UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-39412

FATHOM HOLDINGS INC.

(Exact name of Registrant as specified in its Charter)


North Carolina		82-1518164
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2000 Regency Parkway Drive, Suite 300, Cary, North Carolina 27518

(Address of principal executive offices) (Zip Code)

(888) 455-6040

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, No Par Value		FTHM		The NASDAQ Capital Market

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 ☐ No

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 ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller reporting company ☒
		Emerging growth company ☒

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 ☐ No ☒

As of August 5, 2022, the registrant had 17,052,263 shares common stock outstanding.

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FATHOM HOLDINGS INC.

FORM 10-Q

For the Quarterly Period Ended June 30, 2022

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	3
	Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021	4
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and six months ended June 30, 2022 and 2021	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32
ITEM 4.	Controls and Procedures	32
PART II - OTHER INFORMATION		34
ITEM 1.	Legal Proceedings	34
ITEM 1A.	Risk Factors	34
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
ITEM 6.	Exhibits	35
SIGNATURES		36

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PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share data)


	June 30, 2022		December 31, 2021
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	19,512	$	37,830
Restricted cash		110		91
Accounts receivable		5,020		3,981
Derivative assets		86		53
Mortgage loans held for sale, at fair value		6,313		9,862
Prepaid and other current assets		2,791		2,633
Total current assets		33,832		54,450
Property and equipment, net		3,053		1,250
Lease right of use assets		5,640		4,353
Intangible assets, net		28,429		24,243
Goodwill		25,436		20,541
Other assets		50		93
Total assets	$	96,440	$	104,930
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,089	$	5,303
Accrued and other current liabilities		3,948		4,491
Warehouse lines of credit		6,129		9,577
Long-term debt - current portion		231		831
Lease liability - current portion		1,375		870
Total current liabilities		17,772		21,072
Lease liability, net of current portion		5,642		3,562
Long-term debt, net of current portion		280		146
Total liabilities		23,694		24,780
Commitments and contingencies (Note 18)
Stockholders’ equity:
Common stock (no par value, shares authorized, 100,000,000; shares issued and outstanding, 17,052,263 and 16,751,606 as of June 30, 2022 and December 31, 2021, respectively)		—		—
Additional paid-in capital		104,391		100,129
Accumulated deficit		(31,645)		(19,979)
Total stockholders’ equity		72,746		80,150
Total liabilities and stockholders’ equity	$	96,440	$	104,930

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except share data)


	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021
Revenue
Gross commission income	$	122,053	$	80,246	$	206,097	$	129,402
Other service revenue		6,126		3,937		12,164		4,426
Total revenue		128,179		84,183		218,261		133,828
Operating expenses
Commission and other agent-related costs		116,309		76,729		195,788		123,129
Operations and support		1,597		1,683		3,772		1,751
Technology and development		1,048		956		2,523		1,341
General and administrative		12,358		8,738		23,211		14,557
Marketing		1,329		378		2,492		780
Depreciation and amortization		813		438		1,385		459
Total operating expenses		133,454		88,922		229,171		142,017
Loss from operations		(5,275)		(4,739)		(10,910)		(8,189)
Other expense (income), net
Gain on extinguishment of debt		—		—		—		(51)
Interest expense (income), net		6		(1)		7		—
Other nonoperating expense (income), net		228		(33)		564		(37)
Other expense (income), net		234		(34)		571		(88)
Loss before income taxes		(5,509)		(4,705)		(11,481)		(8,101)
Income tax expense (benefit)		160		(2,614)		185		(2,610)
Net loss	$	(5,669)	$	(2,091)	$	(11,666)	$	(5,491)
Net loss per share
Basic	$	(0.35)	$	(0.15)	$	(0.72)	$	(0.40)
Diluted	$	(0.35)	$	(0.15)	$	(0.72)	$	(0.40)
Weighted average common shares outstanding
Basic		16,039,971		14,048,136		16,180,782		13,750,775
Diluted		16,039,971		14,048,136		16,180,782		13,750,775

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(in thousands, except share data)


	Common Stock
	Number of			Additional
	Outstanding	Par		Paid in		Accumulated
	Shares	Value		Capital		deficit		Total
Balance at March 31, 2022	17,110,909	$	—	$	107,504	$	(25,976)	$	81,528
Issuance of common stock for purchase of business	35,688		—		263		—		263
Repurchase of common stock	(602,286)		—		(5,057)		—		(5,057)
Stock-based compensation, net of forfeitures	507,952		—		1,681		—		1,681
Net loss	—		—		—		(5,669)		(5,669)
Balance at June 30, 2022	17,052,263	$	—	$	104,391	$	(31,645)	$	72,746


	Common Stock
	Number of			Additional
	Outstanding	Par		Paid in		Accumulated
	Shares	Value		Capital		deficit		Total
Balance at March 31, 2021	13,976,556	$	—	$	39,181	$	(10,888)	$	28,293
Issuance of common stock for purchase of business	750,736		—		24,140		—		24,140
Issuance of common stock pursuant to exercise of stock options	16,972		—		80		—		80
Stock-based compensation, net of forfeitures	(2,725)		—		1,193		—		1,193
Net loss	—		—		—		(2,091)		(2,091)
Balance at June 30, 2021	14,744,539	$	—	$	64,594	$	(12,979)	$	51,615


	Common Stock
	Number of			Additional
	Outstanding	Par		Paid in		Accumulated
	Shares	Value		Capital		deficit		Total
Balance at December 31, 2021	16,751,606	$	—	$	100,129	$	(19,979)	$	80,150
Issuance of common stock for purchase of businesses	470,982		—		6,168		—		6,168
Repurchase of common stock	(686,097)		—		(6,045)		—		(6,045)
Stock-based compensation, net of forfeitures	515,772		—		4,139		—		4,139
Net loss	—		—		—		(11,666)		(11,666)
Balance at June 30, 2022	17,052,263	$	—	$	104,391	$	(31,645)	$	72,746


	Common Stock
	Number of			Additional
	Outstanding	Par		Paid in		Accumulated
	Shares	Value		Capital		deficit		Total
Balance at December 31, 2020	13,830,351	$	—	$	37,139	$	(7,488)	$	29,651
Issuance of common stock for purchase of business	777,380		—		25,312		—		25,312
Issuance of common stock pursuant to exercise of stock options	16,972		—		80		—		80
Stock-based compensation, net of forfeitures	119,836		—		2,064		—		2,064
Net loss	—		—		—		(5,491)		(5,491)
Balance at June 30, 2021	14,744,539	$	—	$	64,594	$	(12,979)	$	51,615

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Six months ended June 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(11,666)	$	(5,491)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		2,405		847

Non-cash lease expense		1,097		—
Gain on extinguishment of debt		—		(51)
Gain on sale of mortgages		(1,935)		(1,333)
Stock-based compensation		4,348		2,064
Deferred income taxes		—		(2,650)
Bad debt expense		—		77
Other non-cash		1		29
Change in operating assets and liabilities:
Accounts receivable		(1,461)		(1,372)
Derivative assets		(33)		42
Prepaid and other current assets		(119)		611
Other assets		80		(3)
Accounts payable		787		981
Accrued and other current liabilities		(1,092)		3,703
Derivative liabilities		—		(101)
Operating lease liabilities		(1,074)		62
Mortgage loans held for sale		(131,177)		(42,445)
Proceeds from sale and principal payments on mortgage loans held for sale		140,206		42,338
Net cash provided by (used in) operating activities		368		(2,693)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(732)		(476)
Amounts paid for business and asset acquisitions, net of cash acquired		(2,479)		(11,014)
Purchase of intangible assets		(1,959)		(494)
Net cash used in investing activities		(5,170)		(11,984)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt		(566)		(7)
Proceeds from issuance of common stock		—		80
Net borrowings on warehouse lines of credit		(6,886)		1,403
Repurchase of common stock		(6,045)		—
Net cash (used in) provided by financing activities		(13,497)		1,476

Net decrease in cash, cash equivalents, and restricted cash		(18,299)		(13,201)
Cash, cash equivalents, and restricted cash at beginning of period		37,921		29,562
Cash, cash equivalents, and restricted cash at end of period	$	19,622	$	16,361

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	8	$	4
Income taxes paid		111		—
Amounts due to sellers		1,100		1,816
Capitalized stock-based compensation		125		—
Right of use assets obtained in exchange for new lease liabilities		1,804		1,839
Issuance of common stock for purchase of business		6,168		25,312
Extinguishment of Paycheck Protection Program Loan		—		51
Loan receivable forgiven and used as purchase consideration		—		165

Reconciliation of cash and restricted cash
Cash and cash equivalents	$	19,512	$	12,831
Restricted cash		110		3,530
Total cash, cash equivalents, and restricted cash shown in statement of cash flows	$	19,622	$	16,361

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization, Consolidation and Presentation of Financial Statements

Fathom Holdings Inc. (“Fathom”, “Fathom Holdings,” or and collectively with its consolidated subsidiaries and affiliates, the “Company”) is a national, technology-driven, real estate services platform integrating residential brokerage, mortgage, title, insurance services and supporting software called intelliAgent. The Company’s brands include Fathom Realty, Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, Verus Title and Cornerstone.

The unaudited interim consolidated financial statements include the accounts of Fathom Holdings’ wholly owned subsidiaries. All transactions and accounts between and among its subsidiaries have been eliminated. All adjustments and disclosures necessary for a fair presentation of these unaudited interim consolidated financial statements have been included.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) as determined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results of operations for the periods presented. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the Security and Exchange Commission (“SEC”) on March 9, 2022 (the “Form 10-K”). The results of operations for any interim periods are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. In January and February 2022, the Company acquired Cornerstone Financial (“Cornerstone”) and iPro realty Network (“iPro”), respectively, in separate transactions accounted for as business combinations. Cornerstone is a real estate mortgage business that will help expand the Company’s reach in the Washington DC and surrounding markets. The acquisition of iPro, a real estate brokerage business, is expected to help expand the Company’s reach in the Utah real estate market.

As previously disclosed in the Form 10-K, certain prior period amounts for the three and six months ended June 30, 2021 have been revised to conform to the current presentation. These changes have no impact on our previously reported consolidated balance sheets or statements of operations.

Note 2. Risks and Uncertainties

Certain Significant Risks and Business Uncertainties — 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 consistently profitable, the Company may require additional funds that might not be readily available or might not be on terms that are acceptable to the Company. See “COVID-19 Risks, Impacts and Uncertainties” below, and “Risk Factors” in Part I, Item 1A of the Form 10-K for further detail regarding the risks the Company faces.

Liquidity — The Company has a history of negative cash flows from operations and operating losses. The Company generated net losses of approximately $11.7 million and $5.5 million for the six months ended June 30, 2022 and 2021, respectively. Additionally, the Company anticipates further expenditures associated with the process of expanding its business organically and via acquisitions. The Company had cash and cash equivalents of $19.5 million and $37.8 million as of June 30, 2022 and December 31, 2021, respectively. Management believes that existing cash from its 2021 common stock offering along with its planned budget, which includes continued increases in the number of its agents and transactions at rates consistent with historical growth, plus growth from increasing attach rates across the Company’s businesses from internal referrals and the expected ability to achieve sales volumes necessary to cover forecasted expenses, provide sufficient funding to continue as a going concern for a period of at least one year from the date of the issuance of the unaudited interim consolidated financial statements.

COVID-19 Risks, Impacts and Uncertainties — On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) and the risks to the international community as the virus spreads globally. In March 2020, the WHO classified COVID-19 as a pandemic, based on the rapid increase in exposure globally. COVID-19 remains a pandemic as variants develop and spread.

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company is subject to the risks arising from COVID-19 including its social and economic impacts on the residential real estate industry in the United States. Our management believes that these social and economic impacts, which to date have included but not been limited to the following, could have a significant impact on the Company’s future financial condition, liquidity, and results of operations: (i) restrictions on in-person activities associated with residential real estate transactions arising from shelter-in-place, or similar isolation orders; (ii) decline in consumer demand for in-person interactions and physical home tours; (iii) deteriorating economic conditions, such as increased unemployment rates, recessionary conditions, lower yields on individual investment portfolios, and more stringent mortgage financing conditions; and (iv) global supply chain stresses, which have led to inflation, which had caused the Federal Reserve to increase interest rates.

Given the continuing evolution of COVID-19 and the global responses to curb its spread, the Company is not able to estimate the effects of COVID-19, including any currently known and future variant, on its results of operations, financial condition, or liquidity for the year ending December 31, 2022 and beyond. While the development and availability of multiple COVID-19 vaccines lessened the impact of COVID-19 in 2021 and the six months ended June 30, 2022, if COVID-19 continues, it may have a material adverse effect on the Company’s financial condition, liquidity, and future results of operations.

Russia and Ukraine Conflict — In February 2022, Russia invaded Ukraine resulting in the United States, Canada, the European Union and other countries imposing economic sanctions on Russia. While this conflict has not impacted the Company directly, the full impact on the United States and other economies is unknown and cannot be predicted. This conflict appears to have and could continue to cause an adverse impact on U.S. economy and financial markets, including the inflationary impact of exacerbated supply chains, which could adversely affect the housing industry and home purchases and sales, which in turn could have a material impact on the Company’s financial condition or results of operations.

Use of Estimates — The preparation of the unaudited interim consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to doubtful accounts, legal contingencies, income taxes, deferred tax asset valuation allowances, stock-based compensation, goodwill, estimated lives of intangible assets, and intangible asset impairment. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company might differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Note 3. Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted — In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for losses. In addition, an entity will have to disclose significantly more information about allowances and credit quality indicators. The new standard is effective for the Company for fiscal years beginning after December 15, 2022. The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements and intends to adopt the standard on January 1, 2023.

Note 4. Acquisitions

Acquisition of Red Barn

On March 1, 2021, the Company completed the acquisition of Red Barn, in a transaction deemed immaterial to the Company. The Red Barn acquisition was accounted for as a business combination using the acquisition method of accounting.

Acquisition of Naberly

On March 1, 2021 the Company acquired substantially all of the assets of Naberly for cash consideration of $2.7 million. Based on the Company’s preliminary estimation of the fair value of the assets acquired, the Naberly acquisition was accounted for as an asset

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

acquisition. The total acquisition cost, including transaction costs of approximately $0.1 million was $2.8 million and was recorded as software intangible assets.

During the year ended December 31, 2020, in connection with, and in advance of the closing under the asset purchase agreement to acquire the assets of Naberly, the Company issued to Naberly, an unsecured loan (the “Loan”) in the principal amount of up to $0.2 million with an interest rate of two percent (2%) per annum, compounded annually, and a maturity date of February 28, 2021. The outstanding principal balance of the Loan was forgiven in connection with the closing of the acquisition and was accounted for as part of the purchase consideration transferred to Naberly.

Acquisition of E4:9

On April 16, 2021 the Company purchased 100% of outstanding capital stock of E4:9. The Company accounted for the E4:9 acquisition as a business combination. The purchase price consisted of $9.8 million cash consideration and $16.6 million common stock consideration for a total purchase price of $26.5 million. The aggregate purchase price exceeded the fair value of the net tangible and intangible assets acquired, and accordingly the Company recorded goodwill of approximately $14.4 million.

The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as follows:


Recognized amounts of identifiable assets acquired, and liabilities assumed (amounts in thousands):
Cash		2,843
Accounts Receivable		516
Mortgage loans held for sale		8,147
Derivative assets		90
Prepaid and other current assets		122
Property & Equipment		356
Intangible assets		11,780
Lease right of use assets		1,498
Other long-term assets		7
Total identifiable assets acquired		25,359

Accounts payable and accrued liabilities		938
Escrow liabilities		75
Derivative liabilities		120
Warehouse lines of credit		7,958
Notes payable		486
Lease liability, current portion		337
Lease liability, net of current portion		1,160
Deferred tax liabilities		2,687
Total liabilities assumed		13,761
Total identifiable net assets		11,598
Goodwill		14,882
Net assets acquired		26,480

The Company recognized approximately $0.3 million of acquisition related costs that were expensed in the three and six months ended June 30, 2021 and are included in general and administrative expenses.

Goodwill of approximately $7.4 million and $7.0 million was assigned to the Company’s Mortgage and Other services reporting units, respectively, and is attributable primarily to our assembled workforce and the anticipated future economic benefits of the vertical integration of E4:9’s mortgage lending and insurance product offerings available to our real estate agents. None of the goodwill is expected to be deductible for income tax purposes.

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The fair value associated with identifiable intangible assets was $11.8 million, comprised of customer relationships of $6.2 million, tradenames of $5.2 million and know-how of $0.4 million. Customer relationships is being amortized on an accelerated basis over a useful life of 8 years. Tradenames and know-how are amortized on a straight-line basis over 10 years and 5 years, respectively.

The Company finalized the fair value estimates used in the purchase price allocation related to the E4:9 acquisitions during the quarter ended June 30, 2022, resulting in a $0.4 million adjustment to lower the fair value of of accounts receivable assumed . to $0.5 million with an offsetting increase to goodwill in our Other services reporting unit.

The Company’s condensed consolidated financial statements for the three and six months ended June 30, 2022 and June 30, 2021 include the results of operations of E4:9 since the closing on April 16, 2021. During the three month periods ended June 30, 2022 and 2021 E4:9 contributed $4.3 million and $2.9 million in revenues and $2.4 million and $1.2 million in net loss , respectively. During the six month periods ended June 30, 2022 and 2021 E4:9 contributed $8.6 million and $2.9 million in revenues and $4.0 million and $1.2 million in net loss , respectively.

Acquisition of LiveBy

On April 20, 2021 the Company purchased 100% of the outstanding capital stock of LiveBy Inc. The Company accounted for the LiveBy acquisition as a business combination. The purchase price consisted of $3.4 million cash consideration and $5.6 million common stock consideration for a total purchase price of $9.0 million. The aggregate purchase price exceeded the fair value of the net tangible and intangible assets acquired, and accordingly the Company recorded goodwill of approximately $4.2 million.

The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as follows:


Recognized amounts of identifiable assets acquired and liabilities assumed (amounts in thousands):
Cash		516
Accounts receivable		138
intangible assets		4,920
Prepaid and other current assets		2
Total identifiable assets acquired		5,576

Deferred tax liabilities		621
Accounts payable and accrued liabilities		167
Total liabilities assumed		788
Total identifiable net assets		4,788
Goodwill		4,193
Net assets acquired		8,981

The Company recognized approximately $0.2 million acquisition related costs that were expensed in the three and six months ended June 30, 2021 and are included in general and administrative expenses.

Goodwill was assigned to the technology reporting unit and is attributable primarily to our assembled workforce and the anticipated future economic benefits to the Company’s agents through technology product offerings. None of the goodwill is expected to be deductible for income tax purposes.

The Company’s condensed consolidated financial statements for the three and six months ended June 30, 2022 and June 30, 2021 include the results of operations of LiveBy since the closing on April 20, 2021, During the three month periods ended June 30, 2022 and 2021 LiveBy contributed $0.7 million and $0.5 million in revenues and $0.07 million and $0.1 million in net loss , respectively. During the six month periods ended June 30, 2022 and 2021 LiveBy contributed $1.3 million and $0.5 million in revenues and $0.2 million and $0.1 million in net loss , respectively.

Acquisition of Epic Realty

On June 30, 2021, the Company completed the acquisition of Epic Realty (“Epic”) in a transaction deemed immaterial to the Company. The Epic acquisition was accounted for as a business combination using the acquisition method of accounting.

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Supplemental Pro Forma Financial Information

On an unaudited pro forma basis in thousands, the revenues and net loss of the Company assuming the acquisitions of E4:9 and LiveBy occurred on January 1, 2020, are shown below. The unaudited pro forma information does not purport to present what the Company’s actual results would have been had the acquisition happened on January 1, 2020, nor is the financial information indicative of the results of future operations. The pro forma financial information includes the estimated amortization expense based on the fair value and estimated useful lives of intangible assets as part of the acquisitions of E4:9 and LiveBy.


	Six months ended June 30,
	2021
Revenue	$	139,342
Net loss		(9,242)
Net loss per share (basic)		(0.64)

The Company completed two acquisitions in the six months ended June 30, 2022, both accounted for as business combinations. On January 24, 2022, the Company acquired Cornerstone Financial, a real estate mortgage business in the Washington DC and surrounding markets, for approximately $4.7 million. The purchase price was comprised of $1.1 million in cash consideration and 267,470 shares of common stock with an acquisition date fair value of $3.6 million. Approximately $0.6 million of the cash consideration is due within one year of the acquisition date. On February 8, 2022, the Company acquired iPro Realty Network, a real estate brokerage business in the Utah real estate market, for total consideration of approximately $4.2 million. The purchase price included cash consideration of approximately $1.8 million and 167,824 shares of common stock with an acquisition date fair value of $2.3 million. Approximately $0.1 million of the cash consideration is due within one year of the acquisition date. Assets acquired and liabilities assumed in the individual acquisitions were recorded on the Company’s condensed consolidated balance sheet at their estimated fair values as of the respective dates of acquisition, including mortgage loans held for sale of approximately $3.5 million, lease right of use assets and lease liabilities of approximately $0.6 million, accrued liabilities of approximately $0.4 million and warehouse lines of credit of approximately $3.4 million. The Company recorded finite-lived intangible assets of approximately $3.6 million and goodwill of approximately $4.9 million, prior to the updates to fair values noted below.

The Company updated the fair value estimates used in the purchase price allocation related to the Cornerstone and iPro acquisitions during the quarter ended June 30, 2022, resulting in an increase of $0,4 million in the fair value of assumed finite lived intangible assets, an increase of $0,3 million in other assets, and a $0.7 million decrease in goodwill.o Due to the timing of the acquisition, the valuation of net assets acquired has not been finalized and is expected to be completed by the end of December 2022, and in any case, no later than one year from the acquisition date in accordance with GAAP.

Pro forma information has not been included as it is impracticable to obtain the information due to the lack of availability of historical U.S. GAAP financial data. The results of operations of these businesses do not have a material effect on the Company’s consolidated results of operations. Acquisition related costs incurred during the three and six months ended June 30, 2022, were $8,000 and $60,000, respectively and are included in general and administrative expense.

Note 5. Intangible Assets, Net

Intangible assets, net consisted of the following (amounts in thousands):


	June 30, 2022

	Gross Carrying			Accumulated	Net Carrying
	Amount		Amortization		Value
Trade names	$	7,957	$	(865)	$	7,092
Software development		10,975		(1,963)		9,012
Customer relationships		8,180		(1,478)		6,702
Agent relationships		5,792		(495)		5,297
Know-how		430		(104)		326
	$	33,334	$	(4,905)	$	28,429

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	December 31, 2021

	Gross Carrying		Accumulated		Net Carrying
	Amount		Amortization		Value
Trade names	$	6,326	$	(454)	$	5,872
Software development		9,017		(1,095)		7,922
Customer relationships		8,180		(897)		7,283
Agent relationships		3,030		(233)		2,797
Know-how		430		(61)		369
	$	26,983	$	(2,740)	$	24,243

Estimated future amortization intangible assets as of June 30, 2022 was as follows (amounts in thousands):


Years Ending December 31,
2022 (remaining)	$	2,555
2023		4,864
2024		4,736
2025		4,515
2026		3,931
Thereafter		7,828
Total	$	28,429

During the three months ended June 30, 2022 and 2021, aggregate amortization expense for intangible assets was $1.2 million and $0.7 million, respectively, of which $1.0 million and $0.10 million, respectively, was included in technology and development expense. During the six months ended June 30, 2022 and 2021, aggregate amortization expense for intangible assets was $2.1 million and $0.8 million, respectively, of which $1.5 million and $0.2 million, respectively, was included in technology and development expense.

Note 6. Goodwill

The changes in the carrying value of goodwill by segment as of June 30, 2022 are as noted in the table below (amounts in thousands):


	Real Estate
	Brokerage		Mortgage		Technology		Other (a)		Total
Balance at December 31, 2021	$	1,099	$	7,399	$	4,168	$	7,875	$	20,541
Goodwill acquired during the period		1,461		2,876		—		—		4,337
Fair value measurement adjustment (see Note 4)		94		18		—		446		558
Balance at June 30, 2022	$	2,653	$	10,293	$	4,168	$	8,321	$	25,436

(a)– Other comprises goodwill not assigned to a reportable segment.

There were no accumulated impairment charges as of June 30, 2022 and December 31, 2021.

Note 7. Accrued and Other Current Liabilities

Accrued and other current liabilities consisted of the following (amounts in thousands):


	June 30, 2022		December 31, 2021
Deferred annual fee	$	989	$	546
Due to sellers		1,513		1,400
Accrued compensation		745		1,033
Other accrued liabilities		701		1,512
Total accrued and other current liabilities	$	3,948	$	4,491

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Note 8. Warehouse Lines of Credit

Encompass Lending Group (“Encompass”), an indirect wholly owned subsidiary of the Company, utilizes line of credit facilities as a means of temporarily financing mortgage loans pending their sale. The underlying warehouse lines of credit agreements, as described below, contain financial and other debt covenants. As of June 30, 2022, under two credit facilities Encompass was not in compliance with certain of these debt covenants related to earnings, however, based on communications with these banks, Encompass has received one waiver and expects to receive the second bank waiver on these covenants. If the Company is unable to obtain the bank waiver, the bank may terminate the credit facility.

Encompass maintains a master loan warehouse agreement with a bank whereby Encompass borrows funds to finance the origination or purchase of eligible loans. Interest on funds borrowed is equal to the greater of the mortgage interest rate of the underlying loan or 3.625%. The agreement expires in September 2022. The maximum funding of these loans at June 30, 2022 and December 31, 2021 was $15.0 million. At June 30, 2022 and December 31, 2021, the outstanding balance on this warehouse line was approximately $1.7 million and $4.3 million, respectively.

Encompass maintains a mortgage participation purchase agreement with a bank whereby Encompass borrows funds to finance the origination or purchase of eligible loans. Interest on funds borrowed is equal to the greater of the mortgage interest rate of the underlying loan or 3.5%. The agreement expires in April 2023.The maximum funding of these loans at June 30, 2022 and December 31, 2021 was $25.0 million. At June 30, 2022 and December 31, 2021, the outstanding balance on this warehouse line was approximately $1.7 million and $3.1 million, respectively.

Encompass maintains a warehousing credit and security agreement with a bank whereby Encompass borrows funds to finance the origination of eligible mortgage loans. Interest on funds borrowed is equal to the greater of to the daily LIBOR rate plus 2.00% or 3.5% per annum. The agreement expires in September 2022. The Daily Adjusting LIBOR rate plus 2.00% as of June 30, 2022 and December 31, 2021 was 3.579% and 2.09%, respectively. The maximum funding limit of these loans at June 30, 2022 and December 31, 2021 was $15.0 million. At June 30, 2022 and December 31, 2021, the outstanding balance on this warehouse line was approximately $2.7 million and $2.2 million, respectively.

Note 9. Debt

Long-term debt consisted of the following (amounts in thousands):


	June 30, 2022		December 31, 2021
3.75% Small Business Administration installment loan due May 2050	$	169	$	171
Notes payable:
Non-interest-bearing promissory note due July 1, 2022		210		210
2.5% director and officer insurance policy promissory note due July 31, 2022		—		385
6.0 % executive and officer insurance policy promissory note due October 9, 2022		132		211
Total debt		511		977
Less current portion of the Small Business Administration Loan		(21)		(25)
Less current portion of notes payable		(210)		(806)
Long-term debt, net of current portion	$	280	$	146

During the six month period ended June 30, 2022 approximately $0.1 million of short -term debt associated with our January iPro acquisition was paid.

Note 10. Fair Value Measurements

FASB ASC 820, Fair Value Measurement, (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The methodology

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establishes consistency and comparability by providing a fair value hierarchy that prioritizes the inputs to valuation techniques into three broad levels, which are described below:

●

Level 1 inputs are quoted market prices in active markets for identical assets or liabilities (these are observable market inputs).

●

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability (includes quoted market prices for similar assets or identical or similar assets in markets in which there are few transactions, prices that are not current or prices that vary substantially).

●

Level 3 inputs are unobservable inputs that reflect the entity’s own assumptions in pricing the asset or liability (used when little or no market data is available).

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where evaluated. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure the financial instruments are recorded at fair value.

While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Mortgage loans held for sale – The fair value of mortgage loans held for sale is determined, when possible, using quoted secondary-market prices or purchaser commitments. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan, which would be used by other market participants. The loans are considered Level 2 on the fair value hierarchy.

Derivative financial instruments – Derivative financial instruments are reported at fair value. Fair value is determined using a pricing model with inputs that are unobservable in the market or cannot be derived principally from or corroborated by observable market data. These instruments are Level 3 on the fair value hierarchy.

The fair value determination of each derivative financial instrument categorized as Level 3 required one or more of the following unobservable inputs:

●

Agreed prices from Interest Rate Lock Commitments (“IRLC”)

●

Trading prices for derivative instruments

●

Closing prices at June 30, 2022 and December 31, 2021 for derivative instruments

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 (amounts in thousands):


	Level 1		Level 2		Level 3		Total
Mortgage loans held for sale	$	—	$	6,313	$	—	$	6,313
Derivative assets		—		—		86		86
	$	—	$	6,313	$	86	$	6,399

The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 (amounts in thousands):

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	Level 1		Level 2		Level 3		Total
Mortgage loans held for sale	$	—	$	9,862	$	—	$	9,862
Derivative assets		—		—		53		53
	$	—	$	9,862	$	53	$	9,915

The Company enters into IRLCs to originate residential mortgage loans held for sale, at specified interest rates and within a specific period of time (generally between 30 and 90 days), with customers who have applied for a loan and meet certain credit and underwriting criteria. These IRLCs meet the definition of a derivative and are reflected on the consolidated balance sheets at fair value with changes in fair value recognized in other service revenue on the consolidated statements of operations. Unrealized gains and losses on the IRLCs, reflected as derivative assets and derivative liabilities, respectively, are measured based on the fair value of the underlying mortgage loan, quoted agency mortgage-backed security (“MBS”) prices, estimates of the fair value of the mortgage servicing rights and the probability that the mortgage loan will fund within the terms of the IRLC, net of commission expense and broker fees. The fair value of the forward loan sales commitment and mandatory delivery commitments being used to economically hedge the IRLCs and mortgage loans held for sale not committed to purchasers are based on quoted agency MBS prices.

Note 11. Leases

Operating Leases

The Company has operating leases primarily consisting of office space with remaining lease terms of less than one year to six years, subject to certain renewal options as applicable.

Leases with an initial term of twelve months or less are not recorded on the balance sheet, and the Company does not separate lease and non-lease components of contracts. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.

Our lease agreements generally do not provide an implicit borrowing rate. Therefore, the Company used a benchmark approach to derive an appropriate imputed discount rate. The Company benchmarked itself against other companies of similar credit ratings and comparable quality and derived an imputed rate, which was used in a portfolio approach to discount its real estate lease liabilities. The Company used estimated incremental borrowing rates for all active leases.

The table below presents certain information related to lease costs for the Company’s operating leases (amounts in thousands):