issued a warrant to Alexander Capital as a result of the issuance of the promissory
note on February 20, 2024. The holder of the warrant has the right to purchase
As of March 31, 2024 and December 31, 2023, there was no unrecognized expense related to warrants.
The valuation methodology used to determine the fair value of the warrants was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrant.
Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility is an average of the historical volatility of peer entities over the shorter of i) the period equal to the expected life of the award or ii) the period over which the peer company was publicly traded. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the award at the grant date.
| March 31, | ||||
| 2024 | ||||
| Weighted average fair value | $ | |||
| Dividend yield | ||||
| Expected volatility factor | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
16
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
Note 8 — Stockholders’ Equity
Common Stock Issuances
On February 20, 2024, the Company entered into a securities purchase
agreement with an accredited investor for the issuance of a senior secured promissory note. As part of the transaction, the Company issued
In February 2024, the Company executed a service
agreement with a service provider for efforts to initiate the Company’s brokerage business in Texas. The Company issued
In September 2023, the Company executed a consulting agreement with
a service provider to supply certain investor relations services post-IPO. The Company extended the agreement in March 2024 and issued
During the first quarter of 2024, the
Company purchased three of the Company’s franchises. The purchase price for all three entities were settled by the issuance of
an aggregate of
Stock Option Awards
For the three-month periods ended March 31, 2024 and 2023, the Company
recorded stock-based compensation for employees and directors awards of $
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number | Exercise | Life | Intrinsic | |||||||||||||
| of Shares | Price | (in years) | Value | |||||||||||||
| Vested | $ | $ | ||||||||||||||
| Expected to vest | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| Weighted | ||||||||
| Average | ||||||||
| Number | Exercise | |||||||
| of Shares | Price | |||||||
| Balance — December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Balance — March 31, 2024 | $ | |||||||
17
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| March 31, | ||||
| 2024 | ||||
| Weighted average fair value | $ | |||
| Dividend yield | ||||
| Expected volatility factor | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
As of March 31, 2024, unrecognized compensation
expense related to stock option awards totaled $
Restricted Stock Units
On February 1, 2024, a Restricted Stock Unit (“RSU”)
covering
For the three-month periods ending March 31, 2024 and 2023, the Company
recorded $
Note 9 — Earnings Per Share
Basic loss per share of common stock
attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average
number of shares of common stock outstanding during the period. Diluted loss per share of common stock attributable to common
stockholders is computed by giving effect to all potential shares of common stock, including those related to the Company’s
outstanding warrants, options and RSUs, to the extent dilutive. For all periods presented, these potential shares were excluded from
the calculation of diluted loss per share because their inclusion would be anti-dilutive. As a result, diluted loss per common share
is the same as basic loss per common share for all periods presented. Two outstanding warrants covering the Company’s common
stock included full ratchet antidilutive features. The features were triggered during the first quarter of fiscal year 2024,
reducing the strike price for both warrants from $
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Restricted stock units | ||||||||
| Future equity shares | ||||||||
| Total | ||||||||
18
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
Note 10 — Segments
The
Company’s business is organized into five material reportable segments which aggregate
| 1) | Real Estate Brokerage Services (Residential) |
| 2) | Franchising Services |
| 3) | Coaching Services |
| 4) | Property Management |
| 5) | Real Estate Brokerage Services (Commercial) |
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Revenue by segment | ||||||||
| Real estate brokerage services (residential) | $ | $ | ||||||
| Franchising services | ||||||||
| Coaching services | ||||||||
| Property management | ||||||||
| Real estate brokerage services (commercial) | ||||||||
| $ | $ | |||||||
| Cost of goods sold by segment | ||||||||
| Real estate brokerage services (residential) | $ | $ | ||||||
| Franchising services | ||||||||
| Coaching services | ||||||||
| Property management | ||||||||
| Real estate brokerage services (commercial) | ||||||||
| $ | $ | |||||||
| Gross profit by segment | ||||||||
| Real estate brokerage services (residential) | $ | $ | ||||||
| Franchising services | ||||||||
| Coaching services | ||||||||
| Property management | ||||||||
| Real estate brokerage services (commercial) | ||||||||
| $ | $ | |||||||
19
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited
Condensed Consolidated Financial Statements
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2024 | 2023 | |||||||
| Performance obligations satisfied at a point in time | $ | $ | ||||||
| Performance obligations satisfied over time | ||||||||
| $ | $ | |||||||
Note 11 — Subsequent Events
Franchise Acquisition
On
April 18, 2024, the Company completed an acquisition of
Debt Issuance
On April 1, 2024, the Company entered into a securities purchase
agreement with the same accredited investor for the capital raise on February 20, 2024 for the issuance of a senior secured promissory
note with an aggregate principal amount of $
20
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis are intended to help investors understand our business, financial condition, results of operations, liquidity, and capital resources. You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled “Cautionary Statement Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
| ● | our expectations regarding consumer trends in residential real estate transactions; |
| ● | our expectations regarding overall economic and demographic trends, including the continued growth of the U.S. residential real estate market; |
| ● | our ability to grow our business organically in the various local markets that we serve; |
| ● | our ability to attract and retain additional qualified agents and other personnel; |
| ● | our ability to expand our franchises in both new and existing markets; |
| ● | our ability to increase the number of closed transactions sides and sides per agent; |
| ● | our ability to cross-sell our services among our subsidiaries; |
| ● | our ability to maintain compliance with the law and regulations of federal, state, foreign, county and local governmental authorities, or private associations and governing boards; |
| ● | our ability to expand, maintain and improve the information technologies and systems that we rely upon to operate; |
| ● | our ability to prevent security breaches, cybersecurity incidents and interruptions, delays and failures of our technology infrastructure; |
| ● | our ability to retain our founder and current executive officers and other key employees; |
| ● | our ability to identify quality potential acquisition candidates in order to accelerate our growth; |
21
| ● | our ability to manage our future growth and dependence on our agents; |
| ● | our ability to maintain the strength of our brands; |
| ● | our ability to maintain and increase our financial performance; |
| ● | the market price for our common stock may be particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and minimal profits, which could lead to wide fluctuations in our share price; |
| ● | there have recently been recent instances of extreme stock price run-ups followed by rapid price declines and stock price volatility seemingly unrelated to company performance following a number of recent initial public offerings, particularly among companies, like ours, that have had relatively smaller public floats; |
| ● | sales of our common stock by us or our stockholders, which may result in increased volatility in our stock price; and |
| ● | other factors, including the risks contained in the section entitled “Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2023, filed with the U.S. Securities Exchange Commission (“SEC” or “Commission”) on April 16, 2024, relating to our industry, our operations, and results of operations. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements.
Moreover, new risks regularly emerge, and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Quarterly Report on Form 10-Q.
Business Overview
We are the holding company for five agent-centric, technology-integrated, cloud-based, multi-service real estate segments. Our primary business, La Rosa Realty, LLC, has been listed in the “Top 75 Residential Real Estate Firms in the United States” from 2016 through 2020 by the National Association of Realtors, the leading real estate industry trade association in the United States.
In addition to providing person-to-person residential and commercial real estate brokerage services to the public, we cross sell ancillary technology-based products and services primarily to our sales agents and the sales agents associated with our franchisees. Our business is organized based on the services we provide internally to our agents and to the public, which are residential and commercial real estate brokerage, franchising, real estate brokerage education and coaching, and property management. Our real estate brokerage business operates primarily under the trade name La Rosa Realty, which we own, and, to a lesser extent, under the trade name Better Homes Realty which we license. We have 21 La Rosa Realty corporate real estate brokerage offices and branches located in Florida, California, Texas, and Georgia. We have 16 La Rosa Realty franchised real estate brokerage offices and branches and two affiliated real estate brokerage offices that pay us fees in two states in the United States and Puerto Rico. Our real estate brokerage offices, both corporate and franchised, are staffed with 2,454 licensed real estate brokers and sales associates as of March 31, 2024.
We have built our business by providing the home buying public with well trained, knowledgeable realtors who have access to our proprietary and third-party in-house technology tools and quality education and training, and valuable marketing that attracts some of the best local realtors who provide value-added services to our home buyers and sellers that are attracted to our brands. We give our real estate brokers and sales agents who are seeking financial independence a turnkey solution and support them in growing their brokerages while they fund their own businesses. This enables us to maintain a low fixed-cost business with several recurring revenue streams, yielding relatively high margins and cash flow.
Our agent-centric commission model enables our sales agents to obtain higher net commissions than they would otherwise receive from many of our competitors in our local markets. We believe that agents who join our Company from the major real estate brokerage firms have increased their income by an average of approximately forty percent (40%). They can then use this additional income to reinvest in their businesses or as take-home profit. This is a strong incentive for them to compete against the discount, flat fee and internet brokerages that have sprung up in the past several years. Instead of us taking a greater share of their income, our agents pay what we believe to be reduced rates for training and mentorship and our proprietary technology. Our franchise model has a similar pricing methodology, permitting the franchise owner the freedom to operate their business with minimal control and lower expense than other franchise offerings.
Moreover, we believe that our proprietary technology, training, and the support that we provide to our agents at a minimal cost to them is one of the best offered in the industry.
22
At the end of 2023, the Company entered into a strategic partnership with Final Offer, a consumer-facing offer management and negotiation platform driven by agents. Final Offer is a technology platform that is designed to simplify real estate transactions, enabling buyers to make successful offers and sellers to maximize the outcome of their sales. Final Offer’s online process allows sellers to establish a minimum sales price and other deal terms online and pre-approved buyers to make binding offers. If a seller sets a “Final Offer” price and terms, an interested buyer can accept it instantly, putting the property under contract. We believe that the Final Offer’s innovative platform is designed to empower both real estate agents and their clients with real-time transparency, streamlining the offer management and negotiation process, creating a fair playing field for all while also providing accountability and trust.
In March 2024, the Company officially launched Final Offer. Final Offer is available to real estate brokers on the Company’s platform in key markets across Florida and Georgia, with plans to expand the offering across the organization.
In the first quarter of 2024, we acquired majority ownership of the following franchisees of the Company: La Rosa Realty Georgia, LLC, La Rosa Realty California, and 100% ownership of La Rosa Realty Winter Garden LLC. In April 2024, we also acquired majority ownership of La Rosa Realty Lakeland LLC, our franchisee.
We intend to continue growing our business organically and by acquisition.
It is management’s intention to acquire additional franchisees in 2024. We continuously look to search for potential acquisition targets. Management is in discussions with several franchisees; however, any future agreements may have terms that are materially different than the terms of completed acquisitions. We cannot guarantee that the Company will actually enter into any binding acquisition agreements with any of those companies. If we do, we cannot assure you that the terms of such acquisitions will be substantially the same or better for the Company than those of completed acquisitions.
Description of Our Revenues
Our financial results are primarily driven by the total number of sales agents in our Company, the number of sales agents closing residential real estate transactions, the number of sales agents utilizing our coaching services, the number of agents who work with our franchisees, and the number of properties under management. We increased our agent count by just under four 4%, from 2,378 at March 31, 2023 to 2,471 at March 31, 2024.
The majority of our revenue is derived from a stable set of fees paid by our brokers, franchisees, and consumers. We have multiple revenue streams, with the majority of our revenue derived from commissions paid by consumers who transact business with our and our franchisees’ agents, royalties paid by our franchisees, dues and technology fees paid by our sales agents, our franchisees, and our franchisees’ agents. Our major revenue streams come from such sources as: (i) residential real estate brokerage revenue, (ii) revenue from our property management services, (iii) franchise royalty fees, (iv) fees from the sale or renewal of franchises and other franchise revenue, (v) coaching, training and assistance fees, (vi) brokerage revenue generated transactionally on commercial real estate, and (vii) fees from our events and forums.
The majority of our revenue is derived from fees and dues based on the number of agents working under the La Rosa Realty brand. Due to the low fixed cost structure of both our Company and franchise models, the addition of new sales agents generally requires little incremental investment in capital or infrastructure. Accordingly, the number of commission producing sales agents in our Company and our franchisees is the most important factor affecting our results of operations and the addition of new agents can favorably impact our revenue and our earnings before interest, taxes, depreciation and amortization (“EBITDA”). Historically, the number of agents in the residential real estate industry has been highly correlated with overall home sale transaction activity. We believe that the number of agents and those that produce commissions in our network is the primary statistic that drives our revenue. Another major factor is the cyclicality of the real estate industry that has peaks and valleys depending on macroeconomic conditions that we cannot control. And finally, our revenues fluctuate based on the changes in the aggregate fee revenue per sales agent as a significant portion of our revenue is tied to various fees that are ultimately tied to the number of agents, including annual dues, continuing franchise fees, and certain transaction or service-based fees. Our revenue per agent also increases in other ways including when transaction sides and transaction sizes increase since a portion of our revenue comes from fees tied to the number and size of real estate transactions closed by our agents.
23
Key factors affecting our performance
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
Seasonality
Our business is affected by the seasons and weather. The spring and summer seasons, when school is out, have typically resulted in higher sales volumes compared to fall and winter seasons. With the slowdown in the later months, we have experienced slower listing activity, fewer transaction closings and lower revenues and have seen more agent turnover as well. Bad weather or natural disasters also negatively impact listings and sales which reduces our operating income, net income, operating margins and cash flow. While this pattern is fairly predictable, there can be no assurance that it will continue. Moreover, with the impact of climate change, we expect more business disruptions in the coming years, many of which could be unpredictable and extreme.
Our revenues and operating margins will fluctuate in successive quarters due to a wide variety of factors, including seasonality, weather, health exigencies, holidays, national or international emergencies, the school year calendar’s impact on timing of family relocations, and changes in mortgage interest rates. This fluctuation may make it difficult to compare or analyze our financial performance effectively across successive quarters.
Inflation and Market Interest Rates
The U.S. Federal Reserve continues to take action intended to address sharp increases in inflation. The Federal Reserve Board increased the federal funds rate to a range of 525 to 550 basis points as of March 20, 2024 from a range of 0 to 25 basis points as of the first quarter of 2022. These increases have impacted interest rates, which have significantly contributed to rising mortgage rates. During the second half of 2022, the benchmark 30 year fixed conforming mortgage rate rose above 6% for the first time since 2008, according to Freddie Mac data, and has reached a recent peak of about 8% during the second half of 2023. That interest rate stood at 6.87% as of March 21, 2024. Consequently, housing demand is softening, prices are rising, consumer sentiment has weakened, and home sales are declining. In September of 2023, the existing home sales market declined 15.4% compared to September of 2022 according to the National Association of Realtors. This decline had an adverse impact on consumer demand for our services, as consumers weighed the financial implications of selling or purchasing a home. Continuing poor housing market conditions would adversely affect our operating performance and results of operations.
Recent Legal Challenges to Sales Agents’ Commission Structure
Recent developments in the real estate industry have seen increased scrutiny and legal challenges related to the structure of real estate agent commissions. Legal actions and regulatory inquiries have been initiated to examine the fairness, transparency, and potential anticompetitive practices associated with the traditional commission model. Courts and regulatory bodies may be increasingly focused on ensuring transparency in commission structures, potentially leading to reforms that impact the earnings and business models of real estate professionals. Changes in legislation or legal precedents could impact the standard practices of commission-sharing between listing agents and buyer’s agents and may adversely affect our business model and revenues. On October 31, 2023, a federal jury in Missouri found that NAR and certain companies conspired to artificially inflate brokerage commissions, which violates federal antitrust law. The judgment was appealed on October 31, 2023, while these and other plaintiffs have filed similar lawsuits against a number of other large real estate brokerage companies. We have not, as of the date hereof, been named as a defendant in any antitrust litigation. On or about March 15, 2024, NAR agreed to settle these lawsuits, by agreeing to pay $418 million over approximately four years, and changing certain of its rules surrounding agent commissions. This settlement resolves claims against NAR and nearly every NAR member; all state, territorial and local REALTOR® associations; all association-owned MLSs; and all brokerages with an NAR member as principal whose residential transaction volume in 2022 was $2 billion or below and is subject to court approval. Due to this litigation, there will be rule changes for the NAR. In the settlement, effective mid-July 2024, NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS, as well as adopt new rules requiring written agreements between buyers and buyers’ agents. However, the direct and indirect effects, if any, of the judgment upon the real estate industry are not yet entirely clear.
There could also be further changes in real estate industry practices. All of this has prompted discussion of changes to rules established by local or state real estate boards or multiple listing services. All of this may require changes to many brokers’ business models, including changes in agent and broker compensation. For example, we will likely have to develop mechanisms and a plan that enable buyers and sellers to negotiate commissions. The Company will continue to monitor ongoing and similar antitrust litigation against our competitors. However, the litigation and its ramifications could cause unforeseen turmoil in our industry, the impacts of which could have a negative effect on us as an industry participant.
Cybersecurity
Our business faces cybersecurity risks that could have a material adverse effect on our business operations, financial condition, and reputation. Key factors contributing to cybersecurity risks include, but are not limited to:
| ● | Constantly Evolving Threat Landscape: The landscape of cybersecurity threats is constantly evolving, with new attack vectors, malware, and vulnerabilities emerging regularly. We may not be able to anticipate or mitigate all potential threats effectively. |
| ● | Data Vulnerability: We collect, store, and process sensitive customer and corporate data, making us a target for cybercriminals seeking to steal or exploit this information. A data breach could lead to financial and legal liabilities, including regulatory fines and customer trust erosion. |
24
| ● | Third-Party Risks: Our reliance on third-party service providers exposes us to risks associated with their cybersecurity practices. A breach or security failure in a third-party system could impact our operations and data. |
| ● | Phishing and Social Engineering: Employees and individuals connected to our organization may be susceptible to phishing attacks or social engineering tactics that compromise security. Human error or manipulation can lead to breaches. |
| ● | Regulatory Compliance: We are subject to various data protection and privacy regulations, and non-compliance could result in legal and financial penalties. Adhering to these regulations requires ongoing efforts and resources. |
| ● | Business Interruption: A cyberattack or system breach may disrupt our operations, affecting our ability to serve customers, fulfill orders, and maintain revenue, resulting in financial losses. |
| ● | Reputation Damage: A publicized cybersecurity incident can significantly damage our brand and reputation, leading to customer churn and reduced market confidence. |
Additionally, on July 26, 2023, the SEC adopted new cybersecurity disclosure rules for public companies that require disclosure regarding cybersecurity risk management (including the corporate board’s role in overseeing cybersecurity risks, management’s role and expertise in assessing and managing cybersecurity risks, and processes for assessing, identifying and managing cybersecurity risks) in annual reports. These new cybersecurity disclosure rules also require the disclosure of material cybersecurity incidents in a Form 8-K, generally within four days of determining an incident is material. We have included respective disclosures in our Annual Report on Form 10-K for fiscal year ended December 31, 2023 filed with the Commission on April 16, 2024. We will be subject to such Form 8-K disclosure requirements starting June 15, 2024.
We may at times fail (or be perceived to have failed) in our efforts to comply with our privacy and data security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely on may fail to comply with such obligations, which could negatively impact our business operations.
Any failure or perceived failure by us or third parties upon whom we rely to comply with obligations, relating to privacy and data security may result in significant consequences including but not limited to governmental investigations and enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar), litigation, additional reporting requirements and/or oversight, bans on processing personal data, and orders to destroy or not use personal information.
Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to loss of customers; interruptions or stoppages in our business operations; inability to process personal information; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q and in the Notes to the consolidated financial statements included in our Annual Report on Form 10-K for fiscal year ended December 31, 2023 describe the significant accounting policies and methods used in the preparation of the Company’s condensed consolidated financial statements. There have been no material changes to the Company’s critical accounting estimates since the Annual Report on Form 10-K as of December 31, 2023.
25
Recent Accounting Pronouncements
See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” of the Notes to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Results of Operations
Revenue
| Three Months Ended March 31, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Real Estate Brokerage Services (Residential) | $ | 10,237,749 | $ | 3,289,981 | $ | 6,947,768 | 211 | % | ||||||||
| Franchising Services | 144,381 | 304,644 | (160,263 | ) | (53 | )% | ||||||||||
| Coaching Services | 132,993 | 131,537 | 1,456 | 1 | % | |||||||||||
| Property Management | 2,544,587 | 2,274,593 | 269,994 | 12 | % | |||||||||||
| Real Estate Brokerage Services (Commercial) | 29,189 | 40,881 | (11,692 | ) | (29 | )% | ||||||||||
| Total Revenue | $ | 13,088,899 | $ | 6,041,636 | $ | 7,047,263 | 117 | % | ||||||||
Real Estate Brokerage Services (Residential)
Residential real estate services sales revenue increased by approximately $6.9 million, or 211%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase was driven by approximately $7.6 million of revenue from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the three acquisitions completed in the first quarter of fiscal year 2024, offset by a 36% decrease in total transaction volume. We increased our transaction fee, monthly agent fee, and annual fee effective September 1, 2023, which, if volume returns to 2023 levels, real estate brokerage services revenue, excluding incremental acquisition revenue, will increase in 2024.
Franchising Services
Franchising services revenue decreased by approximately $160 thousand, or 53%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The decrease was attributable from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the three acquisitions completed in the first quarter of fiscal year 2024, which no longer contribute to franchising royalties fees, which would have totaled approximately $174 thousand in the first quarter of 2024. Our remaining franchisees saw a similar decrease in volume related to the same market conditions in our residential services, which negatively impacted our franchising royalty fee revenue.
Coaching Services
Coaching services revenue increased by approximately $1 thousand, or 1%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to an increase in an emphasis of our coaching program, partially offset due to the reduction in our residential transaction volume.
Property Management
Property management revenue increased by approximately $270 thousand, or 12%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, primarily due to an increase in the number of properties under management along with a management fee price increase effective September 1, 2023.
26
Cost of Revenues and Gross Margin
| Three Months Ended March 31, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Real Estate Brokerage Services (Residential) | $ | 1,033,728 | $ | 298,008 | $ | 735,720 | 247 | % | ||||||||
| Gross Margin | 10.1 | % | 9.1 | % | 1.0 | % | ||||||||||
| Franchising Services | $ | 14,292 | $ | 195,476 | $ | (181,184 | ) | (93 | )% | |||||||
| Gross Margin | 9.9 | % | 64.2 | % | (54.3 | )% | ||||||||||
| Coaching Services | $ | 59,988 | $ | 64,638 | $ | (4,650 | ) | (7 | )% | |||||||
| Gross Margin | 45.1 | % | 49.1 | % | (4.0 | )% | ||||||||||
| Property Management | $ | 29,619 | $ | 28,707 | $ | 912 | 3 | % | ||||||||
| Gross Margin | 1.2 | % | 1.3 | % | (0.1 | )% | ||||||||||
| Real Estate Brokerage Services (Commercial) | $ | 24,370 | $ | 40,881 | $ | (16,511 | ) | (40 | )% | |||||||
| Gross Margin | 83.5 | % | 100.0 | % | (16.5 | )% | ||||||||||
| Total Gross Profit | $ | 1,161,997 | $ | 627,710 | $ | 534,287 | 85 | % | ||||||||
| Total Gross Margin | 8.9 | % | 10.4 | % | (1.5 | )% | ||||||||||
Real Estate Brokerage Services (Residential)
Costs related to residential real estate brokerage services increased by approximately $6.2 million, or 208%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase was driven by approximately $6.9 million of cost of revenue from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the three acquisitions completed in the first quarter of fiscal year 2024. The gross profit increased by approximately $736 thousand, or 247%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 primarily attributable to the gross profit from acquisitions.
Franchising Services
Costs of revenue for franchising services increased by approximately $20 thousand, or 19%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, related to the increase costs of the external software that supports the Company’s franchises. The gross profit of franchising services has decreased by about 50% for the three-month period ending March 31, 2024 over the comparable prior year period, which is attributable to the reduction in the cost of revenue due to the acquisitions of the nine franchises in the fourth quarter of 2023 and the first quarter of 2024.
Coaching Services
Costs of revenue related to coaching services increased by approximately $6 thousand, or 9%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Costs related to coaching services is related to the augmentation of the coaching program. The gross margin is relatively consistent in the three-month periods ended March 31, 2024 and 2023.
Property Management
Costs of revenue related to property management services increased by approximately $269 thousand, or 12%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. The increase in property management costs was primarily related to the timing of distributions to property owners as well as the increase in properties under management. The gross margin is consistent in the three-month periods ended March 31, 2024 and 2023.
Selling, General and Administrative Expense
| Three Months Ended March 31, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Sales and Marketing | $ | 232,727 | $ | 91,378 | $ | 141,349 | 155 | % | ||||||||
| Payroll and benefits | 936,492 | 484,492 | 452,000 | 93 | % | |||||||||||
| Rent and other | 230,771 | 34,399 | 196,372 | 571 | % | |||||||||||
| Professional fees | 310,565 | 161,272 | 149,293 | 93 | % | |||||||||||
| Office | 76,969 | 44,842 | 32,127 | 72 | % | |||||||||||
| Technology | 75,959 | 39,171 | 36,788 | 94 | % | |||||||||||
| Insurance, training and other | 128,205 | 119,085 | 9,120 | 8 | % | |||||||||||
| Public company costs | 378,095 | — | 378,095 | NM | ||||||||||||
| Amortization and deprecation | 184,799 | — | 184,799 | NM | ||||||||||||
| Total SG&A Expenses | $ | 2,554,582 | $ | 974,639 | $ | 1,579,943 | 162 | % | ||||||||
NM: Not Meaningful
27
Selling, general and administrative costs increased by approximately $1.6 million, or 162%, in the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. Half of the increase was driven by $804 thousand of additional costs from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the three acquisitions completed in the first quarter of fiscal year 2024. The remaining increase is primarily attributable to approximately $378 thousand in public company costs, including listing costs, printer costs, transfer agent fees, and investor relation costs and related professional fees, since our initial public offering in October 2023 as well as approximately $185 thousand of amortization of the intangible assets incurred through the acquisitions in the fourth quarter of 2023 and the first quarter of 2024.
Stock-based compensation
We incurred stock-based compensation of approximately $3.2 million in the three months ended March 31, 2024, primarily due to option grants to our CEO pursuant to the terms of his employment agreement ($1.9 million), other employees ($0.9 million), and consultants who provided various services to the company ($0.4 million). We incurred stock-based compensation of approximately $69 thousand in the three months ended March 31, 2023 primarily due to option grants given to the non-management directors of our board of directors in February 2022.
Other Income (Expense), Net
Other expense, net for the three months ended March 31, 2024 was approximately $81 thousand compared to other expense, net, of approximately $573 thousand for the three months ended March 31, 2023. The expense in 2024 was due to interest expense and the amortization of financing fees related to the debt raise in February 2024. The expense in 2023 was primarily due to costs related to the amortization of financing fees related to convertible debt instruments with embedded equity elements issued in the fourth quarter of fiscal year 2022 along with an increase in interest expense associated with new debt issuances during the fourth quarter of fiscal year 2022, partially offset by a decrease in the revaluation of the derivative liabilities.
Liquidity and Capital Resources
On March 31, 2024 and December 31, 2023, we had cash of approximately $1.1 million and $1.0 million, respectively, on hand.
We are subject to the risks and challenges associated with companies at a similar stage of development. These include dependence on key individuals, successful development and marketing of its offerings, and competition with larger companies with greater financial, technical, and marketing resources than us.
Since our inception in 2021, we have funded our operations through our revenues and the sale of equity and debt securities.
In October 2023, we raised gross proceeds of $5,000,000 through our sale of 1,000,000 shares of common stock in the initial public offering for $5.00 per share, with net proceeds of $4,360,000.
In February 2024, we received $1,000,000 in net proceeds, excluding debt issuance costs of $188 thousand, through our private sale of a 13% OID secured promissory note in the principal amount of $1,052,632 for a purchase price of $1,000,000 to an accredited investor.
In April 2024, we received $1,250,200 in net proceeds, excluding debt issuance costs of $128 thousand, through our private sale of a 13% OID senior secured promissory note in the principal amount of $1,316,000 for a purchase price of $1,250,200 to the same accredited investor in our February 2024 private placement.
Furthermore, during the period required to achieve substantially higher revenue in order to become profitable, we will require additional funds that might not be readily available or might not be on terms that are acceptable to us, or at all. Until such time that we fully implement our growth strategy, we expect to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company. As such, we anticipate that our existing working capital, including cash on hand and cash generated from operations, will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of this quarterly report on Form 10-Q. We will be required to raise additional capital to service the two promissory notes issued in the first half of 2024, to repay the principal balance of each of the notes, and to fund ongoing operations.
We have incurred recurring net losses, and our operations have not provided net positive cash flows. In view of these matters, there is substantial doubt about our ability to continue as a going concern. We plan on continuing to expand via acquisition, which will help achieve future profitability, and we have plans to raise capital from outside investors, as we have done in the past, to fund operating losses and to provide capital for further business acquisitions. We cannot provide any assurance that we can successfully raise the capital needed on favorable terms, if at all.
On November 24, 2023, the Company received written notification from the staff (the “Staff”) of Nasdaq indicating that the Company no longer meets Nasdaq Listing Rule 5550(b)(2) requiring the Company to maintain a minimum market value of listed securities (“MVLS”) of $35 million. The notice was based on a review of the Company’s MVLS for the past 30 consecutive business days. Nasdaq’s listing rules provided the Company with a compliance period of 180 calendar days, or until May 22, 2024, in which to regain compliance. On April 18, 2024, the Company received a written notification from the Staff informing the Company that it has regained compliance with Nasdaq Continue Listing Rules by satisfying Nasdaq’s Equity Standard under Listing Rule 5550(b) based on the Company’s stockholders’ equity reported on the Company’s Annual Report on Form 10-K for the period ending December 31, 2023 and the matter is now closed.
28
Summary of Cash Flows
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Net Cash Used in Operating Activities | $ | (538,305 | ) | $ | (271,917 | ) | ||
| Net Cash Provided by Investing Activities | $ | 98,612 | $ | — | ||||
| Net Cash Provided by Financing Activities | $ | 679,404 | $ | 474,666 | ||||
Cash Flows from Operating Activities
During the three months ended March 31, 2024, operating activities consumed $0.5 million of our cash on hand, which was primarily attributable to the net loss of $1.2 million, excluding stock-based compensation, amortization and depreciation, partially offset by changes in working capital of $0.6 million, mostly due to an increase in accounts payable and an increase in contract liabilities.
Cash Flows from Investing Activities
During the three months ended March 31, 2024, we purchased three acquisitions with capital stock. Each of the three acquisition had an aggregate amount of $0.1 million of cash. See Note 2, “Business Combinations” of the Notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional information regarding the acquisitions.
Cash Flows from Financing Activities
During the three months ended March 31, 2024, we received net cash provided by financing activities of $0.7 million, which included the proceeds of our debt issuance in February 2024 of $1.0 million, offset by deferred debt issuance costs of $0.2 million and payments to notes payable, post-acquisition consideration, and advances on future receipts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2024, as we are a newly publicly traded company with limited resources in our finance department, and we are in the process of establishing our procedures around our disclosure controls.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in lawsuits, claims, investigations, and proceedings, including pending opposition proceedings involving patents that arise in the ordinary course of business. There are no matters pending that we expect to have a material adverse impact on our business, results of operations, financial condition, or cash flows, except as set forth below.
The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on our results of operations for that period or future periods. Other than as previously reported Annual Report on Form 10-K for the fiscal year ended December 31, 2023, we have not been and we are not presently a party to any material pending or threatened legal proceedings. Except as described below there have not been any material developments in our pending legal proceedings in the first quarter of 2024.
On January 3, 2024, Ms. Sarah Palmer filed a putative national class action complaint against La Rosa Realty, LLC in the United States District Court, Middle District of Florida, Orlando Division. Ms. Palmer alleges that she received two (2) brief pre-recorded calls one week apart to her cell phone from La Rosa Realty, LLC presenting her an employment opportunity as a real estate agent. Ms. Palmer seeks an undisclosed amount of monetary damages from La Rosa Realty, LLC for the alleged would-be injurious, isolated and opportunistic employment gestures to her through a purported nationwide class action. Ms. Palmer claims that the defendant violated her privacy, annoyed and harassed her, constituted a nuisance, and occupied her telephone line. On March 12, 2024 La Rosa Realty, LLC filed a motion to dismiss the case with prejudice, which is still pending.
ITEM 1A. RISK FACTORS.
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 16, 2024.
30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
In addition to the issuances of unregistered securities described in the Current Reports on Form 8-K filed by the Company with the SEC, in the first quarter of 2024 the Company issued the following securities which were not registered under the Securities Act.
On February 20, 2024, the Company issued a warrant pursuant to a tail arrangement with a registered broker-dealer. The warrant is exercisable for up to 21,053 shares of common stock for $1.50, subject to adjustment for stock splits, reorganizations, recapitalizations, and dividends, from the date of issuance until the fifth anniversary date of the date of issuance.
On February 24, 2024, the Company issued 5,000 unregistered shares of the Company’s common stock to the minority member of La Rosa Realty Texas LLC in consideration for services rendered in connection with establishing an office in Harrington, Texas.
On March 13, 2024, the Company issued 225,000 unregistered shares of the Company’s common stock to a consultant of the Company as consideration for services rendered in connection with an extension of a consulting agreement, dated September 20, 2023, as amended on February 6, 2024.
Unless otherwise noted, the securities above were issued pursuant to the registration requirements of the Securities Act provided by Section 4(a)(2) and/or Rule 506 of Regulation D promulgated under the Securities Act, in light of the fact that none of the issuances involved a public offering of securities and no solicitation or advertisements for such securities were made by any party.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
31
ITEM 6. EXHIBITS.
(a) Exhibits. The following documents are filed as part of this report:
| * | Filed herewith |
| ** | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
32
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.
| LA ROSA HOLDINGS CORP. | ||
| Date: May 15, 2024 | By: | /s/ Joseph La Rosa |
| Name: | Joseph La Rosa | |
| Title: | Founder, Chief Executive Officer, and Director | |
| (Principal Executive Officer) | ||
| Date: May 15, 2024 | By: | /s/ Kent Metzroth |
| Name: | Kent Metzroth | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
33
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECTUIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph La Rosa, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of La Rosa Holdings Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions:
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2024
| /s/ Joseph La Rosa | ||
| Name: | Joseph La Rosa | |
| Title: | Founder, Chief Executive Officer, and Director | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kent Metzroth, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of La Rosa Holdings Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and; |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 15, 2024
| /s/ Kent Metzroth | ||
| Name: | Kent Metzroth | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Joseph La Rosa, the Chief Executive Officer and President of La Rosa Holdings Corp. (the “Company”), hereby certify, that, to my knowledge:
| 1. | The Quarterly Report on Form 10-Q for the period ended March 31, 2024 (the “Report”) of the Company fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 15, 2024
| /s/ Joseph La Rosa | ||
| Name: | Joseph La Rosa | |
| Title: | Founder, Chief Executive Officer, and Director | |
| (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Kent Metzroth, the Chief Financial Officer of La Rosa Holdings Corp. (the “Company”), hereby certify, that, to my knowledge:
| 1. | The Quarterly Report on Form 10-Q for the period ended March 31, 2024 (the “Report”) of the Company fully complies with the requirements of Section 13(a)/15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: May 15, 2024
| /s/ Kent Metzroth | ||
| Name: | Kent Metzroth | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Parentheticals) - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Accounts receivable, net of allowance for credit losses (in Dollars) | $ 99,443 | $ 83,456 |
| Common stock par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Common stock, shares authorized | 250,000,000 | 250,000,000 |
| Common stock, shares outstanding | 14,252,716 | 13,406,480 |
| Common stock, shares issued | 14,252,716 | 13,406,480 |
| Series X Preferred Stock | ||
| Preferred stock, par value (in Dollars per share) | $ 0.0001 | $ 0.0001 |
| Preferred stock, shares authorized | 50,000,000 | 50,000,000 |
| Preferred stock, shares issued | 2,000 | 2,000 |
| Preferred stock, shares outstanding | 2,000 | 2,000 |
Condensed Consolidated Statements of Operations (unaudited) (Parentheticals) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Income Statement [Abstract] | ||
| Loss per share of common stock attributable to common stockholders, diluted | $ (0.35) | $ (0.16) |
| Weighted average shares used in computing net loss per share of common stock attributable to common stockholders, diluted | 13,672,655 | 6,002,578 |
Condensed Consolidated Statement of Cash Flows (unaudited) (Parentheticals) - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Statement of Cash Flows [Abstract] | ||
| Issuance of shares of common stock as part of the consideration of acquisitions of businesses | 546,423 | 546,423 |
| Issuance of shares of common stock upon the conversion of convertible debt upon the IPO | 67,000 | 67,000 |
| Issuance of shares of common stock for benefcial conversion feature | 1,608 | 1,608 |
| Issuance of shares of common stock for services rendered | 230,000 | 230,000 |
Basis of Presentation and Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Basis of Presentation and Summary of Significant Accounting Policies [Abstract] | |
| Basis of Presentation and Summary of Significant Accounting Policies | Note 1 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The Company has made estimates and judgements affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited and reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to the Company’s going concern assessment. The carrying amounts of assets and liabilities presented in the unaudited condensed financial statements do not necessarily purport to represent realizable or settlement values.
The unaudited condensed consolidated financial statements include the financial statements of the Company, all entities that are wholly-owned by the Company, and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated. Business combinations consummated during the reporting period are reflected in the Company’s results effective from the date of acquisition through the end of the reporting period.
Results of the three-month period ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the Company as of and for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K. The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited financial statements referred to above.
Liquidity – Going Concern and Management’s Plans
On March 31, 2024, the Company had a cash balance of $1.1 million and positive working capital of $67 thousand.
On April 1, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a 13% senior secured promissory note with a principal amount of $1,316,000 and a purchase price of $1,250,200 after an original issue discount of $65,800. The note is convertible into shares of the Company’s common stock at the option of the lender. The promissory note begins amortizing five months after the date of the loan, with full maturity occurring twelve months after the date of each loan. See Note 11 — Subsequent Events for additional information.
The Company is subject to the risks and challenges associated with companies at a similar stage of development. These include dependence on key individuals, successful development and marketing of its offerings, and competition with larger companies with greater financial, technical, and marketing resources. Furthermore, during the period required to achieve substantially higher revenue in order to become profitable, the Company will require additional funds that might not be readily available or might not be on terms that are acceptable to the Company. Until such time that the Company fully implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company. As such, the Company anticipates that its existing working capital, including cash on hand, and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements. The Company will be required to raise additional capital to service its promissory notes, to repay the principal balance of each of the notes, and to fund ongoing operations.
The Company has incurred recurring net losses, and the Company’s operations have not provided net positive cash flows. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company plans on continuing to expand via acquisition, which will help achieve future profitability, and the Company has plans to raise capital from outside investors, as it has done in the past, to fund operating losses and to provide capital for further business acquisitions. There can be no assurance the Company can successfully raise the capital needed.
Reclassifications
Certain items in the prior period’s condensed consolidated financial statements have been reclassified to conform to the current year presentation reflected in the financial statements. Specifically, stock-based compensation was separated from general and administrative expenses on the condensed consolidated statements of operations.
Recently Adopted Accounting Standards
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for the Company in the fiscal year beginning after December 15, 2023. The Company adopted the standard beginning in fiscal year 2024. The adoption did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. ASU 2023-06 will become effective for each amendment on the effective date of the SEC’s corresponding disclosure rule changes. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The ASU is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the ASU to determine its impact on the Company’s segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. The ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently evaluating the ASU to determine its impact on the Company’s income tax disclosures. |
Business Combinations |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations | Note 2 — Business Combinations
The Company has completed a number of acquisitions in the first quarter of 2024 and will acquire additional businesses in the future. The results of businesses acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity, or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies.
To date, the assets acquired and liabilities assumed in the Company’s business combinations have primarily consisted of goodwill and finite-lived intangible assets, consisting primarily of franchise agreements, agent relationships, real estate listings, non-compete agreements, and right-of-use assets. The estimated fair values and useful lives of identifiable intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, the nature of the business acquired, and the specific characteristics of the identified intangible assets. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with the determination of fair values, the Company engages independent appraisal firms to assist with the valuation of intangible assets acquired and certain assumed obligations.
Transaction costs associated with business combinations are expensed as incurred.
During the first quarter of 2024, the Company acquired majority ownership of the following franchisees of the Company: La Rosa Realty Georgia LLC (“Georgia”) and La Rosa Realty California (“California”), and 100% ownership of La Rosa Realty Winter Garden LLC (“Winter Garden”). All three franchises engage mostly in the residential real estate brokerage services to the public primarily through sales agents and also provide coaching and support services to agents on a fee basis.
The following table summarizes the purchase consideration and the purchase price allocation to the estimated fair values of the identifiable assets acquired and liabilities assumed for the three acquisitions. The values assigned to certain acquired assets and liabilities are preliminary as the Company is continuing to evaluate the fair value of the assets and liabilities and may be adjusted as further information becomes available during the allocation period of up to 12 months from the acquisition date.
Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through expansion and is not expected to be deductible for income tax purposes.
The classes of intangible identifiable assets acquired and the estimated useful life of each class is presented in the table below for the three acquisitions:
The amounts of revenue, cost of revenue, gross profit, and loss from operations before income taxes of the three acquisitions included in the Company’s condensed consolidated statement of operations from the date of the acquisition for the three month period ended March 31, 2024 is as follows:
The following unaudited pro forma financial information presents the combined operating results of the Company, Winter Garden, Georgia, and California, as if each acquisition had occurred as of January 1, 2023. The unaudited pro forma financial information includes the accounting effects of the business combinations, including adjustments to the amortization of intangible assets. The unaudited pro forma information does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of the Company’s future consolidated results.
The unaudited pro forma financial information is presented in the table below for the three-month periods ended March 31, 2024 and 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | Note 3 — Assets
Accounts Receivable and Allowance for Credit Losses
The Company’s trade accounts receivable consist of balances due from agents, tenants, franchisees, and commissions for closings and are presented on the condensed consolidated balance sheet, net of the allowance for credit losses. The allowance is determined by a number of factors, including age of the receivable, current economic conditions, historical losses, and management’s assessment of the financial condition of the debtor. Receivables are written off once they are deemed uncollectible, which may arise when the debtor is deemed unable to pay the amounts owed to the Company. The allowance for credit Estimates of uncollectible accounts receivable is recorded to general and administrative expense.
Intangible Assets
Intangible assets consist of franchise agreements, agent relationships, real estate listings, and non-compete agreements, and are initially recorded at fair value. Long-lived intangible assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or amortized on a straight-line basis if such pattern cannot be reliably determined. The Company continues to assess potential triggering events related to the value of its intangible assets and concluded that there were no indicators of impairment during the three months ended March 31, 2024.
The components of purchased intangible assets were as follows:
For the three months ended March 31, 2024, amortization expense was $183 thousand. There was no amortization expense in the three-month period ended March 31, 2023. Based on the intangible assets recorded at March 31, 2024, and assuming no subsequent additions or impairment of the underlying assets, the remaining estimated amortization expense is expected to be as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities | Note 4 — Liabilities
Fair Value Measurements
Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classified certain liabilities based on the following fair value hierarchy:
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.
The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses reflected in the condensed consolidated financial statements approximate fair value due to their short-term maturities.
The Company determined that on March 31, 2024 the first warrant qualified as a derivative liability and was recorded at fair value on the date of issuance and will be re-measured at fair value each reporting period with the change reported in earnings.
A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows:
The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the three-month periods ended March 31, 2024 and 2023:
The fair value of the derivative liability was computed using the Black Scholes model both when issued and on the balance sheet date. To determine the fair value, the Company incorporated transaction details such as the price of the Company’s common stock, contractual terms, maturity, and risk-free rates, as well as assumptions about future financings, volatility, probability of contingencies, and holder behavior. The fair value of the derivative liability on the issuance date and the balance sheet date and the assumptions used in the Black-Scholes model are set forth in the table below.
Contract Liabilities and Performance Obligations
Contract liabilities consist of unsatisfied performance obligations related to annual dues received at the start of the calendar year. As of March 31, 2024, the Company has approximately $165 thousand of remaining performance obligations, all of which will be recognized into revenue by the end of the calendar year. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Borrowings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Borrowings | Note 5 — Borrowings
Line of Credit
The Company has a line of credit with Regions Bank that allows for advances up to $150,000 with interest at the Prime Rate plus 4.75% with a floor of 4.75% and no maturity date. On March 31, 2024 and December 31, 2023, no amount was drawn under the facility. The line of credit is collateralized by Company assets.
Economic Injury Disaster Loans
During the fourth quarter of 2023, the Company acquired two franchisees that had outstanding Economic Injury Disaster Loans (the “EIDL Loans”) in the aggregate of $263,000. During the first quarter of 2024, the Company acquired a franchise that had outstanding EIDL Loan in the aggregate of $34,100. The Company acquired the EIDL Loans, and the EIDL loans have terms similar to the Company’s existing EIDL loans. The EIDL Loans mature in 2050 and bear interest at a rate of 3.75% per annum.
Total EIDL Loans are comprised of the following:
Future maturities of term debt as of March 31, 2024, were as follows:
Convertible Note
On February 20, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note with an aggregate principal amount of $1,052,632. The note has an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 67,000 shares of the Company’s common stock as a commitment fee, a warrant to purchase 120,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 95,000 shares of the Company’s common stock with an exercise price of $2.25. The second warrant will only become exercisable if the note is not fully paid on or before the maturity date, at which point the warrant is exercisable until the five-year anniversary of the vesting date. The second warrant will be cancelled and extinguished if the note is fully paid on or before the note maturity date. The Company also agreed to register the securities issued to the investor by filing a registration statement with the U.S. Securities and Exchange Commission within ninety (90) calendar days from the date of the agreement. The investor also has a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note are convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $2.50 or the trading price of the shares. The securities purchase agreements contain customary representations and warranties and agreements and obligations of the parties. The proceeds of the note will be used for business development and general working capital purposes. In connection with this financing, the Company also issued to its placement agent, Alexander Capital L.P. (“Alexander Capital”), a 5-year warrant to purchase 21,053 shares of the Company’s common stock at an exercise price of $1.50 per share.
The Company evaluated the terms of the securities purchase agreement and determined that the commitment shares and both warrants are freestanding instruments. The Company determined the commitment shares are classified as equity, which are initially recorded at fair value with no subsequent remeasurement. The Company determined that the first warrant is classified as a derivative liability, which is initially recorded at fair value with changes in fair value recorded in earnings. The second warrant and certain terms within the debt note are contingent upon certain possible events. The Company determined that the contingencies are not probable and, as such, are not recorded as contingent liabilities.
The Company incurred issuance costs that were directly attributable to issuing the debt instrument in the amount of $207,343, which includes a placement fee of $90,000 paid to Alexander Capital. Of the debt issuance costs, $187,974 was paid in cash and the remainder is the value of a warrant issued to Alexander Capital. The Company determined that the warrant issued to Alexander Capital is classified as equity. The issuance costs were not specifically related to any instrument within the transaction and, as such, were allocated in the same proportion as the proceeds were allocated to the debt, the committed shares, and the warrant.
The convertible note is comprised of the following:
The debt discount is reflected as a reduction on the outstanding liability and is being amortized as non-cash interest expense using the effective interest method over the term of the agreement. The Company accrued interest on the note totaling $14,955 and recorded amortization of the debt discount totaling $48,582 during the three-month period ending March 31, 2024.
Cash Advance Agreement
On July 3, 2023, the Company entered into a standard merchant cash advance agreement (the “Cash Advance”) with Cedar Advance LLC (“Cedar”) for the purchase and sale of future receipts pursuant to which the Company sold in the aggregate $764,150 in future receipts of the Company for $500,650. The Company recorded a debt discount in the amount of $237,150 based upon the difference between the amount of future receipts sold and the actual proceeds received by the Company and debt issuance costs of $26,350. The debt discount and debt issuance costs were reflected as a reduction on the outstanding liability and were being amortized as non-cash interest expense using the effective interest method over the term of the agreement. The Cash Advance was fully repaid in January 2024. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | Note 6 — Commitments and Contingencies
Leases
The Company has operating leases for office space in several states. Lease terms are negotiated on an individual basis. Generally, the leases have initial terms ranging from one to five years. Renewal options are typically not recognized as part of the right of use assets and lease liabilities as it is not reasonably certain at the lease commencement date that the Company will exercise these options to extend the leases. Leases with an initial term of twelve-months or less that do not include an option to purchase the underlying asset are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term.
The Company leases its corporate office from an entity controlled by the Company’s CEO. In addition, some of the entities acquired in the fourth quarter of 2023 and the first quarter of 2024 lease their offices from their former owners, who now hold a minority interest in those entities.
Lease costs for the three-month periods ended March 31, 2024 and 2023 were $207,915 and $31,465, respectively, and are included in general and administrative expenses in the condensed consolidated statements of operations.
Supplemental cash flow information related to leases is as follows:
During the first quarter of 2024, the Company acquired three franchisees, two of which had remaining lease terms beyond twelve months, resulting in an increase of $187,350 in right-of-use assets and lease liabilities.
Supplemental balance sheet information related to leases is as follows:
The Company’s leases do not provide a readily determinable implicit discount rate. The Company estimates its incremental borrowing rate as the discount rate based on the information available at lease commencement. The weighted average discount rate is 7.94%.
Future maturities on lease liabilities as of March 31, 2024, are as follows:
There were no leases with residual value guarantees.
Legal Proceedings
From time to time the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of business. Such litigation and other proceedings may include, but are not limited to, actions relating to employment law and misclassification, intellectual property, commercial or contractual claims, brokerage or real estate disputes, or other consumer protection statutes, ordinary-course brokerage disputes like the failure to disclose property defects, commission disputes, and vicarious liability based upon conduct of individuals or entities outside of the Company’s control, including agents and third-party contractor agents. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur.
On February 13, 2023, Mr. Mark Gracy, who served as the Company’s Chief Operating Officer from November 18, 2021 to November 15, 2022, filed a civil lawsuit in the Circuit Court of Osceola County, Florida, seeking a jury trial and claiming that the Company breached his employment agreement by reducing his salary and failing to pay him his full severance payments and is looking for payment of his alleged severance of $249,000. On April 11, 2023, the Company filed a motion to dismiss Mr. Gracy’s complaint, which is still pending.
On September 5, 2023, Mr. Anthony Freites, who was an alleged independent contractor of La Rosa Realty, LLC from January 13, 2013 until June of 2021, filed an amended complaint in the Circuit Court of Osceola County, Florida, seeking a jury trial and claiming that the Company breached his contract and is looking for payment of commissions on alleged closed real estate sales as an independent contractor in the amount unspecified but allegedly including actual damages, compensatory damages, attorney’s fees, costs, and prejudgment interest. On October 12, 2023, the Company filed a motion to dismiss Mr. Freites’ complaint, which is still pending.
On January 3, 2024, Ms. Sarah Palmer filed a putative national class action complaint against La Rosa Realty, LLC in the United States District Court, Middle District of Florida, Orlando Division. Ms. Palmer alleges that she received two (2) brief pre-recorded calls one week apart to her cell phone from La Rosa Realty, LLC presenting her an employment opportunity as a real estate agent. Ms. Palmer seeks an undisclosed amount of monetary damages from La Rosa Realty, LLC for the alleged would-be injurious, isolated and opportunistic employment gestures to her through a purported nationwide class action. Ms. Palmer claims that the defendant violated her privacy, annoyed and harassed her, constituted a nuisance, and occupied her telephone line. On March 12, 2024 La Rosa Realty, LLC filed a motion to dismiss the case with prejudice, which is still pending.
The Company believes that the above claims are without merit, and it will vigorously defend against such claims. Moreover, these claims, in the aggregate, would not have a material adverse effect on the Company’s financial condition, business, or results of operations, should the Company’s defense not be successful in whole or in part. Except as stated herein, there is no other action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers, threatened against or affecting our Company or our officers or directors in their capacities as such. |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants | Note 7 — Warrants
Warrants are issued to consultants as compensation or as part of certain capital raises which entitle the holder to purchase shares of the Company’s common stock at a fixed price. As of March 31, 2024, the Company’s stock price was $1.66.
Warrants issued to two investors who loaned money to the Company, Emmis Capital II, LLC and the Company’s CEO, Joseph La Rosa, on November 14, 2022 and December 2, 2022, respectively, included full ratchet antidilutive protections. The original warrants each covered 50,000 shares at a strike price of $5.00. The February 20, 2024 debt raise transaction required the Company to issue a warrant to Alexander Capital with a strike price of $1.50 (the fair market value of the Company’s common stock at the time of issuance). In accordance with the full ratchet antidilutive terms, the warrants were adjusted to reflect the strike price of the warrant issued to Alexander Capital and the number of shares covered by each of the warrants increased to 166,667. The difference in the fair value between each warrant immediately before and after the trigger was, in aggregate, $230,667, which is considered a deemed dividend that increased the basic net loss per share for common stockholders.
At March 31, 2024, warrants outstanding that have vested and are expected to vest are as follows:
Additional information with respect to warrant activity:
On February 20, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note. As part of the transaction, the Company issued two warrants, the first gives the investor the option to purchase 120,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date. The second warrant gives the investor the option to purchase 95,000 shares of the Company’s common stock with an exercise price of $2.25. The second warrant will only become exercisable if the note is not fully paid on or before the maturity date, at which point the warrant is exercisable until the five-year anniversary of the vesting date. The second warrant will be cancelled and extinguished if the note is fully paid on or before the note maturity date.
Under an agreement between the Company and the Company’s underwriter, Alexander Capital, the Company issued a warrant to Alexander Capital as a result of the issuance of the promissory note on February 20, 2024. The holder of the warrant has the right to purchase 21,053 shares of the Company’s common stock with an exercise price of $1.50, exercisable until the five-year anniversary of the grant date.
As of March 31, 2024 and December 31, 2023, there was no unrecognized expense related to warrants.
The valuation methodology used to determine the fair value of the warrants was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrant.
Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility is an average of the historical volatility of peer entities over the shorter of i) the period equal to the expected life of the award or ii) the period over which the peer company was publicly traded. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.
The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the award at the grant date.
The weighted average fair value of warrants granted in the first quarter of 2024 and the assumptions used in the Black-Scholes model are set forth in the table below.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity | Note 8 — Stockholders’ Equity
Common Stock Issuances
On February 20, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note. As part of the transaction, the Company issued 67,000 shares of the Company’s common stock as a commitment fee. The value of the shares was allocated to the debt discount.
In February 2024, the Company executed a service agreement with a service provider for efforts to initiate the Company’s brokerage business in Texas. The Company issued 5,000 shares of the Company’s unregistered, restricted common stock to the service provider, which were issued on February 22, 2024 and valued at $1.32 per share resulting in $6,589 of stock-based compensation expense.
In September 2023, the Company executed a consulting agreement with a service provider to supply certain investor relations services post-IPO. The Company extended the agreement in March 2024 and issued 225,000 shares of the Company’s unregistered, restricted common stock, which were issued on March 13, 2024 and valued at $1.76 per share resulting in $396,000 of stock-based compensation expense.
During the first quarter of 2024, the Company purchased three of the Company’s franchises. The purchase price for all three entities were settled by the issuance of an aggregate of 546,423 unregistered, restricted shares of the Company’s common stock. See Note 2 — Business Combinations for additional information.
Stock Option Awards
For the three-month periods ended March 31, 2024 and 2023, the Company recorded stock-based compensation for employees and directors awards of $2.787 million and $46 thousand, respectively. The Company did not realize any tax benefits associated with share-based compensation for the three-month periods ended March 31, 2024 and 2023, as the Company recorded a valuation allowance on all deferred tax assets.
At March 31, 2024, options outstanding that have vested and are expected to vest are as follows:
Additional information with respect to stock option activity:
The weighted average fair value of stock options granted in the first quarter of 2024 and the assumptions used in the Black-Scholes model are set forth in the table below.
As of March 31, 2024, unrecognized compensation expense related to stock option awards totaled $25,458. As of December 31, 2023, there was no unrecognized compensation expense related to stock option awards.
Restricted Stock Units
On February 1, 2024, a Restricted Stock Unit (“RSU”) covering 4,000 shares granted to the Company’s Chief Technology Officer (“CTO”) vested. The Company withheld 1,187 shares to cover payroll tax withholding and issued 2,813 shares to the executive. The Company also granted a new RSU to the CTO on February 1, 2024, which will vest on the first anniversary of the grant.
For the three-month periods ending March 31, 2024 and 2023, the Company recorded $2,871 and $23,178, respectively, of share-based compensation expense related to the RSUs. As of March 31, 2024, unrecognized compensation expense related to the awards was $5,815. The Company did not realize any tax benefits associated with share-based compensation for the three-month periods ended March 31, 2024 and 2023, as the Company recorded a valuation allowance on all deferred tax assets. |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share | Note 9 — Earnings Per Share
Basic loss per share of common stock attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share of common stock attributable to common stockholders is computed by giving effect to all potential shares of common stock, including those related to the Company’s outstanding warrants, options and RSUs, to the extent dilutive. For all periods presented, these potential shares were excluded from the calculation of diluted loss per share because their inclusion would be anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented. Two outstanding warrants covering the Company’s common stock included full ratchet antidilutive features. The features were triggered during the first quarter of fiscal year 2024, reducing the strike price for both warrants from $5.00 to $1.50 and the number of shares from 50,000 to 166,667. The difference in the fair value between each warrant immediately before and after the trigger, in aggregate, was $230,667, which is considered a deemed dividend that increased the basic net loss per share for common stockholders.
The following table sets forth common stock equivalents that have been excluded from the computation of dilutive weighted average shares outstanding as their inclusion would have been antidilutive:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segments |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segments | Note 10 — Segments
The Company’s business is organized into five material reportable segments which aggregate 100% of revenue:
The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed consolidated financial statements. The following represents the information for the Company’s reportable segments for the three months ended March 31, 2024 and 2023, respectively.
The following table disaggregates the Company’s revenue based on the type of sale or service and the timing of satisfaction of performance obligations for the three months ended March 31, 2024 and 2023, respectively.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 11 — Subsequent Events
Franchise Acquisition
On April 18, 2024, the Company completed an acquisition of 51% of the membership interests of La Rosa Realty Lakeland LLC, a Florida limited liability company and a franchisee of the Company. The purchase price was $873,902, which was settled by the issuance of an aggregate of 514,939 unregistered, restricted shares of the Company’s common stock based on $1.60 per share, the closing price of the Company’s common stock for the previous trading day and $50,000 in cash. Concurrently the selling member entered into a lock-up/leak out agreement with the Company pursuant to which the selling member may not sell more than one-twelfth of their common shares per calendar month during the one year period commencing after the six-month holding period under Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to applicable securities laws.
Debt Issuance
On April 1, 2024, the Company entered into a securities purchase agreement with the same accredited investor for the capital raise on February 20, 2024 for the issuance of a senior secured promissory note with an aggregate principal amount of $1,316,000. The note has an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 50,000 shares of the Company’s common stock as a commitment fee, a warrant to purchase 150,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 152,300 shares of the Company’s common stock with an exercise price of $2.25. The second warrant will only become exercisable if the note is not fully paid on or before the maturity date, at which point the warrant is exercisable until the five-year anniversary of the vesting date. The second warrant will be cancelled and extinguished if the note is fully paid on or before the note maturity date. The Company also agreed to register the securities issued to the investor by filing a registration statement with the U.S. Securities and Exchange Commission within ninety (90) calendar days from the date of the agreement. The investor also has a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note are convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $2.50 or the trading price of the shares. The securities purchase agreement contains customary representations and warranties and agreements and obligations of the parties. The proceeds of the note will be used for business development and general working capital purposes. |
Pay vs Performance Disclosure - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Pay vs Performance Disclosure | ||
| Net Income (Loss) | $ (4,598,796) | $ (988,951) |
Insider Trading Arrangements |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Trading Arrangements, by Individual | |
| Rule 10b5-1 Arrangement Adopted | false |
| Non-Rule 10b5-1 Arrangement Adopted | false |
| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
Accounting Policies, by Policy (Policies) |
3 Months Ended |
|---|---|
Mar. 31, 2024 | |
| Basis of Presentation and Summary of Significant Accounting Policies [Abstract] | |
| Basis of Presentation and Consolidation | Basis of Presentation and Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The Company has made estimates and judgements affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited and reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to the Company’s going concern assessment. The carrying amounts of assets and liabilities presented in the unaudited condensed financial statements do not necessarily purport to represent realizable or settlement values. The unaudited condensed consolidated financial statements include the financial statements of the Company, all entities that are wholly-owned by the Company, and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated. Business combinations consummated during the reporting period are reflected in the Company’s results effective from the date of acquisition through the end of the reporting period. Results of the three-month period ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year ending December 31, 2024. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the Company as of and for the year ended December 31, 2023, included in the Company’s Annual Report on Form 10-K. The condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited financial statements referred to above. |
| Liquidity – Going Concern and Management’s Plans | Liquidity – Going Concern and Management’s Plans On March 31, 2024, the Company had a cash balance of $1.1 million and positive working capital of $67 thousand. On April 1, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a 13% senior secured promissory note with a principal amount of $1,316,000 and a purchase price of $1,250,200 after an original issue discount of $65,800. The note is convertible into shares of the Company’s common stock at the option of the lender. The promissory note begins amortizing five months after the date of the loan, with full maturity occurring twelve months after the date of each loan. See Note 11 — Subsequent Events for additional information. The Company is subject to the risks and challenges associated with companies at a similar stage of development. These include dependence on key individuals, successful development and marketing of its offerings, and competition with larger companies with greater financial, technical, and marketing resources. Furthermore, during the period required to achieve substantially higher revenue in order to become profitable, the Company will require additional funds that might not be readily available or might not be on terms that are acceptable to the Company. Until such time that the Company fully implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company. As such, the Company anticipates that its existing working capital, including cash on hand, and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements. The Company will be required to raise additional capital to service its promissory notes, to repay the principal balance of each of the notes, and to fund ongoing operations. The Company has incurred recurring net losses, and the Company’s operations have not provided net positive cash flows. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company plans on continuing to expand via acquisition, which will help achieve future profitability, and the Company has plans to raise capital from outside investors, as it has done in the past, to fund operating losses and to provide capital for further business acquisitions. There can be no assurance the Company can successfully raise the capital needed. |
| Reclassifications | Reclassifications Certain items in the prior period’s condensed consolidated financial statements have been reclassified to conform to the current year presentation reflected in the financial statements. Specifically, stock-based compensation was separated from general and administrative expenses on the condensed consolidated statements of operations.
|
| Recently Adopted Accounting Standards | Recently Adopted Accounting Standards In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This update also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction and requires certain disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for the Company in the fiscal year beginning after December 15, 2023. The Company adopted the standard beginning in fiscal year 2024. The adoption did not have a material impact on the Company’s consolidated financial statements. |
| Recently Issued Accounting Standards Not Yet Adopted | Recently Issued Accounting Standards Not Yet Adopted In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which incorporates certain SEC disclosure requirements into the FASB Accounting Standards Codification (“Codification”). The amendments are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. ASU 2023-06 will become effective for each amendment on the effective date of the SEC’s corresponding disclosure rule changes. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to improve reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The ASU is effective for annual reporting periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the ASU to determine its impact on the Company’s segment disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures amending existing income tax disclosure guidance, primarily requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. The ASU is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted and can be applied on either a prospective or retroactive basis. The Company is currently evaluating the ASU to determine its impact on the Company’s income tax disclosures. |
Business Combinations (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Estimated Fair Values of the Identifiable Assets Acquired and Liabilities Assumed | The following table summarizes the purchase consideration
and the purchase price allocation to the estimated fair values of the identifiable assets acquired and liabilities assumed for the three
acquisitions.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets Acquired and the Estimated Useful Life | The classes of intangible identifiable assets acquired and the estimated
useful life of each class is presented in the table below for the three acquisitions:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Loss From Operations Before Income Taxes | The amounts of revenue, cost of revenue, gross
profit, and loss from operations before income taxes of the three acquisitions included in the Company’s condensed consolidated
statement of operations from the date of the acquisition for the three month period ended March 31, 2024 is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Pro Forma Financial Information | The unaudited pro forma financial information
is presented in the table below for the three-month periods ended March 31, 2024 and 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Components of Purchased intangible Assets | The components of purchased intangible assets
were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Estimated Amortization Expense | For the three months ended March 31, 2024, amortization
expense was $183 thousand. There was no amortization expense in the three-month period ended March 31, 2023. Based on the intangible assets
recorded at March 31, 2024, and assuming no subsequent additions or impairment of the underlying assets, the remaining estimated amortization
expense is expected to be as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Company’s Liabilities Measured at Fair Value on a Recurring Basis | A summary of the Company’s liabilities measured
at fair value on a recurring basis is as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Summary of Changes in Fair Value Associated With the Level 3 Liabilities | The following table provides a summary of changes
in fair value associated with the Level 3 liabilities for the three-month periods ended March 31, 2024 and 2023:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Weighted Average Fair Value of Warrants Granted | The fair value of the derivative liability on
the issuance date and the balance sheet date and the assumptions used in the Black-Scholes model are set forth in the table below.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowings (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Borrowings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Total Term Debt | Total EIDL Loans are comprised of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Future Maturities of Term Debt | Future maturities of term debt as of March 31, 2024, were as follows:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Total Convertible Notes | The convertible note is comprised of the following:
|
||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Supplemental Cash Flow Information Related to Leases | Supplemental cash flow information related to leases is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Supplemental Balnace Sheet Information Related to Leases | Supplemental balance sheet information related to leases is as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Future maturities on lease liabilities | Future maturities on lease liabilities as of March 31, 2024, are as
follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Warrants (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Warrants [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Warrants Outstanding | At March 31, 2024, warrants outstanding that have vested and are expected
to vest are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Additional Information with Respect to Warrant Activity | Additional information with respect to warrant activity:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Weighted Average Fair Value of Warrants Granted | The weighted average fair value of warrants granted
in the first quarter of 2024 and the assumptions used in the Black-Scholes model are set forth in the table below.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders' Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Options Outstanding that Have Vested and are Expected to Vest | At March 31, 2024, options outstanding that have
vested and are expected to vest are as follows:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Stock Option Activity | Additional information with respect to stock option activity:
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Weighted Average Fair Value of Stock Options Granted | The weighted average fair value of stock options
granted in the first quarter of 2024 and the assumptions used in the Black-Scholes model are set forth in the table below.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Computation of Dilutive Weighted Average Shares Outstanding | The following table sets forth common stock equivalents that have been
excluded from the computation of dilutive weighted average shares outstanding as their inclusion would have been antidilutive:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segments (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Information about Reportable Segments | The
reporting segments follow the same accounting policies used in the preparation of the Company’s condensed consolidated financial
statements. The following represents the information for the Company’s reportable segments for the three months ended March 31,
2024 and 2023, respectively.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Disaggregation of Revenue and Timing of Satisfaction of Performance Obligation | The
following table disaggregates the Company’s revenue based on the type of sale or service and the timing of satisfaction of performance
obligations for the three months ended March 31, 2024 and 2023, respectively.
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Summary of Significant Accounting Policies (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Apr. 01, 2024 |
|
| Basis of Presentation and Summary of Significant Accounting Policies [Line Items] | ||
| Cash balance | $ 1,100,000 | |
| Positive working capital | $ 67,000 | |
| Subsequent Event [Member] | ||
| Basis of Presentation and Summary of Significant Accounting Policies [Line Items] | ||
| Issuance of secured promissory note, percentage | 13.00% | |
| Subsequent Event [Member] | Senior Secured Promissory Note [Member] | ||
| Basis of Presentation and Summary of Significant Accounting Policies [Line Items] | ||
| Principal amount | $ 1,316,000 | |
| Purchase price | 1,250,200 | |
| Debt discount | $ 65,800 |
Business Combinations (Details) |
Mar. 31, 2024 |
|---|---|
| Nona Legacy [Member] | |
| Business Combinations [Line Items] | |
| Interest acquired | 100.00% |
Business Combinations (Details) - Schedule of Loss From Operations Before Income Taxes - Condensed Consolidated Statement of Operations [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
| |
| Condensed Income Statements, Captions [Line Items] | |
| Revenue | $ 245,436 |
| Cost of revenue | 229,712 |
| Gross profit | 15,725 |
| Loss before provision for income taxes | $ (11,983) |
Business Combinations (Details) - Schedule of Pro Forma Financial Information - Pro Forma [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Business Combinations (Details) - Schedule of Pro Forma Financial Information [Line Items] | ||
| Revenue | $ 14,077,894 | $ 7,392,607 |
| Cost of revenue | 12,810,962 | 6,649,529 |
| Gross profit | 1,266,932 | 743,078 |
| Loss before provision for income taxes | $ (4,783,864) | $ (1,034,064) |
| Loss per share of common stock attributable to common stockholders, basic (in Dollars per share) | $ (0.45) | $ (0.11) |
| Weighted average shares used in computing net loss per share of common stock attributable to common stockholders (in Shares) | 14,045,661 | 9,299,115 |
Business Combinations (Details) - Schedule of Pro Forma Financial Information (Parentheticals) - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Pro Forma [Member] | ||
| Business Combinations (Details) - Schedule of Pro Forma Financial Information (Parentheticals) [Line Items] | ||
| Loss per share of common stock attributable to common stockholders, diluted | $ (0.45) | $ (0.11) |
Assets (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Assets [Abstract] | ||
| Impairement charges | $ 0 | |
| Amortization expense | $ 183,000 | $ 0 |
Assets (Details) - Schedule of Estimated Amortization Expense - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Estimated Amortization Expense [Abstract] | ||
| 2024 – remainder of year | $ 644,783 | |
| 2025 | 534,952 | |
| 2026 | 519,314 | |
| 2027 | 515,993 | |
| 2028 | 480,685 | |
| Thereafter | 2,483,034 | |
| Total | $ 5,178,761 | $ 4,632,449 |
Liabilities (Details) $ in Thousands |
Mar. 31, 2024
USD ($)
|
|---|---|
| Liabilities [Line Items] | |
| Revenue remaining performance obligation | $ 165 |
Liabilities (Details) - Schedule of Company’s Liabilities Measured at Fair Value on a Recurring Basis - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Liabilities | ||
| Derivative liability (See Note 5) | $ 122,300 | |
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | ||
| Liabilities | ||
| Derivative liability (See Note 5) | ||
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | ||
| Liabilities | ||
| Derivative liability (See Note 5) | ||
| Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | ||
| Liabilities | ||
| Derivative liability (See Note 5) | $ 122,300 |
Liabilities (Details) - Schedule of Summary of Changes in Fair Value Associated With the Level 3 Liabilities - Fair Value, Inputs, Level 3 [Member] - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Liabilities (Details) - Schedule of Summary of Changes in Fair Value Associated With the Level 3 Liabilities [Line Items] | ||
| Balance – January 1, | $ 1,022,879 | |
| Balance – March 31, | 122,300 | 668,492 |
| Issuance of derivative liability | 117,300 | |
| Extinguishment of derivative liability | (242,909) | |
| Change in fair market value | $ 5,000 | $ (111,478) |
Liabilities (Details) - Schedule of Weighted Average Fair Value of Warrants Granted - $ / shares |
Mar. 31, 2024 |
Feb. 20, 2024 |
|---|---|---|
| Weighted average fair value [Member] | ||
| Liabilities (Details) - Schedule of Weighted Average Fair Value of Warrants Granted [Line Items] | ||
| Weighted average fair value (in Dollars per share) | $ 0.88 | $ 0.78 |
| Divident yield [Member] | ||
| Liabilities (Details) - Schedule of Weighted Average Fair Value of Warrants Granted [Line Items] | ||
| Dividend yield | ||
| Expected volatility factor [Member] | ||
| Liabilities (Details) - Schedule of Weighted Average Fair Value of Warrants Granted [Line Items] | ||
| Expected volatility factor | 77.50% | 77.50% |
| Risk-free interest rate [Member] | ||
| Liabilities (Details) - Schedule of Weighted Average Fair Value of Warrants Granted [Line Items] | ||
| Risk-free interest rate | 4.20% | 4.30% |
| Expected life [Member] | ||
| Liabilities (Details) - Schedule of Weighted Average Fair Value of Warrants Granted [Line Items] | ||
| Expected life (in years) | 4 years 10 months 24 days | 5 years |
Borrowings (Details) - Schedule of Total Term Debt - Economic Injury Disaster Loans [Member] - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Debt Instrument [Line Items] | ||
| Note payable | $ 652,426 | $ 619,527 |
| Less: current portion | (5,500) | (4,400) |
| Notes payable, net of current | $ 646,926 | $ 615,127 |
Borrowings (Details) - Schedule of Future Maturities of Term Debt |
Mar. 31, 2024
USD ($)
|
|---|---|
| Schedule of Future Maturities of Term Debt [Abstract] | |
| 2024 – remainder of year | $ 4,125 |
| 2025 | 5,500 |
| 2026 | 5,500 |
| 2027 | 5,500 |
| 2028 | 5,500 |
| 2029 | 5,500 |
| Thereafter | 620,801 |
| Total | $ 652,426 |
Borrowings (Details) - Schedule of Total Convertible Notes - Convertible Notes [Member] |
Mar. 31, 2024
USD ($)
|
|---|---|
| Borrowings (Details) - Schedule of Total Convertible Notes [Line Items] | |
| Principal amount | $ 1,052,632 |
| Unamortized debt discount | (395,942) |
| Net carrying value | $ 656,690 |
Commitments and Contingencies (Details) - USD ($) |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2024 |
Dec. 31, 2023 |
|
| Commitments and Contingencies [Line Items] | ||
| Lease costs | $ 207,915 | $ 31,465 |
| Increase in right-of-use assets | 187,350 | |
| Weighted average discount rate | 7.94% | |
| Wages | $ 249,000 | |
| Minimum [Member] | ||
| Commitments and Contingencies [Line Items] | ||
| Lease term | 1 year | |
| Maximum [Member] | ||
| Commitments and Contingencies [Line Items] | ||
| Lease term | 5 years |
Commitments and Contingencies (Details) - Schedule of Supplemental Cash Flow Information Related to Leases - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Schedule of Supplemental Cash Flow Information Related to Leases [Abstract] | ||
| Cash paid for amounts included in the measurement of lease liabilities | $ 89,936 | |
| Right-of-use assets obtained in exchange for lease liabilities | $ 384,112 | |
Commitments and Contingencies (Details) - Schedule of Supplemental Balnace Sheet Information Related to Leases - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Assets: | ||
| Right-of-use assets | $ 983,230 | $ 687,570 |
| Liabilities: | ||
| Lease liability, current | 406,162 | 340,566 |
| Lease liability, noncurrent | 591,609 | 363,029 |
| Lease liability | $ 997,771 | $ 703,595 |
Commitments and Contingencies (Details) - Schedule of Future maturities on lease liabilities - USD ($) |
Mar. 31, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Schedule of Future Maturities on Lease Liabilities [Abstract] | ||
| 2024 – remainder of year | $ 379,661 | |
| 2025 | 334,264 | |
| 2026 | 251,104 | |
| 2027 | 146,243 | |
| 2028 | 16,639 | |
| Total minimum lease payments | 1,127,911 | |
| Less: imputed interest | (130,140) | |
| Present value of lease obligations | 997,771 | $ 703,595 |
| Less: current portion | (406,162) | (340,566) |
| Long-term portion of lease obligations | $ 591,609 | $ 363,029 |
Warrants (Details) - USD ($) |
3 Months Ended | ||
|---|---|---|---|
Feb. 20, 2024 |
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Warrants [Line Items] | |||
| Share price | $ 1.66 | ||
| warrants covered (in Shares) | 50,000 | ||
| strike price | $ 166,667 | $ 5 | |
| Deemed dividend (in Dollars) | $ 230,667 | ||
| Warrants exercise price | $ 2.25 | ||
| Warrant shares (in Shares) | 95,000 | ||
| Warrant right to purchase shares (in Shares) | 21,053 | ||
| Alexander Capital [Member] | |||
| Warrants [Line Items] | |||
| strike price | 1.5 | ||
| Warrant [Member] | |||
| Warrants [Line Items] | |||
| Share price | $ 2.25 | ||
| Purchase shares of common stock (in Shares) | 120,000 | ||
| Warrants exercise price | $ 3 | $ 1.5 | |
| Warrant right to purchase shares (in Shares) | 21,053 | ||
Warrants (Details) - Schedule of Warrants Outstanding - Warrant [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
$ / shares
shares
| |
| Warrants (Details) - Schedule of Warrants Outstanding [Line Items] | |
| Number of Shares Vested | shares | 514,387 |
| Weighted Average Exercise Price Vested | $ / shares | $ 3.29 |
| Weighted Average Remaining Contractual Life (in years) Vested | 3 years 10 months 13 days |
| Aggregate Intrinsic Value Vested | $ | $ 56,700 |
| Number of Shares Expected to vest | shares | 145,000 |
| Weighted Average Exercise Price Expected to vest | $ / shares | $ 3.37 |
| Weighted Average Remaining Contractual Life (in years) Expected to vest | 5 years 5 months 1 day |
| Aggregate Intrinsic Value Expected to vest | $ | |
| Number of Shares Total | shares | 659,387 |
| Weighted Average Exercise Price Total | $ / shares | $ 3.31 |
| Weighted Average Remaining Contractual Life (in years) Total | 4 years 2 months 15 days |
| Aggregate Intrinsic Value Total | $ | $ 56,700 |
Warrants (Details) - Schedule of Additional Information with Respect to Warrant Activity |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
$ / shares
shares
| |
| Schedule of Additional Information with Respect to Warrant Activity [Abstract] | |
| Number of Shares, begining Balance | 423,334 |
| Weighted Average Exercise Price, begining Balance (in Dollars per share) | $ / shares | $ 3.72 |
| Number of Shares, Ending Balance | 659,387 |
| Weighted Average Exercise Price, Ending Balance (in Dollars per share) | $ / shares | $ 3.31 |
| Number of Shares, Expired or forfeited | 236,053 |
| Weighted Average Exercise Price, Expired or forfeited (in Dollars) | $ | $ 2.56 |
Warrants (Details) - Schedule of Weighted Average Fair Value of Warrants Granted |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
| |
| Schedule of Weighted Average Fair Value of Warrants Granted [Abstract] | |
| Weighted average fair value (in Dollars per share) | $ 0.86 |
| Dividend yield | |
| Expected volatility factor | 77.50% |
| Risk-free interest rate | 4.30% |
| Expected life (in years) | 5 years 4 months 24 days |
Stockholders' Equity (Details) - Schedule Options Outstanding that Have Vested and are Expected to Vest |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
USD ($)
$ / shares
shares
| |
| Schedule Options Outstanding that Have Vested and are Expected to Vest [Abstract] | |
| Number of Shares, Vested | shares | 3,585,310 |
| Weighted Average Exercise Price, Vested | $ / shares | $ 1.79 |
| Weighted Average Remaining Contractual Life (in years), Vested | 9 years 8 months 26 days |
| Aggregate Intrinsic Value, Vested | $ | $ 284,528 |
| Number of shares, Expected to vest | shares | 20,000 |
| Weighted Average Exercise Price, Expected to vest | $ / shares | $ 1.7 |
| Weighted Average Remaining Contractual Life (in years), Expected to vest | 9 years 11 months 1 day |
| Aggregate Intrinsic Value, Expected to vest | $ | |
| Number of shares, Total | shares | 3,605,310 |
| Weighted Average Exercise Price, Total | $ / shares | $ 1.79 |
| Weighted Average Remaining Contractual Life (in years), Expected to vest, Total | 9 years 8 months 26 days |
| Aggregate Intrinsic Value, Total | $ | $ 284,528 |
Stockholders' Equity (Details) - Schedule of Stock Option Activity - Equity Option [Member] |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
shares
| |
| Schedule of Stock Option Activity [Line Items] | |
| Number of Shares, Beginning Balance | shares | 1,392,125 |
| Weighted Average Exercise Price, Beginning Balance | $ / shares | $ 2.02 |
| Number of Shares, Ending Balance | shares | 3,605,310 |
| Weighted Average Exercise Price, Ending Balance | $ / shares | $ 1.79 |
| Number of Shares, Granted | shares | 2,213,185 |
| Weighted Average Exercise Price, Granted | $ / shares | $ 1.65 |
Stockholders' Equity (Details) - Schedule of Weighted Average Fair Value of Stock Options Granted |
3 Months Ended |
|---|---|
|
Mar. 31, 2024
$ / shares
| |
| Schedule of Weighted Average Fair Value of Stock Options Granted [Abstract] | |
| Weighted average fair value (in Dollars per share) | $ 1.27 |
| Dividend yield | |
| Expected volatility factor | 67.80% |
| Risk-free interest rate | 4.00% |
| Expected life (in years) | 10 years |
Earnings Per Share (Details) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Earnings Per Share (Details) [Line Items] | ||
| Deemed dividend | $ 230,667 | |
| Minimum [Member] | ||
| Earnings Per Share (Details) [Line Items] | ||
| Strike price | $ 5 | |
| Number of shares | 50,000 | |
| Maximum [Member] | ||
| Earnings Per Share (Details) [Line Items] | ||
| Strike price | $ 1.5 | |
| Number of shares | 166,667 | |
Earnings Per Share (Details) - Schedule of Computation of Dilutive Weighted Average Shares Outstanding - shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Schedule of Computation of Dilutive Weighted Average Shares Outstanding [Line Items] | ||
| Antidilutive shares outstanding | 4,268,697 | 543,334 |
| Warrants [Member] | ||
| Schedule of Computation of Dilutive Weighted Average Shares Outstanding [Line Items] | ||
| Antidilutive shares outstanding | 659,387 | 373,334 |
| Options [Member] | ||
| Schedule of Computation of Dilutive Weighted Average Shares Outstanding [Line Items] | ||
| Antidilutive shares outstanding | 3,605,310 | 80,000 |
| Restricted Stock Units [Member] | ||
| Schedule of Computation of Dilutive Weighted Average Shares Outstanding [Line Items] | ||
| Antidilutive shares outstanding | 4,000 | |
| Future Equity Shares [Member] | ||
| Schedule of Computation of Dilutive Weighted Average Shares Outstanding [Line Items] | ||
| Antidilutive shares outstanding | 90,000 | |
Segments (Details) |
Mar. 31, 2024 |
|---|---|
| Segments [Abstract] | |
| Aggregate revenue percentage | 100.00% |
Segments (Details) - Schedule of Disaggregation of Revenue and Timing of Satisfaction of Performance Obligation - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2024 |
Mar. 31, 2023 |
|
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | ||
| Revenue | $ 13,088,899 | $ 6,041,636 |
| Performance obligations satisfied at a point in time [Member] | ||
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | ||
| Revenue | 9,992,319 | 3,203,393 |
| Performance obligations satisfied over time [Member] | ||
| Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items] | ||
| Revenue | $ 3,096,580 | $ 2,838,243 |
0V;,WZ5FJK:MOV38-7?3FM5$O^!<8*N/Q&1<9%,P<6
M\1-H4Q(7PU%C(:P/QJ4;Q;2/$S078.0VOOM82$DI%?1 D%!I#4<.RO)3Y .U
MP -=3(J@RHT!Z]>3O8. (S1F)342+SL']S@$'IWJJ!"F^M*/*92(Y49#=_(L
M/(+2SL/)!GT:CG7XQ73D#R"]HCA36:%>K0#85F ! 'DWRV_!'/F <517G:EV
MFD"J9:EB4"F36XFPI-YH9P755M@R:E/BZ$2+B]VN\$2\@P4U!08E1S DYD*,'TF(:D9Q>BK_70#:/T+C@3"@@C=$NHB4M
MB;J2^;^1J=@L*_QEV._40M-SO@A&5.6X59G40R@ ISS."2H89L