S-1/A 1 cm069_s1a.htm FORM S-1A

 

As filed with the U.S. Securities and Exchange Commission on June 14, 2022

 

Registration No. 333-264372

 

   

Amendment No. 1

to 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

 

LA ROSA HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   6531   87-1641189
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

 

1420 Celebration Blvd., 2nd Floor

Celebration, FL 34747

(321) 250-1799

(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)

 

Joseph La Rosa

Chief Executive Officer

1420 Celebration Blvd., 2nd Floor

Celebration, FL 34747

(321) 250-1799

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

Please send copies of all communications to:

Ross D. Carmel, Esq.

Carmel, Milazzo & Feil LLP
55 West 39th Street, 18th Floor

New York, NY 10018
(646) 838-1310

  M. Ali Panjwani, Esq.
Pryor Cashman LLP
7 Times Square
New York, NY 10036
(212) 421-4100

 

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box. ¨

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ¨
Non-accelerated filer x Smaller reporting company x
  Emerging growth company x

 

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 7(a)(2)(B) of the Securities Act.

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

   

 

 

The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion, Dated June 14, 2022

 

PRELIMINARY PROSPECTUS

 

 

LA ROSA HOLDINGS CORP.

 

1,500,000 Units

Each Unit Consisting of

One Share of Common Stock and

One Warrant to Purchase One Share of Common Stock

 

This is the initial public offering by La Rosa Holdings Corp., a Nevada corporation (the “Company”), of an assumed 1,500,000 units (the “Units” and each a “Unit”), with each Unit consisting of one share of common stock, $0.0001 par value per share (the “Common Stock”), and a warrant (the “Warrant”) to purchase one share of Common Stock at an assumed exercise price of $11.00 per share, or 110% of the price of each Unit sold in the (collectively, the “Securities”), in a firm commitment underwritten public offering (this “Offering”). The Warrants offered hereby may be exercised from time to time beginning on the date of issuance and will expire five years from the date of issuance. Our Units have no stand-alone rights and will not be certificated or issued as stand-alone securities. The shares of our Common Stock and the Warrants comprising our Units are immediately separable and will be issued separately in this Offering.

 

We anticipate that the initial public offering price of our Units will be between $9.00 and $11.00 per share. The number of Units and the number of shares of Common Stock and Warrants offered in this prospectus and all other applicable information has been determined based on an assumed public offering price of $10.00 per Unit. The actual public offering price for the Units will be determined between the underwriters and the Company at the time of pricing, considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the actual public offering price for our Common Stock and the Warrants and the assumed number of Units may change accordingly.

 

No public market currently exists for our Common Stock or our Warrants. We have applied to list the Common Stock on the Nasdaq Capital Market (“Nasdaq”), under the symbol “LRHC” and to list the Warrants under the symbol “LRHCW”. We will not consummate the Offering unless until we receive approval from Nasdaq to list our Common Stock.

 

Following the completion of this Offering, our Founder, Chairman of the board of directors and Chief Executive Officer, Mr. Joseph La Rosa, will control approximately [*]% of the voting power of our voting capital stock with respect to director elections and other matters (or approximately [*]% of the voting power if the underwriters exercise in full their 45-day option to purchase additional shares of our Common Stock to cover over-allotments, if any). Although we are a “controlled company” under the rules of the Nasdaq Capital Market, our board of directors will be composed of a majority of independent directors and we will not take advantage of the “controlled company” exemptions provided under such rules. Please see “Security Ownership of Certain Beneficial Owners and Management.”

 

Investing in our Units involves a high degree of risk. See “Risk Factors” beginning on page 15 of this prospectus for a discussion of information that should be considered in connection with an investment in our Securities.

 

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012 (or the JOBS Act) and, as such, have elected to comply with certain reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

   

 

 

      Price to
Public
      Underwriting
Discounts
and
Commissions
(1)
      Proceeds to
Us (2)
 
Per Unit   $       $       $    
Total   $       $       $    

 

(1)The underwriting discount is seven percent (7%) of the public offering price. The column does not include additional compensation payable to the underwriter. We have agreed to reimburse the underwriter for certain accountable expenses incurred relating to this Offering and to pay its non-accountable expenses in the amount equal to one percent (1%) of the public offering price we receive. In addition, we will issue to the underwriter a warrant to purchase up to six percent (6%) of the number of shares of Common Stock issued in this Offering. See “Underwriting” for additional information regarding underwriting compensation.

 

(2)The amount of offering proceeds to us presented in this table does not give effect to any exercise of the: (i) over-allotment option we have granted to the underwriters as described below, (ii) the exercise of the Warrants being issued as a part of the Units, (iii) the exercise of the warrants being issued to the Representative in this Offering, or (v) the exercise of the warrants we have issued in private placements prior to this initial public offering as described in more detail in this prospectus.

 

This offering is being underwritten on a firm commitment basis. We have granted a 45-day option to the underwriters, exercisable one or more times in whole or in part, to purchase up to an additional fifteen percent (15%) of the shares of Common Stock and/or fifteen percent (15%) of the Warrants offered hereby at the public offering price per share of Common Stock equal to the public offering price per Unit minus $0.01 per share and $0.01 per Warrant, respectively, less, in each case, the underwriting discounts payable by us, solely to cover overallotments, if any. (the “Over-Allotment Option”).

 

The underwriters expect to deliver the Securities against payment to the investors in this Offering on or about [     ], 2022.

 

Sole Book-Running Manager

 

Maxim Group LLC

 

The date of this prospectus is June 14, 2022.

 

   

 

 

TABLE OF CONTENTS

 

PROSPECTUS SUMMARY 1
   
SUMMARY OF THE OFFERING 8
   
SUMMARY FINANCIAL DATA 11
   
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 13
   
RISK FACTORS 15
   
USE OF PROCEEDS 35
   
CAPITALIZATION 36
   
DILUTION 38
   
DIVIDEND POLICY 40
   
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 42
   
UNAUDITED PRO FORMA FINANCIAL STATEMENTS 54
   
BUSINESS 63
   
MANAGEMENT 76
   
EXECUTIVE AND DIRECTOR COMPENSATION 84
   
TRANSACTIONS WITH RELATED PERSONS 95
   
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 96
   
DESCRIPTION OF THE SECURITIES 98
   
SHARES ELIGIBLE FOR FUTURE SALE 104
   
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS 105
   
UNDERWRITING 110
   
EXPERTS 117
   
LEGAL MATTERS 117
   
WHERE YOU CAN FIND MORE INFORMATION 117
   
INDEX TO THE FINANCIAL STATEMENTS F-1

 

Through and including [     ], 2022 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this Offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriter and with respect to their unsold allotments or subscriptions.

 

   

 

 

Neither we nor any of the underwriters have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus and any related free writing prospectus prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for and can provide no assurances as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, Units only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or in any applicable free writing prospectus related thereto is current only as of its date, regardless of its time of delivery or any sale of shares. Our business, financial condition, results of operations and future prospects may have changed since that date.

   

   

 

 

For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this Offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the Offering of the Securities and the distribution of this prospectus outside of the United States.

 

No person is authorized in connection with this prospectus to give any information or to make any representations about us, the Securities offered hereby, or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.

 

Copies of some of the documents referred to herein have been filed as exhibits to the registration statement of which this prospectus forms a part, and you may obtain copies of those documents as described in this prospectus under the heading “Where You Can Find More Information.”

 

BASIS OF PRESENTATION

 

The consolidated financial statements include the accounts of La Rosa Holdings Corp. and its subsidiaries La Rosa Coaching, LLC, La Rosa CRE, LLC, La Rosa Franchising, LLC, and La Rosa Property Management which are affiliated by virtue of common management and ownership. All intercompany transactions and accounts have been eliminated. Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. 

 

MARKET DATA

 

Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. Industry surveys, publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. To our knowledge, certain third-party industry data that includes projections for future periods does not take into account the effects of the worldwide coronavirus pandemic. Accordingly, those third-party projections may be overstated and should not be given undue weight. We have not independently verified any of the data from third party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based on our management’s knowledge of the industry, have not been independently verified. Forecasts are particularly likely to be inaccurate, especially over long periods of time. In addition, we do not necessarily know what assumptions regarding general economic growth were used in preparing the forecasts we cite. Statements as to our market position are based on the most currently available data. While we are not aware of any misstatements regarding the industry data presented in this prospectus, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.

 

TRADEMARKS

 

The logos, and other trade names, trademarks, and service marks of La Rosa Holdings Corp. appearing in this prospectus are the property of La Rosa Holdings Corp. Other trade names, trademarks, and service marks appearing in this prospectus are the property of their respective holders. Trade names, trademarks, and service marks contained in this prospectus may appear without the “®” or “™” symbols. Such references are not intended to indicate, in any way, that we, or the applicable owner or licensor, will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable owner or licensor to those trade names, trademarks, and service marks.

  

 ii 

 

 

ABOUT THIS PROSPECTUS

 

Throughout this prospectus, unless otherwise designated or the context suggests otherwise,

 

  · all references to the “Company,” the “registrant,” “LRHC,” “we,” “our,” or “us” in this prospectus mean La Rosa Holdings Corp., a Nevada corporation, and its subsidiaries;

 

  · “year” or “fiscal year” mean the year ending December 31st;

 

  · all dollar or $ references when used in this prospectus refer to United States dollars;

 

  · all references to the Securities Act mean the Securities Act of 1933, as amended and all references to the Exchange Act means the Securities Exchange Act of 1934, as amended;

 

  · all references to our Common Stock mean our authorized common stock, $0.0001 par value per share, and all references to our Series X Super Voting Preferred Stock means our authorized Series X Super Voting Preferred Stock, $0.0001 par value per share, that provides to the owner 10,000 votes per share; and

 

  · all share and per share data in this prospectus reflects a 10-for-1 reverse stock split of our Common Stock issued and outstanding (including adjustments for fractional shares), which was effective on March 21, 2022.

 

 iii 

 

  

PROSPECTUS SUMMARY

 

This summary highlights certain information about us and this Offering contained elsewhere in this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our Units and should be read in conjunction with the more detailed information appearing elsewhere in this prospectus. Before you decide to invest in our Units, you should carefully read the entire prospectus, including “Risk Factors” beginning on page 15, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” beginning on page 42 and the combined financial statements and related notes thereto included in this prospectus.

 

Concurrently with the closing of this Offering, we plan to acquire five limited liability companies and one corporation in separate acquisitions what will be closed simultaneously: (i) La Rosa Realty CW Properties, LLC, (ii) La Rosa Realty North Florida, LLC, (iii) La Rosa Realty the Elite LLC, (iv) La Rosa Realty Lakeland, LLC, (v) Horeb Kissimmee Realty LLC and (vi) La Rosa Realty Lake Nona, Inc. We collectively refer to these transactions as the “Combinations.”

 

Overview

 

We operate primarily in the U.S. residential real estate market, which, according to Zillow Research1, totaled $43.4 trillion in 2021 up by a record $6.9 trillion since 2020 and more than double the level from a decade ago.

 

We are the holding company for five agent-centric, technology-integrated, cloud-based, multi-service real estate companies. Our primary business, La Rosa Realty, LLC, has been listed in the “Top 75 Residential Real Estate Firms in the United States” by the National Association of Realtors (the “NAR”), the leading real estate industry trade association in the United States.

 

Our business was founded by Mr. Joseph La Rosa, a successful real estate developer, business and life coach, author, podcaster and public speaker. Mr. La Rosa’s self-help book “Do It Now” is a roadmap to personal success and well-being based on his transformative theories of family, passion and growth. His philosophy, seminars and educational forums have attracted numerous successful realtors that have spurred the growth of our business.

 

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 five La Rosa Realty corporate real estate brokerage offices located in Florida, 28 La Rosa Realty franchised real estate brokerage offices in six states in the United States and Puerto Rico, and an international La Rosa Realty franchised office in Peru. Our real estate brokerage offices, both corporate and franchised, are staffed with more than 2,380 licensed real estate brokers and sales associates.

 

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. 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.

 

 

1 https://www.zillow.com/research/us-housing-market-total-value-2021-30615/ 

 

1 

 

 

We believe that our focus on the interaction between our in-person agents and their clients is a strong weapon against the internet-only commodity websites and the low touch discount brokerages who compete with us. By creating a custom solution offering a unique experience, our agents are able to guide their clients seamlessly through what may be the most expensive purchase of their lifetime.

 

Disruptions related to the COVID-19 pandemic resulted in a downturn in our local residential real estate market in 2020. However, our local real estate market rebounded significantly in 2021 and continues to be strong as the pandemic has caused what appears to be a large migration into our market areas from other states. Because nearly all of our sales agents, who are independent contractors, were working remotely before the pandemic struck, and because Florida did not mandate stay-at-home orders like many other states, the manner in which our business is conducted during the pandemic has not changed significantly and has not affected the productivity of our sales agents in 2021.

 

In addition, a significant driver of our past, and we believe, our future growth is our ability to create revenue by referring or requiring that our agents and our franchisee’s agents use the different business services that we provide. For example, all agents new to our Company are required to have a “coach” and to attend multi-day training sessions to learn the Company’s philosophy, technology and business practices. Concurrently, the agent works with his or her coach in obtaining listings, working with consumers and closing transactions. All of these activities are run through our La Rosa Coaching, LLC subsidiary. We expanded our coaching offerings in the third quarter of 2021 to teach advanced techniques for team building, personal growth and business development, which we believe will provide increased revenue at a nominal increase in cost to us. In addition, unlike other residential real estate brokerages, we encourage our sales agents to pursue commercial real estate transactions and require them to utilize the services of our commercial real estate company La Rosa CRE, LLC. We anticipate acquiring other complementary businesses, such as title and insurance agencies and a mortgage brokerage, after the closing of this O6ffering to enhance our gross revenues and profit margins.

 

We face competition from established residential real estate companies such as RE/MAX Holdings, Inc., Keller Williams Realty, Inc., HomeSmart, Realogy Holdings, Corp., which franchises the Coldwell Banker and Century 21 brands, as well as from internet-based real estate brokers including Realtor.com, Fathom Holdings Inc., Redfin.com, and Zillow.com, brokers offering deeply discounted commissions like SimpleShowing Holdings, Inc., Houwzer LLC and Real Estate Exchange, Inc. (Rexhomes.com), and “flat fee” brokers such as Homie Technology, Inc., Cottage Street Realty, LLC (FlatFeeGroup.com) and Trelora, Inc. These companies do not provide the same personalized brokerage services that we do and emphasize low price and a do-it-yourself philosophy. We believe that our highly trained agents who work one-on-one with their clients are able to successfully close residential real estate transactions with a high level of consumer satisfaction that redounds to us in future business and referrals.

 

Our Organization

 

La Rosa Holdings Corp. was incorporated in the State of Nevada on June 14, 2021 by its founder, Mr. Joseph La Rosa, to become the holding company for five Florida limited liability companies of which Mr. La Rosa held a one hundred percent (100%) ownership interest: (i) La Rosa Coaching, LLC(“Coaching”); (ii) La Rosa CRE, LLC (“CRE”); (iii) La Rosa Franchising, LLC (“Franchising”); (iv) La Rosa Property Management, LLC (“Property Management”); and (v) La Rosa Realty, LLC (“Realty”). All of those limited liability companies are referred to collectively in this prospectus as the “LLCs.”

 

On August 4, 2021, we effected a corporate reorganization pursuant to a Reorganization Agreement and Plan of Share Exchange dated July 22, 2021 (the “Reorganization Agreement”) between La Rosa Holdings Corp. and each of the LLCs. Under the Reorganization Agreement, each LLC exchanged 100% of their limited liability company membership interests for one share of Company’s Common Stock, which share was automatically redeemed for nominal consideration upon the closing of the transaction, resulting in each LLC becoming the direct, wholly owned subsidiary of the Company. 

 

2 

 

 

The following chart illustrates the current corporate structure of our key operating entities:

 

 

The Company conducts its operations through its five subsidiaries:

 

  · La Rosa Coaching, LLC is engaged in the coaching, training and education of our real estate agents at every phase of the real estate business;

 

  · La Rosa CRE, LLC is a commercial real estate brokerage where we represent buyers and sellers in the sale of commercial real estate and the train and support our residential agents who are interested in pursuing commercial real estate sales;

 

  · La Rosa Franchising, LLC is engaged in the sale, oversight and provision of operating systems of independently owned and operated franchises of La Rosa Realty as well and the ongoing training and support for the franchise owners and staff;

 

  · La Rosa Property Management, LLC is engaged in providing training, compliance, support and accounting services for La Rosa Realty agents engaged in long term rental property management; and

 

  · La Rosa Realty, LLC is engaged in the residential real estate brokerage business and providing systems, accounting, marketing tools and compliance for our real estate agents who conduct residential real estate sales.

  

Selected Risks Associated with Our Business

 

Our business and prospects may be limited by a number of risks and uncertainties that we currently face, including the following:

 

  · The outbreak of the COVID-19 coronavirus pandemic had a material effect on our business in 2020, and, if there are significant future outbreaks, could continue to do so.

 

  · The residential real estate market is cyclical, and we can be negatively impacted by downturns in this market and general global economic conditions.

 

  · The ability of homebuyers to obtain financing in the U.S. residential real estate market at favorable rates and on favorable terms could have a material effect on our financial performance and results of operations.

 

  · Under the rules of the Nasdaq Capital Market, we will be a “controlled company” within the meaning of the corporate governance rules of The Nasdaq Capital Market and, although we do not presently intend to rely on certain exemptions from the corporate governance requirements of those rules, we may do so in the future.

 

  · We may fail to successfully execute our strategies to grow our business, including acquiring a controlling interest in a number of our current franchisees and growing our agent count.

 

3 

 

  · Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to grow our business, particularly in new markets where we have limited brand recognition.

 

  · Loss of the services of our Founder, Joseph La Rosa, our Chief Executive Officer and our Chairman of the board of directors, and our other current executive officers could adversely affect our operations.

 

  · Competition in the residential real estate business is intense and may adversely affect our financial performance.

 

  · The failure to attract and retain highly qualified and successful agents and franchisees could compromise our ability to pursue our growth strategy.

 

  · Our financial results are affected directly by the operating results of our agents and franchisees, over whom we do not have direct control.

 

  · Our operating results are subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of consecutive quarters difficult.

 

4 

 

 

  · Our business could be adversely affected if we are unable to expand, maintain, and improve the systems and technologies that we rely on to operate.

 

  · Our business, financial condition and reputation may be substantially harmed by security breaches, cybersecurity incidents, and interruptions, delays and failures in our systems and operations.

 

  · We face significant risk to our brand and revenue if we fail to maintain compliance with the law and regulations of federal, state, foreign, county governmental authorities, or private associations and governing boards.

 

  · Failure to protect our intellectual property rights could adversely affect our business.

 

  · We may evaluate entities in complementary or competitive businesses for acquisition in order to accelerate growth but might not succeed in identifying suitable candidates or may acquire businesses that negatively impact us or may have trouble integrating businesses that we acquire.

 

  · We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business and financial condition.

 

In addition, we face other risks and uncertainties that may materially affect our business prospects, financial condition and results of operations. You should consider the risks discussed in “Risk Factors” starting on page 15 and elsewhere in this prospectus before investing in our Units.

 

Corporate Information

 

Our principal executive office is located at 1420 Celebration Boulevard, Suite 200, Celebration, Florida 34747. Our telephone number at our principal executive office is (321) 939-3748. Our corporate website is https:// www.larosarealty.com. The information on our corporate website is not part of, and is not incorporated by reference into, this prospectus.

 

Recent Developments

 

Issuance of Convertible Notes

 

In a private placement conducted from July 2021 through February 2022, we entered into Convertible Note Purchase Agreements pursuant to which we issued unsecured convertible promissory notes to certain “accredited investors” under an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of that Act and/or Rule 506(b) of Regulation D promulgated thereunder. In accordance with such purchase agreements, we issued convertible promissory notes in the aggregate principal amount of $516,000 that we used to pay the expenses of our organization and reorganization and for other general corporate purposes. Interest accrues on the principal amount of fourteen of the convertible promissory notes at 2.5% with a default rate of 3.0% per annum, and interest accrues on the principal amount of seven of the convertible promissory notes at 18.0%, with a default interest rate of 20.0% per annum. The convertible promissory notes rank on a parity with the Company’s other existing debt and mature on the earlier of the date that the Company’s Common Stock becomes listed for trading on a national securities exchange or one year from the date of issue of each such note. Prior to the maturity date, the convertible promissory notes will convert the outstanding principal and accrued interest automatically into shares of the Company’s Common Stock on the date of the closing of this Offering at a price per share equal to the product of the public offering price of the Units multiplied by 0.80. All of the convertible promissory notes are prepayable, in whole or in part, at any time prior to maturity without penalty or premium.

5 

 

 

Issuance of promissory notes

 

On July 15, 2021, the Company issued to ELP Global PLLC a promissory note in the principal amount of $40,000 that we used for our general corporate purposes. Interest accrues on the principal amount at 18% of outstanding amount per annum. The maturity date of the note was extended to June 30, 2022.

 

On February 25, 2022, the Company issued to Joseph La Rosa an unsecured subordinated promissory note in the principal amount of $100,000 that we used for our general corporate purposes. Interest accrues on the principal amount at 1.4% per annum with a default interest rate of 3% per annum. The payment of all or any portion of the outstanding principal balance of the note and all interest thereon shall be pari passu in right of payment and in all other respects to the other unsecured subordinated promissory notes issued and all other trade debt and other obligations of the Company ranking similar to the note.

 

On April 29, 2022, the Company issued to Joseph La Rosa an unsecured subordinated promissory note in the principal amount of $100,000 that we used for our general corporate purposes. Interest accrues on the principal amount at 1.87% per annum with a default interest rate of 3% per annum. The payment of all or any portion of the outstanding principal balance of the note and all interest thereon shall be pari passu in right of payment and in all other respects to the other unsecured subordinated promissory notes issued and all other trade debt and other obligations of the Company ranking similar to the note.

 

On May 17, 2022, the Company issued to Joseph La Rosa an unsecured subordinated promissory note in the principal amount of $50,000 that we used for our general corporate purposes. Interest accrues on the principal amount at 2.51% per annum with a default interest rate of 3% per annum. The payment of all or any portion of the outstanding principal balance of the note and all interest thereon shall be pari passu in right of payment and in all other respects to the other unsecured subordinated promissory notes issued and all other trade debt and other obligations of the Company ranking similar to the note.

 

Acquisitions of Franchisees

        

We have signed purchase agreements with six of our franchisees to acquire a majority or a one hundred percent (100%) interest in their real estate brokerage businesses immediately after the closing of this Offering on terms as follows:

 

Name of
Franchisee
  Location  Percentage
Interest To
Be Purchased
   Total
Consideration
   Cash
Consideration
   Stock
Consideration(1)
 
Horeb Kissimmee Realty LLC  Kissimmee, Florida   51%  $6,136,267   $1,200,000   $4,936,267 
La Rosa Realty Lake Nona, Inc.  Orlando, Florida   51%  $3,349,987   $0   $3,349,987 
La Rosa Realty North Florida, LLC  Jacksonville, Florida   100%  $1,828,107   $300,000   $1,528,107 
La Rosa Realty The Elite LLC  Wesley Chapel, Florida   51%  $1,237,969   $0   $1,237,969 
La Rosa Realty Lakeland LLC  Lakeland, Florida   51%  $1,158,645   $0   $1,158,645 
La Rosa CW Properties LLC  Longwood, Florida   100%  $2,400,000   $100,000   $2,300,000 

 

 

(1) The stock consideration will be paid in unregistered, “restricted” shares of Company Common Stock valued at the initial public offering price of the Units.

 

Each of the sellers of the above franchisees have signed: (i) a Leak Out Agreement pursuant to which the sellers have agreed not to sell the shares of Common Stock received in the buyout transaction until the 181st day after the closing date of this Offering, and for the period ending one year from that date, to sell only one-twelfth of the shares received per calendar month, subject to applicable securities laws as such shares are “restricted securities” under the Securities Act; (ii) a Proxy Agreement which grants to Mr. Joseph La Rosa or his successor, in his capacity as the Chief Executive Officer (“CEO”), the seller’s irrevocable proxy to vote all of the shares of Common Stock received by the sellers in the acquisition transaction; and (iii) an employment agreement to serve as the president of such company commencing immediately after the closing of the acquisition, reporting to Mr. Joseph La Rosa, with a salary that can be adjusted if that company’s net profitability changes by more than 5% in any one month. The sellers have agreed to certain confidentiality, work product, non-competition, non-solicitation and non-disparagement terms.

 

Status as a Controlled Company

 

Because of the voting control held by Mr. La Rosa, we are considered a “controlled company” within the meaning of the listing standards of Nasdaq. Under these rules, a “controlled company” may elect not to comply with certain corporate governance requirements, including the requirement to have a board of directors that is composed of a majority of independent directors. We currently do not intend to take advantage of these exemptions but could do so at any time in the future provided that we continue to qualify as a “controlled company.”

 

6 

 

 

Implications of Our Being an “Emerging Growth Company”

 

As a company with less than $1.07 billion in revenue during our last completed fiscal year, we qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of specified reduced reporting requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company, we:

 

  · are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;

 

  · are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements, and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);

 

  · are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);

 

  · are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;

 

  · may present only two years of audited financial statements; and

 

  · are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act.

 

We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under Section 107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under Section 107 of the JOBS Act.

 

Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding internal control over financial reporting, are not required to provide a compensation discussion and analysis, are not required to provide a pay-for-performance graph or CEO pay ratio disclosure and may present only two years of audited financial statements and related Management’s Discussion and Analysis disclosure.

 

Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act, or such earlier time that we no longer meet the definition of an emerging growth company. The JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1.07 billion in annual revenue, have more than $700 million in market value of our Common Stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Further, under current rules of the Securities and Exchange Commission (the “SEC” or the “Commission”), we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $250 million as of the last business day of our most recently completed second fiscal quarter.

 

7 

 

 

SUMMARY OF THE OFFERING

 

Issuer:   La Rosa Holdings Corp., a Nevada corporation.
     
Offered Securities:   We are offering 1,500,000 Units (subject to adjustment as noted herein), each consisting of one share of our Common Stock and one Warrant to purchase one share of our Common Stock (together with the shares of Common Stock underlying such Warrants). The actual number of Units we offer will be determined based on the actual public offering price of the Units such that we will offer and sell up to $15,000,000 of the Units hereby.
     
Offering price per Unit:   We will offer the Units in a price range of between $9.00 and $11.00 per Unit. The actual offering price of the Units will be determined between the underwriters and the Company at the time of pricing, considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business. Therefore, the assumed public offering price used throughout this prospectus of $10.00 per Unit (the midpoint of the price range for the Units) may not be indicative of the actual public offering price of the Units at the closing of this Offering.
     
Description of the Warrant:   Each Unit Warrant is exercisable for one share of Common Stock, subject to adjustment in the event of stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our Common Stock as described herein. The exercise price of the Warrant is $11 per share (110% of the public offering price per Unit).  A holder may not exercise any portion of a Warrant to the extent that the holder, together with its affiliates and any other person or entity acting as a group, would own more than 4.99% of the outstanding Common Stock after exercise, as such percentage ownership is determined in accordance with the terms of the Warrants, except that upon notice from the holder to us, the holder may waive such limitation up to a percentage, not in excess of 9.99%. Each Warrant will be exercisable immediately upon issuance and will expire five years after the initial issuance date. The terms of the Warrant will be governed by a Warrant Agency Agreement, dated as of the effective date of this Offering, between us and VStock Transfer LLC, as the warrant agent (the “Warrant Agent”). This prospectus also relates to the offering of the shares of Common Stock issuable upon exercise of the Warrants. For more information regarding the Warrants, you should carefully read the section titled “Description of the Securities – Warrants Issued in This Offering” in this prospectus.
     
Over-allotment option:   We have granted the underwriters an option, exercisable for 45 days after the date of this prospectus, to purchase up to an additional 225,000 shares of Common Stock and/or up to an additional 1,500,000 Warrants, in any combination thereof, at the public offering price per share of Common Stock equal to the public offering price per Unit minus $0.01 and a price per Warrant of $0.01, respectively, less, in each case, the underwriting discounts payable by us, in any combination solely to cover over-allotments, if any (the “Over-Allotment Option”).
     
Shares of capital stock outstanding immediately before the Offering (1):  

· 3,000,000 shares of Common Stock; and

· 2,000 shares of Series X Super Voting Preferred Stock having 10,000 votes per share when voting together with the Common Stock, all of which are owned by Mr. La Rosa.

     
Shares of capital stock outstanding immediately after the Offering (2):  

· 4,500,000 shares of Common Stock (assuming the sale of 1,500,000 Units at $10.00 per Unit (the midpoint of the price range of the Units offered hereby); and

· 2,000 shares of Series X Super Voting Preferred Stock having 10,000 votes per share, when voting together with the Common Stock, all of which are owned by Mr. La Rosa.

     
Disparate voting rights:     Our Founder, Chief Executive Officer, President and Chairman, Joseph La Rosa, currently holds 100% of the outstanding Common Stock of the Company and 2,000 shares of Series X Super Voting Preferred Stock having 10,000 votes per share when voting together with the Common Stock. Mr. La Rosa will maintain control of the Company after this Offering, including the election of our directors and the approval of any change in control transaction. See the sections titled, “Security Ownership of Certain Beneficial Owners and Management” and “Description of the Securities - Preferred Stock” for additional information.
     
Use of proceeds:   We estimate that we will receive net proceeds of approximately $12,800,000 from our sale of the Units in this Offering, after deducting underwriting discounts and estimated offering expenses payable by us. We intend to use the net proceeds we receive from this Offering for general corporate purposes, which may include financing our growth by acquiring more agents at a faster pace (10%), developing new services (10%), funding capital expenditures (20%), acquisitions of controlling interest in a number of our franchisees (10%), the acquisition of other independent real estate brokerages, title insurance agencies, mortgage brokerages and other complementary businesses (30%), and the purchase and acquisition of proprietary technology (20%). See “Use of Proceeds” for more information.
     
Representative’s Warrants:   The registration statement of which this prospectus is a part also registers for sale warrants (the “Representative’s Warrants”) to purchase up to six percent (6.0%) of the shares of our Common Stock sold in this Offering to Maxim Group LLC (the “Representative”), as a portion of the underwriting compensation in connection with this Offering. The Representative’s Warrants will be exercisable at any time, and from time to time, in whole or in part, during the period commencing 180 days from the first day of the sales of the public equity securities and expiring five years from the effective date of the Offering at an exercise price of $ [*] (110% of the public offering price per Unit). Please see “Underwriting - Representative’s Warrants” on page 110 of this prospectus for a description of these Warrants.

 

8 

 

 

Underwriter compensation:   In connection with this Offering, the underwriters will receive an underwriting discount equal to seven percent (7.0%) of the offering price of the Units in this Offering. In addition, we have agreed to: (i) reimburse certain accountable expenses of the Representative, (ii) pay the Representative a non-accountable expense allowance equal to one percent (1%) of the aggregate public offering price of the Units in this Offering, (iii) a right of first refusal to act as our underwriter in future offerings; (iv) and (v) indemnify the underwriters for certain liabilities in connection with this Offering. See “Underwriting” starting on page 109 of this prospectus.
     
Proposed Nasdaq Capital Market listing:   We have applied to have our Common Stock listed on the Nasdaq Capital Market under the symbol “LRHC” and to have our Warrants listed under the symbol “LRHCW.” No assurance can be given that our Nasdaq listing application will be approved, or that a trading market will develop for our Common Stock and/or Warrants. We will not proceed with this Offering if our application to list our Common Stock on Nasdaq is not approved.  
     
Lock-up agreements:   We have agreed with the underwriter not to offer for sale, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any securities of the Company for a period of twelve months after the closing date of this Offering without the prior written consent of the Representative. Our directors, officers and holders of five percent (5%) or more of our Common Stock as of the effective date of the registration statement of which this prospectus is a part (and all holders of securities exercisable for or convertible into shares of Common Stock) have agreed, for a period of six  months after the Offering is completed, that they shall neither offer, issue, sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any securities of the Company without the Representative’s prior written consent, including the issuance of shares of Common Stock upon the exercise of currently outstanding options approved by the Representative, which restriction may be waived in the discretion of the Representative. See “Underwriting-Lock-Up Agreements” on page 111 of this prospectus.
     
Dividends:   We do not anticipate paying dividends on our Common Stock for the foreseeable future.
     
Risk factors:   Investing in our Securities involves a high degree of risk and purchasers of our Securities may lose their entire investment. See “Risk Factors” starting on page 15 and the other information included and incorporated by reference into this prospectus for a discussion of risk factors you should carefully consider before deciding to invest in our securities.
     
Transfer Agent and Warrant Agent:   VStock Transfer, LLC.

 

The actual number of Units we will offer will be determined based on the actual public offering price.

 

(1)The number of shares of Common Stock to be outstanding immediately before this Offering excludes any shares of Common Stock issuable upon the mandatory conversion of the Convertible Promissory Notes issued by us to a number of investors in a private placement between July 2021 and February 2022 at a conversion price equal to eighty percent (80%) of the initial offering price of a Unit.

 

9 

 

 

(2)The number of shares of Common Stock to be outstanding immediately following this Offering excludes:

 

  225,000 shares of Common Stock issuable upon the exercise of the Over-Allotment Option;
     
  90,000 shares of Common Stock issuable upon the exercise of the Representative’s Warrants;
     
  20,000 shares of Common Stock issuable upon the exercise of the warrants granted to Exchange Listing, LLC, a consultant to the Company (the “Consultant Warrants”);
     
  115,500 shares of Common Stock issuable upon the closing of this Offering to Exchange Listing, LLC, a consultant to the Company for services provided in connection with this Offering (based on an assumed sale of 1,500,000 Units) (the “Exchange Listing Shares”);
     
  40,000 shares of Common Stock underlying the stock options to be granted to directors;
     
  2,000 shares of Common Stock issued to our Chief Technology Officer that will vest on February 1, 2023 (“Vesting Shares”);
     
  conversions of $516,000 of convertible notes and $49,162 of interest into 70,656 shares of Common Stock based on an assumed offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus);
     
  1,451,099 shares of Common Stock to be issued to the owners of real estate brokerage businesses that we intend to acquire immediately after the closing of this Offering;
     
  92,400 shares of Common Stock issuable upon the closing of this Offering to Mr. Mark Gracy, the Company’s Chief Operating Officer (based on an assumed sale of 1,500,000 Units) (“COO Shares”);
     
  92,400 shares of Common Stock underlying the stock options to be granted upon the closing of this Offering to Mr. Mark Gracy, the Company’s Chief Operating Officer (based on an assumed sale of 1,500,000 Units) (“COO Shares”);
     
 

165,000 shares of Common Stock issuable upon the closing of this Offering to Mr. Brad Wolfe, the Company’s Chief Financial Officer (based on an assumed sale of 1,500,000 Units) (“CFO Shares”);

 

  50,000 shares of Common Stock issuable upon the closing of this Offering to Mr. Josh Epstein, the Company’s Chief Strategy Officer (based on an assumed sale of 1,500,000 Units) (“CSO Shares”); and
     
  221,362 shares of Common Stock issuable upon the closing of this Offering to Bonilla Opportunity Fund I, Ltd., a consultant to the Company for services provided in connection with this Offering (based on an assumed sale of 1,500,000 Units), which were assigned by Bonilla Opportunity Fund I, Ltd. to CGB-TRUST-1001-01-13-22 and ELG-TRUST-1004-09-01-13 equally (the “Bonilla Shares”).

 

All share and per share information referenced throughout this prospectus has been retroactively adjusted to reflect a 10-for-1 reverse stock split of our issued and outstanding Common Stock effected on March 21, 2022 (the “Reverse Stock Split”). Any fractional shares resulting from the Reverse Stock Split have been rounded up to the nearest whole share.

 

Except as otherwise indicated, all information in this prospectus assumes:

 

  no exercise of any options under the Company’s 2022 Equity Incentive Plan;
     
  no exercise of the Representative’s Warrants;
     
  no exercise of the Over-Allotment Option;
     
  no exercise of the Consultant Warrants;
     
  no exercise of the stock options to be granted to directors;
     
  no issuance of the Exchange Listing Shares;
     
  no issuance of the Bonilla Shares;
     
  no issuance of the CFO Shares;
     
  no issuance of the CSO Shares;
     
  no issuance of the COO Shares; and
     
  no issuance of the Vesting Shares.

 

The Unaudited Pro Forma Condensed Combined Statement of Operations contained herein reflect the La Rosa Holding Corp. weighted average basic and diluted shares outstanding of 3,106,667 on March 31, 2022. The 3,106,667 weighted average shares at March 31, 2022 reflects the 3,000,000 shares held by Joseph La Rosa at December 31, 2021 (and at March 31, 2022) and the weighted average shares held of 120,000 shares issued in connection with consulting services in January, 2022.

 

The weighted average basic and diluted shares outstanding of 6,788,017, reflected in the Unaudited Pro Forma Condensed Combined Statement of Operations assuming an offering date of May 25, 2022 included in this offering, include the 3,120,000 total shares outstanding at March 31, 2022, 1,500,000 shares of this offering, 1,451,099 shares issued for the acquisition of controlling interest in a number of franchisees described in this offering, 336,862 of shares to be granted under consulting agreements, 309,400 shares unvested and restricted shares to be granted under employment agreements, and 70,656 shares related to the convertible notes.

 

The pro forma information included herein reflects the impact of the shares the Company is contractually obligated to issue upon closing of the Offering. The adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet and Statement of Operations related to shares in the Offering and contractually obligated shares is reflected in the table below.

  

Pro Forma Adjustments related to shares  Pro Forma Balance Sheet   Pro Forma Statement of Operations 
   Shares   Cash   Other
Assets
  

Accrued

Expenses

  

Convertible

Debt

  

Derivative

Liability

  

Common

Stock

   APIC  

Accum.

Defcit

   Noncontrolling interest   G&A   Other Expense 
Shares in offering   1,500,000   $12,800,000   $1,266,791                  $(1,280)  $(14,065,511)                    
Shares to purchase franchisees   1,451,099    (1,600,000)   27,361,429                   (145)   (14,510,830)   166,419    (11,416,873)          
Shares to be granted under consulting agreements   336,862    (100,000)                       (34)   100,034                     
Shares to be granted under employment agreements   309,400                             (309)   (3,093,691)             3,094,000      
Shares granted to convert debt   70,656              39,627    481,851    163,511    (7)   (641,302)                  (43,680)
        $11,100,000   $28,628,216   $39,627   $481,851   $163,511   $(1,775)  $(32,211,300)  $166,419   $(11,416,873)  $3,094,000   $(43,680)

 

The following securities were excluded from the weighted average diluted shares outstanding in the earnings per share calculation in the Unaudited Pro Forma Condensed Combined Statement of Operations: 1,500,000 shares related to warrants in the Offering, 225,000 shares underlying the over-allotment options, 132,400 shares underlying options to be issued under employment and directors agreements, and 110,000 shares related to warrants issued to service providers associated with the Offering.

 

10 

 

 

SUMMARY FINANCIAL DATA

 

You should read the following selected financial data together with our financial statements and the related notes thereto included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” Section of this prospectus. We have derived the statement of operations data for the three months ended March 31, 2022, and the balance sheet data as of March 31, 2022, from our unaudited financial statements included elsewhere in this prospectus. We have derived the statement of operations data for the years ended December 31, 2021, and 2020 and the balance sheet data as of December 31, 2021, and 2020 from our audited financial statements included elsewhere in this prospectus. The share and per share amounts for all periods reflect the completion of the Reverse Stock Split, which was effective on March 21, 2022. Our historical results are not necessarily indicative of the results that should be expected in the future and the results for the year ended December 31, 2021, are not necessarily indicative of the results to be expected for the full year ending December 31, 2022, or any other future period.

 

Consolidated Summary of Operations

 

   Unaudited   Audited 
   Periods ended March 31   Year ended December 31 
   2022   2021   2021   2020 
Net Revenue  $6,639,152   $6,431,194   $28,797,531   $24,127,871 
                     
Cost of revenue   5,686,805    5,525,006    25,283,775    21,051,729 
Gross Profit   952,347    906,188    3,513,756    3,076,142 
OPERATING EXPENSES                    
General and administrative   1,019,714    712,232    3,196,379    2,689,535 
Sales and marketing   117,257    48,704    254,453    258,953 
OPERATING INCOME (LOSS)   (184,624)   145,252    62,924    127,654 
                     
OTHER INCOME (EXPENSE)   (108,539)   58,590    185,274    6,707 
                     
Income tax expense   -    -    150,000    - 
                     
NET INCOME (LOSS)  $(293,163)  $203,842   $98,198   $134,361 
                     
Income (Loss) per common share – basic and diluted  $(0.09)  $0.07   $0.03   $0.04 

 

Consolidated Balance Sheet

 

   Unaudited   Unaudited 
   Actual   Pro Forma 
   as of March 31, 2022   as of March 31, 2022 
Cash  $226,574   $9,791,907 
Working capital (deficit)   (648,875)   9,149,448 
Restricted cash   1,270,434    1,270,434 
Total assets   3,195,379    39,387,725 
Total liabilities   4,173,147    4,678,105 
Total stockholders’ equity (deficit) before non-controlling interest   (977,768)   23,292,747 

 

11 

 

 

The pro forma column in the balance sheet data above gives effect to (1) the sale of Securities for cash in this Offering at the assumed public offering price of $10.00 per Unit, after deducting underwriting discounts and commissions and estimated offering expenses payable by us (the seven percent (7%) underwriters’ discount, one percent (1%) non-accountable expense and $1,000,000 of estimated offering costs, of which $515,394  was included in deferred offering costs as of March 31, 2022), in the total amount of $2,200,000, as if the sale of the Units had occurred on January 1, 2022 and (2) the mandatory conversion convertible notes and accrued interest in the amount of $481,971, net of unamortized discount of $34,029 and the elimination of the derivative liability of $163,511 due to the embedded conversion feature of the convertible notes.

 

Each $1.00 increase in the assumed public offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus), would increase our stockholders’ equity, as adjusted, after this Offering by approximately $1.4 million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 decrease in the assumed public offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus), would decrease our stockholders’ equity, as adjusted, after this Offering by approximately $1.4 million, assuming that the number of Units offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase of 100,000 Units in the number of Units offered by us at the assumed initial public offering price per share of $10.00 per Unit would increase the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders’ equity and total capitalization by approximately $900,000. Each decrease of 100,000 Units in the number of Units offered by us at the assumed initial public offering price per share of $10.00 per Unit would decrease the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders’ equity and total capitalization by approximately $900,000.

 

12 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains “forward-looking statements.” Forward-looking statements reflect the current view about future events. When used in this prospectus, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions, as they relate to us or our management, identify forward-looking statements. Such statements, include, but are not limited to, statements contained in this prospectus relating to our business strategy, our future operating results and liquidity and capital resources outlook. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward–looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. They are neither statements of historical fact nor guarantees of assurance of future performance. We caution you therefore against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation:

 

  · the effect of COVID-19 pandemic on our business operations;

 

  · 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 LLCs;

 

  · 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;

 

  · our ability to manage our future growth and dependence on our contractors;

 

  · our ability to maintain the strength of our brands;

 

  · our ability to maintain and increase our financial performance;

 

  · other factors discussed elsewhere in this prospectus.

 

We might not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly under “Risk Factors” starting on page 15 of this prospectus and the documents incorporated herein that we believe could cause actual results or events to differ materially from the forward-looking statements that we make.

 

13 

 

   

You should read this prospectus and the documents that we have filed as exhibits to this prospectus completely and with the understanding that our actual future results may be materially different from what we expect.

 

Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information or future events or developments. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this prospectus. You also should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. Before deciding to purchase our Units, you should carefully consider the risk factors discussed in this prospectus.

 

14 

 

 

RISK FACTORS

 

Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occur, our business and financial performance could be adversely affected, our actual results could differ materially from our expectations, and the price of our Common Stock could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance. You should carefully consider the risks described below, together with all other information included in this prospectus including our financial statements and related notes, before making an investment decision. The statements contained in this prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our Common Stock could decline, and investors in our Securities may lose all or part of their investment.

 

Risks Related to Our Business and Operations

 

The effects of the COVID-19 pandemic have caused and will likely continue to cause significant disruption to our real estate market, and the severity and duration of these impacts on future financial performance and results of operations remain uncertain.

 

The COVID-19 pandemic has spread across the globe and is impacting economic activity worldwide. The pandemic poses significant risks to our business and our employees, franchisees and agents. The COVID-19 pandemic negatively impacted our business and that of our franchisees in 2020. The pandemic poses the risk of an extended disruption to our business, that of our franchisees and other business partners, and the housing market generally, due to the impact of the disease itself, actions intended to limit or slow its spread, and other factors. These include government-imposed lockdowns, restrictions on travel or transportation, social distancing requirements, limitations on the size of gatherings, policies that ban or severely limit in-person showings of properties, closures of work facilities, schools, public buildings and businesses, cancellation of events, curtailing other activities and quarantines.

 

In the spring 2020, the pandemic resulted in a significant slowing of residential real estate listings and sales as the population in our market areas endured business shutdowns, work from home requirements, shortages of consumer staples and a general retreat from normal day-to-day social interactions. This slow down, however, reversed in mid-2020, resulting in a substantial increase in listings and sales, which has continued through the date of this prospectus due to a large migration of home buyers from other states.

 

We applied for and received Federal government grants (“Economic Injury Disaster Loan Advances”) totaling $12,000, Economic Injury Disaster Loan’s totaling $365,100, and received loans totaling $209,200 under the Federal Government’s Paycheck Protection Program. We are currently applying for forgiveness on the Paycheck Protection Program loans but cannot be assured that such loans will be forgiven by the U.S. Small Business Administration. None of those funds were provided to our sales agents or franchisees.

 

The duration and magnitude of the impact from the COVID-19 pandemic depends on future developments that cannot be predicted at this time. There remains significant uncertainty regarding the continuing impact of COVID-19 on our business and the overall economy as a whole in the United States and internationally where we have, and plan to establish franchise operations. In particular, there is significant concern regarding the possibility of additional waves of COVID-19 variant cases that could cause state and local governments to reinstate more restrictive measures, which could impact our business and the housing markets. There is also uncertainty regarding viable treatment options or the efficacy of vaccines and public health mandates emanating from Federal, State and local governments that have at times, been confusing and contradictory.

 

Business disruptions due to the pandemic may continue, particularly if stringent mitigation actions by government authorities are put in place or remain in place for a significant amount of time. The future impact of the COVID-19 pandemic on our liquidity, financial condition and results of operations is unknown, and its impact may be variable over time as government regulations, market conditions and consumer behavior changes in response to developments with respect to the pandemic.

 

15 

 

   

The residential real estate market is cyclical, and we can be negatively impacted by downturns in this market and general economic conditions.

 

The residential real estate market tends to be cyclical and typically is affected by changes in general economic conditions which are beyond our control. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, levels of unemployment, consumer confidence and the general condition of the U.S. and the global economy. The residential real estate market also depends upon the strength of financial institutions, which are sensitive to changes in the general macroeconomic environment. Lack of available credit or lack of confidence in the financial sector could impact the residential real estate market, which in turn could materially and adversely affect our business, financial condition and results of operations. Due to the cyclicality of the real estate market, we cannot predict whether this period of sustained growth will continue, whether mortgage rates will remain at historically low levels and whether home prices will continue to climb. The U.S. has experienced housing “bubbles” in the past which have burst, resulting in significant price declines, mortgage defaults and home foreclosures by lenders, the last one occurring in the early 2000’s.

 

Any of the following could be associated with cyclicality in the housing market by halting or limiting the current growth in the housing market, and have a material adverse effect on our business by causing periods of lower growth or a decline in the number of home sales and/or home prices which, in turn, could adversely affect our revenue and profitability:

 

  · a spike in inflation;

 

  · a period of slow economic growth or recessionary conditions;

 

  · an increase in mortgage interest rates;

 

  · a tightening of credit standards by financial institutions;

 

  · legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to those relating to mortgage financing, restrictions imposed on mortgage originators as well as retention levels required to be maintained by sponsors to securitize certain mortgages, the elimination of the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, and real property taxes and employee relocation expense;

 

  · insufficient home inventory levels in our markets;

 

  · a continued increase in the acquisition of single-family homes by corporate buyers for rental purposes;

 

  · a decrease in the affordability of homes;

 

  · increase in the cost of premiums for home insurance due to recent hurricanes; and,

 

  · natural disasters, such as hurricanes, earthquakes and other disasters that disrupt local or regional real estate markets.

 

The lack of financing for homebuyers in the U.S. residential real estate market at favorable rates and on favorable terms could have a material adverse effect on our financial performance and results of operations.

 

Our business is significantly impacted by the availability of financing at favorable rates or on favorable terms for homebuyers, which may be affected by government regulations and policies. Certain on-going governmental actions or inactions, such as the U.S. federal government’s conservatorship of Fannie Mae and Freddie Mac, capital standards imposed on banks by the Office of the Comptroller of the Currency, the monetary policy of the U.S. government, and any rising interest rate environment may adversely impact the housing industry, including homebuyers’ ability to finance and purchase homes.

 

16 

 

   

The monetary policy of the U.S. government, and particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S., significantly affects the availability of financing at favorable rates and on favorable terms, which in turn affects the domestic real estate market. Policies of the Federal Reserve Board can affect interest rates available to potential homebuyers. Further, we will be adversely affected by any rising interest rate environment. Changes in the Federal Reserve Board’s policies, the interest rate environment and mortgage market are beyond our control, are difficult to predict and could restrict the availability of financing on reasonable terms for homebuyers, which could have a material adverse effect on our business, results of operations and financial condition. We review all aspects of the current state of legislation, regulations and policies affecting the domestic real estate market and cannot predict whether or not such legislation, regulation and policies may result in increased down payment requirements, increased mortgage costs, and result in increased costs and potential litigation for housing market participants, any of which could have a material adverse effect on our financial condition and results of operations.

 

We may fail to successfully execute our strategies to grow our business, including increasing our agent count, expanding the number of our franchisees and agents, or we may fail to manage our growth effectively, which could have a material adverse effect on our brand, our financial performance and results of operations.

 

We intend to pursue a number of different strategies to grow our revenue and earnings. However, we may not be able to successfully execute these strategies. We intend to pursue a strategy of increasing our agent count by increasing our recruiting efforts. Recent history has shown that a strong real estate market brings in more realtors, some of whom have worked in the industry on a part-time basis. As the market continues to grow, we believe that will enable us to sell more franchises and recruit and retain higher numbers of agents, increasing our revenue and profitability. However, competition for qualified and effective agents is intense, and we may be unable to recruit and retain enough qualified and effective agents to satisfy our growth strategies. This competition creates challenges that include:

 

  · our ability to discover and recruit independent brokerage firms in new markets and being able to acquire them;

 

  · our ability to increase our brand awareness in new markets in order to penetrate them with our brokerages;

 

  · our ability to effectively train and mentor a larger number of new agents and franchisees;

 

  · our ability to continually improve the performance, features and reliability of our technological developments in response to both evolving demands of the marketplace and competitive product offerings;

 

  · our ability to scale our business services and support quickly enough to meet the growing needs of our real estate agents by improving our internal systems, integrating with third-party systems, and maintaining infrastructure performance;

 

  · our ability to attract and retain senior management to operate and control the expansion of our business, organically and potentially, through acquisitions; and

 

  · our ability to enhance our financial reporting, internal control, human resources, legal and other administrative areas to effectively manage the growth of our Company.

 

If we do not effectively manage our growth, our brand could suffer. In order to successfully expand our business, we must effectively recruit, develop and motivate new franchisees and new agents and employees, and we must maintain the beneficial aspects of our three pillars philosophy. We may not be able to hire new agents or employees and our franchisees may not be able to recruit new agents necessary to manage our growth quickly enough to meet our needs. If we fail to effectively manage our hiring needs and successfully develop our franchisees, our franchisee, agent and employee morale, productivity and retention could suffer, and our brand and results of operations could be harmed. These improvements could require significant capital expenditures and place increasing demands on our management. We may not be successful in managing or expanding our operations or in maintaining adequate financial and operating systems and controls. If we do not successfully manage these processes, our results of operations, financial condition and prospects could be adversely affected.

 

17 

 

   

The failure to attract and retain highly qualified franchisees and to acquire and open new corporate offices could compromise our ability to pursue our growth strategy.

 

The success of our franchisees depends largely on the efforts and abilities of franchisees and their agents, which are subject to numerous factors, including the fees or sales commissions they receive, and our ability to train and oversee their operations to ensure that they provide the quality service promoted by our brands. If our franchisees do not continue to believe in the value proposition we offer with our brand, believe that we are overcharging them for the services we provide, or, for other reasons decide not to renew their franchise agreements with us, our business may be materially adversely affected. Additionally, if our franchisees are not successful, they will fail to attract and retain productive agents and will fail to generate the revenue necessary to pay the contractual fees and dues owed to us.

 

In addition, if we are unable to organically increase the number of, and acquire new, corporate realty offices in the future, our growth will stagnate and we could lose high producing agents to other competing brokerages, all of which would have a material adverse effect on our results of operations, financial condition and prospects.

 

We might not be able to attract and retain additional qualified agents and other personnel.

 

In order to grow our business, we must attract and retain highly qualified agents and other personnel. In particular, we compete with both national and local real estate brokerages for qualified agents who manage our operations in each state and who are our on-the-ground representatives. With the evolving real estate brokerage market, we must find ways to attract and retain these people. And with the change in the way people work that has been accelerated by the Covid-19 pandemic, finding qualified agents and employees has become more difficult. We might have difficulty in finding, hiring and retaining highly skilled personnel with appropriate qualifications. Many of the companies with whom we compete for experienced personnel have greater resources than we do. In addition, in making decisions about where to work, in addition to cash compensation, people often consider the value of the stock options or other equity incentives they receive. We currently have an equity incentive plan to offer stock incentives to our employees and our agents that we believe is competitive with plans offered by other publicly traded real estate brokerage companies. However, if those plans fail to encourage new hires or to motivate our existing staff, we may fail to attract new personnel or fail to retain our current personnel which would severely harm our growth prospects.

 

Competition in the residential real estate franchising business is intense and may adversely affect our financial performance.

 

We compete against national and international real estate brokerage franchisors as well as smaller franchisors. Our products are the brands we sell and their reputation in the marketplace. Potential franchisees, when shopping for a brand, look to see the level of support that they can receive compared to the fees and dues that they will have to pay. This is our value proposition. While the national and international brands far exceed us in financial resources, geographic coverage, marketing ability and infrastructure, we believe that our “family-oriented” style of business, based on our three pillars philosophy, is a strong selling point. So, while competing franchisors may offer franchisees monthly ongoing fees that are lower than those we charge, or that are more attractive in particular market environments, we believe that our “high touch” approach is able to overcome many of the factors that competitors sell. Corporate-owned competitors compete primarily on the basis of commission payments to their agents. While we believe that we are competitive in that market, our brand is not as strong as competitors who have been in the market longer and have the financial wherewithal to promote themselves in the media. Our largest competitors in this industry in the U.S. include RE/MAX Holdings, Inc., Keller Williams Realty, Inc., HomeSmart, Realogy Holdings, Corp., which franchises the Coldwell Banker and Century 21 brands, Berkshire Hathaway Homes, among others. See “Prospectus Summary- Competition” and “Business – Competition.”

 

18 

 

  

Our Company owned brokerage business is subject to competitive pressures.

 

Our Company owned brokerage business, like that of our franchisees, is generally subject to intense competition. We compete with other national and independent real estate organizations including our franchisees and those of other national real estate franchisors, franchisees of local and regional real estate franchisors, regional independent real estate organizations, discount brokerages, internet-based brokerages and smaller niche companies competing in local areas. Competition is particularly intense in the densely populated metropolitan areas in which we operate. In addition, in the real estate brokerage industry, new participants face minimal barriers to entry into the market. We also compete for the services of qualified licensed agents as well as franchisees. The ability of our Company owned brokerage offices to retain agents is generally subject to numerous factors, including the sales commissions, the training and coaching and technological support that they receive and their perception of our brand value. Our largest competitors in the corporate-owned space include Compass Holdings, Inc. and Fathom Holdings, Inc.

 

Our financial results are affected directly by the operating results of franchisees and agents, over whom we do not have direct control.

 

Our real estate franchises generate revenue in the form of monthly ongoing royalties and fees, including monthly broker fees tied to gross commissions, training and technology fees charged to our franchisees. Our agents pay us dues out of their income from real estate transactions and new agents split their transaction-based commissions with us. Accordingly, our financial results depend upon the operational and financial success of our franchisees and their agents and our corporate agents, all of whom are independent contractors that we do not control. If industry trends or economic conditions are not sustained or do not continue to improve, our franchisees’ and our agents’ financial results could worsen, and our revenue may decline. We may also have to terminate franchisees more frequently in the future due to non-reporting and non-payment. Further, if franchisees fail to renew their franchise agreements our revenue from ongoing monthly fees may decrease, and profitability may be lower than in the past due to reduced ongoing monthly fees.

 

Our franchise operations are subject to additional business risks.

 

Our franchise business is exposed to other business risks which may impact our ability to collect recurring, contractual fees and dues from our franchisees, may harm the goodwill associated with our brand, and/or may materially and adversely impact our business, results of operations, financial condition and prospects. One such risk is that one of our franchisees could declare bankruptcy which could have a substantial negative impact on our ability to collect fees and dues owed under such franchisee’s franchise arrangements. In a franchisee bankruptcy, the bankruptcy trustee may reject its franchise contract pursuant to Section 365 under the U.S. Bankruptcy Code, in which case there would be no further payments for fees and dues from such franchisee. Other risks include the risk that our franchisees may be uninsured or underinsured against certain business hazards or that insurance may be unavailable, as was hurricane insurance in Florida for a number of years. Any casualty loss happening to our franchisees could put their entire business at risk and potentially result in its failure and the termination of our franchise agreement. Any such loss or delay in an insurance payment could have a material and adverse effect on a franchisee’s ability to satisfy its obligations under its franchise agreement with us, including its ability to make payments for contractual fees and dues or to indemnify us. Each franchise agreement is subject to termination by us in the event that the franchisee breaches its contract, generally after expiration of applicable cure periods, although under certain circumstances a franchise agreement may be terminated by us upon notice without an opportunity to cure. The default provisions under the franchise arrangements are drafted broadly and include, among other things, any failure to meet operating standards and actions that may threaten our brands. In addition, each franchise agreement eventually expires and upon expiration, we or the franchisee may or may not elect to renew the franchise arrangement. If our agreement is renewed, such renewal is generally contingent on the franchisee’s execution of the then-current form of franchise contract (which may include terms the franchisee deems to be more onerous than the prior franchise agreement), the satisfaction of certain conditions and the payment of a renewal fee. If a franchisee is unable or unwilling to satisfy any of the foregoing conditions, the expiring franchise agreement will terminate upon expiration of the term of the franchise arrangement.

 

19 

 

   

Our operating results are subject to seasonality and vary significantly among quarters during each calendar year, making meaningful comparisons of successive quarters difficult.

 

The residential real estate industry is subject to seasonality. Sales activity is typically stronger in the spring and summer months when school is not in session compared to the fall and winter seasons. This is true even in the Southeastern U.S. where weather patterns do not change significantly with the seasons. However, extreme weather does affect our business by keeping people focused on matters other than home buying. We have historically experienced lower revenues during the fall and winter seasons, as well as during periods of unseasonable weather, which reduces our operating income, net income, operating margins and cash flow. Real estate listings precede sales, and a period of poor listings activity will negatively impact revenue. Our revenue and operating margins each quarter will remain subject to seasonal fluctuations, which may make it difficult to compare or analyze our financial performance effectively across successive quarters.

 

A significant increase in private sales of residential property, including through the internet, could have a material adverse effect on our business, prospects and results of operations.

 

 As of 2021, NAR estimated that nine in ten home sellers worked with a real estate agent to sell their home, which was consistent across all age groups[5] and 6.1million existing homes were sold in in 2021, up from 5.6 million in 2020 according to Statista Research (February 22, 2022). Although the NAR survey indicates that the percentage of sales using agents has increased in recent years, a significant increase in the volume of private sales due to, for example, increased access to the internet and the proliferation of websites that facilitate such sales, and a corresponding decrease in the volume of sales through real estate agents could have a material adverse effect on our business, prospects and results of operations.

 

The real estate brokerage business is highly regulated and any failure to comply with such regulations or any changes in such regulations could adversely affect our business.

 

Our Company owned real estate brokerage business and our franchising business are highly regulated and must comply with Federal and state requirements governing the licensing and conduct of real estate brokerage and brokerage-related businesses and franchising in the jurisdictions in which we and they do business. These laws and regulations contain general standards for and prohibitions on the conduct of real estate brokers and agents, including those relating to licensing of brokers and agents, fiduciary and agency duties, administration of trust funds, collection of commissions, advertising and consumer and franchising disclosures. Under state law, the franchisees and our real estate brokers have certain duties to supervise and are responsible for the conduct of their brokerage business.

 

Our Company owned real estate brokerage business and our franchisees (excluding commercial brokerage transactions) must comply with the Real Estate Settlement Procedures Act (“RESPA”). RESPA and comparable state statutes, among other things, restrict payments which real estate brokers, agents and other settlement service providers may receive for the referral of business to other settlement service providers in connection with the closing of real estate transactions. Such laws may to some extent restrict preferred vendor arrangements involving our franchisees and our Company owned brokerage business. RESPA and similar state laws also require timely disclosure of certain relationships or financial interests that a broker has with providers of real estate settlement services. In addition, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”) contains the Mortgage Reform and Anti-Predatory Lending Act (the “Mortgage Act”), which imposes a number of additional requirements on lenders and servicers of residential mortgage loans, by amending certain existing provisions and adding new sections to RESPA and other federal laws.

 

We are also subject to various other rules and regulations such as:

 

  · the Gramm-Leach-Bliley Act which governs the disclosure and safeguarding of consumer financial information;

 

  · various state and federal privacy laws protecting consumer data;

 

  · the USA PATRIOT Act;

 

 

5 https://www.nar.realtor/sites/default/files/documents/2021-home-buyers-and-sellers-generational-trends-03-16-2021.pdf

 

20 

 

  

  ·

the sale of franchises is regulated by various state laws as well as by the Federal Trade Commission (the “FTC”) that generally require that franchisors make extensive disclosure to prospective franchisees and several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of franchisors to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreement;

 

  · restrictions on transactions with persons on the Specially Designated Nationals and Blocked Persons list promulgated by the Office of Foreign Assets Control of the Department of the Treasury;

 

  · the Fair Housing Act;

 

  · state and federal employment laws and regulations, including any changes that would require classification of independent contractors to employee status, and wage and hour regulations;

 

  · federal and state, “Do Not Call,” “Do Not Fax,” and “Do Not E-Mail” laws;

 

  · laws and regulations in jurisdictions outside the U.S. in which we do business; and

 

  · consumer fraud statutes that are broadly written.

 

Federal, state and local regulatory authorities also have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend our Company owned brokerages or our franchisees from carrying on some or all of our activities or otherwise penalize them if their financial condition or our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could limit our ability to renew current franchisees or sign new franchisees or otherwise have a material adverse effect on our operations.

 

We might not be aware of all the laws, rules and regulations that govern our business, or be able to comply with all of them, given the rate of regulatory changes, ambiguities in regulations, contradictions in laws and regulations between jurisdictions, and the difficulties in achieving both company-wide and region-specific knowledge and compliance. If we fail, or we have been alleged to have failed, to comply with any existing or future applicable laws, rules and regulations, we could be subject to lawsuits and administrative complaints and proceedings, as well as criminal proceedings. Our noncompliance could result in significant defense costs, settlement costs, damages and penalties.

 

We are dependent upon the truthfulness of our franchisees to provide accurate reports and accounting to us.

 

While we have significant insight into the business activity of our domestic and international regional franchisees and are able to observe their books and records in real time, the franchisees self-report their agent counts, agent commissions and fees due to us. Our tools to validate or verify these reports are not equipped to ferret out under or erroneous reporting, even if unintentional or intentional fraud. If any of those circumstances occur, we may not receive all of the annual agent dues or monthly ongoing fees due to us. In addition, to the extent that we are underpaid, we may not have a definitive method for determining such underpayment. If a material number of our franchisees were to under report or erroneously report their agent counts, agent commissions or fees due to us, it could have a material adverse effect on our financial performance and results of operations.

 

21 

 

  

Climate change and environmental risks could increase our costs and subject us to liability.

 

Our operations are affected by Federal, state and/or local environmental laws in the countries in which we operate, and we may face liability with respect to environmental issues occurring at properties we manage or occupy. We may face costs or liabilities under these laws as a brokerage company if our agents violate applicable disclosure laws and regulations or as a result of our agents’ role as a property manager. The impact of climate change presents a significant risk. Damage to assets caused by extreme weather events linked to climate change is becoming more evident, highlighting the fragility of global infrastructure. We believe that the effects of climate change will increasingly impact our own operations and those of properties we manage, especially when they are in coastal cities. The impact includes the relative desirability of locations and the cost of operating and insuring acquired properties. Many countries outside the U.S. are enacting stricter regulations to protect the environment and preserve their natural resources. We also may face several layers of national and regional regulations. The risks may not be limited to fines and the costs of remediation. We continue to monitor the effects of climate change and the changes in law, regulation and policies of other companies, especially insurance companies and intend to adjust our business accordingly in the future.

 

Our international operations are subject to risks of operating in foreign countries.

 

We have a franchisee located in Peru. For the year ended December 31, 2021 and the period ended March 31, 2022, revenue from these operations represented less than one percent (1.0%) of our total revenue. Our international operations are subject to risks that are different from those of our U.S. operations that could result in losses against which we are not insured and therefore affect our profitability. Those international risks include:

 

  · fluctuations in foreign currency exchange rates and foreign exchange restrictions;

 

  · exposure to local economic conditions and local laws and regulations, including those relating to the agents of our franchisees;

 

  · foreign economic and credit markets;

 

  · potential adverse changes in the political stability of foreign countries or in their diplomatic relations with the U.S.;

 

  · restrictions on the withdrawal of foreign investment and earnings;

 

  · government policies against businesses owned by foreigners;

 

  · investment restrictions or requirements;

 

  · diminished ability to legally enforce our contractual rights in foreign countries;

 

  · difficulties in registering, protecting or preserving trade names and trademarks in foreign countries;

 

  · potential governmental and industry corruption;

 

  · restrictions on the ability to obtain or retain licenses required for operation; and

 

  · changes in foreign tax laws.

 

We depend substantially on our Founder, Joseph La Rosa, and the loss of any our senior management or other key employees or the inability to hire additional qualified personnel could adversely affect our operations, our brand and our financial performance.

 

Our future success is largely dependent on the efforts and abilities of our Founder, Chief Executive Officer, President and Chairman, Joseph La Rosa, our senior management and other key employees. The loss of the services of Mr. La Rosa and other senior management would have a significant detrimental effect on the Company as its brand is tied to his name, image and personality. We do not maintain key employee life insurance policies on Mr. La Rosa or our other senior management and therefore their loss could make it more difficult to successfully operate our business and achieve our business goals. As a result, we may not be able to cover the financial loss we may incur in losing the services of any of these individuals.

 

Our ability to retain our employees is generally subject to numerous factors, including the compensation and benefits we pay, the mix between the fixed and variable compensation we pay our employees and prevailing compensation rates. As such, we could suffer significant attrition among our current key employees. Competition for qualified employees in the real estate franchising industry is intense. We may be unable to retain existing employees that are important to our business or hire additional qualified employees. The process of locating employees with the combination of skills and attributes required to carry out our goals is often lengthy. We cannot assure you that we will be successful in attracting and retaining qualified employees.

 

22 

 

   

Concentration of ownership of our voting stock by Mr. La Rosa will prevent new investors from influencing significant corporate decisions.

 

Based on our Common Stock outstanding as of March 31, 2022 and including the shares to be sold in this Offering, upon the closing of this Offering, Mr. La Rosa will, in the aggregate, beneficially own approximately 87% of our outstanding Common Stock (assuming no exercise of the underwriters’ option to purchase additional shares of Common Stock) and 2,000 shares of our Series X Super Voting Preferred Stock that provides for 10,000 votes per share when voting with the Common Stock. Thus, Mr. La Rosa, our President and Chief Executive Officer, Chairman of the board, and majority stockholder, will be able to control all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of Mr. La Rosa may not coincide with the interests of other stockholders.

 

Mr. La Rosa may have interests different than yours and may vote in a way with which you disagree and that may be adverse to your interests. In addition, Mr. La Rosa’s concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our Common Stock and/or Warrants to decline or prevent our stockholders from realizing a premium over the market price for their Common Stock. In addition, he may want the Company to pursue strategies that deviate from the interests of other stockholders. Investors should consider that the interests of the Mr. La Rosa may differ from their interests in material respects.

 

Mr. La Rosa will control all matters that come before the stockholders for a vote and thus we are a “controlled company” within the meaning of the Nasdaq listing requirements and, as a result, the Company will qualify for, exemptions from certain corporate governance requirements. If we take advantage of such exemptions, you will not have the same protections afforded to stockholders of companies that are subject to such corporate governance requirements.

 

Following the completion of this Offering, Mr. Joseph La Rosa, will control approximately [*]% of the voting power of our Common Stock (which includes his right to vote shares of the Series X Super Voting Preferred Stock) with respect to director elections and other matters (or approximately [*]% of the voting power with respect to director elections if the underwriters exercise in full their option to purchase additional shares of our Common Stock). Subject to any fiduciary duties owed to other stockholders under Nevada law, Mr. La Rosa will be able to control all matters requiring approval by our stockholders, including the election and removal of directors and any proposed merger, acquisition, consolidation or sale of all or substantially all of our assets. In addition, due to his significant ownership stake and his service as our Chairman of the Board of directors and Chief Executive Officer, Mr. La Rosa controls the management of our business and affairs. Mr. La Rosa may have interests that are different than yours and may support proposals and actions with which you may disagree. This concentration of ownership could have the effect of delaying, deferring or preventing a change in control, or impeding a merger or consolidation, takeover or other business combination that could be favorable to our other stockholders and adversely affecting the market price of our Common Stock.

 

Because of the voting power over our Company held by Mr. La Rosa, we are considered a “controlled company” for the purposes of the listing requirements of the Nasdaq Capital Market. A controlled company is not required to have a majority of independent directors or form an independent compensation or nominating and corporate governance committee. Nevertheless, we have a majority of independent directors who will serve on our audit, compensation and nominating and corporate governance committees. However, although we have no current plans to do so, for as long as we remain a controlled company, we could take advantage of such exemptions in the future.

 

23 

 

 

Infringement, misappropriation, or dilution of our intellectual property could harm our business.

 

We regard our La Rosa Realty trademark and the “LR” logo that we own, as well as the Better Homes trademark and logo that we license, as having significant value and as being important factors in the marketing of our brands. We believe that this and other intellectual property are valuable assets that are critical to our success. We rely on a combination of protections provided by contracts, as well as copyright, trademark, trade secret and other laws, to protect our intellectual property from infringement, misappropriation, or dilution. We have registered certain trademarks and service marks and have other trademark and service mark registration applications pending in the U.S. and foreign jurisdictions. However, not all trademarks or service marks that we currently use have been registered in all of the countries in which we do business, and they may never be registered in all of those countries. Although we monitor trademark portfolios internally and impose an obligation on franchisees to notify us upon learning of potential infringement, there can be no assurance that we will be able to adequately maintain, enforce and protect our trademarks or other intellectual property rights.

 

We are not aware of any challenges to our right to use any of our brand names or trademarks. We are vigilant in enforcing our intellectual property and protecting our brands. Unauthorized uses or other infringement of our trademarks or service marks, including ones that are currently unknown to us, could diminish the value of our brands and may adversely affect our business. Effective intellectual property protection may not be available in every market in which we have franchised or intend to franchise. Failure to adequately protect our intellectual property rights could damage our brands and impair our ability to compete effectively. Even where we have effectively secured statutory protection for our trademarks and other intellectual property, our competitors may misappropriate our intellectual property. Defending or enforcing our trademark rights, branding practices and other intellectual property, and seeking an injunction and/or compensation for misappropriation of confidential information, could result in the expenditure of significant resources and divert the attention of management, which in turn may materially and adversely affect our business and operating results.

 

Although we monitor and restrict our franchisees’ activities through our franchise agreements, franchisees may refer to our brands improperly in writings or conversations, resulting in the dilution of our intellectual property. Franchisee noncompliance with the terms and conditions of our franchise agreements and our brand standards may reduce the overall goodwill of our brands, whether through the failure to meet the FTC guidelines or applicable state laws, or through the participation in improper or objectionable business practices. Moreover, unauthorized third parties may use our intellectual property to trade on the goodwill of our brand, resulting in consumer confusion or dilution. Any reduction of our brand’s goodwill, consumer confusion, or dilution is likely to impact sales, and could materially and adversely impact our business and operating results.

 

24 

 

  

We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business and financial condition.

 

The real estate industry often involves litigation, ranging from individual lawsuits by brokerage clients, sales associates, employees and franchisees to large class actions and government investigations. We often are involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Such litigation and other proceedings has included, and may in the future include, but are not limited to, actions relating to sales agent commissions, intellectual property, commercial arrangements, negligence and fiduciary duty claims arising from our brokerage operations, fraud or failure to disclose matters in our franchise documents or agreements, standard brokerage disputes like the failure to disclose hidden defects in a property such as mold, vicarious liability based upon conduct of individuals or entities outside of our control, including our agents, third-party service or product providers, antitrust claims, general fraud claims, employment law claims, including claims challenging the classification of our agents as independent contractors and compliance with wage and hour regulations, and claims alleging violations of the Real Estate Settlement Procedures Act or state consumer fraud statutes.

 

Each lawsuit filed against or by us has factors that are unpredictable, including but not limited to, legal fees, insurance coverage, or the ultimate outcome of litigation and remedies or damage awards. Adverse results in such litigation and other proceedings may harm our business, our brands and our financial condition.

 

We have general liability and an errors and omissions insurance policy to help protect us against claims of inadequate work or negligent action. This insurance might not continue to be available to us on commercially reasonable terms or at all, or a claim otherwise covered by our insurance may exceed our coverage limits, or a claim might not be covered at all. We may be subject to errors or omissions claims that could have an adverse effect on us. Moreover, defending a suit, regardless of its merits, could entail substantial expense and require the time and attention of our senior management. Substantial financial judgments against us would have a material adverse effect on our business, brands, results of operations, financial condition and prospects.

 

Security breaches, interruptions, delays and failures in our systems and operations could materially harm our business.

 

The performance and reliability of our systems and operations and third-party applications are critical to our reputation and ability to attract franchisees and agents to join us. Our systems and operations, as well as the third-party applications that we license are vulnerable to security breaches, interruption or malfunction due to certain events beyond our control, including natural disasters, such as earthquakes, fire and flood, power loss, telecommunication failures, break-ins, sabotage, computer viruses, intentional acts of vandalism and similar events. In addition, we rely on third-party vendors to provide the website platforms and additional systems and related support. If we cannot continue to retain these services on acceptable terms, our access to these systems and services could be interrupted. Any security breach, interruption, delay or failure in our systems and operations could substantially harm our franchisees and agents by interfering with their daily business routines, reducing their transaction volume, impairing the quality of the services we provide, increasing our costs, prompting litigation and other claims, and damaging our reputation, any of which could substantially harm our results of operations, financial condition and prospects.

 

If we fail to protect the privacy of employees, independent contractors, or consumers or personal information that they share with us, our reputation and business could be significantly harmed.

 

Consumers, agents, independent contractors, and employees have shared personal information with us during the normal course of our business processing residential real estate transactions. This includes, but is not limited to, social security numbers, annual income amounts and sources, names, addresses, telephone and cell phone numbers, and email addresses.

 

The application, disclosure and safeguarding of this information is regulated by federal and state privacy laws. To comply with privacy laws, we invested resources and adopted a privacy policy outlining policies and procedures for the use of safeguarding personal information. This policy includes informing consumers, independent contractors and employees that we will not share their personal information with third parties without their consent unless required by law.

 

Privacy policies and compliance with federal and state privacy laws presents risk and we could incur legal liability for failing to maintain compliance. We might not become aware of all privacy laws, changes to privacy laws, or third- party privacy regulations governing the real estate business or be unable to comply with all of these regulations, given the rate of regulatory changes, ambiguities in regulations, contradictions in regulations between jurisdictions, and the difficulties in achieving both Company-wide and region-specific knowledge and compliance.

 

25 

 

 

Our policy and safeguards could be deemed insufficient if third parties with whom we have shared personal information fail to protect the privacy of that information. Our legal liability could include significant defense costs, settlement costs, damages, and penalties, plus, damage our reputation with consumers, which could significantly damage our ability to attract and maintain customers. Any or all of these consequences would result in meaningful unfavorable impact on our brand, business model, revenue, expenses, income, and margins.

 

Cybersecurity incidents could disrupt our business operations, result in the loss of critical and confidential information, adversely impact our reputation and harm our business.

 

Cybersecurity threats and incidents directed at us could range from uncoordinated individual attempts to gain unauthorized access to information technology systems to sophisticated and targeted measures aimed at disrupting business or gathering personal data of customers. In the ordinary course of our business, we collect and store sensitive data, including proprietary business information and personal information about our customers. Our business, and particularly our cloud-based platform, is reliant on the uninterrupted functioning of our information technology systems. The secure processing, maintenance, and transmission of information are critical to our operations, especially the processing and closing of real estate transactions. Although we employ measures designed to prevent, detect, address, and mitigate these threats (including access controls, data encryption, vulnerability assessments, and maintenance of backup and protective systems), cybersecurity incidents, depending on their nature and scope, could potentially result in the misappropriation, destruction, corruption, or unavailability of critical data and confidential or proprietary information (our own or that of third parties, including potentially sensitive personal information of our customers) and the disruption of business operations. Any such compromises to our security could cause harm to our reputation, which could cause customers to lose trust and confidence in us or could cause agents to stop working for us. In addition, we may incur significant costs for remediation that may include liability for stolen assets or information, repair of system damage, and compensation to customers and business partners. We may also be subject to legal claims, government investigation, and additional state and federal statutory requirements.

 

The potential consequences of a material cybersecurity incident include regulatory violations of applicable U.S. and international privacy and other laws, reputational damage, loss of market value, litigation with third parties (which could result in our exposure to material civil or criminal liability), diminution in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs (that may include liability for stolen assets or information), which in turn could have a material adverse effect on our competitiveness and results of operations.

 

If we attempt to, or acquire other complementary businesses, we will face certain risks inherent with such activities.

 

Subsequent to the closing of this Offering, we may seek to acquire, and acquire, certain complementary businesses, including one or more of our affiliates. Any future growth through acquisitions will depend in part on the availability of suitable acquisition targets at favorable prices and with advantageous terms and conditions, which may not be available to us. In addition, we may take on debt to finance these acquisitions which will create new financial risks, or use our Common Stock as currency, which could dilute our then current stockholders. Acquisitions subject us to several significant risks, any of which may prevent us from realizing the anticipated benefits or synergies of the acquisition. The integration of companies is a complex and time-consuming process that could significantly disrupt our businesses and the business of the acquired company, including the diversion of management attention, failure to identify certain liabilities and issues during the due diligence process, the inability to retain personnel and clients of the acquired business and litigation. Any negative outcomes from acquisitions or attempted acquisitions could result in a material adverse effect on our financial condition, results of operations and prospects.

 

26 

 

 

 

If we were deemed to be an investment company under the Investment Company Act of 1940, as amended (the “1940 Act”) as a result of our ownership of the LLCs, applicable restrictions could make it impractical for us to continue our business as contemplated and could have an adverse effect on our business.

 

Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes of the 1940 Act if: (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in either of those sections of the 1940 Act and intend to conduct our operations so that we will not be deemed an investment company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business and prospects.

 

Risks Related to this Offering

 

Our management will have broad discretion over the use of any net proceeds from this Offering and you may not agree with how we use the proceeds, and the proceeds may not be invested successfully.

 

Our management will have broad discretion as to the use of any net proceeds from this Offering and could use them for purposes other than those contemplated at the time of this Offering. Accordingly, you will be relying on the judgment of our management with regard to the use of any proceeds from the sale of our Units in this Offering and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for you.

 

You will experience immediate and substantial dilution.

 

The initial public offering price will be substantially higher than the net tangible book value of each outstanding share of Common Stock immediately after this Offering. If you purchase common stock as part of the Units in this Offering, you will suffer immediate and substantial dilution. At an assumed initial public offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus) with net proceeds to us of  $12.8 million, after deducting estimated underwriting discounts and commissions and estimated offering expenses, investors who purchase Units in this Offering will have contributed approximately 100% of the total amount of funding we have received to date, but will only hold less than 1% of the total voting rights (based on the number of shares of Common Stock purchased in the Units). The dilution will be $7.45 per share in the net tangible book value of the Common Stock from the assumed initial public offering price. In addition, if shares exercisable or convertible into our Common Stock are exercised and converted, and if options to purchase shares of our Common Stock under our 2022 Equity Incentive Plan are granted and exercised, there could be further dilution. For more information refer to “Dilution”.

 

Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our Common Stock to decline.

 

We may issue additional securities following the closing of this Offering. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in substantial dilution to our existing stockholders. We may sell Common Stock, preferred stock, convertible securities, and other equity securities in one or more transactions at prices and in a manner as we may determine from time to time. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our Common Stock.

 

27 

 

 

Sales of a significant number of shares of our Common Stock in the public markets, or the perception that such sales could occur, could depress the market price of our Common Stock.

 

Sales of a substantial number of shares of our Common Stock in the public markets could depress the market price of our Common Stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our Common Stock would have on the market price of our Common Stock.

 

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

 

The trading market for our Common Stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. As of the date of this prospectus, no analysts cover our stock. If we do not obtain analyst coverage or if one or more of those analysts downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

 

Risks Relating to Ownership of Our Common Stock and Warrants

 

There is no active public trading market for our Common Stock or Warrants. While we are seeking to list our Common Stock and Warrants on Nasdaq, there is no assurance that our Common Stock and Warrants will be listed on Nasdaq.

 

In connection with this Offering, we have applied to list our Common Stock on the Nasdaq Capital Market under the symbol “LRHC” and have applied to list our Warrants under the symbol “LRHCW.” If Nasdaq approves our listing application, we expect to list our Common Stock and Warrants upon consummation of the Offering, Nasdaq’s listing requirements for the Nasdaq Capital Market include, among other things, a stock price threshold. As a result, prior to effectiveness of our registration statement of which this prospectus is a part, we will need to take the necessary steps to meet Nasdaq’s listing requirements. If Nasdaq does not approve the listing of our Common Stock and Warrants, we will not proceed with this Offering. There can be no assurance that our Common Stock and Warrants will be listed on Nasdaq.

 

There is currently no market for our securities and a market for our securities may not develop, which would adversely affect the liquidity and price of our securities.

 

There is currently no market for our securities. Stockholders therefore have no access to information about prior market history on which to base their investment decision. Following this Offering, the price of our securities may vary significantly due to one or more potential business combinations and general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.

 

We may not be able to satisfy listing requirements of Nasdaq to maintain a listing of our Common Stock.

 

Even if our listing application is approved by Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we violate the maintenance requirements for continued listing of our Common Stock, our Common Stock may be delisted. In addition, our board of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our Common Stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our Common Stock and Warrants and could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock and Warrants. In addition, the delisting of our Common Stock could significantly impair our ability to raise capital.

 

28 

 

 

The public price of our Common Stock and Warrants may be volatile, and could, following a sale decline significantly and rapidly.

 

The initial public offering price for the Units will be determined by negotiations between us and the underwriters and may not be indicative of prices for our Common Stock and Warrants that will prevail in the open market following this Offering. The market price of our Common Stock and Warrants may decline below the initial offering price of the Units, and you may not be able to sell your shares of Common Stock at or above the price you paid in the Offering, or at all. Following this Offering, the public price of our Common Stock and Warrants in the secondary market will be determined by private buy and sell transaction orders collected from broker-dealers.

 

Our Warrants may not have any value.

 

Our Warrants are exercisable for five years from the date of initial issuance and currently have an exercise price of $[*] per share. There can be no assurance that the market price of our shares of Common Stock will equal or exceed the exercise price of the Warrants. In the event that the stock price of our shares of Common Stock does not exceed the exercise price of the Warrants during the period when the Warrants are held and exercisable, the Warrants may not have any value to their holders.

 

Holders of Warrants have no rights as stockholders until such holders exercise their Warrants and acquire our shares of Common Stock.

 

Until holders of our Warrants acquire shares of Common Stock upon exercise thereof, such holders will have no rights with respect to the shares of Common Stock underlying the Warrants. Upon exercise of the Warrants, the holders will be entitled to exercise the rights of a stockholder only as to matters for which the record date occurs after the date they were entered in the register of members of the Company as a stockholder.

 

The Warrant certificate governing our Warrants designates the state and federal courts of the State of New York sitting in the City of New York, Borough of Manhattan, as the exclusive forum for actions and proceedings with respect to all matters arising out of the Warrants, which could limit a Warrant holder’s ability to choose the judicial forum for disputes arising out of the warrants.

 

The warrant certificate governing our Warrants provides that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by the warrant certificate (whether brought against a party to the warrant certificate or their respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. The warrant certificate further provides that we and the Warrant holders irrevocably submit to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute under the warrant certificate or in connection with it or with any transaction contemplated by it or discussed in it, including under the Securities Act. Furthermore, we and the Warrant holders irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that we or they are not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. With respect to any complaint asserting a cause of action arising under the Securities Act or the rules and regulations promulgated thereunder, we note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Notwithstanding the foregoing, these provisions of the warrant certificate will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum.

 

29 

 

 

Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our Warrants shall be deemed to have notice of and consented to the foregoing provisions. Although we believe this exclusive forum provision benefits us by providing increased consistency in the application of the governing law in the types of lawsuits to which it applies, the exclusive forum provision may limit a Warrant holder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors, officers, other employees, stockholders, or others which may discourage lawsuits with respect to such claims. Our Warrant holders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of this exclusive forum provision. Further, in the event a court finds the exclusive forum provision contained in our warrant certificates to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our results of operations.

 

Future issuances of debt securities, which would rank senior to our Common Stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior to our Common Stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be able to achieve from an investment in our Securities. 

 

In the future, we may attempt to increase our capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders of our Common Stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over holders of Common Stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders of our securities must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return, if any, they may be able to achieve from an investment in our Securities. 

 

We are authorized to issue “blank check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our securities.

 

Our articles of incorporation authorize us to issue up to 50,000,000 shares of blank check preferred stock of which 50,000 shares are currently authorized for issuance. Any preferred stock that we issue in the future may rank ahead of our other securities in terms of dividend priority or liquidation premiums and may have greater voting rights than our securities. In addition, such preferred stock may contain provisions allowing those shares to be converted into shares of Common Stock, which could dilute the value of our securities to current stockholders and could adversely affect the market price, if any, of our securities. In addition, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of our Company. We have issued 2,000 shares of our Series X Super Voting Preferred Stock to our Founder, Mr. Joseph La Rosa, that provides him with 10,000 votes per share when voting with the Common Stock. Although we have no present intention to issue any additional shares of authorized preferred stock, there can be no assurance that we will not do so in the future.

 

If our securities become subject to the penny stock rules, it would become more difficult to trade our shares.

 

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange and if the price of our securities is less than $5.00, our securities could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our securities, and therefore shareholders may have difficulty selling their securities.

 

30 

 

 

We are an “emerging growth company” and a “smaller reporting company” within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies or smaller reporting companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.

 

We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor internal controls attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our shares held by non-affiliates exceeds $700 million as of the end of the prior fiscal year’s second quarter, in which case we would no longer be an emerging growth company as of the following fiscal year end. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.

 

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected to avail ourselves of the extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

 

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K promulgated by the SEC. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (i) the market value of our shares held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our shares held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

 

31 

 

  

Our status as an “emerging growth company” under the JOBS Act may make it more difficult to raise capital as and when we need it.

 

Because of the exemptions from various reporting requirements provided to us as an “emerging growth company” and because we will have an extended transition period for complying with new or revised financial accounting standards, we may be less attractive to investors, and it may be difficult for us to raise additional capital as and when we need it. Investors may be unable to compare our business with other companies in our industry if they believe that our financial accounting is not as transparent as other companies in our industry. If we are unable to raise additional capital as and when we need it, our financial condition and results of operations may be materially and adversely affected.

 

Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

 

Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Rule 13a-15(f) of the Exchange Act internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

  · pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; and

 

  · provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and/or directors; and

 

  · provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Our internal controls may be inadequate or ineffective, which could cause financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.

 

Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

 

We have never paid cash dividends on our Common Stock and do not anticipate paying cash dividends on our Common Stock in the foreseeable future. We currently intend to retain any future earnings to support the development of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including, but not limited to, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our Common Stock may be limited by Nevada state law or any financial covenants to which we are bound by our debt obligations. Accordingly, investors must rely on sales of their Common Stock or Warrants after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase our Common Stock.

 

32 

 

 

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful stockholder claims against us and may reduce the amount of money available to us.

 

As permitted by Section 78.7502 of Chapter 78 of the Nevada Revised Statutes (the “NRS”), our amended and restated articles of incorporation limit the liability of our directors to the fullest extent permitted by law. In addition, as permitted by Section 78.7502 of the NRS, our amended and restated articles of incorporation and amended and restated bylaws provide that we shall indemnify, to the fullest extent authorized by the NRS, any person who is involved in any litigation or other proceeding because such person is or was a director or officer of ours or is or was serving as an officer or director of another entity at our request, against all expense, loss, or liability reasonably incurred or suffered in connection therewith. Our amended and restated articles of incorporation provide that indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition; provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification.

 

Section 78.7502 of the NRS permits a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigate, except an action by or in the right of us, by reason of the fact that the person is or was a director, officer, employee, or agent of ours, or is or was serving at our request as a director, officer, employee, or agent of another company, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys’ fees, judgment, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit, or proceeding if the person is not liable under Section 78.138 of the NRS, or acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the conduct was unlawful.

 

The above limitations on liability and our indemnification obligations limit the personal liability of our directors and officers for monetary damages for breach of their fiduciary duty as directors by shifting the burden of such losses and expenses to us. Certain liabilities or expenses covered by our indemnification obligations may not be covered by our directors’ and officers’ insurance policy or the coverage limitation amounts may be exceeded. As a result, we may need to use a significant amount of our funds to satisfy our indemnification obligations, which could severely harm our business and financial condition and limit the funds available to stockholders who may choose to bring a claim against us.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to provisions of Nevada law, the Company has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable.

 

Anti-takeover provisions in our amended and restated articles of incorporation and bylaws, as well as provisions in Nevada law, might discourage, delay or prevent a change of control of our Company or changes in our management and, therefore, depress the trading price of our securities.

 

Our amended and restated articles of incorporation, bylaws and Nevada law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

 

  · providing for a single class of directors where each member of the board shall serve for a one-year term and may be elected to successive terms;

 

  · authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our Common Stock;

 

  · limiting the liability of, and providing indemnification to, our directors, including provisions that require the Company to advance payment for defending pending or threatened claims;

 

33 

 

  

  · limiting the ability of our stockholders to call and bring business before special meetings;

 

  · requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board;

 

  · controlling the procedures for the conduct and scheduling of board of directors and stockholder meetings; and,

 

  · limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board then in office.

 

These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.

 

As a Nevada corporation, we are also subject to provisions of Nevada corporate law, including NRS Section 78.411, et seq. , which prohibits a publicly-held Nevada corporation from engaging in a business combination with an interested stockholder, generally a person who together with its affiliates owns, or within the last two years has owned, 10% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

 

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our Common Stock. They could also deter potential acquirers of our Company, thereby reducing the likelihood that our stockholders could receive a premium for their Common Stock in an acquisition.

 

You should consult your own independent tax advisor regarding any tax matters arising with respect to the securities offered in connection with this Offering.

 

Participation in this Offering could result in various tax-related consequences for investors. All prospective purchasers of our Units are advised to consult their own independent tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences relevant to the purchase, ownership and disposition of the resold securities in their particular situations.

 

IRS CIRCULAR 230 DISCLOSURE: TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE INTERNAL REVENUE SERVICE, WE INFORM YOU THAT ANY U.S. TAX ADVICE CONTAINED HEREIN (INCLUDING ANY ATTACHMENTS) IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE INTERNAL REVENUE CODE. IN ADDITION, ANY U.S. TAX ADVICE CONTAINED HEREIN (INCLUDING ANY ATTACHMENTS) IS WRITTEN TO SUPPORT THE “PROMOTION OR MARKETING” OF THE MATTER(S) ADDRESSED HEREIN. YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR CIRCUMSTANCES FROM YOUR OWN INDEPENDENT TAX ADVISOR. YOU SHOULD NOTE THAT NONE OF THE INFORMATION RELATING TO TAX CONSEQUENCES IS MEANT TO BE “TAX ADVICE” FROM THE COMPANY.

 

IN ADDITION TO THE ABOVE RISKS, BUSINESSES ARE OFTEN SUBJECT TO RISKS NOT FORESEEN OR FULLY APPRECIATED BY MANAGEMENT. IN REVIEWING THIS PROSPECTUS, POTENTIAL INVESTORS SHOULD KEEP IN MIND THAT OTHER POSSIBLE RISKS MAY ADVERSELY IMPACT THE COMPANY’S BUSINESS OPERATIONS AND THE VALUE OF THE COMPANY’S SECURITIES.

 

34 

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds to us from the sale of the Units offered by us will be approximately $12,800,000 million based on an assumed initial public offering price of $10.00 per unit (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and commissions and estimated offering expenses. If the underwriters’ option to purchase additional shares of Common Stock (but not Warrants) in this Offering is exercised in full, we estimate that our net proceeds will be approximately $14.9 million. A $1.00 increase in the assumed initial public offering price of $10.00 per Unit would increase the net proceeds to us from this Offering by $1.4 million, assuming the number of Units offered by us, as indicated on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 decrease in the assumed initial public offering price of $10.00 per Unit would decrease the net proceeds to us from this Offering by $1.4 million, assuming the number of Units offered by us, as indicated on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

We intend to use the net proceeds we receive from this Offering for general corporate purposes, which may include financing our growth by engaging more agents at a faster pace (10%), developing new services (10%), funding capital expenditures (20%), acquisitions of a controlling interest in a number of our franchisees (10%), the acquisition of other independent real estate brokerages, title insurance agencies, mortgage brokers and other complementary businesses (30%), and the purchase and acquisition of proprietary technology (20%).

 

We have signed purchase agreements with six of our franchisees to acquire a majority or a one hundred percent interest in their real estate brokerage businesses immediately after the closing of this Offering on terms as follows:

 

Name of
Franchisee
  Location  Percentage
Interest To
Be Purchased
   Total
Consideration
   Cash
Consideration
   Stock
Consideration(1)
 
Horeb Kissimmee Realty LLC  Kissimmee, Florida   51%  $6,136,267   $1,200,000   $4,936,267 
La Rosa Realty Lake Nona, Inc.  Orlando, Florida   51%  $3,349,987   $0   $3,349,987 
La Rosa Realty North Florida, LLC  Jacksonville, Florida   100%  $1,828,107   $300,000   $1,528,107 
La Rosa Realty The Elite LLC  Wesley Chapel, Florida   51%  $1,237,969   $0   $1,237,969 
La Rosa Realty Lakeland LLC  Lakeland, Florida   51%  $1,158,645   $0   $1,158,645 
La Rosa CW Properties LLC  Longwood, Florida   100%  $2,400,000   $100,000   $2,300,000 

 

 

(1) The stock consideration will be paid in unregistered, “restricted” shares of Company Common Stock valued at the initial public offering price.

 

Each of the sellers of the above franchisees have signed: (i) a Leak Out Agreement pursuant to which the sellers have agreed not to sell the shares of Common Stock received in the buyout transaction until the 181st day after the closing date of this Offering, and for the period ending one year from that date, to sell only one-twelfth of the shares received per calendar month, subject to applicable securities laws as such shares are “restricted securities” under the Securities Act; (ii) a Proxy Agreement which grants to Mr. Joseph La Rosa or his successor, in his capacity as the CEO, the seller’s irrevocable proxy to vote all of the shares of Common Stock received by the sellers in the acquisition transaction; and (iii) an employment agreement to serve as the president of such company commencing immediately after the closing of the acquisition, reporting to Mr. Joseph La Rosa, with a salary that can be adjusted if that company’s net profitability changes by more than 5% in any one month. The sellers have agreed to certain confidentiality, work product, non-competition, non-solicitation and non-disparagement terms.

 

This expected use of the net proceeds from this Offering represents our intentions based upon our current plans and prevailing business conditions, which could change in the future as such plans and conditions evolve. Predicting the costs to engage more agents, develop new services, and make acquisitions can be difficult, and the amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our expansion, any agreements that we may enter into with third parties, and any unforeseen cash needs. As a result, we will retain broad discretion over the allocation of the net proceeds from this Offering and the actual use of the net proceeds could vary substantially from the estimated uses set forth above.

 

Pending the uses described above, we intend to invest the net proceeds of this Offering in short-term, interest-bearing, investment-grade securities such as money market funds, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government. We cannot predict whether the proceeds will yield a favorable return.

 

Based on our current plans, we believe that our existing cash, together with the anticipated net proceeds from this Offering, will enable us to fund our operating expenses and capital expenditure requirements through 2023.

 

35 

 

  

CAPITALIZATION

 

The following table sets forth our cash and our capitalization as of March 31, 2022:

 

·on an actual basis;
  · on a pro forma basis, to reflect mandatory conversions of convertible notes and accrued interest in the amount of $481,851, net of unamortized discount and deferred financing fees of $34,149 and the elimination of the derivative liability of $163,511 due to the embedded conversion feature of the convertible notes 70,665 shares of Common Stock based on an assumed offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus);

  · on a pro forma as adjusted basis to give effect to our assumed sale of 1,500,000 Units in this Offering at an assumed initial public offering price of  $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus) after deducting underwriting discounts and commissions and estimated offering expenses payable by us and the application of the net proceeds as described under “Use of Proceeds” and not reflecting the exercise of the underwriters’ overallotment option or the exercise of the Warrants that are part of the Units.

 

The following information of our cash and capitalization following the completion of this Offering is illustrative only and will change based on the actual public offering price, the actual number of Units offered, and other terms of this Offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes appearing elsewhere in this prospectus.

 

   As of March 31, 2022 
  

Unaudited

Actual

  

Unaudited

Pro Forma

  

Unaudited

Pro

Forma

As
Adjusted

 
   (in thousands) 
Cash  $227   $1,061   $9,792 
Convertible debt net of discounts of $34,149  $482   $482   $- 
Derivative liability  $164   $164   $- 
Stockholders’ equity (deficit):               
Preferred stock, $0.0001 par value, 50,000,000 shares authorized, and 2,000 shares of Series X Super Voting Preferred Stock issued and outstanding, actual; 2,000 shares of Series X Super Voting Preferred Stock issued and outstanding pro forma and pro forma as adjusted   -    -    - 
Common stock, $0.0001 par value per share, 250,000,000 shares authorized, 3,120,000 shares issued and outstanding, actual; 4,620,000 shares issued and outstanding, pro forma, and 4,606,667 shares pro forma as adjusted  $-    -    2 
Additional paid-in capital  $1,145    1,145    30,823 
Accumulated deficit  $(2,123)   (1,946)   (7,532)
Total stockholders’ equity (deficit)  $(978)   (801)   23,293 
Total capitalization  $(105)   906    35,543 

 

 

36 

 

 

The table above and discussion above assumes no exercise of the Warrants offered and sold in this Offering as part of the Units.

 

(2)The number of shares of Common Stock to be outstanding immediately following this Offering excludes:

 

  225,000 shares of Common Stock issuable upon the exercise of the Over-Allotment Option;
     
  90,000 shares of Common Stock issuable upon the exercise of the Representative’s Warrants;
     
  20,000 shares of Common Stock issuable upon the exercise of the warrants granted to Exchange Listing, LLC, a consultant to the Company (the “Consultant Warrants”);
     
  115,500 shares of Common Stock issuable upon the closing of this Offering to Exchange Listing, LLC, a consultant to the Company for services provided in connection with this Offering (based on an assumed sale of 1,500,000 Units) (the “Exchange Listing Shares”);
     
  2,000 shares of Common Stock issued to our Chief Technology Officer that will vest on February 1, 2023;
     
  40,000 shares of Common Stock underlying the stock options to be granted to directors;
     
  conversions of $516,000 of convertible notes and $49,162 of interest into 70,656 shares of Common Stock based on an assumed offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus);
     
  1,451,099 shares of Common Stock to be issued to the owners of real estate brokerage businesses that we intend to acquire immediately after the closing of this Offering;
     
  92,400 COO Shares issuable upon the closing of this Offering to Mr. Mark Gracy, the Company’s Chief Operating Officer (based on an assumed sale of 1,500,000 Units);
     
  92,400 shares of Common Stock underlying the stock options to be granted upon the closing of this Offering to Mr. Mark Gracy, the Company’s Chief Operating Officer (based on an assumed sale of 1,500,000 Units) (“COO Shares”);
     
  165,000 CFO Shares of Common Stock issuable upon the closing of this Offering to Mr. Brad Wolfe, the Company’s Chief Financial Officer (based on an assumed sale of 1,500,000 Units);
     
  50,000 CSO of Common Stock issuable upon the closing of this Offering to Mr. Josh Epstein, the Company’s Chief Strategy Officer (based on an assumed sale of 1,500,000 Units); and
     
  221,362 Bonilla Shares of Common Stock issuable upon the closing of this Offering to CGB-TRUST-1001-01-13-22 and ELG-TRUST-1004-09-01-13 equally as assignees of Bonilla Opportunity Fund I, Ltd., a consultant to the Company for services provided in connection with this Offering (based on an assumed sale of 1,500,000 Units).

 

37 

 

  

Each $1.00 increase in the assumed initial public offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus) would increase the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders’ equity and total capitalization by approximately $1.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 decrease in the assumed initial public offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus) would decrease the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders’ equity and total capitalization by approximately $1.4 million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase of 100,000 Units in the number of Units offered by us at the assumed initial public offering price per share of $10.00 per Unit would increase the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders’ equity and total capitalization by approximately $900,000. Each decrease of 100,000 Units in the number of Units offered by us at the assumed initial public offering price per share of $10.00 per Unit would decrease the pro forma as adjusted amount of each of cash and cash equivalents, additional paid in capital, total stockholders’ equity and total capitalization by approximately $900,000.

 

The share and per share amounts for all periods set forth in this prospectus reflect the completion of the Reverse Stock Split, which was effective on March 21, 2022.The number of shares of our Common Stock outstanding in the table above excludes 2,500,000 shares of Common Stock available for future issuance under our 2022 Equity Incentive Plan as of the date of this prospectus.

 

DILUTION

 

If you invest in our Units in this Offering, your interest in our Common Stock will be diluted to the extent of the difference between the initial public offering price per share of our Common Stock and the pro forma as adjusted net tangible book value per share of our Common Stock after this Offering. We calculate net tangible book value per share by dividing the net tangible book value (tangible assets less total liabilities) by the number of outstanding shares of our Common Stock.

 

Our historical net tangible book value (deficit) as of March 31, 2022, was ($2,244,559) or ($0.72) per share of Common Stock, based on 3,120,000 shares of our Common Stock outstanding.

 

After giving effect to (1) our sale of 1,500,000 shares of our Common Stock by us in this Unit Offering at an assumed initial public offering price of $9.99 per share (the midpoint of the price range set forth on the cover page of this prospectus less $0.01), less the estimated underwriting discounts and commissions and the estimated offering expenses, and (2) the mandatory conversion of convertible notes and accrued interest in the amount of $481,851, net of unamortized discount of $34,149 and the elimination of the derivative liability of $163,511 due to the embedded conversion feature of the convertible notes, our pro forma as adjusted net tangible book value as of March 31, 2022, would be $11,200,803, or $2.42 per share. This represents an immediate increase in the pro forma as adjusted net tangible book value of $3.14 per share to existing stockholders and an immediate dilution of $7.58 per share to investors purchasing shares in this Offering.

 

38 

 

  

The following table illustrates this per share dilution (1):

 

Assumed initial public offering price           $ 10.00  
Historical net tangible book value per share as of March 31, 2022   $

(0.72

)        
Increase in net tangible book value per share attributable to new investors   $

3.14

         
Pro forma as adjusted net tangible book value per share after the Offering           $ 2.42  
Dilution per share to new investors           $ 7.58  

 

(1)Does not include:

 

90,000 shares of Common Stock issuable upon exercise of the Representative’s Warrants;

 

225,000 shares of Common Stock issuable upon exercise of the Over-Allotment Option;

 

20,000 shares of Common Stock issuable upon exercise of the Consultant Warrants;

 

  115,500 Exchange Listing Shares issuable upon the closing of this Offering to maintain a 2.5% ownership interest to Exchange Listing, LLC, a consultant to the Company as a result of the anti-dilution feature in its consulting agreement (based on an assumed offering of 1,500,000 Units);

 

  92,400 COO Shares issuable upon the closing of this Offering to Mr. Mark Gracy, the Company’s Chief Operating Officer (based on an assumed sale of 1,500,000 Units);
     
  92,400 shares of Common Stock underlying the stock options to be granted upon the closing of this Offering to Mr. Mark Gracy, the Company’s Chief Operating Officer (based on an assumed sale of 1,500,000 Units) (“COO Shares”);

 

  165,000 CFO Shares of Common Stock issuable upon the closing of this Offering to Mr. Brad Wolfe, the Company’s Chief Financial Officer (based on an assumed sale of 1,500,000 Units);
     
  50,000 CSO shares of Common Stock issuable upon the closing of this Offering to Mr. Josh Epstein, the Company’s Chief Strategy Officer (based on an assumed sale of 1,500,000 Units);

 

  221,362 Bonilla Shares stock issuable upon the closing of this Offering to maintain a 4.0% ownership interest to CGB-TRUST-1001-01-13-22 and ELG-TRUST-1004-09-01-13 equally as assignees of Bonilla Opportunity Fund I, Ltd., a consultant to the Company as a result of the anti-dilution feature in its consulting agreement (based on an assumed offering of 1,500,000 Units); and

 

  2,000 shares of Common Stock issued to our Chief Technology Officer that will vest on February 1, 2023;

 

  40,000 shares of Common Stock underlying the stock options to be granted to directors;

 

  conversions of $516,000 of convertible notes and $49,162 of interest into 70,656 shares of Common Stock based on an assumed offering price of $10.00 per Unit (the midpoint of the price range set forth on the cover page of this prospectus);

 

  1,451,099 shares of Common Stock to be issued to the owners of real estate brokerage businesses that we intend to acquire immediately after the closing of this Offering;

 

The share and per share amounts for all periods reflect the completion of the 10-for-1 Reverse Stock Split, which was effective on March 21, 2022.

 

If the underwriters exercise their option in full, the pro forma as adjusted net tangible book value per share as of March 31, 2022, after giving effect to this Offering would be $2.74 per share, and the dilution in net tangible book value per share to investors in this Offering would be $7.26 per share.

 

39 

 

  

The following table shows, as of March 31, 2022, the difference between the number of shares of Common Stock purchased from us (as a part of the Units in the public offering), the total consideration paid to us, and the average price paid per share by existing stockholders and by investors purchasing shares of our Common Stock as part of the Units in this Offering:

 

    Shares Purchased     Total Consideration        
    Number     Percentage     Amount     Percentage     Average
Price
per Share
 
Existing stockholders     3,120,000       68  %   $ 425, 616         3   %   $ .14  
New Investors     1,500,000        32  %     15,000,000        97  %     10.00   
Total     4,620,000       100 %  

$

15,425,616        100 %    $ 3.43   

 

Assuming the underwriters’ option is exercised in full, sales by us in this Offering will reduce the percentage of shares held by existing stockholders to 64% and will increase the number of shares held by new investors to 36%, or plus 4%.

 

Each $1.00 increase (decrease) in the assumed public offering price per Unit would increase (decrease) the pro forma as adjusted net tangible book value by $0.30 per share (assuming no exercise of the underwriters’ option to purchase additional shares) and the net tangible book value dilution to investors in this Offering by $0.70 per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

 

DIVIDEND POLICY

 

We have not paid any cash dividends on our Common Stock to date, and our board of directors intends to continue a policy of retaining earnings, if any, for use in our operations. We are organized under the Nevada Revised Statutes, which prohibits the payment of a dividend if, after giving it effect, we would not be able to pay our debts as they become due in the usual course of business or our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved, to satisfy the preferential rights upon dissolution of any preferred stockholders. Any determination by our board to pay dividends in the future to stockholders will be dependent upon our operational results, financial condition, capital requirements, business projections, general business conditions, any debt related financial covenants, statutory and regulatory restrictions and any other factors deemed appropriate by our board.

 

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Prior to this Offering, our Common Stock has not been listed on any stock exchange or quoted on any over-the-counter market or quotation system and there has been no public market for our Common Stock or our Warrants. We have applied to have our Common Stock listed on the Nasdaq Capital Market under the symbol “LRHC” and our Warrants listed under the symbol “LRHCW” which listing is a condition to this Offering. For more information see the section “Risk Factors.”

 

As of June 11, 2022, 3,120,000 shares of Common Stock are issued and outstanding and held by two stockholders of record.

 

We also have outstanding:

 

  2,000 shares of Series X Super Voting Preferred Stock held by Mr. La Rosa, our principal executive officer; and

 

 

$516,000 of convertible promissory notes and $49,162 of accrued interest which convert into 70,656 shares of our Common Stock at the closing of this initial public Offering (based on the assumed initial public offering price of $10.00 per Unit).

 

40 

 

  

Securities Authorized for Issuance under Equity Incentive Plan

 

We intend to adopt the 2022 Equity Incentive Plan (the “2022 Plan”), which will be effective the day prior to the listing of our Common Stock on Nasdaq. The 2022 Plan allows the compensation committee to make equity-based and cash-based incentive awards to our officers, employees, directors and other key persons (including consultants). The types of awards permitted under the Plan include nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other awards.

 

We have reserved 2,500,000 shares of Common Stock issuable under the 2022 Plan as adjusted for the 10for-1 Reverse Stock Split on March 21, 2022. This number is subject to adjustment in the event of a sub-division, consolidation, share dividend or other change in our capitalization.

 

The board of directors has the power to amend, suspend or terminate the 2022 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of our Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year.

 

The shares underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by us prior to vesting, satisfied without any issuance of shares, expire or are otherwise terminated (other than by exercise) under the 2022 Plan will be added back to the shares available for issuance under the 2022 Plan.

 

The board of directors has the power to amend, suspend or terminate the Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of our Common Stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year.

 

41 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our “Selected Consolidated Financial Data” and our consolidated financial statements, the accompanying notes, and other financial information included elsewhere in this prospectus. The share and per share amounts for all periods reflect the completion of the Reverse Stock Split, which was effective on March 21, 2022. This discussion contains forward-looking statements that involve risks and uncertainties, such as our plans, estimates, and beliefs. Our actual results could differ materially from those forward-looking statements below. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed under “Risk Factors” included elsewhere in this prospectus.

 

Overview

 

We are the holding company for five agent-centric, technology-integrated, cloud-based, multi-service real estate companies. 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 five La Rosa Realty corporate real estate brokerage offices located in Florida, 28 La Rosa Realty franchised real estate brokerage offices in six states in the United States and Puerto Rico, and an international La Rosa Realty franchised office in Peru. Our real estate brokerage offices, both corporate and franchised, are staffed with more than 2,380 licensed real estate brokers and sales associates.

 

La Rosa Holdings Corp. was organized in June 2021 by its founder, Mr. Joseph La Rosa, to become the holding company for five Florida limited liability companies in which Mr. La Rosa held a one hundred percent ownership interest: (i) La Rosa Coaching, LLC; (ii) La Rosa CRE, LLC; (iii) La Rosa Franchising, LLC; (iv) La Rosa Property Management, LLC; and (v) La Rosa Realty, LLC. The LLCs became direct, wholly owned subsidiaries of the Company as a result of the closing of the Reorganization Agreement and Plan of Share Exchange, dated July 22, 2021, a copy of which is included as an exhibit to the registration statement of which this prospectus is a part.

 

As part of the reorganization, we amended and restated our Articles of Incorporation on July 29, 2021, such that: (i) we increased our total authorized capital stock to 300,000,000 shares, of which 50,000,000 shares were designated preferred stock and 250,000,000 shares were designated common stock; and (ii) authorized 2,000 shares of Series X Super Voting Preferred Stock that has 10,000 votes per share and votes together as a class with our Common Stock. We issued 3,000,000 shares of our Common Stock and all 2,000 shares of the Series X Super Voting Preferred Stock were issued to Mr. La Rosa in consideration of his past services to the combined entities. We refer to this reorganization as the Exchange Transactions. The Exchange Transactions did not affect our operations, which we continue to conduct through our operating subsidiaries.

 

Prior to and through the date of the Exchange Transactions, Mr. La Rosa was the majority member in each of the LLCs. Therefore, the Exchange Transactions have been accounted for as acquisitions under common control and due to the similar nature of the entities, business, the financial statements for the years ended December 31, 2021, and 2020 and interim periods ending March 31, 2022 and March 31, 2021 have been presented on a consolidated basis.

 

42 

 

  

Description of Our Revenues

 

Our financial results are driven by the total number of sales agents in our Company, the number of sales agents closing commercial real estate transactions, the number of sales agents utilizing our coaching services, and the number of agents who work with our franchisees. We grew our total agent count from our founding in 2004 to approximately 2,380 agents as of the date of this prospectus.

 

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 franchisee’s agents, royalties paid by our franchisees, dues and technology fees paid by our sales agents, our franchisees and our franchisees’ agents. Our major revenue streams come from such sources as: (i) residential real estate brokerage revenue, (ii) revenue from our property management services, (iii) franchise royalty fees, (iv) fees from the sale or renewal of franchises and other franchise revenue, (v) coaching, training and assistance fees, (vi) brokerage revenue generated transactionally on commercial real estate, and (vii) fees from our events and forums.

 

Our major revenue streams are illustrated in the following table:

 

REVENUE STREAM  DESCRIPTION  PERCENT OF
TOTAL 2021
REVENUE
   PERCENT OF
TOTAL 2020
REVENUE
 
Brokerage Revenue  Percentage fees paid on agent-generated residential real estate transactions. Other revenues earned upon occurrence (annual and monthly dues charged to our agents).   67%   65%
Property Management Revenue  Management fees paid by the sales agents from fees earned from property owners, rental fees and rents.   26%   29%
Franchise Sales and Other Franchise Revenues  One-time fee payable upon signing of the franchise agreement. Other revenues earned upon occurrence (annual membership, technology, interest, late fees, renewal, transfer, successor, audit, other related fees). Per agent per closed transaction; payable monthly.   4%   4%
Coaching/Training/Assistance Revenue  Based on real estate commissions earned by the sales agent. Event fees and break-out sessions.   3%   2%
Commercial Real Estate Revenue  10% of every real estate commission earned by the sales agent.   *    * 
TOTAL      100%   100%

 

*Less than 1% 

 

Various factors affected our results for the periods presented in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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 commissions 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. Given the low fixed cost structure of our franchise model, modest increases in revenue per sales agent can have a significant impact on our profitability. Our annual fee revenue per sales agent was $100 for the years ended December 31, 2021, and 2020.

 

43 

 

 

Description of Our Expenses

 

Operating Expenses

 

Operating expenses include cost of revenue, selling, operating and administrative expenses, depreciation and amortization and the gains and losses on sales of assets. Set forth below is a brief discussion of some of the key operating expenses that impact our results of operations:

 

  · Cost of revenue. Cost of revenue primarily consists of commissions paid to selling agents and agent related expenses.

 

  · Selling, operating and administrative expenses. Selling, operating and administrative expenses primarily consists of salaries, benefits and other compensation expenses paid to our personnel as well as certain marketing and production costs, including travel and entertainment costs, costs associated with our annual convention and other events, rent expense and professional fee expenses.

 

In connection with the completion of this Offering, we may recognize certain compensation expenses including compensation expense of approximately $420,000 related the granting of vested restricted stock units with respect to 42,209 shares of our Common Stock to our senior executive officers, as described in “Executive Compensation—Equity Grants in Conjunction with this Offering”. In addition, we expect to grant restricted stock units representing shares of our Common Stock to our employees and directors in connection with the completion of this Offering under our 2022 Equity Incentive Plan and will incur a charge of $214,000 related to stock-based compensation for the remainder of 2022. We will incur additional charges in the future related to additional equity grants under our 2022 Equity Incentive Plan. We also expect our selling, operating and administrative expenses to increase in the near-term as we add additional personnel and incur additional expenses that we did not incur as a private company, including costs related to becoming a public company and compliance with related governance and disclosure requirements.

 

More specifically, we expect our selling, operating and administrative expenses to increase related to obligations associated with becoming a public company including compliance with the Sarbanes-Oxley Act, as well as legal, accounting, tax and other expenses that we did not incur as a private company.

 

  · Depreciation and amortization. Depreciation and amortization expense consists of our depreciation expense related to our investments in property and equipment and our amortization of long-lived assets and intangibles, which consists principally of capitalized software, trademarks and franchise agreement amortization. Depreciation and amortization expense may increase as we continue to pursue acquisitions.

 

  · Gains and losses on sale of assets. Gains and losses on sale of assets are recognized when assets are disposed of for amounts greater than or less than their carrying values.

 

44 

 

 

Other Income (Expenses), Net

 

Other income (expenses), net include interest expense, interest income, foreign currency transactions gains and losses, losses on the early extinguishment of debt and change in fair value of derivatives.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

 

The following discussion relates to critical accounting policies for our Company. The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:

 

Revenue Recognition

 

The Company applies the provision of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The Company measures revenue within the scope of ASC 606 by applying the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses the goods or services promised within each contract that falls under the scope of ASC 606, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied. The application of these five steps necessitates the development of assumptions that require judgment.

 

The Company records revenue based upon the consideration specified in the client arrangement, and revenue is recognized when the performance obligations in the client arrangement are satisfied. A performance obligation is a contractual promise to transfer a distinct good or service to the customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when or as, the customer receives the benefit of the performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.

 

45 

 

  

Real Estate Brokerage Services (Residential)

 

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing residential real estate transactions. Revenue from real estate brokerage services (residential) mainly consists of commissions generated from real estate brokerage services. The Company is contractually obligated to provide for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services of its agents necessary to legally transfer the real estate. Consequently, the Company is defined as the principal in the transaction. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. The Company has concluded that agents are not employees of the Company, rather deemed to be independent contractors. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The transaction price is calculated by applying the Company's portion of the agreed-upon commission rate to the property's selling price. The Company may provide services to the buyer, seller, or both parties to a transaction. When the Company provides services to the seller in a transaction, it recognizes revenue for its portion of the commission, which is calculated as the sales price multiplied by the commission rate for the “buy” side of the transaction. In instances in which the Company represents both the buyer and the seller in a transaction, it recognizes the full commission on the transaction. Commissions revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction, at which point the entire transaction price is earned. The Company's customers remit payment for the Company's services to the title company or attorney closing the sale of property at the time of closing. The Company receives payment upon close of property within days of the closing of a transaction. The Company is not entitled to any commission until the performance obligation is satisfied and is not owed any commission for unsuccessful transactions, even if services have been provided. In addition to commission, revenue from real estate brokerage services (residential) consists of annual and monthly dues charged to our agents for providing systems, accounting, marketing tools and compliance services. The annual and monthly dues are recognized each month as services are provided.

  

Franchising Services

 

The Company's franchise agreements offer the following benefits to the franchisee: common use and promotion of the La Rosa Realty trademark; distinctive sales and promotional materials; access to technology and training; and recommended procedures for operation of La Rosa Realty franchises. The Company concluded that these benefits are highly related and part of one performance obligation for each franchise agreement, a license of symbolic intellectual property that is billed through a variety of fees including (i) initial franchise fees, (ii) annual dues and (iii) royalty fees. Initial franchise fees consist of a fixed fee payable upon signing the franchise agreement. Annual dues are calculated at a fixed fee per agent (prorated for any partial year) payable annually before the 10th day of January or within 10 days after each agent commences their association with the franchise. Royalty fees are calculated as the greater of;(a) fixed percentage of gross commission income for the period which is made up of all commissions, transaction fees, property management fees, and monthly fees collected or receivable by the franchisee and the franchisee's independent sales associates, agents, representatives, contractors, employees, partners, directors, officers, owners, or affiliates, regardless of whether or not such individuals or affiliates are entitled to retain all or part of such gross commission income, or (b) a fixed monthly fee. Royalty fees are payable monthly on or before the 10th of each month.

 

Coaching Services

 

The Company provides mandatory training and guidance to newly licensed agents for their first three sales transactions. Revenue is recognized based on 10% of the commission earned on these transactions payable upon the closing of the transaction. Coaches also provide optional special education services throughout the year to agents. Revenue is recognized as each event occurs.

 

Property Management

 

We provide property management services on a contractual basis for owners of and investors in office, industrial and retail properties. These services include managing daily operations of the property, tenant background screening, overseeing the tenant application process, and accounting services. We are compensated for our services through a flat monthly management fee. We are also sometimes reimbursed for our repair costs directly attributable to the properties under management. These costs are not included in the transaction price as the customer is the party receiving these services. Property management services represent a series of distinct daily services rendered over time. Consistent with the transfer of control for distinct, daily services to the customer, revenue is recognized at the end of each period for the fees associated with the services performed. The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. We generally do not control third-party services delivered to property management clients. As such, we generally report revenues net of third-party reimbursements.

 

46 

 

 

The amount of revenue recognized is presented gross for any services provided by our employees, as we control them. This is evidenced by our obligation for their performance and our ability to direct and redirect their work, as well as negotiate the value of such services. The amount of revenue recognized related to certain project management arrangements is presented gross (with offsetting expense recorded in cost of revenue) for reimbursements of costs of third-party services because we control those services that are delivered to the client. In the instances where we do not control third-party services delivered to the client, we report revenues net of the third-party reimbursements.

 

Real Estate Brokerage Services (Commercial)

 

The Company serves as a licensed broker in the areas in which it operates for the purpose of processing commercial real estate transactions. This portion of revenue consists of commissions generated from real estate brokerage services. The Company is contractually obligated to provide for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services of its agents necessary to legally transfer the real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. The Company has concluded that agents are not employees of the Company, rather deemed to be independent contractors. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The transaction price is calculated by applying the Company's portion of the agreed-upon commission rate to the property's selling price. The Company may provide services to the buyer, seller, or both parties to a transaction. When the Company provides services to the seller in a transaction, it recognizes revenue for its portion of the commission, which is calculated as the sales prices multiplied by the commission rate for the "buy" side of the transaction. In instances in which the Company represents both the buyer and the seller in a transaction, it recognizes the full commission on the transaction. Commissions revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction, at which point the entire transaction price is earned. The Company's customers remit payment for the Company's services to the title company or attorney closing the sale of property at the time of closing. The Company receives payment upon close of property within days of the closing of a transaction at a rate of 10% of the gross commission income. The Company is not entitled to any commission until the performance obligation is satisfied and is not owed any commission for unsuccessful transactions, even if services have been provided. The Company also charges customers a fixed monthly membership fee.

 

47 

 

 

Recently Adopted Accounting Standards

 

In January 2021 the FASB issued ASU 2021-02, Franchisors — Revenue from Contracts with Customers (Subtopic 952-606). This ASU modifies the guidance applicable to franchisors under the revenue recognition standards by adding a practical expedient that allows non-public business entity franchisors to account for pre-opening services provided to a franchisee as a distinct performance obligation that is separate from the franchise license. To qualify for the new practical expedient, the pre-opening services need to be consistent with the predefined list within the standards. The ASU also allows franchisors the ability to recognize the pre-opening services as a single performance obligation. ASU 2021-02 is effective for the Company for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted under certain conditions. The adoption did not have a material impact on the Company’s consolidated financial statements.

 

In February 2016, the FASB established Topic 842, Leases, by issuing ASU No. 2016-02 (“ASU 2016-02”), which requires lessees to recognize leases on balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The adoption did not have a material impact on the Company’s consolidated financial statements

 

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which modifies ASC 740 to reduce complexity while maintaining or improving the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for the Company for interim and annual reporting periods beginning after December 15, 2021. The Company has assessed the impact of ASU 2019-12 and has determined it does not have a material impact on the Company’s consolidated financial statements.

 

Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends to adopt the standard on January 1, 2023. 

 

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The FASB reduced the number of accounting models for convertible debt and convertible preferred stock instruments and made certain disclosure amendments to improve the information provided to users. In addition, the FASB amended the derivative guidance for the “own stock” scope exception (see FG 5) and certain aspects of the EPS guidance. As the Company expects to qualify for the smaller reporting company determination, the effective date for this ASU and has not determined the impact of possible early adoption.  

 

JOBS Act Transition Period

 

Section 107 of the JOBS Act, which was enacted in April 2012, provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourself of the extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.

 

We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation, from the requirements of:  (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier to occur of : (1) the last day of the fiscal year (a) following the fifth anniversary of the effectiveness of this registration statement, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our Common Stock that is held by non-affiliates exceeds $700 million as of the prior December 31st, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

48 

 

  

Results of Operations

 

 Three months ended March 31, 2022 compared to the three months ended March 31, 2021

 

Our unaudited statements of operations for the three months ended March 31, 2022 and 2021 as discussed herein are presented below.

 

   Unaudited     
   Three Months ended     
   March 31,     
   2022   2021   Change 
Revenue  $6,639,152   $6,431,194   $207,958 
Cost of revenue   5,686,805    5,525,006    161,799 
Gross Profit   952,347    906,188    46,159 
Selling, general and administrative   1,019,714    712,232    307,482 
Sales and marketing   117,257    48,704    68,553 
Income from operations   (184,624)   145,252    (329,876)
Other income (expense)   (108,539)   58,590    (167,129)
Net income  $(293,163)  $203,842   $(497,005)
Net income per share, basic and diluted  $(0.09)  $0.07      
Shares used in computing net income per share attributable to Common Stockholders, basic   3,106,667    3,000,000      

 

Fiscal year ended December 31, 2021 compared to the fiscal year ended December 31, 2020

 

Our statements of operations for the year ended December 31, 2021 and 2020 as discussed herein are presented below.

 

   Year Ended     
   December 31,     
   2021   2020   Change 
Revenue  $28,797,531   $24,127,871   $4,669,660 
Cost of revenue   25,283,775    21,051,729    4,232,046 
Gross Profit   3,513,756    3,076,142    437,614 
Selling, general and administrative   3,196,379    2,689,535    506,844 
Sales and marketing   254,453    258,953    (4,500)
Income from operations   62,924    127,654    (64,730)
Other income (expense)   35,274    6,707    (28,567)
Net income  $98,198   $134,361   $(36,163)
Net income per share, basic and diluted  $0.03   $0.04      
Shares used in computing net income per share attributable to Common Stockholders, basic   3,000,000    3,000,000      

 

Revenue – Periods ended March 31, 2022 and 2021

 

Revenues totaled $6.6 million and $6.4 million for the three months ended March 31, 2022 and 2021, respectively. The following table details our revenue by operating segment:

 

   2022   2021   Change   % 
Revenue                    
Real Estate Brokerage Services (Residential)  $4,185,327   $4,145,740   $39,587    1.0%
Franchising Services   335,681    309,941    25,740    8.3%
Coaching Services   184,830    181,047    3,783    2.1%
Property Management   1,912,381    1,767,344    145,037    8.2%
Real Estate Brokerage Services (Commercial)   20,933    27,122    (6,189)   (22.8%)
Revenue  $6,639,152   $6,431,194   $207,958    3.2%

 

Revenue

 

Total Revenue increased $.2 million (3%) in the period ending March 31, 2022 versus the comparative period in 2021. The increase in Property Management revenue corresponded to a rise in new customers for the Company’s services from the comparative period. The increase in residential brokerage services and franchising revenue was primarily attributable to an increase in transaction volume from the comparative period due to improved market conditions.

 

Revenue – Years ended December 31, 2021 and 2020

 

Revenues totaled $29 million and $24 million for the years ended December 31, 2021 and 2020, respectively. The following table details our revenue by operating segment:

 

   2021   2020   Change   % 
Revenue                    
Real Estate Brokerage Services (Residential)  $19,426,032   $15,699,121   $3,726,911    24%
Franchising Services   1,048,238    853,968    194,270    23%
Coaching Services   811,059    475,668    335,391    71%
Property Management   7,364,837    6,991,444    373,393    5%
Real Estate Brokerage Services (Commercial)   147,365    107,670    39,695    37%
Revenue  $28,797,531   $24,127,871   $4,669,660    19%

 

Revenue

 

Real Estate Brokerage Services (Residential)

 

Revenue from residential real estate services increased $3.7 million (24%) from $15.7 million in 2020 to $19.4 million in 2021. This increase was primarily attributable to an increase in transaction volume and to an increase in average revenue per transaction due to rising home prices. During the year ended December 31, 2021, transaction volume increased by 42% to approximately 11,372 transactions compared to approximately 9,424 transactions for the year ended December 31, 2020. Our transaction volume increased primarily due to the organic growth in the number of agents contracted with us in 2021.

 

49 

 

 

Franchising Services

 

Revenue from franchising increased $0.2 million (23%) from $0.9 million in 2020 to $1.1 million in 2021. Our franchisees saw a similar increase in volume and increase in transaction prices related to the same market conditions in our residential services. Our franchise charges are directly related to franchise income, number of agents as well as other price and volume related fees.

 

Coaching Services

 

Revenue from coaching increased $0.3 million (71%) from $0.5 million in 2020 to $0.8 million in 2021. The increase was primarily the result of the favorable market conditions, number of new agents and fees charged for Company-wide training to enhance core competencies. Coaching income is transactional based and as a result of increased transactions post pandemic and increased sales volume, Coaching income (which is commission based) also increased.

 

Property Management

 

Revenue from property management increased $0.4 million (5%) from $7.0 million in 2020 to $7.4 million in 2021. The primary drivers in the increase was an increase in rents consistent with the national average and a proportional increase in commissions and management fees.

 

Real Estate Brokerage Services (Commercial)

 

Revenue from commercial real estate increased $0.04 million (37%) from $0.1 million in 2020 to $0.14 million in 2021. Commercial real estate has historically not been a segment in which the Company has significant operations though it saw higher volume and increased agent licensing.

 

Cost of revenue for the three months ended March 31, 2022 and 2021

 

Cost of Sales totaled $5.7 million and $5.5 million for the three months ended March 31, 2022 and 2021, respectively. The following table details our major categories of expenses:

 

   Unaudited
Three Months ended
March 31,
         
   2022   2021   Change   % 
                 
Real Estate Brokerage Services (Residential)  $3,861,272   $3,710,564   $150,708   4%
Franchising Services   1,217    0    1,217     
Coaching Services   91,322    90,515    807    1%
Property Management   1,732,994    1,723,928    9,066    1%
Real Estate Brokerage Services (Commercial)   -    -           
Cost of revenue  $5,686,805   $5,525,007   $161,798    3%

 

Costs related to residential real estate brokerage services increased $.2 million (4%) from $3.7 million in the period ending March 31, 2021 to $3.9 million in the period ending March 31, 2022. Costs related to coaching and property management had slight period over period increases. The Company does not have significant costs related to its franchising and commercial real estate segments. These costs, other than commissions are considered immaterial to the segment and are absorbed by the residential segment. 

  

Cost of revenue for the years ended December 31, 2021 and 2020

 

Cost of Sales totaled $25 million and $21 million for the years ended December 31, 2021 and 2020, respectively. The following table details our major categories of expenses:

 

   2021   2020   Change   % 
                 
Real Estate Brokerage Services (Residential)  $17,854,136   $14,142,452   $3,711,684    26%
Franchising Services   4,474    9,126    (4,652)   (51%)
Coaching Services   399,813    231,525    168,288    73%
Property Management   7,022,346    6,668,626    353,720    5%
Real Estate Brokerage Services (Commercial)   3,005    -    3,005    100%
Cost of revenue  $25,283,775   $21,051,729   $4,232,046    20%

 

Costs related to residential real estate brokerage services increased $3.7 million (26%) from $14.2 million in 2020 to $17.9 million in 2021. The costs are proportional to the increase in sales for the same segment due to the increase in payments made to agents for commissions. Similarly, costs related to coaching increased $0.2 million (73%) from $0.2 million in 2020 to $0.4 million in 2021. The increase is attributable to the increase in new agents and commissions resulting from the increase in transaction volume. Property management revenue increased $0.03 million (5%) from $6.7 million to $7.0 million. The increase is directly proportionate to the increase in revenue and results primarily from higher commissions. The Company does not have significant costs related to its franchising and commercial real estate segments. These costs, other than commissions, are considered immaterial to the segment and are absorbed by the residential segment.

 

50 

 

 

Selling, general and administrative for the three months ended March 31, 2022 and 2021

 

Selling, general and administrative expenses totaled $1.1 million and $.8 million for the three months ended March 31, 2022 and 2021, respectively. The following table summarizes the changes in our selling, general and administrative expenses:

 

   Unaudited
Three Months ended
March 31,
         
   2022   2021   Change   % 
Payroll and benefits  $428,086   $351,712   $76,374    22%
Rent & occupancy   48,975    69,546    (20,571)   -30%
Professional   51,973    47,877    4,096    9%
Office   310,035    91,349    218,686    239%
Technology   180,645    151,748    28,897   19%
Sales & marketing   117,257    48,704    68,553   141%
Selling, general and administrative  $1,136,971   $760,936   $375,965    49%

 

Payroll and benefits increased primarily due to raises and increased health insurance costs. Rent and occupancy decreased as a result of the Company closing corporate owned offices. Professional, office expenses, technology and sales and marketing expenses increased due to costs related to the Company’s efforts to file a registration statement for an initial public offering. Sales and marketing costs increased due to an increase in industry marketing events.

 

 Selling, general and administrative for the years ended December 31, 2021 and 2020

 

Selling, general and administrative expenses totaled $3.5 million and $3.0 million for the years ended December 31, 2021 and 2020, respectively. The following table summarizes the changes in our selling, general and administrative expenses:

 

   2021   2020   Change   % 
Payroll and benefits  $1,543,210   $1,423,711   $119,499    8%
Rent & occupancy   201,774    262,645    (60,870)   (23%)
Professional   679,073    233,600    445,473    191%
Office   198,204    178,639    19,565    11%
Technology   574,117    590,940    (16,823)   (3%)
Sales & marketing   254,453    258,953    (4,500)   (2%)
Selling, general and administrative  $3,450,831   $2,948,488   $502,343    17%

 

Though headcount remained consistent, payroll and benefits increased primarily due to raises and increased health insurance costs. Rent and occupancy decreased as a result of the Company closing several corporate owned offices that were considered unnecessary in an effort to improve the efficiency of our corporate spending. Professional fees increased due to legal, consulting and accounting costs related to the Company’s efforts to file a registration statement for an initial public offering. Office expenses, technology and sales and marketing expenses remained largely unchanged as there was no significant change in corporate spending in these areas.

 

51 

 

 

Income from operations for the three months ended March 31, 2022 and 2021

 

Loss from operations was $185 thousand for the three months ended March 31, 2022, as compared to Income from operations of $145 thousand for the three months ended March 31, 2021, primarily due to increased costs related to the Offering.

 

Income from operations for the years ended December 31, 2021 and 2020

 

Income from operations was $63 thousand for the years ended December 31, 2021, as compared to $128 thousand for the year ended December 31, 2020.

 

Other income (expense) for the three months ended March 31, 2022 and 2021

 

Other (expense) was $109 thousand for the three months ended March 31, 2022, as compared to income of $59 thousand in the comparative period of 2021. The increase in cost was due to costs related to the convertible debt issued in the fourth quarter of 2021, namely, amortization of finance fees, fair market value adjustments of the derivative liability related to the convertible notes, and interest expense on the convertible notes.

 

Other income (expense) for the years ended December 31, 2021 and 2020

 

Other income (expense) was $35 thousand for the year ended December 31, 2021, as compared to $7 thousand for the year ended December 31, 2020. The decrease is primarily the result of debt forgiveness of $271 thousand and a favorable change in the fair market value of derivatives of $32 thousand offset by an increase interest of $23 thousand from additional debt incurred during the year, $95 thousand of amortization of debt discounts and our corporate tax provision of $150 thousand in 2021. Other income from 2020 included $5 thousand of interest net of $12 thousand in other income.

 

Net loss for the three months ended March 31, 2022 and 2021

 

Net loss for the period ended March 31, 2022 was $293 thousand, as compared to $204 thousand for the comparative period in 2021.

 

Net income for the years ended December 31, 2021 and 2020

 

As a result of the foregoing, net income was $98 thousand for the year ended December 31, 2021, as compared to $134 thousand for the year ended December 31, 2020.

 

Liquidity and Capital Resources

 

On March 31, 2022, and December 31, 2021, we had cash of $0.22 million and $0.53 million, respectively, available to fund our ongoing business activities. Additional information concerning our financial condition and results of operations is provided in the financial statements presented in this prospectus.

 

This Offering is expected to generate net proceeds of approximately $12.8 million. We intend to use such proceeds as described in the section of this prospectus titled “Use of Proceeds.”

 

We believe that the net proceeds from this Offering combined with its existing cash resources, will be sufficient to fund our projected operating requirements for at least 12 months subsequent to the closing of this Offering. We anticipate that our expenses will increase substantially as we:

 

incur costs with being a reporting company under the Exchange Act;

 

incur costs with being a public company on a national exchange;

 

continue to grow our Company by the addition of employees, consultants and advisors; and

 

implement our business strategy through either growing organically or acquiring other entities, etc.

 

If needed, we may finance future cash needs through public or private equity offerings, debt financings or corporate collaborations and licensing arrangements. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or applications or grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. Management believes that our current cash reserves are sufficient for operations for at least 12 months from the date of the filing of the registration statement of which this prospectus is a part.

 

52 

 

  

Cash Flows

 

Operating Activities for the three months ended March 31, 2022

 

During the three months ended March 31, 2022, operating activities consumed $16 thousand of company’s cash, which was primarily attributable to net loss of $293 thousand partially offset by contribution from the changes in working capital of $185 thousand, and amortization of debt discount and financing fees along with change in fair market value of derivative of $92 thousand.

 

During the three months ended March 31, 2021, operating activities contributed $224 thousand to the company’s cash which was primarily attributable to net income of $204 thousand, contribution from working capital of $80 thousand. This was partially offset by debt forgiveness of $60 thousand.

 

Operating Activities for the years ended December 31, 2021 and 2020

 

During the year ended December 31, 2021, the Company provided cash of $0.4 million in operating activities, which was primarily attributable to an increase in accounts payable, accrued expenses, landlord deposits and income taxes payable totaling $1.1 million plus our net income of $0.1 million reduced by debt forgiveness, change in fair market value of derivative and increases in accounts receivable and prepaid expenses of $0.8 million.

 

During the year ended December 31, 2020, the Company used cash of $0.3 million in operating activities which was primarily attributable to the receipt of landlord deposits of $0.7 million plus our net income of $0.1 million reduced by payments of accounts payable and accrued expenses totaling $0.5 million.

 

Financing Activities for the three months ended March 31, 2022

 

During the three months ended March 31, 2022, the Company used cash of $0.1 million in financing activities, which was attributable to distributions and payments to related parties of $.1 million.

 

During the three monts ended March 31, 2021, the Company received cash of $0.02 million in financing activities attributable to proceeds from notes payable of $.2 million, offset by distributions of $0.18 million.

 

Financing Activities for the years ended December 31, 2021 and 2020

 

During the year ended December 31, 2021, the Company provided cash of $0.1 million from financing activities, primarily the result of net proceeds from convertible debt and notes payable totaling $0.7 million reduced by distribution payments of $0.6 million.

 

During the year ended December 31, 2020, the Company was provided cash of $0.2 million from financing activities, primarily the result of net debt proceeds, line of credit borrowings and related party advances totaling $0.8 million reduced by distribution payments of $0.6 million.

 

53 

 

 

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

Introduction to Unaudited Pro Forma Condensed Financial Information

 

The following unaudited pro forma condensed combined financial statements of La Rosa Holdings Corp. gives effect to the following planned transactions (the “Transactions”):

 

·The estimated net proceeds from our assumed initial public offering and application of the estimated proceeds contemplated in this prospectus.

 

·The planned acquisition of 100% membership interest in La Rosa Realty CW Properties, LLC (“CW”).

 

·The planned acquisition of 100% membership interest in La Rosa Realty North Florida, LLC (“North Florida”).

 

·The planned acquisition of 51% membership interest in La Rosa Realty the Elite LLC (“Elite”).

 

·The planned acquisition of 51% membership interest in Horeb Kissimmee Realty LLC (“Kissimmee”).

 

·The planned acquisition of 51% membership interest in La Rosa Realty Lake Nona, Inc. (“Lake Nona”).

 

·The planned acquisition of 51% membership interest in La Rosa Realty Lakeland, LLC (“Lakeland”).

 

·Certain other agreements entered into in anticipation of the assumed initial public offering or are contingent upon the completion of the initial public offering.

 

The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X, Pro Forma Financial Information, herein referred to as Article 11, and are being provided pursuant to Rule 3-05 of Regulation S-X because the proposed transactions constitute probable significant acquisitions that have not yet been consummated.

 

Initial Public Offering of Company Units

 

In July 2021, we entered into an engagement agreement with Maxim Group LLC, related to the Offering of an assumed 1,500,000 Units, with each Unit consisting of one share of our Common Stock and one Warrant to purchase one share of our Common Stock at an assumed public offering price of $10.00 per Unit (the midpoint of the price range of the Units offered hereby). The Units are expected to be offered and sold by us pursuant to a registration statement on Form S-1, as amended, which was filed with the Securities and Exchange Commission and is yet to be declared effective. We expect to receive net proceeds of approximately $13.5 million from the sale of the assumed number of Units at the assumed offering price per Unit. The pro forma information assumes no exercise by the underwriters of the option to purchase up to an additional 15% of the number of Units sold in the Offering

 

Additionally, in connection with the initial public offering all of our convertible debt is expected to be converted into shares of our Common Stock at the per Unit offering price. The Offering takes into account the prior a Reverse Stock Split of our Common Stock on a 10-for-1 basis pursuant to which every 10 shares of outstanding Common Stock was decreased to 1 share as of March 21, 2022.

 

CW Acquisition

 

On January 7, 2022, the Company and CW entered into a Membership Interest Purchase Agreement, whereby we agreed to acquire 100% of the membership interests in CW in exchange for $100,000 and $2,300,000 in shares of our Common Stock. The number of shares to be issued will be equal to the quotient of $2,300,000 divided by the initial public offering price of the Units in the underwritten initial public offering. The closing of the CW acquisition is expected to occur within five days after the closing of this Offering

 

North Florida Acquisition

 

On January 11, 2022, the Company and North Florida entered into a Membership Interest Purchase Agreement, whereby we agreed to acquire 100% of the membership interests in North Florida in exchange for $300,000 and $1,528,107 in shares of our Common Stock. The number of shares to be issued will be equal to the quotient of $1,528,107 divided by the initial public offering price of the Units in the underwritten initial public offering. The closing of the North Florida acquisition is expected to occur within five days after the closing of this Offering.

 

54 

 

 

Elite Acquisition

 

On January 5, 2022, the Company and Elite entered into a Membership Interest Purchase Agreement, whereby we agreed to acquire 51% of the membership interests in Elite in exchange for $1,237,969 in shares of our Common Stock. The number of shares to be issued will be equal to the quotient of $1,237,969 divided by the initial public offering price of the Units in the underwritten initial public offering. The closing of the Elite acquisition is expected to occur within five days after the closing of this Offering.

 

Kissimmee Acquisition

 

On January 31, 2022, the Company and Kissimmee entered into a Membership Interest Purchase Agreement, whereby we agreed to acquire 51% of the membership interests in Kissimmee in exchange for $1,200,000 and $4,936,267 in shares of our Common Stock. The number of shares to be issued will be equal to the quotient of $4,936,267 divided by the initial public offering price of the Units in the underwritten initial public offering. The closing of the Kissimmee acquisition is expected to occur within five days after the closing of this Offering.

 

Lake Nona Acquisition

 

On January 10, 2022, the Company and Lake Nona entered into a Membership Interest Purchase Agreement, whereby we agreed to acquire 51% of the membership interests in Lake Nona in exchange for $3,349,987 in shares of our Common Stock. The number of shares issued will be equal to the quotient of $3,349,987 divided by the initial public offering price of the Units in the underwritten initial public offering. The closing of the Lake Nona acquisition is expected to occur within five days after the closing of this Offering.

 

Lakeland Acquisition

 

On January 6, 2022, the Company and Lakeland entered into a Membership Interest Purchase Agreement, whereby we agreed to acquire 51% of the membership interests in Lakeland in exchange for $1,158,645 in shares of our Common Stock. The number of shares issued will be equal to the quotient of $1,158,645 divided by the initial public offering price of the Units in the underwritten initial public offering. The closing of the Lakeland acquisition is expected to occur within five days after the closing of this Offering.

 

Pro forma Information

 

The following unaudited pro forma condensed combined financial information is based on the historical combined financial statements of the Company and the historical financial statements of CW, North Florida, Elite, Kissimmee, Lake Nona and Lakeland to reflect the planned acquisitions of these entities by us and the expected effects of the initial public offering and related transactions described above. The transaction accounting adjustments have been described below and within the notes to the unaudited pro forma condensed combined financial information.

 

The unaudited pro forma condensed combined balance sheet as of March 31, 2022 gives effect to the Transactions as if they have occurred on March 31, 2022. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2021 gives effect to the Transactions as if they occurred on January 1, 2021. The unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2022 gives effect to the Transactions as if they occurred on March 31, 2022. The historical information is based on La Rosa Holdings Corp.’s audited consolidated financial statements and the audited financial statements of CW, North Florida, Elite, Kissimmee, Lake Nona and Lakeland.

 

The unaudited pro forma condensed combined financial statements reflect management’s preliminary estimates of (i) net proceeds in the initial public offering, (ii) purchase price consideration and the fair values of tangible and intangible assets acquired and liabilities assumed in the acquisitions, with the remaining estimated purchase consideration recorded as goodwill, and (iii) fair value of the noncontrolling interests.

 

The unaudited pro forma condensed combined financial information is for information purposes only and is not intended to represent or to be indicative of the combined results of operations or financial position that the combined company would have reported had the planned acquisitions and initial public offering completed as of the dates set forth in these unaudited pro forma condensed combined financial statements.

 

55 

 

 

Considerations regarding Pro Forma Financial Information

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes to the unaudited pro form condensed combined financial statements. The pro forma financial information has been prepared using, and should be read in conjunction with:

 

 

  · La Rosa Holdings Corp.’s unaudited consolidated financial statements as of and for the three months ended March 31, 2022 and 2021;
     
  · La Rosa Holdings Corp.’s historical audited consolidated financial statements as of and for the years ended December 31, 2021 and 2020;

 

  · CW’s historical audited financial statements as of and for the three months ended March 31, 2022 and 2021;
     
  · CW’s historical audited financial statements as of and for the years ended December 31, 2021 and 2020;

 

  · North Florida’s historical audited financial statements as of and for the three months ended March 31, 2022 and 2021;
     
  · North Florida’s historical audited financial statements as of and for the years ended December 31, 2021 and 2020;

 

  · Elite’s historical audited financial statements as of and for the three months ended March 31, 2022 and 2021;
     
  · Elite’s historical audited financial statements as of and for the years ended December 31, 2021 and 2020;

 

  · Kissimmee’s historical audited financial statements as of and for the three months ended March 31, 2022 and 2021;
     
  · Kissimmee’s historical audited financial statements as of and for the years ended December 31, 2021 and 2020;

 

  · Lake Nona’s historical audited financial statements as of and for the three months ended March 31, 2022 and 2021;
     
  · Lake Nona’s historical audited financial statements as of and for the years ended December 31, 2021 and 2020;

 

  · Lakeland’s historical audited financial statements as of and for the three months ended March 31, 2022 and 2021; and
     
  · Lakeland’s historical audited financial statements as of and for the years ended December 31, 2021 and 2020.

 

The above historical financial statements are included in this prospectus. The pro forma financial information should also be read in junction with the risk factors described in the section entitled “Risk Factors” elsewhere in this prospectus.

 

We have not finalized the purchase accounting for the acquisitions of CW, North Florida, Elite, Kissimmee, Lake Nona and Lakeland. As such, the adjustments included in the pro forma financial information is preliminary and subject to change. The final fair value calculations and purchase price allocations, and associated amortization of acquired intangible assets and other effects, may be materially different than that reflected in the pro forma information presented herein. The actual results may differ significantly from those reflected in the unaudited pro forma condensed combined financial information for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the unaudited pro forma condensed combined financial results and actual results.

 

The unaudited pro forma condensed combined financial information is presented for informational purposes only and to aid you in your analysis of the financial aspects of the Transactions. The unaudited pro form condensed combined financial information described above has been derived from the historical financial statements of La Rosa Holdings Corp. and the entities in the planned acquisitions and the related notes included elsewhere in this filing. The unaudited pro forma condensed combined financial information is based the Company’s accounting policies. Further review may identify additional differences between the accounting policies of the Company and the planned acquisition entities. The unaudited pro forma transaction accounting adjustments and the pro forma condensed combined financial information do not reflect synergies or post combination management actions and are not necessarily indicative of the financial position or results of operations that may have actually occurred had the Transactions taken place on the dates noted, or of the Company’s future financial position or operating results.

 

The pro forma information included herein reflects the impact of the shares the Company is contractually obligated to issue upon closing of the Offering. The adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet and Statement of Operations related to shares in the Offering and contractually obligated shares is reflected in the table below.

 

Pro Forma Adjustments related to shares  Pro Forma Balance Sheet    

Pro Forma
Statement of
Operations

 
    Shares    Cash    Other
Assets
    

Accrued

Expenses

    

Convertible

Debt

    

Derivative

Liability

    

Common

Stock

    APIC    

Accum.

Deficit

    Noncontrolling interest    G&A   Other Expense  
Shares in offering   1,500,000   $

12,800,000

   $1,266,791              $(1,280)  $(14,065,511)            
Shares to purchase franchisees   1,451,099    (1,600,000)   27,361,429                   (145)   (14,510,830)   166,423    (11,416,873)           
Shares to be granted under consulting agreements   336,862    (100,000)                       (34)   100,034                      
Shares to be granted under employment agreements   309,400                             (309)   (3,093,691)             3,094,000       
Shares granted to convert debt   70,656              39,627    481,851    163,511    (7)   (641,302)                 (43,680 )
        $11,100,000   $2,8628,216   $39,627   $481,851   $163,511   $(1,775)  $(32,211,300)  $166,419   $(11,416,873)  $3,094,000   $(43,680 )

 

56 

 

 

La Rosa Holdings Corp.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of March 31, 2022

 

                               Transaction         
   LHC   CW   Kissimmee   Lake Nona   North Florida   Elite   Lakeland   Adjustments   Notes   Pro Forma 
Assets                                                  
Current Assets                                                  
Cash  $226,574   $68,278   $417,235   $138,458   $66,226   $108,297   $36,339   $12,800,000     a    $9,791,907 
                                       (1,600,000)    b       
                                       (2,369,500)    f       
                                       (100,000)    g       
Restricted cash   1,270,434    -    -    -    -    -    -              1,270,434 
Accounts receivable, net   318,789    42,954    159,138    102,122    97,018    20,110    24,577    (39,782)    c     724,926 
Other current assets   800    -    -    -    -    -    -              800 
Due from related party   34,608    10,842    -    -    -    -    -              45,450 
Total Current Assets   1,851,205    122,074    576,373    240,580    163,244    128,407    60,916    8,690,718         11,833,517 
                                                   
Excess purchase price to be allocated   -    -    -    -    -    -    -    27,361,425     b     27,361,425 
Other assets   

1,328,704

    -    

43,331

    -    -    -    -    (

1,266,791

)    a     105,244 
Security deposits   15,470    -    -    -    -    -    2,000              17,470 
Fixed assets, net of accumulated depreciation   -    -    70,069    -    -    -    -              70,069 
Total Assets  $

3,195,379

    $122,074   $689,773   $240,580   $163,244   $128,407   $62,916   $

34,785,352

        $39,387,725 
                                                   
Liabilities and Stockholder's Equity (Deficit)                                                  
Liabilities                                                  
Current Liabilities                                                  
Line of credit  $150,947   $-   $-   $-   $-   $-   $-             $150,947 
Accounts payable   650,236    90,901    276,993    242,432    131,937    100,673    43,496    (39,782)    c     1,496,886 
Accrued Expenses   193,613    -    9,842    7,415    -    -    3,378    (39,627)    d     174,621 
Share based compensation liability   -    -    -    -    -    -    -          f     - 
Income taxes payable   150,000    -    -    -    -    -    -              150,000 
Due to related party   669,922    1,693    -    -    -    -    -              671,615 
Derivative liability   163,511    -    -    -    -    -    -    (163,511)    d     - 
Convertible notes payable, net   481,851    -    -    -    -    -    -    (481,851)    d     - 
Notes payable, current   40,000    -    -    -    -    -    -              40,000 
Total Current Liabilities   2,500,080    92,594    286,835    249,847    131,937    100,673    46,874    (724,771)        2,684,069 
                                                   
Notes payable, net of current   514,612    33,000    150,000    133,069    -    -    2,400              833,081 
Security deposits payable   1,158,455    -    -    2,500    -    -    -              1,160,955 
Total Liabilities   4,173,147    125,594    436,835    385,416    131,937    100,673    49,274    (724,771)        4,678,105 
                                                   
Commitments and contingencies                                                  
Stockholders' Equity (Deficit)                                                  

Preferred stock - $0.0001 par value; 50,000,000 shares authorized; none issued and outstanding at March 31, 2022

   -    -    -    -    -    -    -              - 

Preferred stock, Series X - $0.0001 par value; 2,000 shares authorized; 2,000 issued and outstanding at March 31, 2022

   -    -    -    -    -    -    -              - 

Common stock - $0.0001 par value; 250,000,000 shares authorized; 3,120,000 issued and outstanding at March 31, 2022

   312    -    -    -    -    -    -    1,280     a     2,087 
                                       145    b      
                                       7     d       
                                       309     f       
                                       34     g       
Additional paid-in capital   

1,145,304

    -    -    -    -    -    -    12,798,720     a     30,823,022 
                                       (1,266,791)    a       
                                       14,510,830     b       
                                       477,791     d       
                                       163,511     d       
                                       3,093,691     f       
                                       (100,034)    g       
Accumulated deficit   (2,123,384)   (3,520)   252,938    (144,836)   31,307    27,734    13,642    (166,423)    b     (7,532,362)
                                       43,680     d       
                                       (5,463,500)    f       
Equity (Deficit) of La Rosa Holdings Inc.   (

977,768

)   (3,520)   252,938    (144,836)   31,307    27,734    13,642    

24,093,250

         23,292,747 
Noncontrolling interest   -    -    -    -    -    -    -    11,416,873     b     11,416,873 
Total Equity   

(977,768

)   (3,520)   252,938    (144,836)   31,307    27,734    13,642    

35,510,123

         

34,709,620

 
Total Liabilities and Equity (Deficit)  $

3,195,379

    $122,074   $689,773   $240,580   $163,244   $128,407   $62,916   $

34,785,352

        $39,387,725 

 

57 

 

 

La Rosa Holdings Corp.

Unaudited Pro Forma Condensed Combined Statements of Operations

For the three months ended March 31, 2022

 

   LHC   CW   Kissimmee   Lake Nona   North Florida   Elite   Lakeland   Adjustments   Notes   Proforma 
Revenue  $6,639,152   $910,556   $2,885,024   $1,894,334   $827,693   $1,096,147   $1,196,804   $(180,179)   cc   $15,269,531 
                                                   
Cost of revenue   5,686,805    816,419    2,631,139    1,653,721    767,768    1,003,874    1,094,348              13,654,074 
                                                   
Gross Profit   952,346    94,137    253,885    240,613    59,925    92,273    102,456    (180,179)        1,615,456 
                                                   
Operating Expenses                                                  
General and administrative expenses   1,019,714    106,823    165,864    166,394    95,471    98,578    82,640    (180,179)   cc      
                                       5,463,500    ff    7,018,805 
Sales and marketing expenses   117,257    2,433    12,728    8,896    4,163    3,352    6,178              155,007 
Total Operating Expenses   1,136,971    109,256    178,592    175,290    99,634    101,930    88,818    <