Business Combinations | Note 2 — Business Combinations The Company has completed a number of acquisitions in the first half of 2024 and will acquire additional businesses in the future. The results of businesses acquired in a business combination are included in the Company’s condensed consolidated financial statements from the date of acquisition. The Company allocates the purchase price, which is the sum of the consideration provided and may consist of cash, equity, or a combination of the two, to the identifiable assets and liabilities of the acquired business at their acquisition date fair values. The excess of the purchase price over the amount allocated to the identifiable assets and liabilities, if any, is recorded as goodwill. Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and selection of comparable companies. To date, the assets acquired and liabilities assumed in the Company’s business combinations have primarily consisted of goodwill and finite-lived intangible assets, consisting primarily of franchise agreements, agent relationships, real estate listings, non-compete agreements, and right-of-use assets. The estimated fair values and useful lives of identifiable intangible assets are based on many factors, including estimates and assumptions of future operating performance and cash flows of the acquired business, the nature of the business acquired, and the specific characteristics of the identified intangible assets. The estimates and assumptions used to determine the fair values and useful lives of identified intangible assets could change due to numerous factors, including market conditions, technological developments, economic conditions and competition. In connection with the determination of fair values, the Company engages independent appraisal firms to assist with the valuation of intangible assets acquired and certain assumed obligations. Transaction costs associated with business combinations are expensed as incurred. During the first half 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”), La Rosa Realty Lakeland LLC (“Lakeland”), La Rosa Realty Success LLC (“Success”) and 100% ownership of La Rosa Realty Winter Garden LLC (“Winter Garden”). All five 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 five acquisitions. The values assigned to certain acquired assets and liabilities are preliminary as the Company is continuing to evaluate the fair value of the assets and liabilities and may be adjusted as further information becomes available during the allocation period of up to 12 months from the acquisition date. Winter Garden Georgia California Lakeland Success Total Acquired ownership 100 % 51 % 51 % 51 % 51 % Acquisition date 2/21/2024 3/7/2024 3/15/2024 4/18/2024 5/24/2024 Common stock issued 268,858 276,178 1,387 514,939 56,375 1,117,737 Cash consideration $ — $ — $ — $ 50,000 $ 10,000 $ 60,000 Equity consideration 352,204 516,453 123,113 823,903 68,778 1,884,451 Total purchase price 352,204 516,453 123,113 873,903 78,778 1,944,451 Noncontrolling interest — 496,200 118,285 839,632 75,689 1,529,806 Acquisition date fair value $ 352,204 $ 1,012,653 $ 241,398 $ 1,713,535 $ 154,467 $ 3,474,257 Purchase price allocation $ 352,204 $ 1,012,653 $ 241,398 $ 1,713,535 $ 154,467 $ 3,474,257 Less fair value of net assets acquired: Cash 17,623 79,553 1,436 32,935 171 131,718 Working capital (less cash) (17,148 ) (54,991 ) (45,027 ) (59,325 ) (21,323 ) (197,814 ) Intangible assets 171,767 446,657 111,202 815,411 104,798 1,649,835 Long-term assets — 91,118 106,542 129,521 22,697 349,878 Long-term liabilities — (98,641 ) (69,449 ) (94,591 ) (8,236 ) (270,917 ) Net assets acquired 172,242 463,696 104,704 823,951 98,107 1,662,700 Goodwill $ 179,962 $ 548,957 $ 136,694 $ 889,584 $ 56,360 $ 1,811,557 Goodwill generated from the acquisition is primarily attributable to expected synergies from future growth and strategic advantages provided through expansion and is not expected to be deductible for income tax purposes. The classes of intangible identifiable assets acquired and the estimated useful life of each class is presented in the table below for the five acquisitions: Winter Garden Georgia California Lakeland Success Total Franchise agreement (10 to 11 years) $ 146,990 $ 356,200 $ 92,367 $ 511,453 $ 48,302 $1,155,312 Agent relationships (8 to 11 years) — 43,447 7,657 147,455 — 198,559 Real estate listings (1 year) 22,239 37,310 10,417 129,847 55,228 255,041 Non-compete agreements (4 years) 2,538 9,700 761 26,656 1,268 40,923 Total identifiable intangible assets acquired $ 171,767 $ 446,657 $ 111,202 $ 815,411 $ 104,798 $1,649,835 The amounts of revenue, cost of revenue, gross profit, and loss from operations before income taxes of the five acquisitions included in the Company’s condensed consolidated statement of operations from the date of the acquisition for the three- and six-month periods ended June 30, 2024 is as follows: Three Months Six Months Ended Ended June 30, June 30, 2024 2024 Revenue $ 3,007,645 $ 3,253,081 Cost of revenue $ 2,752,472 $ 2,982,184 Gross profit $ 255,173 $ 270,898 Loss before provision for income taxes $ 94,571 $ 90,142 The following unaudited pro forma financial information presents the combined operating results of the Company, Winter Garden, Georgia, California, Lakeland and Success as if each acquisition had occurred as of January 1, 2023. The unaudited pro forma financial information includes the accounting effects of the business combinations, including adjustments to the amortization of intangible assets. The unaudited pro forma information does not necessarily reflect the actual results that would have been achieved, nor is it necessarily indicative of the Company’s future consolidated results. The unaudited pro forma financial information is presented in the table below for the six-month periods ended June 30, 2024 and 2023: Six Months Ended June 30, 2024 2023 Revenue $ 34,498,209 $ 18,255,643 Cost of revenue $ 31,622,251 $ 16,552,159 Gross profit $ 2,875,959 $ 1,703,484 Loss before provision for income taxes $ (6,020,765 ) $ (3,022,871 ) Loss per share of common stock attributable to common stockholders, basic and diluted $ (0.42 ) $ (0.33 ) Weighted average shares used in computing net loss per share of common stock attributable to common stockholders 14,849,626 9,299,830 |