Stratum Holdings Corp.

Note 1 — Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X and do not include all the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The Company has made estimates and judgements affecting the amounts reported in the Company’s condensed consolidated financial statements and the accompanying notes. The actual results experienced by the Company may differ materially from the Company’s estimates. The condensed consolidated financial information is unaudited and reflects all normal adjustments that are, in the opinion of management, necessary to provide a fair statement of results for the interim periods presented, which contemplate continuation of the Company as a going concern and realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of any uncertainties related to the Company’s going concern assessment. The carrying amounts of assets and liabilities presented in the unaudited condensed consolidated financial statements do not necessarily purport to represent realizable or settlement values.

The unaudited condensed consolidated financial statements include the financial statements of the Company, all entities that are wholly-owned by the Company, and all entities in which the Company has a controlling financial interest. All intercompany transactions and balances have been eliminated. Business combinations consummated during the reporting period are reflected in the Company’s results effective from the date of acquisition through the end of the reporting period.

Results of the three-month period ended March 31, 2025 are not necessarily indicative of the results to be expected for the full year ending December 31, 2025. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the Company as of and for the year ended December 31, 2024, included in the Company’s Annual Report on Form 10-K. The condensed consolidated balance sheet as of December 31, 2024 was derived from the Company’s audited financial statements referred to above.

Accounts Receivable and Allowance for Credit Losses

The Company’s trade accounts receivable consist of balances due from agents, tenants, franchisees, and commissions for closings and are presented on the consolidated balance sheets net of the allowance for credit losses. Management determines the allowance for expected credit losses based upon historical experiences as well as current conditions that affect the collectability of the reported amount and regularly evaluates individual customer receivables and considering financial condition, credit history, current economic conditions and other relevant factors, in setting specific reserves for certain accounts. Receivables are written off once they are deemed uncollectible, which may arise when the debtor is deemed unable to pay the amounts owed to the Company. The allowance for credit losses was $312,247 and $166,504 as of March 31, 2025 and December 31, 2024, respectively. Estimates of uncollectible accounts receivable are recorded to general and administrative expense.

The activity for the allowance for credit losses during the three months ended March 31, 2025 and 2024 is set forth in the table below:

Liquidity – Going Concern and Management’s Plans

On March 31, 2025, the Company had a cash balance of $4.9 million and negative working capital of $94.0 million.

On February 4, 2025 (the “Closing Date”), the Company entered into a Securities Purchase Agreement (the “SPA”), with an institutional investor (the “Investor”) in which the Company obtained gross proceeds of $4,963,750. The Company used $2.7 million of the proceeds to pay-off certain indebtedness, pay certain outstanding fees and expenses (including expenses of the offering, and fees payable to the placement agent and advisors), and general corporate purposes.See Note 5 – Borrowingsfor further discussion.

The Company is subject to the risks and challenges associated with companies at a similar stage of development. These include dependence on key individuals, successful development and marketing of its offerings, and competition with larger companies with greater financial, technical, and marketing resources. Furthermore, during the period required to achieve substantially higher revenue in order to become profitable, the Company will require additional funds that might not be readily available or might not be on terms that are acceptable to the Company. Until such time that the Company fully implements its growth strategy, it expects to continue to generate operating losses in the foreseeable future, mostly due to corporate overhead and costs of being a public company. As such, the Company anticipates that its existing working capital, including cash on hand, and cash generated from operations, will not be sufficient to meet projected operating expenses through at least the next twelve months from the issuance of these condensed consolidated financial statements. The Company will be required to raise additional capital to service its debt and to fund ongoing operations.

The Company has incurred recurring net losses, and the Company’s operations have not provided net positive cash flows. In view of these matters, there is substantial doubt about the Company’s ability to continue as a going concern. The Company plans on continuing to expand via acquisitions, which will help achieve future profitability. Additionally, the Company has plans to raise capital from outside investors, as it has done in the past, to fund operating losses and to provide capital for further business acquisitions. There can be no assurance the Company can successfully raise the capital needed.

Fair Value Option of Accounting

The Company has elected the option under Accounting Standards Codification 825-10,Financial Instruments (“ASC 825”), to measure its short-term convertible note payable issued during the quarter at fair value. The fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. When the fair value option is elected for an instrument, unrealized gains and losses for such instrument are reported in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. The Company also elected to measure the incremental warrants included in the transaction under ASC 825.

Recently Adopted Accounting Standards

In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU, No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities, including those with a single reportable segment, to: (i) provide disclosures of significant segment expenses and other segment items if they are regularly provided to the chief operating decision maker, or the CODM, and included in each reported measure of segment profit or loss; (ii) provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Accounting Standards Codification 280, Segment Reporting, in interim periods; and (iii) disclose the CODM’s title and position, as well as an explanation of how the CODM uses the reported measures and other disclosures. ASU No. 2023-07 does not change how a public entity identifies its operating segments, aggregates those operating segments or applies the quantitative thresholds to determine its reportable segments. The Company adopted ASU No. 2023-07 effective December 31, 2024.

Recently Issued Accounting Standards Not Yet Adopted

In May 2025, the FASB issued ASU 2025-03,*Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity.*The amendments in this Update require an entity involved in an acquisition transaction effected primarily by exchanging equity interests when the legal acquiree is a VIE that meets the definition of a business to consider the factors in paragraphs 805-10-55-12 through 55-15 to determine which entity is the accounting acquirer. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements. A Variable Interest Entity (VIE) is a legal entity in which an investor holds a controlling interest that is not based on majority voting rights.

In January 2025, the FASB issued ASU 2025-01,*Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)- Clarifying the Effective Date.*The amendment in this Update amends the effective date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.

Note 2 — Business Combinations

The Company completed a number of acquisitions in the first quarter of 2024. The results of businesses acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity, or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies.

To date, the assets acquired and liabilities assumed in the Company’s business combinations have primarily consisted of goodwill and finite-lived intangible assets, consisting primarily of franchise agreements, agent relationships, real estate listings, non-compete agreements, and right-of-use assets. The estimated fair values and useful lives of identifiable intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, the nature of the business acquired, and the specific characteristics of the identified intangible assets. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with the determination of fair values, the Company engages independent appraisal firms to assist with the valuation of intangible assets acquired and certain assumed obligations.

Transaction costs associated with business combinations are expensed as incurred.

During the first quarter of 2024, the Company acquired majority ownership of the following franchisees of the Company: La Rosa Realty Georgia LLC (“Georgia”) and La Rosa Realty California (“California”), and 100% ownership of La Rosa Realty Winter Garden LLC (“Winter Garden”). All three franchises engage mostly in the residential real estate brokerage services to the public primarily through sales agents and also provide coaching and support services to agents on a fee basis.

The following table summarizes the purchase consideration and the purchase price allocation to the estimated fair values of the identifiable assets acquired and liabilities assumed for the three acquisitions.

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

During the year ended December 31, 2024, after an impairment evaluation, the Company recognized an impairment charge of $787 thousand.

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

The amounts of revenue, cost of revenue, gross profit, and loss from operations before income taxes of the three acquisitions included in the Company’s condensed consolidated statement of operations from the date of the acquisition for the three-month period ended March 31, 2024 was as follows:

The following unaudited pro forma financial information presents the combined operating results of the Company, Winter Garden, Georgia, California, Lakeland, Success, BF Prime, Nona Title, Beaches and Baxpi, as if each acquisition had occurred as of January 1, 2024. The unaudited pro forma financial information includes the accounting effects of the business combinations, including adjustments to the amortization of intangible assets. The unaudited pro forma information does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of the Company’s future consolidated results.

The unaudited pro forma financial information is presented in the table below for the three-month periods ended March 31, 2024:

Note 3 — Goodwill and Intangible Assets

Goodwill

The gross carrying amount of goodwill as of both March 31, 2025 and December 31, 2024 was $8,012,331.

Intangible Assets

Intangible assets consist of franchise agreements, agent relationships, real estate listings, and non-compete agreements, and are initially recorded at fair value. Long-lived intangible assets are amortized over their estimated useful lives in a method reflecting the pattern in which the economic benefits are consumed or amortized on a straight-line basis if such pattern cannot be reliably determined. The Company continues to assess potential triggering events related to the value of its intangible assets and concluded that there was no impairment during the three months ended March 31, 2025.

The components of purchased intangible assets were as follows:

For the three months ended March 31, 2025 and 2024, amortization expense was $229 thousand and $183 thousand respectively. The remaining estimated amortization expense is expected to be as follows:

Note 4 — Fair Value Measurements and Other Liabilities

Fair Value Measurements

Fair value is the price that would be received for an asset or the amount paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company classified certain liabilities based on the following fair value hierarchy:

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses reflected in the condensed consolidated financial statements approximate fair value due to their short-term maturities.

The Company determined that on March 31, 2025 and December 31, 2024, certain instruments qualified as derivative liabilities and were recorded at fair value on the date of issuance and re-measured at fair value each reporting period with the change reported in earnings.

On February 4, 2025, the Company entered into an SPA with an investor for a Senior Secured Convertible Note (“Convertible Note”) with a face value of $5,500,000 andsixteen Incremental Warrants exercisable for a face amount of $2,500,000 each.See Note 5 – Borrowings for further discussion.

The purchase price paid by the Investor under the SPA for the Convertible Note and Incremental Warrants was $4,963,750. It was determined that the note and warrants within this transaction met the requirements for the Fair Value Option under ASC 825, in which the Company elected. Using the fair value option, the Convertible Note is required to be recorded at initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized as gain/loss on fair value adjustment within other income (expenses) in the Company’s unaudited condensed consolidated statements of operations.

As a result of applying the fair value option, direct costs and fees related to the Convertible Note were expensed as incurred and were not deferred.

The following table provides the fair value and contractual principal balance outstanding on the Convertible Note and the Incremental Warrants accounted for under the fair value option as of February 4, 2025 and March 31, 2025:

The fair value of the Convertible Note was calculated using a fair value analysis considering the following factors and assumptions:

The fair value of the Incremental Warrants were calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:

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

At December 31, 2024, the estimated fair value of the derivative liability tied to the three vested warrants held by an institutional investor and remeasured on a recurring basis amounted to $1,607,544.

At March 31, 2025, warrants held by an institutional investor were eliminated through exercising and a redemption and cancellation agreement for $379,083. The Company recorded a derivative liability related to the Incremental Warrants issued in connection with the SPA dated February 4, 2025. The Incremental Warrants’ fair value at date of issuance was $100,800,000 and were remeasured at March 31, 2025 with a fair value of $81,360,000. The analysis assumes immediate conversion upon issuance and does not incorporate ownership limitations or conversion blockers that could otherwise restrict full exercise or conversion.

The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the three-month periods ended March 31, 2025 and 2024:

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

Contract Liabilities and Performance Obligations

Contract liabilities consist of unsatisfied performance obligations related to annual dues received at the start of the calendar year. As of March 31, 2025, the Company has approximately $199 thousand of remaining performance obligations, all of which will be recognized into revenue by the end of the calendar year. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.

Note 5 — Borrowings

Line of Credit

The Company has a line of credit with Regions Bank that allows for advances up to $150,000 with interest at the Prime Rate plus 4.75% with a floor of 4.75% and no maturity date. On March 31, 2025, the outstanding balance on the line of credit was $144,618 at a prime rate of 7.50% plus 4.75%, or 12.25%. On December 31, 2024, the outstanding balance on the line of credit was $148,976 at a prime rate of 7.75% plus 4.75%, or 12.50%. The line of credit is collateralized by Company assets. The interest expense incurred for the line of credit was $4,494 and $365 for the three months ended March 31, 2025 and 2024, respectively.

Security Purchase Agreement

On February 4, 2025, the Company and an Investor entered into the SPA, pursuant to which the Company issued to the Investor on such date: (i) a Senior Secured Convertible Note in the original principal amount of $5,500,000 which matures on February 4, 2027 (the “Initial Note”); and (ii)sixteen (16) warrants (the “Incremental Warrants”), each to purchase additional Notes in an original principal amount up to $2,500,000 at an exercise price of $2,256,250, in substantially the same form as the Initial Note (the “Incremental Notes” and together with the Initial Note, the “Notes”). The purchase price paid by the Investor under the SPA for the Initial Note and Incremental Warrants was $4,963,750.

The Initial Note accrues interest at a rate of 12% per annum, calculated on the basis of a 360-day year. Interest is payable quarterly in arrears, meaning that payments are due at the end of each calendar quarter for interest accrued during that quarter. The interest expense incurred for the Initial Note was $102,667 and $0 for the three months ended March 31, 2025 and 2024, respectively.

In connection with the closing of the Senior Secured Convertible Note, the Company entered into a Registration Rights Agreement dated February 4, 2025, obligating the Company to file and maintain the effectiveness of one or more registration statements with the SEC covering the resale of the shares of common stock issuable upon conversion of the Notes and related instruments. The Company was required to file an initial registration statement with the SEC within 30 calendar days of the closing date and have it declared effective within 90 calendar days (or 120 days if subject to full SEC review). Failure to meet filing or effectiveness deadlines, maintain effectiveness, or satisfy Rule 144 information requirements may trigger cash penalties equal to 2% of the original principal amount of the Notes and applicable incremental notes per 30-day period, prorated for partial periods, until cured. The Company is also subject to certain limitations on entering into conflicting registration rights agreements through the applicable date and must allocate available registration capacity pro rata among holders.

The Notes may be prepaid by the Company, in whole or in part, at its option with at least 30 calendar days’ notice to the holder, provided no Event of Default has occurred and is continuing. Voluntary prepayments are subject to a redemption premium equal to 120% of the outstanding principal, accrued interest, and any applicable charges being redeemed. The Company may not issue more than one redemption notice within any 20-trading-day period, and such notices are irrevocable once issued.

Certain mandatory redemptions, including those triggered by Events of Default, Bankruptcy Events, or Change of Control transactions, are contractually deemed voluntary prepayments and are also subject to the 120% redemption premium. The redemption price in such scenarios is the greater of (i)120% of the outstanding amount or (ii) a formula based on the conversion rate and the highest closing price of the Company’s common stock during a specified period.

Other redemptions, such as those triggered by subsequent placements or asset sales, are payable at 100% of the applicable amount and are not subject to a premium.

Cash Advance Agreements

On February 5, 2025, the Company paid off their Standard Merchant Cash Advance Agreement (the “Cash Advance”) with Cedar Advance LLC (“Cedar”) in the amount of $354,450, resulting in a loss on extinguishment of debt of $83,310. The Company also paid off their other Standard Merchant Cash Advance Agreement (the “Arin Cash Advance Agreement”) with Arin Funding LLC (“Arin”) in the amount of $340,421, resulting in a loss on extinguishment of debt of $68,615. The amortization of financing fees incurred for MCA loans were $63,160 and $7,420 for the three months ended March 31, 2025 and 2024, respectively.

Notes Payable-Senior Secured Promissory Notes

During the three months ended March 31, 2025, the Company repaid in full all outstanding senior secured promissory notes issued in 2024 to an accredited investor. On February 5, 2025, in connection with the execution of the SPA, the Company paid the remaining principal and accrued interest on the third and final outstanding note, thereby fully extinguishing the Company’s debt obligations to the investor under the 2024 note issuances.

In addition, the accredited investor elected to convert an aggregate principal and interest amount of $483,751 of the notes into 1,381,164 shares of the Company’s common stock in accordance with the terms of the applicable note agreements. The Company also settled all vested and outstanding warrants previously held by the investor. Two of the three warrants were exercised for a total of 877,872 shares of common stock. The remaining warrant was repurchased by the Company for $379,083 in cash on January 24, 2025, resulting in the elimination of all vested warrants held by the investor as of March 31, 2025.

On January 8, 2025, the Company and the accredited investor entered into that certain Waiver, waiving the Event of Default (as defined) under these senior secured promissory notes. The waiver included, among other provisions, waiving the rights to all default penalties, default interest, the acceleration of any amounts and waiving the restriction for the Company to enter into a variable rate transaction, of which the consummation could be considered an event of default, provided the proceeds from such financing are used to repay, in full, the notes described above.

On January 22, 2025, the Company and the Holder signed an amendment No. 1 to the Waiver. Pursuant to the Amendment, the Company shall pay 100% of any cash proceeds raised by the Company from the sale of securities pursuant to its Registration Statement on Form S-3 to the Holder first towards the repayment of the Redemption Price until it is paid in full, and after that towards the repayment of the Notes. The Amendment also provides that, if the Redemption Agreement becomes null and void pursuant to the terms of the Redemption Agreement, then all Proceeds previously paid by the Company to the Holder pursuant to the Redemption Agreement shall instead be applied towards the repayment of the Notes.

The interest expense incurred for the senior secured promissory note was $23,798 and $14,955 for the three months ended March 31, 2025 and 2024, respectively.

Notes Payable-Promissory Note

On September 27, 2024, the Company entered into a promissory note payable whereby the Company borrowed $200,000 bearing interest at 12.5% per annum. The note was payable in three monthly installments of $75,000. The proceeds of the note were used to pay down the senior secured promissory note entered into in February 2024. The remaining balance on the note as of December 31, 2024 was $148,725. This note was fully repaid in February 2025. The interest expense incurred for the promissory note was $1,276 and $0 for the three months ended March 31, 2025 and 2024, respectively.

Acquisition Settlement Agreement

In October 2024, the Company entered into an acquisition settlement agreement with the former owner of an acquired business. Under the terms of the agreement, the Company agreed to pay $1.0 million in equal installments of $11,905 per month over seven years, beginning November 1, 2024.

Economic Injury Disaster Loans

During 2024, the Company acquired franchises that had outstanding Economic Injury Disaster Loans (the “EIDL Loans”) in the aggregate of $147,100. The Company acquired the EIDL Loans which have terms similar to the Company’s existing EIDL loans. The EIDL Loans mature in 2050 and bear interest at a rate of 3.75% per annum. The interest expense incurred for the EIDL loans were $1,412 and $3,259 for the three months ended March 31, 2025 and 2024, respectively.

Future maturities of EIDL term debt as of March 31, 2025, were as follows:

Total Notes Payable as of March 31, 2025 and December 31, 2024 were as follows:

Note 6 — Commitments and Contingencies

Leases

The Company has operating leases for office space in several states. Lease terms are negotiated on an individual basis. Generally, the leases have initial terms ranging fromone tofive years. Renewal options are typically not recognized as part of the right of use assets and lease liabilities as it is not reasonably certain at the lease commencement date that the Company will exercise these options to extend the leases. Leases with an initial term of twelve-months or less that do not include an option to purchase the underlying asset are not recorded on the consolidated balance sheets and are expensed on a straight-line basis over the lease term.

The Company leases its corporate office from an entity controlled by the Company’s CEO. In addition, some of the entities acquired lease their offices from their former owners, who now hold a minority interest in those entities.

During January 2025, the Company entered into a new lease for office space in Orlando, FL. The Orlando lease requires monthly payments of $5,170. The Orlando lease is initially for a five-year term, with no written option for renewal.

Lease costs expense for the three months ended March 31, 2025 and 2024 were $210,108 and $207,915, respectively, and are included in general and administrative expenses in the condensed consolidated statements of operations.

Supplemental cash flow information related to leases is as follows:

Supplemental balance sheet information related to leases is as follows:

The Company’s leases do not provide a readily determinable implicit discount rate. The Company estimates its incremental borrowing rate as the discount rate based on the information available at lease commencement. The weighted average discount rate is 10.71%.

Future maturities on lease liabilities as of March 31, 2025, are as follows:

There were no leases with residual value guarantees.

Legal Proceedings

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

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

On January 3, 2024, Ms. Sarah Palmer filed a putative national class action complaint against La Rosa Realty, LLC in the United States District Court, Middle District of Florida, Orlando Division. Ms. Palmer alleges that she received two (2) brief pre-recorded calls one week apart to her cell phone from La Rosa Realty, LLC presenting her an employment opportunity as a real estate agent. Ms. Palmer seeks an undisclosed amount of monetary damages from La Rosa Realty, LLC for the alleged would-be injurious, isolated and opportunistic employment gestures to her through a purported nationwide class action. Ms. Palmer claims that the defendant violated her privacy, annoyed and harassed her, constituted a nuisance, and occupied her telephone line. On March 12, 2024, La Rosa Realty, LLC filed a motion to dismiss the case with prejudice. The action settled at mediation and was recently dismissed without prejudice pending completion of the settlement terms.

On March 5, 2025, Joshua Epstein (“Plaintiff”) filed an action in Osceola County, Florida Circuit Court alleging claims for Breach of Contract, Promissory Estoppel, Conversion, Unjust Enrichment, Breach of Good Faith and Fair Dealings, Fraud in the Inducement, and to recover alleged unpaid compensation from the Defendant, La Rosa Holdings Corp., (“Defendant”). The Defendant strongly opposed and denied these claims. The action is similar to the Gracy matter and Defendant will be filing a dispositive motion seeking judgment against the Plaintiff.

The Company believes that the above claims are without merit, and it will vigorously defend against such claims. Moreover, these claims, in the aggregate, would not have a material adverse effect on the Company’s financial condition, business, or results of operations, should the Company’s defense not be successful in whole or in part. Except as stated herein, there is no other action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers, threatened against or affecting our Company or our officers or directors in their capacities as such.

Note 7 — Equity Warrants

Warrants are issued to consultants as compensation or as part of certain capital raises which entitle the holder to purchase shares of the Company’s common stock at a fixed price. As of March 31, 2025, the Company’s stock price was $0.18.

During the quarter ended March 31, 2025, the Company settled all vested and outstanding warrants previously held by the accredited investor holding the three senior secured notes payable from 2024. Two of the three warrants were exercised on a cashless basis for a total of 877,872 shares of common stock which represented 1,392,198 warrants. The remaining warrant was repurchased by the Company for $379,083 in cash on January 24, 2025, resulting in the elimination of all vested warrants (1,202,244 warrants) held by the investor as of March 31, 2025.

Warrants issued to two investors who loaned money to the Company, Emmis Capital II, LLC and the Company’s CEO, Joseph La Rosa, on November 14, 2022 and December 2, 2022, respectively, included full ratchet antidilutive protections. The original warrants each covered 50,000 shares at a strike price of $5.00. By the end of 2024, due to various debt and equity transactions the new strike price on these warrants became $0.37, resulting in the number of shares covered by each warrant to increase to 667,913, and a 2024 deemed dividend of $1,476,044. In the first quarter of 2025, the warrants were revalued due to equity transactions triggering the ratchet antidilutive protections bringing the strike price of these warrants down to $0.19 resulting in the number of shares covered by each warrant to increase to 1,331,913, and a 2025 deemed dividend of $186,233.

At March 31, 2025, warrants outstanding that have vested and are expected to vest are as follows:

Additional information with respect to warrant activity:

As of March 31, 2025 and December 31, 2024, there was no unrecognized expense related to warrants.

The valuation methodology used to determine the fair value of the warrants was the Black-Scholes option-pricing model. The Black-Scholes model requires the use of a number of assumptions including volatility of the stock price, the average risk-free interest rate, and the weighted average expected life of the warrant.

Estimated volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate each year during the expected life of the award. The Company’s estimated volatility is an average of the historical volatility of peer entities over the shorter of i) the period equal to the expected life of the award or ii) the period over which the peer company was publicly traded. The Company uses the historical volatility of peer entities due to the lack of sufficient historical data of its stock price.

The risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period is appropriate for the term of the award at the grant date.

The weighted average fair value of warrants granted for the period ended March 31, 2025 and December 31, 2024 and the assumptions used in the Black-Scholes model are set forth in the table below.

Note 8 — Stockholders’ Equity

Common Stock Issuances

On January 17, 2025, the Company issued 399,562 shares of common stock as an exercise of a prefunded warrant which was part of the securities purchase agreement with an institutional accredited investor, Abri Advisors, Ltd., a corporation organized under the laws of Bermuda, agreed to on November 1, 2024.

On February 5, 2025, the Company issued the CEO an aggregate of 2,933,219 unregistered shares of common stock of the Company, par value $0.0001 per share (the “Shares”) as a compensation for the services rendered pursuant to his employment agreement with the Company. The Company issued the Shares to the CEO in reliance on exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), available to the Company under Section 4(a)(2) of the Securities Act due to the fact that the issuance did not involve a public offering of securities. The stock compensation expense for the three months ended March 31, 2025, related to this transaction amounted to $1,160,381.

On February 20, 2025, the Company issued shares pursuant a consulting agreement entered into on January 1, 2025 in which the Company agreed to issue 1,723,530 shares of the Company’s common stock for services rendered. The stock compensation expense for the three months ended March 31, 2025, related to this transaction amounted to $411,062.

On February 20 and 24, 2025, the Company entered into marketing agreements pursuant to which the Company agreed to issue 300,000 and 200,000 shares of the Company’s common stock, respectively, for services rendered. The stock compensation expense for the three months ended March 31, 2025, related to this transaction amounted to $122,570.

On March 10, 2025, the Company issued 39,780 shares to team leaders pursuant to independent contractor agreements signed in 2024. The stock compensation expense for the three months ended March 31, 2025, related to this transaction amounted to $8,036.

On March 10, 2025, the Company entered into a marketing agreement pursuant to which the Company agreed to issue 250,000 shares of the Company’s common stock for services rendered. The stock compensation expense for the three months ended March 31, 2025, related to this transaction amounted to $46,925.

For the three months ended March 31, 2025, the holder of our Senior Secured promissory notes converted 2,259,036 shares of the Company’s common stock as part of their First warrants and principal and interest conversions.

For the three months ended March 31, 2025, the Company utilized their ATM and sold a total of 7,446,442 shares of the Company’s common stock for gross proceeds of 3,023,563 and net proceeds of 2,919,192.

For the three months ended March 31, 2025, the Company issued 16,692 shares of the Company’s common stock pursuant to the Restricted Stock Unit (RSU) vesting with a value of $19,454.

Stock Option Awards

For the three-month periods ended March 31, 2025 and 2024, the Company recorded stock-based compensation for employees and directors awards of $143,904 and $2,792,505, respectively. The Company did not realize any tax benefits associated with share-based compensation for the three-month periods ended March 31, 2025 or 2024, as the Company recorded a valuation allowance on all deferred tax assets.

At March 31, 2025, options outstanding that have vested and are expected to vest are as follows:

Additional information with respect to stock option activity:

During the three months ended, the Company issued an aggregate of 325,421 stock options. Of this amount,200,000 options were granted to the Chief Executive Officer in connection with the closing of an acquisition on December 31, 2024, according to his employment agreement. The remaining 125,421 options were granted to contractors as part of their compensation packages.

The weighted average fair value of stock options granted in the quarters ended March 31, 2025 and 2024 and the assumptions used in the Black-Scholes model are set forth in the table below.

As of March 31, 2025, unrecognized compensation expense related to stock option awards totaled $121,746. As of December 31, 2024, unrecognized compensation expense related to stock option awards totaled $92,892.

Restricted Stock Units

On February 1, 2025, a Restricted Stock Unit (“RSU”) covering 4,000 shares granted to the Company’s Chief Technology Officer (“CTO”) vested. The Company withheld 1,187 shares to cover payroll tax withholding and issued 2,813 shares to the executive. The Company also granted a new RSU to the CTO on February 1, 2025, which will vest on the first anniversary of the grant.

During the three-month period ending March 31, 2025, the Company issued 644,117 RSU’s to agents as part of our agent incentive plan and 2,000 RSU’s to our CTO as part of his employment agreement.

For the three-month periods ending March 31, 2025 and 2024, the Company recorded $21,973 and $2,871, respectively, of share-based compensation expense related to the RSUs. The Company did not realize any tax benefits associated with share-based compensation for the three-month periods ended March 31, 2025 and 2024, as the Company recorded a valuation allowance on all deferred tax assets.

Note 9 — Earnings Per Share

Basic loss per share of common stock attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share of common stock attributable to common stockholders is computed by giving effect to all potential shares of common stock, including those related to the Company’s outstanding warrants, options and RSUs, to the extent dilutive. For all periods presented, these potential shares were excluded from the calculation of diluted loss per share because their inclusion would be anti-dilutive. As a result, diluted loss per common share is the same as basic loss per common share for all periods presented.

The following table sets forth common stock equivalents that have been excluded from the computation of dilutive weighted average shares outstanding as their inclusion would have been antidilutive:

Note 10 — Segments

The Company’s business is organized intosix material reportable segments which aggregate 100% of revenue:

The reporting segments follow the same accounting policies used in the preparation of the Company’s condensed consolidated financial statements. The following represents the information for the Company’s reportable segments for the three months ended March 31, 2025 and 2024, respectively.

In addition to the expenses from these segments, corporate expenses were $93,509,028 and $3,505,120, which resulted in the net loss of $95,698,885 and $4,664,978 for the three months ended March 31, 2025 and 2024, respectively.

The following table disaggregates the Company’s revenue based on the type of sale or service and the timing of satisfaction of performance obligations for the three months ended March 31, 2025 and 2024, respectively.

Note 11 — Subsequent Events

Share Repurchase Program

On April 23, 2025, the Company’s Board of Directors approved a new Share Repurchase Program, which authorizes the Company to purchase up to an aggregate of $500,000 of the Company’s outstanding shares of common stock in the open market in accordance with all applicable securities laws and regulations. Repurchases under this program may be made at management’s discretion at the time and in the amounts determined by the Chief Executive Officer and Chief Operating Officer of the Company. The Share Repurchase Program has an expiration date of December 31, 2025.

Executive Equity Awards

On April 21, 2025, the Company issued the CEO an aggregate of 3,297,359 unregistered shares of common stock of the Company, par value $0.0001 per share (the “Shares”) as a compensation for the services rendered pursuant to his employment agreement with the Company.

Equity Issuances

On April 16, 2025, the Company utilized their ATM and sold a total of 17,513,400 shares of the Company’s common stock.

Subsequent to March 31, 2025, the Company issued an additional 58,732 shares from the vesting of RSU grants as part of the Company’s agent incentive plan.

Other Subsequent Events

On May 23, 2025, the Company and the holder of the existing Initial Note and Incremental Warrants entered into a waiver agreement pursuant to which, effective as of May 20, 2025, through May 30, 2025, the holder waived all rights to default-related penalties, default interest, and acceleration of any amounts due under the Initial Note, as well as any other rights arising from an event of default under the Purchase Agreement, the Initial Note, the Incremental Warrants, and the related transaction documents, specifically with respect to the Company’s untimely filing of its Quarterly Report on Form 10-Q. In addition, the holder waived the requirement under the related Registration Rights Agreement to register for resale the shares of common stock issuable upon conversion of the Notes (other than the Initial Note) in the initial registration statement filed by the Company with the SEC on February 14, 2025.