La Rosa Holdings Corp. Debt Disclosure

Note 6 — Borrowings

 

Line of Credit

 

The Company has a line of credit with Regions Bank that allows for advances up to $150,000 with interest at the Prime Rate plus 4.75% with a floor of 4.75% and no maturity date. On December 31, 2024, the outstanding balance on the line of credit was $149,000 at a prime rate of 7.75% plus 4.75%, or 12.50%. On December 31, 2023, the interest rate was 13.25% and no amount was drawn under the facility. The line of credit is collateralized by Company assets.

 

Cash Advance Agreements

 

On July 3, 2023, the Company entered into a Standard Merchant Cash Advance Agreement (the “Cash Advance”) with Cedar Advance LLC (“Cedar”) for the purchase and sale of future receipts pursuant to which the Company sold in the aggregate $764,150 in future receipts of the Company for $500,650. The Company recorded a debt discount in the amount of $237,150 based upon the difference between the amount of future receipts sold and the actual proceeds received by the Company and debt issuance costs of $26,350. The debt discount and debt issuance costs were reflected as a reduction on the outstanding liability and were being amortized as non-cash interest expense using the effective interest method over the term of the agreement. The Cash Advance was fully repaid in January 2024.

 

On May 20, 2024, the Company entered into another Standard Merchant Cash Advance Agreement (the “2024 Cash Advance”) with Cedar for the purchase and sale of future receipts pursuant to which the Company sold in the aggregate $761,250 in future receipts of the Company for $500,000. Future receipts include cash, check, credit or debit card, electronic transfer, or other form of monetary payment. Until the purchase price has been repaid, the Company agreed to pay Cedar $23,000 per week. In addition, the Company granted Cedar a security interest in all the Company’s accounts, including deposit accounts and accounts receivable and proceeds. The Company recorded a debt discount in the amount of $236,250 based upon the difference between the amount of future receipts sold and the actual proceeds received by the Company and debt issuance costs of $25,000. The debt discount and debt issuance costs were reflected as a reduction on the outstanding liability and are being amortized as non-cash interest expense using the effective interest method over the term of the agreement.

On October 7, 2024, the Company entered into a Standard Merchant Cash Advance Agreement (the “Cedar Cash Advance Agreement”) with Cedar pursuant to which the Company sold to Cedar $616,250 of its future receivables, including cash, check, credit or debit card, electronic transfer, or other form of monetary payments from third parties (the “Receivables Purchased Amount”), for a purchase price of $425,000 less underwriting fees and expenses paid, or for net funds of $403,750 to the Company. The parties agreed that a portion of the proceeds equal to $301,250 were to be paid by the Company to Cedar pursuant to the May 20, 2024 cash advance agreement discussed above. This payment was accounted for as an extinguishment of this May 20, 2024 cash advance agreement debt and the Company recorded a loss of $54,829 representing the remaining unamortized deferred financing costs and discount. Pursuant to the Cedar Cash Advance Agreement, Cedar was expected to withdraw $15,400 a week directly from the Company’s bank account until the Receivables Purchased Amount due to Cedar under the Cedar Cash Advance Agreement is paid in full. In the event of a default (as defined in the Cedar Cash Advance Agreement), Cedar, among other remedies, could demand payment in full of all amounts remaining due under the Cedar Cash Advance Agreement. To guarantee the Company’s satisfaction of its obligations under the Cedar Cash Advance Agreement, the Company granted Cedar a security interest in all its accounts, including deposit accounts and accounts receivable and proceeds.

 

On October 7, 2024, the Company, entered into a Standard Merchant Cash Advance Agreement (the “Arin Cash Advance Agreement”) with Arin Funding LLC (“Arin”) pursuant to which the Company sold to Arin $588,000 of its future receivables for the sale of its goods and services (the “Receivables Purchased Amount”), for a purchase price of $420,000 less fees and expenses paid, or for net funds of $400,000 to the Company. Pursuant to the Arin Cash Advance Agreement, Arin was expected to withdraw $15,474 a week directly from the Company’s bank account until the Receivables Purchased Amount due to Arin under the Arin Cash Advance Agreement was paid in full. In the event of a default (as defined in the Arin Cash Advance Agreement), Arin, among other remedies, could demand payment in full of all amounts remaining due under the Arin Cash Advance Agreement. To guarantee the Company’s satisfaction of its obligations under the Arin Cash Advance Agreement, the Company granted Arin a security interest in all its accounts, including, but not limited to, deposit accounts, accounts receivables, other receivables, chattel paper, documents, equipment, general intangibles, instruments and inventory.

 

During the years ended December 31, 2024 and 2023, non-cash interest expense of $391,836 and $256,080, respectively, was recorded from the amortization of the debt discount and the debt issuance costs. As of December 31, 2024, the remaining gross balance of the Cash Advance was $833,766, with a remaining unamortized discount of $215,085, for a net balance of $618,861, which was fully repaid in February 2025. As of December 31, 2023, the remaining gross balance of the Cash Advance was $84,463 and a net carrying value of $77,042, which was fully repaid in January 2024.

  

Notes Payable-Senior Secured Promissory Notes

 

On February 20, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note with an aggregate principal amount of $1,052,632 with a maturity date twelve months from the issue date. The note had an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 67,000 shares of the Company’s common stock as a commitment fee, a warrant to purchase 120,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 95,000 shares of the Company’s common stock with an exercise price of $2.25. The second warrant would only become exercisable if the note was not fully paid on or before the maturity date, at which point the warrant was exercisable until the five-year anniversary of the vesting date. The second warrant would be cancelled and extinguished if the note was fully paid on or before the note maturity date. The investor also had a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note were convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company failed to make an amortization payment when due, in which case the conversion price would be the lower of $2.50 or 85% of the lowest volume weighted average price (VWAP) of the shares prior to five days of the conversion. The proceeds of the note were used for business development and general working capital purposes. In connection with this financing, the Company also issued to its placement agent, Alexander Capital L.P. (“Alexander Capital”), a 5-year warrant to purchase 21,053 shares of the Company’s common stock at an exercise price of $1.50 per share. During the year ended December 31, 2024, the investor converted $69,534 of accrued interest and $746,440 of principal to 881,130 shares of common stock.

 

On April 1, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note with an aggregate principal amount of $1,316,000 with a maturity date twelve months from the issue date. The note had an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 50,000 shares of the Company’s common stock as a commitment fee, a warrant to purchase 150,000 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 152,300 shares of the Company’s common stock with an exercise price of $2.25. The second warrant would only become exercisable if the note was not fully paid on or before the maturity date, at which point the warrant was exercisable until the five-year anniversary of the vesting date. The second warrant would be cancelled and extinguished if the note is fully paid on or before the note maturity date. The investor also had a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note were convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company fails to make an amortization payment when due, in which case the conversion price would be the lower of $2.50 or 85% of the lowest VWAP of the shares prior to five days of the conversion. The proceeds of the note were used for business development and general working capital purposes. During the year ended December 31, 2024, the investor converted $71,713 of accrued interest to 53,100 shares of common stock.

On July 16, 2024, the Company entered into a securities purchase agreement with an accredited investor for the issuance of a senior secured promissory note with an aggregate principal amount of $444,600 with a maturity date twelve months from the issue date. The note had an original issue discount of 5% and a coupon rate of 13% per annum. In addition, the Company issued 29,800 shares of the Company’s common stock as a commitment fee, a warrant to purchase 53,700 shares of the Company’s common stock with an exercise price of $3.00, exercisable until the five-year anniversary of the closing date, and a second warrant to purchase 54,200 shares of the Company’s common stock with an exercise price of $2.25. The second warrant only became exercisable if the note was not fully paid on or before the maturity date, at which point the warrant was exercisable until the five-year anniversary of the vesting date. The second warrant would be cancelled and extinguished if the note was fully paid on or before the note maturity date. The investor also had a security interest in certain property of the Company and its subsidiaries to secure the prompt payment, performance, and discharge in full of all of the Company’s obligations under the note. The principal amount and interest under the note were convertible into shares of the Company’s common stock at a conversion price of $2.50 per share unless the Company failed to make an amortization payment when due, in which case the conversion price would be the lower of $2.50 or 85% of the lowest VWAP of the shares prior to five days of the conversion. The proceeds of the note were used for business development and general working capital purposes.

 

The Company evaluated the terms of the securities purchase agreements and determined that the commitment shares and the first warrants were freestanding instruments. The Company determined the commitment shares were to be classified as equity, which are initially recorded at fair value with no subsequent remeasurement. The Company determined that the first warrants were classified as a derivative liability, which were initially recorded at fair value with changes in fair value recorded in earnings. The second warrants and certain terms within the debt notes were contingent upon certain possible events that were within the Company’s control. The Company determined that the contingencies were not probable and, as such, were not recorded as contingent liabilities.

 

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

 

On September 25, 2024, the Company entered into an agreement to amend the three Senior Secured Promissory Notes entered into in February, April, and July of 2024. The amendment extended the maturity date for all three notes to August 1, 2025, and delayed payments until February 1, 2025. In lieu of all payments required under the original notes, $250,000 per month will be paid beginning February 1 and each month after, until all three notes were paid in full. In addition, $200,000 was paid on September 30, 2024 and applied to the February note. This amendment was accounted for as an extinguishment of debt, and the Company recorded a loss of $722,729. The Company had accrued interest on the notes totaling $264,490 as of December 31, 2024.

 

Notes Payable-Promissory Note

 

On September 27, 2024, the Company entered into a promissory note payable whereby the Company borrowed $200,000 bearing interest at 12.5% per annum. The note was payable in three monthly installments of $75,000. The proceeds of the note were used to pay down the convertible note entered into in February discussed above. The remaining balance on the note as of December 31, 2024 was $148,725.

 

Notes Payable-Economic Injury Disaster Loans

 

On June 1, 2020, the Company received net proceeds from Economic Injury Disaster Loans (the “EIDL Loans”) from the Small Business Administration (“SBA”) in the aggregate amount of $365,300. After processing fees, the net proceeds were $365,100 under the terms. The EIDL Loans, which are in the form of promissory notes, mature in May 2050 and bear interest at a rate of 3.75% per annum. Payments are to be made monthly, and each payment is applied first to the interest accrued to the date of receipt of each payment and any remaining payment is applied to principal. The loan terms provide for a collateral interest for the SBA and limits the use of proceeds to working capital to alleviate the effects of COVID-19 on the Company’s economic condition.

 

During the fourth quarter of 2023, the Company acquired two franchisees that had outstanding Economic Injury Disaster Loans (the “EIDL Loans”) in the aggregate of $263,000. During the first quarter of 2024, the Company acquired a franchise that had an outstanding EIDL Loan in the aggregate of $34,100. The Company acquired the EIDL Loans, and the EIDL loans have terms similar to the Company’s existing EIDL loans. The EIDL Loans mature in 2050 and bear interest at a rate of 3.75% per annum.

Future maturities of Economic Injury Disaster Loans as of December 31, 2024, were as follows:

 

		December 31,
Economic Injury Disaster Loans-Future Maturities		2024
2025		$	5,900
2026			5,900
2027			5,900
2028			5,900
2029			5,900
2030			5,900
Thereafter			612,230
Total		$	647,630

 

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

 

		December 31,				December 31,
Notes Payable		2024				2023
Senior secured promissory note (SSPN) #1		$	106,192			$	—
Senior secured promissory note #2			1,316,000				—
Senior secured promissory note #3			468,000				—
Promissory note			148,725				—
Economic injury disaster loans (EIDL)			647,630				619,527
Acquisition Settlement Agreement			976,190				—
Total			3,662,736				619,527
Current portion:
Less: current portion-SSPNs			(1,890,192	)			—
Less: current portion-Promissory note			(148,724	)			—
Less: current portion-EIDL			(5,900	)			(4,400	)
Acquisition Settlement Agreement			(142,857	)			—
Notes payable, net of current		$	1,475,064			$	615,127

 

Securities Purchase Agreement

 

On February 4, 2025, the Company and an institutional investor entered into a Securities Purchase Agreement, pursuant to which the Company issued to the investor a Senior Secured Convertible Note in the original principal amount of $5,500,000 which matures on February 4, 2027. The purchase price paid by the investor under the agreement was $4,963,750. The $4,963,750 in gross proceeds from the offering was used by the Company to retire certain indebtedness of the Company. For further information about the agreement see Note 15 — Subsequent Events.

  

Note Payable satisfied in 2023-Unsecured subordinated promissory note

 

On August 22, 2022, the Company issued to an unaffiliated private investor an unsecured subordinated promissory note that was used for general corporate purposes in the principal amount of $250,000 with a coupon rate of 15% per annum. This note had an original maturity of the earlier of the consummation of the closing of an IPO by the Company or on November 23, 2022. After November 2022, the maturity was extended seven times, with all terms remained unchanged, except beginning January 1, 2023, the Company no longer made monthly interest payments and the principal balance along with all accrued but unpaid interest would be due on note maturity. The last amendment had a final maturity of the earlier of the consummation of the closing of an IPO by the Company or on October 31, 2023. The Company repaid the note principal and all unpaid accrued interest at the closing of the Company’s IPO on October 12, 2023. In addition, the Company issued 5,000 unregistered, restricted shares of Common Stock valued at $25,000 based on the per unit price of the Company’s IPO to the private investor.

OID Note

 

On November 14, 2022, the Company and Emmis Capital II, LLC, an affiliate of one of the Company’s consultants (“Emmis Capital”), entered into a securities purchase agreement and senior secured promissory note (“OID Note”) in the principal amount of $277,778 that was used for general corporate purposes. The OID Note had an original issue discount of 10%, a coupon rate of 10% per annum, a default interest rate of 24% per annum, and a $5,000 per month per occurrence delinquency penalty. The note holder had the right at any time, at the holder’s option, to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest into shares of the Company’s Common Stock at a price equal to the offering price of the IPO multiplied by 0.75, with certain provisions. The Company also issued warrants to the lenders that are exercisable for 50,000 shares of the Company’s Common Stock and (i) have a term of 60 months; (ii) have full ratchet anti-dilution protection provisions; (iii) are exercisable for a number of shares of the Company’s Common Stock equal to the number of shares that would be issued upon full conversion of this Note; and (iv) have an exercise price equal to the lower of: (A) $5.00 per share, or (B) the price per share of any subsequent offering undertaken by the Company. The Company also granted to the lenders: (i) upon the repayment of the loan, 30,000 shares of the Company’s Common Stock (based on an assumed offering price of $5.00 per share, (ii) the right to participate in any future financings, (iii) additional “piggy back” registration rights, (iv) the right to rollover the principal and interest due to acquire Company securities in any future public or private offering, (v) extensive and non-customary default provisions in the note, and (vi) certain other affirmative and negative covenants. The loan had a maturity of the earlier of (i) six months from the date of issue or (ii) upon the completion of the Company’s IPO. The Company and Emmis Capital agreed to extend the maturity date of the loan to the earlier of the date when the Common Stock is listed on Nasdaq, or July 31, 2023. The parties agreed that in the event of listing of the Common Stock on Nasdaq prior to July 31, 2023, on the effective date of the registration statement, the Company would issue to Emmis Capital shares of Common Stock valued at the IPO price, in lieu of a cash, of the $5,000 delinquency penalty payable from May 14, 2023 to July 31, 2023. In the event the listing was not completed by July 31, 2023, then the delinquency fee would be paid in cash. In addition, Emmis Capital agreed to waive any and all events of default existing under the securities purchase agreement and the OID Note as of June 21, 2023, including but not limited to its right to receive default interest and to receive any additional fees, penalties and charges. On August 28, 2023, the Company repaid the OID Note with a principal balance of $277,778, accrued interest of $21,842, and a delinquency penalty of $17,258. In addition, in accordance with the terms of the OID Note, the Company issued 30,000 shares of Common Stock to Emmis Capital.

 

Convertible Notes

  

In two private placements conducted from July 2021 through October 2022, the Company entered into convertible note purchase agreements pursuant to which the Company issued unsecured convertible promissory notes (“Convertible Notes”). The Company issued convertible notes in the aggregate principal amount of $616,000 that was used for general corporate purposes. Interest accrued on the principal amount of 16 of the convertible notes at 2.5% per annum with a default rate of 3% per annum. Interest accrued on the principal amount of seven of the Convertible Notes at 18% per annum, with a default interest rate of 20% per annum. The convertible notes had a maturity date of the earlier of the date that the Company’s Common Stock became listed for trading on a national securities exchange or one year from the date of issue of each such note. Prior to the maturity date, the convertible notes would convert the outstanding principal and accrued interest automatically into shares of the Company’s Common Stock on the date of the closing of an IPO at a price per share equal to the IPO price multiplied by 0.80. The conversion feature was deemed to be a derivative liability; as such, the Company recorded a debt discount of $203,782, which represented the fair value of the derivative liabilities at the commitment dates. In addition, the Company incurred $25,000 of professional fees directly related to the issuances of the convertible notes which was recorded as debt issuance costs. The convertible notes had original maturities at various times during 2022 and 2023, which all were extended into 2023. In December 2022, the Company repaid one convertible note with a principal amount of $10,000 plus accrued interest.

 

During 2023, the Company exchanged, in a private placement under Sections 3(a)(9) and 4(a)(2) of the Securities Act, 18 of the above convertible promissory notes, representing an aggregate amount of principal and accrued interest of $598,836, for 591 shares of the Company’s series A preferred stock at an exchange rate of $1,000 per share.

  

On the closing of the Company’s IPO on October 12, 2023, the Company repaid the principal and accrued interest of three of the remaining convertible notes totaling $94,433, and the remaining convertible note with a principal balance plus accrued interest of $26,265 was converted into 6,566 shares of the Company’s unregistered, restricted Common Stock based on the IPO price of $5.00.