La Rosa Holdings Corp. Fair Value Disclosure

Note 2 — 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 follows ASC 820, Fair Value Measurement, for financial assets and liabilities measured at fair value on a recurring basis. The Company uses the fair value hierarchy to categorize the financial instruments measured at fair value based on the available inputs to the valuation and the degree to which they are observable or not observable in the market.

 

The three levels of the fair value hierarchy are as follows:

 

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Level 1 – Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;

 

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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

 

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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 consolidated financial statements approximate fair value due to their short-term maturities.

 

The Company determined that during the years ended December 31, 2024 and 2023 certain instruments qualified as derivative liabilities and are recorded at fair value on the date of issuance and re-measured at fair value each reporting period with the change reported in earnings. The fair value of these instruments was computed using the Black Scholes model, incorporating transaction details such as the assumed price of the Company’s Common Stock at an initial public offering, contractual terms, maturity and risk-free rates, as well as assumptions about future financings, volatility, and holder behavior.

 

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

  

		As of December 31, 2024																As of December 31, 2023
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
Liabilities
Derivative liabilities		$	-			$	-			$	1,607,544			$	1,607,544			$	-			$	-			$	-			$	-

 

 

The following table provides a summary of changes in fair value associated with the Level 3 liabilities for the years ended December 31, 2024 and 2023:

 

		2024				2023
Beginning Balance – January 1,		$	-			$	1,022,879
Issuance of derivative liability			269,038				7,500
Cash paid to settle derivative liability			-				(7,500	)
Issuance of common stock related to the derivative liability			-				(450,000	)
Extinguishment of derivative liability			-				(433,894	)
Change in fair market value			1,338,506				(138,985	)
Balance – December 31,		$	1,607,544			$	-