LRHC La Rosa Holdings Corporation

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. The values assigned to certain acquired assets and liabilities are preliminary as the Company is continuing to evaluate the fair value of the assets and liabilities and may be adjusted as further information becomes available during the allocation period of up to 12 months from the acquisition date.

Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through expansion and is not expected to be deductible for income tax purposes.

The classes of intangible identifiable assets acquired and the estimated useful life of each class is presented in the table below for the seven acquisitions:

The amounts of revenue, cost of revenue, gross profit, and loss from operations before income taxes of the seven acquisitions included in the Company’s condensed consolidated statement of operations from the date of the acquisition for the three- and nine-month periods ended September 30, 2024 is as follows:

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.

The unaudited pro forma financial information is presented in the table below for the nine-month periods ended September 30, 2024 and 2023:

For the three and nine months ended September 30, 2024, amortization expense was $283 thousand and $721 thousand, respectively. There was no amortization expense in the three- and nine-month periods ended September 30, 2023. Based on the intangible assets recorded at September 30, 2024, and assuming no subsequent additions or impairment of the underlying assets, the remaining estimated amortization expense is expected to be as follows:

A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows:

The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the three-month periods ended September 30, 2024 and 2023:

The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the nine-month periods ended September 30, 2024 and 2023:

The fair value of the derivative liability was computed using the Black Scholes model both when issued and on the balance sheet date. To determine the fair value, the Company incorporated transaction details such as the price of the Company’s common stock, contractual terms, maturity, and risk-free rates, as well as assumptions about future financings, volatility, probability of contingencies, and holder behavior. The fair value of the derivative liabilities on the issuance dates and the balance sheet date and the assumptions used in the Black-Scholes model are set forth in the table below.

Contract Liabilities and Performance Obligations

Contract liabilities consist of unsatisfied performance obligations related to annual dues received at the start of the calendar year. As of September 30, 2024, the Company has approximately $72 thousand of remaining performance obligations, all of which will be recognized into revenue by the end of the calendar year. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.

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 $764,150 in future receipts of the Company for $500,650. The Company recorded a debt discount in the amount of $237,150 based upon the difference between the amount of future receipts sold and the actual proceeds received by the Company and debt issuance costs of $26,350. The debt discount and debt issuance costs were reflected as a reduction on the outstanding liability and were being amortized as non-cash interest expense using the effective interest method over the term of the agreement. The Cash Advance was fully repaid in January 2024. During the nine months ended September 30, 2024, non-cash interest expense of $7,420 was recorded from the amortization of the debt discount.

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 $761,250 in future receipts of the Company for $500,000. Future receipts include cash, check, credit or debit card, electronic transfer, or other form of monetary payment. Until the purchase price has been repaid, the Company agreed to pay Cedar $23,000 per week. In addition, the Company granted Cedar a security interest in all the Company’s accounts, including deposit accounts and accounts receivable and proceeds. The Company recorded a debt discount in the amount of $236,250 based upon the difference between the amount of future receipts sold and the actual proceeds received by the Company and debt issuance costs of $25,000. The debt discount and debt issuance costs were reflected as a reduction on the outstanding liability and are being amortized as non-cash interest expense using the effective interest method over the term of the agreement. During the three and nine months ended September 30, 2024, non-cash interest expense of $136,462 and $199,263, respectively, was recorded from the amortization of the debt discount. As of September 30, 2024, the remaining gross balance of the Cash Advance was $324,250, with a remaining unamortized discount of $61,987, for a net balance of $262,263, which will be fully repaid by January 2025.

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 $1,052,632 with a maturity date twelve months from the issue date. The note has an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 67,000 shares of the Company’s common stock as a commitment fee, a warrant to purchase 120,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 95,000 shares of the Company’s common stock with an exercise price of $2.25. The second warrant will only become exercisable if the note is not fully paid on or before the maturity date, at which point the warrant is exercisable until the five-year anniversary of the vesting date. The second warrant will be cancelled and extinguished if the note is fully paid on or before the note maturity date. The Company also agreed to register the securities issued to the investor by filing a registration statement with the U.S. Securities and Exchange Commission within ninety (90) calendar days from the date of the agreement. The investor also has a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note are convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $2.50 or 85% of the lowest volume weighted average price (VWAP) of the shares prior to five days of the conversion. The securities purchase agreements contain customary representations and warranties and agreements and obligations of the parties. The proceeds of the note will be used for business development and general working capital purposes. In connection with this financing, the Company also issued to its placement agent, Alexander Capital L.P. (“Alexander Capital”), a 5-year warrant to purchase 21,053 shares of the Company’s common stock at an exercise price of $1.50 per share. During the three months ended September 30, 2024, the investor converted $69,534 of accrued interest and $746,440 of principal to 881,130 shares of common stock.

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 $1,316,000 with a maturity date twelve months from the issue date. The note has an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 50,000 shares of the Company’s common stock as a commitment fee, a warrant to purchase 150,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 152,300 shares of the Company’s common stock with an exercise price of $2.25. The second warrant will only become exercisable if the note is not fully paid on or before the maturity date, at which point the warrant is exercisable until the five-year anniversary of the vesting date. The second warrant will be cancelled and extinguished if the note is fully paid on or before the note maturity date. The Company also agreed to register the securities issued to the investor by filing a registration statement with the U.S. Securities and Exchange Commission within ninety (90) calendar days from the date of the agreement. The investor also has a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note are convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $2.50 or 85% of the lowest VWAP of the shares prior to five days of the conversion. The securities purchase agreements contain customary representations and warranties and agreements and obligations of the parties. The proceeds of the note will be used for business development and general working capital purposes. During the three months ended September 30, 2024, the investor converted $71,713 of accrued interest to 53,100 shares of common stock.

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 $444,600 with a maturity date twelve months from the issue date. The note has an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 29,800 shares of the Company’s common stock as a commitment fee, a warrant to purchase 53,700 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 54,200 shares of the Company’s common stock with an exercise price of $2.25. The second warrant will only become exercisable if the note is not fully paid on or before the maturity date, at which point the warrant is exercisable until the five-year anniversary of the vesting date. The second warrant will be cancelled and extinguished if the note is fully paid on or before the note maturity date. The Company also agreed to register the securities issued to the investor by filing a registration statement with the U.S. Securities and Exchange Commission within ninety (90) calendar days from the date of the agreement. The investor also has a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note are convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price shall be the lower of $2.50 or 85% of the lowest VWAP of the shares prior to five days of the conversion. The securities purchase agreements contain customary representations and warranties and agreements and obligations of the parties. The proceeds of the note will be used for business development and general working capital purposes.

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 $346,248, which includes placement fees of $202,518 paid to Alexander Capital. Of the debt issuance costs, $326,879 was paid in cash and the remainder is the value of a warrant issued to Alexander Capital. The Company determined that the warrant issued to Alexander Capital is classified as equity. The issuance costs were not specifically related to any instrument within the transactions and, as such, were allocated in the same proportion as the proceeds were allocated to each of the debt transactions, the committed shares, and the warrants.

The Senior Secured Promissory Notes are comprised of the following:

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, $250,000 per month will be paid beginning February 1 and each month after, until all three notes are paid in full. In addition, $200,000 was paid on September 30 and applied to the February note. This amendment was accounted for as an extinguishment of debt, and the Company recorded a loss of $722,729 during the three months ended September 30, 2024. The Company accrued interest on the notes totaling $90,281 and $181,203 during the three and nine -month period ending September 30, 2024, respectively.

Notes Payable-Promissory Note

On September 26, 2024, the Company entered into a promissory note payable whereby the Company borrowed $200,000 bearing 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. The proceeds of the note were used to pay down the convertible note entered into in February discussed above.

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 $263,000. During the first quarter of 2024, the Company acquired a franchise that had an outstanding EIDL Loan in the aggregate of $34,100. The Company acquired the EIDL Loans, and the EIDL loans have terms similar to the Company’s existing EIDL loans. The EIDL Loans mature in 2050 and bear interest at a rate of 3.75% per annum.

Future maturities of Economic Injury Disaster Loans as of September 30, 2024, were as follows:

Total Notes Payable as of September 30, 2024 and December 31, 2023 were as follows:

Future maturities on lease liabilities as of September 30, 2024, are as follows:

There were no leases with residual value guarantees.

Legal Proceedings

From time to time the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of business. Such litigation and other proceedings may include, but are not limited to, actions relating to employment law and misclassification, intellectual property, commercial or contractual claims, brokerage or real estate disputes, or other consumer protection statutes, ordinary-course brokerage disputes like the failure to disclose property defects, commission disputes, and vicarious liability based upon conduct of individuals or entities outside of the Company’s control, including agents and third-party contractor agents. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur.

On February 13, 2023, Mr. Mark Gracy, who served as the Company’s Chief Operating Officer from November 18, 2021 to November 15, 2022, filed a civil lawsuit in the Circuit Court of Osceola County, Florida, seeking a jury trial and claiming that the Company breached his employment agreement by reducing his salary and failing to pay him his full severance payments and is looking for payment of his alleged severance of $249,000. On April 11, 2023, the Company filed a motion to dismiss Mr. Gracy’s complaint, which is still pending.  

On September 5, 2023, Mr. Anthony Freites, who was an alleged independent contractor of La Rosa Realty, LLC from January 13, 2013 until June of 2021, filed an amended complaint in the Circuit Court of Osceola County, Florida, seeking a jury trial and claiming that the Company breached his contract and is looking for payment of commissions on alleged closed real estate sales as an independent contractor in the amount unspecified but allegedly including actual damages, compensatory damages, attorney’s fees, costs, and prejudgment interest. On October 12, 2023, the Company filed a motion to dismiss Mr. Freites’ complaint. A mediation occurred on September 6, 2024 and the case was resolved. This case is now closed and the settlement was immaterial.

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.