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 ~~September~~June 30, ~~2021~~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 ~~November 8, 2021,~~August 5, 2022, the registrant had ~~14,796,207~~17,052,263 shares common stock outstanding.

Table of Contents

FATHOM HOLDINGS INC.

FORM 10-Q

For the Quarterly Period Ended ~~September~~June 30, ~~2021~~2022

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Unaudited Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	3
	Unaudited Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	4
	Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	76
	Notes to Unaudited Condensed Consolidated Financial Statements	87
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3022
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	4132
ITEM 4.	Controls and Procedures	4232
PART II - OTHER INFORMATION		4334
ITEM 1.	Legal Proceedings	4334
ITEM 1A.	Risk Factors	4334
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4334
ITEM 6.	Exhibits	4435
SIGNATURES		4536

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1. Financial Statements.

FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share data)


	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
ASSETS					(Unaudited)
Current assets:
Cash and cash equivalents	$	8,753	$	28,577	$	19,512	$	37,830
Restricted cash		3,570		984		110		91
Accounts receivable		3,635		1,595		5,020		3,981
Derivative assets		48		—		86		53
Mortgage loans held for sale, at fair value		10,674		—		6,313		9,862
Prepaid and other current assets		2,146		1,700		2,791		2,633
Total current assets		28,826		32,856		33,832		54,450
Property and equipment, net		1,007		155		3,053		1,250
Lease right of use assets		4,504		437		5,640		4,353
Intangible assets, net		23,958		922		28,429		24,243
Goodwill		20,342		799		25,436		20,541
Other assets		95		56		50		93
Total assets	$	78,732	$	35,225	$	96,440	$	104,930
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,016	$	2,596	$	6,089	$	5,303
Accrued liabilities		4,985		1,065
Escrow liabilities		3,509		933
Derivative liabilities		17		—
Accrued and other current liabilities						3,948		4,491
Warehouse lines of credit		10,305		—		6,129		9,577
Long-term debt - current portion		1,211		256		231		831
Lease liability - current portion		1,732		140		1,375		870
Total current liabilities		25,775		4,990		17,772		21,072
Lease liability, net of current portion						5,642		3,562
Long-term debt, net of current portion		146		283		280		146
Lease liability, net of current portion		2,852		301
Deferred tax liabilities		365		—
Total liabilities		29,138		5,574		23,694		24,780
Commitments and contingencies (Note 18)
Stockholders’ equity:
Common stock, 0 par value, 100,000,000 authorized and 14,796,207 and 13,830,351 issued and outstanding as of September 30, 2021 and December 31, 2020, respectively		—		—
Treasury Stock, at cost, 5,683 shares as of September 30, 2021 and December 31, 2020		(30)		(30)
Common stock (0 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)						0		0
Additional paid-in capital		65,977		37,169		104,391		100,129
Accumulated deficit		(16,353)		(7,488)		(31,645)		(19,979)
Total stockholders’ equity		49,594		29,651		72,746		80,150
Total liabilities and stockholders’ equity	$	78,732	$	35,225	$	96,440	$	104,930

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

Table of Contents

FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except share data)


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Revenue
Gross commission income	$	95,300	$	55,848	$	224,703	$	123,375	$	122,053	$	80,246	$	206,097	$	129,402
Other service revenue		5,640		—		10,066		—		6,126		3,937		12,164		4,426
Total revenue		100,940		55,848		234,769		123,375		128,179		84,183		218,261		133,828
Operating expenses
Commission and other agent-related costs		91,263		52,871		214,392		115,915		116,309		76,729		195,788		123,129
Operations and support		2,029		—		3,781		—		1,597		1,683		3,772		1,751
Technology and development										1,048		956		2,523		1,341
General and administrative		9,811		2,851		25,322		6,726		12,358		8,738		23,211		14,557
Marketing		591		218		1,371		587		1,329		378		2,492		780
Depreciation and amortization		931		44		1,778		108		813		438		1,385		459
Total operating expenses		104,625		55,984		246,644		123,336		133,454		88,922		229,171		142,017
(Loss) income from operations		(3,685)		(136)		(11,875)		39
Other (income) expense, net
Gain on the extinguishment of debt		(76)		—		(127)		—
Interest expense, net		2		16		3		81
Other income, net		(28)		—		(66)		(10)
Other (income) expense, net		(102)		16		(190)		71
Loss from operations										(5,275)		(4,739)		(10,910)		(8,189)
Other expense (income), net
Gain on extinguishment of debt										0		—		—		(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		(3,583)		(152)		(11,685)		(32)		(5,509)		(4,705)		(11,481)		(8,101)
Income tax benefit (expense)		210		(32)		2,820		(34)
Income tax expense (benefit)										160		(2,614)		185		(2,610)
Net loss	$	(3,373)	$	(184)	$	(8,865)	$	(66)	$	(5,669)	$	(2,091)	$	(11,666)	$	(5,491)
Net loss per share
Basic	$	(0.24)	$	(0.02)	$	(0.64)	$	(0.01)	$	(0.35)	$	(0.15)	$	(0.72)	$	(0.40)
Diluted	$	(0.24)	$	(0.02)	$	(0.64)	$	(0.01)	$	(0.35)	$	(0.15)	$	(0.72)	$	(0.40)
Weighted average common shares outstanding
Basic		14,312,675		12,156,111		13,948,862		10,721,917		16,039,971		14,048,136		16,180,782		13,750,775
Diluted		14,312,675		12,156,111		13,948,862		10,721,917		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.

Table of Contents

FATHOM HOLDINGS INC.

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

(UNAUDITED)

(in thousands, except share data)


	Common Stock			Treasury Stock									Common Stock
							Additional						Number of			Additional
		Par					Paid in		Accumulated				Outstanding	Par		Paid in		Accumulated
	Shares	Value		Shares	Amount		Capital		deficit		Total		Shares	Value		Capital		deficit		Total
Balance at June 30, 2021	14,741,814	$	—	5,683	$	(30)	$	64,624	$	(12,980)	$	51,614
Share-based compensation, net of forfeitures	54,393		—	—		—		1,353		—		1,353
Balance at March 31, 2022													17,110,909	$	0	$	107,504	$	(25,976)	$	81,528
Issuance of common stock for purchase of business													35,688		0		263		0		263
Repurchase of common stock													(602,286)		0		(5,057)		0		(5,057)
Stock-based compensation, net of forfeitures													507,952		0		1,681		0		1,681
Net loss	—		—	—		—		—		(3,373)		(3,373)	0		0		0		(5,669)		(5,669)
Balance at September 30, 2021	14,796,207	$	—	5,683	$	(30)	$	65,977	$	(16,353)	$	49,594
Balance at June 30, 2022													17,052,263	$	0	$	104,391	$	(31,645)	$	72,746

Common Stock

Treasury Stock










Additional




Par

Paid in

Accumulated

Shares

Value

Shares

Amount

Capital

deficit

Total
Balance at June 30, 2020

10,210,571

$
—

5,683

$
(30)

$
5,297

$
(6,030)

$
(763)
Issuance of common stock in connection with public offering

3,430,000

—

—

—

34,300

—

34,300
Offering costs in connection with public offering

—

—

—

—

(3,183)

—

(3,183)
Share-based compensation, net of forfeitures

(2,522)

—

—

—

97

—

97
Net loss

—

—

—

—

—

(184)

(184)
Balance at September 30, 2020

13,638,049

$
—

5,683

$
(30)

$
36,511

$
(6,214)

$
30,267

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

~~Table of Contents~~


	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			Treasury Stock									Common Stock
							Additional						Number of			Additional
		Par					Paid in		Accumulated				Outstanding	Par		Paid in		Accumulated
	Shares	Value		Shares	Amount		Capital		deficit		Total		Shares	Value		Capital		deficit		Total
Balance at December 31, 2020	13,830,351	$	—	5,683	$	(30)	$	37,169	$	(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
Share-based compensation, net of forfeitures	171,504		—	—		—		3,416		—		3,416
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	—		—	—		—		—		(8,865)		(8,865)	—		—		—		(11,666)		(11,666)
Balance at September 30, 2021	14,796,207	$	—	5,683	$	(30)	$	65,977	$	(16,353)	$	49,594
Balance at June 30, 2022													17,052,263	$	—	$	104,391	$	(31,645)	$	72,746

Common Stock

Treasury Stock









Additional

Par

Paid in

Accumulated


Shares

Value

Shares

Amount

Capital

deficit

Total
Balance at December 31, 2019

10,211,658

$
—

—

$
—

$
4,988

$
(6,148)

$
(1,159)
Issuance of common stock

15,726

—

—

—

83

—

83
Issuance of common stock in connection with public offering

3,430,000

—

—

—

34,300

—

34,300
Offering costs in connection with public offering

—

—

—

—

(3,183)

—

(3,183)
Purchase of treasury stock

(5,683)

—

5,683

(30)

—

—

(30)
Share-based compensation, net of forfeitures

(13,652)

—

—

—

322

—

322
Net loss

—

—

—

—

—

(66)

(66)
Balance at September 30, 2020

13,638,049

$
—

5,683

$
(30)

$
36,511

$
(6,214)

$
30,267


	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.

Table of Contents

FATHOM HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Nine months ended September 30,				Six months ended June 30,
	2021		2020		2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,865)	$	(66)	$	(11,666)	$	(5,491)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		1,778		108		2,405		847
Gain on the extinguishment of debt		(127)		—

Non-cash lease expense						1,097		—
Gain on extinguishment of debt						0		(51)
Gain on sale of mortgages		(3,264)		—		(1,935)		(1,333)
Share-based compensation		2,833		322
Stock-based compensation						4,348		2,064
Deferred income taxes		(2,865)		—		0		(2,650)
Bad debt expense		248		106		0		77
Other non-cash		44		—		1		29
Change in operating assets and liabilities:
Accounts receivable		(908)		(1,093)		(1,461)		(1,372)
Agent annual fees receivable		36		(495)
Other operating assets		9		3
Prepaid and other assets		(797)		(621)
Derivative assets						(33)		42
Prepaid and other current assets						(119)		611
Other assets						80		(3)
Accounts payable		387		1,148		787		981
Accrued liabilities		1,806		280
Escrow liabilities		2,418		—
Operating lease right of use assets		496		16
Other operating liabilities		(103)		(24)
Accrued and other current liabilities						(1,092)		3,703
Derivative liabilities						0		(101)
Operating lease liabilities		(433)		(14)		(1,074)		62
Mortgage loans held for sale		(108,562)		—		(131,177)		(42,445)
Proceeds from sale and principal payments on mortgage loans held for sale		109,299		—		140,206		42,338
Net cash used in operating activities		(6,570)		(330)
Net cash provided by (used in) operating activities						368		(2,693)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(576)		(26)		(732)		(476)
Amounts paid for business and asset acquisitions; net of cash acquired		(10,969)		—
Amounts paid for business and asset acquisitions, net of cash acquired						(2,479)		(11,014)
Purchase of intangible assets		(2,017)		(341)		(1,959)		(494)
Net cash used in investing activities		(13,562)		(367)		(5,170)		(11,984)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt		(399)		(13)		(566)		(7)
Proceeds from the issuance of common stock		80		83
Proceeds from note payable		865		454
Proceeds from issuance of common stock						0		80
Net borrowings on warehouse lines of credit		2,347		—		(6,886)		1,403
Proceeds from the issuance of common stock in connection with public offering		—		34,300
Payment of offering cost in connection with issuance of common stock in connection with public offering		—		(3,183)
Purchase of treasury stock		—		(30)
Extinguishment of note payable		—		(500)
Net cash provided by financing activities		2,893		31,111
Repurchase of common stock						(6,045)		—
Net cash (used in) provided by financing activities						(13,497)		1,476

Net (decrease) increase in cash, cash equivalents, and restricted cash		(17,239)		30,414
Net decrease in cash, cash equivalents, and restricted cash						(18,299)		(13,201)
Cash, cash equivalents, and restricted cash at beginning of period		29,562		579		37,921		29,562
Cash, cash equivalents, and restricted cash at end of period	$	12,323	$	30,993	$	19,622	$	16,361

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest	$	—	$	82	$	8	$	4
Income taxes paid	$	—	$	5		111		—
Amounts due to sellers	$	1,477	$	—		1,100		1,816
Capitalized share-based compensation	$	583	$	—
Right of use assets obtained in exchange for lease liabilities	$	1,839	$	—
Issuance of common stock for the purchase of business	$	25,312	$	—
Issuance of common stock warrants as offering costs in connection with public offering of common stock	$	—	$	678
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	$	127	$	—		0		51
Loan receivable forgiven and used as purchase consideration	$	165	$	—		0		165

Reconciliation of cash and restricted cash
Cash and cash equivalents	$	8,753	$	30,993	$	19,512	$	12,831
Restricted cash		3,570		—		110		3,530
Total cash, cash equivalents, and restricted cash shown in statement of cash flows	$	12,323	$	30,993	$	19,622	$	16,361

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

Table of Contents

FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. ~~Description~~Organization, Consolidation and Presentation of ~~Business and Nature of Operations~~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 ~~software as a service (“SaaS”) offerings to brokerages and agents leveraging our proprietary cloud-based~~supporting software called intelliAgent.

During the nine months ended September 30, 2021, Fathom significantly grew its agent network, expanded its technology offerings, and entered into the residential mortgage lending and home and other insurance businesses by completing four business combinations and an asset acquisition.

On March 1, 2021, the Company acquired the real estate brokerage business of Red Barn Real Estate, LLC (“Red Barn”), a growing Atlanta metro area brokerage with approximately 230 agents. On June 30, 2021, the Company acquired the real estate brokerage business of Epic Realty, LLC (“Epic”), a growing regional brokerage based in greater Boise, Idaho, with approximately 350 agents.

Also on March 1, 2021 the Company acquired the technology platform of Naberly Inc. (“Naberly”) to reduce the Company’s reliance on third-party technology providers and offer more robust technology to agents to help them grow their businesses. On April 20, 2021, the Company acquired LiveBy, Inc. (“LiveBy”), a SaaS business with a technology platform that offers competitive, hyper-local tools for real estate professionals.

On April 16, 2021, the Company acquired E4:9 Holdings, Inc. (“E4:9”), a holding company with three operating subsidiaries, Encompass Lending Group (“Encompass”) (mortgage), Dagley Insurance Agency (home and other insurance) and Real Results (lead generation). These companies are expected to provide agents and associates with new opportunities to grow their businesses, while giving consumers a one-stop-shop for all of their housing needs.

The Company’s brands include Fathom Realty, Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, Verus Title and ~~Verus Title.~~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.

~~Note 2. Summary of Significant Accounting Policies~~

~~Basis of Presentation and Principles of Consolidation~~ — 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, ~~2020~~2021 included in the Company’s Annual Report on Form 10-K filed with the Security and Exchange Commission (“SEC”) on March ~~24, 2021.~~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.

~~The unaudited interim consolidated financial statements include~~As previously disclosed in the ~~accounts of Fathom Holdings’ wholly owned subsidiaries. All transactions~~Form 10-K, certain prior period amounts for the three and ~~accounts between and among its subsidiaries~~six months ended June 30, 2021 have been ~~eliminated. All adjustments~~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 ~~disclosures necessary for a fair presentation of these unaudited interim consolidated financial statements have been included.~~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 ~~II,~~I, Item 1A of ~~this report~~the Form 10-K for further detail regarding the risks the Company faces.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Liquidity — The Company has a history of negative cash flows from operations and operating losses. The Company generated net losses of approximately ~~$8.9~~$11.7 million and $~~0.1~~5.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020, respectively. The Company had cash and cash equivalents of $8.8 million and $28.6 million as of September 30,~~ 2021, ~~and December 31, 2020,~~ respectively. Additionally, the Company anticipates further expenditures associated with the process of ~~integrating acquisitions and~~ expanding its ~~business.~~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 ~~our~~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 ~~originating in Wuhan, China~~ (“COVID-19”) and the risks to the international community as the virus spreads ~~globally beyond its point of origin.~~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; ~~and~~ (iii) deteriorating economic conditions, such as increased unemployment rates, recessionary conditions, lower yields on individual investment portfolios, and more stringent mortgage financing ~~conditions.~~conditions; and (iv) global supply chain stresses, which have led to inflation, which had caused the Federal Reserve to increase interest rates.

Given the ~~daily~~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 ~~specifically the Delta~~any currently known and future variant, ~~and/or other variants,~~ 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 ~~or beyond. If~~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, ~~share-based~~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.

~~Business Combinations~~ — The Company accounts for its business combinations under the provisions of ASC Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the acquisition method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. For transactions that are business combinations, the Company evaluates the existence of goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, is determined using established valuation techniques. A fair value measurement is determined as the price received to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the context of acquisition accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies. The estimated fair values reflected in the acquisition accounting rely on management’s judgment and the expertise of a third-party valuation firm engaged to assist in concluding on the fair value measurements. For the business combinations completed during the nine-month period ended September 30, 2021, the estimated fair value of identifiable intangible assets, primarily consisting of agent relationships, tradenames, customer relationships, know-how and technology, was determined using the relief-from royalty and multi-period excess earnings methods. The most significant assumptions include the estimated remaining useful life, expected future revenue, annual agent revenue attrition, costs to develop new agents, charges for contributory assets, tax rate, discount rate and tax amortization benefit. The most significant variables in these valuations are discount rates and the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in the acquired assets, specific risks, industry beta and capital structure of guideline companies. Management has developed these assumptions on the basis of historical knowledge of the business and projected financial information of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of Management, and such variations may be significant to estimated values.

~~The Company includes the results of operations from the acquisition date in the financial statements for all businesses acquired.~~

~~Asset Acquisitions~~ — The Company follows the guidance in ASC 805-10 for determining the appropriate accounting treatment for asset acquisitions. ASU No. 2017-01, Clarifying the Definition of a Business, provides an initial fair value screen to determine if substantially all of the fair value of the assets acquired is concentrated in a single asset or group of similar assets. If the initial screening test is not met, the set is considered a business based on whether there are inputs and substantive processes in place. Based on the results of this analysis and conclusion on an acquisition’s classification of a business combination or an asset acquisition, the accounting treatment is derived.

If the acquisition is deemed to be a business, the acquisition method of accounting is applied. Identifiable assets acquired and liabilities assumed at the acquisition date are recorded at fair value. If the transaction is deemed to be an asset acquisition, the cost accumulation and allocation model is used whereby the assets and liabilities are recorded based on the purchase price and allocated to the individual assets and liabilities based on relative fair values.

~~Mortgage Loans Held for Sale~~—Mortgage loans held for sale are carried at fair value under the fair value option with changes in fair value recorded in other service revenue on the statements of operations. The fair value of mortgage loans held for sale is typically calculated using observable market information including pricing from actual market transactions, purchaser commitment prices, or broker quotations. The fair value of mortgage loans held for sale covered by purchaser commitments is generally based on commitment prices. The fair value of mortgage loans held for sale not committed to a purchaser is generally based on current delivery pricing using best execution pricing.

~~Intangible Assets, Net~~ — ~~Intangible Assets, net is comprised of definite-lived intangibles and capitalized internal use software.~~

~~Definite-lived intangibles:~~ The Company’s definite-lived intangible assets primarily consist of trade names, agent relationships, customer relationships, know-how and technology acquired as part of the Company’s business acquisitions. For definite-lived intangible assets,whenever impairment indicators are present, the Company performs a review for impairment. The Company calculates the undiscounted value of the projected cash flows associated with the asset, or asset group, and compares this estimated amount to the carrying amount. If the carrying amount is found to be greater, the Company will record an impairment loss for the excess of book value over the fair value. In addition, in all cases of an impairment review, the Company will reevaluate the remaining useful lives of the assets and modify them, as appropriate. Currently, trade names, agent relationships, customer relationships, know-how and software development have a useful life estimated at ten years, seven years, eight years, five years and five years, respectively.

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~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Capitalized internal use software:~~ ~~The Company’s capitalized internal use software consists of internally developed software and developed software acquired pursuant to acquisitions~~. Costs incurred in the preliminary stages of website and software development are expensed as incurred. Once an application has reached the development stage, direct internal and external costs relating to upgrades or enhancements that meet the capitalization criteria are capitalized in intangible assets, net and amortized on a straight-line basis over their estimated useful lives. Maintenance and enhancement costs (including those costs in the post-implementation stages) are typically expensed as incurred, unless such costs relate to substantial upgrades and enhancements to the websites (or software) that result in added functionality, in which case the costs are capitalized as well.

~~Capitalized software costs are amortized over the expected useful lives of the applicable software. Currently, capitalized software for internal use has a useful life estimated between~~ ~~five~~ ~~and seven years. The software acquired pursuant to the Naberly acquisition discussed in Note 3 has a useful life estimated at seven years.~~

Estimated useful lives of website and software development activities are reviewed annually or whenever events or changes in circumstances indicate that intangible assets may be impaired and adjusted as appropriate to reflect upcoming development activities that may include significant upgrades or enhancements to the existing functionality.

~~Goodwill~~ - Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. The Company is organized in 6 reporting units and evaluates the goodwill for the Company as a whole at the reporting unit level. Goodwill is assessed during the fourth quarter of each fiscal year for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. Under the authoritative guidance issued by the FASB, the Company has the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. The goodwill impairment test requires the Company to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the fair value exceeds the carrying amount, then no impairment is recognized. If the carrying amount recorded exceeds the fair value calculated, then an impairment charge is recognized for the difference. The judgments made in determining the projected cash flows used to estimate the fair value can materially impact the Company’s financial condition and results of operations. There was 0 impairment of goodwill during the three or nine months ended September 30, 2021.

~~Revenue Recognition~~ ~~— The Company applies the provisions of FASB ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~ (“ASC 606”), and all related appropriate guidance. The Company recognizes revenue under the core principle to depict the transfer of control to the Company’s customers in an amount reflecting the consideration to which the Company expects to be entitled. In order to achieve that core principle, the Company applies the following five-step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when a performance obligation is satisfied.

The Company has utilized the practical expedient in ASC 606 and elected not to capitalize contract costs for contracts with customers with durations less than one year. The Company does not have significant remaining unfulfilled performance obligations or contract balances.

The Company generates revenue from real estate brokerage services which consists of commissions generated from real estate transactions, which the Company classifies as gross commission income.The Company also generates revenues through mortgage lending, SaaS solutions, as well as title and insurance services, which the Company classifies as other service revenue.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Revenues from real estate brokerage services~~

The Company’s real estate brokerage services revenue substantially consists of commissions generated from real estate brokerage services. The Company is contractually obligated to provide for the fulfillment of transfers of real estate between buyers and sellers. The Company provides these services itself and controls the services of its agents necessary to legally transfer the real estate. Correspondingly, the Company is defined as the principal. The Company, as principal, satisfies its obligation upon the closing of a real estate transaction. The Company has concluded that agents are not employees of the Company, rather deemed to be independent contractors. Upon satisfaction of its obligation, the Company recognizes revenue in the gross amount of consideration it is entitled to receive. The transaction price is calculated by applying the Company’s portion of the agreed-upon commission rate to the property’s selling price. The Company may provide services to the buyer, seller, or both parties to a transaction. When the Company provides services to the seller in a transaction, it recognizes revenue for its portion of the commission, which is calculated as the sales price multiplied by the commission rate less the commission separately distributed to the buyer’s agent, or the “sell” side portion of the commission. When the Company provides services to the buyer in a transaction, the Company recognizes revenue in an amount equal to the sales price for the property multiplied by the commission rate for the “buy” side of the transaction. In instances in which the Company represents both the buyer and the seller in a transaction, it recognizes the full commission on the transaction. Commissions revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction, at which point the entire transaction price is earned. The Company’s customers remit payment for the Company’s services to the title company or attorney closing the sale of property at the time of closing. The Company receives payment upon close of property or within days of the closing of a transaction. The Company is not entitled to any commission until the performance obligation is satisfied and is not owed any commission for unsuccessful transactions, even if services have been provided.

~~Revenues from mortgage services~~

The revenue streams for the Company’s mortgage lending services business are primarily comprised of gains and losses from loans sold, and origination and other fees. The majority of these revenue streams are exempted from ASC 606. Origination and other fees are not specifically separable from actual mortgage loans.

The gain on sale of mortgage loans represents the difference between the net sales proceeds and the carrying value of the mortgage loans sold, including the servicing rights release premiums and is recorded in the statement of operations in other service revenue. Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

~~Servicing rights release premiums represent revenues earned when the risk and rewards of ownership of servicing rights are transferred to third parties.~~

Retail origination fees are principally revenues earned from loan originations. Direct loan origination costs and expenses associated with the loans are charged to expenses when the loans are sold. Interest income is interest earned on originated loans prior to the sale of the asset.

~~Revenues from technology~~

The Company generates revenue from subscription and services related to the use of the LiveBy platform. The SaaS contracts are generally annual contracts paid monthly in advance of service and cancellable upon 30 days’ notice after the first year. The Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform. Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer, and recorded as other service revenue in the statement of operations.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Revenues from title services~~

The Company’s title services revenue includes fees charged for title search and examination, property settlement and title insurance services provided in association with property acquisitions and refinance transactions. The Company provides the title search and property settlement services itself and controls the services before they are transferred to our customers since the Company is primarily responsible for fulfilling the promise and also has full discretion in establishing the price for the settlement services (except in states where fees are set statutorily). As such, the Company is defined as the principal. As principal, the Company satisfies our obligation upon the closing of a real estate transaction. Upon satisfaction of our obligation, the Company recognizes revenue in the gross amount of consideration the Company is entitled to receive. The transaction price for title and property settlement services is determined by the fixed fees the Company charges for our services. The Company provides services to the buyers and sellers involved in the purchase transaction, as well as to the borrower in a refinance transaction. Title and property settlement revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction, at which point the entire transaction price is earned. The Company is not entitled to any title and property settlement revenue until the performance obligation is satisfied and is not owed any consideration for unsuccessful transactions, even if services have been provided.

For title insurance services, the Company works in conjunction with insurance underwriters to perform these services, obtains the insurance policy premiums associated with title insurance on behalf of customers and remits the policy premium to the insurance underwriters. Since the insurance underwriter is ultimately providing the insurance policy to the borrower, the Company is not responsible for fulfilling the promise to provide the insurance. Additionally, the Company does not have discretion in dictating the price for the insurance policy, which is set by each jurisdiction and is either filed by insurance underwriters or set by the state insurance commissioners. Therefore, the Company does not control the specified service provided by the insurance underwriter. As such, in these circumstances, the Company acts as an agent. As the agent, the Company satisfies our obligation upon the closing of a real estate transaction. Upon satisfaction of our obligation, the Company recognizes revenue in the net amount of consideration the Company is entitled to receive, which is our fee for brokering the insurance policy less any consideration paid to the insurance underwriters. The transaction price for title insurance services is fixed, based on statutory rates depending on the jurisdiction. The Company negotiates with insurance underwriters the percentage they receive, and the rest is recognized as revenue. Title insurance revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction, at which point the entire transaction price is earned. The Company is not entitled to any title insurance revenue until the performance obligation is satisfied and is not owed any consideration for unsuccessful transactions, even if services have been provided.

~~Revenues from insurance agency services~~

The revenue streams for the Company’s insurance agency services business are primarily comprised of new and renewal commissions paid by insurance carriers. The transaction price is set as the estimated commissions to be received over the term of the policy based upon an estimate of premiums placed, policy changes and cancellations, net of restraint. The commissions are earned at the effective date of the associated policies when control of the policy transfers to the client.

The Company is also eligible for certain contingent commissions from insurers based on the attainment of specific metrics (i.e., volume growth, loss ratios) related to underlying polices placed. Revenue for contingent commissions is estimated based on historical and current evidence of achievement towards each insurer’s annual respective metrics and is recorded as the underlying policies that contribute to the achievement are placed. Due to the uncertainty of the amount of contingent consideration that will be received, the estimated revenue is constrained to an amount that is probable to not have a significant negative adjustment. Contingent consideration is generally received in the first quarter of the subsequent year.

~~Derivative financial instruments~~ — The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (“interest rate lock commitments”). Interest rate lock commitments on loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with any related fees from potential borrowers, are recorded at fair value in derivative assets and liabilities, with changes in fair value recorded in the statement of operations in other service revenue. Fair value is based upon changes in the fair value of the underlying mortgages, estimated to be realized upon sale into the secondary market. Fair value estimates take into account interest rate lock commitments not expected to be exercised by customers, commonly referred to as fall out.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

The Company manages the interest rate risk associated with its outstanding interest rate lock commitments and loans held for sale by entering into derivative loan instruments such as forward loan commitments, mandatory delivery commitments, options and future contracts, whereby the Company maintains the right to deliver residential loans to purchasers in the future at a specified yield. Fair value is based upon estimated amounts that the Company would receive or pay to terminate the commitment at the reporting date. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline it wants to economically hedge. Management expects the derivatives used to manage interest rate risk will experience changes in fair value opposite to changes in the fair value of the derivative loan commitments and loans held for sale, thereby reducing earnings volatility.

~~Reclassifications~~ — Certain amounts in the prior year consolidated financial statements have been reclassified to conform to the current year presentation with no effect on the previously reported net (loss) income or stockholders’ equity. Subsequent to the acquisitions of LiveBy and E4:9, the Company made a change to its segment reporting structure as more fully described in Note ~~17. This resulted in new line items on the consolidated statement of operations for the following:~~

●

~~Gross commission income is comprised of revenues from the Real Estate Brokerage segment which were previously recorded in revenue~~

●

~~Other service revenue is comprised of revenues not included in the Real Estate Brokerage segment which were previously recorded in revenue~~

●

~~Commission and other agent-related costs is comprised of the direct costs to fulfill the services from the Real Estate Brokerage segment which were previously recorded in cost of revenue~~

●

~~Operations and support are comprised of the direct costs to fulfill the services not included in the Real Estate Brokerage segment which were previously recorded in cost of revenue~~

●

~~Depreciation and amortization represent the depreciation charged on the Company’s fixed assets and intangible assets which were previously recorded in general and administrative expenses.~~

~~Recently Implemented~~3. Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes”. The provisions of ASU 2019-12 include eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The guidance is effective for the reporting period beginning after December 15, 2020, and the interim periods therein. The Company adopted this standard effective January 1, 2021 and the application of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements Not Yet Adopted

— In June 2016, the FASB issued ~~ASU~~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 3.4. 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. ~~Due to~~

Acquisition of Naberly

On March 1, 2021 the ~~timing~~Company acquired substantially all of the ~~acquisition,~~assets of Naberly for cash consideration of $2.7 million. Based on the ~~valuation~~Company’s preliminary estimation of ~~net~~the fair value of the assets acquired, ~~has not been finalized and is expected to be completed no later than one year from~~ the Naberly acquisition ~~date in accordance with GAAP.~~was accounted for as an asset

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Acquisition of Naberly~~

On March 1, 2021 the Company acquired substantially all of the assets of Naberly for cash consideration of approximately $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 acquisition. The total acquisition cost, including transaction costs of approximately $0.1 million was ~~approximately~~ $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 ~~approximately~~ $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 ~~approximately~~ $9.8 million cash consideration and ~~approximately~~ $16.6 million common stock consideration for a total purchase price of ~~approximately~~ $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~~$14.4 million.

The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as ~~follows (amount in thousands):~~follows:

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash

$
2,843
Accounts receivable

958
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

25,801

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

1,161
Deferred tax liabilities

2,686
Total liabilities assumed

13,761
Total identifiable net assets

12,040
Goodwill

14,418
Net assets acquired

$
26,458


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 ~~nine~~three and six months ended ~~September~~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. NaN 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

~~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.~~

The fair value associated with identifiable intangible assets was ~~approximately~~ $11.8 million, comprised of customer relationships of ~~approximately~~ $6.2 million, tradenames of ~~approximately~~ $5.2 million and know-how of ~~approximately~~ $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.

~~Due~~The Company finalized the fair value estimates used in the purchase price allocation related to the ~~timing~~E4:9 acquisitions during the quarter ended June 30, 2022, resulting in a $0.4 million adjustment to lower the fair value of ~~the acquisition, the valuation~~ of ~~net assets acquired has not been finalized and is expected~~accounts receivable assumed . to ~~be completed no later than one year from the acquisition date~~$0.5 million with an offsetting increase to goodwill in ~~accordance with GAAP.~~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 ~~during which period~~ E4:9 contributed ~~approximately~~$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 ~~$1.0~~$1.2 million ~~of revenues and~~in net loss ~~respectively, for the three months ended September 30, 2021 and approximately $6.9 million and $2.6 million of revenues and net loss, respectively, for the nine months ended September 30, 2021,~~, respectively.

Acquisition of LiveBy

On April 20, 2021 the Company purchased 100% of the outstanding capital stock of ~~LiveBy.~~LiveBy Inc. The Company accounted for the LiveBy acquisition as a business combination. The purchase price consisted of ~~approximately~~ $3.4 million cash consideration and ~~approximately~~ $5.6 million common stock consideration for a total purchase price of ~~approximately~~ $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 ~~$4.1~~$4.2 million.

The total purchase consideration and the fair values of the assets and liabilities at the acquisition date were as ~~follows (amount in thousands):~~follows:

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash

$
516
Accounts receivable

138
Intangible assets

4,920
Prepaid and other current assets

2
Total identifiable assets acquired

5,576

Deferred tax liabilities

543
Accounts payable and accrued liabilities

167
Total liabilities assumed

710
Total identifiable net assets

4,866
Goodwill

4,115
Net assets acquired

$
8,981


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 of acquisition related costs that were expensed in the ~~nine~~three and six months ended ~~September~~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~~NaN of the goodwill is expected to be deductible for income tax purposes.

Due to the timing of the acquisition, the valuation of net assets acquired has not been finalized and is expected to be completed no later than one year from the acquisition date in accordance with GAAP.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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 which period~~During the three month periods ended June 30, 2022 and 2021 LiveBy contributed ~~approximately $0.6~~$0.7 million and $0.5 million in revenues and $0.07 million and $0.1 million ofin 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 ~~net income, respectively, for the three months ended September 30, 2021 and approximately $1.0~~$0.2 million and ~~less than~~ $0.1 million ~~of revenues and~~in net loss ~~respectively, for the nine months ended September 30, 2021.~~, 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. ~~Due to the timing~~

Table of ~~the acquisition, the valuation of net assets acquired has not been finalized and is expected to be completed by no later than one year from the acquisition date in accordance with GAAP.~~Contents

FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 (amount in thousands, except per share):~~LiveBy.

Nine months ended September 30,


2021

2020
Revenue

$
240,282

$
136,667
Net loss

$
(15,709)

$
(697)
Net loss per share (basic)

$
(1.07)

$
(0.07)


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

The Company completed 2 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 4. Property and Equipment, Net~~

~~Property and equipment, net consisted of the following at the dates indicated (amount in thousands):~~

September 30, 2021

December 31, 2020
Vehicles

$
—

$
119
Computers and equipment

453

139
Furniture and fixtures

610

44
Leasehold improvements

132

4
Total property and equipment

1,195

306
Accumulated depreciation

(188)

(151)
Total property and equipment, net

$
1,007

$
155

Depreciation expense for property and equipment was approximately $0.1 million and $0.1 million for the three and nine months ended September 30, 2021, respectively, and de minimis amounts for the three and nine months ended September 30, 2020.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Note 5. Intangible Assets, Net

Intangible assets, net consisted of the following ~~at the dates indicated (amount~~(amounts in thousands):

September 30, 2021


Gross




Carrying

Accumulated

Net Carrying

Amount

Amortization

Value
Trade names

$
6,326

$
(562)

$
5,764
Software development

8,182

(852)

7,330
Customer relationships

8,180

(314)

7,866
Agent relationships

2,670

(84)

2,586
Know-how

430

(18)

412

$
25,788

$
(1,830)

$
23,958

December 31, 2020


Gross




Carrying

Accumulated

Net Carrying

Amount

Amortization

Value
Trade names

$
166

$
(1)

$
165
Software development

921

(164)

758

$
1,087

$
(165)

$
922

~~As of September 30, 2021, the estimated future amortization expense for definite-lived intangible assets was (amount in thousands):~~

Years Ended December 31,

2021 (remaining)

$
924
2022

3,802
2023

3,701
2024

3,588
2025

3,353
Thereafter

8,590
Total

$
23,958

Amortization expense was approximately $0.9 million and $1.7 million for the three and nine months ended September 30, 2021, respectively and de minimis amounts for the three and nine months ended September 30, 2020.

~~Note 6. Goodwill~~

The Company recorded goodwill in connection with the acquisition of Verus which closed in November 2020 and in connection with the acquisitions of Red Barn, E4:9, LiveBy and Epic which closed in 2021. These acquisitions have been accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the total purchase price to the tangible and identifiable intangible assets acquired, and assumed liabilities based on their estimated fair values as of the acquisition date, as determined by management. The excess of the purchase price over the aggregate fair values of the identifiable assets was recorded as goodwill.


	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

1811

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The changes in the carrying value of goodwill by segment as of September 30, 2021 are as noted in the table below (amount in thousands):~~

Real Estate


Brokerage

Mortgage

Technology

Other (a)

Total
Balance at December 31, 2020

$
0

$
—

$
—

$
799

$
799
Goodwill acquired during the period

1,009

7,400

4,115

7,019

19,543
Balance at September 30, 2021

$
1,009

$
7,400

$
4,115

$
7,818

$
20,342

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


	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

~~There are 0 accumulated impairment charges~~Estimated future amortization intangible assets as of ~~September~~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 ~~December 31, 2020.~~$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		0		0		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 0 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 ~~at the dates indicated (amount~~(amounts in thousands):


	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Deferred annual fee	$	659	$	293	$	989	$	546
Due to sellers		1,477		—		1,513		1,400
Accrued compensation		1,094		202		745		1,033
Other accrued liabilities		1,755		570		701		1,512
Total accrued liabilities	$	4,985	$	1,065
Total accrued and other current liabilities					$	3,948	$	4,491

Table of Contents

FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Warehouse Lines of Credit

~~As a means~~Encompass Lending Group (“Encompass”), an indirect wholly owned subsidiary of ~~financing mortgage loans held for sale,~~ the Company, utilizes line of credit ~~agreements for the purpose~~facilities as a means of temporarily ~~warehousing~~financing mortgage loans pending ~~the sale of the loans.~~their sale. The underlying warehouse lines of credit ~~are classified~~agreements, as ~~current~~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 ~~condensed consolidated balance sheet and secured by mortgage loans held for sale with fair values that approximate the obligations to the lender.~~

~~The Company maintained a warehousing credit and security agreement with a~~second bank ~~whereby~~waiver on these covenants. If the Company ~~borrowed funds~~is unable to ~~finance~~obtain the ~~origination of eligible mortgage loans. The Company paid interest equal to~~bank waiver, the greater of Prime Rate less 0.75% or 3.85% per annum. The Prime Rate as of September 30, 2021 was 3.25%. The maximum funding limit of these loans was $15.0 million at September 30, 2021. At September 30, 2021, there was 0 outstanding balance on this warehouse line. The agreement expired in October 2021.bank may terminate the credit facility.

~~The Company~~Encompass maintains a master loan warehouse agreement with a bank whereby ~~the Company~~Encompass borrows funds to finance the origination or purchase of eligible loans. ~~The Company pays interest~~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 September~~million. At June 30, ~~2021. At September 30,~~2022 and December 31, 2021, the outstanding balance on this warehouse line was approximately ~~$4.1 million. The credit agreement requires the Company to maintain at least $1.0~~$1.7 million ~~in liquid assets. The agreement expires in July 2022.~~and $4.3 million, respectively.

~~The Company~~Encompass maintains a mortgage participation purchase agreement with a bank whereby ~~the Company~~Encompass borrows funds to finance the origination or purchase of eligible loans. ~~The Company pays interest~~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 September~~million. At June 30, ~~2021. At September 30,~~2022 and December 31, 2021, the outstanding balance on this warehouse line was approximately ~~$6.2 million. The credit agreement requires the Company to maintain at least $1.0~~$1.7 million ~~in liquid assets~~ and have net income for the preceding 12 month period. The agreement expires in April 2023. During the three months ended September 30, 2021, the Company was not in compliance with the income debt covenants and obtained a waiver from the bank through December 31, 2021.$3.1 million, respectively.

~~The Company~~Encompass maintains a warehousing credit and security agreement with a bank whereby ~~the Company~~Encompass borrows funds to finance the origination of eligible mortgage loans. ~~The Company pays interest~~Interest on funds borrowed is equal to the ~~Daily Adjusting~~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 ~~September~~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 September~~million. At June 30, ~~2021. The credit agreement requires~~2022 and December 31, 2021, the ~~Company to maintain at least $1.0 million in liquid assets, a tangible net worth of $2.3 million, debt-to-tangible net worth ratio of 15 to 1 and have net income for the preceding 12 month period.~~

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~The income debt covenant becomes effective in July 2022. The agreement expires in April 2023. At September 30, 2021, there was 0~~ outstanding balance on this warehouse ~~line.~~line was approximately $2.7 million and $2.2 million, respectively.

Note 9. Debt

Long-term debt consisted of the following ~~at the dates indicated (amount~~(amounts in thousands):

September 30, 2021

December 31, 2020
Paycheck Protection Program Loan

$
303

$
354
Small Business Administration Loan

171

150
Note Payable

883

—
Loan Payable - Automobile Loan

—

35
Total debt

1,357

539
Less current portion of the Paycheck Protection Program Loan

(303)

(237)
Less current portion of the Small Business Administration Loan

(25)

(2)
Less current portion of Note Payable

(883)

—
Less current portion of the Loan Payable

—

(17)
Long-term debt, net of current portion

$
146

$
283


	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

~~Note Payable – Paycheck Protection Program Loan~~

~~In May 2020,~~During the Company applied for and received approximately $0.3 million in unsecured loan funding (the “PPP Loan”) from the Paycheck Protection Program (the “PPP”), established pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”).

Under the terms of the promissory note (the “PPP Note”) and the PPP Loan, interest accrued on the outstanding principal at the rate of 1% per annum. The Company believes it has used the entire PPP Note amount for qualifying expenses and applied for forgiveness in March 2021, however, until forgiveness is approved by the SBA there is no assurance that the Company will obtain forgiveness of the PPP Loan in whole or in part.

~~Additionally, in connection with the acquisition of Verus, the Company assumed~~six month period ended June 30, 2022 approximately $0.1 million ~~in additional loan funding from the PPP. The Company received full forgiveness~~ of ~~all outstanding principal, accrued, and unpaid interest on this loan as of~~short -term debt associated with our January ~~6, 2021. The forgiveness of this loan qualified for debt extinguishment in accordance with ASC 470-50,~~ ~~Debt Modifications and Extinguishments~~~~, and as a result, the outstanding principal and accrued and unpaid interest~~iPro acquisition was ~~written off in the amount of approximately $0.1 million and the Company recorded a gain on extinguishment totaling approximately $0.1 million for the nine months ended September 30, 2021.~~

Additionally, in connection with the acquisition of E4:9, the Company assumed approximately $0.1 million in loan funding from the PPP (“E4:9 PPP Loan”). Under the terms of the promissory note (the “E4:9 PPP Note”) and the E4:9 PPP Loan, interest accrued on the outstanding principal at the rate of 1% per annum. The Company received full forgiveness of all outstanding principal, accrued, and unpaid interest on this loan as of August 2021. The forgiveness of this loan qualified for debt extinguishment in accordance with ASC 470-50, ~~Debt Modifications and Extinguishments~~, and as a result, the outstanding principal and accrued and unpaid interest was written off in the amount of approximately $0.1 million and the Company recorded a gain on extinguishment totaling approximately $0.1 million for the three and nine months ended September 30, 2021.

~~Note Payable~~paid.

Additionally, in connection with the acquisition of E4:9, the Company assumed a non-interest-bearing approximately $0.4 million promissory note to be paid in full at maturity date of July 1, 2022. During the three months ended September 30, 2021, the Company paid approximately $0.2 million on the promissory note.

In July 2021, the Company entered into a promissory note for approximately $0.9 million in conjunction with a renewal of its director and officer insurance policy. The interest rate was 2.5% per annum. The note matures on July 31, 2022.

~~Table of Contents~~

~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~Note Payable – Small Business Administration Loan~~

On June 5, 2020, the Company received $0.2 million in loan funding from the SBA (the “SBA Note”) under the Economic Injury Disaster Loan program. The Company will use all the proceeds of this secured SBA Note solely as working capital to alleviate economic injury caused by COVID-19. The SBA Note is evidenced by a promissory note of the Company dated June 5, 2020 in the principal amount of approximately $0.2 million, to the SBA, the lender. Under the terms of the SBA Note, interest accrues on the outstanding principal at a rate of 3.75% per annum, and installment payments began in June 2021. All remaining principal and accrued interest is due and payable in May 2050.

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

Table of Contents

FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 ~~hedges~~instruments

●

Closing prices at ~~September~~June 30, 2022 and December 31, 2021 for derivative ~~hedges~~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):

2114

Table of Contents

FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~The following are the major categories of assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 (amount in thousands):~~


	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Mortgage loans held for sale	$	—	$	10,674	$	—	$	10,674	$	—	$	9,862	$	—	$	9,862
Derivative assets		—		—		48		48		—		—		53		53
Derivative liabilities		—		—		(17)		(17)
	$	—	$	10,674	$	31	$	10,705	$	—	$	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.

~~The Company did not have any mortgage loans held for sale or derivative financial instruments at December 31, 2020.~~

Note 11. Leases

Operating Leases

The Company has operating leases primarily consisting of office space with remaining lease terms of 1less than one year to 7six 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.

~~Lease Costs~~

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


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Components of total lease costs:
Operating lease expense	$	296	$	48	$	589	$	118	$	377	$	246	$	709	$	293
Short-term lease expense		120		12		244		47		115		95		227		124
Total lease cost	$	416	$	60	$	833	$	165	$	492	$	341	$	936	$	417

The following table presents the weighted average remaining lease term and the weighted average discount rate related to operating leases:


	June 30, 2022		December 31, 2021
Weighted average remaining lease term (in years) - operating leases	5.14		4.98
Weighted average discount rate - operating leases	6.14	%	5.91	%

2215

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~Lease Terms and Discount Rate~~

The following table ~~below~~ presents ~~certain information related to~~ the ~~weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases as of:~~

September 30, 2021

December 31, 2020

Weighted average remaining lease term (in years) - operating leases

5.17

3.37

Weighted average discount rate - operating leases

5.92
%
7.67
%

~~Future Minimum Lease Payments~~

~~Future lease payments included in the measurement~~maturities of lease liabilities ~~on the consolidated balance sheet as of September 30, 2021, for the following five fiscal years and thereafter were as follows (amount~~(amounts in thousands):


	Operating		Operating
Years Ended December 31,	Leases		Leases
2021 (remaining)	$	287
2022		1,119
2022 (remaining)			$	888
2023		1,047		1,778
2024		968		1,563
2025		847		1,338
2026 and thereafter		1,103
2026				1,010
2027 and thereafter				1,622
Total minimum lease payments	$	5,371	$	8,199
Less effects of discounting		(787)		(1,182)
Present value of future minimum lease payments	$	4,584	$	7,017

Note 12. ~~Share-based Compensation~~Shareholders’ Equity

~~The~~On March 10, 2022, the Company’s ~~2017 Stock Plan (the “Plan”) provides~~Board of Directors authorized an expenditure of up to $10 million for ~~granting stock options and restricted stock awards to employees, directors, contractors and consultants~~the repurchase of shares of the ~~Company. A total~~Company’s common stock. The share repurchase program does not have a fixed expiration. Under the program, repurchases can be made from time-to-time using a variety of ~~3,182,335~~methods, including open market transactions, privately negotiated transactions or by other means, including through the use of trading plans intended to qualify under Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The actual timing and amount of future repurchases are subject to business and market conditions, corporate and regulatory requirements, stock price, acquisition opportunities and other factors. The repurchase program does not obligate the Company to acquire any particular number of shares and may be suspended or discontinued at any time at the Company’s discretion. During the three months and six months ended June 30, 2022, the Company reacquired 602,286 shares and 686,097 shares, for approximately $5.1 million and $6.0 million, respectively. As of June 30, 2022, the Company had approximately $4.0 million remaining under the share repurchase authorization.

During the six months ended June 30, 2022, the Company issued shares of common stock ~~are authorized to be issued pursuant to the Plan.~~

~~The Company’s 2019 Omnibus Stock Incentive Plan (the “2019 Plan”) provides for granting stock options and restricted stock awards to employees, directors, agents, contractors and consultants~~as part of the ~~Company. A total~~purchase consideration in connection with the acquisitions of ~~1,060,778~~iPro and Cornerstone. Refer to Note 4 for additional information about these acquisitions and the shares of common stock ~~are authorized to be issued pursuant to the 2019 Plan.~~

~~Restricted Stock Awards~~

Weighted

Average Grant

Shares

Date Fair Value
Nonvested at December 31, 2020

390,787

$
13.56
Granted

230,976

37.22
Vested

(67,816)

(29.87)
Forfeited

(23,950)

(12.90)
Nonvested at September 30, 2021

529,997

$
10.90

In March 2021, pursuant to the 2019 Plan, the Company granted 82,003 restricted stock awards to certain employees and agents, of which 4,564 awards vested immediately and the remaining 77,439 awards will vest three years from the grant date subject to continuous service with the Company. The fair value of these restricted stock awards was $32.87 per share based on the Company’s closing stock price on the grant date.

In March 2021, pursuant to the 2019 Plan, in connection with the Company’s acquisitions of Naberly and Red Barn (See Note 3), the Company granted 44,568 restricted stock awards to former founders who are now employees of the Company, of which 10,478 will

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~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

vest one year from the grant date, and the remaining 34,090 will vest 18 months from the grant date. The fair value of the Company’s restricted stock awards granted in March 2021 was $44.00 per share based on the Company’s closing stock price on the grant date.

~~Stock Option Awards~~

~~A summary of stock option activity under the Plans are as follows:~~

Weighted Average

Weighted

Remaining

Options

Average

Contractual Term

Aggregate


Outstanding

Exercise Price

in Years

intrinsic value

(in thousands)
Balance at December 31, 2020

47,332

$
8.03

8.8

$
1,326
Granted

13,638

44.00

Exercised

(16,974)

4.71

Balance at September 30, 2021

43,996

$
20.46

8.5

$
510
Options exercisable at September 30, 2021

20,156

$
4.71

7.5

$
433

In March 2021, pursuant to the 2019 Plan, the Board granted stock option awards to the independent directors to acquire shares of common stock with an exercise price of $44.00 per share. The stock options will vest on the earlier of (a) one year from the date of grant and (b) the next annual stockholder meeting, subject to the director’s continued service on the Board.

~~Stock based compensation related to the Company’s stock plans are as follows (amount in thousands):~~

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
General and administrative

$
295

$
97

$
1,811

$
322
Commission and other agent-related cost

474

—

1,022

—
Total stock-based compensation

$
769

$
97

$
2,833

$
322

issued.

The Company ~~capitalized $0.6 million of stock-based compensation expense associated with the cost of developing software for internal use during the three and months ended September 30, 2021.~~

~~Note 13. Equity-classified Warrants~~

Onhas an outstanding equity-classified warrant issued to an underwriter in August 4, 2020 ~~the Company issued a warrant to the underwriter of its initial public offering (“IPO”)~~ (the “Underwriter Warrant”) to purchase 240,100 shares of common stock. The Underwriter Warrant is exercisable at a per share exercise price of $11.00 and is exercisable at any time from and after January 31, 2021 through August 4, 2025. As of June 30, 2022, 0 portion of the Underwriter Warrant has been exercised or expired.

Note 13. Stock-based Compensation

Stock based compensation related to the Company’s stock plans was as follows (amounts in thousands):


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Commission and other agent-related cost	$	795	$	498	$	1,627	$	884
Operations and support		369		118		440		167
Technology and development		76		284		78		573
General and administrative		621		265		2,078		392
Marketing		80		28		125		47
Total stock-based compensation	$	1,941	$	1,193	$	4,348	$	2,063

During the ~~nine~~three and six months ended ~~September~~June 30, ~~2021,~~2022, the Company capitalized $0.07 million and $0.13 million, respectively, of stock-based compensation expense associated with the cost of developing software for internal use.

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

At June 30, 2022, total unrecognized compensation cost related to non-vested restricted stock awards was $12.7 million, which is expected to be recognized over a period of approximately 1.62 years. There was 0 ~~warrants~~unrecognized compensation cost related to ~~purchase common~~ stock options, as all outstanding stock options were ~~issued, exercised, or expired.~~vested at June 30, 2022.

During the six months ended June 30, 2022, the Company granted 591,976 restricted stock awards at a weighted-average grant-date fair value of $9.97. There were 0 grants of stock options during the six months ended June 30, 2022.

Note 14. Related Party Transactions

Included in revenue for the three and nine months ended September 30, 2020 was approximately $0.1 million and $0.4 million, respectively, from a related party in exchange for the Company providing lead generation services.

~~Included in marketing~~Marketing expense for the three months ended ~~September~~June 30, 2022 and 2021 ~~and 2020 was~~includes approximately $0.1 million and, ~~less than $0.1~~$0.08 million ~~respectively,~~ and for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020 was~~2022 amd 2021includes approximately ~~$0.4~~$0.3 million and ~~$0.1~~$0.2 million, respectively, tofrom related parties in exchange for the Company receiving marketing services.

~~Note 15. Net (Loss) Income per Share Attributable to Common Stock~~

Basic net (loss) income per share of common stock is computed by dividing net (loss) income attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net (loss) income per share is calculated

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~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

Note 15. Net Loss per Share Attributable to Common Stock

Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Diluted ~~(loss) income~~loss per share excludes, when applicable, the potential impact of stock options, unvested shares of restricted stock awards, and common stock warrants because their effect would be anti-dilutive due to ~~our~~ net loss.

The calculation of basic and diluted net loss per share attributable to common stock was as ~~follows:~~follows (amounts in thousands except share data):

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Net loss

$
(3,373)

$
(184)

$
(8,865)

$
(66)

Weighted-average basic shares outstanding

14,312,675

12,156,111

13,948,862

10,721,917
Effect of dilutive securities:

Unvested restricted stock awards

—

—

—

—
Stock options

—

—

—

—
Weighted-average diluted shares outstanding

14,312,675

12,156,111

13,948,862

10,721,917

Net loss per share - basic and diluted

$
(0.24)

$
(0.02)

$
(0.64)

$
(0.01)


	Three months ended				Six months ended
	June 30,				June 30,
	2022		2021		2022		2021
Numerator:
Net loss attributable to common stock—basic and diluted	$	(5,669)	$	(2,091)	$	(11,666)	$	(5,491)
Denominator:
Weighted-average basic and diluted shares outstanding		16,039,971		14,048,136		16,180,782		13,750,775

Net loss per share attributable to common stock—basic and diluted	$	(0.35)	$	(0.15)	$	(0.72)	$	(0.40)

The following outstanding shares of common stock equivalents were excluded from the computation of the diluted net loss per share attributable to common stock for the periods presented because their effect would have been ~~anti-dilutive.~~anti-dilutive:


	Three months ended		Nine months ended		Three months ended		Six months ended
	September 30,		September 30,		June 30,		June 30,
	2021	2020	2021	2020	2022	2021	2022	2021
Stock options	43,996	37,130	43,966	37,130	43,996	43,998	43,996	43,998
Unvested restricted stock awards	529,997	214,329	529,997	214,329
Non-vested restricted stock awards					1,192,447	498,806	1,192,447	498,806
Common stock warrants	240,100	240,100	240,100	240,100	240,100	240,100	240,100	240,100

Note 16. Income Taxes

As of December 31, 2020, the Company had federal net operating loss carryforwards of approximately $9.2 million and state net operating loss carryforwards of approximately $4.5 million. Losses will begin to expire, if not utilized, in 2032. Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar provisions.

The Company applies the standards on uncertainty in income taxes contained in ASC Topic 740, Accounting for Income Taxes. The adoption of this interpretation did not have any impact on the Company’s consolidated financial statements, as the Company did 0t have any significant unrecognized tax benefits during the three and nine months ended September 30, 2021 or the year ended December 31, 2020. Currently, the statute of limitations remains open subsequent to and including the year ended December 31, 2016.

In determining the quarterly provision for income taxes, the Company used the annual effective tax rate applied to year-to-date income. The Company’s annual estimated effective tax rate differs from the statutory rate primarily as a result of state taxes, permanent differences, and changes in the Company’s valuation allowance. The income tax effects of unusual or infrequent items including a change in the valuation allowance as a result of a change in judgment regarding the realizability of deferred tax assets are excluded from the estimated annual effective tax rate and are required to be discretely recognized in the interim period they occur.

The ~~effective tax rate differed significantly in the nine months ended September 30, 2021 from prior periods. The~~ Company has historically maintained a valuation allowance against deferred tax assets and reported only minimal current state tax expense. For the three and six months ended June 30, 2022, the Company recorded income tax expense of approximately

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

$160,000 and $185,000 respectively. The Company expects to maintain a valuation allowance on current year remaining net deferred tax assets by year-end due to historical operating losses.

The Company recorded an income tax benefit of approximately ~~$2.8~~$2.6 million for both the three and ~~income tax expense of $33,500 for the nine~~six months ended ~~September~~June 30, ~~2021 and 2020 respectively.~~2021. The tax benefit ~~for the nine months ended September 30, 2021 is~~was primarily the result of the release of the valuation allowance against historical deferred tax assets and recognition of benefit from the current year projected loss. Net deferred tax liabilities of approximately ~~$3.2~~$3.3 million recorded in connection with the E4:9 Holdings, Inc. and LiveBy, ~~Inc~~Inc. acquisitions ~~provide~~provided a source of taxable income to support the realizability of approximately $1.6 million of pre-existing deferred tax

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~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

assets, as well as ~~currently generated~~ deferred tax assets from the projected loss for the ~~year.~~year ended December 31, 2021. The taxable temporary differences relating to the amortizable intangible assets ~~support~~supported the realization of the net operating loss carryforwards. As a result of the transactions, the Company discretely released the historical valuation allowance and recognized a deferred tax benefit on a portion of ~~current year losses. The remainder of~~losses for the ~~benefit not recorded in the period~~three and six months ended ~~September~~June 30, ~~2021 is expected to be recognized in the period ending December 31,~~ 2021. ~~The Company expects to maintain a valuation allowance on current year remaining net deferred tax assets by year-end due to historical operating losses.~~

Note 17. Segment Reporting

The Company identifies an operating segment as a component: (i) that engages in business activities from which it may earn revenues and incur expenses; (ii) that has available discrete financial information; and (iii) whose operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”) to allocate resources and to assess the operating results and financial performance of each operating segment.

Historically, management has not made operating decisions nor assessed performance based on geographic locations. Rather, the CODM has made operating decisions and assessed performance based on the services of identified operating segments. Prior to the acquisition of E4:9 during the three months ended June 30, 2021 which included the mortgage lending and insurance agency services, the Company aggregated its real estate brokerage services segment and its affiliated services (e.g., title insurance) segment as the profits and losses and assets of the affiliated services segment were not material.

~~During the three months ended June 30, 2021, the Company identified~~Company’s 3 reportable ~~segments:~~segments are Real Estate Brokerage, Mortgage and Technology. Through its Real Estate Brokerage segment, the Company provides real estate brokerage services. Through its Mortgage segment, the Company provides residential loan origination and underwriting services. Through its Technology segment, the Company provides SaaS solutions and data mining for third party customers to develop its intelliAgent platform for current use by the Company’s real estate agents. ~~As a result, the Company has modified the presentation of its segment financial information with retrospective application to all prior periods presented.~~

Revenue and Adjusted EBITDA are the primary measures used by the ~~CODM~~Chief Operating Decision Maker (“CODM”) to evaluate financial performance of the reportable segments and to allocate resources. Adjusted EBITDA represents the revenues of the operating segment less operating expenses directly attributable to the respective operating segment. Adjusted EBITDA is defined by usthe Company as net income (loss) ~~before~~, excluding other expense, costs related to acquisitions, income tax benefit, depreciation and amortization, ~~interest expense, net, income taxes,~~ and ~~other items.~~stock-based compensation expense. In particular, the Company believes the exclusion of non-cash ~~share-based~~stock-based compensation expense related to restricted stock awards and stock options and transaction-related costs provides a useful supplemental measure in evaluating the performance of ~~our~~the Company’s operations and provides better transparency into ~~our~~its results of operations. The Company’s presentation of Adjusted EBITDA might not be comparable to similar measures used by other companies.

The Company does not allocate assets to its reportable segments as they are not included in the review performed by the CODM for purposes of assessing segment performance and allocating resources. The balance sheet is managed on a consolidated basis and is not used in the context of segment reporting.

~~Key operating data for the reportable segments for the three and nine months ended September 30, 2021 and are set forth in the tables below (amount in thousands).~~ The Company has included the results of the acquisitions during the reported periods from the acquisition ~~date. As such,~~date of the respective acquisition.

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~key~~Key operating data for the reportable segments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020 include only~~2022 and 2021 are set forth in the ~~result of the Real Estate Brokerage reportable segment.~~tables below (amounts in thousands):


		Revenue
		Three months ended			Six months ended
		June 30,			June 30,
Revenue	2022		2021		2022		2021
Real Estate Brokerage	$	122,053	$	80,246	$	206,097	$	129,402
Mortgage		2,642		1,502		5,506		1,502
Technology		656		530		1,301		599
Corporate and other services (a)		2,828		1,905		5,357		2,325
Total revenue	$	128,179	$	84,183	$	218,261	$	133,828

Revenue

Three months ended

Nine months ended

September 30,

September 30,


2021

2020

2021

2020
Real Estate Brokerage

$
95,300

$
55,848

$
224,702

$
123,375
Mortgage

2,623

—

4,125

0
Technology

679

—

1,278

0
Corporate and other services (a)

2,338

—

4,664

0
Total Company

$
100,940

$
55,848

$
234,769

$
123,375


	Adjusted EBITDA								Adjusted EBITDA
	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020
Adjusted EBITDA									2022		2021		2022		2021
Real Estate Brokerage	$	199	$	6	$	188	$	469	$	1,755	$	495	$	2,709	$	(11)
Mortgage		(101)		—		(991)		0		(860)		(890)		(1,350)		(890)
Technology		56		—		(566)		0		(325)		(307)		(693)		(622)
Total Segment Adjusted EBITDA		154		6		(1,369)		469		570		(702)		666		(1,523)
Corporate and other services (a)		(1,961)		—		(4,755)		0		(2,554)		(1,572)		(4,763)		(2,794)
Total Company Adjusted EBITDA	$	(1,807)	$	6	$	(6,124)	$	469		(1,984)		(2,273)		(4,097)		(4,315)
Less:Depreciation and amortization		(931)		(45)		(1,778)		(108)
Other income (expense), net		102		(16)		190		(71)
Income tax benefit (expense)		210		(32)		2,820		(34)
Depreciation and amortization										1,343		745		2,405		847
Other expense (income), net										234		(34)		571		(88)
Income tax expense (benefit)										159		(2,615)		185		(2,610)
Stock based compensation		(770)		(97)		(2,833)		(322)		1,941		1,193		4,348		2,063
Transaction-related costs		(177)		—		(1,140)		0		8		529		60		963
Net loss	$	(3,373)	$	(184)	$	(8,865)	$	(66)	$	(5,669)	$	(2,091)	$	(11,666)	$	(5,491)

(a)

Transactions between segments are eliminated in consolidation. Such amounts are eliminated through the Corporate and Other services line.

Note 18. Commitments and Contingencies

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 of employees versus independent contractors, 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~~various liabilities 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. As of ~~September~~June 30, ~~2021,~~2022, there was no material litigation against the Company.

In conducting its operations, the Company routinely holds customers’ assets in escrow, pending completion of real estate transactions, and is responsible for the proper disposition of these balances for its customers. Certain of these amounts are maintained in segregated bank accounts and have not been included in the accompanying consolidated balance sheets, consistent with GAAP and industry practice. The balances amounted to $3.8 million and $2.3 million at June 30, 2022 and December 31, 2021, respectively.

Encompass Net Worth Requirements

In order to maintain approval from the U.S. Department of Housing and Urban Development to operate as a Title II non-supervised mortgagee, our indirect subsidiary Encompass is required to maintain adjusted net worth of $1,000,000 and must maintain liquid assets (cash, cash equivalents, or readily convertible instruments) of 20% of the required net worth. As of ~~September~~June 30, ~~2021,~~2022, Encompass had adjusted net worth of approximately ~~$2.4~~$3.1 million and liquid assets of ~~$2.5~~$4.1 million.

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FATHOM HOLDINGS INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Commitments to Extend Credit

Encompass enters into IRLCs with borrowers who have applied for residential mortgage loans and have met certain credit and underwriting criteria. These commitments expose ~~the~~ Encompass to market risk if interest rates change and the underlying loan is not economically hedged or committed to a purchaser. Encompass is also exposed to credit loss if the loan is originated and not sold to a

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~~FATHOM HOLDINGS INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

purchaser and the mortgagor does not perform. The collateral upon extension of credit typically ofincludes a first deed of trust in the mortgagor’s residential property. Commitments to originate loans do not necessarily reflect future cash requirements as commitments are expected to expire without being drawn upon.

Regulatory Commitments

Encompass is subject to periodic audits and examinations, both formal and informal in nature, from various federal and state agencies, including those made as part of the regulatory oversight of mortgage origination, servicing and financing activities. Such audits and examinations could result in additional actions, penalties or fines by state or federal government bodies, regulators or the courts.

~~Note 19. Subsequent Events~~

All subsequent events requiring recognition as of September 30, 2021 have been incorporated into these financial statements and there are no subsequent events that require disclosure in accordance with ASC Topic 855 - Subsequent Events.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Company’s consolidated operating results are affected by a wide variety of factors that could materially and adversely affect revenues and profitability, including the risk factors described in ~~the section titled “Risk Factors” included in Item 1A of Part II of this Quarterly~~our most recent Annual Report on Form ~~10-Q,~~10-K, as amended (the “Form 10-K”), and ~~the risks discussed~~any risk factors described in ~~our other filings with the Securities and Exchange Commission (“SEC”).~~this quarterly report. As a result of these and other factors, the Company ~~might~~may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, consolidated financial condition, liquidity, operating results, and common stock prices. Furthermore, this ~~document~~quarterly report, the Form 10-K and other documents filed by the Company with the ~~SEC~~Securities and Exchange Commission (“SEC”) contain certain forward-looking statements under the Private Securities Litigation Reform Act of 1995 (“Forward-Looking Statements”) with respect to the business of the Company. Forward-Looking Statements are necessarily subject to risks and uncertainties, many of which are outside our control, that could cause actual results to differ materially from these statements. Forward-Looking Statements can be identified by such words as ~~“anticipates,~~“anticipate,” ~~“believes,~~“believe,” “goals,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” ~~“assumes,~~“predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” ~~“estimates,~~“continue,” ~~“expects,” “intends,” “potential,” “seek,” “predict,” “may,” “might,” “will”~~“forecast” and similar references to future periods. All statements other than statements of historical facts included in this report regarding our strategies, prospects, financial condition, operations, costs, plans and objectives and regarding the anticipated impact of COVID-19 and other global forces are Forward-Looking Statements. These Forward-Looking Statements are subject to certain risks and uncertainties, including those detailed in the Form 10-K and in any risk factors described in this ~~Quarterly Report on Form 10-Q,~~quarterly report, which could cause actual results to differ materially from these Forward-Looking Statements. ~~The~~Except as required by law, the Company undertakes no obligation to publicly release the results of any revisions to these Forward-Looking Statements which may be necessary to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Any Forward-Looking Statement made by the Company is based only on information currently available to us and speaks only as of the date on which it is made.

The terms the “Company,” “Fathom,” “we,” “us,” and “our” as used in this report refer to Fathom Holdings Inc. and its consolidated subsidiaries unless otherwise specified.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The information in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s consolidated financial statements and the related notes set forth in Item 1 of Part I of this Quarterly Report on Form 10-Q, our MD&A set forth in ~~our Annual Report on~~the Form 10-K, and our audited consolidated financial statements and related notes set forth in ~~our Annual Report on~~the Form 10-K. See Part I, Item 1.A of the Form 10-K, Part II, Item 1A, “Risk Factors,” below, and “Special Note Regarding Forward-Looking Information,” above, and the information referenced therein, for a description of risks that we face and important factors that we believe could cause actual results to differ materially from those in our ~~Forward-Looking Statements.~~forward-looking statements. All statements herein regarding the likely impact of COVID-19 and other potential risks constitute ~~Forward-Looking Statements.~~forward-looking statements. When we cross-reference to a “Note,” we are referring to our “Notes to Unaudited Condensed Consolidated Financial Statements,” unless the context indicates otherwise. All amounts noted within the tables are in thousands except per share amounts or where otherwise noted and percentages are approximate due to rounding.

Given the volatility of the global environment as a result of the ongoing COVID-19 pandemic, the effect of COVID-19 will not be fully reflected in our results of operations and financial performance until future periods.

Overview

Fathom isRealty LLC was originally founded in January of 2010 and later incorporated as Fathom Holdings Inc. in the state of North Carolina on May 5, 2017. We are a national, technology-driven, ~~end to end~~ real estate services ~~company~~platform integrating residential brokerage, mortgage, title, insurance, and ~~SaaS~~Software as a Service (“SaaS”) offerings ~~for brokers~~to brokerages and ~~agents. Our primary operation,~~agents by leveraging our proprietary cloud-based software, intelliAgent. The Company’s brands include Fathom Realty, ~~(as defined below), operates as a real estate brokerage company, working with real estate agents to help individuals purchase~~Dagley Insurance, Encompass Lending, intelliAgent, LiveBy, Real Results, and ~~sell residential and commercial properties, primarily in the South, Atlantic, Southwest, and Western parts of the United States, with the intention of expanding into all states.~~Verus Title.

Fathom Realty Holdings, LLC, a Texas limited liability company (“Fathom Realty”), is a wholly owned subsidiary of Fathom Holdings Inc. ~~that was formed on April 11, 2011 and is headquartered in Cary, North Carolina.~~ Fathom Realty owns 100% of 3435 subsidiaries, each an LLC representing the state in which the entity operates (e.g., Fathom Realty NJ, LLC).

Our reportable segments are Real Estate Brokerage, Mortgage and Technology.

Corporate Developments During 2022 and 2021

In January 2022, the Company acquired Cornerstone, a real estate mortgage business that is expected to help expand the Company’s reach in the Washington DC and surrounding markets.

In February 2022, the Company acquired iPro, a real estate brokerage business that is expected to help expand the Company’s reach in the Utah real estate market.

In March 2021, the Company completed its acquisitions of Red Barn Real Estate, LLC (“Red Barn”) and Naberly Inc. (“Naberly”). The acquisition of Red Barn, a real estate brokerage business, ~~will~~is expected to help us to expand our reach in the Atlanta region real estate market. ~~We believe the~~The acquisition of Naberly ~~will help to expand and~~is facilitating our further ~~develop~~development of our proprietary intelliAgent platform to enhance offerings and improve operational efficiency.

In April 2021, the Company completed its ~~acquisitions~~acquisition of E4:9 Holdings, Inc. (“E4:~~9) and LiveBy, Inc. (“LiveBy”~~9”). The acquisition of E4:9 is part of our vision to build a vertically integrated, end-to-end real estate operation by offering mortgage and insurance services to our agents ~~in serving~~to further serve our customers.

Also in April 2021, the Company completed its acquisition of LiveBy, Inc. (“LiveBy”). We believe the acquisition of LiveBy and its hyperlocal data and technology platform builds credibility for our real estate agents in their respective geographic areas by showcasing their local expertise and helping customers discover the best locations in which to live.

In June 2021, the Company completed its acquisition of Epic Realty (“Epic”). The acquisition of Epic, a real estate brokerage business, ~~will~~should help us to expand our reach in the Idaho real estate market. We further augmented our realty presence in Idaho with the addition of Woodhouse Group Realty (“Woodhouse”) in November 2021.

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In November 2021, the Company completed an offering of common stock, which resulted in the issuance and sale by the Company of 1,750,000 shares of common stock, at a public offering price of $25.00 per share, generating gross proceeds of approximately $35 million, of which the Company received approximately $32.5 million, after deducting underwriting discounts and other offering costs (the “2021 Equity Offering”).

COVID-19 and Other Risks

Our business is dependent on the economic conditions within the markets in which we operate. Changes in these conditions can have a positive or negative impact on our business. The economic conditions influencing the housing markets primarily include economic growth, interest rates, unemployment, consumer confidence, mortgage availability, and supply and demand.

In periods of economic growth, demand typically increases resulting in increasing home sales transactions and home sales prices. Similarly, a decline in economic growth, increasing interest rates and declining consumer confidence generally decreases demand. Additionally, regulations imposed by local, state, and federal government agencies ~~and geopolitical instability,~~ can also negatively impact the housing markets in which we operate. Finally, national and global events, including geopolitical instability, that impact economic conditions and financial markets, including interest rates, can adversely impact the housing market.

In December 2019, a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This new coronavirus has caused a global health emergency and was declared a pandemic by the World Health Organization in March 2020 (“COVID-19’’ or the “Pandemic”). In an effort to contain and slow the spread of COVID-19, governments implemented various measures, such as, ordering non-essential businesses to close, issuing travel advisories, cancelling large scale public events, ordering residents to shelter in place, and requiring the public to practice social distancing. In most states, real estate has been considered an essential business.

~~Table~~ The emergence and spread of ~~Contents~~the Delta and Omicron variants of COVID-19 or other more transmissible variants may extend the impact of COVID-19 on our business.

We are continually monitoring the affects COVID-19 could have on our business. We believe that in the states and regions in which we operate the social and economic impacts, which include, but are not limited to, the following, could have a significant bearing on our 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; and (iii) deteriorating economic conditions, such as increased unemployment rates, recessionary conditions, lower yields on individual investment portfolios, and more stringent mortgage financing conditions. In response to COVID-19, the Company implemented cost-saving measures early on to include the elimination of non-essential travel and in-person training activities, and deferral of certain planned expenditures.

For the year ended December 31, 2021, and the six months ended June 30, 2022, due in part to the widespread availability of multiple COVID-19 ~~has materially~~vaccines, the effects of the COVID-19 on business worldwide lessened. However, the continuing impact from COVID-19, as well as the Ukraine conflict, including inflationary pressure in the U.S. and ~~adversely affected businesses worldwide. While the Federal Reserve’s quantitative easing~~world economies due to supply chain and ~~lowering of~~other issues, including recent increases in interest rates, ~~could offset some~~is not fully known and cannot be estimated as the U.S. and global economies continue to react.

The impact of ~~the negative impacts on housing demand, it is too early to determine whether the lower interest rates can overcome the current economic concerns and rising uncertainty. According~~COVID-19 to the NAR housing statistics, existing home sales rose 7% on a seasonally adjusted annual rate from August to September, with no region showing a sales decline. The inventory of unsold homes decreased 13% to 1.27 million year-over-year, which is equivalent to 2.4Company for the year ended December 31, 2021, and for the six months of the monthly sales pace. The median existing-home sales price rose at a year-over-year pace of 13%. We believe these trends were driven by declining mortgage rates, a decline in inventory, and an increasing demand for remote workspace, among other factors.

ended June 30, 2022, has been minimal. Despite the ongoing Pandemic, the Company’s transactions and base of agents increased during ~~2020~~2021 and ~~during~~ the first ~~nine~~six months of ~~2021.~~2022. However, while the Company believes it is well positioned in times of economic uncertainty, it is not able to estimate the effects of COVID-19 ~~including specifically the Delta variant and/or other variants,~~ on its results of operations, financial condition, or liquidity for the year ending December 31, ~~2021~~2022 the six months ended June 30, 2022 and beyond. If the Pandemic continues, it might have a material adverse effect on the Company’s financial condition, liquidity, and future results of ~~operations.~~operations, as would the economic policies enacted in the United States and other countries in response to the Pandemic, as well as world conditions resulting from the Pandemic.

Real Estate Agents

Due to our low-overhead business model, which leverages our proprietary technology, we can offer our agents the ability to keep significantly more of their commissions compared to traditional real estate brokerage firms. We believe we offer our agents some of the best technology, training, and support available in the industry. We believe our business model and our focus on treating our agents well will attract more agents and higher-producing agents.

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We had the following number of agents as of:


	September 30,				June 30,
	2021	2020	Change		2022	2021	Change
Agents	7,536	5,026	50	%	9,560	6,950	38	%

~~Agent Equity Ownership~~

Effective January 1, 2019, agents can receive stock grants, which vest in three years based on continued affiliation with the Company, in two ways: 1) when the agent closes a sale of a property for the Company; and 2) when the agent refers another agent to join the Company. These stock grants are granted quarterly.

~~Reportable Segments~~

Historically, as the Company has primarily operated as a cloud-based real estate brokerage and as management has not made operating decisions nor assessed performance based on geographic locations, the Company has aggregated its identified operating segments for reporting purposes and has had one reportable segment. Subsequent to completing its acquisition of LiveBy and E4:9 in the second quarter of 2021, the Chief Operating Decision Maker began making operating decisions and assessing performance based on the services of identified operating segments and has since identified three reportable segments: Real Estate Brokerage; Mortgage; and Technology.

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Components of Our Results of Operations

Revenue

~~The Company’s~~Our revenue primarily consists of commissions generated from real estate brokerage ~~services and~~services. We also have other ~~services,~~service revenue, including mortgage lending, title insurance, home and other insurance, and SaaS revenues.

Gross commission income

We recognize commission-based revenue on the closing of a transaction, less the amount of any closing-cost reductions. Revenue is affected by the number of real estate transactions we close, the mix of transactions, home sale prices, and commission rates.

Other Services Revenue

Mortgage Lending

We recognize revenue streams for our mortgage lending services business which are primarily comprised of loans sold, origination and other fees.

The gain on sale of mortgage loans represents the difference between the net sales proceeds and the carrying value of the mortgage loans sold and includes the servicing rights release premiums.

Servicing rights release premiums represent one-time fee revenues earned ~~with~~for transferring the risk and rewards of ownership of servicing rights ~~are transferred~~ to third parties.

Retail origination fees are principally revenues earned from loan originations and recorded in the statement of operations in other service revenue. Direct loan origination costs and expenses associated with the loans are charged to expenses when the loans are sold. Interest income is interest earned on originated loans prior to the sale of the asset.

Title services revenue includes fees charged for title search and examination, property settlement and title insurance services provided in association with property acquisitions and refinance transactions.Insurance Agency Service Revenues

The revenue streams for the Company’s home and other insurance agency services business are primarily comprised of new and renewal commissions paid by insurance carriers. The transaction price is set as the estimated commissions to be received over the term of the policy based upon an estimate of premiums placed, policy changes and cancellations, net of restraint. The commissions are earned at the point in time upon the effective date of the associated policies when control of the policy transfers to the client.

Title Services Revenues

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SaaS Revenues

The Company generates revenue from subscription and services related to the use of the LiveBy platform. The SaaS contracts are generally annual contracts paid monthly in advance of service and cancellable upon 30 days’ notice after the first year. The Company’s subscription arrangements do not provide customers with the right to take possession of the software supporting the platform. Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that the Company’s service is made available to the customer and is recorded as other service revenue in the statement of operations.

Operating Expenses

Commission and other agent-related costs

Commission and other agent-related costs consists primarily of agent commissions, less fees paid to us by our agents, order fulfillment, share-based compensation for agents, title searches, and direct cost to fulfill the services provided. We expect commission and other agent-related costs to continue to rise in proportion to the expected ~~increase~~growth in ~~revenue.~~our operations.

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Operations and support

Operations and support consist primarily of direct cost to fulfill the services from our mortgage lending, title services, insurance services and other services provided. We expect operations and support to continue to rise in proportion to the expected ~~increase~~growth in ~~revenue.~~our operations.

Technology and development

Technology and development expenses primarily include personnel costs, including base pay, bonuses, benefits, and share based compensation, related to ongoing development and maintenance of our proprietary software for use by our agents, customers, and support staff. Technology and development expenses also include amortization of capitalized software and development costs, data licenses, other software, and equipment costs, as well as infrastructure and operational expenses, such as, for data centers, communication, and hosted services.

General and administrative

General and administrative expenses consist primarily of personnel costs, ~~share-based~~including base pay, bonuses, benefits, and share based compensation, ~~for employees,~~ and fees for professional services. Professional services principally consist of external legal, audit, and tax services. In the short term, we expect general and administrative expenses to increase in absolute dollars due to the anticipated growth of our business and to meet the increased compliance requirements associated with ~~our~~ operation as a public company. However, in the long term, we anticipate general and administrative expenses as a percentage of revenue to decrease over time, if and as we are able to increase revenue.

Marketing

Marketing expenses consist primarily of expenses for online and traditional advertising, as well as costs for marketing and promotional materials. Advertising costs are expensed as they are incurred. We expect marketing expenses to increase in absolute dollars as we ~~use some of the proceeds~~continue to expand our advertising programs, including promotion of our ~~IPO to expand advertising programs~~newly acquired business lines and we anticipate marketing expenses as a percentage of revenue to decrease over time, if and as we are able to increase revenue.

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Depreciation and amortization

Depreciation and amortization represent the depreciation charged on our fixed assets and intangible ~~assets.~~assets other than capitalized software. Depreciation expense is recorded on a straight-line method, based on estimated useful lives of five years for computer hardware, ~~and software,~~ seven years for furniture and equipment and seven years for vehicles. Leasehold improvements are depreciated over the lesser of the life of the lease term or the useful life of the improvements. Amortization expense consists of amortization recorded on acquisition-related intangible ~~assets.~~assets, excluding purchased software. Customer relationships are amortized on an accelerated basis, which coincides with the period of economic benefit we expect to receive. All other finite-lived intangibles are amortized on a straight-line ~~basis.~~basis over the term of the expected benefit. Purchased software and capitalized software development costs are amortized on a straight-line basis over the term of the expected benefit and the respective amortization expense is included in technology and development expense. In accordance with ~~GAAP,~~U.S. Generally Accepted Accounting Principles (“GAAP”), we do not amortize goodwill.

Income Taxes

We have not recorded any U.S. federal ~~and~~or state ~~income~~ tax benefits for ~~all~~ the ~~historical~~ net losses incurred during the three and ~~a portion of the current net losses generated has been recognized in the period~~six months ended ~~September~~June 30, ~~2021. Previously the tax benefits had not been recognized~~2022 due to our uncertainty of realizing a benefit from those items. As a result of certain acquisitions this period, we expect to realize the pre-existing and a portion of currently generated deferred tax assets due to future taxable income expected and the reversal of taxable temporary differences. As of December 31, 2020, we had federal net operating loss carryforwards of approximately $9.2 million and state net operating loss carryforwards of approximately $4.5 million. Losses will begin to expire, if not utilized, in 2032. Utilization of the net operating loss carryforwards may be subject to an annual limitation according to Section 382 of the Internal Revenue Code of 1986 as amended, and similar state law provisions.

Results of Operations

Comparison of the Three Months Ended ~~September~~June 30, 2022 and 2021 ~~and 2020 (amount~~(amounts in thousands)

Revenue


	Three Months Ended								Three Months Ended
	September 30,				Change				June 30,				Change
	2021		2020		Dollars		Percentage		2022		2021		Dollars		Percentage
Gross commission income	$	95,300	$	55,848	$	39,452	71	%	$	122,053	$	80,246	$	41,807	52	%
Other service revenue		5,640		—		5,640	100	%		6,126		3,937		2,189	56
Total revenue	$	100,940	$	55,848	$	45,092	81	%	$	128,179	$	84,183	$	43,996	52

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For the three months ended ~~September~~June 30, ~~2021,~~2022, gross commission income increased by approximately ~~$39.5~~$41.8 million or ~~71%~~52%, as compared with the three months ended ~~September~~June 30, ~~2020.~~2021. This increase was primarily attributable to an increase in transaction volume and to an increase in average revenue per transaction due to rising home prices. During the three months ended ~~September~~June 30, ~~2021,~~2022, transaction volume increased by ~~42%~~31% to approximately ~~11,500~~13,215 transactions compared to approximately ~~8,100~~10,100 transactions for the three months ended ~~September~~June 30, ~~2020.~~2021. Our transaction volume increased primarily due to the organic growth in the number of agents contracted with us and agents acquired through the acquisitions of Red Barn, Epic, and ~~Epic.~~iPro. During the three months ended ~~September~~June 30, ~~2021,~~2022, average revenue per transaction ~~increase~~increased by ~~20%~~15.9% to ~~$8,288~~$9,236 from ~~$6,895~~$7,969 during the three months ended ~~September~~June 30, ~~2020.~~2021.

For the three months ended ~~September~~June 30, ~~2021,~~2022, other service revenue was approximately ~~$5.6~~$6.1 million, an increase of $2.2 million, or 56%, over the three months ended June 30, 2021, and was attributable to the Company’s acquisitions of ~~Verus,~~ E4:9 and ~~LiveBy.~~LiveBy in April 2021 and Cornerstone in January 2022. See Note ~~3 to our consolidated condensed financial statements~~4 for detailed information about these acquisitions.

Operating Expenses


	Three Months Ended								Three Months Ended
	September 30,				Change				June 30,				Change
	2021		2020		Dollars		Percentage		2022		2021		Dollars		Percentage
Commission and other agent-related costs	$	91,263	$	52,871	$	38,392	73	%	$	116,309	$	76,729	$	39,580	52	%
Operations and support		2,029		—		2,029	100	%		1,597		1,683		(86)	(5)
Technology and development										1,048		956		92	10
General and administrative		9,811		2,851		6,960	244	%		12,358		8,738		3,620	41
Marketing		591		218		373	171	%		1,329		378		951	252
Depreciation and amortization		931		44		887	2,016	%		813		438		375	86
Total operating expenses	$	104,625	$	55,984	$	48,641	87	%	$	133,454	$	88,922	$	44,532	50

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For the three months ended ~~September~~June 30, ~~2021,~~2022, commission and other agent-related costs increased by approximately ~~$38.4~~$39.6 million, or ~~73%~~52%, as compared with the three months ended ~~September~~June 30, ~~2020.~~2021. Commission and other agent-related costs primarily includes costs related to agent commissions, net of fees paid to us by our agents. These costs generally correlate with recognized revenues. As such, the increase in commission and other agent-related costs compared to the same period in 2021 was primarily attributable to an increase in agent commissions paid due to higher transaction volume and rising home prices.

For the three months ended June 30, 2022, operations and support expenses were approximately $1.6 million as compared to $1.7 million for the three months ended June 30, 2021.

For the three months ended June 30, 2022, technology and development expenses increased by approximately $.09 million, or 10%, as compared with the three months ended June 30, 2021. The increase was primarily attributable to our ongoing investment in the intelliAgent platform and our LiveBy business acquired in April 2021. See Note 4 for detailed information about this acquisition.

For the three months ended June 30, 2022, general and administrative expense increased by approximately $3.6 million, or 41%, as compared with the three months ended June 30, 2021. The increase in general and administrative expense was primarily attributable to recently completed acquisitions and to increases in non-cash stock compensation expense. It is anticipated that general and administrative expense will increase on an absolute dollar basis going forward, driven by acquisitions and costs related to scaling and integrating the Company’s business lines. General and administrative expense as a percentage of revenue is expected to decline over the long-term as revenue increases.

For the three months ended June 30, 2022, marketing expense increased by approximately $1.0 million, or 252%, as compared with the three months ended June 30, 2021. The increase was attributable to an increase in direct advertising costs primarily related to the Company’s expansion in new regions and markets and to promoting its businesses acquired in 2022 and 2021.

For the three months ended June 30, 2022, depreciation and amortization expense increased by approximately $0.4 million, or 86%, as compared with the three months ended June 30, 2021. The increase in depreciation and amortization expense is due to the amortization of the intangible assets (other than capitalized and purchased software for which amortization is included in technology and development expense) recorded in connection with the acquisitions in 2022 and 2021 as well as an increase in depreciation expense due to an increase in our depreciable asset base.

Income Taxes

The Company recorded income tax expense of $0.2 million and an income tax benefit of $2.6 million for the three months ended June 30, 2022 and 2021, respectively. The tax expense for the three months ended June 30, 2022 is primarily the result of current state income tax liabilities. The tax benefit for the three months ended June 30, 2021 was primarily the result of the release of the valuation allowance against historical deferred tax assets and recognition of benefit from the projected loss for the year ended December 31, 2021. Net deferred tax liabilities of $3.3 million recorded in connection with the E4:9 and LiveBy acquisitions provided a source of taxable income to support the realization of $1.6 million of pre-existing deferred tax assets, as well as deferred tax assets resulting from the projected loss for the year ended December 31, 2021. The taxable temporary differences relating to the amortizable intangible assets support the realization of the net operating loss carryforwards. As a result of the transactions, the Company discretely released the historical valuation allowance and recognized a deferred tax benefit on a portion of the 2021 losses.

Comparison of the Six Months Ended June 30, 2022 and 2021 (amounts in thousands)

Revenue


	Six Months Ended
	June 30,				Change
	2022		2021		Dollars		Percentage
Gross commission income	$	206,097	$	129,402	$	76,695	59	%
Other service revenue		12,164		4,426		7,738	175	%
Total revenue	$	218,261	$	133,828		84,433	63	%

For the six months ended June 30, 2022, gross commission income increased by approximately $76.7 million, or 59%, as compared with the six months ended June 30, 2021. This increase was primarily attributable to an increase in transaction volume and to an increase in average revenue per transaction due to rising home prices. During the six months ended June 30, 2022, transaction

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volume increased by 36% to approximately 23,000 transactions compared to approximately 16,900 transactions for the six months ended June 30, 2021. Our transaction volume increased primarily due to the growth in the number of agents contracted with us and agents acquired through the acquisitions of iPro, Red Barn and Epic.

For the six months ended June 30, 2022, other service revenue was approximately $12.2 million, an increase of $7.9 million, or 175%, over the six months ended June 30, 2021 and was attributable to the Company’s acquisitions of E4:9 and LiveBy in April 2021. and Cornerstone in January 2022. See Note 3 to our consolidated financial statements in the Form 10-K for detailed information about these acquisitions.

Operating Expenses


	Six Months Ended
	June 30,				Change
	2022		2021		Dollars		Percentage
Commission and other agent-related costs	$	195,788	$	123,129	$	72,660	59	%
Operations and support		3,772		1,751		2,021	115	%
Technology and development		2,523		1,341		1,182	88.1	%
General and administrative		23,211		14,557		8,654	59	%
Marketing		2,492		780		1,712	219	%
Depreciation and amortization		1,385		459		926	202	%
Total operating expenses	$	229,171	$	142,017		87,154	62	%

For the six months ended June 30, 2022, commission and other agent-related costs increased by approximately $72.7 million, or 59%, as compared with the six months ended June 30, 2021. Commission and other agent-related costs primarily includes costs related to agent commissions, net of fees paid to us by our agents. These costs are generally correlated with recognized revenues. As such, the increase in commission and other agent-related costs compared to the same period in ~~2020~~2021 was primarily attributable to an increase in agent commissions paid due to higher transaction volume and rising home prices.

For the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, operations and support expenses were approximately ~~$2.0~~$3.8 million ~~and~~as compared with $1.8 million for the six months ended June 30, 2021. The higher expenses in the 2022 period were primarily attributable to the Company’s acquisitions of ~~Verus,~~ E4:9 and ~~LiveBy.~~LiveBy in April 2021. See Note ~~3 to our condensed consolidated financial statements~~4 for detailed information about these acquisitions.

For the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, technology and development expenses increased by approximately $1.2 million, or 88%, as compared with the six months ended June 30, 2021. The increase was attributable to having a full six months of operations of our LiveBy business acquired in April 2021.

For the six months ended June 30, 2022, general and administrative expenses increased by approximately ~~$7.0~~$8.7 million, or ~~244%~~59%, as compared with the ~~three~~six months ended ~~September~~June 30, ~~2020.~~2021. The ~~Company’s acquisitions since the fourth quarter of 2020 contributed approximately $4.0 million~~increase in general and administrative ~~expenses during~~expense was primarily attributable to recently completed acquisitions and to increases in non-cash stock compensation expense. It is anticipated that general and administrative expense will increase on an absolute dollar basis going forward, driven by acquisitions and costs related to scaling and integrating the ~~three~~Company’s business lines. General and administrative expense as a percentage of revenue is expected to decline over the long-term as revenue increases.

For the six months ended ~~September~~June 30, 2022, marketing expenses increased by approximately $1.7 million, or 219%, as compared with the six months ended June 30, 2021. The increase was also attributable to our growth and to our becoming a public company, including a $1.4 million increase in payroll salaries and benefits due to increased staffing, a $0.4 million increase in professional fees, a $0.3 million increase in non-cash share-based compensation expense, and to $0.1 million in transaction and acquisition costs.

~~For the three months ended September 30, 2021, marketing expenses increased by approximately $0.4 million, or 171%, as compared with the three months ended September 30, 2020. The increase was~~primarily attributable to an increase in direct advertising costs primarily related to the Company’s expansion in new regions and ~~markets.~~markets to promoting its businesses acquired in 2022 and 2021.

For the ~~three~~six months ended ~~September~~June 30, ~~2021,~~2022, depreciation and amortization expenses increased by approximately ~~$0.9~~$1.0 million, or ~~2,016%~~202%, as compared with the ~~three~~six months ended ~~September~~June 30, ~~2020.~~2021. The increase in depreciation and amortization expense is due to the amortization of the intangible assets ~~acquired~~(other than capitalized and purchased software for which amortization is included in technology and development expense) recorded in connection with the ~~acquisition of Red Barn, E4:9, LiveBy,~~acquisitions in 2022 and ~~Epic~~2021 as well as an increase in depreciation expense due to an increase in our depreciable asset base.

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Income Taxes

The Company recorded income tax expense of $0.2 million and an income tax benefit of ~~$0.2~~$2.6 million for the six months ended June 30, 2022 and ~~income~~2021, respectively. The tax expense ~~of less than $0.1 million~~ for the three months ended ~~September~~June 30, ~~2021 and 2020, respectively.~~2022 is primarily the result of current state income tax liabilities. The tax benefit for the ~~three~~six months ended ~~September~~June 30, 2021 is primarily the result of the release of the valuation allowance against historical deferred tax assets and recognition of benefit from the current year projected loss. Net deferred tax liabilities of ~~approximately $3.2~~$3.3 million recorded in connection with the E4:9 ~~Holdings, Inc.~~ and LiveBy ~~Inc~~

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acquisitions provide a source of taxable income to support the ~~realizability~~realization of ~~approximately~~ $1.6 million of pre-existing deferred tax assets, as well as ~~currently generated~~ deferred tax assets from the projected loss for the ~~year.~~year ended December 31, 2021. The taxable temporary differences relating to the amortizable intangible assets support the realization of the net operating loss carryforwards. As a result of the transactions, the Company discretely released the historical valuation allowance and recognized a deferred tax benefit on a portion of ~~current year~~2021 losses. The remainder of the benefit not recorded in the period ended September 30, 2021 is expected to be recognized in the period ending December 31, 2021. The Company expects to maintain a valuation allowance on current year remaining net deferred tax assets by year-end due to historical operating losses.

~~Comparison of the Nine Months Ended September 30, 2021 and 2020 (amount in thousands)~~

~~Revenue~~

Nine Months Ended


September 30,

Change


2021

2020

Dollars

Percentage

Gross commission income

$
224,703

$
123,375

$
101,327

82
%
Other service revenue

10,066

—

10,066

100
%
Total revenue

$
234,769

$
123,375

111,394

90
%

For the nine months ended September 30, 2021, gross commission income increased by approximately $101.3 million, or 82%, as compared with the nine months ended September 30, 2020. This increase was primarily attributable to an increase in transaction volume and to an increase in average revenue per transaction due to rising home prices. During the nine months ended September 30, 2021, transaction volume increased by 56% to approximately 28,400 transactions compared to approximately 18,200 transactions for the nine months ended September 30, 2020. Our transaction volume increased primarily due to the growth in the number of agents contracted with us and agents acquired through the acquisitions of Red Barn and Epic. During the nine months ended September 30, 2021, average revenue per transaction increase by 17% to $7,900 from $6,779 during the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, other service revenue was approximately $10.0 million and was attributable to the Company’s acquisitions of Verus, E4:9 and LiveBy. See Note 3 to our condensed consolidated financial statements for information about these acquisitions.

~~Operating Expenses~~

Nine Months Ended

September 30,

Change


2021

2020

Dollars

Percentage

Commission and other agent-related costs

$
214,392

$
115,915

$
98,477

85
%
Operations and support

3,781

—

3,781

100
%
General and administrative

25,321

6,727

18,594

276
%
Marketing

1,371

587

785

134
%
Depreciation and amortization

1,778

108

1,670

1,546
%
Total operating expenses

$
246,643

$
123,337

123,306

100
%

For the nine months ended September 30, 2021, commission and other agent-related costs increased by approximately $98.5 million, or 85%, as compared with the nine months ended September 30, 2020. Commission and other agent-related costs primarily includes costs related to agent commissions, net of fees paid to us by our agents. These costs are generally correlated with recognized revenues. As such, the increase in commission and other agent-related costs compared to the same period in 2020 was primarily attributable to an increase in agent commissions paid due to higher transaction volume and rising home prices.

For the nine months ended September 30, 2021, operations and support expenses were approximately $3.8 million and were attributable to the Company’s acquisition of Verus, E4:9 and LiveBy. See Note 3 to our consolidated condensed financial statements for information about these acquisitions.

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For the nine months ended September 30, 2021, general and administrative expenses increased by approximately $18.5 million, or 274%, as compared with the nine months ended September 30, 2020. The Company’s acquisitions since the fourth quarter of 2020 contributed approximately $7.6 million in general and administrative expenses during the nine months ended September 30, 2021. The increase was also attributable to our growth and to becoming a public company, including a $4.4 million increase in payroll salaries and benefits due to increased staffing, a $1.0 million increase in professional fees, a $1.6 million increase in non-cash share-based compensation expense, a $0.6 million in recruiting cost, a $0.5 million increase in software expenses, and to $1.0 million in transaction and acquisition costs.

For the nine months ended September 30, 2021, marketing expenses increased by approximately $0.8 million, or 134%, as compared with the nine months ended September 30, 2020. The increase was primarily attributable to an increase in direct advertising costs primarily related to the Company’s expansion in new regions and markets.

For the nine months ended September 30, 2021, depreciation and amortization expenses increased by approximately $1.7 million, or 1,546%, as compared with the nine months ended September 30, 2020. The increase in depreciation and amortization expense is due to the amortization of the intangible assets acquired in connection with the acquisition of Red Barn, E4:9, LiveBy, and Epic as well as an increase in depreciation expense due to an increase in our depreciable asset base.

~~Income Taxes~~

The Company recorded an income tax benefit of approximately $2.8 million and income tax expense of less than $0.1 million for the nine months ended September 30, 2021 and 2020, respectively. The tax benefit for the nine months ended September 30, 2021 is primarily the result of the release of the valuation allowance against historical deferred tax assets and recognition of benefit from the current year projected loss. Net deferred tax liabilities of $3.2 million recorded in connection with the E4:9 Holdings, Inc. and LiveBy, Inc acquisitions provide a source of taxable income to support the realizability of $1.6 million of pre-existing deferred tax assets, as well as currently generated deferred tax assets from the projected loss for the year. The taxable temporary differences relating to the amortizable intangible assets support the realization of the net operating loss carryforwards. As a result of the transactions, the Company discretely released the historical valuation allowance and recognized a deferred tax benefit on a portion of current year losses. The remainder of the benefit not recorded in the period ended September 30, 2021 is expected to be recognized in the period ending December 31, 2021. The Company expects to maintain a valuation allowance on current year remaining net deferred tax assets by year-end due to historical operating losses.

Liquidity and Capital Resources

Capital Resources


	September 30,		December 31,		Change				June 30,		December 31,		Change
	2021		2020		Dollars		Percentage		2022		2021		Dollars		Percentage
Current assets	$	28,826	$	32,856	$	(4,030)	12	%	$	33,832	$	54,450	$	(20,618)	(38)	%
Current liabilities		25,775		4,990		20,785	417	%		17,772		21,072		(3,300)	(16)	%
Net working capital	$	3,051	$	27,866	$	(24,815)	(89)	%	$	16,060	$	33,378	$	(17,319)	(52)	%

To date, our principal sources of liquidity have been the net proceeds we received through ~~the IPO~~public offerings and ~~historically,~~ private sales of our common stock, as well as proceeds from ~~loans and operations.~~loans. As of ~~September~~June 30, ~~2021,~~2022, our ~~available~~ cash totaled approximately ~~$8.8~~$19.5 million, which represented a decrease of ~~$19.8~~$17 million compared to ~~the year ended~~ December 31, ~~2020.~~2021. As of ~~September~~June 30, ~~2021,~~2022, we had net working capital of approximately ~~$3.1~~$16.1 million, which represented a decrease of ~~$24.9~~$17.3 million compared to ~~the year ended~~ December 31, ~~2020.~~2021. We anticipate that our existing balances of cash and cash equivalents and future expected cash flows generated from our operations will be sufficient to satisfy our operating requirements for at least the next twelve months from the date of the issuance of the unaudited interim consolidated financial ~~statements.~~statements for the quarter ended June 30, 2022.

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Our future capital requirements depend on many factors, including ~~potential~~any future acquisitions, our level of investment in technology, and our rate of growth into new ~~markets as well as the rate of growth for our mortgage lending and insurance businesses.~~markets. Our capital requirements might also be affected by factors which we cannot control such as the residential real estate market, interest rates, and other monetary and fiscal policy changes, ~~to those that~~any of which could adversely affect the manner in which we currently ~~exist.~~operate. Additionally, as the impact of COVID-19 and other world events, such as the ongoing conflict in Ukraine, on the economy and our operations evolves, we will continuously assess our liquidity needs. WeIn the event of a sustained market deterioration, we may need or seek advantageously to obtain additional funding through equity or debt financing, which might not be available on favorable terms or at all and could hinder our business and dilute our existing shareholders.

Cash Flows

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ ~~(amount~~(amounts in thousands)


	Nine Months Ended September 30,				Change				Six Months Ended June 30,				Change
	2021		2020		Dollars		Percentage		2022		2021		Dollars		Percentage
Net cash used in operating activities	$	(6,570)	$	(330)	$	(6,239)	1,885	%
Net cash provided by (used in) operating activities									$	368	$	(2,693)	$	2,324	86	%
Net cash used in investing activities	$	(13,562)	$	(367)	$	(13,195)	(3,595)	%	$	(5,170)	$	(11,984)	$	6,814	62	%
Net cash provided by financing activities	$	2,893	$	31,111	$	(28,218)	(91)	%
Net cash (used in) provided by financing activities									$	(13,497)	$	1,476	$	(14,973)	(1,014)	%

Cash Flows from Operating Activities

Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, 2022 consisted of a net loss of $11.7 million, non-cash charges of $5.9 million, including $4.3 million of stock-based compensation expense and $2.4 million of depreciation and amortization, partially offset by $1.9 million in gains on the sales of mortgages. Changes in assets and liabilities were primarily driven by a $13.8 million net increase in proceeds from the sales and principal payments on mortgage loans held for sale, partially offset by a $1.5 million increase in accounts receivable and a $1.1 million decrease in accrued and other current liabilities.

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Net cash used in operating activities for the six months ended June 30, 2021 consisted of a net loss of ~~$8.9~~$5.5 million, non-cash charges of ~~$1.4~~$1.0 million, including ~~$2.8~~$2.1 million of share-based compensation expense, ~~$0.2~~$0.1 million of bad debt, $0.1 million of gain on extinguishment of debt, and ~~$1.8~~$0.8 million of depreciation and amortization, offset by ~~$3.3~~$1.3 million in gains on the sales of mortgages and ~~$2.9~~$2.6 million in deferred income taxes. Changes in assets and liabilities were primarily driven by a ~~$0.4~~$0.6 million decrease in prepaid and other current assets, a $1.0 million increase in accounts payable due primarily to the increase in agent transaction volume, a ~~$1.8~~$3.7 million increase in accrued liabilities, a $2.4 million increase in escrow liabilities, and $0.7 million change in mortgage loans held for sale; partially offset by a $0.9 million increase in accounts receivable and a $0.8 million increase in prepaid and other current ~~assets.~~

Net cash used in operating activities for the nine months ended September 30, 2020 consisted of a net loss of $0.1 million, non-cash charges of $0.5 million, including $0.3 million of share-based compensation expense, $0.1 million of bad debt, and $0.1 million of depreciation and amortization. Changes in assets and liabilities, ~~were primarily driven~~partially offset by a $1.4 million increase in accounts payable and accrued liabilities due primarily to the timing of payments, partially offset by a by a $1.1 million increase in accounts receivable, and a $0.5 million increase in agent annual fees receivable due primarily to an increase in the number of agents.receivable.

Cash Flows from Investing Activities

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, 2022 consisted of $2.5 million for business acquisitions, net of cash acquired, $0.7 million for purchases of property and equipment and $2.0 million for purchases of intangible assets.

Net cash used in investing activities for the six months ended June 30, 2021 consisted of $11.0 million for the purchases of a businesses and assets, net of cash acquired, ~~$0.6~~$0.5 million for purchases of property and equipment, and ~~$2.0~~$0.5 million for purchase of ~~intangible assets.~~

~~Net cash used in investing activities for the nine months ended September 30, 2020 consisted of primarily $0.3 million in purchases of~~ capitalized ~~software as well as computers and equipment.~~software.

Cash Flows from Financing Activities

Net cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, 2022 consisted primarily of the change of $6.9 million on our warehouse lines of credit, net of the effect of the Cornerstone acquisition, $6.0 million in repurchase of common stock and $0.6 million in principal payments on notes payable.

Net cash used in financing activities for the six months ended June 30, 2021 consisted primarily of ~~$2.4~~$1.4 million in net proceeds on our warehouse line of ~~credit and $0.9 million in proceeds from our note payable, offset by $0.4 million in principal payments on note payables.~~credit.

Net cash provided by financing activities for the nine months ended September 30, 2020 consisted of $34.3 million of proceeds from the issuance of common stock in connection with the IPO, $0.5 million in proceeds from notes payable, and $0.1 million of proceeds from issuance of common stock, which was offset by $3.2 million in payments of offering costs in connection with issuance of common stock in connection with IPO, $0.5 million payments on the note payable, purchase of treasury stock, and our principal payments on an outstanding loan.

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NON-GAAP FINANCIAL MEASURE

To supplement our unaudited interim consolidated financial statements, which are prepared and presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we use Adjusted EBITDA, a non-GAAP financial measure, to understand and evaluate our core operating performance. This non-GAAP financial measure, which may be different than similarly titled measures used by other companies, is presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

We define the non-GAAP financial measure of Adjusted EBITDA as net income (loss), excluding other (income) expense, income tax expense (benefit), depreciation and amortization, transaction costs and ~~share-based~~stock-based compensation expense.

We believe that Adjusted EBITDA provides useful information about our financial performance, enhances the overall understanding of our past performance and future prospects, and allows for greater transparency with respect to a key metric used by our management for financial and operational decision-making. We believe that Adjusted EBITDA helps identify underlying trends in our business that otherwise could be masked by the effect of the expenses that we exclude in Adjusted EBITDA. In particular, we believe the exclusion of ~~non-cash share-based~~stock-based compensation expense related to restricted stock awards and stock options and transaction-related costs associated with our acquisition activity provides a useful supplemental measure in evaluating the performance of our operations and provides better transparency into our results of operations. Adjusted EBITDA also excludes other income and expense, net which primarily includes nonrecurring items, such as, gain on debt extinguishment and severance costs, if applicable.

We are presenting the non-GAAP measure of Adjusted EBITDA to assist investors in seeing our financial performance through the eyes of management, and because we believe this measure provides an additional tool for investors to use in comparing our core financial performance over multiple periods with other companies in our industry.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA compared to net income (loss), the closest comparable GAAP measure. Some of these limitations are that:

●

Adjusted EBITDA excludes ~~share-based~~stock-based compensation expense related to restricted stock awards and stock options, which have been, and will continue to be for the foreseeable future, significant recurring expenses in our business and an important part of our compensation strategy;

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●

Adjusted EBITDA excludes transaction-related costs primarily consisting of professional fees and any other costs incurred directly related to acquisition activity, which is an ongoing part of our growth strategy and therefore likely to ~~occur;~~be reoccurring; and

●

Adjusted EBITDA excludes certain recurring, non-cash charges such as depreciation and amortization of property and equipment and ~~acquired and internally developed intangible assets,~~capitalized software costs, however, the assets being depreciated and amortized may have to be replaced in the future.

The following ~~tables present~~table presents a reconciliation of ~~net loss to~~ Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure, for each of the periods presented ~~(amount~~(amounts in thousands):


	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Net loss	$	(3,373)	$	(184)	$	(8,865)	$	(66)	$	(5,669)	$	(2,091)	$	(11,666)	$	(5,491)
Other (income) expense, net		(102)		16		(190)		71
Income tax (benefit) expense		(210)		32		(2,820)		34
Other expense (income), net										234		(34)		571		(88)
Income tax expense (benefit)										160		(2,615)		185		(2,610)
Depreciation and amortization		931		44		1,778		108		1,342		745		2,405		847
Transaction-related cost		177		—		1,140		—		8		529		60		963
Stock based compensation		770		97		2,833		322		1,941		1,193		4,348		2,064
Adjusted EBITDA	$	(1,807)	$	6	$	(6,124)	$	469	$	(1,984)	$	(2,273)	$	(4,097)	$	(4,315)

Critical Accounting Policies and Estimates

Discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with ~~U.S. Generally Accepted Accounting Principles (“GAAP”).~~GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities, revenue, and expenses at the date of the financial statements. Generally, we base our estimates on historical

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experience and on various other assumptions in accordance with GAAP that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting ~~policies and~~ estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our 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.

~~Revenue Recognition~~

We apply the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), and all related appropriate guidance. We recognize revenue under the core principle to depict the transfer of control to our customers in an amount reflecting the consideration to which we expect to be entitled. In order to achieve that core principle, we apply the following five step approach: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when a performance obligation is satisfied.

Our gross commission income consists of commissions charged to individual customers (i.e., the seller or buyer of a residential property) on each real estate transaction completed, net of any closing-cost reductions. We are contractually obligated to provide for the fulfillment of transfers of real estate between buyers and sellers. We provide these services ourselves and control the services of our agents necessary to legally transfer the real estate. As such, we are defined as the principal. As principal, we satisfy our obligation upon the closing of a real estate transaction. As principal, and upon satisfaction of our obligation, we recognize revenue in the gross amount of consideration we expect we are entitled to receive. We calculate the transaction price by applying the Company’s portion of the agreed upon commission rate to the property’s selling price. We may provide services to the buyer, seller, or both parties to a transaction. When we provide services to the seller in a transaction, we recognize revenue for our portion of the commission, which is calculated as the sales price multiplied by the commission rate less the commission separately distributed to the buyer’s agent, or the “sell” side portion of the commission. When we provide services to the buyer in a transaction, we recognize revenue in an amount equal to the sales price for the property multiplied by the commission rate for the “buy” side of the transaction. In instances in which we represent both the buyer and the seller in a transaction, we recognize the full commission on the transaction. Commissions revenue contains a single performance obligation that is satisfied upon the closing of a real estate transaction, at which point the entire transaction price is earned. We are not entitled to any commission until the performance obligation is satisfied and are not owed any commission for unsuccessful transactions, even if services have been provided.

The revenue streams for the Company’s mortgage lending services business are primarily comprised of loans sold, origination and other fees. The majority of these revenue streams are exempted from ASC 606. Origination and other fees are not specifically separable from actual mortgage loans.

Gain on sale of mortgage loans represents the difference between the net sales proceeds and the carrying value of the mortgage loans sold and includes the servicing rights release premiums. Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before maturity.

Servicing rights release premiums represent revenues earned when the risk and rewards of ownership of servicing rights are transferred to third party parties. Mortgage servicing rights represent the obligations to administer, collect the payments for the reduction of principal and application of interest, pay taxes and insurance, remit collected payments, provide foreclosure services, provide full escrow administration and any other obligations required by an owner of the mortgage loans, together with the right to receive the servicing fee income and any ancillary income arising from or connected to the mortgage loans.

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Business Combinations

The Company accounts for its business combinations under the provisions of Accounting Standards Codification (“ASC”) Topic 805-10, Business Combinations (“ASC 805-10”), which requires that the ~~acquisition~~purchase method of accounting be used for all business combinations. Assets acquired and liabilities assumed are recorded at the date of acquisition at their respective fair values. For transactions that are business combinations, the Company evaluates the existence of goodwill. Goodwill represents the excess purchase price over the fair value of the tangible net assets and intangible assets acquired in a business combination. ASC 805-10 also specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. Acquisition-related expenses are recognized separately from the business combinations and are expensed as incurred.

The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using established valuation techniques. A fair value measurement is determined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. In the context of purchase accounting, the determination of fair value often involves significant judgments and estimates by management, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows, discount rates, and selection of comparable companies. The estimated fair values reflected in the ~~acquisition~~purchase accounting rely on management’s judgment and the expertise of a third-party valuation firm engaged to assist in concluding on the fair value measurements. For ~~the~~each business combination completed during the ~~nine-month period~~six months ended ~~September~~June 30, ~~2021,~~2022, the estimated fair value of identifiable intangible assets, primarily consisting of agent relationships ~~tradenames, customer relationships~~ and ~~technology,~~tradenames, was determined using the relief-from-royalty and multi-period excess earnings methods. The most significant assumptions under these methods include the estimated remaining useful life, expected future revenue, annual agent revenue attrition, costs to develop new agents, charges for contributory assets, tax rate, discount rate and tax amortization benefit. Management has developed these assumptions on the basis of historical knowledge of the business and projected financial information

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of the Company. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of ~~Management,~~management, and such variations may be significant to estimated values.

The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable management judgment. The most significant variables in these valuations are discount rates and the number of years on which to base the cash flow projections, as well as other assumptions and estimates used to determine the cash inflows and outflows. Management determines discount rates based on the risk inherent in the acquired assets, specific risks, industry beta and capital structure of guideline companies. The valuation of an acquired business is based on available information at the acquisition date and assumptions that are believed to be reasonable. However, a change in facts and circumstances as of the acquisition date can result in subsequent adjustments during the measurement period, but no later than one year from the acquisition date.

~~Goodwill~~

Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value-based test. The Company is organized in one reporting unit and evaluates the goodwill for the Company as a whole. Goodwill is assessed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired. Under the authoritative guidance issued by the FASB, the Company has the option to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the goodwill impairment test is performed. The goodwill impairment test requires the Company to estimate the fair value of the reporting unit and to compare the fair value of the reporting unit with its carrying amount. If the fair value exceeds the carrying amount, then no impairment is recognized. If the carrying amount recorded exceeds the fair value calculated, then an impairment charge is recognized for the difference. The judgments made in determining the projected cash flows used to estimate the fair value can materially impact the Company’s financial condition and results of operations. There was no impairment of goodwill for the three and nine months ended September 30, 2021.

~~Mortgage Loans Held for Sale~~

Mortgage loans held for sale represent loans that have forward sales commitments. Mortgage loans held for sale are carried at fair value under the fair value option with changes in fair value recorded in other service revenue on the statements of operations. Net unrealized losses, if any, are recognized through a valuation allowance by charges to income. Realized losses are charged to expense as incurred. The fair value of mortgage loans held for sale is typically calculated using observable market information including pricing

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from actual market transactions, purchaser commitment prices, or broker quotations. The fair value of mortgage loans held for sale covered by purchaser commitments is generally based on commitment prices. The fair value of mortgage loans held for sale not committed to a purchaser is generally based on current delivery pricing using best execution pricing.

~~Income Taxes~~

Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the combined financial statement and tax bases of assets and liabilities at the applicable enacted tax rates. We establish a valuation allowance for deferred tax assets if it is probable that these items will expire before either we are able to realize their benefit or that future deductibility is uncertain.

In prior periods, we believed it was more likely than not that our deferred tax assets would not be realized and as such, we have historically recorded a full valuation allowance for these assets. The determination to provide a valuation allowance is dependent upon the assessment of whether it is more likely than not that sufficient taxable income will be generated to utilize the deferred tax assets. As a result of deferred tax liabilities generated from acquisitions which can be used as a source of income, we released the valuation allowance on historical deferred tax assets as a discrete item. We evaluate the likelihood of the ability to realize deferred tax assets in future periods on a quarterly basis, and when appropriate evidence indicates we will release our valuation allowance accordingly. Based on management’s reassessment of the realizability of the deferred tax assets, tax benefits are being recognized as a result of the discrete release of the valuation allowance against historical deferred tax assets and to recognize a portion of the future benefit of current losses. Based on the weight of the available evidence, which includes our historical operating losses, lack of taxable income, and accumulated deficit, by year-end we expect to provide a full valuation allowance against our remaining deferred tax assets resulting from the tax losses and credits carried forward.

Recent Accounting Standards

For information on recent accounting standards, see Note 23 to our consolidated financial statements included elsewhere in this report.

JOBS Act Transition Period

In April 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933 (the “Securities Act”) for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements under the JOBS Act. Certain of these exemptions are, including without limitation, from the requirements of (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier to occur of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our IPO in 2020, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a “large accelerated filer” under the rules of the U.S. Securities and Exchange Commission, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide the information required by this Item.

~~Table of Contents~~

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer, and our President and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this ~~report (the “Evaluation Date”).~~report. In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on ~~the~~their evaluation, ~~conducted,~~ our Chief Executive Officer and ~~President and~~ Chief Financial Officer concluded that, as of June 30, 2022, our disclosure controls and procedures were ~~not~~ effective ~~as of September 30, 2021 due~~at the reasonable assurance level in ensuring that information required to ~~the material weaknesses discussed below.~~

~~The closing of our initial public offering occurred on August 4, 2020. Consequently, as a newly reporting company~~be disclosed by us in reports that we file or submit under the Exchange Act ~~we are not required to evaluate~~is recorded, processed, summarized, and reported within the ~~effectiveness~~time periods specified in the SEC’s rules and forms.

Table of our internal controls over financial reporting until the end of the fiscal year after we file our first annual report on Form 10-K, which will occur on December 31, 2021. However, in connection with the audit of our financial statements for the years ended December 31, 2020 and 2019, we identified material weaknesses in our internal control over financial reporting. As of December 31, 2020 and 2019, we did not effectively apply the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or the COSO framework, due primarily to an insufficient complement of personnel possessing the appropriate accounting and financial reporting knowledge and experience. Additionally, we did not maintain effective controls relating to reconciliation of and recording of revenue.Contents

We are continuing to implement a remediation plan to address the previously reported material weaknesses identified by hiring additional qualified accounting and financial reporting personnel, and further evolving our accounting processes and systems.

(b) Changes in Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer, and our President and Chief Financial Officer, we conducted an evaluation of any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recently completed fiscal quarter.

~~As previously noted, we acquired LiveBy~~We are in the process of implementing new accounting systems. We have updated and ~~E4:9 during the three months ended June 30, 2021. Management considers these transactions~~continue to ~~be material~~update our processes related to ~~our consolidated financial statements and believes that the internal controls and procedures of these acquired entities have a material effect on our~~ internal control over financial ~~reporting. We are currently~~reporting, as necessary, to accommodate applicable changes in our business processes resulting from the process of incorporating the internal controls and procedures of LiveBy and E4:9 into our internal controls over financial reporting and extending our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include LiveBy and E4:9. We will report on our assessmentimplementation of the consolidated operations within the time period provided by the Act and the applicable SEC rules and regulations concerning business combinations, which is the annual management report for the fiscal year ending December 31, 2022.new accounting systems.

There were no changes, other than described above, in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company has not experienced any material impact to our internal controls over financial reporting due to the COVID-19 global pandemic. The Company will continue to monitor and assess the impact of the COVID-19 situation and our ability to maintain the design and operating effectiveness of internal controls over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are ~~involved in various legal actions incidental to our business. As of the date of this report, we are~~ not involved in any ~~legal proceedings~~litigation that we believe could have a material adverse effect on our financial position or results of operations. There is no 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.

Item 1A. Risk Factors.

There have been no material changes to the risk factors that we have previously disclosed in our most recent Annual Report on Form 10-K, as filed with the SEC on March 24, 2021, and as amended on April 29, 2021, and as updated in our prior Quarterly Report on Form 10-Q, as filed with the SEC on August 12, 2021, although there have been recent signs of potential future increases in interest rates such as the announcement by the Federal Reserve that it intends to begin tapering off its bond purchasing program, and of potential softness in the real estate market such as Zillow Group, Inc.’s announcement of losses in and discontinuation of its home-buying program.9, 2022. The risks described in our Annual Report ~~and our subsequent Quarterly Reports~~ are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results of operations and the trading price of our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Unregistered Sales of Equity Securities

None.

~~Use~~Purchases of ~~Proceeds~~Equity Securities by the Issuer

On ~~August 4, 2020, we completed our initial public offering (“IPO”). All~~March 10, 2022, the Company’s board of directors authorized an expenditure of up to $10.0 million for the repurchase of shares ~~sold were registered~~of the Company’s common stock in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions. The Company may also repurchase shares of its common stock pursuant to a ~~registration statement on Form S-1 (File No. 333-235972), as amended (the “Registration Statement”), declared effective~~trading plan meeting the requirements of Rule 10b5-1 under the Exchange Act which would permit shares of the Company’s common stock to be repurchased when the Company might otherwise be precluded from doing so by law. The share repurchase authorization does not have a fixed expiration. The stock repurchase program does not obligate the Company to repurchase any particular amount of common stock, and it could be modified, suspended or discontinued at any time. The timing and amount of repurchases will be determined by the ~~SEC~~Company’s management based on ~~July 30, 2020. There has been no material change in~~a variety of factors such as the ~~expected use~~market price of the ~~net proceeds from our IPO as described in our Registration Statement.~~Company’s common stock, the Company’s liquidity requirements, and overall market conditions. The ~~remaining net proceeds from our IPO have been invested in investment grade, interest-bearing instruments.~~stock repurchase program will be subject to applicable legal requirements, including federal and state securities laws.

The following table summarizes the equity repurchase program activity for the three months ended June 30, 2022 and the approximate dollar value of shares that may yet be purchased pursuant to the repurchase program:


				Total number of	Approximate dollar
				shares purchased as	value of shares that
				part of publicly	may yet be
	Total number of	Average price paid		announced plans or	purchased under the
Period	shares purchased	per share		programs	plans or programs
April 1 – April 30, 2022	225,795	$	8.57	309,606	$	7,078,859
May 1 – May 31, 2022	337,239	$	8.04	646,845	$	4,368,610
June 1 – June 30, 2022	39,252	$	10.49	686,097	$	3,956,936

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Item 6. Exhibits

Exhibit Number		Description
31.1+		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1+†		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101**		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020;~~2021; (ii) Consolidated Statements of Operations (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020;~~2021; (iii) Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020;~~2021; (iv) Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020;~~2021; and (v) Notes to Unaudited Financial Statements.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

+ Filed herewith.

† This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

** In accordance with Rule 406T of Regulation S-T, the XBRL-related information in Exhibit 101 to this Quarterly Report on Form ~~10-Q~~10- Q is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, is deemed not filed for purposes of section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES

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.

	FATHOM HOLDINGS INC.

Date: ~~November 10, 2021~~August 9, 2022	By:	/s/ Marco Fregenal
		Marco Fregenal
		President and Chief Financial Officer (Principal Financial and Accounting Officer)

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	September 30, 2021		December 31, 2020
Vehicles	$	—	$	119
Computers and equipment		453		139
Furniture and fixtures		610		44
Leasehold improvements		132		4
Total property and equipment		1,195		306
Accumulated depreciation		(188)		(151)
Total property and equipment, net	$	1,007	$	155


	September 30, 2021
	Gross
	Carrying			Accumulated	Net Carrying
	Amount		Amortization		Value
Trade names	$	6,326	$	(562)	$	5,764
Software development		8,182		(852)		7,330
Customer relationships		8,180		(314)		7,866
Agent relationships		2,670		(84)		2,586
Know-how		430		(18)		412
	$	25,788	$	(1,830)	$	23,958


	September 30, 2021		December 31, 2020
Paycheck Protection Program Loan	$	303	$	354
Small Business Administration Loan		171		150
Note Payable		883		—
Loan Payable - Automobile Loan		—		35
Total debt		1,357		539
Less current portion of the Paycheck Protection Program Loan		(303)		(237)
Less current portion of the Small Business Administration Loan		(25)		(2)
Less current portion of Note Payable		(883)		—
Less current portion of the Loan Payable		—		(17)
Long-term debt, net of current portion	$	146	$	283


		Weighted
		Average Grant
	Shares	Date Fair Value
Nonvested at December 31, 2020	390,787	$	13.56
Granted	230,976		37.22
Vested	(67,816)		(29.87)
Forfeited	(23,950)		(12.90)
Nonvested at September 30, 2021	529,997	$	10.90


				Weighted Average
		Weighted		Remaining
	Options	Average		Contractual Term	Aggregate
	Outstanding	Exercise Price		in Years	intrinsic value
					(in thousands)
Balance at December 31, 2020	47,332	$	8.03	8.8	$	1,326
Granted	13,638		44.00
Exercised	(16,974)		4.71
Balance at September 30, 2021	43,996	$	20.46	8.5	$	510
Options exercisable at September 30, 2021	20,156	$	4.71	7.5	$	433