エドガーで原本を確認する
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from _____to_____
Commission File Number:
LA ROSA HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of |
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(I.R.S. Employer |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
N/A
(Former name, former address and formal fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
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Trading Symbol(s) |
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Name of each exchange on which registered: |
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The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of July 31, 2026, the registrant had
PART I. |
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ITEM 1. |
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CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2026 (UNAUDITED) AND DECEMBER 31, 2025 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
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ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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ITEM 3. |
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ITEM 4. |
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PART II. |
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ITEM 1. |
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ITEM 1A. |
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ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
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ITEM 3. |
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ITEM 4. |
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ITEM 5. |
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ITEM 6. |
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
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March 31, 2026 |
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December 31, 2025 |
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(unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Digital assets, restricted |
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Accounts receivable, net of allowance for credit losses of $ and $, respectively |
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Notes receivable |
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Other current assets |
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Total current assets |
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Noncurrent assets: |
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Restricted cash, net of current |
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Property and equipment, net |
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Right-of-use asset, net |
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Intangible assets, net |
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Goodwill |
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Other long-term assets |
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Total noncurrent assets |
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Total assets |
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$ |
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$ |
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Liabilities, Series X Preferred Stock Subject to Redemption and Stockholders’ Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Contract liabilities |
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Security deposits and escrow payable |
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Accrued acquisition cash consideration |
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Notes payable, current |
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Lease liability, current |
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Total current liabilities |
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Noncurrent liabilities: |
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Note payable, net of current |
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Security deposits and escrow payable |
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Lease liability, noncurrent |
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Total noncurrent liabilities |
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Total liabilities |
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Commitments and contingencies (Note 6) |
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Series X Preferred Stock Subject to Redemption: |
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Preferred stock - $ par value; shares authorized; and Series X shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively |
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Stockholders’ Deficit: |
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Preferred stock - $ par value; shares authorized; and Series B Convertible Preferred Stock issued and outstanding at March 31, 2026 and December 31, 2025 |
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Preferred stock - $ par value; shares authorized; and Series C Convertible Preferred Stock issued and outstanding at March 31, 2026 and December 31, 2025, respectively |
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Common stock - $ par value; shares authorized; and issued and outstanding at March 31, 2026 and December 31, 2025, respectively |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Total stockholders' deficit – La Rosa Holdings Corp. stockholders |
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( |
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Noncontrolling interest in subsidiaries |
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Total stockholders' deficit |
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Total liabilities, Series X Subject to Redemption and stockholders deficit |
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$ |
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$ |
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See notes to the condensed consolidated financial statements.
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(unaudited)
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Three Months Ended March 31, |
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2026 |
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2025 |
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Revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Sales and marketing |
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General and administrative |
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Stock-based compensation — general and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense) |
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Interest expense, net |
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Loss on extinguishment of debt |
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Amortization of debt discount |
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Change in fair value of derivative liability |
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Loss on issuance of senior secured convertible note |
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Change in fair value of convertible note and warrants |
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Fair value of settlement of contract based equity issuances |
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Loss on disposition of noncontrolling interest in subsidiary |
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Other expense, net |
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Loss from operations before provision for income taxes |
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Provision for income taxes |
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Net loss |
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Less: Net (loss) income attributable to noncontrolling interests in subsidiaries |
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Net loss after noncontrolling interest in subsidiaries |
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Less: Deemed dividend |
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Net loss attributable to common stockholders |
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$ |
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$ |
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Loss per share of common stock attributable to common stockholders |
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Basic and diluted |
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$ |
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$ |
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Weighted average shares used in computing net loss per share of common stock attributable to common stockholders |
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Basic and diluted |
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See notes to the condensed consolidated financial statements.
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(unaudited)
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Additional |
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Total |
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Noncontrolling |
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Total |
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Preferred Stock Series X |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders' |
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Interest In |
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Equity |
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Three Months Ended March 31, 2025 |
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Shares |
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Par Value |
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Shares |
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Par Value |
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Capital |
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Deficit |
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Equity (Deficit) |
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Subsidiaries |
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(Deficit) |
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Balance as of December 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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( |
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Issuance of common stock for consulting work |
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— |
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Equity awards issued with debt issuance |
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Stock-based compensation |
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Proceeds from new investors and S-3 |
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Issuance of common stock for stock-based compensation equity awards, net of shares withheld for taxes |
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Balance as of March 31, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Additional |
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Total |
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Noncontrolling |
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Total |
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Preferred Stock Series B |
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Preferred Stock Series C |
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Common Stock |
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Paid-In |
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Accumulated |
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Stockholders' |
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Interest In |
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Deficit |
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Three Months Ended March 31, 2026 |
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Shares |
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Par Value |
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Shares |
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Par Value |
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Shares |
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Par Value |
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Capital |
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Deficit |
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Deficit |
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Subsidiaries |
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Balance as of December 31, 2025 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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) |
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Issuance of common stock for consulting work |
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Conversion of liabilities into common stock |
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Stock-based compensation |
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Proceeds from new investors and S-3 |
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Issuance of Series C Preferred Stock |
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Conversion of Series B Preferred Stock |
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) |
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Disposition of non-controlling interest in subsidiary |
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— |
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— |
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Purchase of non-controlling interest |
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— |
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Balance as of March 31, 2026 |
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$ |
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$ |
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$ |
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$ |
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$ |
) |
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$ |
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$ |
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$ |
) |
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See notes to the condensed consolidated financial statements.
La Rosa Holdings Corp. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(unaudited)
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For the Three Months Ended March 31, |
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2026 |
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2025 |
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Cash Flows from Operating Activities: |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Loss on issuance of senior secured convertible note |
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Change in fair value of convertible note and warrants |
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( |
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Amortization and depreciation |
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Amortization of right-of-use assets |
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Loss on disposition of non-controlling interest in subsidiary |
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Change in fair value of derivatives |
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( |
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Amortization of debt discount and financing fees |
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Loss on extinguishment of debt |
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Non-cash interest expense |
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( |
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Allowance for credit losses |
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Changes in Operating Assets and Liabilities: |
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Accounts receivable |
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( |
) |
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( |
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Note receivable |
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Other assets |
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( |
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( |
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Accounts payable |
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( |
) |
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Accrued expenses |
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( |
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Contract liabilities |
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Security deposits and escrow payable |
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( |
) |
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Operating lease liabilities |
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( |
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( |
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Net Cash Used in Operating Activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
Purchase of digital assets |
|
|
( |
) |
|
|
|
|
Cash sold with disposition |
|
|
( |
) |
|
|
|
|
Net Cash Provided by Investing Activities |
|
|
( |
) |
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Borrowings on bank line of credit |
|
|
|
|
|
|
||
Payments on bank line of credit |
|
|
|
|
|
( |
) |
|
Proceeds from notes payable |
|
|
|
|
|
|
||
Payments of deferred debt issuance costs |
|
|
|
|
|
( |
) |
|
Payments on notes payable |
|
|
( |
) |
|
|
( |
) |
Payments on advances of future receipts |
|
|
|
|
|
( |
) |
|
Proceeds from issuance of preferred stock series C |
|
|
|
|
|
|
||
Payments on post-acquisition consideration |
|
|
( |
) |
|
|
( |
) |
Distributions to noncontrolling interest |
|
|
( |
) |
|
|
|
|
Repurchase of derivative instruments issued |
|
|
|
|
|
( |
) |
|
Proceeds from issuance of common stock |
|
|
|
|
|
|
||
Redemption of Series X Preferred Stock |
|
|
( |
) |
|
|
|
|
Net Cash Provided by Financing Activities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
Net Increase in Cash, Cash equivalents and Restricted Cash |
|
|
|
|
|
|
||
Cash, Cash equivalents and Restricted Cash at Beginning of Period |
|
|
|
|
|
|
||
Cash, Cash equivalents and Restricted Cash at End of Period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash Paid During the Period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
Non-Cash Activities: |
|
|
|
|
|
|
|
|
Issuance of shares of common stock for services rendered |
|
$ |
|
|
|
— |
|
|
Issuance of conversion of liabilities into common stock |
|
$ |
|
|
$ |
— |
|
|
Pro-rata expense recognition for restricted stock units |
|
$ |
|
|
$ |
— |
|
|
Purchase of remaining portion of non-controlling interest |
|
$ |
|
|
$ |
— |
|
|
Sell of controlling interest to minority interest |
|
$ |
|
|
$ |
— |
|
|
Conversion of shares of series B preferred stock into shares of common stock |
|
$ |
|
|
$ |
|
||
Issuance of shares of common stock as part of the settlement of notes payable and warrants |
|
$ |
|
|
$ |
|
||
Issuance of shares of common stock for services rendered |
|
$ |
— |
|
|
$ |
|
|
Office leases acquired under operating lease obligations |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
Reconciliation of Cash, Cash equivalents and Restricted Cash |
|
|
|
|
|
|
|
|
Cash and Cash equivalents |
|
$ |
|
|
$ |
|
||
Restricted Cash |
|
|
|
|
|
|
||
Cash, Cash equivalents and Restricted Cash |
|
$ |
|
|
$ |
|
||
See notes to the condensed consolidated financial statements.
5
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 1 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements of La Rosa Holdings Corp. (the “Company”) and its subsidiaries 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.
Results of the three-month period ended March 31, 2026 are not necessarily indicative of the results to be expected for the full year ending December 31, 2026. 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, 2025, included in the Company’s Annual Report on Form 10-K. The condensed consolidated balance sheet as of December 31, 2025 was derived from the Company’s audited financial statements referred to above.
Liquidity – Going Concern and Management’ s Plans
On March 31, 2026, the Company had a cash balance of $
On November 12, 2025, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell, and the Investors agreed to purchase, in multiple closings, a new series of senior secured convertible notes of the Company in an aggregate original principal amount of up to $
Subject to certain conditions described in the Purchase Agreement, the Company has the option to request that the Investor purchase additional Notes (the “Company’s Option Closing”), and the Investor has the option to cause the Company to sell additional Notes (the “Investor’s Option Closing” and together with the Company’s Option Closing, (the “Additional Closings”) and together with the Initial Closing, each a “Closing”), provided that the aggregate original principal amount of any Notes issued in each Additional Closing shall not exceed $
In addition, the Company has financing arrangements through its equity line of credit which allows the Company to sell shares of which
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.
6
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Nasdaq Notice Regarding Filing Deficiency
On April 16, 2026, the Company received a notice (the “10-K Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company was not in compliance with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “Initial Delinquent Filing”) with the SEC. The Staff informed the Company that, under Nasdaq rules, the Company had 60 calendar days, or until June 15, 2026, to submit a plan to regain compliance, and if the Staff accepts such plan, it may grant an exception of up to 180 calendar days from the Initial Delinquent Filing’s due date, or until October 12, 2026, to regain compliance.
On May 21, 2026, the Company also received a notice (the “10-Q Notice”, and together with the 10-K Notice, the “Notices”) from the Staff indicating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) due to its failure to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2026, and noting that the Company also remained delinquent in filing its Initial Delinquent Filing. The 10-Q Notice further stated that, in accordance with Nasdaq rules and as previously communicated in the 10-K Notice, the Company had until June 15, 2026 to submit a plan to regain compliance, and if the Staff accepts such plan, any exception granted will be limited to a maximum of 180 calendar days from the due date of the Initial Delinquent Filing, or until October 12, 2026, to regain compliance.
On June 4, 2026, the Company filed its Annual Report on Form 10-K with the SEC. On June 10, 2026, the Company received a letter from the Staff indicating that, based on the June 4, 2026 filing of the Form 10-K, the Staff had determined that the Company complies with Nasdaq Listing Rule 5250(c)(1) with regard to the Form 10-K filing. However, because the Staff had not received the Company’s Form 10-Q, the Company remained noncompliant with Nasdaq Listing Rule 5250(c)(1). On June 11, 2026, the Company submitted to Nasdaq a plan of compliance (the “Plan”) addressing how the Company intends to regain compliance with Nasdaq’s listing rules with respect to the delinquent report and Nasdaq has the discretion to grant the Company up to 180 calendar days from the due date of the Form 10-K, or until October 12, 2026, to regain compliance.
Accounts Receivable and Allowance for Credit Losses
The Company’s trade accounts receivable consist of balances due from agents, tenants, franchisees, and commissions for closings and are presented on the condensed consolidated balance 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 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 $
The activity for the allowance for credit losses during the three months ended March 31, 2026 and 2025 is set forth in the table below:
|
|
Balance at |
|
|
|
|
|
|
Deductions |
|
|
Balance at |
|
|||
|
|
Beginning of |
|
|
Charged to |
|
|
from the |
|
|
End of |
|
||||
|
|
Period |
|
|
Expenses |
|
|
Allowance |
|
|
Period |
|
||||
Three months ended March 31, 2026 Allowance for Credit Losses |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Three months ended March 31, 2025 Allowance for Credit Losses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
7
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Digital Assets
The Company's digital assets consist primarily of USD Coin ("USDC") and Frax USD ("FRAX"), which are stablecoin-denominated digital assets held in a custodial wallet maintained with BitGo. Management evaluated these digital assets under ASC 350-60, Intangibles—Goodwill and Other—Crypto Assets ("ASC 350-60"), and concluded that the Company's USDC and FRAX holdings are outside the scope of ASC 350-60 as the assets provide holders with enforceable rights to, or claims on, underlying assets and therefore do not meet all of the scope criteria required for application of that guidance. Accordingly, these assets are accounted for as indefinite-lived intangible assets under ASC 350-30, Intangibles - Other than Goodwill ("ASC 350-30").
Digital assets are initially recorded at cost, including directly attributable transaction fees. Subsequent to acquisition, the assets are carried at historical cost less any impairment losses. As indefinite-lived intangible assets, the Company's digital assets are not amortized and are tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that it is more likely than not that the assets are impaired. In accordance with ASC 350-30, increases in the fair value of the digital assets above their carrying value are not recognized until realized through sale or disposition.
The Company's digital assets are held pursuant to the terms of its November 2025 Securities Purchase Agreement and related financing arrangements. The assets are maintained in a restricted custodial account and cannot be freely withdrawn, transferred, or otherwise utilized without compliance with the contractual provisions of those agreements. In addition, portions of the digital assets are subject to the Token Rights Agreement entered into with certain investors.
The Digital Assets are classified on the condensed consolidated balance sheets based on management’s intent and the expected period of use or sale.
Token Rights
In connection with the Company's financing arrangements, the Company entered into a Token Rights Agreement ("TRA") that provides the investor the right, at its election and subject to the terms of the agreement, to receive specified quantities of digital assets acquired using designated financing proceeds.
The Company evaluated the TRA in accordance with ASC 815, Derivatives and Hedging ("ASC 815"), and concluded that the agreement meets the definition of a derivative instrument. The TRA obligates the Company to deliver specified quantities of cryptocurrency upon the investor's exercise of its rights under the agreement, and therefore exposes the Company to changes in the value of the underlying digital assets. Accordingly, the TRA is accounted for as a derivative liability under ASC 815.
The derivative liability was initially measured based on the fair value of the underlying cryptocurrency subject to the investor's rights under the agreement. Subsequent to initial recognition, the liability is remeasured at fair value at each reporting date, with changes in fair value recognized in the Company's condensed consolidated statements of operations.
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, 2026 and December 31, 2025 the Company had approximately $
8
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Fair Value Option of Accounting
The Company has elected the option under ASC 825-10, Financial Instruments (“ASC 825”), to measure its short-term convertible note payable issued 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 incremental warrants under ASC 825.
Recently Adopted Accounting Standards
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326). The amendments in this Update provide (1) all entities with a practical expedient and (2) entities other than public business entities with an accounting policy election when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendments became effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The Company adopted the guidance prospectively in this fiscal year beginning January 1, 2026.
Recently Issued Accounting Standards Not Yet Adopted
In April 2026, the FASB issued ASU 2026-1, Initial Measurement of Paid-in-Kind (PIK) Dividends on Equity-Classified Preferred Stock. The amendments in this Update require that PIK dividends on equity-classified preferred stock be initially measured on the basis of the PIK dividend rate stated in the preferred stock agreement. For example, if the preferred stock agreement specifies that PIK dividends are calculated by multiplying the PIK dividend rate by the liquidation value of the preferred stock outstanding, an entity should initially measure the PIK dividend at that amount. The liquidation value (or liquidation preference) of the preferred stock is typically defined by the preferred stock agreement and specifies the value of the preferred stock upon the occurrence of a liquidation event (such as the entity becoming insolvent). When preferred stock is not issued at a discount or premium, the liquidation value upon initial issuance is typically the same as the original issuance price of the preferred stock. 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. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been issued or made available for issuance. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
In September 2025, the FASB issued ASU 2025-7, Derivatives and Hedging (Topic 815) and Revenue from Contracts with Customers (Topic 606). The amendments in this Update exclude from derivative accounting non-exchange-traded contracts with underlyings that are based on operations or activities specific to one of the parties to the contract. However, this scope exception does not apply to (1) variables based on a market rate, market price, or market index, (2) variables based on the price or performance of a financial asset or financial liability of one of the parties to the contract, (3) contracts (or features) involving the issuer’s own equity that are evaluated under the guidance in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, and (4) call options and put options on debt instruments. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40). The amendments in this Update remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. Therefore, an entity is required to start capitalizing software costs when both of the following occur: (i). management has authorized and committed to funding the software project, and (ii) it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to complete recognition threshold”). The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted as of the beginning of an annual reporting period. The Company is currently evaluating the impact that the adoption of this new standard will have on its consolidated financial statements.
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 ("VIE"). 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.
9
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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 — Disposal of Membership Interests in LR Kissimmee
On February 4, 2026, the Company completed the sale of its
Under the terms of the agreement, the Company is entitled to receive aggregate consideration of $
Concurrently with the disposition, the Company entered into a Trademark and Brand Licensing Agreement with LR Kissimmee providing LR Kissimmee a non-exclusive, non-transferable license to utilize certain Company trademarks, branding, and technology resources in exchange for a monthly licensing fee of $
The transaction was undertaken as part of the Company's strategy to divest a non-core office operation, improve liquidity, reduce operating expenses, and reallocate capital toward its core brokerage, technology, and ancillary service businesses. Management indicated that the divested operation represented approximately
A summary of the transactions consideration and loss on disposal of LR Kissimmee is as follows:
Consideration |
|
|
|
|
Note receivable |
|
$ |
|
|
Carrying amount of non-controlling interests of LR Kissimmee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book basis of investment in LR Kissimmee |
|
|
|
|
Loss on disposal of LR Kissimmee |
|
$ |
( |
) |
A summary of the investment in LR Kissimmee's related assets and liabilities is as follows:
|
|
As of February 4, 2026 |
|
|
Assets: |
|
|
|
|
Cash |
|
$ |
|
|
Accounts receivable, net |
|
|
|
|
Other current assets |
|
|
|
|
Property and equipment, net |
|
|
|
|
Right-of-use asset, net |
|
|
|
|
Intangible assets, net |
|
|
|
|
Goodwill |
|
|
|
|
Total Assets |
|
$ |
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
Accounts payable |
|
$ |
|
|
Accrued expenses |
|
|
|
|
Contract liabilities |
|
|
|
|
Lease liability |
|
|
|
|
Note payable |
|
|
|
|
Total liabilities |
|
$ |
|
|
Note 3 — Goodwill and Intangible Assets
Goodwill
The gross carrying amount of goodwill as of March 31, 2026 and December 31, 2025 was $
|
|
2026 |
|
|
2025 |
|
||
Balance, January 1 |
|
$ |
|
|
$ |
|
||
Disposal of interest in LR Kissimmee |
|
|
( |
) |
|
|
|
|
Impairment |
|
|
|
|
|
( |
) |
|
Goodwill, March 31 |
|
$ |
|
|
$ |
|
||
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 impairment during the three months ended March 31, 2026 and 2025.
10
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
The components of purchased intangible assets were as follows:
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
March 31, 2026 |
|
|||||||||||||
|
Period |
|
Gross |
|
|
Accumulated |
|
|
|
|
|
|
Net |
|
|||
|
(in years) |
|
Carrying Amount |
|
|
Amortization |
|
|
Disposals Net |
|
|
Amount |
|
||||
Franchise agreement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Agent relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate listings |
- |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
Weighted Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
December 31, 2025 |
|
|||||||||||||
|
Period |
|
Gross |
|
|
Accumulated |
|
|
|
|
|
|
Net |
|
|||
|
(in years) |
|
Carrying Amount |
|
|
Amortization |
|
|
Impairment |
|
|
Amount |
|
||||
Franchise agreement |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Agent relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Real estate listings |
- |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-compete agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For the three months ended March 31, 2026, and 2025 amortization expense was $
|
|
March 31, 2026 |
|
|
2026-remainder of the year |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
11
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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:
|
● |
Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities; |
|
● |
Level 2 – Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant inputs are observable, either directly or indirectly; and |
|
● |
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. |
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company has evaluated the estimated fair value of financial instruments using available market information and valuations as provided by third-party sources. The use of different market assumptions or estimation methodologies could have a significant effect on the estimated fair value amounts.
The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable, and accrued expenses reflected in the condensed consolidated financial statements approximate fair value due to their short-term maturities.
The Company determined that on March 31, 2026 and December 31, 2025, 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.
12
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Securities Purchase Agreement (“SPA 2”)
On January 8, 2026, the Company consummated the Initial Closing under the SPA 2 dated November 12, 2025, pursuant to which it issued to the Investors a senior secured convertible note in the principal amount of $
The Company evaluated the conversion and settlement provisions contained within the Convertible Note 2026 in accordance with ASC 815 and ASC 480, Distinguishing Liabilities from Equity. The Convertible Note 2026 is convertible into shares of the Company's common stock at a conversion price initially established at $
Management assessed whether the embedded conversion feature required bifurcation as a derivative liability or qualified for equity classification. To the extent the conversion feature is determined not to be indexed solely to the Company's own stock or otherwise fails the equity-classification conditions, the feature is recorded at fair value and subsequently remeasured each reporting period.
The fair value of any bifurcated conversion feature was determined using a Monte Carlo simulation model and/or lattice model, incorporating assumptions regarding the common stock price; expected stock price volatility; expected term; risk-free interest rates; probability of future drawdowns under the Securities Purchase Agreement; expected conversion behavior; and contractual floor-price provisions.
These measurements utilize significant unobservable inputs and are therefore classified as Level 3 within the fair value hierarchy.
Token Rights Agreement (“Token Rights”)
The Company's TRA liability is measured at fair value on a recurring basis. The TRA provides the investor with the right to receive specified quantities of digital assets with designated financing proceeds. See Note 5 – Borrowings for further discussion.
The fair value of the TRA liability is determined based on the number of rights to digital asset tokens subject to the investor's rights under the agreement and the observable market value of the underlying stablecoins held by the Company. Because the underlying assets consist primarily of restricted cash, and digital assets, which are designed to maintain a value of approximately $
The Company classifies the TRA liability within Level 2 of the fair value hierarchy because the valuation is based principally on observable market pricing information for the underlying stablecoins and does not require significant unobservable inputs.
13
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Securities Purchase Agreement (“SPA 1”)
On February 4, 2025, the Company entered into an purchase agreement with an investor for a Senior Secured Convertible Note (“Convertible Note 2025”) with a face value of $
The purchase price paid by the Investor under the SPA 1 for the Convertible Note 2025 and Incremental Warrants was $
As a result of applying the fair value option, direct costs and fees related to the Convertible Note 2025 were expensed as incurred and were not deferred.
The following tables provide the fair value and contractual principal balance outstanding on the Convertible Note 2026 accounted for under the fair value option as of January 8, 2026 and March 31, 2026:
|
|
As of |
|
|
As of |
|
||
|
|
January 8, |
|
|
March 31, |
|
||
|
|
2026 |
|
|
2026 |
|
||
Convertible Note 2026 fair value |
|
$ |
|
|
$ |
|
||
Convertible Note 2026, contractual principal outstanding |
|
$ |
|
|
$ |
|
||
Token Rights |
|
$ |
|
|
$ |
|
||
The fair value of the Convertible Note 2026 was calculated using a fair value analysis considering the following factors and assumptions:
|
|
January 8, |
|
|
March 31, |
|
||
|
|
2026 |
|
|
2026 |
|
||
Stock Price on Valuation Date |
|
$ |
|
|
$ |
|
||
Fixed Conversion Price |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
Market Price Discount |
|
|
% |
|
|
% |
||
Redemption Premium |
|
|
% |
|
|
% |
||
Interest Rate |
|
|
% |
|
|
% |
||
The following table provides the fair value and contractual principal balance outstanding on the Convertible Note 2025 and the Incremental Warrants accounted for under the fair value option as of February 4, 2025 and March 31, 2025:
|
|
As of |
|
|
As of |
|
|
As of |
|
|||
|
|
February 4, |
|
|
March 31, |
|
|
December 31, |
|
|||
|
|
2025 |
|
|
2025 |
|
|
2025 |
|
|||
Convertible Note 2025 fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Convertible Note 2025, contractual principal outstanding |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Incremental Warrants |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The fair value of the Convertible Note 2025 was calculated using a fair value analysis considering the following factors and assumptions:
|
|
December 31, |
|
|
March 31, |
|
|
February 4, |
|
|||
|
|
2025(2) |
|
|
2025(1) |
|
|
2025(1) |
|
|||
Stock Price |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Conversion Price |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Alternate Conversion Price |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Alternate Conversion Amount |
|
|
% |
|
|
% |
|
|
% |
|||
Redemption Premium |
|
|
% |
|
|
% |
|
|
% |
|||
Interest Rate |
|
|
% |
|
|
% |
|
|
% |
|||
(1) |
The fair value analysis of the convertible notes was performed under the assumption of immediate conversion as of the valuation date. The stock price, classified as a Level 1 input under the fair value hierarchy, was utilized in the analysis. Potential ownership limitations or conversion blockers were not incorporated into the valuation, as the analysis assumed full conversion in a single transaction without restriction. |
(2) |
The amendment to the Note on June 26, 2025, corrected the term of the Note from |
14
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
The fair value of the Incremental Warrants were calculated using the Monte Carlo simulation with the following factors, assumptions and methodologies:
|
|
February 4, |
|
|
March 31, |
|
||
|
|
2025(1) |
|
|
2025(1) |
|
||
Face Value |
|
$ |
|
|
$ |
|
||
Exercise Price |
|
$ |
|
|
$ |
|
||
Stock Price |
|
$ |
|
|
$ |
|
||
Exercise Threshold |
|
|
|
|
||||
Valuation per Incremental Warrant upon exercise |
|
$ |
|
|
$ |
|
||
Discount Rate |
|
|
% |
|
|
% |
||
Risk Free Rate |
|
|
% |
|
|
% |
||
Annualized Volatility |
|
|
% |
|
|
% |
||
Forecast horizon (years) |
|
|
|
|
|
|
||
(1) |
The fair value analysis of the Incremental Warrants was performed under the assumption of immediate conversion as of the valuation date. The stock price, classified as a Level 1 input under the fair value hierarchy, was utilized in the analysis. Potential ownership limitations or conversion blockers were not incorporated into the valuation, as the analysis assumed full conversion in a single transaction without restriction. |
At March 31, 2025, warrants held by an institutional investor were eliminated through exercising and a redemption and cancellation agreement for $
15
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
A summary of the Company’s liabilities measured at fair value on a recurring basis is as follows:
|
|
As of March 31, 2026 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Convertible Note 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Token Rights |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of December 31, 2025 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Convertible Note 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table provides a summary of changes in fair value associated within the Level 2 and Level 3 for the three-month period ended March 31, 2026:
|
|
2026 |
|
|
|
|
|
|||||||||
|
|
Convertible Note |
|
|
Convertible Note |
|
|
Token Rights |
|
|
Total |
|
||||
|
|
2025 |
|
|
2026 |
|
|
|
|
|
|
|
|
|
||
Balance – January 1, |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Conversion into common stock |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Issuance |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Change in fair value |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Balance – March 31, |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table provides a summary of changes in fair value associated with the Level 3 liability for the three months ended March 31, 2025:
|
|
2025 |
|
|
Balance – January 1, |
|
$ |
|
|
Issuance of derivative liability |
|
|
|
|
Cash paid to settle derivative liability |
|
|
( |
) |
Issuance of cashless shares for exercising warrants |
|
|
( |
) |
Extinguishment of derivative liability |
|
|
( |
) |
Change in fair market value - extinguished warrants |
|
|
( |
) |
Change in fair market value - new warrants |
|
|
( |
) |
Balance – March 31, |
|
$ |
|
|
16
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 5 — Borrowings
Line of Credit
The Company has a line of credit with Regions Bank that allows for advances up to $
Convertible Note 2026
On January 8, 2026, the Company consummated the Initial Closing under the SPA 2, pursuant to which it issued to the Investors a Convertible Note 2026 in the principal amount of $
On July 31, 2026, the Company and the accredited investor entered into a certain waiver (the “Waiver”), waiving certain Events of Default (as defined in the Convertible Note 2026) with regard to the Company's failure to timely pay interest under the Convertible Note 2026, through July 31, 2026, and the Company's failure to timely file its Quarterly Report on Form 10-Q for the quarter ended March 31, 2026. Pursuant to the terms of the Waiver, the holder of the Convertible Note 2026 waived its rights and remedies arising solely from the specified Events of Default, including, but not limited to, the right to impose default penalties, charge default interest, and accelerate amounts due under the Convertible Note 2026. All other terms of the Convertible Note 2026 remained in full force and effect.
The Initial Note is convertible into shares of the Company’s common stock, par value $
The Company has agreed that, no later than thirty calendar days after the date of the Initial Closing, it will seek approval of the Company’s stockholders, either at a special meeting or by written consent, to adjust the Floor Price of the Initial Note and all other Notes pursuant to the terms of the Initial Note. On January 23, 2026 the noteholder requested that this initial approval be delayed. As of March 31, 2026 there was no change to this request.
The Initial Note ranks pari passu with all other Notes and the February Note (as defined in the Purchase Agreement) and senior to all other existing and future indebtedness of the Company and its subsidiaries (other than Permitted Indebtedness secured by Permitted Liens (both as defined in the Purchase Agreement and/or Notes)) and is secured by (i) a first-priority security interest in substantially all of the Company’s and its subsidiaries’ assets purchased or acquired with the proceeds of the Initial Closing pursuant to a Security and Pledge Agreement, Guaranty and an Account Control Agreement (each, as defined below) and (ii) second priority security interest in the remaining assets of the Company and its subsidiaries (subject to the first lien of the holder(s) of the February Note).
In connection with the Initial Closing on January 8, 2026, as contemplated under the Purchase Agreement: (i) the Company and each of its subsidiaries (each, a “Grantor”), and a collateral agent (the “Collateral Agent”) for the benefit of the holders of Obligations (as defined in the Security Agreement), entered into a Security and Pledge Agreement (the “Security Agreement”) with respect to the Notes, pursuant to which each Grantor granted the Collateral Agent, for the benefit of the Secured Parties (as defined in the Security Agreement), a security interest in such Grantor’s right, title and interest in and to all or substantially all of its properties and assets, or in which or to which such Grantor has any rights, whether then owned or thereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the “Collateral”); (ii) each subsidiary of the Company also entered into a guarantee agreement (the “Subsidiary Guaranty”) whereby each Subsidiary of the Company guaranteed to the Investors the prompt and full payment and performance of the obligations of the Company and each Subsidiary under the Purchase Agreement and other Transaction Documents; and (iii) the Company and the Collateral Agent entered into an Intellectual Property Security Agreement (“Intellectual Property Security Agreement”), pursuant to which the Company granted to the Collateral Agent a lien and security interest in certain intellectual property of the Company.
Amendment to Purchase Agreement
On March 24, 2026, the Company and Investors entered into an Amendment (the “SPA Amendment”) to amend the SPA 2 and provide that the net proceeds to the Company from any further equity line of credit, equity purchase facility, or at-the-market offering shall be allocated as follows: (i) until such time as the Company has paid to its placement agent and financial advisor (together, the “Advisors”) an aggregate of $
In addition, the Company agreed to reimburse the Buyers and the Advisors for their costs and expenses, including legal fees, in an aggregate amount of up to $
Except as amended by the SPA Amendment, all other terms of the SPA 2 including the exhibits thereto, remain unchanged and are in full force and effect.
Token Rights
In connection with the SPA 2 entered into on November 12, 2025, the Company issued the TRA to the investors. Pursuant to the TRA, the holders are entitled, upon exercise and for no additional consideration, to receive certain digital assets acquired by the Company using specified financing proceeds. The holders are entitled to receive (i)
The TRA becomes exercisable beginning 60 days following issuance and remains exercisable through the tenth anniversary of the issuance date. The agreement provides for settlement through the delivery of specified quantities of digital assets rather than a fixed dollar amount.
Upon the initial closing of the Convertible Note 2026 on January 8, 2026, the Company recorded an initial TRA liability of approximately $
On March 24, 2026, the Company and Investors entered into Amendment No. 1 to the TRA (the “Token Right Amendment”), under which the Investor will be entitled to receive upon an aggregate number of Right Tokens equal to the sum of (i) fifty percent (
As of March 31, 2026, approximately
Except as amended by the Token Right Amendment, all other terms of the Token Right remain unchanged and are in full force and effect.
Convertible Note 2025
During the three months ended March 31, 2026, the holder converted the remaining aggregate principal balance of $
Prior to each conversion, the Company remeasured the Convertible Note 2025 to fair value in accordance with its fair value option election. As a result of the remeasurement, the Company recognized an increase in the fair value of the note liability of $
On February 4, 2025, the Company and an Investor entered into the SPA 1, pursuant to which the Company issued to the Investor on such date: (i) a Convertible Note 2025 in the original principal amount of $
The Initial Note accrues interest at a rate of
In connection with the closing of the Convertible Note 2025, 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 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
17
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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
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 $
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 $
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 filed on or around November 22, 2024 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 $
18
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Notes Payable-Promissory Note
On September 27, 2024, the Company entered into a promissory note payable whereby the Company borrowed $
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 $
Acquisition Agreement
On February 11, 2026, the Company acquired a
The note is secured pursuant to a Pledge Agreement under which the Company pledged a
Economic Injury Disaster Loans
During 2024, the Company acquired franchises that had outstanding Economic Injury Disaster Loans (the “EIDL Loans”) in the aggregate of $
Future maturities of EIDL term debt as of March 31, 2026, were as follows:
|
|
March 31, |
|
|
Economic Injury Disaster Loans-Future Maturities |
|
2026 |
|
|
2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
2031 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Total Notes Payable as of March 31, 2026 and December 31, 2025 were as follows:
|
|
March 31, |
|
|
December 31, |
|
||
Notes Payable |
|
2026 |
|
|
2025 |
|
||
Convertible Note 2025 |
|
$ |
|
|
$ |
|
||
Convertible Note 2026 |
|
|
|
|
|
|
||
Token Rights Agreement |
|
|
|
|
|
|
||
EIDL |
|
|
|
|
|
|
||
Acquisition Settlement Agreement |
|
|
|
|
|
|
||
Acquisition Agreement |
|
|
|
|
|
|
||
Total notes payable |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
Current portion: |
|
|
|
|
|
|
|
|
Less: Current portion-EIDL |
|
|
( |
) |
|
|
( |
) |
Acquisition Settlement Agreements |
|
|
( |
) |
|
|
( |
) |
Acquisition Agreement |
|
|
( |
) |
|
|
|
|
Token Rights Agreement |
|
|
( |
) |
|
|
|
|
Notes payable, net of current |
|
$ |
|
|
$ |
|
||
19
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 6 — Commitments and Contingencies
Leases
The Company has operating leases for office space in several states. Lease terms are negotiated on an individual basis. Generally, the leases have initial terms ranging from to 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 $
Lease costs expense for the three months ended March 31, 2026 and 2025 were $
Supplemental cash flow information related to leases is as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Cash paid for amounts included in the measurement of lease liabilities |
|
$ |
|
|
$ |
|
||
Right-of-use assets obtained in exchange for lease liabilities |
|
$ |
|
|
$ |
|
||
Supplemental balance sheet information related to leases is as follows:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Assets: |
|
|
|
|
|
|
|
|
Right-of-use assets |
|
$ |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
Lease liability, current |
|
$ |
|
|
$ |
|
||
Lease liability, noncurrent |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
The Company’s leases do not provide a readily determinable implicit discount rate. The Company estimates its incremental borrowing rate as the discount rate based on the information available at lease commencement. The weighted average discount rate is
20
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Future maturities on lease liabilities as of March 31, 2026, are as follows:
|
|
March 31, |
|
|
|
|
2026 |
|
|
2026– remainder of year |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 and thereafter |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Present value of lease obligations |
|
|
|
|
Less: current portion |
|
|
( |
) |
Long-term portion of lease obligations |
|
$ |
|
|
There were no leases with residual value guarantees.
Legal Proceedings
From time to time the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of business. Such litigation and other proceedings may include, but are not limited to, actions relating to employment law and misclassification, intellectual property, commercial or contractual claims, brokerage or real estate disputes, or other consumer protection statutes, ordinary-course brokerage disputes like the failure to disclose property defects, commission disputes, and vicarious liability based upon conduct of individuals or entities outside of the Company’s control, including agents and third-party contractor agents. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur.
On February 13, 2023, Mr. Mark Gracy, who served as 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 $
On March 5, 2025, Joshua Epstein, our former employee and Chief Strategy Officer, filed a civil lawsuit 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 in the amount of $
On June 5, 2025, an employee, who served as our Senior Human Resources and Payroll Specialist from July 10, 2024 to August 19, 2024, filed a civil lawsuit against the Company in the Circuit Court of Osceola County, Florida. The employee is seeking a jury trial claiming $
On January 13, 2026, Martin Scott CFO Consulting Services, Inc. filed a civil lawsuit against the Company and La Rosa Realty, LLC, in the Circuit Court of Palm Beach County for breach of contract, open account, account stated, and unjust enrichment. The plaintiff stated that he had a contract with the defendants and is owed unpaid fees of approximately $
On January 30, 2026, the Company and La Rosa Realty Orlando LLC filed a civil lawsuit against Reinaldo Zapata and Viviana Figueroa in the Circuit Court of Orange County. The case involved an action for dissolution of La Rosa Realty Orlando LLC, action for conversion against Reinaldo Zapata, and an action for damage for breach of employment agreement against Reinaldo Zapata. The case was settled on April 4, 2026 as previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2026.
On February 1, 2026, Stacy-Ann Blair and Delroxry Blair filed a civil lawsuit against La Rosa Realty CW Properties, et. al. in the Circuit Court of Orange County, Florida, stating that La Rosa CW Properties failed to disclose a family relationship with one or more of its sellers, creating a material conflict of interest. The plaintiffs claim breach of contract, unjust enrichment, fraudulent and negligent misrepresentation, and civil theft and seeking damages of approximately $
The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on our results of operations for that period or future periods. Other than as described above, we are not presently a party to any material pending or threatened legal proceedings.
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 — Digital Assets
As of March 31, 2026, the Company held digital assets consisting primarily of USDC and FRAX in a custodial wallet maintained pursuant to the Company's financing agreements. Accordingly, the assets are accounted for as indefinite-lived intangible assets under ASC 350-30. The digital assets are initially recorded at cost, including directly attributable transaction costs, and subsequently measured at historical cost less any impairment losses. These assets are not amortized and are evaluated for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets may be impaired. Any impairment loss is recognized in operating results, and subsequent increases in value are not recognized until realized.
The digital assets are classified as current since the Company expects to utilize the funds in the near term.
The following table provides a summary of changes in fair value associated with digital assets for the three-month period ended March 31, 2026:
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FRX USD |
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USDC |
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Total |
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|||||||||||||||||||||||||||
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|
# of units |
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|
$/unit |
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$ Value |
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# of units |
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$/unit |
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$ Value |
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# of units |
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$/unit |
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$ Value |
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|||||||||
Opening balance |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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|||||||||
Additions |
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|||||||||
Disposals |
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( |
) |
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( |
) |
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( |
) |
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( |
) |
|||||
Fair value adj |
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|||
Closing balance |
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$ |
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$ |
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|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
$ |
|
|||||||||
At March 31, 2026, digital asset units held and fair market value are as follows:
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Asset |
|
Units Held |
|
|
$/unit |
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|
Fair Market Value ($) |
|
|||
FRX USD |
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|
$ |
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|
$ |
|
|||
USDC |
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$ |
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|
$ |
|
|||
Total |
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$ |
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$ |
|
|||
Note 8 — 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.
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
21
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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
At March 31, 2026, warrants outstanding that have vested and are expected to vest are as follows:
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Weighted |
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Average |
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Weighted |
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Remaining |
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||
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Number |
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Average |
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Contractual |
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Aggregate |
|
||||
|
|
of |
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|
Exercise |
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Life |
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Intrinsic |
|
||||
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Shares |
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|
Price |
|
|
(in years) |
|
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Value |
|
||||
Vested |
|
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$ |
|
|
|
|
|
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— |
|
|||
Expected to vest |
|
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|
|
|
|
|
|
— |
|
|
|
— |
|
||
Total |
|
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|
$ |
|
|
|
|
|
|
— |
|
|||
Additional information with respect to warrant activity:
|
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|
|
Weighted |
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Number |
|
|
Average |
|
||
|
|
of |
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|
Exercise |
|
||
|
|
Shares |
|
|
Price |
|
||
Balance — December 31, 2025 |
|
|
|
|
$ |
|
||
Granted/ Increase to existing warrants |
|
|
|
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|
|
||
Exercised |
|
|
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|
||
Expired or forfeited |
|
|
|
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|
|
||
Balance — March 31, 2026 |
|
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|
||
As of March 31, 2026 and December 31, 2025, there was
22
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Note 9 — Stockholders’ Equity
Series B Preferred Stock
As of March 31, 2026, the Company had
Convertible preferred stock consisted of the following as of March 31, 2026:
Shares |
|
|
Shares |
|
|
Carrying |
|
|
Original |
|
|
Conversion |
|
|
Common |
|
|||||
Authorized |
|
|
Issued and |
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Value |
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|
Issue Price |
|
|
Price |
|
|
Shares |
|
|||||
|
|
|
Outstanding |
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Upon |
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||
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Conversion |
|
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|
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|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||||
The holders of the Series B Preferred Stock have the following rights and preferences:
Voting Rights
Holders of the Series B Preferred Stock have no voting rights, except as provided in the Certificate of Designation or as otherwise required under applicable Nevada law.
Conversion Rights
Subject to the beneficial ownership limitations set forth in the Certificate of Designation, holders of the Series B Preferred Stock may convert the outstanding Conversion Amount into shares of the Company's common stock at the applicable Conversion Price. The Conversion Price is, at the option of the holder as adjusted: $
No holder may convert shares to the extent that, after giving effect to the conversion, the holder and its affiliates would beneficially own more than
Down-Round Adjustment and Deemed Dividend
The Certificate of Designation contains anti-dilution provisions that require adjustment of the Series B Preferred Stock conversion price upon certain issuances of securities at prices below the then-effective conversion price. On March 4, 2026, the Company issued Series C Preferred Stock with a conversion price below the then-effective conversion price of the Series B Preferred Stock. Accordingly, pursuant to Section 8(a)(ii) of the Certificate of Designation, the conversion price of the Series B Preferred Stock was adjusted to $
The Company determined that the reduction in the conversion price provided additional value to the holders of the Series B Preferred Stock and therefore represented a deemed dividend. For the three months ended March 31, 2026, the Company recognized a deemed dividend of approximately $
Because the Company had an accumulated deficit as of March 31, 2026, the deemed dividend was recorded within additional paid-in capital ("APIC"), resulting in no net impact on total stockholders' deficit. The deemed dividend is reflected as an adjustment to net loss available to common stockholders in the computation of basic and diluted net loss per share.
Alternate Conversion Floor Amount
Under the terms of the Certificate of Designation, certain Alternate Conversions may trigger a Conversion Floor Price Condition, requiring the Company either to increase the stated value of the remaining outstanding Series B Preferred Stock by the applicable Alternate Conversion Floor Amount or to pay such amount to the holder in cash. The Company accounts for any Alternate Conversion Floor Amount as a dividend to the holder of the Series B Preferred Stock, whether settled through an increase in the stated value of the preferred stock or through a cash payment.
On February 18, 2026, the holder elected to convert approximately $
The Company elected to satisfy this obligation by increasing the stated value of the remaining outstanding Series B Preferred Stock. Because the Series B Preferred Stock is classified within permanent equity, the increase in stated value was recorded within APIC. The corresponding deemed dividend of $
For the three months ended March 31, 2026, the Company recognized deemed dividends of approximately $
Redemption
The Company may redeem all, but not less than all, of the outstanding Series B Preferred Stock at a redemption price equal to the greater of: The Conversion Amount being redeemed; or The value obtained by multiplying: the applicable Conversion Rate; by the highest Closing Sale Price of the Company's common stock during the period specified in the Certificate of Designation.
Dividends
The Series B Preferred Stock does not accrue or pay cash dividends. However, certain adjustments and Alternate Conversion provisions under the Certificate of Designation may result in deemed dividends that are recognized in accordance with applicable accounting guidance.
Liquidation Preference
Upon a liquidation event, holders of the Series B Preferred Stock are entitled to receive, prior to any distribution to holders of common stock and pari passu with any parity securities, an amount equal to the greater of:
Series C Preferred Stock
On March 4, 2026, the Company and an institutional investor (the "Investor") entered into a Securities Purchase Agreement (the "SPA") pursuant to which the Company issued
Pursuant to the terms of the Certificate of Designation, conversion of the Series C Preferred Stock into shares of the Company's common stock in excess of the limitations imposed by the rules and regulations of the Nasdaq Capital Market is conditional upon obtaining shareholder approval. Until such approval is obtained, conversion of the Series C Preferred Stock remains subject to the exchange cap provisions set forth in the Certificate of Designation.
In connection with the issuance of the Series C Preferred Stock, the Company incurred direct and incremental issuance costs of $
Convertible preferred stock consisted of the following as of March 31, 2026:
Shares |
|
|
Shares |
|
|
Carrying |
|
|
Original |
|
|
Conversion |
|
|
Common |
|
|||||
Authorized |
|
|
Issued and |
|
|
Value |
|
|
Issue Price |
|
|
Price |
|
|
Shares |
|
|||||
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
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Upon |
|
||
|
|
|
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|
|
|
|
|
|
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|
|
Conversion |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||||
Convertible Series C Preferred Stock is classified as permanent equity as a result of there being no redemption features solely within the control of the Company, accordingly this is recorded on the accompanying condensed consolidated balance sheet at its issuance date fair value.
The holders of the Series C Preferred Stock have the following rights and preferences:
Voting
Holders of shares of Series C Preferred Stock generally have no voting rights except as required by Nevada law and with respect to certain protective provisions contained in the Certificate of Designation. The consent of a majority of the outstanding Series C Preferred Stock is required before the Company may, among other things, amend its organizational documents in a manner that adversely affects the Series C Preferred Stock, increase or decrease the authorized number of Series C Preferred Stock, create or authorize any senior or pari passu securities, redeem junior securities, pay dividends on junior securities, issue additional Series C Preferred Stock or otherwise circumvent rights granted to holders of the Series C Preferred Stock.
Conversion Rights
Subject to the Maximum Percentage, holders of outstanding shares of Series C Preferred Stock are entitled to convert any portion of the outstanding and unpaid Conversion Amount thereof into shares of common stock at the Conversion Rate. For such purpose: (i) "Conversion Amount" means the stated value thereof (or $
In the event a holder elects to convert the Series C Preferred Stock at the Alternate Conversion Price, the Conversion Amount shall be multiplied by (i)
A holder of Series C Preferred Stock does not have the right to convert any portion of its shares to the extent that, following such conversion, the holder together with its affiliates would beneficially own in excess of
Subject to certain exceptions outlined in the Certificate of Designation, including equity issuances under the Company's equity incentive plans and certain strategic acquisitions, if the Company issues common stock or securities convertible into, exercisable for, or exchangeable into common stock at an effective price per share below the then applicable Conversion Price, the Conversion Price of the Series C Preferred Stock shall be reduced to the effective price per share of such issuance.
Redemption
Under the Certificate of Designation, the Company has the right to redeem all, but not less than all, of the then outstanding shares of Series C Preferred Stock at a price equal to the greater of (i) the Conversion Amount being redeemed and (ii) the product of (1) the Conversion Rate applicable to the Conversion Amount being redeemed multiplied by (2) the greatest Closing Sale Price of the Company's common stock on any trading day during the period beginning on the trading day immediately preceding the Company's redemption notice and ending on the trading day immediately prior to the date of redemption payment.
Upon the occurrence of certain bankruptcy-related triggering events specified in the Certificate of Designation, the Company is required to redeem the outstanding Series C Preferred Stock for cash at the redemption price specified in the Certificate of Designation.
Dividends
The Series C Preferred Stock bears no dividends.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company, the Series C Preferred Stock ranks junior to any Senior Preferred Stock, pari passu with any Parity Stock and senior to the Company's common stock and other Junior Stock with respect to the distribution of assets. Holders of the Series C Preferred Stock are entitled to receive distributions in accordance with the priorities established in the Certificate of Designation before any distribution is made to holders of Junior Stock.
Series X Preferred Stock Redemption
On January 8, 2026, pursuant to the Redemption Agreement entered into on November 12, 2025, the Company redeemed
The Redemption Agreement also provides for an additional contingent payment of up to $
Common Stock Issuances
For the three months ended March 31, 2026
On February 17, 2026, the Company entered into a marketing agreement pursuant to which the Company agreed to issue
For the three months ended March 31, 2025
On January 17, 2025, the Company issued
On February 5, 2025, the Company issued the CEO an aggregate of
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
23
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
On February 20 and 24, 2025, the Company entered into marketing agreements pursuant to which the Company agreed to issue
On March 10, 2025, the Company issued
On March 10, 2025, the Company entered into a marketing agreement pursuant to which the Company agreed to issue
For the three months ended March 31, 2025, the holder of our Senior Secured promissory notes converted
For the three months ended March 31, 2025, the Company utilized their ATM and sold a total of
For the three months ended March 31, 2025, the Company issued
Stock Option Awards
For the three-month periods ended March 31, 2026 and 2025, the Company recorded stock-based compensation for employees and directors awards of $
At March 31, 2026, options outstanding that have vested and are expected to vest are as follows:
|
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|
|
|
|
|
|
Weighted |
|
|
|
|
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|
|
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|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
|
|
|
||
|
|
Number |
|
|
Average |
|
|
Contractual |
|
|
Aggregate |
|
||||
|
|
of |
|
|
Exercise |
|
|
Life |
|
|
Intrinsic |
|
||||
|
|
Shares |
|
|
Price |
|
|
(in years) |
|
|
Value |
|
||||
Vested |
|
|
|
|
$ |
|
|
|
|
|
$ | — |
|
|||
Expected to vest |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
|
|
|
$ |
|
|
|
|
|
$ | — |
|
|||
24
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Additional information with respect to stock option activity:
|
|
|
|
|
|
Weighted |
|
|
|
|
Number |
|
|
Average |
|
||
|
|
of |
|
|
Exercise |
|
||
|
|
Shares |
|
|
Price |
|
||
Balance — December 31, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Expired or forfeited |
|
|
|
|
|
|
||
Balance — March 31, 2026 |
|
|
|
|
$ |
|
||
The weighted average fair value of stock options granted in the quarter ended March 31, 2025 and the assumptions used in the Black-Scholes model are set forth in the table below.
|
|
March 31, |
|
|
|
|
2025 |
|
|
Weighted average fair value |
|
$ |
|
|
Dividend yield |
|
|
|
|
Expected volatility factor |
|
|
% |
|
Risk-free interest rate |
|
|
% |
|
Expected life (in years) |
|
|
|
|
As of March 31, 2026, unrecognized compensation expense related to stock option awards totaled $
Restricted Stock Units
|
|
|
|
|
|
Weighted |
|
|
|
|
Number |
|
|
Average |
|
||
|
|
of |
|
|
Exercise |
|
||
|
|
Shares |
|
|
Price |
|
||
Balance — December 31, 2025 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested or forfeited |
|
|
|
|
|
|
||
Balance — March 31, 2026 |
|
|
|
|
|
|
||
25
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
On February 1, 2025, a Restricted Stock Unit (“RSU”) (prior to subsequent reverse splits) covering
For the three-month periods ending March 31, 2026 and 2025, the Company recorded $
Acquisition of Noncontrolling Interest
On February 11, 2026, the Company acquired the remaining
Note 10 — 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:
|
|
As of |
|
|||||
|
|
March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Warrants |
|
|
|
|
|
|
||
Options |
|
|
|
|
|
|
||
Restricted stock units |
|
|
|
|
|
|
||
Preferred stock series B |
|
|
|
|
|
|
||
Preferred stock series C |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Note 11 — Segments
The Company’s business is organized into material reportable segments which aggregate 100% of revenue:
|
1) |
Real Estate Brokerage Services (Residential) |
|
2) |
Franchising Services |
|
3) |
Coaching Services |
|
4) |
Property Management |
|
5) |
Real Estate Brokerage Services (Commercial) |
|
6) |
Title Settlement and Insurance |
26
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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, 2026 and 2025, respectively.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Revenue by segment |
|
|
|
|
|
|
|
|
Real Estate Brokerage Services (Residential) |
|
$ |
|
|
$ |
|
||
Franchising Services |
|
|
|
|
|
|
||
Coaching Services |
|
|
|
|
|
|
||
Property Management |
|
|
|
|
|
|
||
Real Estate Brokerage Services (Commercial) |
|
|
|
|
|
|
||
Title Settlement and Insurance |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Cost of goods sold by segment |
|
|
|
|
|
|
|
|
Real Estate Brokerage Services (Residential) |
|
$ |
|
|
$ |
|
||
Franchising Services |
|
|
|
|
|
|
||
Coaching Services |
|
|
|
|
|
|
||
Property Management |
|
|
|
|
|
|
||
Real Estate Brokerage Services (Commercial) |
|
|
|
|
|
|
||
Title Settlement and Insurance |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
Gross profit (loss) by segment |
|
|
|
|
|
|
|
|
Real Estate Brokerage Services (Residential) |
|
$ |
|
|
$ |
|
||
Franchising Services |
|
|
|
|
|
( |
) |
|
Coaching Services |
|
|
|
|
|
|
||
Property Management |
|
|
|
|
|
|
||
Real Estate Brokerage Services (Commercial) |
|
|
|
|
|
|
||
Title Settlement and Insurance |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
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||
G&A by segment |
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|
|
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|
|
|
|
Real Estate Brokerage Services (Residential) |
|
$ |
|
|
$ |
|
||
Franchising Services |
|
|
|
|
|
|
||
Coaching Services |
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|
|
|
|
|
||
Property Management |
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|
|
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|
|
||
Real Estate Brokerage Services (Commercial) |
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|
|
|
|
||
Title Settlement and Insurance |
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|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
In addition to the expenses from these segments, corporate expenses were $
27
La Rosa Holdings Corp. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
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, 2026 and 2025, respectively.
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|
Three Months Ended March 31, |
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2026 |
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2025 |
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||
Performance obligations satisfied at a point in time |
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$ |
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$ |
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||
Performance obligations satisfied over time |
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||
Revenue |
|
$ |
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|
$ |
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||
Note 12 — Subsequent Events
Acquisition of Remaining Interest in Orlando
On April 3, 2026, the Company, La Rosa Realty Orlando LLC, a majority owned subsidiary of the Company (the “Orlando”), and two selling members of Orlando (collectively, the “Sellers”), entered into a settlement agreement (“Settlement Agreement”), pursuant to which, each of the Sellers sold their
April 2026 Reverse Stock Split
Following the Stockholders Approval described below, the Company effected a 1-for-
Nasdaq Notices Regarding Filing Deficiencies
On April 16, 2026, the Company received a notice (the “10-K Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to timely file its Annual Report on Form 10-K (“Comprehensive Form 10-K”) for the fiscal year ended December 31, 2025 (the “Initial Delinquent Filing”) with the SEC. The Staff informed the Company that, under Nasdaq rules, the Company has 60 calendar days, or until June 15, 2026, to submit a plan to regain compliance, and if the Staff accepts such plan, they can grant an exception of up to 180 calendar days from the Initial Delinquent Filing’s due date (or until October 12, 2026) to regain compliance.
On May 21, 2026, the Company also received a notice (the “10-Q Notice,” and together with the 10-K Notice, the “Notices”) from the Staff indicating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) due to its failure to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2026, and noting that the Company also remains delinquent in filing its Initial Delinquent Filing. The 10-Q Notice further states that, in accordance with Nasdaq rules and as previously communicated in the 10-K Notice, the Company has until June 15, 2026, to submit a plan to regain compliance, and if the Staff accepts such plan, any exception granted will be limited to a maximum of 180 calendar days from the due date of the Initial Delinquent Filing, or until October 12, 2026, to regain compliance.
The Notices have no immediate effect on the listing or trading of the Common Stock, which will continue to trade on The Nasdaq Capital Market under the symbol “LRHC.”
On June 4, 2026, the Company filed Comprehensive Form 10-K with the SEC. On June 10, 2026, the Company received a letter from the Staff indicating that based on the June 4, 2026 filing of the Form 10-K, the Staff has determined that the Company complies with Nasdaq Listing Rule 5250(c)(1) with regard to the Form 10-K filing. However, since it has not received the Company’s Form 10-Q, the Company remains noncompliant Nasdaq Listing Rule 5250(c)(1). On June 11, 2026, the Company submitted to Nasdaq a plan of compliance (the “Plan”) addressing how the Company intends to regain compliance with Nasdaq’s listing rules with respect to the delinquent reports, and Nasdaq has the discretion to grant the Company up to 180 calendar days from the due date of the Form 10-K, or October 12, 2026, to regain compliance.
Series D Preferred Stock Financing
On May 27, 2026, the Company and the Investor entered into a securities purchase agreement pursuant to which the Company issued the Investor
Nasdaq Notice Regarding Stockholders’ Equity
On June 10, 2026, the Company received a letter from the Staff indicating that, because the Company’s stockholders’ equity as reported in its Form 10-K for the fiscal year ended December 31, 2025, was $(
Series E Preferred Stock Financing
On July 10, 2026, the Company and the Investor entered into a securities purchase agreement pursuant to which the Company issued the Investor
28
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis are intended to help investors understand our business, financial condition, results of operations, liquidity, and capital resources. You should read this discussion together with our consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. As discussed in the section titled “Cautionary Statement Regarding Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which include information relating to future events, future financial performance, financial projections, strategies, expectations, competitive environment and regulation. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
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our expectations regarding consumer trends in residential real estate transactions; |
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our expectations regarding overall economic and demographic trends, including the continued growth of the U.S. residential real estate market; |
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our ability to grow our business organically in the various local markets that we serve; |
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● |
our ability to attract and retain additional qualified agents and other personnel; |
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● |
our ability to expand our franchises in both new and existing markets; |
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our ability to increase the number of closed transactions sides and sides per agent; |
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our ability to cross-sell our services among our subsidiaries; |
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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; |
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our ability to expand, maintain and improve the information technologies and systems that we rely upon to operate; |
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our ability to prevent security breaches, cybersecurity incidents and interruptions, delays and failures of our technology infrastructure; |
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our ability to retain our founder and current executive officers and other key employees; |
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our ability to identify quality potential acquisition candidates in order to accelerate our growth; |
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our ability to manage our future growth and dependence on our agents; |
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our ability to maintain the strength of our brands; |
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our ability to maintain and increase our financial performance; |
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the market price for our common stock may be particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and minimal profits, which could lead to wide fluctuations in our share price; |
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there have recently been instances of extreme stock price run-ups followed by rapid price declines and stock price volatility seemingly unrelated to company performance following a number of recent initial public offerings, particularly among companies, like ours, that have had relatively smaller public floats; |
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sales of our common stock by us or our stockholders, which may result in increased volatility in our stock price; and |
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other factors, including the risks contained in the section entitled “Risk Factors” of our annual report on Form 10-K for the fiscal year ended December 31, 2025, filed with the U.S. Securities and Exchange Commission (“SEC” or “Commission”) on June 4, 2026, relating to our industry, our operations, and results of operations. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements.
Moreover, new risks regularly emerge, and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this Quarterly Report on Form 10-Q are based on information available to us on the date of this Quarterly Report on Form 10-Q. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Quarterly Report on Form 10-Q.
Business Overview
We are the holding company for six agent-centric, technology-integrated, cloud-based, multi-service real estate segments.
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, property management, and title services. Our real estate brokerage business operates primarily under the trade name La Rosa Realty. We operate 24 corporate-owned brokerage offices across Florida, California, Texas, Georgia and Puerto Rico and have begun our expansion into Europe, beginning with Spain. The Company also has five franchised offices and branches and three affiliated brokerage locations in the United States and Puerto Rico that pay us fees. We also have LR Realty Spain, which is a full-service brokerage office located primarily in Malaga, Spain. Additionally, the Company operates a full-service escrow settlement and title company in Florida.
Our real estate brokerage offices, both corporate and franchised, are staffed with 2,979 licensed real estate brokers and sales associates as of March 31, 2026.
Our franchised offices are currently:
Name |
|
Location |
La Rosa Realty Internacional, LLC |
|
Celebration, Florida |
La Rosa Realty Central Florida, LLC |
|
Davenport, Florida |
La Rosa Realty Jacksonville, LLC |
|
Jacksonville, Florida |
La Rosa Realty Kendall, LLC |
|
Miami, Florida |
The Realty Experience Powered By LRR LLC |
|
St. Cloud, Florida |
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.
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. They can then use these additional commissions to reinvest in their businesses or as take-home profit. We believe that this is a strong incentive for them to compete against the discount, flat fee and internet brokerages that have sprung up in the past several years. Instead of us taking a greater share of their income, our agents pay what we believe to be reduced rates for training and mentorship and our proprietary technology. Our franchise model has a similar pricing methodology, permitting the franchise owner the freedom to operate their business with minimal control and lower expense than other franchise offerings.
Moreover, we believe that our proprietary technology, training, and the support that we provide to our agents at a minimal cost to them is one of the best offered in the industry.
Our business stands on three pillars: Family, Passion, and Growth. We believe that our support and philosophy have attracted and will continue to attract and retain the highest producing realtors in our local markets. We believe that our focus on the interaction between our human agents and their clients is a strong weapon against internet-only commodity websites and the low touch discount brokerages. Our agent count continues to grow organically and through acquisition, we attribute our organic growth to the positive culture created in our Company and the competitive plans that we offer our agents. By creating a custom solution and a unique experience, we believe that our agents are able to guide their clients seamlessly through what may be their most expensive lifetime purchase.
Since completing our initial public offering in October 2023, we have expanded our corporate brokerage operations through a combination of acquisitions, strategic investments, and geographic expansion. These initiatives have increased our operational footprint, expanded our agent network, and enhanced our ability to provide complementary real estate-related services throughout the markets we serve.
As of the first quarter of 2026, our business includes residential and commercial real estate brokerage services, franchising, title settlement and insurance services, property management, real estate education and coaching, and technology-driven support services. We continue to focus on developing additional revenue streams that complement our core brokerage business while increasing value for our agents and clients.
During 2025, we expanded our service offerings through the launch of LR Agent Advance LLC, a wholly owned subsidiary that provides commission advancement services exclusively to La Rosa agents. We believe this program improves agent financial flexibility, supports agent retention, and creates an additional revenue opportunity for the Company.
Management remains focused on integrating acquired operations, enhancing operating efficiencies, increasing agent productivity, and expanding our market presence. We continue to evaluate opportunities to grow through organic recruiting initiatives, strategic acquisitions, and the development of complementary service offerings that strengthen our overall ecosystem. While we regularly review potential acquisition opportunities, there can be no assurance that discussions with prospective acquisition targets will result in completed transactions or that any future transactions will be completed on favorable terms.
Recent Developments
Departure and Appointment of the Board Members
On February 5, 2026, Michael La Rosa resigned from the Board, and upon recommendation of the Nominating Committee, on February 10, 2026, the Board appointed Mr. Jaime Cosculluela as a member of the Board.
Convertible Note Facility, Redemption Agreement, and Series X Amendment to the Articles of Incorporation
On November 12, 2025, the Company and the certain institutional investors (“Investors”) entered into the Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which the Company agreed to, among other things, issue and sell, and the Investors agreed to purchase, in multiple closings, a new series of senior secured convertible notes of the Company in an aggregate original principal amount of up to $250,000,000, subject to the satisfaction or waiver of certain closing conditions. Pursuant to the Purchase Agreement, on November 12, 2025, the Company issued a Token Right (the “Token Right”) to certain Investors, pursuant to which upon exercise of the Token Right and for no further consideration the holder will be entitled to receive an aggregate number of Right Tokens (as defined therein) equal to the sum of (i) fifty percent (50%) of any and all Tokens (as defined in the Token Right) purchased by the Company using the net proceeds of each closing of the Purchase Agreement and (ii) twenty-five percent (25%) of any and all Tokens purchased by the Company using the net proceeds of any Other Financing (as defined therein).
In connection with the Purchase Agreement, on November 12, 2025, the Company and Mr. La Rosa entered into a redemption agreement (“Redemption Agreement”), pursuant to which, on the initial closing date of the Purchase Agreement, the Company agreed to redeem and immediately cancel and return to the status of “blank check” preferred stock of the Company, certain number of Mr. La Rosa’s shares of Series X Super Voting Preferred Stock (“Series X Preferred Stock”) such that, immediately after such redemption, he will own shares of Series X Preferred Stock representing not less than 80% of the total voting power of the Company for a redemption price of $2,000,000 payable upon such redemption, and $500,000 contingently payable upon the satisfaction of certain conditions. Mr. La Rosa’s remaining shares of Series X Preferred Stock will be redeemable by the Company at a subsequent time determined by the Board or otherwise as set forth in the Redemption Agreement for no additional consideration. These redemptions of the Series X Preferred Stock were conditioned upon stockholders’ approval and effectiveness of the Certificate of Amendment to the Articles of Incorporation (the “Series X Certificate of Amendment”) to provide that the shares of the Series X Preferred Stock may be redeemed from time to time and at any time in whole or in part upon such terms and conditions as may be approved by the Board and agreed to by the holder(s) thereof. Upon effectiveness of respective stockholders’ approval on December 25, 2025, such Series X Certificate of Amendment was effective as of December 26, 2025.
On January 8, 2026, the Company consummated the initial closing (the “Initial Closing”) under the Purchase Agreement, pursuant to which it issued the Investors a senior secured convertible note in the principal amount of $11,000,000 (the “Initial Note”), together with a previously issued Token Right, for an aggregate purchase price of $9,900,000. The Initial Note is convertible into shares of Common Stock, at an initial conversion price equal to $8.347, subject to adjustment as provided in the Initial Note, provided that in no event may the conversion price be less than the floor price of $7.78, which will be lowered pursuant to the terms of the Initial Note for the Initial Note and all other notes (together, the “Notes”) upon the effectiveness of the stockholders’ approval of such reduction (the “Floor Price”). The Initial Note bears interest at a rate of ten percent (10%) per annum that is payable monthly in arrears commencing on February 1, 2026, matures twenty-four (24) months from the date of issuance and contains customary covenants and events of default (upon which the interest rate will increase to a rate of nineteen percent (19%) per annum) as described in the Initial Note.
In connection with the Initial Closing on January 8, 2026, as contemplated under the Purchase Agreement: (i) the Company and each of its subsidiaries (each, a “Grantor”), and a collateral agent (the “Collateral Agent”) for the benefit of the holders of Obligations (as defined in the Security Agreement), entered into a Security and Pledge Agreement (the “Security Agreement”) with respect to the Notes, pursuant to which each Grantor granted the Collateral Agent, for the benefit of the Secured Parties (as defined in the Security Agreement), a security interest in such Grantor’s right, title and interest in and to all or substantially all of its properties and assets, or in which or to which such Grantor has any rights, whether then owned or thereafter acquired by such Grantor, wherever located, and whether now or hereafter existing or arising (collectively, the “Collateral”); (ii) each subsidiary of the Company also entered into a guarantee agreement (the “Subsidiary Guaranty”) whereby each Subsidiary of the Company guaranteed to the Investors the prompt and full payment and performance of the obligations of the Company and each Subsidiary under the Purchase Agreement and other Transaction Documents; and (iii) the Company and the Collateral Agent entered into an Intellectual Property Security Agreement (“Intellectual Property Security Agreement”), pursuant to which the Company granted to the Collateral Agent a lien and security interest in certain intellectual property of the Company. As a condition to the Initial Closing as provided in the Securities Purchase Agreement on January 5, 2026, the Company and the Collateral Agent also entered into that certain Account Control Agreement.
The Company received $9,635,000 in net proceeds from the Initial Closing, that were used as follows: (i) $7,000,000 of net proceeds to acquire Note Purchased Crypto (as defined in the Notes) as a digital asset for the Company’s balance sheet, (ii) $2,000,000 of the net proceeds to redeem a portion of the outstanding shares of the Series X Preferred Stock pursuant to the Redemption Agreement, (iii) $500,000 of the net proceeds to be kept in a controlled account to fund the redemption of remaining shares of the Series X Preferred Stock in accordance with the terms of the Redemption Agreement, and (iv) any remaining proceeds, for general corporate purposes, working capital, acquisitions and other strategic transactions. Curvature Securities LLC served as placement agent in connection with the offering.
On the Initial Closing, pursuant to the terms of the Redemption Agreement, the Company redeemed 200 shares of the Series X Preferred Stock held by Mr. Joseph La Rosa, and the Company and Mr. La Rosa agreed that the Company will pay Mr. La Rosa a portion of the Fixed Redemption Price (as defined in the Redemption Agreement) equal to $1,700,000 immediately after the Initial Closing and the remaining $300,000 of the Fixed Redemption Price will be paid to Mr. La Rosa at a later date to be agreed by the Company and Mr. La Rosa.
On March 24, 2026, the Company and Investors entered into an Amendment to the Purchase Agreement to provide that the net proceeds to the Company from any further equity line of credit, equity purchase facility, or at-the-market offering shall be allocated as follows: (i) until such time as the Company has paid to its placement agent and financial advisor (together, the “Advisors”) an aggregate of $751,221 in deferred fees, (1) 20% to pay any outstanding deferred fees due to the Advisors, (2) 40% to acquire Note Purchased Crypto (as defined in the Purchase Agreement) as a digital asset for the Company’s balance sheet, and (3) the remaining 40% for general corporate purposes, working capital, acquisitions and other strategic transactions (including, but not limited to, developing next-generation data center infrastructure for AI computing), and (ii) thereafter (1) 50% of the net proceeds shall be used to acquire Note Purchased Crypto as a digital asset for the Company’s balance sheet and (2) the remaining 50% of the net proceeds shall be used for general corporate purposes, working capital, acquisitions and other strategic transactions (including, but not limited to, developing next-generation data center infrastructure for AI computing), including payment of an additional $77,000 in deferred fees to the Advisors due and payable not earlier than December 31, 2026.
In addition, on March 24, 2026, the Company and Investors entered into Amendment No. 1 to the Token Right (the “Token Right Amendment”), under which the Investor will be entitled to receive upon an aggregate number of Right Tokens equal to the sum of (i) fifty percent (50%) of any and all Tokens purchased by the Company on and after the Issuance Date using the net proceeds of each closing under the Purchase Agreement and (ii) fifty- six and one quarter percent (56.25%) of any and all Tokens purchased by the Company on and after the Issuance Date using the net proceeds of any Other Financing (as defined in the Token Right).
The Company entered into the Purchase Agreement and transactions contemplated thereby to secure immediate and committed access to capital at a time when alternative financing sources were either unavailable or significantly more dilutive and restrictive. The facility was intended to provide critical liquidity to support ongoing operations, address going concern considerations, and preserve enterprise value. In addition, the Company sought to strengthen its balance sheet and position itself to deploy capital into strategic initiatives, including investments in stablecoins, A.I. infrastructure, and data center opportunities, which management believes have the potential to enhance long-term shareholder value. Unlike traditional financing, the structure allows the Company to draw capital incrementally, providing flexibility to align funding with operational needs and market conditions. While the transaction includes costs such as potential dilution and derivative liabilities, management determined that these were justified given the significant risk to the business if capital was not secured. The transaction was negotiated at arm’s length and, in management’s view, represents a reasonable and necessary financing solution under the circumstances.
Investments in Digital Assets
As described above, on January 8, 2026, we consummated the Initial Closing pursuant to the Purchase Agreement. We agreed to use majority of net proceeds from the closings under the Purchase Agreement and any equity line of credit, equity purchase facility or at-the-market offering to acquire cryptocurrency in the form that the Investors and Company have mutually agreed to in writing as a digital asset for the Company’s balance sheet. We have further agreed with the Investors that we will acquire stablecoins as these digital assets. Since January 1, 2026, we used net $6.7 million from the Initial Closing and $3.6 million from our equity line of credit to acquire stablecoins. As of May 31, 2026, we held $10.3 million primarily in the following types of digital assets: FRXUSD and USDC. Our current strategy is to hold stablecoins to preserve the value of the initial investment. During which time we will perform counterparty due diligence potentially using our digital assets for our strategic efforts towards expansion into AI data centers ecosystem. There can be no assurance as to the timing, size, form, or success of this initiative, and it involves significant risks, evolving regulation, financing dilution, and custody or cybersecurity concerns.
January 2026 Reverse Stock Split
On November 10, 2025, the Company’s stockholders holding a majority of the voting power of the Company by a written consent approved the amendment to the Company’s Amended and Restated Articles of Incorporation, as amended, to effect one or more reverse stock splits of the Company’s Common Stock in each case at a ratio in the range of 1-for-5 to 1-for-100, with such ratio to be determined by the Board (“Stockholders Approval”). Such resolution became effective on December 25, 2025, or twenty (20) days after the Company filed with the SEC and mailed to its stockholders respective Information Statement on Schedule 14C on or approximately December 4, 2025. Following such stockholders’ approval, the Company effected a 1-for-10 reverse stock split of the Common Stock, issued and outstanding, effective as of 12:01 a.m. (New York time) on January 26, 2026 (“January 2026 Reverse Stock Split”). As a result of the January 2026 Reverse Stock Split, every ten (10) shares of issued and outstanding Common Stock were automatically combined into one (1) issued and outstanding share of Common Stock.
Disposition of LR Kissimmee
On February 4, 2026, the Company sold its 51% membership interest (the “Interest”) in Horeb Kissimmee Realty LLC, a Florida limited liability company (“LR Kissimmee”) to LR Kissimmee’s pre-Transaction 49% owner (the “Buyer”) pursuant to a Membership Interest Purchase Agreement (the “Sale Agreement”) by and among the Company, the Buyer and LR Kissimmee. Under the Sale Agreement, the Company will receive from the Buyer aggregate cash consideration for the Interest of $500,000, payable in twelve (12) equal monthly installments of $41,667, commencing February 28, 2026. In addition, the Buyer agreed to pay the Company $61,200, representing the Company’s pro rata share of an outstanding loan previously made by LR Kissimmee to the Buyer, payable in four (4) equal quarterly installments of $15,300 commencing on the same date. As a result of the transaction, the Company has fully withdrawn as a member of LR Kissimmee and has no continuing ownership interest therein. In connection with the Transaction, the Company also entered into a Trademark & Brand Licensing Agreement (the “Licensing Agreement”) with LR Kissimmee, pursuant to which the Company granted to LR Kissimmee a non-exclusive, non-transferable license to use certain trademarks and branding of the Company in connection with LR Kissimmee’s real estate brokerage business. The Licensing Agreement provides for a flat monthly licensing fee payable to the Company of $4,500 and has an initial term of one (1) year.
Acquisition of Remaining Interest in Lakeland
On February 11, 2026, the Company acquired from the selling member (the “Seller”) all of his 49% membership interest in La Rosa Realty Lakeland LLC, a Florida limited liability company (“Lakeland”), pursuant to a Membership Interest Purchase Agreement and a Settlement Agreement by and among the Company, Joseph La Rosa, the Chief Executive Officer of the Company, the Seller, and Lakeland, for aggregate cash consideration of $350,000 (the “Purchase Price”), consisting of (i) an initial payment of $150,000 payable within ten (10) days following the closing, and (ii) installment payments totaling $200,000, payable in twelve (12) equal monthly installments of $16,667 commencing on March 1, 2026. As a result of the transaction, Lakeland became a wholly owned subsidiary of the Company. As part of the transaction, on February 11, 2026, the Company and the Seller also entered into a Pledge Agreement, pursuant to which, as a security for the unpaid portion of the Purchase Price, the Company granted the Seller a perfected, first-priority security interest in a non-voting 28% economic membership interest in Lakeland.
Amendments to Officers Employment Agreements
On February 19, 2026, with the approval of its Board, the Company entered into (i) an Amendment (the “CEO Amendment”) to the Amended and Restated Employment Agreement, dated November 12, 2025, with Joseph La Rosa, the Company’s Chief Executive Officer (the “CEO”), and (ii) an Amendment (the “COO Amendment”) to the Employment Agreement, dated January 31, 2024 (the “COO Employment Agreement”), with Deana La Rosa, the Company’s Chief Operating Officer (“COO”).
Under the CEO Amendment, Mr. La Rosa agreed to a reduction in his base salary from $500,000 to $200,000 per annum, in consideration of which the Company agreed to revise certain provisions of the Confidential Information and Invention Assignment Agreement dated April 12, 2022 (the “CIA Agreement”), between Mr. La Rosa and the Company so that Mr. La Rosa’s non-competition restrictions were effective only during the term of his employment with the Company. In addition, the period of non-solicitation restrictions under the CIA Agreement was reduced from twenty-four (24) to twelve (12) months post-employment. These changes became effective on March 15, 2026.
Under the COO Amendment, Mrs. La Rosa agreed to a reduction in her base salary from $250,000 to $100,000 per annum, in consideration of which the Company agreed to revise certain restrictive covenants of the COO Employment Agreement so that Mrs. La Rosa’s non-competition restrictions were effective only during the term of her employment with the Company, and the period of non-solicitation restriction was reduced from twenty-four (24) to twelve (12) post-employment. These changes became effective on March 15, 2026.
Land Purchase Agreement
In February 2026, the Company entered into a contract to acquire a strategically located parcel of land in Osceola County, one of the fastest-growing regions in Central Florida. Upon completion, this acquisition is expected to represent a key milestone in the Company’s expansion strategy and support the development of a Tier III Artificial Intelligence (“AI”) data center designed to address increasing demand for high-performance computing infrastructure. The planned facility is expected to span up to 10,000 square feet and support an estimated IT load of approximately 1,500 kW, positioning it to serve enterprise, cloud, and AI-driven workloads.
Series C Preferred Stock Financing
On March 4, 2026, the Company and an institutional investor (the “Investor”) entered into a securities purchase agreement pursuant to which the Company issued the Investor 100 shares of the Company’s Series C Convertible Preferred Stock, par value $0.0001 per share (“Series C Preferred Stock”), for a purchase price of $1,000 per share. On the same date, the Company filed respective Certificate of Designation of Rights and Preferences of the Series C Preferred Stock with the Secretary of State of the State of Nevada.
Potential Acquisition of Consensus Core Technologies, Inc
In March 2026, the Company entered into a non-binding letter of intent to acquire 100% of the issued and outstanding equity interests of Consensus Core Technologies, Inc. (“Consensus”), along with certain of its affiliates and subsidiaries. Consensus is a provider of critical infrastructure solutions for AI and high-performance computing. The proposed acquisition is intended to position the Company at the forefront of the AI infrastructure ecosystem and provide a scalable platform to capitalize on the growing demand for AI compute capacity. The consummation of this transaction is subject to, and contingent upon, the execution of a definitive agreement and other related transaction documents by the parties, corporate approval and customary closing conditions. There can be no assurances that such transaction will be consummated.
Acquisition of Remaining Interest in Orlando
On April 3, 2026, the Company, La Rosa Realty Orlando LLC, a majority owned subsidiary of the Company (the “Orlando”), and two selling members of Orlando (collectively, the “Sellers”), entered into a settlement agreement (“Settlement Agreement”), pursuant to which, each of the Sellers sold their 24.5% membership interests (collectively, the “Interests”) in Orlando to the Company, and the Company agreed to (i) forgive the amount of $106,447 allegedly owed by one of the Sellers to Orlando, (ii) forgive the alleged $152,295 franchise fee obligation under one of the Seller’s personal guaranty, (iii) pay one of the Sellers the amount of $10,000, and (iv) dismiss without prejudice the civil suit of La Rosa Realty Corp., La Rosa Realty Orlando LLC v. Reinaldo Zapata, Viviana Figueroa, pending in the Circuit Court of Orange County, Florida. As a result of this transaction, Orlando became a wholly-owned subsidiary of the Company.
Nasdaq Notices Regarding Filing Deficiencies
On April 16, 2026, the Company received a notice (the “10-K Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to timely file its Annual Report on Form 10-K (“Comprehensive Form 10-K”) for the fiscal year ended December 31, 2025 (the “Initial Delinquent Filing”) with the SEC. The Staff informed the Company that, under Nasdaq rules, the Company has 60 calendar days, or until June 15, 2026, to submit a plan to regain compliance, and if the Staff accepts such plan, they can grant an exception of up to 180 calendar days from the Initial Delinquent Filing’s due date (or until October 12, 2026) to regain compliance.
On May 21, 2026, the Company also received a notice (the “10-Q Notice,” and together with the 10-K Notice, the “Notices”) from the Staff indicating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) due to its failure to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2026, and noting that the Company also remains delinquent in filing its Initial Delinquent Filing. The 10-Q Notice further states that, in accordance with Nasdaq rules and as previously communicated in the 10-K Notice, the Company has until June 15, 2026, to submit a plan to regain compliance, and if the Staff accepts such plan, any exception granted will be limited to a maximum of 180 calendar days from the due date of the Initial Delinquent Filing, or until October 12, 2026, to regain compliance.
The Notices have no immediate effect on the listing or trading of the Common Stock, which will continue to trade on The Nasdaq Capital Market under the symbol “LRHC.”
On June 4, 2026, the Company filed Comprehensive Form 10-K with the SEC. On June 10, 2026, the Company received a letter from the Staff indicating that based on the June 4, 2026 filing of the Form 10-K, the Staff has determined that the Company complies with Nasdaq Listing Rule 5250(c)(1) with regard to the Form 10-K filing. However, since it has not received the Company’s Form 10-Q, the Company remains noncompliant Nasdaq Listing Rule 5250(c)(1). On June 11, 2026, the Company submitted to Nasdaq a plan of compliance (the “Plan”) addressing how the Company intends to regain compliance with Nasdaq’s listing rules with respect to the delinquent reports, and Nasdaq has the discretion to grant the Company up to 180 calendar days from the due date of the Form 10-K, or October 12, 2026, to regain compliance.
April 2026 Reverse Stock Split
Following the Stockholders Approval described above, the Company effected a 1-for-10 reverse stock split of the Common Stock, issued and outstanding, effective as of 12:01 a.m. (New York time) on April 20, 2026 (“April 2026 Reverse Stock Split”). As a result of the April 2026 Reverse Stock Split, every ten (10) shares of issued and outstanding Common Stock were automatically combined into one (1) issued and outstanding share of Common Stock. Unless noted otherwise, all share and the price per share information for all periods presented in this report have been retroactively adjusted for April 2026 Reverse Stock Split.
Series D Preferred Stock Financing
On May 27, 2026, the Company and the Investor entered into a securities purchase agreement pursuant to which the Company issued the Investor 250 shares of the Company’s Series D Convertible Preferred Stock, par value $0.0001 per share (“Series D Preferred Stock”), for a purchase price of $1,000 per share. On the same date, the Company filed respective Certificate of Designation of Rights and Preferences of the Series D Preferred Stock with the Secretary of State of the State of Nevada. The rights, preferences and limitations of the Series D Preferred Stock are set forth in the Certificate of Designation, including conversion rights into shares of the Company’s common stock, subject to certain limitations and adjustment provisions. Pursuant to the agreement, the remaining 250 shares of Series D Preferred Stock were issuable by the Company to the Investor at its sole option upon the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. On June 4, 2026, the Company filed its Annual Report on Form 10-K with the SEC. On June 10, 2026, in accordance with the terms of the securities purchase agreement, the Company issued the Investor remaining 250 Series D Preferred Stock for aggregate gross proceeds of $250,000.
Nasdaq Notice Regarding Stockholders’ Equity
On June 10, 2026, the Company received a letter from the Staff indicating that, because the Company’s stockholders’ equity as reported in its Form 10-K for the fiscal year ended December 31, 2025, was $(1,848,252), the Company is no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing. The letter from Nasdaq has no immediate effect on the listing of the Company’s common stock and its common stock continues to be listed on The Nasdaq Capital Market under the symbol “LRHC”. On July 27, 2026, the Company submitted to Nasdaq a plan of compliance addressing how the Company intends to regain compliance with Nasdaq’s listing rules with respect to the Nasdaq Listing Rule 5550(b)(1). If the plan is accepted, the Company can be granted up to 180 calendar days from the date of the letter (or until December 7, 2026) to evidence compliance.
Series E Preferred Stock Financing
On July 10, 2026, the Company and the Investor entered into a securities purchase agreement pursuant to which the Company issued the Investor 250 shares of the Company’s Series E Convertible Preferred Stock, par value $0.0001 per share (“Series E Preferred Stock”), for a purchase price of $1,000 per share. On July 9, 2026, the Company filed respective Certificate of Designation of Rights and Preferences of the Series E Preferred Stock with the Secretary of State of the State of Nevada.
Description of Our Revenues
Our financial results are primarily driven by the total number of sales agents in our Company, the number of sales agents closing residential real estate transactions, the number of sales agents utilizing our coaching services, the number of agents who work with our franchisees, and the number of properties under management. We increased our agent count by 7.6 %, from 2,769 at March 31, 2025 to 2,979 at March 31, 2026.
The majority of our revenue is derived from a stable set of fees paid by our brokers, franchisees, and consumers. We have multiple revenue streams, with the majority of our revenue derived from commissions paid by consumers who transact business with our and our franchisees’ agents, royalties paid by our franchisees, dues and technology fees paid by our sales agents, our franchisees, and our franchisees’ agents. Our major revenue streams come from such sources as: (i) residential real estate brokerage revenue, (ii) revenue from our property management services, (iii) franchise royalty fees, (iv) fees from the sale or renewal of franchises and other franchise revenue, (v) coaching, training and assistance fees, (vi) brokerage revenue generated transactionally on commercial real estate, (vii) fees generated from title services revenue and insurance and (viii) fees from our events and forums.
The majority of our revenue is derived from fees and dues based on the number of agents working under the La Rosa Realty brand. Due to the low fixed cost structure of both our Company and franchise models, the addition of new sales agents generally requires little incremental investment in capital or infrastructure. Accordingly, the number of commission producing sales agents in our Company and our franchisees is the most important factor affecting our results of operations and the addition of new agents can favorably impact our revenue and our earnings before interest, taxes, depreciation and amortization (“EBITDA”). Historically, the number of agents in the residential real estate industry has been highly correlated with overall home sale transaction activity. We believe that the number of agents and those that produce commissions in our network is the primary statistic that drives our revenue. Another major factor is the cyclicality of the real estate industry that has peaks and valleys depending on macroeconomic conditions that we cannot control. And finally, our revenues fluctuate based on the changes in the aggregate fee revenue per sales agent as a significant portion of our revenue is tied to various fees that are ultimately tied to the number of agents, including annual dues, continuing franchise fees, and certain transaction or service-based fees. Our revenue per agent also increases in other ways including when transaction sides and transaction sizes increase since a portion of our revenue comes from fees tied to the number and size of real estate transactions closed by our agents. While the Company was not named as a defendant in any of the recent class action lawsuits alleging antitrust violations, it is possible that it could be a litigant at some point in the future. Several of these lawsuits have been settled(see our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on June 4, 2026) “Risk Factors – Adverse outcomes in litigation and regulatory actions against the NAR, other real estate brokerage companies and agents in our industry could adversely impact our financial results). These settlements will result in changes in the way real estate brokers are compensated for their services. Most notably, home sellers will no longer be required to pay buyer agent commissions which will result in lower buyer agent compensation. We cannot predict the full breadth of the outcome of these lawsuits but believe that they will result in a significant adverse effect on our financial condition and results of operations for the foreseeable future.
Key factors affecting our performance
As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Set forth below is a brief discussion of the key factors impacting our results of operations.
Seasonality
Our business is affected by the seasons and weather. The spring and summer seasons, when school is out, have typically resulted in higher sales volumes compared to fall and winter seasons. With the slowdown in the later months, we have experienced slower listing activity, fewer transaction closings and lower revenues and have seen more agent turnover as well. Bad weather or natural disasters also negatively impact listings and sales which reduces our operating income, net income, operating margins and cash flow. While this pattern is fairly predictable, there can be no assurance that it will continue. Moreover, with the impact of climate change, we expect more business disruptions in the coming years, many of which could be unpredictable and extreme.
Our revenues and operating margins will fluctuate in successive quarters due to a wide variety of factors, including seasonality, weather, health exigencies, holidays, national or international emergencies, the school year calendar’s impact on timing of family relocations, and changes in mortgage interest rates. This fluctuation may make it difficult to compare or analyze our financial performance effectively across successive quarters.
Inflation and Market Interest Rates
The benchmark 30-year fixed conforming mortgage rate rose to a peak of about 8% during the second half of 2023, according to Freddie Mac data. That interest rate then retreated to between 6.08% and 7.22% during 2024 and between 6.15% to 7.04% during 2025. Consequently, housing demand remained soft, prices are rising, consumer sentiment has weakened, and home sales are declining. The U.S. Federal Reserve continues to take action intended to address inflation. The Federal Reserve Board maintained the federal funds rate at 533 basis points from August of 2023 through mid-September 2024, when it was reduced to 483 basis points. In May 2026, the federal funds rate was 363 basis points. The fluctuations impact interest rates, which significantly contribute to mortgage rate adjustments. In May 2026, the existing home sales market rose 3.2% compared to both April 2026 and May 2025, reaching a seasonally adjusted annual rate (SAAR) of 4.17 million units, according to the NAR. This increase had a positive impact on consumer demand for our services, as consumers weighed the financial implications of selling or purchasing a home. Continuing improved housing market conditions would positively affect our operating performance and results of operations.
Recent Legal Challenges to Sales Agents’ Commission Structure
Recent developments in the real estate industry have seen increased scrutiny and legal challenges related to the structure of real estate agent commissions. Legal actions and regulatory inquiries have been initiated to examine the fairness, transparency, and potential anticompetitive practices associated with the traditional commission model. Courts and regulatory bodies may be increasingly focused on ensuring transparency in commission structures, potentially leading to reforms that impact the earnings and business models of real estate professionals. Changes in legislation or legal precedents could impact the standard practices of commission-sharing between listing agents and buyer’s agents and may adversely affect our business model and revenues. On October 31, 2023, a federal jury in Missouri found that NAR and certain companies conspired to artificially inflate brokerage commissions, which violates federal antitrust law. The judgment was appealed on October 31, 2023, while these and other plaintiffs have filed similar lawsuits against a number of other large real estate brokerage companies. We have not, as of the date hereof, been named as a defendant in any antitrust litigation. On or about March 15, 2024, NAR agreed to settle these lawsuits, by agreeing to pay $418 million over approximately four years, and changing certain of its rules surrounding agent commissions. This settlement resolves claims against NAR and nearly every NAR member; all state, territorial and local REALTOR® associations; all association-owned MLSs; and all brokerages with an NAR member as principal whose residential transaction volume in 2022 was $2 billion or below and is subject to court approval. Due to this litigation, there will be rule changes for the NAR. In the settlement, effective mid-July 2024, NAR has agreed to put in place a new rule prohibiting offers of compensation on the MLS, as well as adopt new rules requiring written agreements between buyers and buyers’ agents. However, the direct and indirect effects, if any, of the judgment upon the real estate industry are not yet entirely clear.
There could also be further changes in real estate industry practices. All of this has prompted discussion of changes to rules established by local or state real estate boards or multiple listing services. All of this may require changes to many brokers’ business models, including changes in agent and broker compensation. For example, we will likely have to develop mechanisms and a plan that enable buyers and sellers to negotiate commissions. The Company will continue to monitor ongoing and similar antitrust litigation against our competitors. However, the litigation and its ramifications could cause unforeseen turmoil in our industry, the impacts of which could have a negative effect on us as an industry participant.
Cybersecurity
Our business faces cybersecurity risks that could have a material adverse effect on our business operations, financial condition, and reputation. Key factors contributing to cybersecurity risks include, but are not limited to:
|
● |
Constantly Evolving Threat Landscape: The landscape of cybersecurity threats is constantly evolving, with new attack vectors, malware, and vulnerabilities emerging regularly. We may not be able to anticipate or mitigate all potential threats effectively. |
|
● |
Data Vulnerability: We collect, store, and process sensitive customer and corporate data, making us a target for cybercriminals seeking to steal or exploit this information. A data breach could lead to financial and legal liabilities, including regulatory fines and customer trust erosion. |
|
● |
Third-Party Risks: Our reliance on third-party service providers exposes us to risks associated with their cybersecurity practices. A breach or security failure in a third-party system could impact our operations and data. |
|
● |
Phishing and Social Engineering: Employees and individuals connected to our organization may be susceptible to phishing attacks or social engineering tactics that compromise security. Human error or manipulation can lead to breaches. |
|
● |
Regulatory Compliance: We are subject to various data protection and privacy regulations, and non-compliance could result in legal and financial penalties. Adhering to these regulations requires ongoing efforts and resources. |
|
● |
Business Interruption: A cyberattack or system breach may disrupt our operations, affecting our ability to serve customers, fulfill orders, and maintain revenue, resulting in financial losses. |
|
● |
Reputation Damage: A publicized cybersecurity incident can significantly damage our brand and reputation, leading to customer churn and reduced market confidence. |
The recently adopted SEC cybersecurity disclosure rules for public companies require disclosure regarding cybersecurity risk management (including the corporate board’s role in overseeing cybersecurity risks, management’s role and expertise in assessing and managing cybersecurity risks, and processes for assessing, identifying and managing cybersecurity risks) in annual reports. These new cybersecurity disclosure rules also require the disclosure of material cybersecurity incidents in a Form 8-K, generally within four days of determining an incident is material. We have included respective disclosures in our Annual Report on Form 10-K for fiscal year ended December 31, 2025 filed with the Commission on June 4 , 2026.
We may at times fail (or be perceived to have failed) in our efforts to comply with our privacy and data security obligations. Moreover, despite our efforts, our personnel or third parties on whom we rely on may fail to comply with such obligations, which could negatively impact our business operations.
Any failure or perceived failure by us or third parties upon whom we rely to comply with obligations, relating to privacy and data security may result in significant consequences including but not limited to governmental investigations and enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar), litigation, additional reporting requirements and/or oversight, bans on processing personal data, and orders to destroy or not use personal information.
Any of these events could have a material adverse effect on our reputation, business, or financial condition, including but not limited to loss of customers; interruptions or stoppages in our business operations; inability to process personal information; limited ability to develop or commercialize our products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to our business model or operations.
Critical Accounting Estimates
A critical accounting estimate is one that is both important to the portrayal of a company’s financial condition and results of operations and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. There have been no material changes to the Company’s critical accounting estimates as compared to the estimates described in the Annual Report on Form 10-K for the year ended December 31, 2025 which we believe are the most critical to our business and understanding of our results of operations and affect the more significant judgments and estimates that we use in preparation of our condensed consolidated financial statements.
Results of Operations
Revenue
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
Real Estate Brokerage Services (Residential) |
|
$ |
13,045,185 |
|
|
$ |
14,270,278 |
|
|
$ |
(1,225,093 |
) |
|
|
-9 |
% |
Franchising Services |
|
|
35,123 |
|
|
|
38,778 |
|
|
|
(3,655 |
) |
|
|
-9 |
% |
Coaching Services |
|
|
21,958 |
|
|
|
94,534 |
|
|
|
(72,576 |
) |
|
|
-77 |
% |
Property Management |
|
|
100,669 |
|
|
|
97,913 |
|
|
|
2,756 |
|
|
|
3 |
% |
Real Estate Brokerage Services (Commercial) |
|
|
273,516 |
|
|
|
57,066 |
|
|
|
216,450 |
|
|
|
379 |
% |
Title Settlement and Insurance |
|
|
99,155 |
|
|
|
77,205 |
|
|
|
21,950 |
|
|
|
28 |
% |
Total Revenue |
|
$ |
13,575,606 |
|
|
$ |
14,635,774 |
|
|
$ |
(1,060,168 |
) |
|
|
-7 |
% |
Real Estate Brokerage Services (Residential)
Residential real estate services sales revenue decreased by approximately $1.2 million, or 9%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The decrease was driven primarily by the sale of its interest in LR Kissimmee.
Franchising Services
Franchising services revenue decreased by approximately $4 thousand, or 9%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The decrease is attributable to reduction in franchising activities.
Coaching Services
Coaching services revenue decreased by approximately $73 thousand, or 77%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, primarily due to a strategic shift from Coaching services to aid in onboarding of new Agents.
Property Management
Property management revenue increased by approximately $3 thousand, or 3%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, overall this is consistent with the prior year revenues.
Real Estate Brokerage Services (Commercial)
Real estate brokerage services (commercial) revenue increased by approximately $216 thousand, or 379%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, as a result of new leadership in the department and the condensing lead time it generally takes to generate a commercial real estate transaction.
Title Settlement and Insurance
Title settlement and insurance revenue increased by approximately $22 thousand, or 28%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, primarily due to company advertising of this service to its agents.
Gross Profit and Gross Margin
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
Real Estate Brokerage Services (Residential) |
|
$ |
1,685,438 |
|
|
$ |
1,374,393 |
|
|
$ |
311,045 |
|
|
|
23 |
% |
Gross Margin |
|
|
12.9 |
% |
|
|
9.6 |
% |
|
|
|
|
|
|
|
|
Franchising Services |
|
$ |
34,865 |
|
|
$ |
(73,013 |
) |
|
$ |
107,878 |
|
|
|
-148 |
% |
Gross Margin |
|
|
99.3 |
% |
|
|
-188.3 |
% |
|
|
|
|
|
|
|
|
Coaching Services |
|
$ |
14,758 |
|
|
$ |
38,654 |
|
|
$ |
(23,896 |
) |
|
|
-62 |
% |
Gross Margin |
|
|
67.2 |
% |
|
|
40.9 |
% |
|
|
|
|
|
|
|
|
Property Management |
|
$ |
100,669 |
|
|
$ |
97,393 |
|
|
$ |
3,276 |
|
|
|
3 |
% |
Gross Margin |
|
|
100.0 |
% |
|
|
99.5 |
% |
|
|
|
|
|
|
|
|
Real Estate Brokerage Services (Commercial) |
|
$ |
58,542 |
|
|
$ |
23,036 |
|
|
$ |
35,506 |
|
|
|
154 |
% |
Gross Margin |
|
|
21.4 |
% |
|
|
40.4 |
% |
|
|
|
|
|
|
|
|
Title Settlement and Insurance |
|
$ |
99,155 |
|
|
$ |
77,205 |
|
|
$ |
21,950 |
|
|
|
28 |
% |
Gross Margin |
|
|
100.0 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
Total Gross Profit |
|
$ |
1,993,427 |
|
|
$ |
1,537,668 |
|
|
$ |
455,759 |
|
|
|
30 |
% |
Total Gross Margin |
|
|
14.7 |
% |
|
|
10.5 |
% |
|
|
|
|
|
|
|
|
NM: Not Meaningful
Real Estate Brokerage Services (Residential)
Gross margin related to residential real estate brokerage services increased by approximately $0.3 million, or 23%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase was driven by fee increases enacted on January 1, 2026, which improved gross margins.
Franchising Services
Gross margin for franchising services decreased by approximately $108 thousand, or 148%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025, related to reduction of the number of franchises due to previous acquisitions and performance of the franchisees.
Coaching Services
Gross margin related to coaching services decreased by approximately $24 thousand, or 62%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The decrease is related to a strategic shift from requiring agents to utilize coaching services from the coaching program.
Property Management
Gross margin related to property management services increased by approximately $3.3 thousand, or 3%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. The increase in property management costs was primarily related to cost reduction strategies.
Title Settlement and Insurance
Gross margin related to title and settlement services increased by approximately $22 thousand, or 28%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. We have initiated new management which is focusing on the growth of this segment.
Selling, General and Administrative Expense
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
Sales and Marketing |
|
$ | 409,277 |
|
|
$ | 563,149 |
|
|
$ | (153,872) |
|
|
|
-27 |
% |
Payroll and benefits |
|
|
1,255,508 |
|
|
|
1,530,792 |
|
|
|
(275,284) |
|
|
|
-18 |
% |
Rent and other |
|
|
440,553 |
|
|
|
381,690 |
|
|
|
58,863 |
|
|
|
15 |
% |
Professional fees |
|
|
1,569,501 |
|
|
|
1,003,345 |
|
|
|
566,156 |
|
|
|
56 |
% |
Office |
|
|
75,770 |
|
|
|
78,446 |
|
|
|
(2,676) |
|
|
|
-3 |
% |
Technology |
|
|
163,802 |
|
|
|
117,444 |
|
|
|
46,358 |
|
|
|
39 |
% |
Insurance, training and other |
|
|
179,818 |
|
|
|
167,829 |
|
|
|
11,989 |
|
|
|
7 |
% |
Public company costs |
|
|
181,823 |
|
|
|
217,933 |
|
|
|
(36,110) |
|
|
|
-17 |
% |
Amortization and depreciation |
|
|
104,879 |
|
|
|
230,046 |
|
|
|
(125,167) |
|
|
|
-54 |
% |
Total SG&A Expenses |
|
$ | 4,380,931 |
|
|
$ | 4,290,674 |
|
|
$ | 90,257 |
|
|
|
2 |
% |
NM: Not Meaningful
Selling, general and administrative costs increased by approximately $90 thousand , or 2%, in the three months ended March 31, 2026 as compared to the three months ended March 31, 2025. Of this increase $570 thousand is related to cost incurred for the financing agreements for the quarter and $58 thousand increase in rent, partially offset by $275 thousand reduction in payroll costs, $123 thousand reduction in amortization and depreciation and $154 thousand reduction in sales and marketing expenses.
Stock-based compensation
We incurred stock-based compensation of approximately $110 thousand in the three months ended March 31, 2026, primarily due to vesting of options and restricted stock units and a marketing agreement entered into during the quarter.
Other Income (Expense), Net
Other expense, net for the three months ended March 31, 2026, decreased approximately $85 million compared to other expense, net, for the three months ended March 31, 2025. The decrease in expense in 2026 was primarily due to reduction in loss of on issuance of senior secured convertible notes and change on fair value of convertible notes and warrants.
Liquidity and Capital Resources
On March 31, 2026, the Company had a cash balance of $1.7 million and working capital of $4.1 million.
On November 12, 2025, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Investors”), pursuant to which the Company agreed to issue and sell, and the Investors agreed to purchase, in multiple closings, a new series of senior secured convertible notes of the Company in an aggregate original principal amount of up to $250,000,000 (the “Notes”), subject to the satisfaction or waiver of certain closing conditions. The Company issued an initial Note in an aggregate principal amount of $11,000,000 at the initial closing on January 8, 2026 (the “Initial Closing”) after the satisfaction or waiver of certain closing conditions.
Subject to certain conditions described in the Purchase Agreement, the Company has the option to request that the Investor purchase additional Notes (the “Company’s Option Closing”), and the Investor has the option to cause the Company to sell additional Notes (the “Investor’s Option Closing” and together with the Company’s Option Closing, (the “Additional Closings”) and together with the Initial Closing, each a “Closing”), provided that the aggregate original principal amount of any Notes issued in each Additional Closing shall not exceed $5,000,000 individually, and not more than $239,000,000 in the aggregate for all Additional Closings. The purchase price for each Note will be $900 for each $1,000 of principal amount of Note.
In addition, the Company has financing arrangements through its equity line of credit which allows the Company to sell shares of which 40% of the proceeds are available to the Company. The Company also, has secured financings through preferred share issuances which in general are funded for $1,000 per share and are subject to certain conversion rights into common stock.
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 cost related to financing and the corporate overhead costs of being a public company. As such, the Company anticipates that its existing working capital, including cash on hand, and cash generated from operations will not be sufficient to meet projected operating expenses for the foreseeable future through at least twelve months from the issuance of the consolidated financial statements. The Company will be required to raise additional capital to 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 organic growth, which will help achieve future profitability, and the Company will continue to raise capital from outside investors, as it has done in the past, to fund operating losses. There can be no assurance the Company can successfully raise the capital needed.
Summary of Cash Flows
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Three Months Ended March 31, |
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2026 |
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2025 |
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Net Cash Used in Operating Activities |
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$ |
(1,759,116 |
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$ |
(3,493,029 |
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Net Cash Provided by Investing Activities |
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$ |
(8,553,483 |
) |
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$ |
— |
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Net Cash Provided by Financing Activities |
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$ |
11,490,531 |
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$ |
4,831,768 |
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Cash Flows from Operating Activities
During the three months ended March 31, 2026, operating activities consumed $1.7 million of our cash on hand, which was primarily attributable to loss from continuing operations of $2.1 million, excluding stock-based compensation, loss on issuance of senior secured convertible notes, fair market value adjustments, and amortization and depreciation. Changes in operating assets and liabilities provided $325 thousand, mostly due to increases in accounts receivable, notes receivable offset by increases in accounts payable and changes in security deposit and escrow payables.
During the three months ended March 31, 2025, operating activities consumed $3.5 million of our cash on hand, which was primarily attributable to the net loss of $2.3 million, excluding stock-based compensation, loss on issuance of senior secured convertible notes, fair market value adjustments, and amortization and depreciation, changes in operating assets and liabilities consumed a further $1.2 million, mostly due to an increase in accounts payable and an increase in contract liabilities.
Cash Flows from Investing Activities
During the three months ended March 31, 2026 there was $8.1 million used to purchase digital assets and $411 thousand of cash sold in connection with the disposal of LR Kissimmee.
During the three months ended March 31, 2025 there were no activities that consumed cash for the quarter.
Cash Flows from Financing Activities
During the three months ended March 31, 2026, we received net cash provided by financing activities of $11.5 million, which included net proceeds from notes payable of $9.9 million and proceeds from issuance of common stock of $3.5 million, offset by $1.7 million in redemption of our Series X preferred stock.
During the three months ended March 31, 2025, we received net cash provided by financing activities of $4.8 million, which included net proceeds from our sale of our common stock pursuant to the “at-the-market” (ATM) financing of $2.9 million and from our debt issuance in February 2025 of $2.9 million, offset by $1.8 million in payments to notes payable, post-acquisition consideration, and advances on future receipts.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures designed to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of March 31, 2026, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were ineffective due to the material weaknesses in internal control over financial reporting described below.
Changes in Internal Control over Financial Reporting
As reported in our Annual Report on Form 10-K for 2025 fiscal year, material weaknesses were identified in the Company’s internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in our internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. Such material weaknesses are primarily related to deficiencies in its overall control environment, including limited accounting resources, inadequate segregation of duties, and the absence of formalized policies and procedures. In addition, the Company did not maintain effective controls over (i) significant accounting estimates and judgments, including the goodwill impairment assessment and the income tax provision prepared by external consultants, (ii) revenue recognition, including the determination of gross versus net presentation under ASC 606, which resulted in errors in previously issued financial statements and the restatement of the Company’s consolidated financial statements, (iii) the preparation, review, and approval of its periodic SEC filings to ensure the completeness, accuracy, and consistency of financial disclosures, and (iv) controls and processes related to cybersecurity risk management. We have therefore concluded that our internal controls over financial reporting are not effective at the reasonable assurance level.
Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties. Therefore, it is difficult to effectively segregate accounting duties which comprises a material weakness in internal controls. To the extent reasonably possible given our limited resources, we intend to take measures to cure the weaknesses, including, but not limited to, increasing the capacity of our qualified financial personnel to ensure that accounting policies and procedures are consistent across the organization and that we have adequate controls over our Exchange Act reporting disclosures. As such, we consider these material weaknesses to not be remediated as of March 31, 2026.
Remediation Plan
The Company is in the process of designing and implementing remediation measures, including enhanced review procedures, hiring additional personnel with technical accounting expertise and SEC reporting expertise, formalizing documentation standards, and strengthening oversight of third-party services providers and specialists.
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(t) and 15d-15(f) under the Exchange Act, during the fiscal quarter ended March 31, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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. Original mediation was scheduled for August 25, 2025, with a second mediation set for April 28, 2026. Discovery is proceeding and the trial is set for October 2026. The Company denies the merits of the claims and intends on vigorously defending the litigation.
On March 5, 2025, Joshua Epstein, our former employee and Chief Strategy Officer, filed a civil lawsuit 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 in the amount of $100,000 from the Company. The Company strongly opposed and denied these claims. Original partial mediation occurred on September 5, 2025. A second mediation is expected to be set in the near future. The case trial is scheduled for April 2027. The Company denies the merits of the claims and intends on vigorously defending the litigation.
On June 5, 2025, an employee, who served as our Senior Human Resources and Payroll Specialist from July 10, 2024 to August 19, 2024, filed a civil lawsuit against the Company in the Circuit Court of Osceola County, Florida. The employee is seeking a jury trial claiming $50,000 in damages and that the Company terminated her employment in violation of SS 448.102(3). On July 9, 2025, the Company responded to the complaint with its answer and affirmative defenses, effectively denying all of the plaintiff’s claims. In March of 2026 discovery and depositions began. The case remains pending.
On January 13, 2026, Martin Scott CFO Consulting Services, Inc. filed a civil lawsuit against the Company and La Rosa Realty, LLC, in the Circuit Court of Palm Beach County for breach of contract, open account, account stated, and unjust enrichment. The plaintiff stated that he had a contract with the defendants and is owed unpaid fees of approximately $29,000 and legal expenses. The Company settled this lawsuit on April 20, 2026 for the amount of $22,000.
On January 30, 2026, the Company and La Rosa Realty Orlando LLC filed a civil lawsuit against Reinaldo Zapata and Viviana Figueroa in the Circuit Court of Orange County. The case involved an action for dissolution of La Rosa Realty Orlando LLC, action for conversion against Reinaldo Zapata, and an action for damage for breach of employment agreement against Reinaldo Zapata. The case was settled on April 4, 2026 as previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on April 6, 2026.
On February 1, 2026, Stacy-Ann Blair and Delroxry Blair filed a civil lawsuit against La Rosa Realty CW Properties, et. al. in the Circuit Court of Orange County, Florida, stating that La Rosa CW Properties failed to disclose a family relationship with one or more of its sellers, creating a material conflict of interest. The plaintiffs claim breach of contract, unjust enrichment, fraudulent and negligent misrepresentation, and civil theft and seeking damages of approximately $9,600. The Company filed a motion to dismiss, which was further amended. A case management conference was held in July of 2026 at which time the case was dismissed.
We are currently listed on The Nasdaq Capital Market. Our failure to maintain our compliance with Nasdaq’s continued listing standards or other requirements could result in our Common Stock being delisted from Nasdaq, which could adversely affect our liquidity and the trading volume and market price of our Common Stock and decrease or eliminate your investment.
Our Common Stock is currently listed on the Nasdaq Capital Market on Nasdaq under the symbol “LRHC.” Nasdaq requires listed issuers to comply with certain standards in order to remain listed on its exchange. If, for any reason, Nasdaq should delist our securities from trading on its exchange and we are unable to obtain listing on another reputable national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our stockholders.
If we violate Nasdaq’s listing requirements, or if we fail to meet any of Nasdaq’s listing standards, our Common Stock may be delisted. A delisting of our Common Stock from Nasdaq may materially impair our stockholders’ ability to buy and sell our Common Stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our Common Stock. The delisting of our Common Stock could significantly impair our ability to raise capital and the value of your shares.
On July 13, 2026, the closing price of our Common Stock was $1.01. Pursuant to Nasdaq Rule 5810(c)(3)(A)(iii), if the closing price of our Common Stock is $0.10 or less for 10 consecutive trading days, we will be issued a Staff Delisting Determination by Nasdaq. If we receive a Staff Delisting Determination Letter resulting from our Common Stock trading at or below $0.10 for 10 consecutive trading days, we will have 7 calendar days to request a hearing before a Nasdaq hearings panel to review the Staff Delisting Determination, which will determine the delisting of our Common Stock by Nasdaq. A hearing would then take place within 45 days of the hearing request to determine whether or not our Common Stock would be delisted. If, in the future, we receive a Staff Delisting Determination there can be no assurance that we would be successful in preventing a determination by the Nasdaq hearing panel that our stock will be delisted.
On April 16, 2026, the Company received a notice (the “10-K Notice”) from the Nasdaq Listing Qualifications Department (the “Staff”) that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) as a result of its failure to timely file its Annual Report on Form 10-K (“Comprehensive Form 10-K”) for the fiscal year ended December 31, 2025 (the “Initial Delinquent Filing”) with the SEC. The Staff informed the Company that, under Nasdaq rules, the Company has 60 calendar days, or until June 15, 2026 to submit a plan to regain compliance, and if the Staff accepts such plan, they can grant an exception of up to 180 calendar days from the Initial Delinquent Filing’s due date (or until October 12, 2026) to regain compliance. On May 21, 2026, the Company also received a notice (the “10-Q Notice,” and together with the 10-K Notice, the “Notices”) from the Staff indicating that the Company is not in compliance with Nasdaq Listing Rule 5250(c)(1) due to its failure to timely file its Quarterly Report on Form 10-Q for the period ended March 31, 2026, and noting that the Company also remains delinquent in filing its Initial Delinquent Filing. The 10-Q Notice further states that, in accordance with Nasdaq rules and as previously communicated in the 10-K Notice, the Company has until June 15, 2026 to submit a plan (the “Filing Plan”) to regain compliance, and if the Staff accepts such plan, any exception granted will be limited to a maximum of 180 calendar days from the due date of the Initial Delinquent Filing, or until October 12, 2026, to regain compliance.
On June 4, 2026, the Company filed Comprehensive Form 10-K with the SEC. On June 10, 2026, the Company received a letter from the Staff indicating that based on the June 4, 2026 filing of the Form 10-K, the Staff has determined that the Company complies with Nasdaq Listing Rule 5250(c)(1) with regard to the Form 10-K filing. However, since it has not received the Company’s Form 10-Q, the Company remains noncompliant Nasdaq Listing Rule 5250(c)(1). On June 11, 2026, the Company submitted to Nasdaq the Filing Plan addressing how the Company intends to regain compliance with Nasdaq’s listing rules with respect to the delinquent reports, and Nasdaq has the discretion to grant the Company up to 180 calendar days from the due date of the Form 10-K, or October 12, 2026, to regain compliance.
On June 10, 2026, the Company received a letter from the Staff indicating that, because the Company’s stockholders’ equity as reported in its Form 10-K for the fiscal year ended December 31, 2025 was $(1,848,252), the Company is no longer in compliance with Nasdaq Listing Rule 5550(b)(1), which requires companies listed on The Nasdaq Capital Market to maintain a minimum of $2,500,000 in stockholders’ equity for continued listing. Nasdaq’s letter provides the Company with 45 calendar days, or until July 27, 2026, to submit a plan to regain compliance (“SE Plan,” and together with the Filing Plan, the “Plans”). The Company is currently evaluating its available options to resolve the deficiency and regain compliance with the Nasdaq minimum stockholders’ equity requirement.
There can be no assurance that the Company will be able to regain or maintain compliance with all applicable continued listing requirements or that its Plans will be accepted by the Nasdaq.
Any delisting determination by Nasdaq could seriously decrease or eliminate the value of an investment in our Common Stock and other securities linked to our Common Stock. While a listing on an over-the-counter exchange could maintain some degree of a market in our Common Stock, we could face substantial material adverse consequences, including, but not limited to, the following: limited availability for market quotations for our Common Stock; reduced liquidity with respect to and decreased trading prices of our Common Stock; a determination that shares of our Common Stock are “penny stock” under the Securities and Exchange Commission rules, subjecting brokers trading our Common Stock to more stringent rules on disclosure and the class of investors to which the broker may sell the Common Stock; limited news and analyst coverage for our Company, in part due to the “penny stock” rules; decreased ability to issue additional securities or obtain additional financing in the future; and potential breaches under or terminations of our agreements with current or prospective large stockholders, strategic investors and banks. The perception among investors that we are at heightened risk of delisting could also negatively affect the market price of our securities and trading volume of our Common Stock.
In July 2026, the SEC approved Nasdaq's rule requiring companies listed on the Nasdaq Global Market and Nasdaq Capital Market to maintain a minimum market value of listed securities (“MVLS”) of at least $5 million. Under this rule, if a company's MVLS remains below $5 million for 30 consecutive business days, Nasdaq may immediately suspend trading in and commence delisting of the company's securities. Unlike some other Nasdaq listing deficiencies, this rule does not provide an opportunity to regain compliance prior to suspension, and a hearing request does not stay the suspension of trading. As of the date of this report, our MVLS is below $5 million. In addition, the market value of our Common Stock may fluctuate significantly due to factors beyond our control, including market conditions, investor sentiment toward small-cap companies, our operating performance, and general economic conditions. If our MVLS remains below the required threshold for the applicable period, our Common Stock could be immediately suspended from trading and delisted from Nasdaq. Such a suspension or delisting could materially reduce the liquidity and market price of our Common Stock, impair our ability to raise capital, reduce analyst coverage, and adversely affect our business and the value of an investment in our securities.
Except as disclosed above in this Section “Item 1A. Risk Factors,” there have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on June 4, 2026.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) In addition to the issuances of unregistered securities described in the Current Reports on Form 8-K filed by the Company with the SEC, in the first quarter of 2026 the Company issued the following securities which were not registered under the Securities Act.
In February 2026, the Company issued 3,500 shares of common stock to a consultant in consideration for marketing services provided to the Company.
Unless otherwise noted, the securities described above were issued pursuant to exceptions from the registration requirements of the Securities Act provided by Section 4(a)(2) and/or Rule 506 of Regulation D promulgated under the Securities Act, in light of the fact that none of the issuances involved a public offering of securities and no solicitation or advertisements for such securities were made by any party.
(b) Not applicable.
(c) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
During the months ended March 31, 2026, director or officer adopted, modified or terminated any Rule - trading arrangement or non-Rule 10b5-1 trading arrangement, as each term is defined in Item 408(a) of Regulation S-K.
(a) Exhibits. The following documents are filed as part of this report:
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Description: |
2.1 |
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3.1 |
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3.16 |
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Certificate of Designation of Series E Convertible Preferred Stock of the Company |
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3.17 |
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4.1 |
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32.1** |
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32.2** |
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101.INS* |
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Inline XBRL Instance Document |
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101.SCH* |
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Inline XBRL Schema Document |
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Inline XBRL Calculation Linkbase Document |
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101.DEF* |
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Inline XBRL Definition Linkbase Document |
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101.LAB* |
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Inline XBRL Label Linkbase Document |
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101.PRE* |
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Inline XBRL Presentation Linkbase Document |
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104* |
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Cover Page Interactive Data File (embedded within the Inline XBRL document filed as Exhibit 101) |
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Filed herewith |
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Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference in any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise specifically stated in such filing. |
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Management contracts or compensatory plans, contracts or arrangements. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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LA ROSA HOLDINGS CORP. |
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Date: July 31, 2026 |
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/s/ Joseph La Rosa |
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Name: |
Joseph La Rosa |
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Title: |
Founder, Chief Executive Officer, and Director |
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(Principal Executive Officer) |
Date: July 31, 2026 |
By: |
/s/ Joseph La Rosa |
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Name: |
Joseph La Rosa |
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Title: |
Interim Chief Financial Officer |
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(Principal Financial Officer) |
46
Exhibit 3.16
CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES E CONVERTIBLE PREFERRED STOCK OF
LA ROSA HOLDINGS CORP.
I, Joseph La Rosa, hereby certify that I am the Chief Executive Officer of La Rosa Holdings Corp. (the "Company"), a corporation organized and existing under the Nevada Revised Statutes ("NRS"), and further do hereby certify:
That pursuant to the authority expressly conferred upon the Board of Directors of the Company (the "Board") by the Company's Articles of Incorporation, as amended (the "Certificate of Incorporation"), the Board on July [8], 2026 adopted the following resolution determining it desirable and in the best interests of the Company and its stockholders for the Company to create a series of ten thousand ( I 0,000) shares of preferred stock designated as "Series E Convertible Preferred Stock", none of which shares have been issued, to be issued pursuant to the Securities Purchase Agreement (as defined in below), in accordance with the terms of the Securities Purchase Agreement:
RESOLVED, that pursuant to the authority vested in the Board, in accordance with the provisions of the Certificate of Incorporation, a series of preferred stock, par value $0.000 i per share, of the Company be and hereby is created pursuant to this certificate of designation (this "Certificate of Designation"), and that the designation and number of shares established pursuant hereto and the powers, preferences and relative, participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof are as follows:
TERMS OF SERIES E CONVERTIBLE PREFERRED STOCK
1. Designation and Number of Shares. There shall hereby be created and established a series of preferred stock of the Company designated as "Series E Convertible Preferred Stock" (the "Series E Convertible Preferred Stock"). The authorized number of shares of Series E Convertible Preferred Stock (the "Preferred Shares") shall be ten thousand (10,000) shares. Each Preferred Share shall have a par value of $0.000 I per share. Capitalized tem1s not defined herein shall have the meaning as set forth in Section 31 below.
2. Ranking. Except to the extent that each record holder (each, a "Holder", and collectively, the "Holders") of Preferred Shares expressly consent to the creation of Parity Stock (as defined below) or Senior Preferred Stock (as defined below) in accordance with Section 16, all shares of capital stock of the Company shall be junior in rank to all Preferred Shares with respect to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company (such junior stock is referred to herein collectively as "Junior Stock"). For the avoidance of doubt, the Preferred Shares will, with respect to rights on liquidation, winding• up and dissolution, rank (A) junior to the Senior Preferred Stock, (B) on parity with the Parity Stock and (C) senior to the Junior Stock. The rights of all such shares of capital stock of the Company shall be subject to the rights, powers, preferences and privileges of the Preferred Shares. Without limiting any other provision of this Certificate of Designation, without the prior express consent of the Holder, the Company shall not hereafter authorize or issue any additional or other shares of capital stock that is (i) of senior rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company (collectively, the "Senior Preferred Stock") (ii) of pari passu rank to the Preferred Shares in respect of the preferences as to distributions and payments upon the liquidation; dissolution and winding up of the Company (collectively, the "Parity Stock") or (iii) any Junior Stock having a maturity date or any other date requiring redemption or repayment of such shares of Junior Stock that is prior to the second anniversary of the first day of issuance of any Preferred Shares (the "Initial Issuance Date"). In the event of the merger or consolidation of the Company with or into another corporation, the Preferred Shares shall maintain their relative rights, powers, designations, privileges and preferences provided for herein and no such merger or consolidation shall result inconsistent therewith.
3. [Reserved].
4. Conversion. At any time after the Initial Issuance Date, each Preferred Share shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock (the "Conversion Shares"), on the terms and conditions set forth in this Section 4.
(a) Holder's Conversion Right. Subject to the provisions of Section 4(d), al any time or times on or after the Initial Issuance Date, each Holder shall be entitled to convert any portion of the outstanding Preferred Shares held by such Holder into validly issued, fully paid and non-assessable Conversion Shares in accordance with Section 4(c_) at the Conversion Rate (as defined below). The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and alt transfer, stamp, issuance and similar taxes, costs and expenses (including, without limitation, fees and expenses of the Company's transfer agent (the ''Transfer Age1f')) that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Preferred Shares.
(b) Conversion Rate. Except as otherwise provided herein, the number of Conversion Shares issuable upon conversion of any Preferred Share pursuant to this Section 4 shall be determined by dividing (x) the Conversion Amount of such Preferred Share by (y) the Conversion Price (the "Conversion Rate'').
(i) For purposes of this Certificate of Designation, the term "Conversion Amount" means, with respect to each Preferred Share, as of the applicable date of determination, the sum of (I) the Stated Value thereof 12.lm (2) any other amounts owed to such Holder pursuant to this Certificate of Designation or any other Transaction Documents.
(ii) For purposes of this Certificate of Designation, the term "Conversion Price" means, with respect to each Preferred Share, as of any Conversion Date or other date of determination, $ \ .58, subject to adjustment as provided herein.
2
(c) Mechanics of Conversion. The conversion of each Preferred Share shall be conducted in the following manner:
(i) Optional Conversion. To convert one or more Preferred Shares into Conversion Shares on any date (a "Conversion Date''), a Holder shall deliver (whether via electronic mail or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date, a copy of an executed notice of conversion of the Preferred Share(s) subject to such conversion in the form attached hereto as Exhibit !(the "Conversion Notice") to the Company required by Section 4(c)(ii), within two (2) Trading Days following a conversion of any such Preferred Shares as aforesaid, such Holder shall surrender to a nationally recognized overnight delivery service for delivery to the Company the original certificates, if any, representing the Preferred Shares (the "Preferred Share Certificates") so converted . as aforesaid (or an indemnification undertaking with respect to the Preferred Shares in the case of its loss, theft or destruction as contemplated by Section l8(b)). On or before the first ( 1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by electronic mail an acknowledgment of confirmation and representation as to whether such shares of Common Stock may then be resold pursuant to Rule 144 or an effective and available registration statement, in the form attached hereto as Exhibit 11, of receipt of such Conversion Notice to such Holder and the Company's transfer agent (the "Transfer Agent"), which confirmation shall constitute an instruction to the Transfer Agent to process such Conversion Notice in accordance with the terms set forth herein. On or before 5 )the first ( l 1 Trading Day following each date on which the Company has received a Conversion Notice (or such earlier date as required pursuant to the 1934 Act or other applicable law, rule or regulation for the settlement of a trade initiated on the applicable Conversion Date of such Conversion Shares issuable pursuant to such Conversion Notice) (the "Share Delivery Deadline"), the Company shall (1) provided that the Transfer Agent is participating in the Depository Trust Company ("OTC") Fast Automated Securities Transfer Program ("FAST'') and such shares of Common Stock (i) (A) may then be sold by the applicable Holder pursuant to an available and effective registration statement and (B) such Holder provides such documentation or other information evidencing the sale of the shares of Common Stock as the Company, the Transfer Agent or legal counsel to the Company shall reasonably request (which, for the avoidance of doubt, shall not include the requirement ofa medallion guarantee or a legal opinion) or (ii) may be sold by such Holder pursuant to Rule 144 of the 1933 Act, as applicable (the "Resale Eligibility Conditions"), credit such aggregate number of Conversion Shares to which such Holder shall be entitled pursuant to such conversion to such Holder's or its designee's balance account with DTC through its Deposit/Withdrawal at Custodian system, or (2) if the Transfer Agent is not participating in FAST or the Resale Eligibility Conditions are not satisfied, upon the request of such Holder, issue and deliver (via reputable overnight courier) to the address as specified in such Conversion Notice, a certificate, registered in the name of such Holder or its designee, for the number of Conversion Shares to which such Holder shall be entitled. If the number of Preferred Shares represented by the Preferred Share Certificate(s) submitted for conversion pursuant to Section 4(c)(ii) is greater than the number of Preferred Shares being converted, then the Company shall, as soon as practicable and in no event later than two (2) Trading Days after receipt of the Preferred Share Certificates and at its own expense, issue and mail to such Holder (or its designee) by overnight courier service a new Preferred Share Certificate or a new Book-Entry (in either case, in accordance with Section I8(d)) representing the number of Preferred Shares not converted. The Person or Persons entitled to receive the Conversion Shares issuable upon a conversion of Preferred Shares- shall be treated for all purposes as the record holder or holders of such Conversion Shares on the Conversion Date. Notwithstanding the foregoing, if a Holder delivers a Conversion Notice to the Company prior to the date of issuance of Preferred Shares to such Holder, whereby such Holder elects to convert such Preferred Shares pursuant to such Conversion Notice, the Share Delivery Deadline with respect to any such Conversion Notice shall be the later of (x) the date of issuance of such Preferred Shares and (y) the first (1st) Trading Day after the date of such Conversion Notice. Notwithstanding anything to the contrary contained in this Certificate of Designation.
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(ii) Company's Failure to Timely Convert. If the Company shall fail, for any reason or for no reason, on or prior to the applicable Share Delivery Deadline, if the Transfer Agent is not participating in FAST or the Resale Eligibility Conditions are not satisfied, to issue and deliver to such Holder (or its designee) a certificate for the number of Conversion Shares lo which such Holder is entitled and register such Conversion Shares on the Company's share register or, if the Transfer Agent is participating in FAST and the Resale Eligibility Conditions ·are satisfied, to credit such Holder's or its designee's balance account with DTC for such number of Conversion Shares to which such Holder is entitled upon such Holder's conversion of any Conversion Amount (as the case may be)' and the Company fails to promptly (x) notify such Holder and (y) deliver the shares of Common Stock electronically without any restrictive legend by crediting such aggregate number of shares of Common Stock to which such Holder is entitled pursuant to such conversion to such Holder's or its designee 's balance account with OTC through its Deposit/Withdrawal At Custodian system (the event described in the immediately foregoing clause (I) above, a "Conversion Failure"), and if on or after such Share Delivery Deadline such Holder acquires (in an open market transaction, stock loan or otherwise) shares of Common Stock corresponding to all or any portion of the number of Conversion Shares issuable upon such conversion that such Holder is entitled to receive from the Company and has not received from the Company in connection with such Conversion Failure (a "Buy-In''), then, in addition to all other remedies available to such Holder, the Company shall, within two (2) Business Days after receipt of such Holder's request and in such Holder's discretion, either: (I) pay cash to such Holder in an amount equal to such Holder's total purchase price (including brokerage commissions, stock loan costs and other out-of-pocket expenses, if any) for the shares of Common Stock so acquired (including, without limitation, by any other Person in respect, or on behalf, of such Holder) (the "Buy-In Price"), at which point the Company's obligation to so issue and deliver such certificate (and to issue such Conversion Shares) or credit to the balance account of such Holder or such Holder's designee, as applicable, with DTC for the number of Conversion Shares to which such Holder is entitled upon such Holder's conversion hereunder (as the case may be) (and to issue such Conversion Shares) shall terminate, or (II) promptly honor its obligation to so issue and deliver to such Holder a certificate or certificates representing such Conversion Shares or credit the balance account of such Holder or such Holder's designee, as applicable, with OTC for the number of Conversion Shares to which such Holder is entitled upon such Holder's conversion hereunder(as the case may be) and pay cash to such Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (x) such number of shares of Common Stock multiplied by (y) the lowest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date of the applicable Conversion Notice and ending on the date of such issuance and payment under this clause (II) (each, a "Buy-ln Payment Amount"). In addition to the foregoing, if on or prior to the Share Delivery Deadline the Transfer Agent is not participating in FAST or the Resale Eligibility Conditions are not satisfied, the Company shall fail to issue and deliver to such Holder (or its designee) a certificate and register such Conversion Shares ori the Company's share register or, if the Transfer Agent is participating in the FAST and the Resale Eligibility Conditions are satisfied, the Transfer Agent shall fail to credit the balance account of such Holder or such Holder's designee, as applicable, with OTC for the number of Conversion Shares to which such Holder is entitled upon such Holder's conversion hereunder or pursuant to the Company's obligation pursuant to clause (ii) below, then, in addition to all other remedies available to such Holder, (X) the Company shall pay in cash to such Holder on· each day after the Share Delivery Deadline that the issuance of such Conversion Shares is riot timely effected an amount equal to 2% of the product of (A) the sum of the number of Conversion Shares not issued to such Holder on or prior to the Share Delivery Deadline and to which such Holder is entitled, multiplied by (8) any trading price of the Common Stock selected by such Holder in writing as in effect at any time during the period beginning on the applicable Conversion Date and ending on the applicable Share Delivery Deadline and (Y) such Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned, as the case may be, all, or any portion, of such Preferred Shares that has not been converted pursuant to such Conversion Notice; provided that the voiding of a Conversion Notice shall not affect the Company's obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 4(c)(ii) or otherwise. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing Conversion Shares (or to electronically deliver such Conversion Shares) upon the conversion of the Preferred Shares as required pursuant to the tem1s hereof.
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(iii) Registration: Book-Entry. At the time of issuance of any Preferred Shares hereunder, the applicable Holder may, by written request (including by electronic-mail) to the Company, elect to receive such Preferred Shares in the form of one or more Preferred Share Certificates or in Book-Entry form. The Company (or the Transfer Agent, as custodian for the Preferred Shares) shall maintain a register (the "Register") for the recordation of the names and addresses of the Holders of each Preferred Share and the Stated Value of the Preferred Shares and whether the Preferred Shares are held by such Holder in Preferred Share Certificates or in Book-Entry form (the "Registered Preferred Shares"). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and each Holder of the Preferred Shares shall treat each Person whose name is recorded in the Register as the owner of a referred Share for all purposes notwithstanding notice to the contrary. A Registered Preferred Share may be assigned, transferred or sold only by registration of such assignment or sale on the Register. Upon its receipt of a written request to assign, transfer or sell one or more Registered Preferred Shares by such Holder thereof, the Company shall record the information contained therein in the Register and issue one or more new Registered Preferred Shares in the same aggregate Stated Value as the Stated Value of the surrendered Registered Preferred Shares to the designated assignee or transferee pursuant to Section 18, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of such Registered Preferred Shares within two (2) Business Days of such a request. then the Register shall be automatically deemed updated to reflect such assignment, transfer or sale (as the case may be). Notwithstanding anything to the contrary set forth in this Section 4, following conversion of any Preferred Shares in accordance with the terms hereof, the applicable Holder shall not be required to physically surrender such Preferred Shares held in the form of a Preferred Share Certificate to the Company unless (A) the full or remaining number of Preferred Shares represented by the applicable Preferred Share Certificate are being converted (in which event such certificate(s) shall be delivered to the Company as contemplated by this Section 4(c)(ii)) or (B) such Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of Preferred Shares upon physical surrender of the applicable Preferred Share Certificate. Each Holder and the Company shall maintain records showing the Stated Value converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to such Holder and the Company, so as not to require physical surrender of a Preferred Share Certificate upon conversion. If the Company does not update the Register to record such Stated Value converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) within two (2) Business Days of such occurrence, then the Register shall be automatically deemed updated to reflect such occurrence. In the event of any dispute or discrepancy, the records of the Company establishing the number of Preferred Shares to which the record holder is entitled shall be controlling and determinative in the absence of manifest error. A Holder and any transferee or assignee, by acceptance of a certificate, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of any Preferred Shares, the number of Preferred Shares represented by such certificate may be less than the number of Preferred Shares stated on the face thereof. Each Preferred Share Certificate shall bear the following legend;
ANY TRANSFEREE OR ASSIGNEE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF THE CORPORATION'S CERTIFICATE OF DESIGNATION RELATING TO THE SHARES OF SERIES E CONVERTIBLE PREFERRED STOCK REPRESETED BY THIS CERTIFICATE, INCLUDING SECTION 4(c)(ii) THEREOF. THE NUMBER OF SHARES OF SERIES E CONVERTIBLE PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF SHARES OF SERIES E CONVERTIBLE PREFERRED STOCK STATED ON THE FACE HEREOF PURSUANT TO SECTION 4(c)(ii) OF THE CERTIFICATE OF DESIGNATION RELATING TO THE SHARES OF SERIES E CONVERTIBLE PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE. |
(iv) Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one Holder for the same Conversion Date and the Company can convert some, but not all, of such Preferred Shares submitted for conversion, the Company shall convert from each Holder electing to have Preferred Shares converted on such date a pro rata amount of such Holder's Preferred Shares submitted for conversion on such date based on the number of Preferred Shares submitted for conversion on such date by such Holder relative to the aggregate number of Preferred Shares submitted for conversion on such date. In the event of a dispute as to the number of Conversion Shares issuable to a Holder in connection with a conversion of Preferred Shares, the Company shall issue to such Holder the number of Conversion Shares not in dispute and resolve such dispute in accordance with Section 23. If a Conversion Notice delivered to the Company would result in a breach of Section 4(d) below, and the applicable Holder does not elect in writing to withdraw, in whole, such Conversion Notice, the Company shall hold such Conversion Notice in abeyance until such time as such Conversion Notice may be satisfied without violating Section 4(d) below (with such calculations thereunder made as of the date such Conversion Notice was initially delivered to the Company).
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(d) Limitation on Beneficial Ownership.
(i) Beneficial Ownership. The Company shall not effect the conversion of any of the Preferred Shares held by a Holder, and such Holder shall not have the right to convert any of the Preferred Shares held by such Holder pursuant to the terms and conditions of this Certificate of Designation and any such conversion shall be null and void and treated as if never made, to the extent that after giving effect to such conversion, such Holder together with the other Attribution Parties collectively would beneficially own in excess of 9.99% (the "Maximum Percentage") of the shares of Common Stock outstanding immediately after giving effect to such conversion. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owed by such Holder and the other Attribution Parties shall include the number of shares of Common Stock held by such Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon conversion of the Preferred Shares with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted Preferred Shares beneficially owned by such Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any convertible notes, convertible preferred stock or warrants, including the Preferred Shares) beneficially owned by such Holder or any other-Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 4(d). For purposes of this Section 4(d); beneficial ownership shall be calculated in accordance with Section l 3(d) of the 1934 Act. For the avoidance of doubt, the calculation of the Maximum Percentage shall take into account the concurrent exercise and/or conversion, as applicable, of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such Holder and/or any other Attribution Party, as applicable. For purposes of determining the number of outstanding shares of Common Stock a Holder may acquire upon the conversion of such Preferred Shares without exceeding the Maximum Percentage, such Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Company's most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the SEC, as the case may be, (y) a more recent public announcement by the Company or (z) any other written notice by the Company or the Transfer Agent, if any, setting forth the number of shares of Common Stock outstanding (the "Reported Outstanding Share Number"). If the Company receives a Conversion Notice from a Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall notify such Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Conversion Notice would otherwise cause such Holder's beneficial ownership, as determined pursuant to this Section 4(d), to exceed the Maximum Percentage, such Holder must notify the Company of a reduced number of shares of Common Stock to be purchased pursuant to such Conversion Notice. For any reason at any time, upon the written or oral request of any Holder, the Company shall within one (I) Business Day confirm orally and in writing or by electronic mail to such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including such Preferred Shares, by such Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to a Holder upon conversion of such Preferred Shares results in such Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section l 3(d) of the 1934 Act), the number of shares so issued by which such Holder's and the other Attribution Parties' aggregate beneficial ownership exceeds the Maximum Percentage (the "Excess Shares") shall be deemed null and void and shall be cancelled ab initio, and such Holder shall not have the power to vote or-to transfer the Excess Shares. Upon delivery of a written notice to the Company, any Holder may from time to time increase (with such increase not effective until the sixty-first (6151) day after delivery of such notice) or decrease the Maximum Percentage of such Holder to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61s1) day after such notice is delivered to the Company and (ii) any such increase or decrease will apply only to such Holder and the other Attribution Parties and not to any other Holder that is not an Attribution Party of such Holder. For purposes of clarity, the shares of Common Stock issuable to a Holder pursuant to the terms of this Certificate of Designation in excess of the Maximum Percentage shall not be deemed to be beneficially owned by such Holder for any purpose including for purposes of Section 13(d) or Rule 16a-l(a)(l) of the 1934 Act. No prior inability to convert such Preferred Shares pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. The provisions of this paragraph shall not be con_strued and implemented in a manner otherwise than in strict conformity with the tenns·of tbis Section 4(d) to the extent necessary to correct this paragraph (or any portion of this paragraph) which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section •4(d) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of such Preferred Shares.
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(ii) Principal Market Regulation. The Company shall not issue any shares of Common Stock upon conversion of any Preferred Shares or otherwise pursuant to the terms of this Certificate of Designation if the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Company may issue upon conversion of the Preferred Shares without breaching the Company's obligations under the rules and regulations the listing rules of the Principal Market (the maximum number of shares of Common Stock which may be issued without violating such rules and regulations, the "Exchange Cap"), except that such limitation shall not apply in the event that the Company obtains the approval of its stockholders as required by the applicable rules and regulations of the Principal Market for issuances of shares of Common Stock in excess of such amount. Until such approval is obtained, no Holder shall be issued in the aggregate, upon conversion of any Preferred Shares, shares of Common Stock in an amount greater than the product of (i) the Exchange Cap as of the Initial Issuance Date multiplied by (ii) the quotient of (1) the aggregate number of Preferred Shares issued to such Holder on the Initial Issuance Date, divided by (2) the aggregate number of shares of Preferred Shares and Parity Stock outstanding as of the Initial Issuance Date (with respect to each Holder, the "Exchange Cap Allocation"). In the event that any Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, the transferee shall be allocated a pro rata portion of such Holder's Exchange Cap Allocation with respect to such portion of such Preferred Shares so transferred, and the restrictions of the prior sentence shall apply to such transferee with respect to the portion of the Exchange Cap Allocation sci allocated to such transferee. Upon conversion in full of a Holder's Preferred Shares, the difference (if any) between such Holder's Exchange Cap Allocation and the number of shares of Common Stock actually issued to such Holder upon such Holder's conversion in full of such Preferred Shares shall be allocated to the remaining holders of Preferred Shares and Parity Stock on a pro rata basis in proportion to the shares of Common Stock underlying the shares of preferred stock of the Company then held by each such holder of Preferred Shares and/or Parity Stock, as applicable.
(e) Right of Alternate Conversion.
(i) General. Subject to Section 4(d), at any time and from time to time, such Holder may, at such Holder's option, .by delivery of a Conversion Notice to the Company (the date of any such Conversion Notice, each an "Alternate Conversion Date"), convert all, or any number of Preferred Shares·held by such Holder into shares of Common Stock at the Alternate Conversion Price (each, an "Alternate Conversion").
(ii) Mechanics of Alternate Conversion. On any Alternate Conversion Date, a Holder may voluntarily convert any number of Preferred-Shares held by such Holder pursuant to Section 4(c) (with "Alternate Conversion Price" replacing "Conversion Price" for all purposes hereunder with respect to such Altemate Conversion and with "the applicable Required Premium multiplied by the Conversion Amount" replacing "Conversion Amount" in clause (x.) of the definition of Conversion Rate in Section 4(b) above with respect to such Alternate Conversion) by designating in the Conversion Notice delivered pursuant to this Section 4(c)(ii) of this Certificate of Designation that such Holder is electing to use the Alternate Conversion Price for such conversion. Notwithstanding anything to the contrary in this Section 4(e)(ii), but subject to Section 4(d), until the Company delivers to such Holder the shares of Common Stock to which such Holder is entitled pursuant to the applicable Alternate Conversion of such Holder's Prefe1red Shares, such Preferred Shares may be converted by such Holder into shares of Common Stock pursuant to Section 4(c) without regard to this Section 4(e)(ii). In the event of an Alternate Conversion pursuant to this Section 4(e)(ii) of all, or any portion, of any Preferred Shares of a Holder, such Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 4(e(xii), together the Alternate Conversion Price used in such Alternate Conversion, as applicable, is intended by the parties to be, and shall be deemed, a reasonable estimate of, such Holder's actual loss of its investment opportunity and not as a penalty.
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5. Triggering Events.
(a) General. Each of the following events shall constitute a "Triggering Event" and each of the events in clauses S(a)(vii) and Error! Reference source not found. s hall constitute a "Bankruptcy Triggering Event":
(i) the suspension from trading or the failure of the Common Stock to be trading or listed (as applicable) on an Eligible Market for a period of five (5) consecutive Trading Days;
(ii) the Company's (A) failure to cure a Conversion Failure by delivery of the required number of shares of Common Stock within five (5) Trading Days after the applicable Conversion Date or exercise date (as the case may be) or (B) notice, written or oral, to any holder of Preferred Shares, including, without limitation, by way of public announcement or through any of its agents, at any time, of its intention not to comply, as required, with a request for conversion of any Preferred Shares into shares of Common Stock that is requested in accordance with the provisions of this Certificate of Designation, other than pursuant to Section 4(c)(iv) hereof;
(iii) [Reserved];
(iv) the Company's failure to pay to any Holder any amount when and as due w1der this Certificate of Designation, the Securities Purchase Agreement or any other Transaction Documents or any other agreement, document, certificate or other instrument delivered in connection with the transactions contemplated hereby and thereby (in each case, whether or not permitted pursuant to the NRS);
(v) the Company fails to remove any restrictive legend on any certificate or any shares of Common Stock issued to the applicable Holder upon conversion or exercise (as the case may be) of any Securities (as defined in the Securities Purchase Agreement) acquired by such Holder under the Transaction Documents as and when required by such Securities or the Securities Purchase Agreement, as applicable, unless otherwise then prohibited by applicable federal securities laws, and any such failure remains uncured for at least five (5) days;
(vi) [Reserved];
(vii) bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings for the relief of debtors shall be instituted by or against the Company or any Subsidiary and, if instituted against the Company or any Subsidiary by a third party, shall not be dismissed within sixty (60) days of their initiation;
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(viii) the commencement by the Company or any Subsidiary of a voluntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree, order, judgment or other similar document in respect of the Company or any Subsidiary in an involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable federal state or foreign law, or tlie consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequcstramr or other similar official of the Company or any Subsidiary or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the execution of a composition of debts, or the occurrence of any other similar federal, state or foreign proceeding, or the admission by it in writing of its inability to pay its debts generally as they become due, the taking of corporate action by ttic Company or any Subsidiary in furtherance of any such action or the taking of any action by any Person to commence a Uniform Commercial Code foreclosure sale or any other similar action under federal, state or foreign law;
(ix) the entry by a court of (i) a decree, order, judgment or other similar document in respect of the Company or any Subsidiary of a voluntary or involuntary case or proceeding under any applicable federal, state or foreign bankruptcy, insolvency, reorganization or other similar law or (ii) a decree. order, judgment or other similar document adjudging the Company or any Subsidiary ns or bankrupt or insolvent, or approving as properly filed a petition seeking liqtuidation, reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary under any applicable federal, state or foreign law (iii) a decree, order, judgment or other similar document appointing A custodian. receiver, liquidator. assignee, trustee, sequestrator or other similar official of the Company or any Subsidiary or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree, order, judgment or other similar document or any such other decree, order, judgment or other similar document unstayed and in effect for a period of sixty (60) consecutive days;
(x) [Reserved);
(xi) other than as specifically set forth in another clause of this Section S(a), the Company or any Subsidiary breaches any representation or warranty in any material respect (other than representations or warranties subject to material adverse effect or materiality, which may not be breached in any respect) or any covenant or other term or condition of any Transaction Document, except, in the case of a breach of a covenant or other tenn or condition that is curable, only if such breach remains uncured for a period of two (2) consecutive Trading Days;
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(xii) a false or inaccurate certification (including a false or inaccurate deemed certification) by the Company as to whether any Triggering Event has occurred;
(xiii) any breach or failure in any respect by the Company or any Subsidiary to comply with any provision of Section 13 of this Certificate of Designation;
(xiv) [Reserved];
(xv) any Material Adverse Effect occurs; or
(xvi) any provision of any Transaction Document shall at any time for any reason (other than pursuant to the express tenns thereof) cease to be valid and binding on or enforceable against the Company, or the validity or enforceability thereof shall be contested, directly or indirectly, by the Company or any Subsidiary, or a proceeding shall be commenced by the Company or any Subsidiary or any governmental authority having jurisdiction over any of them, seeking to establish the invalidity or unenforceability thereof or the Company or any of its Subsidiaries shall deny in writing that it has any liability or obligation purported to be created under one or more Transaction Documents.
(b) Notice of a Triggering Event. Upon the occu1'rence of a Triggering Event with respect to the Preferred Shares, the Company shall within two (2) Business Days deliver written notice thereof via electronic mail and overnight courier (with next day delivery specified) (a "Triggering Event Notice") to each Holder.
(c) Mandatory Redemption upon Bankruptcy Triggering Event. Notwithstanding anything to the contrary herein, and notwithstanding any conversion that is then required or in process, upon any Bankruptcy Triggering Event, the Company shall immediately redeem, in cash, each of the Preferred Shares then outstanding at a redemption price equal to the greater of (i) the product of (A) the Conversion Amount to be redeemed multiplied by (B) the Required Premium and (ii) the product of (X) the Conversion Rate (calculated using the lowest Alternate Conversion Price during the period commencing on the 20th Trading Day immediately preceding such public announcement and ending on the date the Company makes the entire redemption payment pursuant to this Section S(b)) with respect to the Conversion Amount in effect immediately following the date of initial public announcement (or public filing of bankruptcy documents, as applicable) of such Bankruptcy Triggering Event multiplied by (Y) the product of (1) the Required Premium multiplied by (2) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Bankruptcy Triggering Event and ending on the date the Company makes the entire payment required to be made under this Section 5(b), without the requirement for any notice or demand or other action by any Holder or any other person or entity, provided that a Holder may, in its sole discretion, waive such right to receive payment upon a Bankruptcy Triggeri11g Event; in whole or in part, and any such waiver shall not affect any other rights of such Holder or any other Holder hereunder, including any other rights in respect of such Bankruptcy Triggering Event or any right to conversion (or Alternate Conversion), as applicable.
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6. Rights Upon Fundamental Transactions.
(a) Assumption. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Certificate of Designation and the other Transaction Documents pursuant to written agreements in fonn and substance reasonably satisfactory to the Required Holders, including agreements to deliver to each Holder of Preferred Shares a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Certificate of Designation (including, the right to convert into equity securities of the Successor Entity) and (ii) the Successor Entity (including its Parent Entity) is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market. Upon the occurrence of any Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation referring to the "Company'' shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Certificate of Designation and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein and therein.
(b) Conversion Right Upon Fundamental Transaction. Upon the consummation of any Fundamental Transaction, each Holder shall have the right. at its sole option, to convert some or all of its Preferred Shares into the number of shares of Common Stock of the Successor Entity (or Parent Entity), or the equivalent equity securities issued in such transaction, that such Holder would have been entitled to receive upon conversion of such Preferred Shares immediately prior to the consummation of the Fundamental Transaction, subject to the terms and conditions of this Certificate of Designation.
(c) No MandatoJ;Y Redemption or Cash Payment. Notwithstanding anything to the contrary herein, neither the Company nor the Successor Entity shall be required to redeem, repurchase, or otherwise pay cash or other property to any Holder of Preferred Shares in connection with any Fundamental Transaction or Change of Control. except pursuant to the conversion rights set forth in Section 6(b) or pursuant to Section 4. Any redemption or repurchase of Preferred Shares shall occur only at the sole option of the Company in accordance with Section 9.
(d) Successive Fundamental Transactions. The provisions of this Section 6 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of the Preferred ,Shares contained in this Certificate of Designation.
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7. Rights Upon Issuance of Purchase Rights and Other Corporate Events.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 8 and Section 15 below, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the "Purchase Rights"), then each Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable.upon complete conversion of all the Preferred Shares (without taking into account :<3ny limitations or restrictions on the convertibility of the Preferred Shares and assuming- for such purpose that all the Preferred Shares were converted at the Alternate Conversion Price as of the applicable record date) held by such Holder immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights; provided, however, to the extent that such Holder's right to participate in any such Purchase Right would result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Purchase Right to such extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent of any such excess) and such Purchase Right to such extent shall be held in abeyance (and, if such Purchase Right has an expiration date, maturity date or other similar provision, such term shall be extended by such number of days held in abeyance, if applicable) for the benefit of such Holder until such time or times, if ever, as its right thereto would not result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times such Holder shall be granted such right (and any Purchase' Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance (and, if such Purchase Right has an expiration date, maturity date or other similar provision, such term shall be extended by such number of days held in abeyance, if applicable)) to the same extent as if there had been no such lim1tatiorl.
(b) Other Corporate Events. ln addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursu_afll to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a "Corporate Event"), the Company shall make appropriate provision to ensure that each Holder will thereafter have the right, at such Holder's option, to receive upon a conversion of all the Preferred Shares held by such Holder (i) such securities or other assets (the "Corporate Event Consideration") to which such Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by such Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares set forth in this Certificate of Designation) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as such Holder would have been entitled to receive had the Prefe1Ted Shares held by such Holder initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) at a conversion rate for such consideration commensurate with the Conversion Rate of an Alternate Conversion. Provision made pursuant the preceding sentence shall be in a form and substance reasonably satisfactory to the Required Holders, The provisions of this Section 7 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of the Preferred Shares set forth in this Certificate of Designation.
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8. Rights Upon Issuance of Other Securities.
(a) Adjustment of Conversion Price upon Issuance of Common Stock. If and whenever on or after the Closing Date the Company grants, issues or sells (or enters into any agreement to grant, issue or sell), or in accordance with this Section 8(a) is deemed to have granted; issued or sold, any shares of Common Stock (including the granting, issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities granted, issued or sold or deemed to have been granted, issued or sold) for a consideration per share (the "New Issuance Price") less than a price equal to the Conversion Price in effect immediately prior to such granting, issuance or sale or deemed granting, issuance or sale (such Conversion Price then in effect is refe1Ted to herein as the "Applicable Price") (the foregoing a "Dilutive Issuance"}, then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price. For all purposes of the foregoing (including, without limitation, detem1ining the adjusted Conversion Price and the New Issuance Price under this Section 8(a)), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants: issues or sells (or enters into any agreement to grant, issue or sell) any Options and the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Optio11 or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting, issuance or sale of such Option for such price per share. For purposes of this Section 8(a)(i), the "lowest price per share for which one share of Common Stock is at any time issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option or otherwise pursuant to the terms therefor shall be equal to ( l) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting, issuance or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable-upon exercise of any such Option or otherwise pursuant to the terms thereof, minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) with respect to any one share of Common Stock upon the granting, issuance or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option or otherwise pursuant to the terms thereof plus the value of any other consideration (including, without limitation, consideration consisting of cash, debt forgiveness, assets or any other property) received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or otherwise pursuant to the terms thereof or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
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(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells (or enters into any agreement to issue or sell) any Convertible Securities and the lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale (or the time of execution of such agreement to issue or sell, as applicable) of such Convertible Securities for such price per share. For the purposes of this Section 8(a)(ii), the "lowest price per share for which one share of Common Stock is at any time issuable upon the conversion, exercise or exchange thereof or otherwise pursuant to the terms therefor shall be equal to (l) the lower of(x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale (or pursuant to the agreement to issue or sell, as applicable) of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security or otherwise pursuant to the tem1s thereof and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable (or may become issuable assuming all possible market conditions) upon conversion, exercise or exchange thereof or otherwise pursuant to the terms thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) with respect to any one share of Common Stock upon the issuance or sale (or the agreement to issue or sell, as applicable) of such Convertible Security plus the value of any other consideration received or receivable (including, without limitation, any consideration consisting of cash, debt forgiveness, assets or other property) by. or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities or otherwise pursuant to the terms thereof, and if any such issuance or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of tile Conversion Price has been or is to be made pursuant to other provisions of this Section 8(a), except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale.
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(iii) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Conve11ible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time (other than proportional changes in conversion or exercise prices, as applicable, in connection with an event referred to in Section 8(a) below), the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 8(a)(iii), if the terms of any Option or Convertible Security (including, without limitation, any Option or Convertible Security that was outstanding as of the Closing Date) are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of. such increase or decrease. No adjustment pursuant to this Section B(a) shall b:e made if such adjustment would result in an increase of the Conversion Price then in effect.
(iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (as determined by the Required Holders, the "Primary Security", and such Option and/or Convertible Security and/or Adjustment Right, the "Secondary Securities" and together with the Primary Security, each a "Unit"), together comprising _one integrated transaction (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Company either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing), the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be the lowest of(x) the purchase price of such Unit, (y) if such Primary Security is an Option and/or Convertible Security, the lowest price per share for which one share of Common Stock is at any time issuable upon the exercise or conversion of the Primary Security and (z) the lowest VWAP on any Trading Day during the five (5) Trading Day period (the "Adjustment Period") immediately following the public announcement of such Dilutive Issuance (for the avoidance of doubt, if such public announcement is released prior to the opening of the applicable Trading Market on a Trading Day, such Trading Day shall be the first Trading Day in such five Trading Day period and if any Preferred Shares are converted, on any given Conversion Date during any such Adjustment Period, solely with respect to such Preferred Shares converted on such applicable Conversion Date, such applicable Adjustment Period shall be deemed to have ended on, and included, the Trading Day immediately prior to such Conversion Date). If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the VWAPs of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Required Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the "Valuation Event"), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holder. The detem1ination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.
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(v) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (8) to subscribe for or purchase shares of Common Stock, Options or convertible Securities, then such record date will he deemed to he the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).
(b) Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Section 7 or Section 15, if the Company at any time on or after the Closing Date subdivides (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision of Section 7 or Section 15, if the Company at any time on or after the Closing Date combines (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 8(a) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 8(a) occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.
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(c) Holder's Right of Adjusted Conversion Price. In addition to and not in limitation of the other provisions of this Section 8(b}, if the Company in any manner issues or sells or enters into any agreement to issue or sell, any Common Stock, Options or Convertible Securities (other than pursuant to a Permitted ATM) (any such securities, "Variable Price Securities") after the Subscription Date that are issuable pursuant to such agreement or convertible into or exchangeable or exercisable for shares of Common Stock at a price which varies or may vary with the market price of the shares of Common Stock, including by way of one or more reset(s) to a fixed price, but exclusive of such formulations reflecting share splits, share combinations, and share dividends (each of the formulations for such variable price being herein referred to as, the "Variable Price"}, the Company shall provide written notice thcrcofvia electronic mail and overnight courier to each Holder on the date of such agreement and/or the issuance of such shares of Common Stock, Convertible Securities or Options, as applicable. From and after the date the Company enters into such agreement or issues any such Variable Price Securities, each Holder shall have the right, but not the obligation, in its sole discretion to substitute the Variable Price for the Conversion Price upon conversion of the Preferred Shares by designating in the Conversion Notice delivered upon any conversion of Preferred Shares that solely fpr purposes of such conversion such Holder is relying on the Variable Price rather than the Conversion Price then in effect. A Holder's election to rely on a Variable Price for a particular conversion of Preferred Shares shall not obligate such Holder to rely on a Variable Price for any future conversions of Preferred Shares.
(d) Stock Combination Event Adjustments. If at any time and from time to time on or after the Subscription Date there occurs any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock (each, a "Stock Combination Event", and such date thereof, the "Stock Combination Event Date") and the Event Market Price is less than the Conversion Price then in effect (after giving effect to the adjustment in Section 8(a) above), then on the tenth (10th) Trading Day immediately following such Stock Combination Event Date, the Conversion Price then in effect on such tenth (10th) Trading Day (after giving effect to the adjustment in Section 8(a) above) shall be reduced (but in no event increased) to the Event Market Price. For the avoidance of doubt, if the adjustment in the immediately preceding sentence would otherwise result in an increase in the Conversion Price hereunder, no adjustment shall be made.
(e) Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof arc not strictly applicable, or, if applicable, would not operate to protect any Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 8 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Board shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of such Holder, provided that no such adjustment pursuant to this Section &(a) will increase the Conversion Price as otherwise determined pursuant to this Section 8, provided further that if such Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Board and such Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding absent manifest error and whose fees and expenses shall be borne by the Company.
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(f) Calculations. All calculations under this Section 8·shall be made by rounding to the nearest cent or the nearest I /1001h of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or , held by or for the account of the Company, and the disposition of any such shares sha11 be considered an issue or sale of Common Stock.
(g) Voluntary Adjustment by Company. Subject to the rules and regulations of the Principal Market, the Company may at any time any Preferred Shares remain outstanding, with the prior written consent of the Required Holder, reduce the then current Conversion Price to any amount and for any period of time deemed appropriate by the Board.
9. Redemption at the Company's Election. At any time, the Company shall have the right to redeem all, but not less than all, of the Preferred Shares then outstanding (the "Company Optional Redemption Amount'') on the Company Optional Redemption Date (each as defined below) (a "Company Optional Redemption"). The Preferred Shares subject to redemption pursuant to this Section 9 shall be redeemed by the Company in cash at a price (the "Company Optional Redemption Price") equal to the greater of (i) the Conversion Amount being redeemed as of the Company Optional Redemption Date and (ii) the product of (1) the Conversion Rate with respect to the Conversion Amount being redeemed as of the Company Optional Redemption Date multiplied by (2) the greatest Closing Sale Price of the Common Stock on any Trading Day during the period commencing on the date immediately preceding such Company Optional Redemption Notice Date and ending on the Trading Day immediately prior to the date the Company makes the entire payment required to be made under this Section 9. The Company may exercise its right to require redemption under this Section 9 by delivering a written notice thereof by electronic. mail and overnight courier to all, but not less than all, of the Holders (the "Company Optional Redemption Notice" and the date all of the Holders received such notice is referred to as the "Company Optional Redemption Notice Date"). Such Company Optional Redemption Notice shall be irrevocable; provided that the Company Optional Redemption Notice may be conditioned upon the consummation of a refinancing transaction or a Going Private Transaction. The Company Optional Redemption Notice shall (x) state the date on which the Company Optional Redemption shall occur (the "Company Optional Redemption Date") which date shall not be less than ten ( I 0) Trading Days nor more than twenty (20) Trading Days following the Company Optional Redemption Notice Date, and (y) state the aggregate Conversion Amount of the Preferred Shares which is being redeemed in such Company Optional Redemption from such Holder and all of the other Holders of the Preferred Shares pursuant to this Section 9 on the Company Optional Redemption Date. The Company shall deliver the applicable Company Optional Redemption Price to each Holder in cash on the applicable Company Optional Redemption Date. Notwithstanding anything herein to the contrary, at any time prior to the date the Company Optional Redemption Price is paid, in full, the Company Optional Redemption Amount may be converted, in whole or in part, by any Holder into shares of Common Stock pursuant to Section 4. All Conversion Amounts converted by a Holder after the Company Optional Redemption Notice Date shall reduce the Company Optional Redemption Amount of the Preferred Shares of such Holder required to be redeemed on the Company Optional Redemption Date. In the event of the Company's redemption of any of the Preferred Shares under this Section 9, a Holder's damages would be uncertain and difficult to estimate because of the parties' inability to predict future interest rates and the uncertainty of the availability of a suitable substitute investment opportunity for such Holder. Accordingly, any redemption premium due under this Section 9 is imended by the parties to be, and shall be deemed, a reasonable estimate of such Holder's actual loss of its investment opportunity and not as a penalty. For the avoidance of doubt, the Company shall have no right to effect a Company Optional Redemption if any Triggering Event has occurred and ·is continuing, but any Triggering Event shall have no effect upon any Holder's right to convert Preferred Shares in its discretion. Notwithstanding the foregoing, with respect to a Going Private Transaction, the Company may effect a Company Optional Redemption under this Section 9, but with "Change of Control Election Price" replacing "Company Optional Redemption Price" for all purposes in this Section 9 in connection therewith.
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10. Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution. issue_or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Certificate of Designation, and will at all times in good faith carry out all the provisions of this Certificate of Designation and take all action as may be required to protect the rights of the Holders hereunder. Without limiting the generality of the foregoing or any other provision of this Certificate of Designation or the other Transaction Documents, the Company (a) shall not increase the par value of any shares of Common Stock receivable upon the conversion of any Preferred Shares above the Conversion Price then in effect, (b) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of Prefen-ed Shares and (c) shall, so long as any Preferred Shares are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Preferred Shares, the maximum number of shares of Common Sfock as shall from time to time be necessary to effect the conversion of the Preferred Shares then outstanding (without regard to any limitations on conversion contained herein). Notwithstanding anything herein to the contrary, if after the sixty (60) calendar day anniversary of the Initial Issuance Date, each Holder is not permitted to convert such Holder's Preferred Shares in full for any reason (other than pursuant to restrictions set forth in Section 4(d) hereof), the Company shall use its best efforts to promptly remedy such failure, including, without limitation, obtaining such consents or approvals as necessary to effect such conversion into shares of Common Stock.
11. Authorized Shares.
(a) Reservation. So long as any Preferred Shares remain outstanding, the Company shall at all times reserve at least 200% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion, including without limitation, Alternate Conversions, of all of the Preferred Shares then outstanding at the Floor Price then in effect (without regard to any limitations on conversions) (the "Required Reserve Amount"). The Required Reserve Amount (including, without limitation, each increase in the number of shares so reserved) shall be allocated pro rata among the Holders based on the number of the Preferred Shares held by each Holder on the Initial Issuance Date or increase in the number of reserved shares. as the case may be (the "Authorized Share Allocation"). In the event that a Holder shall sell or otherwise transfer any of such Holder's Preferred Shares, each transferee shall be allocated a pro rata portion of such Holder's Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Preferred Shares shall be allocated to the remaining Holders of Preferred Shares, pro rata based on the number of the Preferred Shares then held by the Holders. Notwithstanding the foregoing, a Holder may allocate its Authorized Share Allocation to any other of the securities of the Company held by such Holder (or any of its designees) by delivery of a written notice to the Company.
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(b) Insufficient Authorjzed Shares. If, notwithstanding Section l l(a) and not in limitation thereof, at any time while any of the Preferred Shares remain outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon conversion of the Preferred Shares at least a number of shares of Common Stock equal to the Required Reserve Amount (an "Authorized Share Failure"), then the Company shall immediately take all action necessary to increase the Company's authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for the Preferred Shares then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement.and shall use its best efforts to solicit its stockholders' approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal (or, if a majority of the voting power then in effect of the capital stock of the Company consents to such increase, in lieu of such proxy statement, deliver to the stockholders of the Company an information statement that has been filed with (and either approved by or not subject to comments from) the SEC with respect thereto). Notwithstanding the foregoing, if at any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding shares of Common Stock to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. Nothing contained in Section l l(a) or this Section 1 l(b) shall limit any obligations of the Company under any provision of the Securities Purchase Agreement.
12. Voting Rights. The holders of the Preferred Shares shall have no voting power and no right to vote on any matter at any time, either as a separate series or class or together with any other series or class of share of capital stock, and shall not be entitled to call a meeting of such holders for any purpose nor shall they be entitled to participate in any meeting of the holders of Common Stock, except as provided in the Section 16 or as otherwise required by the NRS.
13. [Reserved].
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14. Liquidation. Dissolution. Winding-Up. In the event of a Liquidation Event. the Holders shall be entitled to receive in cash out of the assets of the Company, whether from capital or from earnings available for distribution to its stockholders (the "Liquidation Funds"), before any amount shall be paid to the holders of any of shares of Junior Stock, but pari passu with any Parity Stock then outstanding, an amount per Preferred Share equal to the greater of (A) 125% of the Conversion Amount of such Preferred Share on the date of such payment and (B) the amount per share such Holder would receive if such Holder converted such Preferred Share into Common Stock immediately prior to the date of such payment, provided that if the Liquidation Funds are insufficient to pay the full amount due to the Holders and holders of shares of Parity Stock, then each Holder and each holder of Parity Stock shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such Holder and such holder of Parity Stock as a liquidation preference, in accordance with their respective certificate of designations (or equivalent), as a percentage of the full amount of Liquidation Funds payable to all holders of Preferred Shares and all holders of shares of Parity Stock. To the extent necessary, the Company shall cause such actions to be taken by each of its Subsidiaries so as tci enable, to the maximum extent permitted by law, the proceeds of a Liquidation Event to be distributed to the Holders in accordance with this Section 14. All the preferential amounts to be paid to the Holders under this Section 14 shall be paid or set apart for payment before the payment or setting apart for payment of any amount for, or the distribution of any Liquidation Funds of the Company to the holders of shares of Junior Stock in connection with a Liquidation Event as to which this Section 14 applies.
15. Distribution of-Assets. In addition to any adjustments pursuant to Section 7·and Section 8, if the Company shall declare or make any dividend or other distributiqns of its assets (or rights to acquire its assets) to any or all holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (the "Distributions"), then each Holder, as holders of Preferred Shares, will be entitled to such Distributions as if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of the Preferred Shares (without taking into account any limitations or restrictions on the convertibility of the Preferred Shares and assuming for such purpose that the Preferred Share was converted at the Alternate Conversion Price as of the applicable record date) immediately prior to the date on which a record is taken for such Distribution or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for such Distributions (provided, however, that to the extent that such Holder's right to participate in any such Distribution would result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, then such Holder shall not be entitled to participate in such Distribution to such extent of the Maximum Percentage (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to such extent of any such excess) and the portion of such Distribution shall be held in abeyance for the benefit of such Holder until such time or times as its right thereto would not result in such Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times, if any, such Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).
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16. Vote to Change the Terms of or Issue Preferred Shares. In addition to any otlier rights provided by law, except where the vote or written consent of the holders of a greater number of shares is required by law or by another provision of the Certificate of Incorporation, without first obtaining the affirmative vote at a meeting duly called for such purpose or the written consent without a meeting of the Required Holders, voting together as a single class, the Company shall not: (a) amend or repeal any provision of, or add any provision to, its Certificate of Incorporation or bylaws, or file any certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences, rights. privileges or powers, or restrictions provided for the benefit of the Preferred Shares hereunder, regardless of whether any such action shall be by means of amendment to the Certificate of Incorporation or by merger, consolidation or otherwise; (b) increase or decrease (other than by conversion) the authorized number of shares of Series E Convertible Preferred Stock; (c) without limiting any provision of Section 2, create or authorize (by reclassification or othetwise) any new class or series of Senior Preferred Stock or Parity Stock; (d) purchase, repurchase or redeem any shares of Junior Stock (other than pursuant to the terms of the Company's equity incentive plans and options and other equity awards granted under such plans (that have in good faith been approved by the Board)); (e) without limiting any provision of Section 2, pay dividends or make any other distribution on any shares of any Junior Stock; (f) issue any Preferred Shares other than as contemplated hereby or pursuant to the Securities Purchase Agreement; or (g) without limiting any provision of Section 14, whether or not prohibited by the terms of the Preferred Shares, circumvent a right of the Preferred Shares hereunder.
17. Transfer of Preferred Shares. A Holder may offer, sell or transfer some or ail of its Preferred Shares without the consent of the Company subject only to the provisions of Section 2(g) of the Securities Purchase Agreement.
18. Reissuance of Preferred Share Certificates and Book Entries.
(a) Transfer. 1f any Preferred Shares are to be transferred, the applicable Holder shall surrender the applicable Preferred Share Certificate to the Company (or, if the Preferred Shares are held in Book-Entry fom1, a written instruction letter to the Company), whereupon the Company will forthwith issue and deliver upon the order of such Holder a new Preferred Share Certificate (in accordance with Section l 8(d)) (or evidence of the transfer of such Book-Entry), registered as such Holder may request, representing the outstanding number of Preferred Shares being transferred by such Holder and, if less than the entire outstanding number of Preferred Shares is being transferred, a new Preferred Share Certificate (in accordance with Section I 8(d)) to such Holder representing the outstanding number of Preferred Shares not being transferred (or evidence of such remaining Preferred Shares in a Book-Entry for such Holder). Such Holder and any assignee, by acceptance of the Preferred Share Certificate or evidenc_c of Book-Entry issuance, as applicable, acknowledge and agree that, by reason of the provisions of Section 4(c)(i) following conversion or redemption of any of the Preferred Shares, the outstanding number of Preferred Shares represented by the Preferred Shares may be less tha·n the number of Preferred Shares stated on the face of the Preferred Shares.
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(b) Lost. Stolen or Mutilated Preferred Share Certificate. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of a Preferred Share Certificate (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the applicable Holder to the Company in customary and reasonable fom1 and, in the case of mutilation, upon surrender and cancellation of such Preferred Share Certificate, the Company shall execute and deliver to such Holder a new Preferred Share Certificate (in accordance with Section 18(d)) representing the applicable outstanding number of Preferred Shares.
(c) Preferred Share Certificate and Book-Entries Exchangeable for Different Denominations and Forms. Each Preferred Share Certificate is exchangeable, upon the surrender hereof by the applicable Holder at the principal office of the Company, for a new Preferred Share Certificate or Preferred Share Certificate(s) or new Book-Entry (in accordance with Section 18(d)) representing, in the aggregate, the outstanding number of the Preferred Shares in the original Preferred Share Certificate, and each such new Preferred Share Certificate and/or new Book-Entry, as applicable, will represent such portion of such outstanding number of Preferred Shares from the original Preferred Share Certificate as is designated in writing by such Holder at the time of such surrender. Each Book-Entry may be exchanged into one or more new Preferred Share Certificates or split by the applicable Holder by delivery of a written notice to the Company into two or more new Book-Entries (in accordance with Section I8(d)) representing, in the aggregate, the outstanding number of the Preferred Shares in the original Book-Entry, and each such new Book-Entry and/or new Preferred Share Certificate, as applicable, will represent such portion of such outstanding number of Preferred Shares from the original Book-Entry as is designated in writing by such Holder at the time of such surrender.
{d) Issuance of New Preferred Share Certificate or Book-Entry. Whenever the Company is required to issue a new Preferred Share Certificate or a new Book-Entry pursuant to the terms of this Certificate of Designation, such new Preferred Share Certificate or new Book-Entry (i) shall represent, as indicated on the face of such Preferred Share Certificate or in such Book-Entry, as applicable, the number of Preferred Shares remaining outstanding (or in the case of a new Preferred Share Certificate or new Book-Entry being issued pursuant to Section I 8(a) or Section l 8(c), the number of Preferred Shares designated by such Holder) which, when added to the number of Preferred Shares represented by the other new Preferred Share Certificates or other new Book-Entry, as applicable, issued in connection with such issuance, does not exceed the number of Preferred Shares remaining outstanding under the original Preferred Share Certificate or original Book-Entry, as applicable, immediately prior to such issuance of new Preferred Share Certificate or new Book-Entry, as applicable, and (ii) shall have an issuance date, as indicated on the face of such new Preferred Share Certificate or in such new Book-Entry, as applicable, which is the same as the issuance date of the original Preferred Share Certificate or in such original Book-Entry, as applicable.
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19. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation and any of the other Transaction Documents, at law or in equity (including a decree of specific performance and/or otllcr injunctive relief), and nothing herein shall limit any Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Certificate of Designation. No failure on the part of a Holder to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by such Holder of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. ln addition, the exercise of any right or remedy of a Holder at law or equity or under this Certificate of Designation or any of the documents shall not be deemed to be an election of such Holder's rights or remedies under such documents or_at law or equity. The Company covenants to each Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by a Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). No failure on the part of a Holder to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by such Holder of any right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. In addition, the exercise of any right or remedy of any Holder at law or equity or under Preferred Shares or any of the documents shall not be deemed to be an election .of such Holder's rights or remedies under such documents or at law or equity. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders and that the remedy at law for any such breach may be inadequate. • The Company therefore agrees that, in the event of any such breach or threatened breach, each Holder shall be entitled, in addition to all other available remedies, to specific performance and/or temporary, preliminary and permanent injunctive or other equitable relief from any court of compe-te.nt jurisdiction in any such case without the necessity of proving actual damages and without posting a bond or other security. The Company shall provide all information and documentation to a Holder that is requested by such Holder to enable such Holder to confirm the Company's compliance with the terms and conditions of this Certificate of Designation.
20. Payment of Collection, Enforcement and Other Costs. If (a) any Preferred Shares are placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or a Holder otherwise takes action to collect amounts due under this Certificate of Designation with respect to the Preferred Shares or to enforce the provisions of this Certificate of Designation or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors' rights and involving a claim under this Certificate of Designation, then the Company shall pay the costs reasonably incurred by such Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys' fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Certificate of Designation with respect to any Preferred Shares shall be affected, or limited, by the fact that the purchase price paid for each Preferred Share was less than the original Stated Value thereof.
21. Construction: Headings. This Certificate of Designation shall be deemed to be jointly drafted by the Company and the Holders and shall not be construed against any such Person as the drafter hereof. The headings of this Certificate of Designation are for convenience of reference and shall not form part of, or affect the interpretation of, this Certificate of Designation. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural fonns thereof. The tenns "incl�ding," "includes," "include" and words oflike import shall be construed broadly as if followed by the words "without limitation." The tenns "herein," "hereunder," "hereof" and words of like import refer to this entire Certificate of Designation instead of just the provision in which they are found. Unless expressly indicated otherwise, all section references are to sections of this Certificate of Designation. Terms used in this Certificate of Designation and not otherwise defined herein, but defined in the other Transaction Documents, shall have the meanings ascribed to such tenns on the Initial Issuance Date in such other Transaction Documents unless otherwise consented to in writing by the Required Holders.
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22. Failure or Indulgence Not Waiver. No failure or delay on the part of a Hoiqer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all Holders and shall not be construed against any Person as the drafter hereof. Notwithstanding the foregoing, nothing contained in this Section 22 shall permit any waiver of any provision of Section 4(d).
23. Dispute Resolution.
(a) Submission to Dispute Resolution.
(i) In the case of a dispute relating to a Closing Bid Price, a Closing Sale Price, a Conversion Price, an Alternate Conversion Price, a VWAP or a fair market value or the arithmetic calculation of a Conversion Rate, or the applicable redemption price (as the case may be) (including, without limitation, a dispute relating to the determination of any of the foregoing), the Company or· the applicable Holder (as the case may be) shall submit the dispute to the other party via electronic mail (A) if by the Company, within two (2) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by such Holder at any time after such Holder learned of the circumstances giving rise to such dispute. If such Holder and the Company are wtable to promptly resolve such dispute relating to such Closing Bid Price, such Closing Sale Price, such Conversion Price, such Alternate Conversion Price, such VWAP or such fair market value, or the arithmetic calculation of such Conversion Rate or such applicable redemption price (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or such Holder (as the case may be) of such dispute to the Company or such Holder (as the case m11y be), then such Holder may, with the consent of the Company (not to be unreasonably withheld, conditioned or delayed), select an independent, reputable investment bank to resolve such dispute.
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(ii) Such Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 23 and (B) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m. (New York time) by the fifth (S1h) Business Day immediately following the date on which such Holder selected such investment bank (the "Dispute Submission Deadline") (the documents referred to in the immediately preceding clauses (A) and (8) are collectively referred to herein as the "Required Dispute Documentation") (it being understood and agreed that if either such Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and such Holder or otherwise requested by such investment bank, neither the Company nor such Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation).
(iii) The Company and such Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and such Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The dispute shall be governed by the laws of the state of Nevada, and hearings held by the arbitrator, if any, shall take place in Reno, Nevada or such other location as mutually agreed between the parties. The fees and expenses of such investment bank shall be borne by the party in whose favor the investment bank decides such dispute or, in the event that the investment bank determines that the applicable calculation is in between the amounts submitted by the Company and such Holder, then half of such fees and expenses shall be borne by the Company and half of such fees and expenses shall be borne by the Holder, and such investment bank's resolution of such dispute shall be final and binding upon all parties absent manifest error, subject to NRS 38.241 and NRS 38.242.
(b) Miscellaneous. The Company expressly acknowledges and agrees that (i) this Section 23 constitutes an agreement to arbitrate between the Company and each Holder (and constitutes an arbitration agreement) under the rules then in effect under the Nevada Uniform Arbitration Act of 2000, (ii) the terms of this Certificate of Designation and each other applicable Transaction Document shall serve as the basis for the selected investment bank's resolution of the applicable dispute, such investment bank shall be entitled (and is hereby expressly authorized) to make all findings, determinations and the like that such investment bank determines are required to be made by such investment bank in connection with its resolution of such dispute and in resolving such dispute such investment bank shall apply such findings, determinations and the like to the terms of this Certificate of Designation and any other applicable Transaction Documents, (iii) the applicable Holder (and only such Holder with respect to disputes solely relating to such Holder), in its sole discretion, shall have the right to submit any dispute described in this Section 23 to any state or federal court sitting in Reno, Nevada, in lieu of utilizing the procedures set forth in this Section 23 and (iv) nothing in this Section 23 shall limit such Holder from obtaining any injunctive relief or other equitable remedies (including, without limitation, with respect to any matters described in this Section 23).
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24. Notjces: Currency: Payments.
(a) Any notices, consents, waivers or other communications required or permitted to be given under the tenns of this Certificate of Designation must be ii) writing and will be deemed to have been delivered on the earliest of: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by electronic mail (provided that such sent email is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient's email server that such e-mail could not be delivered to such recipient); or (iii) one (I) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same, The mailing address and e-mail address for any such communications to the Company shall be: 1420 Celebration Blvd., 2nd Floor, Celebration, Florida 34747 Attention: Joseph La Rosa, e-mail address: joe@larosarealtycorp.eom, or such other mailing address and/or e-mail address as the Company has specified by written notice given to each of the Holders in accordance with this Section 24 not later than five (5) days prior to the effectiveness of such change. The mailing address and e-mail address for any such communications to any Holder shall be as set forth on such Holder's respective signature page to the Securities Purchase Agreement, or such other mailing address and/or e-mail address as such Holder has specified by written notice given to the Company in accordance with this Section 24 not later than five (5) days prior to the effectiveness of such change. Written confinnation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's e-mail containing the_time, date and recipient's e-mail or (C) provided by an overnight courier service shall b� rebuttable evidence of personal service, receipt by e-mail or receipt from an ovemigh,t courier service in accordance with clause (i), (ii) or (iii) above, respectively.• •
(b) The Company shall provide each Holder with prompt written notice of all actions taken pursuant to this Certificate of Designation, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company shall give written notice to each Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, or (B) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to such Holder.
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(c) Currency. All dollar amounts referred to in this Certificate of Designation are in United States Dollars ("U.S. Dollars"), and all amounts owing under this Certificate of Designation shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. "Exchange Rate" means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Certificate of Designation, the U.S. Dollar exchange rate as published in the Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).
(d) Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Certificate of Designation, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by wire transfer of immediately available funds pursuant to wire transfer instructions that Holder shall provide to the Company in writing from time to time. Whenever any amount expressed to be due by the terms of this Certificate of Designation is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.
25. Waiver of Notice. To the extent pennitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, perfonnance, default or enforcement of this Certificate of Designation and the Securities Purchase Agreement.
26. Governing Law. This Certificate of Designation shall be construed and enforced in accordance with, and all questions concerning the constrnction, validity, interpretation and performance of this Certificate of Designation shall be governed by, the internal laws of the State of Nevada, without giving effect to any choice oflaw or conflict of law provision or rule (whether of the State of Nevada or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Nevada. Except as otherwise required by Section 23 above, the Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Reno, Nevada, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein (i) shall be deemed or operate to preclude any Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company's obligations to such Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of such Holder or (ii) shall limit, or shall be deemed or construed to limit, any provision of Section 23 above. THE COMPANY AND EACH HOLDER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUOICA TION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS CERTIFICATE OF DESIGNATION OR ANY TRANSACTION CONTEMPLATED HEREBY.
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27. Judgment Currency.
(a) lffor the purpose of obtaining or enforcing judgment against the Company in any court in any jurisdiction it becomes necessary to convert into any other currency (such other currency being hereinafter in this Section 27 referred to as the "Judgment Currency") an amount due in U.S. Dollars under this Certificate of Designation, the conversion shall be made at the Exchange Rate prevailing on the Trading Day immediately preceding:
(i) the date actual payment of the amount due, in the case of any proceeding in the courts of New York or in the courts of any other jurisdiction that will give effect to such conversion being made on such date: or
(ii) the date on which the foreign court determines, in the case of any proceeding in the courts of any other jurisdiction (the date as of which such conversion is made pursuant to this Section 27(a)(ii) being hereinafter referred to as the "Judgment Conversion Date").
(b) If in the case of any proceeding in the court of any jurisdiction referred to in Section 27(a)(ii) above, there is a change in the Exchange Rate prevailing between the Judgment Conversion Date and the date of actual payment of the amount dµe, the applicable party shall pay such adjusted amount as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the Exchange Rate prevailing on the date of payment, will produce the amount of US dollars which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial order at the Exchange Rate prevailing on the Judgment Conversion Date.
(c) Any amount due from the Company under this provision shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of this Certificate of Designation.
28. Reserved.
29. Severability. If any provision of this Certificate of Designation is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Certificate of Designation so long as this Certificate of Designation as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenfor·ceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
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36. Maximum Payments. Without limiting any provision contained in the Securities Purchase Agreement, nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applic�ble law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the applicable Holder and thus refunded to the Company.
30. Stockholder Matters; Amendment.
(a) Stockholder Matters. Any stockholder action, approval or consent required1 desired or otherwise sought by the Company pursuant to the NRS, the Certificate of Incorporation, this Certificate of Designation or otherwise with respect to the issuance of Preferred Shares may be effected by written consent of the Company's stockholders or a_t a duly called meeting of the Company's stockholders, all in accordance with the applicable rules and regulations of the NRS. This provision is intended to comply with the applicable sections of the NRS permitting stockholder action, approval and consent affecte_dby written consent in lieu of a meeting.;
(b) Amendment. Except for Section 4(d)(i), which may not be amended or waived hereunder, this Certificate of Designation or any provision hereof may be amended by obtaining the affirmative vote at a meeting duly called for such purpose, or \Witten consent without a meeting in accordance with the NRS, of the Required Holders, voting separat,e as a single class, and with such other stockholder approval, if any, as may then be required pursuant to the NRS and the Certificate oflncorporation. Except (a) to the extent otherwise expressly provided in this Certificate of Designation or the Certificate of Incorporati<?rt with respect to voting or approval rights of a particular class or series of capital stock or (b) to the extent otherwise provided pursuant to the NRS, the holders of each outstaoding class or series of shares of the Company shall not be entitled to vote as a separate voting group on any amendment to the tem1s of this Certificate of Designation with respect to which such class or series would otherwise be entitled under the NRS to vote as a separate voting group.
31. Certain Defined Terms. For purposes of this Certificate of Designation, the following terms shall have the following meanings:
(a) "1933 Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
(c) "Adjustment Right" means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 8(a)) of shares of Common Stock (other than rights of the type described in Section 7(a) hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).
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(d) "Affiliate" or "Affiliated" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that "control'' of a Person means the power directly or indirectly either to vote I 0% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
(e) "Alternate Conversion Price" means, with respect to any Alternate Conversion that price which shall be the lowest of (i) the applicable Conversion Price as in effect on the applicable Conversion Date of the applicable Alternate Conversion, and (ii) the greater of (x) the Floor Price and (y) 90% of the lowest VWAP of the Common Stock during the ten (10) consecutive Trading Day period ending and including the Trading Day immediately preceding the delivery or deemed delivery of the applicable Conversion Notice (such period, the "Alternate Conversion Measuring Period"). All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such Alternate Conversion Measuring Period.
(f) [Reserved].
(g) "Approved Stock Plan" means any employee benefit plan or agreement which has been approved by the Board prior to or subsequent to the Closing Date pursuant to which shares of Common Stock and standard options to purchase Common Stock may be issued to any employee, officer, consultant or director for services provided to the Company in their capacity as such.
(h) "Attribution Parties" means, collectively, the following Persons and entities: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Initial Issuance Date, directly or indirectly managed or advised by a Holder's investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of such Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with such Holder or any of the foregoing and (iv) any other Persons whose beneficial ownership of the Company's Common Stock would or could be aggregated with such Holder's and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively such Holder and all other Attribution Parties to the Maximum Percentage.
(i) "Black Scholes Consideration Value" means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) as of the dat<; of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the "OV" function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining tcnn of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the "HVT" function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be).
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(i) "Bloomberg" means Bloomberg, L.P.
(k) "Book-Entry" means each entry on the Register evidencing one or more Preferred Shares held by a Holder in lieu of a Preferred Share Certificate issuable hereunder.
(1) "Business Day" means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to "stay at home", "shelter-in-place", "non-essential employee" or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any Governmental Authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in The City of New York generally are open for use by customers on such day.
(m) "Cash" of the Company and its Subsidiaries on any date shall be detennined from such Persons' books maintained in accordance with GAAP, and means, without duplication, the cash, cash equivalents and Eligible Marketable Securities accrued by the Company and its wholly owned Subsidiaries on a consolidated basis on such date.
(n) "Change of Control" means any Fundamental Transaction other than (i) any merger of the Company or any of its, direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization, recapitalization or reclassification of the shares of Common Stock in which holders of the Company's voting power immediately prior to such reorganization, recapitalization or reclassification continue after such reorganization, recapitalization or reclassification to hold publicly traded securities and, directly or indirectly, are, in all material respects, the holders of the voting power of the surviving entity (or entities with the authority or voting power to elect the members of the board of directors (or their equivalent if other than a corporation) of such entity or entities) after such reorganization, recapitalization or reclassification, or (iii) pursuant to a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company or any of its Subsidiaries.
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(o) "Change of Control Election Price" means, with respect to any given Change of Control, such price equal to the greatest of (i) the product of (A) the Required Premium multiplied by (B) the Conversion Amount of the Preferred Shares subject to the applicable election, as applicable, (ii) the product of (A) the Conversion Amount of the Preferred Shares being redeemed or ex.changed, as applicable, multiplied by (B) the quotient determined by dividing (I) the greatest Closing Sale Price of the shares of Common Stock during the period beginning on the date immediately preceding the earlier to occur of (I) the consummation of the applicable Change of Control and (2) the public announcement of such Change of Control and ending on the date the Company delivers the Company Optional Redemption Notice by (II) the Altematc Conversion Price then in effect, and (iii) the product of (A) the Conversion Amount of the Prefcn-ed Shares being redeemed multiplied by (8) the quotient of (l) the aggregate cash consideration and the aggregate cash value of any non-cash consideration per share of Common Stock to be paid to such holders of the shares of Common Stock upon consummation of such Change of Control (any such non-cash consideration constituting publicly-traded securities shall be valued at the highest of the Closing Sale Price of such securities as of the Trading Day immediately prior to the consummation of such Change of Control, the Closjng Sale Price of such securities on the Trading Day immediately following the public announcement of such proposed Change of Control and the Closing Sale Price of such sccurities·on the Trading Day immediately prior to the public announcement of such proposed Change of Control) divided by (II) the Conversion Price then in effect.
(p) "Closing Bid Price" and "Closing Sale Price" means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the lasl closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holders. If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 23. All such dctenninations shall be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during such period.
(q) "Closing Date" shall have the meaning set forth in the Securities Purchase Agreement, which date is the date the Company initially issued the Prcfcn-cd Shares pursuant to the tenns of the Securities Purchase Agreement.
(r) "Code" means the Internal Revenue Code of 1986, as amended.
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(s) "Common Stock" means (i) the Company's shares of common stock, $0.0001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.
(t) "Contingent Obligation" means, as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assuran_ceto the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.
(u) [Reserved].
(v) "Convertible Securities'' means any stock or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.
(w) "Eligible Market" means The New York Stock Exchange, the NYSE American, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market.
(x) "Eligible Marketable Securities" as of any date means marketable securities which would be reflected on a consolidated balance sheet of the Company and its Subsidiaries prepared as of such date in accordance with GAAP, and which are permitted under the Company's investment policies as in effect on the Issuance D_ate or approved thereafter by the Company's Board of Directors.
(y) "Event Market Price" means, with -respect to any Stock Combination Event Date, 100% of the quotient determined by dividing (x) the sum of the VWAP of the Common Stock for each of the five (5) Trading Days with the lowest VWAP of the Common Stock during the fifteen (15) consecutive Trading Day period ending and including the Trading Day immediately preceding the sixteenth ( I 6th) Trading Day after such Stock Combination Event Date, divided by (y) five (5).
(z) [Reserved].
(aa) [Reserved].
(bb) [Reserved].
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(cc) "Excluded Securities" means (i) Common Stock or standard options to purchase shares of Common Stock issued to existing or prospective directors, officers, sales agents, consultants or service providers of the Company or any Subsidiary of the Company for services rendered to the Company in their capacity as such pursuant to an Approved Stock Plan (as defined above) or as inducement or similar awards granted outside of an Approved Stock Plan; (ii) Common Stock issued upon the conversion or exercise of Convertible Securities or Options (other than standard options to purchase shares of Common Stock that are covered by clause (i) above) issued prior to the Subscription Date; (iii) the shares of Common Stock issuable upon conversion of the Note or otherwise pursuant to the terms of the Note; provided, that the tenns of the Note are not amended, modified or changed on or after the Subscription Date (other than antidilution adjustments pursuant to the tert11s thereof in effect as of the Subscription Date), (iv) the shares of Common Stock issuable upon conversion of the Preferred Shares or otherwise pursuant to the tenns of this Certificate of Designation, (v) the Interest Shares (as defined in the Note), (vi) any shares of Common Stock issued or issuable in connection with any bona fide strategic or commercial alliances, acquisitions, mergers, licensing arrangements, and strategic partnerships, joint venture, strategic alliance, or other commercial relationship with any Person (including Persons that are customers, suppliers, and strategic partners of the Company or any of its Subsidiaries) relating to the operation of the Company's or any of its Subsidiaries' business, provided that (x) the primary purpose of such issuance is not to raise capital as reasonably determined, and (y) the purchaser or acquirer or recipient of the securities in such issuance solely consists of either (I) the actual participants in such strategic or commercial alliance, strategic or commercial licensing arrangement or strategic or commercial partnership, (II) the actual owners of such assets or securities acquired in such acquisition or merger or (Ill) the stockholders, partners, employees, consultants, officers, directors or members of the foregoing Persons, in each case, which is, itself or through its subsidiaries, an operating company or an owner of an asset, in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, an� (IV) the number or amount of securities issued to such Persons by the Company shall not be disproportionate to each such Person's actual participation in (or fair market value of the contribution to) such strategic or commercial alliance or strategic or commercial partnership or ownership of such assets or securities to be acquired by the Company, as applicable, (vii) any shares of Common Stock issued in connection with a Permitted ATM, (viii) the Series B Convertible Preferred Stock, par value $0.000 I per share, issued pursuant to that certain Amendment and Exchange Agreement, dated July 18, 2025, and the shares of Common Stock issuable upon conversion thereof, (ix) the Senior Secured Convertible Notes issued pursuant to the securities purchase agreement, dated November 12, 2025, and the shares of Common Stock issuable upon conversion thereof and (x) securities issued pursuant to an equity line of credit facility.
(dd) "FATCA" means Sections 1471 through 1474 of the Code, as of the date of this Certificate of Designation (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 147 l(b)( I) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
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(ce) "Fiscal Quarter" means each of the fiscal quarters adopted by the Company for financial reporting purposes that correspond to the Company's fiscal year as of the date hereof that ends on December 31.
(ff) "Floor Price" means $0.26 (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations and similar events), or, subject to the rules and regulations of the Principal Market, such lower price as the Company and the Required Holders may agree, from time to time.
(gg) "Fundamental Transaction" means (A) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its "significant subsidiaries" (as defined in Rule 1-02 of Regulation S·X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to_one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject, Entities making or party to, such purchase, tender or exchange offer were not outstanding;_or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tend_eror exchange offer, become collectively the beneficial owners (as defined in Rule I 3d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with_one or more Subject Entities whereby all such Subject Entities, individually or in the aggregaJe, acquire, either (x) at least 50% of the outstanding shares of Conm10n Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d�3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, s�heme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of the date of this Certificate of Designation calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short fonn merger or other transaction requiring other stockholders of the Company to surrender their shares of Common Stock without approval of the stockholders of the Company or (C) directly or indirectly, including through subsidiaries, Affiliates or othctwise, in one or more related transactions, the issuance ofor the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the t�rp1s of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inc011sistent with the intended treatment of such instrument or transaction.
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(hh) "GAAP" means United States generally accepted accounting principles, consistently applied.
(ii) "Going Private Transaction" means any Change of Coi1trol (i) pursuant to which, the Company (and the Successor Entity, if applicable) ceases to have any securities registered under the 1934 Act or (ii) that results in the purchase ai1d(or cancellation of all of the Common Stock of the Company solely for cash (and not in yihole, or in part, for any other securities of any Person).•
(jj) "Group" means a "group" as that term is used in Section I 3(d) of the I 934 Act and as defined in Rule I 3d-5 thereunder.
(kk) "Governmental Authority" means any federal, foreign, state, county, mu!l,icipal, provincial, or local governmental authority, court, judicial body; arbitrati"on tribunal, government or self.regulatory organization, commission, tribunal or organization, or any regulatory, administrative, or other agency, or any political or other subdivision, department, commission, board, bureau, branch, division, ministry, or instrumentality of any of the foregoing.
(II) "Indebtedness" means of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, "capital leases" in accordance with United States generally accepted accounting principles consistently applied for the periods covered thereby (other than trade payables entered into in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with United States generally accepted accounting principles, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, deed of trust, lien, pledge, charge, security interest or other encumbrance of any nature whatsoever in or upon any property or assets (including accounts and contract rights) with respect to any asset or property owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the �inds referred to in clauses (A) through (G) above.
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(mm) "Intellectual Property Rights" means, with respect to the Company and its Subsidiaries, all of their rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, original works of authorship, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor.
(nn) "Investment" means any beneficial ownership (including stock, partnership or limited liability company interests) of or in any Person, or any loan, advance or capital contribution to any Person or the acquisition of all, or substantially all, of the assets of another Person or the purchase of any assets of another Person for greater than the fair market value of such assets.
(oo) "Liquidation Event" means, whether in a single transaction or series of transactions, the voluntary or involuntary liquidation, dissolution or winding up of the Company or such Subsidiaries the assets of which constitute all or substantially all of the assets of the business of the Company and its Subsidiaries, taken as a whole.
(pp) "Material Adverse Effect" means any material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otheiwise) or prospects of the Company and its Subsidiaries. if any, individually or taken as a whole, or on the transactions contemplated hereby or on the other Transaction Documents, or by the agreements and instruments to be entered into in connection therewith or on the authority or ability of the Company to perfonn its obligations under the Transaction Documents.
(qq) "Note" means the senior secured convertible note issued to the initial Holder on February 4, 2025 pursuant to the securities purchase agreement dated February 4, 2025.
(rr) "Options" means any rights, .warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.
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(ss) "Parent Entity" of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parenl Entity with the largest public markel capitalization as of the date of consummation of the Fundamental Transaction.
(tt) "Permitted ATM" shall mean an "at-the-market" offering program made by the Company under an effective registration statement on Form S-3 to issue up to the maximum number of shares pem1itted by Instruction I.B.6 to such Fonn; provided that no share of Common Stock shall be issued pursuant to such offering at a price per share less than the Floor Price.
(uu) [Reserved1.
(vv) [Reserved].
(ww) [lie§erveg).
(xx) "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.
(yy) "Price Failure" means, with respect to a particular date of determination, the VWAP of the Common Stock on any Trading Day during the ten (10) Trading Day period ending on the Trading Day immediately preceding such date of determination fails to exceed 75% of the Conversion Price on such date of determination (excluding for such purpose any temporary reductions in the Conversion Price made in accordance with Section 8(g)) (as adjusted for stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions occurring after the Subscription Date). All such determinations to be appropriately adjusted for any stock splits, stock dividends, stock combinations, recapitalizations or other similar transactions during any such measuring period.
(zz) "Principal Market'' means, as of any time of determination, the principal trading market, if any, in which the shares of Common Stock then trade.
(aaa) [Reserved].
(bbb) "Required Premium" means (x) solely if in connection with a Change of Control at a time no other Triggering Event exists, l05% or (y) otherwise, 125%.
(ccc) "SEC" means the United States Securities and Exchange Commission or the successor thereto.
(ddd) "Securities" shall mean the Preferred Shares and the shares of Common Stock issuable upon conversion of the Preferred Shares.
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(ecc) "Securities Purchase Agreement" means that certain securities purchase agreement, dated as of May 26, 2026. by and between the Company and the initial �older.
(fff) "Stated Value"shall mean $1,000 per share, subject to adjustment for stock splits, stock dividends, recapitalizations, reorganizations, reclassifications, combinations, subdivisions or other similar events occurring after the Initial Issuance Date with respect to the Preferred Shares.
(ggg) "Subsequent Placement,, means any direct, or indirect, issuance, offer, sale, grant of any option or right to purchase, or otherwise disposal of (or announcement of any issuance, offer, sale, grant of any option or right to purchase or other disposition of) any equity security or any equity-linked or related security (including, without limitation, any "equity security" (as that tenn is defined under Rule 405 promulgated under the 1933 Act), any Convertible Securities, any debt, any preferred stock or any purchase rights) by the Company or any of its Subsidiaries.
(hhh) "Stock Combination Event" means the occurrence at any time and from time to time on or after the Subscription Date of any stock split, stock dividend, stock combination recapitalization or other similar transaction involving the Common Stock.
(iii) "Subject Entity" means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.
(jjj) "Subscription Date" means May 26, 2026.
(kkk) "Subsidiary" shall have the meaning set forth in the Securities Purchase Agreement.
(Ill) "Successor Entity" means the Person (or, if so elected by the Required Holders, the Parent Entity) fonned by, resulting from or surviving any-Fundamental Transaction or the Person (or, if so elected by the Required Holders, the Parent Entity) with which such Fundamental Transaction shall have been entered into.
(mmm)"Trading Day" means, as applicable, (x) with respect to all price or trading volume detenuinations relating to the Common Stock, any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that "Trading Day" shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the applicable Holder or (y) with respect to all detenninations other than price determinations relating to the Common Stock, any day on which The New York Stock Exchange (or any successor thereto) is open for trading of securities.
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(nnn) "Transaction Documene' shall have thc·meaning set forth in the Secui:ities Purchase Agreement.
(ooo) "Volume Failure" means, with respect to a particular date of determination, the aggregate daily dollar trading volume (as reported on Bloomberg) of the Common Stock on the Principal Market on any Trading Day during the twenty (20) Trading Day period ending on the Trading Day immediately preceding such date of detem1ination (such period, the "Volume Failure Measuring Period"), is less than $50,000.
(ppp) "VWAP" means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if ,the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded), during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg through its "YAP" function (set to 09:30 start time and 16:00 end time) or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices). If the VWAP cannot be calculated for such·security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Required Holders; • If the Company and the Required Holders are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 23. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.
32. Disclosure. Upon receipt or delivery by the Company of any notice in accordance with the tenns of this Certificate of Designation, unless the Company has in good faith detennined that the matters relating to such notice do not constinite material, non-public information relating to the Company or any of its Subsidiaries, the Company shall on or prior to 9:00 am, New York city time on the Business Day immediately following such notice delivery date, publicly disclose such material, non-public infom1ation on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to the applicable Holder explicitly in writing in such notice (or promptly (but no later than the next Business Day) following receipt of notice from such Holder, as applicable), and in the absence of any such written indication in such notice (or notification from the Company promptly (but no later than the next Business Day) following receipt of notice from such Holder), such Holder shall be entitled to presume that information contained in the notice does not constitute material, non-public information relating to the Company or any of its Subsidiaries.
33. Absence of Trading and Disclosure Restrictions. The Company acknowledges and agrees that no Holder is a fiduciary or agent of the Company and that each Holder shall have no obligation to (a) maintain the confidentiality of any information provided by the Company or (b) refrain from trading any securities while in possession of such infom1ation in the absence of n written non-disclosure agreement signed by an officer of such Holder that explicitly provides for such confidentiality and trading restrictions. In the absence of such an executed, written non-disclosure agreement, the Company acknowledges that each Holder may freely trade in any securities issued by the Company, may possess and use any information provided by the Company in connection with such trading activity, and may disclose any such info11nation to any third party.
(The remainder of the page is intentionally left blank]
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IN WITNESS WHEREOF, the Company has caused this Certificate of Designation of the Certificate of Incorporation La Rosa Holdings Corp. to be signed by its Chief Executive Officer on this 9lh day of July, 2026.
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La Rosa Holdings Corp. |
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r:Oocu.,...dt,y: |
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By: |
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Name: Joseph La Rosa |
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Title: Chief Executive Officer |
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EXHIBIT I
LA ROSA HOLDINGS CORP.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Certificate of Incorporation of La Rosa Holdings Corp.. a Nevada corporation {the "Company") establishing the terms, preferences and rights of the Series E Convertible Prefe1Ted Stock, $0.000 I par value (the "Preferred Shares") of the Company (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of Preferred Shares indicated below into shares of common stock, $0.000 I value per share (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion:
Aggregate nwnber of Preferred Shares to be converted:
Aggregate Stated Value of such Preferred Shares to be converted:
AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock to be issued:
0 If this Conversion Notice is being delivered with respect to an Alternate Conversion, check here if Holder is electing to use the following Alternate Conversion Price:
Please issue the Common Stock into which the applicable Preferred Shares are being conve11ed to Holder, or for its benefit, as follows:
D Check here if requesting delivery as a certificate to the following name and to the following address:
Issue to:
D Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:
OTC Participant:
DTC Number:
Account Number:
Date: ,
Name of Registered Holder
By:
Name:
Title:
Tax ID:
E-mail Address:
EXHIBIT II
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice, (b) certifies that the above indicated number of shares of Common Stock (are][are not) eligible to be resold by the applicable Holder either (i) pursuant to Rule 144 (subject to such Holder's execution and delivery to the Company of a customary 144 representation letter) or (ii) an effective and available registration statement and (c) hereby directs to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated 20 from the Company and acknowledged and agreed to by
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LA ROSA HOLDINGS CORP. |
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By: |
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Title: |
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECTUIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph La Rosa, certify that:
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I have reviewed this Quarterly Report on Form 10-Q of La Rosa Holdings Corp.; |
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions: |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 31, 2026
|
|
/s/ Joseph La Rosa |
|
Name: |
Joseph La Rosa |
|
Title: |
Founder, Chief Executive Officer, and Director |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Joseph La Rosa, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of La Rosa Holdings Corp.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and; |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 31, 2026
|
|
/s/ Joseph La Rosa |
|
Name: |
Joseph La Rosa |
|
Title: |
Interim Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Joseph La Rosa, the Chief Executive Officer and President of La Rosa Holdings Corp. (the “Company”), hereby certify, that, to my knowledge:
|
1. |
The Quarterly Report on Form 10-Q for the period ended March 31, 2026 (the “Report”) of the Company fully complies with the requirements of Section 13(a) and 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: July 31, 2026
|
|
/s/ Joseph La Rosa |
|
Name: |
Joseph La Rosa |
|
Title: |
Founder, Chief Executive Officer, and Director |
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I, Joseph La Rosa, the Chief Financial Officer of La Rosa Holdings Corp. (the “Company”), hereby certify, that, to my knowledge:
|
1. |
The Quarterly Report on Form 10-Q for the period ended March 31, 2026 (the “Report”) of the Company fully complies with the requirements of Section 13(a)/15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: July 31, 2026
|
|
/s/ Joseph La Rosa |
|
Name: |
Joseph La Rosa |
|
Title: |
Interim Chief Financial Officer |
|
|
(Principal Financial Officer) |