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)
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Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s) | Name of each exchange on which registered: | ||
| The |
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.
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is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 18, 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
| September 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance for credit losses of $ | ||||||||
| Other current assets | ||||||||
| 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 | ||||||||
| Line of credit | ||||||||
| 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative liability | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Net income (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 | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares used in computing net loss per share of common stock attributable to common stockholders | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
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)
| Three Months Ended | Preferred Stock Series X | Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | Noncontrolling Interest In | Total | |||||||||||||||||||||||||||||
| September 30, 2024 | Shares | Par Value | Shares | Amount | Capital | Deficit | Equity | Subsidiaries | Equity | |||||||||||||||||||||||||||
| Balance as of June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| 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 September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended | Preferred Stock Series X | Common Stock |
Additional | Accumulated | Total Stockholders’ | Noncontrolling Interest In | Total | |||||||||||||||||||||||||||||
| September 30, 2024 | Shares | Par Value | 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 September 30, 2024 | $ | ( | ) | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
3
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(unaudited)
| Preferred Stock Series A | Preferred Stock Series X | Common Stock | Additional Paid-In | Accumulated | Total | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | Shares | Par Value | Shares | Par Value | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for deferred offering costs | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to debt maturity | ||||||||||||||||||||||||||||||||||||
| Extinguishment of derivative liability related to exchange of convertible and related party debt | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
| Preferred Stock Series A | Preferred Stock Series X | Common Stock | Additional Paid-In | Accumulated | Total | |||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | Shares | Par Value | Shares | Par Value | Shares | Amount | Capital | Deficit | Equity | |||||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Issuance of series A preferred stock | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock for deferred offering costs | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to debt maturity | ||||||||||||||||||||||||||||||||||||
| Extinguishment of derivative liability related to exchange of convertible and related party debt | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||||||||||||||
| Shares issued under employee agreements | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.
4
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(unaudited)
| Nine Months Ended September 30, | ||||||||
| 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 | ||||||||
| Noncash lease expense | ||||||||
| Change in fair value of derivatives | ( | ) | ( | ) | ||||
| Amortization of debt discount and financing fees | ||||||||
| Loss on extinguishment of debt | ||||||||
| Non-cash interest expense | ||||||||
| Provision for credit losses | ||||||||
| Changes in Operating Assets and Liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Deposits and 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: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ||||||
| Cash acquired through acquisition of businesses, net of $ | ||||||||
| 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 | ||||||||
| Payments deferred debt issuance costs | ( | ) | ||||||
| Payments on notes payable | ( | ) | ( | ) | ||||
| Proceeds from advances on future receipts | ||||||||
| Payments on advances on future receipts | ( | ) | ( | ) | ||||
| Payments on post-acquisition consideration | ( | ) | ||||||
| Payments related to the public offering | ( | ) | ||||||
| Payments to related party | ( | ) | ||||||
| Proceeds from issuance of preferred stock | ||||||||
| Proceeds from issuance of common 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 Activities: | ||||||||
| Derivative liability embedded in debt instruments | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Office leases acquired under operating lease obligations | $ | $ | ||||||
| Convertible debt and related party debt exchanged for | $ | $ | ||||||
| Decrease in accounts payable related to deferred offering costs | $ | $ | ( | ) | ||||
| Value of | $ | $ | ||||||
| Issuance of | $ | $ | ||||||
| Settlement of conversion rights | $ | $ | ||||||
| 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.
5
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- and nine-month periods ended September 30, 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 September 30, 2024, the Company had a cash balance of $
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.
6
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.
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 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 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 nine months 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, customer relationships, workforce 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 nine months of 2024, the Company
acquired majority ownership of the following franchisees of the Company: La Rosa Realty Georgia LLC (“Georgia”), La Rosa
Realty California (“California”), La Rosa Realty Lakeland LLC (“Lakeland”), and La Rosa Realty Success LLC (“Success”)
and
7
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
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 seven
acquisitions.
| Winter Garden | Georgia | California | Lakeland | Success | BF Prime | Nona Title | Total | |||||||||||||||||||||||||
| Acquired ownership | % | % | % | % | % | % | % | |||||||||||||||||||||||||
| Acquisition date | ||||||||||||||||||||||||||||||||
| Common stock issued | ||||||||||||||||||||||||||||||||
| Cash consideration | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Equity consideration | $ | |||||||||||||||||||||||||||||||
| Total purchase price | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Noncontrolling interest | ||||||||||||||||||||||||||||||||
| Acquisition date fair value | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Purchase price allocation | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Less fair value of net assets acquired: | ||||||||||||||||||||||||||||||||
| Cash | $ | |||||||||||||||||||||||||||||||
| Working capital (less cash) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | $ | ( | ) | |||||||||||||||
| Intangible 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 | Lakeland | Success | BF Prime | Nona Title | 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 | Nine Months | |||||||
| Ended | Ended | |||||||
| September 30, | September 30, | |||||||
| 2024 | 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 and the 2024 acquisitions 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.
8
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ||||||||
| Gross profit | $ | $ | ||||||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| Loss per share of common stock attributable to common stockholders, basic and diluted | $ | ( | ) | $ | ( | ) | ||
| 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.
| Accounts Receivable Roll-forward | Accounts Receivable, Gross | Allowance for Doubtful Accounts | Accounts Receivable, Net | |||||||||
| December 31, 2023 | $ | $ | ( | ) | $ | |||||||
| Increase in accounts receivable | ||||||||||||
| Bad debt expense | ( | ) | ( | ) | ||||||||
| Reduction in revenue | ( | ) | ( | ) | ||||||||
| Accounts receivable write-offs | ||||||||||||
| September 30, 2024 | $ | $ | ( | ) | $ | |||||||
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 indicators of impairment during the nine months ended September 30, 2024.
| Weighted Average | |||||||||||||||||||||||||||
| Remaining | September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| Amortization | Gross | Gross | |||||||||||||||||||||||||
| Period (in years) | Carrying Amount | Accumulated Amortization | Net Amount | Carrying Amount | Accumulated Amortization | Net Amount | |||||||||||||||||||||
| Franchise agreement | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Agent relationships | |||||||||||||||||||||||||||
| Real estate listings | |||||||||||||||||||||||||||
| Non-compete agreements | |||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
9
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
For the three and nine months ended September
30, 2024, amortization expense was $
| Amortization | ||||
| 2024 | $ | |||
| 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 the first warrants on the three Convertible Note transactions qualified as derivative liabilities and were recorded at fair value on the date of issuance and are re-measured at fair value each reporting period with the change reported in earnings. See Note 5 — Borrowings for additional information on the Convertible Note transactions.
10
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| September 30, 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 – June 30, | $ | $ | ||||||
| Issuance of common stock related to the derivative liability | ( | ) | ||||||
| Issuance of derivative liabilities | ||||||||
| Extinguishment of derivative liability | ( | ) | ||||||
| Change in fair market value | ( | ) | ( | ) | ||||
| Balance – September 30, | $ | $ | ||||||
| 2024 | 2023 | |||||||
| Balance – January 1, | $ | $ | ||||||
| Issuance of derivative liabilities | ||||||||
| Issuance of common stock related to the derivative liability | ( | ) | ||||||
| Extinguishment of derivative liability | ( | ) | ||||||
| Change in fair market value | ( | ) | ( | ) | ||||
| Balance – September 30, | $ | $ | ||||||
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, | April 1, | July 16, | September 30, | |||||||||||||
| 2024 | 2024 | 2024 | 2024 | |||||||||||||
| Weighted average fair value | $ | $ | $ | $ | ||||||||||||
| Stock Price | $ | $ | $ | $ | ||||||||||||
| Strike Price | $ | $ | $ | $ | ||||||||||||
| 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 September 30, 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 $
11
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
Cash Advance Agreements
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 $
On May 20, 2024, the Company entered into another
standard merchant cash advance agreement (the “2024 Cash Advance”) with Cedar for the purchase and sale of future receipts
pursuant to which the Company sold in the aggregate $
Notes Payable-Senior Secured Promissory Notes
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 $
On April 1, 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 $
12
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
On July 16, 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 $
The Company evaluated the terms of the securities purchase agreements and determined that the commitment shares and the first 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 warrants are classified as a derivative liability, which were initially recorded at fair value with changes in fair value recorded in earnings. The second warrants and certain terms within the debt notes are contingent upon certain possible events that are within the Company’s control. 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 instruments in the amount of $
| September 30, | ||||
| Senior Secured Promissory Notes | 2024 | |||
| Principal amount | $ | |||
| Unamortized debt discount | ||||
| Net carrying value | $ | |||
On September 25, 2024, the Company entered into an agreement to amend
the three Senior Secured Promissory Notes entered into in February, April, and July of 2024. The amendment extended the maturity date
for all three notes to August 1, 2025, and delayed payments until February 1, 2025. In lieu of all payments required under the original
notes, $
Notes Payable-Promissory Note
On September 26, 2024, the Company entered into
a promissory note payable whereby the Company borrowed $
Notes Payable-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 $
13
La Rosa Holdings Corp.
and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| September 30, | ||||
| Economic Injury Disaster Loans-Future Maturities | 2024 | |||
| 2024 – remainder of year | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
| September 30, | December 31, | |||||||
| Notes Payable | 2024 | 2023 | ||||||
| Senior secured promissory note (SSPN) #1 | $ | $ | ||||||
| Senior secured promissory note #2 | ||||||||
| Senior secured promissory note #3 | ||||||||
| Promissory note payable | ||||||||
| Economic injury disaster loans (EIDL) | ||||||||
| Current portion: | ||||||||
| Less: current portion-SSPNs | ( | ) | ||||||
| Less: current portion-Promissory note payable | ( | ) | ||||||
| Less: current portion-EIDL | ( | ) | ( | ) | ||||
| Notes payable, net of current | $ | $ | ||||||
14
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
September 30, 2024 and 2023 were $
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 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 nine months of 2024, the Company completed seven acquisitions,
five of which had remaining lease terms beyond twelve months, resulting in an increase of $
| September 30, | 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
15
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| September 30, | ||||
| 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. A mediation occurred on September 6, 2024 and the case was resolved. This case is now closed and the settlement was immaterial.
16
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.
On July 19, 2024, LPT Realty, LLC commenced a civil action in the Ninth Judicial Circuit in Orange County, Florida against La Rosa Holdings Corp; Joseph La Rosa a/k/a Joe La Rosa; La Rosa Realty Lake Nona, Inc. n/k/a Nona Legacy Powered By La Rosa Realty, Inc.; & La Rosa Realty, LLC, seeking damages, reasonable royalty of all real estate transactions conducted by all the La Rosa defendants and injunctive relief for misappropriation of trade secrets as to all the defendants. The court ordered a mediation to take place within 45 days. The defendants filed a response to the complaint in the form of a motion to strike as sham, which is still pending.
On July 22, 2024, the Company’s subsidiary, Nona Legacy Powered by La Rosa Realty, Inc. commenced a civil action in the Ninth Judicial Circuit in Orange County, Florida against Olga Norkis Fernandez Valdez a/k/a Norkis Fernandez and LPT Realty, LLC. The plaintiff seeks monetary damages caused by Norkis Fernandez due to the breach of contract and breach of fiduciary duty by Ms. Fernandez as well as injunctive relief against Ms. Fernandez. The plaintiff also seeks damages against LPT Realty, LLC for tortious interference with a contractual relationship.
The Company believes that the above claims against the Company 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.
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 of | Exercise | Life | Intrinsic | |||||||||||||
| Shares | Price | (in years) | Value | |||||||||||||
| Vested | $ | $ | ||||||||||||||
| Expected to vest | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
17
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| Weighted Average | ||||||||
| Number of | Exercise | |||||||
| Shares | Price | |||||||
| Balance — December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Balance — September 30, 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
On April 1, 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
On July 15, 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
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 September 30, 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.
| September 30, | ||||
| 2024 | ||||
| Weighted average fair value | $ | |||
| Dividend yield | ||||
| Expected volatility factor | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
18
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, April 1, 2024, and July
15, 2024, the Company entered into securities purchase agreements with the same accredited investor for the issuance of senior secured
promissory notes. As part of these transactions, 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
In May 2024, the Company executed three consulting
agreements with service providers to supply certain investor relations services post-IPO. As part of these agreements, the Company issued
an aggregate of
During the quarter, $
During the quarter, the Company issued
In September 2024, the Company executed a consulting
agreement to receive certain investor relations services. As part of the agreement, the Company issued
During the first nine months of 2024, the Company purchased seven entities.
A portion of the purchase price for all of the entities were settled by the issuance of an aggregate of
Stock Option Awards
For the three-month period ended September 30,
2024, the Company recorded stock-based compensation for employee options of $
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Weighted | Remaining | |||||||||||||||
| Average | Contractual | Aggregate | ||||||||||||||
| Number of | Exercise | Life | Intrinsic | |||||||||||||
| Shares | Price | (in years) | Value | |||||||||||||
| Vested | $ | $ | ||||||||||||||
| Expected to vest | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| Weighted | ||||||||
| Average | ||||||||
| Number of | Exercise | |||||||
| Shares | Price | |||||||
| Balance — December 31, 2023 | $ | |||||||
| Granted | ||||||||
| Balance — September 30, 2024 | $ | |||||||
19
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| September 30, | ||||
| 2024 | ||||
| Weighted average fair value | $ | |||
| Dividend yield | ||||
| Expected volatility factor | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) | ||||
As of September 30, 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 September 30, 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 and third quarters of fiscal year 2024. In the first quarter of fiscal year 2024, the strike price was reduced for both
warrants from $
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Options | ||||||||
| Restricted stock units | ||||||||
| Future equity shares | ||||||||
| Total | ||||||||
20
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
| 1) | Real Estate Brokerage Services (Residential) |
| 2) | Franchising Services |
| 3) | Coaching Services |
| 4) | Property Management |
| 5) | Real Estate Brokerage Services (Commercial) |
The reporting segments follow the same accounting
policies used in the preparation of the Company’s condensed consolidated financial statements.
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 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) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
21
La Rosa Holdings Corp. and Subsidiaries
Notes to the Interim Unaudited Condensed Consolidated Financial Statements
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Performance obligations satisfied at a point in time | $ | $ | $ | $ | ||||||||||||
| Performance obligations satisfied over time | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Note 11 — Subsequent Events
Legal Proceedings
The civil action case brought on July 22, 2024
between Nona Legacy Powered by La Rosa Realty, Inc. and Olga Norkis Fernandez Valdez a/k/a Norkis Fernandez was settled on October 18,
2024 resulting in the final sale of Norkis Fernandez
Equity Issuance
On November 1, 2024, the Company entered into a securities purchase
agreement with an institutional accredited investor, Abri Advisors, Ltd., a corporation organized under the laws of Bermuda, pursuant
to which the Company agreed to issue and sell to the Buyer, upon the terms and conditions set forth in the securities purchase agreement,
up to
On November 1, 2024, the Company entered into
a consulting agreement pursuant to which the Company agreed to issue
On November 11, 2024, the Company entered into
a membership interest purchase agreement with the
On October 15, 2024, the Company entered into
a consulting agreement pursuant to which the Company agreed to issue
Debt Issuance
On October 7, 2024, the Company entered into a
standard merchant cash advance agreement (the “Cash Advance”) with Arin Funding, LLC (“Arin”) for the purchase
and sale of future receipts pursuant to which the Company sold in the aggregate $
On October 7, 2024, 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 $
22
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; |
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| ● | 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 a 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 24 La Rosa Realty corporate real estate brokerage offices and branches located in Florida, California, Texas, Georgia, and Puerto Rico. We have 8 La Rosa Realty franchised real estate brokerage offices and branches and 3 affiliated real estate brokerage offices that pay us fees in three states in the United States and Puerto Rico. Our real estate brokerage offices, both corporate and franchised, are staffed with 2,647 licensed real estate brokers and sales associates as of September 30, 2024, an increase of 9% since December 31, 2023. In addition to our real estate brokerage offices, we also have a wholly owned title services company that was acquired during the quarter.
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.
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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, California and Georgia, with plans to expand the offering across the organization.
In February 2023, we launched our proprietary technology system - JAEME, part of “My Agent Account.” JAIME is a real estate AI assistant created to support and inspire our agents with personalized content to drive marketing, efficiency, and sales. This advanced technology can help agents to provide services to their clients in a more efficient way - even from their mobile devices. In October 2024, the Company launched My Agent Account version 3.0, a significant upgrade to its proprietary platform, which now includes a new module specifically designed for property management disbursements. This update is expected to improve operational efficiency for agents across the Company.
In June 2024, the Company recruited a high-performing group of team leaders in Florida, who closed over 425 transactions and achieved sales exceeding $100 million in the past 12 months.
In the first nine months of 2024, we acquired majority ownership of the following franchisees of the Company: La Rosa Realty Georgia, LLC, La Rosa Realty California, La Rosa Realty Lakeland LLC, La Rosa Realty Success LLC and 100% ownership of La Rosa Realty Winter Garden LLC, BF Prime LLC, and Nona Title Agency LLC. In November 2024, we acquired 49% membership interests of our subsidiary, La Rosa Realty Premier, LLC, which became our wholly owned subsidiary.
We intend to continue growing our business organically and by acquisition.
It is management’s intention to acquire additional franchisees and other entities through the remainder of 2024 and in 2025. 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 over 6%, from 2,493 at September 30, 2023 to 2,647 at September 30, 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, (vii) fees from our events and forums, and (viii) revenue from title services.
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.
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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 the increases in inflation. The Federal Reserve Board maintained the federal funds rate at 533 basis points from August of 2023 through mid-September 2024, when it was then reduced to 483 basis points. The fluctuations impact interest rates, which significantly contribute to mortgage rate adjustments. 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 reached a peak of about 8% during the second half of 2023. That interest rate sat in between 6.1% and 6.9% during Q3 of 2024. Consequently, housing demand has softened, prices are rising, consumer sentiment has weakened, and home sales are declining. In September of 2024, the existing home sales market declined 3.5% compared to September of 2023 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.
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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. |
| ● | 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. Since June 15, 2024, we are subject to such Form 8-K disclosure requirements.
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.
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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
Real Estate Brokerage Services (Residential)
| Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 16,484,016 | $ | 3,848,991 | $ | 12,635,025 | 328 | % | ||||||||
| Cost of revenue | 14,968,472 | 3,525,248 | 11,443,224 | 325 | % | |||||||||||
| Gross profit | $ | 1,515,544 | $ | 323,743 | $ | 1,191,801 | 368 | % | ||||||||
| Gross margin | 9.2 | % | 8.4 | % | 0.8 | % | ||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 42,580,179 | $ | 11,851,678 | $ | 30,728,501 | 259 | % | ||||||||
| Cost of revenue | 38,642,509 | 10,886,249 | 27,756,260 | 255 | % | |||||||||||
| Gross profit | $ | 3,937,670 | $ | 965,429 | $ | 2,972,241 | 308 | % | ||||||||
| Gross margin | 9.2 | % | 8.1 | % | 1.1 | % | ||||||||||
Three Months Ending September 30
Residential real estate services sales revenue increased by approximately $12.6 million, or 328%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven by approximately $12.2 million of revenue from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first nine months of fiscal year 2024. 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.
Costs related to residential real estate brokerage services increased by approximately $11.4 million, or 325%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was driven by approximately $11.2 million of cost of revenue from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first nine months of fiscal year 2024. The gross profit increased by approximately $1.2 million, or 368%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily attributable to the gross profit from acquisitions.
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Nine months Ending September 30
Residential real estate services sales revenue increased by approximately $30.7 million, or 259%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven by approximately $32 million of revenue from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first nine months of fiscal year 2024, offset by a 19% 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.
Costs related to residential real estate brokerage services increased by approximately $27.8 million, or 255%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The increase was driven by approximately $29.2 million of cost of revenue from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first nine months of fiscal year 2024. The gross profit increased by approximately $3.0 million, or 308%, for the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023 primarily attributable to the gross profit from acquisitions.
Franchising Services
| Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 65,713 | $ | 217,450 | $ | (151,737 | ) | (70 | )% | |||||||
| Cost of revenue | 123,294 | 119,491 | 3,803 | 3 | % | |||||||||||
| Gross profit | $ | (57,581 | ) | $ | 97,959 | $ | (155,540 | ) | (159 | )% | ||||||
| Gross margin | (87.6 | )% | 45.0 | % | (132.7 | )% | ||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 278,902 | $ | 734,235 | $ | (455,333 | ) | (62 | )% | |||||||
| Cost of revenue | 376,836 | 338,073 | 38,763 | 11 | % | |||||||||||
| Gross profit | $ | (97,934 | ) | $ | 396,162 | $ | (494,096 | ) | (125 | )% | ||||||
| Gross margin | (35.1 | )% | 54.0 | % | (89.1 | )% | ||||||||||
Three Months Ending September 30
Franchising services revenue decreased by approximately $152 thousand, or 70%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The decrease was attributable from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first nine months of fiscal year 2024, which no longer contribute to franchising royalties fees, which would have totaled approximately $163 thousand in the third 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.
Costs of revenue for franchising services increased by approximately $4 thousand, or 3%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, related to the increase costs of the external software that supports the Company’s franchises. The gross profit (loss) of franchising services has moved to a loss position for the three-month period ending September 30, 2024 over the comparable prior year period, which is attributable to the reduction in the cost of revenue due to the acquisitions of the thirteen franchises in the fourth quarter of 2023 and the first three quarters of 2024.
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Nine months Ending September 30
Franchising services revenue decreased by approximately $455 thousand, or 62%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The decrease was attributable from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first nine months of fiscal year 2024, which no longer contribute to franchising royalties fees, which would have totaled approximately $505 thousand in the third 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.
Costs of revenue for franchising services increased by approximately $39 thousand, or 11%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, related to the increase costs of the external software that supports the Company’s franchises. The gross profit (loss) of franchising services has moved to a loss position for the nine-month period ending September 30, 2024 over the comparable prior year period, which is attributable to the reduction in the cost of revenue due to the acquisitions of the thirteen franchises in the fourth quarter of 2023 and the first three quarters of 2024.
Coaching Services
| Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 125,262 | $ | 182,393 | $ | (57,131 | ) | (31 | )% | |||||||
| Cost of revenue | 70,893 | 97,607 | (26,714 | ) | (27 | )% | ||||||||||
| Gross profit | $ | 54,369 | $ | 84,786 | $ | (30,417 | ) | (36 | )% | |||||||
| Gross margin | 43.4 | % | 46.5 | % | (3.1 | )% | ||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 469,279 | $ | 464,603 | $ | 4,676 | 1 | % | ||||||||
| Cost of revenue | 255,557 | 241,476 | 14,081 | 6 | % | |||||||||||
| Gross profit | $ | 213,722 | $ | 223,127 | $ | (9,405 | ) | (4 | )% | |||||||
| Gross margin | 45.5 | % | 48.0 | % | (2.5 | )% | ||||||||||
Three Months Ending September 30
Coaching services revenue decreased by $57 thousand, or 31%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to an reduction in activity in our coaching program due to the reduction in our residential transaction volume.
Costs of revenue related to coaching services decreased by approximately $27 thousand, or 27%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Costs related to coaching services is related to the augmentation of the coaching program. The gross margin has remained relatively stable with an decrease of 3.1% in the three-month period ended September 30, 2024 compared to September 30, 2023.
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Nine months Ending September 30
Coaching services revenue increased by $5 thousand, or 1%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to an increase in an emphasis of our coaching program earlier in 2024, partially offset due to the reduction in our residential transaction volume.
Costs of revenue related to coaching services increased by approximately $14 thousand, or 6%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. Costs related to coaching services is related to the augmentation of the coaching program. The gross margin has remained relatively stable with an decrease of 2.5% in the three-month period ended September 30, 2024 compared to September 30, 2023.
Property Management
| Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 2,853,735 | $ | 2,512,810 | $ | 340,925 | 14 | % | ||||||||
| Cost of revenue | 2,754,610 | 2,474,125 | 280,485 | 11 | % | |||||||||||
| Gross profit | $ | 99,125 | $ | 38,685 | $ | 60,440 | 156 | % | ||||||||
| Gross margin | 3.5 | % | 1.5 | % | 1.9 | % | ||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 8,156,002 | $ | 7,169,786 | $ | 986,216 | 14 | % | ||||||||
| Cost of revenue | 7,900,050 | 6,983,494 | 916,556 | 13 | % | |||||||||||
| Gross profit | $ | 255,952 | $ | 186,292 | $ | 69,660 | 37 | % | ||||||||
| Gross margin | 3.1 | % | 2.6 | % | 0.5 | % | ||||||||||
Three Months Ending September 30
Property management revenue increased by approximately $341 thousand, or 14%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to an increase in the number of properties under management along with a management fee price increase effective September 1, 2023.
Costs of revenue related to property management services increased by approximately $283 thousand, or 11%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 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 increased 1.8% remaining relatively consistent in the three-month periods ended September 30, 2024 and 2023.
Nine months Ending September 30
Property management revenue increased by approximately $986 thousand, or 14%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to an increase in the number of properties under management along with a management fee price increase effective September 1, 2023.
Costs of revenue related to property management services increased by approximately $920 thousand, or 13%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 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 nine-month periods ended September 30, 2024 and 2023.
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Real Estate Brokerage Services (Commercial)
| Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 64,310 | $ | 30,606 | $ | 33,704 | 110 | % | ||||||||
| Cost of revenue | 39,861 | 280 | 39,581 | 14136 | % | |||||||||||
| Gross profit | $ | 24,449 | $ | 30,326 | $ | (5,877 | ) | (19 | )% | |||||||
| Gross margin | 38.0 | % | 99.1 | % | (61.1 | )% | ||||||||||
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Revenue | $ | 248,993 | $ | 100,304 | $ | 148,689 | 148 | % | ||||||||
| Cost of revenue | 174,189 | 870 | 173,319 | 19922 | % | |||||||||||
| Gross profit | $ | 74,804 | $ | 99,434 | $ | (24,630 | ) | (25 | )% | |||||||
| Gross margin | 30.0 | % | 99.1 | % | (69.1 | )% | ||||||||||
Three Months Ending September 30
Commercial real estate services sales revenue increased by approximately $34 thousand, or 110%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. During 2024, the Company invested in additional training and personnel to grow the commercial business, which increased the cost of revenue, which increased by approximately $40 thousand in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.
Nine months Ending September 30
Commercial real estate services sales revenue increased by approximately $149 thousand, or 110%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. During 2024, the Company invested in additional training and personnel to grow the commercial business, which increased the cost of revenue, which increased by approximately $173 thousand in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023.
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Selling, General and Administrative Expense – Three Month Expense
| Three Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Sales and Marketing | $ | 246,369 | $ | 49,277 | $ | 197,092 | 400 | % | ||||||||
| Payroll and benefits | 1,160,580 | 480,152 | 680,428 | 142 | % | |||||||||||
| Rent and other | 287,900 | 86,208 | 201,692 | 234 | % | |||||||||||
| Professional fees | 452,827 | 203,682 | 249,145 | 122 | % | |||||||||||
| Office | 127,165 | (6,101 | ) | 133,266 | (2184 | )% | ||||||||||
| Technology | 103,167 | 73,269 | 29,898 | 41 | % | |||||||||||
| Insurance, training and other | 138,323 | 101,424 | 36,899 | 36 | % | |||||||||||
| Public company costs | 192,130 | — | 192,130 | NM | ||||||||||||
| Amortization and deprecation | 285,524 | — | 285,524 | NM | ||||||||||||
| Total SG&A Expenses | $ | 2,993,985 | $ | 987,911 | $ | 2,006,074 | 203 | % | ||||||||
NM: Not Meaningful
Selling, general and administrative costs, excluding stock-based compensation, increased by approximately $2.0 million, or 203%, in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. A portion of the increase was driven by $1.1 million of additional costs from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first three quarters of fiscal year 2024. The remaining increase is primarily attributable to approximately $441 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 $286 thousand of amortization of the intangible assets incurred through the acquisitions in the fourth quarter of 2023 and the first three quarters of 2024 and an increase in personnel costs of $680 thousand.
Selling, General and Administrative Expense – Nine Month Expense
| Nine Months Ended September 30, | Change | |||||||||||||||
| 2024 | 2023 | $ | % | |||||||||||||
| Sales and Marketing | $ | 691,704 | $ | 242,548 | $ | 449,156 | 185 | % | ||||||||
| Payroll and benefits | 3,075,137 | 1,454,457 | 1,620,680 | 111 | % | |||||||||||
| Rent and other | 773,087 | 236,706 | 536,381 | 227 | % | |||||||||||
| Professional fees | 1,162,346 | 448,473 | 713,873 | 159 | % | |||||||||||
| Office | 299,022 | 75,226 | 223,796 | 297 | % | |||||||||||
| Technology | 271,431 | 153,274 | 118,157 | 77 | % | |||||||||||
| Insurance, training and other | 439,102 | 304,236 | 134,866 | 44 | % | |||||||||||
| Public company costs | 1,063,635 | — | 1,063,635 | NM | ||||||||||||
| Amortization and deprecation | 725,867 | — | 725,867 | NM | ||||||||||||
| Total SG&A Expenses | $ | 8,501,331 | $ | 2,914,920 | $ | 5,586,411 | 192 | % | ||||||||
NM: Not Meaningful
Selling, general and administrative costs, excluding stock-based compensation, increased by approximately $5.6 million, or 192%, in the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. A portion of the increase was driven by $2.4 million of additional costs from the six acquisitions completed in the fourth quarter of fiscal year 2023 and the seven acquisitions completed in the first three quarters of fiscal year 2024. The remaining increase is primarily attributable to approximately $1.9 million in public company costs, including listing costs, printer costs, transfer agent fees, D&O insurance and investor relation costs and related professional fees as well as approximately $726 thousand of amortization of the intangible assets incurred through the acquisitions in the fourth quarter of 2023 and the first three quarters of 2024, an increase in personnel costs of $1.6 million, and additional events and technology costs of $341 thousand.
Stock-based compensation
We incurred stock-based compensation of approximately $390 thousand and $4.1 million in the three and nine months ended September 30, 2024, respectively, primarily due to option grants to our CEO pursuant to the terms of his employment agreement ($2.1 million), other employees ($1.0 million), and investors and consultants who provided various services to the company ($1.0 million). We incurred stock-based compensation of approximately $5 thousand and $79 thousand in the three and nine months ended September 30, 2023, respectively, primarily due to option grants given to the non-management directors of our board of directors in February 2022.
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Other Income (Expense), Net
Other expense, net for the three months ended September 30, 2024 was approximately $645 thousand compared to other income, net, of approximately $74 thousand for the three months ended September 30, 2023. The expense in 2024 was due to interest expense and the amortization of financing fees related to the debt raise in February, April and July 2024, the loss on extinguishment related to the same three notes in September 2024 and the Advances on Future Receipts in May 2024, partially offset by a $219 thousand decrease in the revaluation of the derivative liabilities associated with the convertible debt. The income in 2023 was due to an IRS employee retention credit received for prior tax years, net of legal costs to obtain the credit, partially offset by amortization of financing fees.
Other expense, net for the nine months ended September 30, 2024 was approximately $1.152 million compared to other expense, net, of approximately $612 thousand for the nine months ended September 30, 2023. The expense in 2024 was due to interest expense and the amortization of financing fees related to the debt raise in February, April and July 2024, the loss on extinguishment related to the same three notes in September 2024 and the Advances on Future Receipts in May 2024, partially offset by an decrease in the value of the derivative liabilities associated with the convertible debt. The 2023 expense was 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 and the IRS employee retention credit received for prior tax years, net of legal costs to obtain the credit.
Liquidity and Capital Resources
On September 30, 2024 and December 31, 2023, we had cash of approximately $1.8 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 $139 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.
In May 2024, we entered into a standard merchant cash advance agreement where we sold in the aggregate $761,250 in future receipts of the Company for $500,000. Until the purchase price has been repaid, the Company agreed to pay Cedar $23,000 per week.
In July 2024, we received $444,600 in net proceeds, excluding debt issuance costs of approximately $25 thousand, through our private sale of a 13% OID senior secured promissory note in the principal amount of $468,000 for a purchase price of $444,600 to the same accredited investor in our February 2024 and April 1 private placements.
In August 2024, we received $725,000 in net proceeds, excluding equity issuance costs of approximately $25 thousand, by issuing 761,689 shares of common stock and a pre-funded warrant to purchase 509,498 shares of common stock pursuant to a securities purchase agreement with an institutional accredited investor, Brown Stone Capital Ltd., at a price equal to $0.59 per share.
On September 26, 2024, we entered into a promissory note for the principal amount of $200,000. The promissory note bears interest at 12.5% per annum. The note is payable in three monthly installments of $75,000, beginning on November 1, 2024, with subsequent payments due on December 1, 2024, and January 1, 2025.
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 three 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.
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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.
On October 10, 2024, the Company received a letter from Nasdaq notifying the Company that it was no longer in compliance with the $1.00 minimum bid price requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). Nasdaq has granted the Company 180 calendar days, or until April 8, 2025, to regain compliance with the Bid Price Rule. If the Company does not regain compliance with the Bid Price Rule by April 8, 2025, the Company may be eligible for an additional 180-day period to regain compliance.
Summary of Cash Flows
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net Cash Used in Operating Activities | $ | (1,932,936 | ) | $ | (450,785 | ) | ||
| Net Cash Provided by Investing Activities | $ | 19,914 | $ | — | ||||
| Net Cash Provided by Financing Activities | $ | 3,428,951 | $ | 818,314 | ||||
Cash Flows from Operating Activities
During the nine months ended September 30, 2024, operating activities consumed $1.9 million of our cash on hand, which was primarily attributable to the net loss of $9.3 million, excluding stock-based compensation, amortization and depreciation, non-cash interest expense and amortization of debt discounts and provision for credit losses, partially offset by changes in working capital of $1.2 million, mostly due to an increase in accounts payable, accrued expenses, security deposit payables, partially offset by an increase in payments on lease liabilities.
Cash Flows from Investing Activities
During the nine months ended September 30, 2024, we completed seven acquisitions with capital stock and three of the seven with additional cash payments totaling $240 thousand. Each of the seven acquisitions had an aggregate amount of $265 thousand 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 nine months ended September 30, 2024, we received net cash provided by financing activities of $3.4 million, which included the proceeds of our debt issuances in February, April and July 2024, a draw on the line of credit and the receipt of the advances on future receipts all totaling $3.6 million, proceeds from issuance of common stock of $1.9 million offset by deferred debt issuance costs, payments on notes payable, and payments to advances on future receipts and post-acquisition consideration all totaling $2.1 million.
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 interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 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 September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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, our Quarterly Report on Form 10-Q for the first quarter ended March 31, 2024 our Quarterly Report on Form 10-Q for the second quarter ended June 30, 2024 and as described herein, 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 third quarter of 2024.
As previously disclosed, 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. A mediation occurred on September 6, 2024. On September 10, 2024, the case was voluntarily dismissed with prejudice.
As previously disclosed on July 19, 2024, LPT Realty, LLC commenced a civil action in the Ninth Judicial Circuit in Orange County, Florida against La Rosa Holdings Corp; Joseph La Rosa a/k/a Joe La Rosa; La Rosa Realty Lake Nona, Inc. n/k/a Nona Legacy Powered By La Rosa Realty, Inc.; & La Rosa Realty, LLC, seeking damages, reasonable royalty of all real estate transactions conducted by all the La Rosa defendants and injunctive relief for misappropriation of trade secrets as to all the defendants. The court ordered a mediation to take place within 45 days. The defendants filed a response to the complaint in the form of a motion to strike as sham, which is still pending.
As previously disclosed, on July 22, 2024, the Company’s subsidiary, Nona Legacy Powered by La Rosa Realty, Inc. commenced a civil action in the Ninth Judicial Circuit in Orange County, Florida against Olga Norkis Fernandez Valdez a/k/a Norkis Fernandez and LPT Realty, LLC. The plaintiff seeks monetary damages caused by Norkis Fernandez due to the breach of contract and breach of fiduciary duty by Ms. Fernandez as well as injunctive relief against Ms. Fernandez. The plaintiff also seeks damages against LPT Realty, LLC for tortious interference with a contractual relationship. The parties have signed a Mediated Settlement Agreement dated October 18, 2024, whereby the plaintiffs agreed to have the case dismissed with prejudice.
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ITEM 1A. RISK FACTORS.
Other than described below, 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.
Our failure to maintain our compliance with Nasdaq’s continued listing standards or other requirements could result in our common stock being delisted from Nasdaq, which could adversely affect our liquidity and the trading volume and market price of our common stock and decrease or eliminate your investment.
Our common stock is currently listed on the Nasdaq Capital Market on Nasdaq under the symbol “LRHC.” Nasdaq requires listed issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, Nasdaq should delist our securities from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders.
If we violate Nasdaq’s listing requirements, or if we fail to meet any of Nasdaq’s listing standards, our common stock may be delisted. A delisting of our common stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your shares.
On October 10, 2024, we received a letter from Nasdaq notifying us that we were no longer in compliance with the $1.00 minimum bid price requirement for continued listing on Nasdaq under Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Rule”). Although Nasdaq has granted us 180 calendar days, or until April 8, 2025, to regain compliance with the Bid Price Rule, there can be no assurance that we will regain such compliance, and Nasdaq could make a determination to delist our common stock.
Any delisting determination by Nasdaq could seriously decrease or eliminate the value of an investment in our common stock and other securities linked to our common stock. While a listing on an over-the-counter exchange could maintain some degree of a market in our common stock, we could face substantial material adverse consequences, including, but not limited to, the following: limited availability for market quotations for our common stock; reduced liquidity with respect to and decreased trading prices of our common stock; a determination that shares of our common stock are “penny stock” under the Securities and Exchange Commission rules, subjecting brokers trading our common stock to more stringent rules on disclosure and the class of investors to which the broker may sell the common stock; limited news and analyst coverage for our Company, in part due to the “penny stock” rules; decreased ability to issue additional securities or obtain additional financing in the future; and potential breaches under or terminations of our agreements with current or prospective large stockholders, strategic investors and banks. The perception among investors that we are at heightened risk of delisting could also negatively affect the market price of our securities and trading volume of our common stock.
Furthermore, on November 14, 2024, the closing price of our common stock was $0.7571. Pursuant to Nasdaq Rule 5810(c)(3)(A)(iii), if the closing price of our common stock is $0.10 or less for 10 consecutive trading days, we will be issued a Staff Delisting Determination by Nasdaq. If we receive a Staff Delisting Determination Letter resulting from our common stock trading at or below $0.10 for 10 consecutive trading days, we will have 7 calendar days to request a hearing before a Nasdaq hearings panel to review the Staff Delisting Determination, which will determine the delisting of our common stock by Nasdaq. A hearing would then take place within 45 days of the hearing request to determine whether or not our common stock would be delisted. If, in the future, we receive a Staff Delisting Determination there can be no assurance that we would be successful in preventing a determination by the Nasdaq hearing panel that our stock will be delisted.
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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 third quarter of 2024 the Company issued the following securities which were not registered under the Securities Act.
On August 19, 2024, the Company issued 230,202 unregistered shares of common stock to its legal counsel, Sichenzia Ross Ference Carmel LLP, in exchange for a part of amounts payable for services rendered to the Company.
On August 27, 2024, the Company issued 225,000 unregistered shares of common stock to a consultant as consideration for services rendered in connection with a consulting agreement, dated February 20, 2024.
On September 23, 2024, the Company issued 230,769 unregistered shares of common stock to a consultant for services rendered pursuant to the marketing services agreement, dated September 19, 2024.
On September 27, 2024, the Company issued to an unaffiliated private investor a promissory note in the principal amount of $200,000, that we used for our general corporate purposes.
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.
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ITEM 6. EXHIBITS.
(a) Exhibits. The following documents are filed as part of this report:
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| # | Management contracts or compensatory plans, contracts or arrangements. |
| ** | 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. |
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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: November 19, 2024 | By: | /s/ Joseph La Rosa |
| Name: | Joseph La Rosa | |
| Title: | Founder, Chief Executive Officer, Director, and Interim Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial Officer) | ||
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