UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
For the transition period from ______________ to _______________
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
(Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
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 than the registrant was required to
submit such files).
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 the 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 ☐ | |
| 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 May 12, 2025, the registrant
has
REALPHA TECH CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2025
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
reAlpha Tech Corp. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2025 (Unaudited) and December 31, 2024
| March 31, 2025 | December 31, 2024 | |||||||
| ASSETS | (unaudited) | |||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Receivable from related parties | ||||||||
| Prepaid expenses | ||||||||
| Current assets of discontinued operations | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other Assets | ||||||||
| Investments | ||||||||
| Other long term assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Capitalized software development - work in progress | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Related party payables | ||||||||
| Short term loans - related parties -current portion | ||||||||
| Short term loans - unrelated parties -current portion | ||||||||
| Note payable, current-net of discount | ||||||||
| Accrued expenses | ||||||||
| Deferred liabilities, current portion | ||||||||
| Total current liabilities | ||||||||
| Long-Term Liabilities | ||||||||
Embedded derivate liability | ||||||||
| Preferred stock liability | ||||||||
| Other long term loans - related parties - net of current portion | ||||||||
| Other long term loans - unrelated parties - net of current portion | ||||||||
| Note payable, net of discount | ||||||||
| Other long term liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Series A Convertible Preferred Stock ($ | ||||||||
| Common stock ($ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Total stockholders’ (deficit) equity of reAlpha Tech Corp. | ( | ) | ||||||
| Non-controlling interests in consolidated entities | ||||||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKOLDERS’ (DEFICIT) EQUITY | $ | $ | ||||||
1
reAlpha Tech Corp. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three Ended March 31, 2025 and 2024 (unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| March 31, 2025 | March 31, 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| Wages, benefits and payroll taxes | ||||||||
| Repairs and maintenance | ||||||||
| Utilities | ||||||||
| Travel | ||||||||
| Dues and subscriptions | ||||||||
| Marketing and advertising | ||||||||
| Professional and legal fees | ||||||||
| Depreciation and amortization | ||||||||
| Other operating expenses | ||||||||
| Total operating expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Other Expense (income) | ||||||||
| Changes in fair value of contingent consideration | ||||||||
| Interest expense, net | ||||||||
| Other expense, net | ||||||||
| Total other expense | ||||||||
| Net Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Net Loss from continuing operations | ( | ) | ( | ) | ||||
| Discontinued operations (Roost and Rhove) | ||||||||
| Loss from operations of discontinued Operations | ( | ) | ||||||
| Loss on discontinued operations | ( | ) | ||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Less: Net Loss Attributable to Non-Controlling Interests | ( | ) | ( | ) | ||||
| Net Loss Attributable to Controlling Interests | $ | ( | ) | $ | ( | ) | ||
| Other comprehensive income | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Total other comprehensive loss | ( | ) | ||||||
| Comprehensive Loss Attributable to Controlling Interests | $ | ( | ) | $ | ( | ) | ||
| Basic loss per share | ||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | ||
| Discontinued operations | $ | $ | ( | ) | ||||
| Net Loss per share — basic | $ | ( | ) | $ | ( | ) | ||
| Diluted loss per share | ||||||||
| Continuing operations | $ | ( | ) | $ | ( | ) | ||
| Discontinued operations | $ | $ | ( | ) | ||||
| Net Loss per share — diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted-average outstanding shares — basic | ||||||||
| Weighted-average outstanding shares — diluted | ||||||||
2
reAlpha Tech Corp. and Subsidiaries
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Three Months Ended March 31, 2025, and 2024 (unaudited)
| Series A Convertible | Additional | Accumulated Other | ReAlpha Tech Corp. and | Non- | Total | |||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Accumulated | Comprehensive | Subsidiaries | Controlling | Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | Interests | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Series A Convertible | Additional | Accumulated Other | ReAlpha Tech Corp. and | Non- | Total | |||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Paid-in | Accumulated | Comprehensive | Subsidiaries | Controlling | Stockholders’ | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Loss | Equity | Interests | Equity | |||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Other Comprehensive loss | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Shares issue - AiChat10X Pte. | ( | ) | ||||||||||||||||||||||||||||||||||||||
| Shares issue through ATM | ||||||||||||||||||||||||||||||||||||||||
| Shares issue to Streetville Capital, LLC | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||||||||||
3
reAlpha Tech Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2025, and 2024 (unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| March 31, 2025 | March 31, 2024 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of loan discounts | ||||||||
| Stock based compensation | ||||||||
| Change in fair value of contingent consideration | ||||||||
| Non cash commitment fee expenses | ||||||||
| Non cash dividend payable Series A Convertible Preferred Stock | ||||||||
| Gain on sale of properties | ( | ) | ||||||
| Loss from equity method investment | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ||||||||
| Receivable from related parties | ||||||||
| Payable to related parties | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Deferred liabilities | ||||||||
| Total adjustments | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Additions to property and equipment | ( | ) | ||||||
| Proceeds from sale of properties | ||||||||
| Net Cash paid to acquire business | ||||||||
| Cash used for additions to capitalized software | ( | ) | ( | ) | ||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from issuance of debt – related parties | ||||||||
| Payments of debt | ( | ) | ||||||
| Proceeds from issuance of common stock | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash - Beginning of Period | ||||||||
| Cash - End of Period | $ | $ | ||||||
| Noncash Investing and Financing Activities: | ||||||||
| Series A Convertible Preferred Stock issuance - MMC | ||||||||
| Series A Convertible Preferred Stock issuance - GTG Financial | ||||||||
| Deferred cash payments - GTG Financial | ||||||||
| Deferred issuance of common stock - GTG Financial | ||||||||
4
reAlpha Tech Corp.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and Description of Business
reAlpha Tech Corp. was incorporated with the
name reAlpha Asset Management, Inc. in the State of Delaware on
Initially, our asset-heavy operational model centered on using proprietary artificial intelligence (“AI”) tools for real estate acquisition, converting properties into short-term rentals, and offering fractional interests to investors. However, due to macroeconomic challenges like higher interest rates and inflated property prices, we discontinued our rental segment operations. We are now focused on developing an end-to-end homebuying platform, named “reAlpha.” Utilizing the power of AI and an acquisition-led growth strategy, our goal is to offer a more affordable, streamlined experience for those on the journey to homeownership.
The Company has transitioned into a technology-driven, integrated services company, leveraging AI to enhance the homebuying experience and streamline real estate transactions. At the core of the Company’s strategy is the reAlpha platform, an AI-powered solution designed to simplify the home purchase process while generating revenue through realty services, mortgage brokering services, and digital title and escrow services.
To strengthen its AI capabilities, the Company has acquired Naamche, Inc. (“U.S. Naamche”) and Naamche, Inc. Pvt Ltd. (“Nepal Naamche” and together with U.S. Naamche, “Naamche”) and AiChat Pte Ltd. (“AiChat”),, expanding its software development expertise and AI-driven engagement tools.
The Company operates through its subsidiaries, including reAlpha Realty, LLC, AiChat, Debt Does Deals, LLC (d/b/a Be My Neighbor) (“Be My Neighbor” or “BMN”), Hyperfast Title LLC (“Hyperfast”) and GTG Financial, Inc. (“GTG” or “GTG Financial”) with each playing a role in the Company’s vertically integrated ecosystem. These subsidiaries enable the Company to provide real estate brokerage and closing services, which enables us to capture value across multiple stages of the transaction process.
With its focus on AI technology and integrated real estate services, the Company is creating a scalable, end-to-end, tech-enabled model for customers to buy a home. Through strategic acquisitions and innovations in its platform, the Company is expanding its market presence and diversifying revenue streams across real estate, mortgage services, and AI-powered solutions.
The Company’s principal executive office is located at 6515 Longshore Loop, Suite 100, Dublin, OH 43017.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying unaudited condensed consolidated
financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
These condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries and entities that
the Company holds a controlling financial interest of, and those in which it owns more than
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2024 has been derived from the Company’s audited consolidated financial statements as of that date.
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements. These accounting policies conform to U.S. GAAP and have been consistently applied in the preparation of the financial statements. The financial statements include the operations, assets, and liabilities of the Company. In the opinion of the Company’s management, the accompanying condensed consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to fairly present the accompanying financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on April 2, 2025, as amended on May 13, 2025 (the “Form 10-K”). Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods.
5
Use of Estimates
The preparation of financial statements in conformity with U.S. 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. In the opinion of management, all adjustments necessary in order to make the financial statements not misleading have been included. Actual results could differ from those estimates.
Related Party Transactions
The Company accounts for related party transactions
in accordance with Accounting Standards Codification (“ASC”) 850. A related party is generally defined as (i) any person that
holds
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Concentration of Credit Risks
Financial instruments that potentially subject
the Company to a significant concentration of credit risk primarily consist of cash, cash equivalents, and accounts receivable. As of
December 31, 2024, the Company’s cash was held by financial institutions that management believes have acceptable credit. The Federal
Deposit Insurance Corporation insures balances up to $
In accordance with ASC 326, Investments - Financial Instruments—Credit Losses, (“ASC 326”) the Company applies the Current Expected Credit Losses (“CECL”) model to estimate expected credit losses over the lifetime of financial assets measured at amortized cost. The Company has determined that accounts receivable is the only financial asset subject to CECL assessment, as it does not have any loan receivables, held-to-maturity debt securities, or other financial instruments requiring CECL evaluation.
The Company’s CECL methodology incorporates historical loss experience, current economic conditions, and forward-looking adjustments to assess credit risk and expected loss reserves.
There were no changes in the Company’s credit
risk exposure, CECL methodology, or reserve assumptions during the three months ended March 31, 2025. The Company continues to monitor
its financial assets in accordance with ASC 326.
| Accounts Receivable | ||||
| Opening Balance, January 1, 2025 | $ | |||
| Current-period provision for expected credit losses | ||||
| Release of allowance for expected credit losses | ||||
| Ending Balance, March 31, 2025 | $ | |||
The condensed consolidated financial statements included herein have been prepared in accordance with U.S. GAAP and on a basis consistent with the accounting policies disclosed in the Form 10-K.
There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2025.
6
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”) when control of services is transferred to the customer. On a standalone basis, the Company generates revenue by providing monthly support services to Turnit related to the myAlphie platform, a digital platform we previously developed and sold on May 17, 2023. Revenue is recognized over time as the services are performed and the customer benefits from them. We recognized rental revenue upon customer control of the asset and recorded deferred revenue for book sales until the delivery obligation was met, both in accordance with ASC 606.
AiChat, a company specializing in AI conversational customer experience solutions, adheres to the revenue recognition standards outlined in ASC 606. The license fee for platform access and consulting services are recognized as distinct performance obligations, reflecting their ability to provide value independently within our customer contracts. For the “right to access” license fee, revenue is recognized over the duration of the subscription period, as control and benefits are provided continuously to the customer. Consulting services are recognized based on the nature of the engagement. Revenue for one-time services, such as project setups, is recognized at the point in time of delivery. For ongoing consulting services, revenue is recognized over time, reflecting the continuous benefit transferred to the customer throughout the service period. This approach ensures that revenue recognition accurately matches the ongoing provision of access and the timing of consulting services, as per the guidelines of ASC 606.
Be My Neighbor, a mortgage brokerage company, complies with ASC 606 by recognizing revenue at the point of loan funding. This moment marks the transfer of control of the loan to the borrower, capturing the completion of Be My Neighbor’s primary service—successfully securing a loan. All services, including loan origination, application processing, and credit assessment, contribute to this culminating event. Revenue is therefore recognized only when the loan closes, ensuring that the exact revenue amount is determinable based on the loan amount and agreed commission, accurately reflecting the completion of all related performance obligations.
GTG Financial, a mortgage brokerage company, complies with ASC 606 by recognizing revenue at the point of loan funding. This moment marks the transfer of control of the loan to the borrower, capturing the completion of GTG Financial’s primary service—successfully securing a loan. All services, including loan origination, application processing, and credit assessment, contribute to this culminating event. Revenue is therefore recognized only when the loan closes, ensuring that the exact revenue amount is determinable based on the loan amount and agreed commission, accurately reflecting the completion of all related performance obligations.
Naamche, a company that provides services related to the development of technology, adheres to ASC 606 for revenue recognition, primarily from its service-based contracts. This approach involves detailed identification of contracts with customers, determination of distinct performance obligations within these contracts, and accurate allocation of transaction prices to these obligations. Revenue is recognized as Naamche satisfies each performance obligation, typically over time, reflecting the ongoing delivery and customer consumption of its tech-driven services.
Note 3 - Going Concern
We assess going concern uncertainty in our condensed consolidated financial statements to determine if we have sufficient cash and cash equivalents on hand and working capital, including available loans or lines of credit, if any, to operate for a period of at least 12 months from the date our condensed consolidated financial statements are issued. As part of this assessment, based on conditions that are known and reasonably knowable to us, we consider various scenarios, forecasts, projections, and estimates, and we make certain key assumptions, including the timing and nature of projected cash expenditures or programs, and our ability to delay or curtail those expenditures or programs, if necessary, among other factors.
Management has reviewed our financial condition, focusing on liquidity sources and upcoming financial obligations. This assessment shows that our short-term obligations exceed the resources available under current operational plans that raise a substantial doubt about our ability to continue as a going concern for the next 12 months after the date that these condensed consolidated financial statements are issued. Additionally, while recent acquisitions are expected to increase operational expenses, we anticipate that they will increase revenue streams, contributing positively to our financial outlook. We believe these acquisitions will enhance product offerings and market reach, which we anticipate will drive higher revenue in the coming months. However, the revenue from our recent acquisitions and from our technology platforms do not yet offset our current obligations and expenses. Management anticipates continuing operating losses for the next 12 months due to growth initiatives, management expects to continue raising capital through additional debt and/or equity financings to fund its operations. Management believes that these actions will effectively mitigate the conditions that raise substantial doubt about our ability to continue as a going concern and to ultimately achieve profitability. However, management cannot provide assurance that their plans to add revenue streams, raise revenue or raise additional capital will be successful, and whether we will ultimately achieve profitability, become cash flow positive, or raise additional debt and/or equity capital. If we are unable to raise our revenues sufficiently to cover our obligations and expenses or raise additional capital in the near future, management expects that we will need to curtail operations, seek additional capital on less favorable terms, and/or pursue other remedial measures.
As of March 31, 2025,
the Company had approximately $
7
Note 4 - Business Combinations
For comprehensive information regarding acquisitions completed in the fiscal year ended December 31, 2024, please refer to the Form 10-K.
Acquisition of GTG Financial, Inc.
On February 20, 2025, we entered into a Stock
Purchase Agreement (the “GTG Purchase Agreement”) with GTG Financial and Glenn Groves, an individual (the “Seller”),
pursuant to which the Company acquired from the Seller
The total consideration transferred for the purpose
of applying the acquisition method was $
The components of the consideration and their accounting treatment
are as follows: (i)
The Company will finalize the allocation of the purchase price and related disclosures in subsequent reporting periods, within the measurement period allowed under ASC 805.
If
the Company does not pay the Cash Portion within 180 days after the GTG Closing Date, then, beginning on the 181st day following the GTG
Closing Date, the outstanding amount of the Cash Portion shall bear interest at a rate per annum equal to four percent (
Each share of Series A Preferred Stock shall be convertible into a number of Conversion Shares equal to the liquidation amount of such shares of Series A Preferred Stock, as set forth in the COD, divided by the Conversion Price, subject to the beneficial ownership limitation set forth in the COD; provided, however, that in the event that (i) the shares of Series A Preferred Stock are automatically converted in accordance with the terms of the COD and (ii) the aggregate value for the Conversion Shares issued upon such Automatic Conversion is less than the Preferred Consideration, as determined based on the VWAP of such Conversion Shares on the date of the Automatic Conversion (the “Automatic Conversion Date”), then the Company shall make up for such shortfall feature payment in cash or in common stock in the Company’s sole discretion, no later than 30 calendar days after the Automatic Conversion Date.
8
We estimated fair values on the acquisition date, for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the GTG acquisition, subject to measurement period adjustments.
The table below represents the preliminary purchase price allocation to total assets acquired and liabilities assumed and the associated estimated useful lives as of the acquisition date.
Preliminary Purchase Price | ||||
| Cash | $ | |||
| Goodwill | ||||
| Intangible assets | ||||
| Other current liabilities | ( | ) | ||
| Net assets acquired | $ | |||
The determination of the fair value for the acquired business employed the income approach, specifically the discounted cash flow (“DCF”) method. This method involves assessing the present value of anticipated future cash flows from the acquired business. These cash flows are discounted at the weighted average cost of capital (“WACC”), which represents the necessary return on the combined entity’s equity and debt. The WACC is weighted by the respective proportions of equity and debt in the overall capital structure.
For the fair valuation of domain name, the market
approach was applied. The estimation of the economic useful life of these assets took into account factors outlined in ASC 350-30, Intangibles—Goodwill
and Other. Due to the immaterial value of these intangibles and based on management’s judgment, the Company elected to amortize
$
Business combinations are accounted for using the acquisition method of accounting in accordance with the ASC 805. The purchase price allocation above was allocated to the tangible and intangible assets acquired and liabilities assumed based on management estimated fair values as of the acquisition date. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.
Note 5 - Property and Equipment, Net
| 1. |
| Accumulated | Net | |||||||||||||||
| Cost | Additions | Depreciation | Investment | |||||||||||||
| Computer | $ | $ | $ | ( | ) | $ | ||||||||||
| Furniture and fixtures | ( | ) | ||||||||||||||
| Vehicles | ( | ) | ||||||||||||||
| Total investment in property and equipment | $ | $ | $ | ( | ) | $ | ||||||||||
| 2. |
| Accumulated | Net | |||||||||||
| Cost | Depreciation | Investment | ||||||||||
| Computer | $ | $ | ( | ) | $ | |||||||
| Furniture and fixtures | ( | ) | ||||||||||
| Vehicles | ( | ) | ||||||||||
| Total investment in property and equipment | $ | $ | ( | ) | $ | |||||||
The Company recorded depreciation expenses of
$
9
Note 6 - Capitalized Software Development Costs, Work In Progress
The Company adheres to ASC 350-40, Intangibles
– Goodwill and Other, Internal-Use Software for the capitalization of software development costs.
| March 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||
| Gross carrying amount | Additions | Net carrying value | Gross carrying amount | Additions | Impaired | Reclassified to Intangibles and Expenses | Net carrying value | |||||||||||||||||||||||||
| Capitalized software development costs, work in progress | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||
As of March 31, 2025, there were no reclassifications
of capitalized software costs from work-in-progress (“WIP”) to intangible assets. The WIP balance related to capitalized software
amounted to $
Note 7 - Goodwill and Intangible Assets
Goodwill and intangible assets are primarily the result of business acquisitions. Goodwill represents the excess of the cost of an acquisition over the fair value of the net identifiable assets acquired and liabilities assumed. Goodwill is tested for impairment at the reporting unit level at least annually, as of December 31, or more frequently when events occur and circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Additionally, the Company assessed the acquisition of Roost Enterprises, Inc. (“Rhove”) for impairment and determined that an impairment charge was necessary. The impairment evaluation considered factors such as changes in expected future cash flows and market conditions affecting the acquired assets. The impairment expense has been recognized in the financial statements accordingly.
Changes in the carrying amount of goodwill were as follows:
| March 31, 2025 | ||||||||||||
| Technology Services | Rental Business | Total | ||||||||||
| Balance at January 1, 2025 | $ | $ | $ | |||||||||
| Goodwill acquired, GTG Financial | ||||||||||||
| Goodwill impairment | ||||||||||||
| Goodwill measurement period adjustment | ||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | |||||||||
| December 31, 2024 | ||||||||||||
| Technology Services |
Rental Business |
Total | ||||||||||
| Balance at January 1, 2024 | $ | $ | $ | |||||||||
| Goodwill acquired, net of purchase price adjustments | ||||||||||||
| Goodwill impairment | ( |
) | ( |
) | ||||||||
| Goodwill measurement period adjustment | ||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | |||||||||
The components of intangible assets, all of which are finite-lived, are as follows:
| March 31, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||
Opening balance | Additions | Amortization | Net carrying value | Opening balance | Additions | Impaired | Amortization | Net carrying value | ||||||||||||||||||||||||||||
| Definite-life Intangibles: | ||||||||||||||||||||||||||||||||||||
| Developed technology | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
| Trademarks and trade names | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Customer relationships | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||
10
Following this reclassification, during the fourth
quarter of 2024, the Company capitalized an additional
The Company recorded amortization expenses of
$
The following table outlines the estimated future amortization expense related to intangible assets held as of March 31, 2025:
| Years Ending March 31: | Amount | |||
| 2025 (remaining period) | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| Thereafter | ||||
| Total | $ | |||
Note 8 - Notes Payable
The Company had the following outstanding notes payable as of March 31, 2025 and December 31, 2024:
a.
| March 31, 2025 | December 31, 2024 | |||||||
| Secured promissory note to Streeterville Capital, LLC, $ | $ | $ | ||||||
| Less: Repayment (Issued shares) | ( | ) | ||||||
| Less: Unamortized debt issuance costs and original issue discount | ( | ) | ( | ) | ||||
| Total notes payable | ||||||||
| Notes payable, current, net of discount | ( | ) | ||||||
| Total notes payable – current- net of discount | $ | $ | ||||||
As of March 31, 2025, accrued interest under that certain outstanding
secured promissory note (the “Note”) issued to Streeterville Capital, LLC (“Streeterville”) on August 14, 2024
was $
On March 20, 2025, the Company and Streeterville, the holder of the
Note, entered into an exchange agreement (the “Exchange Agreement”), pursuant to which the Company and Streeterville agreed
to (i) partition a new secured promissory note in the form of the Note (the “Partitioned Note”) in the original principal
amount of $
Note 9 - Related Party Transactions
Loans from Related Parties
During the three months ended March 31, 2025, related party transactions involved loans provided to AiChat by Kester Poh, a director and the Chief Executive Officer of AiChat, Balaji Swaminathan, a member of our board of directors, and Sea Easy Capital Ltd. (“SEA”). All transactions were conducted on terms consistent with those offered to unrelated third parties.
AiChat has a financing arrangement with SEA, a Singapore-based entity
that the spouse of Balaji Swaminathan, a member of our board of directors, controls by virtue of her ownership or control of a majority
(
In addition to the financing arrangement with SEA, as of March 31,
2025, AiChat also has loans outstanding to Mr. Swaminathan personally. The original loan amount was $
11
As of March 31, 2025, the balance on loans due to Kester Poh was $
a. Summary of Short-Term Loans to Related Parties
| Average Interest Rate as of March 31, 2025 | March 31, 2025 | December 31, 2024 | ||||||||||
| Term Loan Facility | % | $ | $ | |||||||||
| Less: Interest Reserve | ( | ) | ( | ) | ||||||||
| Total Debt | $ | $ | ||||||||||
b. Summary of Other Long-Term Loans to Related Parties
| Maturity Year | Average Interest Rate as of March 31, 2025 | March 31, 2025 | December 31, 2024 | |||||||||||||
| Term Loan Facility | % | $ | $ | |||||||||||||
| Less: Interest Reserve | ( | ) | ( | ) | ||||||||||||
| $ | $ | |||||||||||||||
Note 10 – Short-Term Loans Unrelated parties
Short-Term Loans consisted of the following as of March 31, 2025, and December 31, 2024:
a. Summary of Short-Term Loans to Unrelated Parties
| Average Interest Rate as of March 31, 2025 | March 31, 2025 | December 31, 2024 | ||||||||||
| Term Loan Facility | % | $ | $ | |||||||||
| D&O Insurance | ||||||||||||
| Less: Interest Reserve | ( | ) | ( | ) | ||||||||
| Total Debt | $ | $ | ||||||||||
Note 11 - Deferred Liabilities, Current Portion
The Company had the following deferred liabilities as of March 31, 2025 and December 31, 2024:
| Gross carrying amount | Additions/ (payments) | Net carrying value | ||||||||||
| Balance as on December 31, 2024 | $ | $ | ||||||||||
| Deferred Revenue - AiChat | ||||||||||||
| Deferred Consideration – GTG Financial | ||||||||||||
| Balance as on March 31, 2025 | $ | $ | $ | |||||||||
12
Note 12 – Embedded Derivative Liability
In connection with the issuance of Series A Preferred Stock related to the GTG Financial acquisition and the media-for-equity transaction with Mercurius Media Capital LP (“MMC”), the Company assessed the contractual terms under ASC 480 - Distinguishing Liabilities from Equity (“ASC 480”), and ASC 815, to evaluate whether any embedded features should be accounted for separately as derivative liabilities.
The Series A Preferred Stock is convertible into a number of shares of common stock equal to the liquidation amount of such shares of Series A Preferred Stock, as set forth in the COD, divided by the Conversion Price. Under the terms of the agreements entered into in connection with the GTG Financial acquisition and MMC transaction, if, upon Automatic Conversion (which occurs three years after issuance of each such share of Series A Preferred Stock), the aggregate value of the Conversion Shares issuable in connection therewith, determined based on the fair market value of the Company’s common stock at the Automatic Conversion Date based on the VWAP or closing price, as applicable, of the Company’s common stock on such date, as reported on Nasdaq, is less than the paid consideration for such shares of Series A Preferred Stock, the Company is obligated to settle the shortfall feature payment in cash or additional shares of common stock. Although the Series A Preferred Stock is not mandatorily converted, the shortfall feature represents a contingent obligation to transfer a variable number of shares or cash based on future market conditions. As a result, the embedded feature does not meet the criteria for equity classification under ASC 815-40 and was bifurcated from the host instrument and recorded as a separate derivative liability.
The Company bifurcated the fair value of the Series A Preferred Stock between (i) the equity component, representing the initial value of the shares of Series A Preferred Stock, and (ii) a liability component, representing the fair value of the shortfall feature. The shortfall feature liability is measured at fair value at inception and subsequently remeasured at each reporting period, with changes in fair value recorded within “Other income (expense)” in the condensed consolidated statements of operations and comprehensive loss.
This bifurcation ensures the appropriate accounting treatment under U.S. GAAP and reflects the economic substance of the shortfall feature embedded in the agreements relating to the issuance of the shares of Series A Preferred Stock to GTG Financial and MMC.
The derivative liability was initially measured
at fair value using the Black-Scholes option pricing model, incorporating assumptions such as stock price, expected volatility, risk-free
rate, and the expected term until automatic conversion. For the GTG Financial acquisition, the derivative liability was recorded upon
issuance of
As of March 31, 2025, the Company estimated the fair value of the derivative liability using the Black-Scholes option pricing model with the following key assumptions:
| ● | Common
stock price at issuance: $ |
| ● | Risk-free
interest rate: |
| ● | Expected
volatility: |
| ● | Dividend
yield: |
| ● | Expected
term: |
The derivative liability was classified within
Level 3 of the fair value hierarchy due to the use of unobservable inputs. The Company initially recorded a derivative liability of $
As part of the valuation inputs, the Company used its own historical stock price volatility, calculated on an annualized basis, as a key assumption to reflect expected price fluctuations of its common stock over the term of the preferred stock.
The embedded derivative liability is remeasured at fair value at each reporting period, with changes in fair value recognized in earnings as a component of other (income) expense. The fair value is determined using the most current inputs available, including the trading price of the Company’s common stock, remaining term, dividend yield, and market volatility.
| Gross amount | Change in fair value | Net value | ||||||||||
| Balance as on December 31, 2024 | $ | $ | ||||||||||
| Embedded Derivative Liability – GTG acquisition | ||||||||||||
| Embedded Derivative Liability – MMC deal | ||||||||||||
| Balance as on March 31, 2025 | $ | $ | $ | |||||||||
Note 13 – Preferred Stock Liability
In connection with the acquisition of GTG Financial
and the transaction with MMC, the Company issued a total of
In accordance with ASC 480 and ASC 815, the Company bifurcated the value of the issued Series A Preferred Stock between (i) the liability component of the Series A Preferred Stock and (ii) an embedded derivative liability representing the fair value of the shortfall feature. The classification was based on the fact that the instruments obligate the Company to potentially settle the conversion at a fixed monetary value through a variable number of common shares, which does not meet the criteria for equity classification.
As of March 31, 2025, the bifurcated values are as follows:
| Gross amount | Change in fair value | Net value | ||||||||||
| Balance as on December 31, 2024 | $ | $ | ||||||||||
| Preferred stock liability – GTG Financial acquisition | ||||||||||||
| Preferred stock liability – MMC deal | ||||||||||||
| Accrued interest on preferred stock | ||||||||||||
| Balance as on March 31, 2025 | $ | $ | $ | |||||||||
13
The derivative liability was initially measured at fair value using
the Black-Scholes option pricing model, incorporating assumptions such as stock price, expected volatility, risk-free rate, and the expected
term until automatic conversion. For the GTG Financial acquisition, the derivative liability was recorded upon issuance of
The embedded derivative liability is remeasured at fair value at each reporting period, with changes in fair value recognized in earnings as a component of other (income) expense. The fair value is determined using the most current inputs available, including the trading price of the Company’s common stock, remaining term, dividend yield, and market volatility. The derivative liability is presented separately as “Derivative liability – embedded feature” in the consolidated balance sheet. Changes in fair value of the liability are presented as “Change in fair value of derivative liability” in the condensed consolidated statements of operations.
| Gross amount | Change in fair value | Net value | ||||||||||
| Balance as on December 31, 2024 | $ | $ | ||||||||||
| Embedded Derivative Liability – GTG Financial acquisition | ||||||||||||
| Embedded Derivative Liability – MMC transaction | ||||||||||||
| Accrued interest on Series A Convertible Preferred Stock | ||||||||||||
| Balance as on March 31, 2025 | $ | $ | $ | |||||||||
Note 14 - Other Long-Term Loans
Other Long-Term Loans consisted of the following as of March 31, 2025, and December 31, 2024:
a. Summary of Other Long-Term Loans to Unrelated Parties
| Maturity Year | Average Interest Rate as of March 31, 2025 | March 31, 2025 | December 31, 2024 | |||||||||||||
| Term Loan Facility | % | $ | $ | |||||||||||||
| Vehicle Loan | % | |||||||||||||||
| Less: Interest Reserve | ( | ) | ( | ) | ||||||||||||
| $ | $ | |||||||||||||||
Note 15 - Stockholders’ Equity (Deficit)
The total number of shares of capital stock that
the Company has the authority to issue is up to
14
Stock Based Compensation
Equity Incentive Plan
We maintain the reAlpha Tech Corp. 2022 Equity
Incentive Plan (as amended, the “2022 Plan”), under which we may grant awards to our employees, officers and directors and
certain other service providers. The compensation committee of our board of directors administers the 2022 Plan. The 2022 Plan permits
grants of awards to eligible employees, consultants and other service providers. The aggregate number of shares of common stock that may
be issued under the 2022 Plan may not exceed
Short-Term Incentive Plan
On February 4, 2025, the compensation committee of the board of directors (the “Compensation Committee”) approved the Company’s 2025 Short-Term Incentive Plan (“STIP”), providing for quarterly awards of performance-based restricted stock units (“RSUs”) under the 2022 Plan. The STIP is designed to reward key employees and executives based on the achievement of quarterly performance targets tied to organic revenue, brokerage transactions, and the quality of acquisitions.
Restricted Stock Units
The Company measures compensation cost for all stock-based awards granted to employees, directors, and consultants based on the grant-date fair value of the award in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”). The fair value of restricted RSUs is based on the closing market price of the Company’s common stock on the date of grant. The Company accounts for stock-based compensation in accordance with ASC 718. For awards with graded vesting features, the Company recognizes compensation expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, treating the award as, in-substance, multiple awards, in accordance with ASC 718. This method results in a front-loaded expense pattern that aligns more closely with the vesting schedule of the award.
During the quarter ended March 31, 2025, the Company
granted
For the quarter ended March 31, 2025, the weighted-average
grant-date fair value of RSUs granted during such period was $
Summary of RSU activity for the three months ended March 31, 2025 follows:
| Number of RSUs | Weighted Average Grant Price | |||||||
| Balance as on December 31, 2024 | ||||||||
| RSUs granted | ||||||||
| RSUs forfeited | ( | ) | ||||||
| Balance as on March 31, 2025 | ||||||||
Subject to the terms and conditions of the 2022
Plan and any related RSU award agreements, the RSUs will be scheduled to vest in accordance with the following schedule:
Ending balances for the 2022 Plan as of March 31, 2025, is as follows:
| March 31, | December 31, | |||||||
| 2025 | 2024 | |||||||
| Outstanding restricted stock units | ||||||||
| Reserved but unissued shares under the 2022 Plan | ||||||||
| Reserved but unissued shares at end of period | ||||||||
15
Warrants
There were no changes to the classification of the Warrants (as defined below) during the three months ended March 31, 2025. Additional details regarding the initial classification and terms of the Warrants are provided in Note 14 to the consolidated financial statements included in the Form 10-K.
The warrants issued in November 2023 to purchase
up to
The warrants issued to GEM Yield Bahamas Limited (“GYBL”) in October 2023 (the “GEM Warrants,” and together with the Follow-On Warrants, the “Warrants”) in connection with that certain Share Purchase Agreement, dated as of December 1, 2022 (the “GEM Agreement”), by and among us, GYBL, and GEM Global Yield LLC SCS (“GEM Yield”, and together with GYBL, “GEM”), remain classified as equity instruments. The Company is currently involved in litigation regarding the enforceability and adjustment provisions of the GEM Warrants. As of March 31, 2025, no reclassification or adjustment to the exercise price of the GEM Warrants has been made.
Rights
In connection with the acquisition of Rhove on
March 24, 2023, the Company granted certain sellers and participating investors the right to purchase up to
At inception, the Rights were determined to meet the criteria for equity classification under ASC 480 and ASC 815, and were recorded as a component of additional paid-in capital. In accordance with this classification, the Rights were not subject to remeasurement at each reporting period. The expiration of the Rights resulted in no impact to the Company’s condensed consolidated statements of operations or cash flows for the three months ended March 31, 2025.
For details on the factors used in the calculation of the fair value of the Follow-On Warrants and Rights, refer to the audited consolidated financial statements included in the Form 10-K. As the warrants issued in connection with the follow-on offering and GEM Agreement are classified as equity instruments, they are not subject to fair value remeasurement at the end of each reporting period.
Warrant activity as of March 31, 2025 were as follows:
| Issue date | Period ended | Contractual life (years) | Warrants Outstanding | Weighted Average Exercise Price | Average Remaining Contractual Life (Years) | |||||||||||||
| GEM Warrants Issued on October 23, 2023 | ||||||||||||||||||
| Follow-On Warrants Issued on November 21, 2023 | ||||||||||||||||||
| Warrants outstanding on March 31, 2025 | ||||||||||||||||||
Shelf Registration Statement on Form S-3
On November 26, 2024,
the Company’s shelf registration statement on Form S-3 (File No. 333-283284) was declared effective by the SEC. This registration
statement allows the Company to offer and sell, from time to time, common stock, preferred stock, warrants, subscription rights, and units
in one or more offerings, subject to market conditions and applicable regulatory limitations. The Company entered into an At the Market
Sales Agreement (the “AGP Sales Agreement”) with A.G.P. as sales agent to establish an “at the market” offering
program (an “ATM”) on December 19, 2024, under which we were able to offer and sell shares of our common stock having an aggregate
offering price of up to $
During the three months ended March 31, 2025,
the Company issued
16
As of March 31, 2025,
the Company is subject to the SEC’s “baby shelf rules,” which prohibits companies with a public float of less than $
Note 16 - Commitments and Contingencies
Pursuant to the terms of the “GEM Agreement, we are required to indemnify GEM for any losses it incurs as a result of a breach by us or of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material fact in a registration statement registering those shares pursuant to the GEM Agreement. Also, GEM is entitled to be reimbursed for legal or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss. To date, we have not raised any capital pursuant to the GEM Agreement and we may not raise any capital pursuant to the GEM Agreement prior to its expiration. Restrictions pursuant to terms of our future financings may also affect our ability to raise capital pursuant to the GEM Agreement.
The Company maintains indemnification agreements with our directors and officers that may require the Company to indemnify these individuals against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by law.
Acquisition of USRealty, LLC
On March 19, 2025, the Company entered into a
Mutual Settlement and Release Agreement (the “Settlement Agreement”) with Unreal Estate Inc. (“Unreal Estate”)
to resolve certain claims and disputes between us and Unreal Estate related to their respective obligations under (i) the Membership Interest
Purchase Agreement, dated as of November 20, 2024 (the “MIPA”), with Unreal Estate LLC (“Unreal”), USRealty Brokerage
Solutions, LLC (“US Realty”) and Unreal Estate, and (ii) the Letter Agreement, dated as of November 20, 2024 (the “Letter
Agreement”), with Unreal and Unreal Estate, and the transactions contemplated thereby (the MIPA and Letter Agreement together, the
“Unreal Agreements”). Pursuant to the Settlement Agreement, we agreed to pay Unreal Estate a total sum of $
These amounts were expensed in full as of December 31, 2024, and no further accounting impact was recorded in the quarter ended March 31, 2025.
Acquisition Agreement – GTG Financial
As part of the GTG Financial, Inc. acquisition,
the Company agreed to pay deferred cash consideration totaling $
Contingent Consideration and Compensation
Acquisition Agreement – Naamche
The Company’s agreement with Naamche includes deferred payment provisions representing potential milestone payments for Naamche’s former owners. The provisions are made up of two general types of arrangements, contingent compensation and contingent consideration. The contingent compensation arrangement is contingent on the former owner’s future employment with the Company and the related amounts are recognized over the required employment period. The contingent consideration is not contingent on employment and was recorded as purchase consideration in other long-term liabilities on the condensed consolidated balance sheets at the time of the initial acquisition based on the fair value of the estimated liability. The amounts are paid over a three-year period, contingent on the achievement of certain revenue milestones.
Acquisition Agreement – Be My Neighbor
The Company’s agreement with Be My Neighbor includes deferred payment provisions representing potential milestone payments for its former owners. The provisions are made up of contingent consideration. The contingent consideration is not contingent on employment and was recorded as purchase consideration in other long-term liabilities on the condensed consolidated balance sheets at the time of the initial acquisition based on the fair value of the estimated liability. The amounts are paid over a three-year period, contingent on the achievement of certain revenue and EBITDA milestones.
The Company primarily determines the contingent
consideration liability based on the forecasted probability of achieving the respective milestones. The contingent consideration liability
is measured at fair value each reporting period and changes in estimates of fair value are recognized in earnings. During the period ended
March 31, 2025, the company performed fair value analysis for contingent consideration related to BMN acquisition and recorded $
17
Acquisition Agreement – GTG Financial
On February 20, 2025, the Company completed the
acquisition of GTG Financial, a mortgage brokerage, for total consideration of up to $
As of March 31, 2025, the Company’s contingent consideration liabilities related to acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at March 31, 2025 using unobservable inputs, primarily internal revenue forecasts. Contingent consideration was valued at the time of acquisitions and have included using the Scenario based simulation method. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.
As of March 31, 2025, the Company’s contingent consideration liabilities, non-current balances were as follows:
| As of March 31, 2025 | ||||||||||||||||
| Contingent consideration at Purchase Date | Consideration Paid | Changes in Fair Value | Contingent Consideration | |||||||||||||
| Level 3: | ||||||||||||||||
| Contingent consideration, non-current - Naamche | $ | $ | $ | $ | ||||||||||||
| Contingent consideration, non-current - GTG Financial | ||||||||||||||||
| Contingent consideration, non-current - BMN | ||||||||||||||||
| Total contingent consideration | $ | $ | $ | $ | ||||||||||||
Legal Matters
Except as noted below, there have been no material changes to the legal proceedings disclosed in the Form 10-K. The Company continues to monitor the status of those proceedings, and developments will be disclosed in future filings as necessary.
GEM Yield Bahamas Limited Litigation
On November 1, 2024, we filed a lawsuit against GYBL in the United States District Court for the Southern District of New York (the “Court”), claiming that GYBL operated as an unregistered broker-dealer in violation of the Exchange Act. We are seeking to void the GEM Warrants, or alternatively, a declaratory judgment determining that the GEM Warrants’ terms govern the exercise price adjustment calculation rather than the related GEM Agreement’s terms. On January 17, 2025, GYBL moved to dismiss our complaint, and, on March 14, 2025, the Court granted GYBL’s motion to dismiss our complaint relating to the lawsuit against GYBL. On April 15, 2025, we filed an appeal of the Court’s decision dismissing our case to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). The briefing schedule at the Second Circuit is being held in abeyance in order to allow two previously filed appeals, filed by two other public companies on identical issues against other similar investors, be resolved first. However, if and when the appellate briefing moves forward, there is no assurance that it will be successful.
Following the lower Court’s dismissal of our complaint, on March 19, 2025, GYBL commenced a separate action against us in the Court (the “GYBL Action”). The GYBL Action concerns the GEM Warrants, and it asserts two causes of action against us: (1) breach of the terms of the GEM Warrants, and (2) declaratory relief concerning the validity and enforceability of the GEM Warrants. In addition to the declaratory relief, GYBL is seeking monetary damages in an amount to be determined at trial, specific performance of the GEM Warrants and attorneys’ fees and litigation costs. Our time to respond to the complaint has not yet expired and we continue to vigorously defend against GYBL’s claims and litigate our legal rights to the fullest extent.”
18
Note 17 - Segment Reporting
In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires additional disclosure of significant segment expenses included in the reported measure of segment profit or loss and regularly provided to the Chief Operating Decision Maker (the “CODM”). It also requires disclosure and a description of the composition of other amounts by reportable segment, disclosure of a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods and disclosure of the CODM’s title and process for assessing a reportable segment’s profit or loss. The new guidance was effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. The Company adopted ASU 2023-07 in the fourth quarter of 2024, noting no material impact on its consolidated financial statements.
We have
The Company’s segment results are as follows:
| Three months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Technology services | Technology services | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Wages, benefits and payroll taxes | $ | $ | ||||||
| Marketing and advertising | ||||||||
| Professional and legal fees | ||||||||
| All other segment items(1) | ||||||||
| Total operating expenses | ||||||||
| Income from operations | $ | ( | ) | $ | ( | ) | ||
| (1) |
Note 18 - Discontinued Operations
There have been no changes to the Company’s discontinued operations since the filing of its Form 10-K. As previously disclosed, during the year ended December 31, 2024, the Company made a strategic decision to fully discontinue its Rhove operations, which previously operated under the rental business segment. This decision was made due to the lack of future revenue potential and the absence of funding to further develop the platform.
As of March 31, 2025, Rhove continues to be classified as a discontinued operation in accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations.
The following table provides detail of the discontinued operations as of March 31, 2025 and December 31, 2024:
| Rhove Related Assets | March 31, 2025 | December 31, 2024 (transferred to reAlpha) | ||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Other Current Assets | ||||||||
| $ | $ | |||||||
| Current Liabilities | ||||||||
| Accounts payable and other accrued liabilities | ||||||||
| Other Current liabilities | ||||||||
| Total liabilities - Rhove | $ | $ | ||||||
19
The following table represents the statement of operations for discontinued operations as of each reporting period:
| For the Period Ended | For the Period Ended | |||||||
| March 31, 2025 | March 31, 2024 | |||||||
| Revenues | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross Profit | ||||||||
| Discontinued Operating Expenses | ||||||||
| Dues and subscriptions | ||||||||
| Professional and legal fees | ||||||||
| Other operating expenses | ||||||||
| Total operating expenses | ||||||||
| Discontinued Operating Loss | ( | ) | ||||||
| Discontinued Other expense (income) | ||||||||
| Other expense (income) | ||||||||
| Total other (expense) income | ||||||||
| Net Loss from discontinued operations before income taxes | ( | ) | ||||||
Note 19 - Subsequent Events
Warrant Inducement Transaction
On April 6, 2025, we entered into inducement offer
letter agreements (the “Inducement Letters”) with certain holders (the “Holders”) of the Follow-On Warrants. Pursuant
to the Inducement Letters, the Holders agreed to exercise for cash their Follow-On Warrants at a reduced exercise price from the then-current
exercise price of $
The closing of the Warrant Inducement occurred
on April 8, 2025, and we received aggregate gross proceeds of approximately $
Debt Redemption Payment – Streeterville Capital, LLC
On April 7, 2025, the Company received a written
redemption notice (a “Redemption Notice”) under its outstanding Note issued pursuant to that certain Purchase Agreement, dated
as of
On May 1, 2025, the Company received a Redemption
Notice from Streeterville under its outstanding Note issued pursuant to the Purchase Agreement, which requested payment for a redemption
amount of $
RSU Awards to Executive Officers and Certain Employees
On April 30, 2025, the Company issued an aggregate
of
Sea Easy Capital Financing Arrangement Loans
On April 20, 2025, AiChat drew additional loans under its financing
arrangement with SEA in an aggregate amount of $$
20
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT
This Quarterly Report on Form 10-Q, or this “report,” contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may,” “will” or other similar expressions in this report. In particular, these include statements relating to future actions; prospective products, applications, customers and technologies; future performance or results of any products; anticipated expenses; and future financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Factors that could cause actual results to differ materially from those discussed in the forward-looking statements include, but are not limited to:
| ● | Our limited cash, history of losses, and our expectation that we will continue to experience operating losses and negative cash flows in the near future; |
| ● | Our ability to raise capital and to continue as a going concern; |
| ● | We are employing a business model with a limited track record, which makes our business difficult to evaluate; |
| ● | Our technology that is currently being developed may not yield expected results or be delivered on time; |
| ● | Failure to integrate any acquisitions successfully; |
| ● | We intend to utilize a significant amount of indebtedness and raise capital through public offerings for the operation of our business; |
| ● | The implementation of artificial intelligence (“AI”) into our technologies may prove to be more difficult than anticipated; |
| ● | The real estate and real estate technology industries in which we participate are highly competitive, and we may be unable to compete successfully with our current and/or future competitors; |
| ● | Our business depends significantly on the health of the U.S. residential real estate industry and changes in general economic conditions; |
| ● | Our ability to retain our executive officers and other key personnel; |
| ● | Our ability to attract or retain customers and users of our technologies; and |
| ● | The laws and regulations regarding privacy, data protection, consumer protection, and other matters are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, or otherwise harm to our business. |
Forward-looking statements may appear throughout this report, including without limitation, the following sections: “Part I, Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 1A. Risk Factors.” The forward-looking statements are based upon management’s beliefs and assumptions and are made as of the date of this report. We undertake no obligation to publicly update or revise any forward-looking statements included in this report. You should not place undue reliance on these forward-looking statements.
Unless otherwise stated or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to reAlpha Tech Corp. and its subsidiaries, as applicable.
21
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report, as well as our audited financial statements and related notes included in our most recent Annual Report on Form 10-K for the twelve months ended December 31, 2024, as amended on May 13, 2025 (the “Form 10-K”). In addition to historical information, this discussion and analysis here and throughout this report contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements due to a number of factors, including but not limited to, the risks described in the section titled “Risk Factors” in our Form 10-K.
Business Overview
We are a real estate technology company developing an end-to-end homebuying platform, which we have named reAlpha (hereinafter referred to as the “reAlpha platform”). Our goal is to offer through our AI-powered platform a more affordable, streamlined experience for those on the journey to homeownership. The reAlpha platform integrates AI-driven tools to offer, among others, tailored property recommendations, an intuitive visual interface, and certain homebuying services, including realty services, mortgage brokering services, and digital title and escrow services within the platform. We developed the reAlpha platform as a commitment to eliminate traditional barriers to home ownership and make it more accessible and transparent.
The reAlpha platform assists homebuyers with tasks such as mortgage pre-approval, booking tours, sending offer letters and completing property acquisitions. The reAlpha platform also provides market insights, detailed property data, and uses large language models to answer queries and facilitate the homebuying process via a user-friendly, 24/7 web platform and iOS application. The reAlpha platform’s capabilities are complemented and supported by licensed real estate agents with reAlpha Realty, LLC, our in-house brokerage firm. Although the reAlpha platform is currently only available for homebuyers in 20 counties in Florida, we intend to expand its capabilities nationwide by the end of 2026 depending on numerous factors, including, among other things, our ability to acquire and maintain real estate and mortgage licenses in all 50 U.S. states and the District of Columbia, obtain additional MLS data, create and run successful marketing campaigns nationwide to gain brand recognition and increase our geographical reach and build a scalable technology infrastructure.
We are continuously working to commercialize, enhance and refine our AI technologies and the reAlpha platform to continue generating technology-derived revenue. Further, as part of our growth strategy, we intend to continue identifying and acquiring companies that are complementary to our business, and we intend to generate revenue from integrating such acquired companies and their capabilities into our business and our reAlpha platform. To advance such strategy, since the beginning of 2024 we have announced the acquisitions of Naamche, Inc. and its Nepal counterpart entity Naamche, Inc. Pvt. Ltd. (collectively, “Naamche”), AiChat Pte. Ltd (“AiChat”), Hyperfast Title LLC (“Hyperfast”), Debt Does Deals, LLC (d/b/a Be My Neighbor) (“Be My Neighbor”) and GTG Financial, Inc. (“GTG Financial”). These acquisitions have added revenue, additional potential sources of revenue, technology services under our umbrella of product offerings, and, as further described below, additional operational and service-related capabilities to the reAlpha platform.
For instance, as a result of the acquisition of Be My Neighbor and GTG Financial, our in-house mortgage brokerage that operates through the reAlpha platform is now licensed to operate in 30 U.S. states. Additionally, because of our acquisition of Hyperfast, we now can offer title, closing and settlement services in 3 U.S. states. As a result of these acquisitions, consumers using the reAlpha platform have access to these homebuying services directly in the platform, both through the web platform and iOS application. We expect to continue seeking additional strategic acquisitions that we believe will add additional sources of potential revenue and services to homebuyers using the reAlpha platform, including, but not limited to, home-showing companies, wholesale mortgage lenders, companies providing services for post-closing services (such as utility hookups, among others) and real estate brokerages. Additionally, although we have already acquired two mortgage brokerage firms and a title company, we may consider further acquisitions of companies providing such services to increase the number of U.S. states we are licensed to operate in and the potential revenue opportunities associated with expanding our geographical markets and reach of the reAlpha platform.
22
Before shifting our focus towards the development of our AI technologies and the reAlpha platform, our operational model was asset-heavy and built on utilizing our proprietary AI-powered technology tools for the acquisition of real estate, converting them into short-term rentals, and enabling individual investors to acquire fractional interests in these real estate properties, allowing such investors to receive distributions based on the property’s performance as a short-term rental. In the first quarter of 2024, we decided to halt these operations due to macroeconomic conditions, such as higher interest rates, inflation, and elevated property prices, which conditions persisted throughout the fiscal year 2024. This led us to sell our last real property asset for such operations, and to recognize the impairment of goodwill and intangible assets under the rental business segment. As a result, in the first quarter of 2025, our board of directors approved to discontinue our short-term rental business operations entirely. The discontinuation of our rental business segment operations meets the criteria to be reported as discontinued operations (see “Note 18 – Discontinued Operations” for more information)
The technology services segment is currently our only reportable segment following the approval by our board of directors to discontinue our rental business segment operations (see “Note 18 – Discontinued Operations” and “Note 17 – Segment Reporting” for more information). Our technology services segment offers and develops AI-based products and services to customers in various industries, including, but not limited to, real estate, retail, hospitality and education industries. Our technology development efforts are currently focused on the development and enhancement of the reAlpha platform.
Technology Services
We seek to differentiate ourselves from competitors primarily through the integration of AI into our technologies for the real estate industry. We expect that our technology services segment will benefit from the current exponential growth of the AI industry, and we believe that we are well-positioned to take advantage of these current trends due to our early adoption of AI for the development of our technologies.
Our revenue model revolves around our realty services (e.g., assisting a homebuyer with finding, touring, and closing on homes), mortgage brokering services (e.g., finding and originating a mortgage for the homebuyer that fits their financial situation, needs, credit, and location), and digital title and escrow services (e.g., title, closing and settlement fees), offered through the reAlpha platform, which is currently under limited availability, and services offered by our subsidiaries, such as AiChat, Naamche, Be My Neighbor, Hyperfast and GTG Financial.
We currently offer a commission refund model through the reAlpha platform as part of our strategy to provide an integrated and customer-centric homebuying experience. Under this model, homebuyers may receive up to 75% of any buy-side brokerage commissions paid, which typically range from 2.5% to 3% of a home’s sale price depending on the geographical market, in connection with the purchase of a home through the reAlpha platform as a rebate or refund (hereinafter referred to as the “commission refund”). This commission refund is paid to the homebuyer by applying such commission refund towards closing costs or by adding the refund to a homebuyer’s down payment, as applicable and subject to market-by-market minimums. The percentage of the commission refund available to a homebuyer is determined based on their use of eligible integrated homebuying services offered via the reAlpha platform, such as realty, mortgage brokering and digital title and escrow services. Currently, homebuyers can receive 25% commission refund when using one homebuying service, 50% when using two homebuying services and 75% when using all three homebuying services. The commission refund model for the reAlpha platform is currently in a testing phase and remains subject to change as we evaluate customer adoption, expand into new geographical markets and further develop our platform and/or expand the number of homebuying services provided thereunder.
23
Although the reAlpha platform is currently only available for homebuyers in 20 counties in Florida, we intend to expand its capabilities nationwide by the end of 2026. In order to expand the availability of the reAlpha platform, and services provided thereunder, nationwide, we will need to obtain the relevant real estate and mortgage licenses in the U.S. states we are not yet licensed in, and, until we obtain such licenses, the reAlpha platform will remain under limited availability for homebuyers in 20 counties in Florida. While the reAlpha platform is under limited availability, we will continue offering standalone mortgage brokerage services through our subsidiaries, Be My Neighbor and GTG Financial, in 30 U.S. States and digital title and escrow services through our subsidiary, Hyperfast, in 3 U.S. states. We also plan to continue acquiring companies in the real estate market that provide services relating to the homebuying process, including, but not limited to, mortgage brokerage firms, title and escrow service providers, home insurance providers and others that are complementary to our business, which we expect to generate revenues by offering such homebuying services through the reAlpha platform, or as standalone offerings to customers. We expect that our reAlpha platform will drive additional customers to these acquired companies through users interacting and buying homes on the reAlpha platform, which will expand their overall potential customer base.
Recent Developments
ATM Program Termination
On December 19, 2024, we entered into an At the Market Sales Agreement (as amended from time to time, the “Sales Agreement”) with A.G.P./Alliance Global Partners (“A.G.P.”). In accordance with the terms of the Sales Agreement, on March 24, 2025, we provided notice to A.G.P. of our election to terminate the Sales Agreement, which termination was effective on March 29, 2025. Through March 24, 2025, the Company had sold an aggregate of 160,879 shares of common stock pursuant to the Sales Agreement, resulting in gross proceeds of $231,235.
Designation of Series A Convertible Preferred Stock
On February 20, 2025, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate of Designation”) with the Secretary of State of the State of Delaware, designating 1,000,000 shares of the 5,000,000 shares of the authorized but unissued class of the Company’s stock known as preferred stock as Series A Convertible Preferred Stock (the “Series A Preferred Stock”).
The Series A Preferred Stock has a stated value of $20 per share (the “Stated Value”), and a conversion price per share of $20 per share, subject to adjustments provided in the Certificate of Designation (the “Conversion Price”). The holders of outstanding shares of Series A Preferred Stock will be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred Stock held by such holder are convertible at the Conversion Price as of the record date for determining stockholders entitled to vote on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Further, commencing on the issuance date of a share of Series A Preferred Stock, each such share of Series A Preferred Stock outstanding and not converted into common stock will accrue dividends on a daily basis at a per annum rate of 3.0% of the Stated Value, which dividends will be payable no later than 60 calendar days after the end of each Dividend Period (as defined in the Certificate of Designation) in accordance with and subject to the terms and conditions of the Certificate of Designation (the “Preferred Dividends”). If any shares of Series A Preferred Stock are converted in accordance with and subject to the terms and conditions of the Certificate of Designation on a Conversion Date (as defined in the Certificate of Designation) during the period after the last day of a Dividend Period and prior to the close of business on the corresponding Dividend Record Date (as defined in the Certificate of Designation) for such Dividend Period, and the Company has not paid the entire amount of the Preferred Dividends payable for such corresponding Dividend Period, then the amount of Preferred Dividends with respect to such shares of Series A Preferred Stock will be added to the Liquidation Amount (as defined below) for purposes of such conversion, which Liquidation Amount is the amount, as of any date and with respect to any share of Series A Preferred Stock, equal to the sum of (x) the Stated Value and (y) accrued but unpaid dividends, if any, on such share of Series A Preferred Stock (the “Liquidation Amount”). If any shares of Series A Preferred Stock are instead converted in accordance with and subject to the terms and conditions of the Certificate of Designation on a Conversion Date during the period after the close of business on any Dividend Record Date and prior to the close of business on the corresponding Dividend Payment Date (as defined in the Certificate of Designation), then the amount of Preferred Dividends with respect to such shares of Series A Preferred Stock (the “Residual Payments”), at the Company’s option, will either (x) be paid in cash on or prior to the date of such conversion or (y) if not paid in cash, be added to the Liquidation Amount for purposes of such conversion.
24
The Series A Preferred Stock ranks: (i) senior to all of the common stock, (ii) senior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms junior to any Series A Preferred Stock (“Junior Securities”), (iii) on parity with any class or series of capital stock of the Company hereafter created specifically ranking by its terms on parity with the Series A Preferred Stock (“Parity Securities”) and (iv) junior to any class or series of capital stock of the Company hereafter created specifically ranking by its terms senior to any Series A Preferred Stock (“Senior Securities”), in each case, as to distributions of assets upon liquidation, dissolution or winding up of the Company, whether voluntarily or involuntarily.
In the event of the Company’s liquidation, dissolution or winding up, holders of the Series A Preferred Stock will be entitled to, subject to the superior rights of the holders of any Senior Securities, (i) receive, in preference to any distributions of any of the assets, whether capital or surplus, of the Company to the holders of the common stock and Junior Securities and pari passu with any distribution to the holders of Parity Securities, (a) any Residual Payments and (b) the Liquidation Amount with respect to such shares of Series A Preferred Stock, in each case, before any payments shall be made or any assets distributed to holders of any class of common stock or Junior Securities; and (ii) participate pari passu with the holders of common stock (on an as-converted to common stock basis and disregarding for such purpose any Beneficial Ownership Limitation (as defined in the Certificate of Designation)) in the remaining distribution of the net assets of the Company available for distribution.
The Series A Preferred Stock is convertible at the option of the holder at any time during the period beginning on the date of issuance of such Series A Preferred Stock and ending on the date that is 3 years following the respective issuance date thereof (the “Conversion Period”) into a number of Conversion Shares (as defined below) equal to the Liquidation Amount of such share of Series A Preferred Stock divided by the Conversion Price, subject to any Beneficial Ownership Limitation. On the business day after the expiration of the Conversion Period of a Series A Preferred Stock, each such share of Series A Preferred Stock will automatically convert into a number of Conversion Shares equal to the Liquidation Amount of such shares of Series A Preferred Stock divided by the Conversion Price, subject to any Beneficial Ownership Limitation.
Acquisition of GTG Financial, Inc.
On February 20, 2025, we entered into a Stock Purchase Agreement (the “GTG Purchase Agreement”) with GTG Financial and Glenn Groves, an individual (the “Seller”), pursuant to which the Company acquired from the Seller 100% of the issued and outstanding shares of common stock of GTG (the “Acquired Shares”), a mortgage brokerage company, the closing of which transaction (the “Closing” and the date of the Closing, the “GTG Closing Date”) took place simultaneously with the execution of the GTG Purchase Agreement.
Pursuant to and subject to the terms and conditions of the GTG Purchase Agreement, the Company agreed to pay to the Seller an aggregate purchase price of up to $4,200,000 for the Acquired Shares, subject to the adjustments described below, consisting of: (i) $281,250 (the “Preferred Consideration”) in 14,063 shares of Series A Preferred Stock (as defined below) (the “Preferred Shares”), each of which is convertible into shares of our common stock at a conversion price of $20 per share of Series A Preferred Stock (the “Conversion Shares”), in accordance with the terms and conditions of and subject to the adjustments set forth in the Certificate of Designation; (ii) $1,287,000 in 700,055 restricted shares of common stock (the “Company Shares”), at a price per share of $1.84 calculated based on the volume weighted average price of the common stock as reported on the Nasdaq Capital Market (the “VWAP”) for the 7 calendar days immediately prior to the GTG Closing Date and payable to the Seller within 90 days from the GTG Closing Date; (iii) $1,344,750 payable in cash (the “Cash Portion”) to the Seller as follows: (A) 30% of the Cash Portion payable on the 120-day anniversary of the GTG Closing Date, (B) 30% of the Cash Portion payable on the 150-day anniversary of the GTG Closing Date and (C) 40% of the Cash Portion payable on the 180-day anniversary of the GTG Closing Date; and (iv) up to an aggregate of $1,287,000 in potential earn-out payments, payable in three tranches of up to $429,000 in cash or restricted shares of common stock (the “Earn-Out Shares”), at the Company’s sole discretion and subject to the adjustments described below, each of which is calculated based on a formula set forth in the GTG Purchase Agreement and subject to the achievement of certain financial metrics by GTG for three successive measurement periods of 12 months, with the first measurement period ending 12 months following the 1st of the month after the GTG Closing Date (collectively, the “GTG Earn-Out Payments,” and each, an “GTG Earn-Out Payment”). Specifically, each GTG Earn-Out Payment will be payable in full if GTG achieves certain revenue and EBITDA thresholds for each of the measurement periods, each of which is payable within 120 days after the end of a measurement period. If GTG does not meet the revenue and EBITDA threshold for a measurement period, a pro-rated amount of the GTG Earn-Out Payment for such measurement period will be paid to GTG based on the actual revenue and EBITDA achieved in accordance with the formula set forth in the GTG Purchase Agreement. Further, if GTG exceeds the revenue and EBITDA thresholds for any measurement period, the GTG Earn-Out Payment for such measurement period will not be capped and will be increased accordingly based on the formula set forth in the GTG Purchase Agreement.
25
Additionally, the GTG Purchase Agreement provides that, to the extent that, upon an Automatic Conversion (as defined in the Certificate of Designation), the aggregate value for the Conversion Shares on the Automatic Conversion Date (as defined in the Certificate of Designation) is less than the Preferred Consideration, as determined based on the VWAP of such Conversion Shares on the Automatic Conversion Date, then the Company will pay for such difference in value in cash or in shares of common stock (the “Shortfall Shares,” and together with the Conversion Shares, Company Shares and Earn-Out Shares, the “GTG Shares”), at the Company’s sole discretion, payable or issuable to the holder, as applicable, no later than 30 calendar days after the Automatic Conversion Date. Further, to the extent that the Company does not pay the Cash Portion in full by the date that is 180 days of the GTG Closing Date, then, beginning on the 181st day following the GTG Closing Date, the outstanding amount of the Cash Portion will bear interest at a rate per annum equal to 4% and the Seller will have the right, at the Seller’s sole discretion and to the extent permitted by law, to rescind the transactions contemplated under the GTG Purchase Agreement, in which case the Seller will return any and all consideration paid by the Company in exchange for all the Acquired Shares, and the Company will return the Acquired Shares to the Seller, in each case in accordance with and subject to the terms and conditions of the GTG Purchase Agreement. The Cash Portion outstanding at any time will also become due and payable no later than 60 days after the Company’s consummation of a bona fide transaction or series of transactions with the principal purpose of raising capital in the minimum amount of $10,000,000, whether through loans provided to the Company or through the sale of the Company’s equity securities.
The aggregate amount of GTG Shares issuable under the GTG Purchase Agreement, for purposes of complying with Nasdaq Listing Rule 5635, may in no case exceed 19.99% of our outstanding common stock (the “Cap Amount”) immediately prior to the execution of the GTG Purchase Agreement, or 9,206,230 shares, without stockholder approval of any shares exceeding such amount. In the event the GTG Shares issuable pursuant to the GTG Purchase Agreement exceed the Cap Amount, the Company will pay the Seller cash in lieu of such excess shares of common stock, based on a formula set forth in the GTG Purchase Agreement.
Advertising Agreement and Investment Agreement with Mercurius Media Capital LP
On March 7, 2025, we simultaneously entered into an Advertising Agreement (the “Advertising Agreement”) and an Investment Agreement (the “Investment Agreement,” and together with the Advertising Agreement, the “Transaction Documents”) with Mercurius Media Capital LP (“MMC”). In accordance with the Transaction Documents, the Company agreed to issue and sell to MMC 250,000 shares of Series A Preferred Stock for an aggregate purchase price of $5,000,000 (the “Consideration”). The Consideration was paid to the Company in the form of a Credit (as defined in the Advertising Agreement) issued by MMC to the Company at the closing date in accordance with the terms and subject to the conditions set forth in the Advertising Agreement.
Under the Advertising Agreement, the Company will have until December 31, 2025, or, if extended pursuant to the terms of the Advertising Agreement at the request of the Company (the “Extension Period”), March 31, 2026 (such term, as extended pursuant to the terms of the Advertising Agreement, the “Credit Term”), to utilize its Credit with MMC to purchase advertisements in the Media (as defined in the Advertising Agreement) related to the Company’s products, services, brands and business, on the terms and subject to the conditions set forth in the Advertising Agreement. Any unused portion of the Credit at the expiration of the Credit Term will be forfeited by the Company, subject to the compliance of MMC with the terms and obligations set forth in the Advertising Agreement. To the extent the original Credit Term is extended in accordance with the terms of the Advertising Agreement, the Company will only be able to utilize a maximum of $1,000,000 of the remaining Credit during such Extension Period. In order to purchase advertisements in the Media, the Company will be required to submit Media Credit Orders (as defined in the Advertising Agreement) to MMC, and, upon receipt of those Media Credit Orders by MMC, the Credit relating to those will be deemed used, provided that all advertisements relating to such Media Credit Order run on the Media in accordance therewith no later than 90 days after the last date specified in the applicable Media Credit Order, and, to the extent the advertisements do not run in the applicable Media, such Credit shall be re-added to the Company’s overall Credit to be used during the Credit Term. Each of MMC and the Company may terminate the Advertising Agreement at any time in the event of a Material Breach (as defined in the Advertising Agreement) by the Company or MMC, provided that such Material Breach, if capable of cure or remedy, has not been cured or remedied by such defaulting party within 60 days of the receipt of written notice of such Material Breach by the defaulting party.
26
Additionally, the Investment Agreement further provides that, to the extent that the aggregate value of the Conversion Shares issued upon the Automatic Conversion is less than the Consideration, as determined based on the closing price of our common stock, as reported on the Nasdaq Stock Market (“Nasdaq”) on the applicable Automatic Conversion Date, then the Company shall pay for such difference in cash or in shares of common stock (the “MMC Shortfall Shares,” and together with the Conversion Shares issuable to MMC, the “MMC Shares”), at the Company’s sole discretion, no later than 30 calendar days after the Automatic Conversion Date, on the terms and subject to the conditions set forth in the Investment Agreement. The Investment Agreement further provides that at any time during the 2-month period beginning on the closing date of the transactions contemplated under the Transaction Documents, MMC had the right, but not the obligation, to reinvest up to an additional $5,000,000 in the aggregate in the Company on the same terms and conditions as those set forth in the Transaction Documents. As of the date of this filing, MMC’s reinvestment right has expired unexercised.
The aggregate amount of MMC Shares issuable under the Investment Agreement, for purposes of complying with Nasdaq Listing Rule 5635, may in no case exceed the Cap Amount immediately prior to the execution of the Investment Agreement, or 9,228,411 shares, without stockholder approval of any MMC Shares exceeding such amount. In the event the MMC Shares issuable pursuant to the Investment Agreement exceed the Cap Amount, the Company will pay MMC cash in lieu of such excess MMC Shares, based on a formula set forth in the Investment Agreement.
Mutual Settlement and Release Agreement with Unreal Estate Inc.
On November 29, 2024: (i) we entered into a Membership Interest Purchase Agreement (the “MIPA”), with Unreal Estate LLC (the “Unreal”), USRealty Brokerage Solutions, LLC (“US Realty”) and Unreal Estate Inc. (“Unreal Estate”), pursuant to which, on November 20, 2024 we acquired from the Unreal 100% of the membership interests of US Realty that were outstanding immediately prior to the execution of the MIPA; (ii) we entered into a Letter Agreement (the “Letter Agreement”), with Unreal and Unreal Estate, pursuant to which we agreed to purchase an aggregate amount of $600,000 of convertible promissory notes from Unreal Estate in a series of six installments; and (iii) Unreal Estate issued and sold to us, pursuant to the terms of the Letter Agreement, a convertible promissory note in the original principal amount of $60,000 (the “Unreal Note,” and together with the MIPA and the Letter Agreement, the “Agreements”).
On March 19, 2025, we entered into a Mutual Settlement and Release Agreement (the “Settlement Agreement”), with Unreal Estate, to resolve certain claims and disputes between us and Unreal Estate related to their respective obligations under the Agreements and the transactions contemplated thereby. Pursuant to the Settlement Agreement, we agreed to pay Unreal Estate a total sum of $80,000 in cash within one business day following Unreal Estate’s execution and delivery of the Settlement Agreement, and the parties agreed that we will retain full ownership of and control over the membership interests of US Realty that we had acquired pursuant to the Purchase Agreement.
The Settlement Agreement also includes a mutual release of claims whereby each of the Company and Unreal Estate agreed (on behalf of themselves and their respective affiliates, successors and assigns) to release the other party of any known and unknown claims arising out of or related to the Agreements and other specified agreements entered into in connection therewith, subject to certain exceptions only with respect to the release of claims given by us.
Pursuant to and as a result of the Settlement Agreement, the Unreal Note was cancelled and the parties confirmed the termination of the Letter Agreement.
ATM Offering
On April 2, 2025, we entered into an At The Market Offering Agreement (the “Offering Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright.”). In accordance with the terms of the Offering Agreement, we may offer and sell from time to time through Wainwright, acting as sales agent, shares of our common stock having an aggregate offering price of up to $7,650,000 (the “Placement Shares”). The Placement Shares will be issued pursuant to our shelf registration statement on Form S-3 (File No. 333-283284) filed with the SEC on November 15, 2024, and declared effective on November 26, 2024. The Company filed a prospectus supplement dated April 2, 2025, with the SEC in connection with the offer and sale of the Placement Shares.
27
Warrant Inducement Transaction
On April 6, 2025, we entered into inducement offer letter agreements (the “Inducement Letters”) with certain holders (the “Holders”) of existing warrants of the Company to purchase up to an aggregate of 4,218,751 shares of our common stock having an original exercise price of $5.00 per share, which was subsequently adjusted to $1.44 per share pursuant to the anti-dilution provision included in such existing warrants, issued to the Holders on November 24, 2023, with a current expiration date of November 24, 2028 (the “Existing Warrants”).
Pursuant to the Inducement Letters, the Holders agreed to exercise for cash their Existing Warrants at a reduced exercise price of $0.75 per share (the “Reduced Exercised Price”) in consideration for our agreement to issue in a private placement new common stock purchase warrants (the “New Warrants”) to purchase an aggregate of 8,437,502 shares of common stock (the “New Warrant Shares”) (such transaction, the “Warrant Inducement”). In connection with the Warrant Inducement, we also agreed to reduce the exercise price of the Existing Warrants to purchase an aggregate of 4,114,582 shares of common stock for all holders of the Existing Warrants not participating in the Warrant Inducement to the Reduced Exercise Price for the remaining term of the Existing Warrants.
The closing of the Warrant Inducement occurred on April 8, 2025, and we received aggregate gross proceeds of approximately $3.1 million from the exercise of the Existing Warrants, before deducting related placement agent fees and other expenses payable by us, resulting in net proceeds of approximately $2.9 million.
The exercise of the New Warrants and issuance of the New Warrant Shares is subject to stockholder approval (the “Stockholder Approval”) in accordance with Nasdaq Listing Rule 5635(d). On May 5, 2025, we filed a definitive information statement on Schedule 14C related to the necessary Stockholder Approval, which approval will become effective on May 25, 2025, which is 20 calendar days after the mailing of the definitive information statement on Schedule 14C to the holders of our capital stock as of April 14, 2025.
Recent Legal Challenges to Sales Agents’ Commission Structure
Recent developments in the real estate industry have seen increased scrutiny and legal challenges related to the structure of real estate agent commissions. Legal actions and regulatory inquiries have been initiated to examine the fairness, transparency, and potential anticompetitive practices associated with the traditional commission model. Courts and regulatory bodies may be increasingly focused on ensuring transparency in commission structures, potentially leading to reforms that impact the earnings and business models of real estate professionals. Changes in legislation or legal precedents could impact the standard practices of commission-sharing between listing agents and buyer’s agents and may adversely affect our business model and revenues. On October 31, 2023, a federal jury in Missouri found that the NAR and certain companies conspired to artificially inflate brokerage commissions, which violates federal antitrust law. The judgment was appealed on October 31, 2023, while these and other plaintiffs have filed similar lawsuits against a number of other large real estate brokerage companies.
On or about March 15, 2024, NAR agreed to settle these lawsuits, by agreeing to pay $418 million over approximately four years, and changing certain of its rules surrounding agent commissions. This settlement resolves claims against NAR and nearly every NAR member; all state, territorial and local REALTOR® associations; all association-owned MLSs; and all brokerages with an NAR member as principal whose residential transaction volume in 2022 was $2 billion or below and is subject to court approval. Due to this litigation, and effective as of August 17, 2024, NAR has implemented a new rule that prohibits offers of compensation on MLS listings and requires written agreements between buyers and buyer’s agents.
Early indications suggest that these changes are already prompting shifts in industry practices as a result of the NAR lawsuit. For instance, discussions are underway regarding potential changes to rules established by local or state real estate boards or multiple listing services. These changes may necessitate adjustments in brokers’ business models, including alterations in agent and broker compensation structures, as well as requiring buyers to sign separate agreements to compensate their agents. We believe that we are well-positioned to take advantage of some of these potential industry changes. Given that the reAlpha platform offers commission refunds tied to the use of integrated homebuying services, we believe that homebuyers that have access to the reAlpha platform may choose our platform over seeking traditional agents to conduct their property search and acquisition to avoid paying additional buyer’s agents fees through these separate agreements. Additionally, we expect that our competitors will need to develop mechanisms and plans to enable buyers to negotiate commissions, which may add another layer of complexity into real estate transactions. We believe that the reAlpha platform will remove such layer by offering all these services – including negotiations of fees through our AI negotiation helper – in one platform, while providing buyers with a commission refund on all homes purchased through the reAlpha platform.
The NAR litigation and its ramifications, however, remain uncertain and could cause unforeseen turmoil in our industry, the impacts of which could have a negative effect on us as an industry participant.
28
Critical Accounting Policies
The condensed consolidated financial statements included in this report have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and reflect the application of estimates and assumptions that require significant judgment by management. These estimates affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures and are based on a combination of historical experience, current business conditions, and other factors available to management. Actual results could differ materially from those estimates due to the inherent uncertainty in assumptions and external conditions.
There have been no material changes to the Company’s critical accounting policies or the methods used in applying those policies during the three months ended March 31, 2025. For a full description of our critical accounting policies and significant estimates, refer to the condensed consolidated financial statements and accompanying notes included in our Form 10-K filed with the Securities and Exchange Commission (the “SEC”), and “Note 2 – Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this report.
Results of Operations
Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2025 (unaudited) | March 31, 2024 | |||||||
| Revenue | $ | 925,635 | $ | 20,426 | ||||
| Cost of Revenue | (406,968 | ) | (18,249 | ) | ||||
| Gross profit | $ | 518,667 | $ | 2,177 | ||||
| Operating expense | (2,940,925 | ) | (1,308,835 | ) | ||||
| Operating loss | (2,422,258 | ) | (1,306,658 | ) | ||||
| Other expense | (428,093 | ) | (111,548 | ) | ||||
| Loss from continuing operations before tax | (2,850,351 | ) | (1,418,206 | ) | ||||
| Loss from discontinued operations before tax | - | (839 | ) | |||||
Revenue. Revenues were $925,635 for the three months ended March 31, 2025 compared to $20,426 for the three months ended March 31, 2024, an increase of approximately 4,432%. Our revenues currently consist of the revenues generated in our technology services segment that we receive directly from, or from services related to, our technologies and acquired companies. This increase in revenue was primarily driven by revenue generated by Be My Neighbor and GTG Financial and AiChat’s conversational AI technology offered to enterprise clients. Be My Neighbor and GTG Financial generated $386,594 through mortgage brokerage transactions, which included loan origination fees, broker commissions, and processing fees, while AiChat generated $109,552 from subscription fees for its AI conversational technologies.
Cost of revenue. Cost of revenue was $406,968 for the three months ended March 31, 2025, compared to $18,249 for the three months ended March 31, 2024, an increase of approximately 2,130%. This increase was primarily driven by the integration of GTG Financial into our operations of $217,609, which primarily includes direct expenses associated with delivering our loan brokerage services and technology solutions, such as compensation-related expenses for roles supporting loan origination and customer interactions.
Operating expenses. Operating expenses were $2,940,925 during the three months ended March 31, 2025, compared to $1,308,835 for the three months ended March 31, 2024, an increase of approximately 125%. This increase in operating expenses was primarily driven by the integration of the newly acquired businesses within the technology segment, including Be My Neighbor and GTG Financial. A significant portion of this increase is attributed to salaries of the employees from our recent acquisitions, which salary expenses amounted to $803,435, marketing and advertising expenses related to our advertising campaign of $442,155 and professional and legal services expenses of $347,261 incurred in connection with our recent acquisitions.
Other (expense) income. Other expenses were $428,093 for the three months ended March 31, 2025, compared to $111,548 for the three months ended March 31, 2024, an increase of approximately 284%. This increase was primarily driven by the interest accrued on that certain secured promissory note (the “Note”), which was issued to Streeterville Capital, LLC (the “Lender”) pursuant to that certain Purchase Agreement, dated August 14, 2024 (the “Purchase Agreement”), in the amount of $113,542, the amortization expense of the original issue discount of the Note in the amount of $72,501 and the amortization expense of the commitment fee related to our equity facility with GEM Yield Bahamas Limited (“GYBL”) and GEM Global Yield LLC SCS (“GEM Global,” and together with GYBL, “GEM”), in the amount of $125,000.
29
Non-GAAP Financial Measures
To supplement our financial information presented in accordance with U.S. GAAP, we believe “Adjusted EBITDA,” a “non-U.S. GAAP financial measure,” as such term is defined under the rules of the SEC, is useful in evaluating our operating performance. We use Adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-U.S. GAAP financial measures may be helpful to investors because it provides consistency and comparability with past financial performance. However, this non-U.S. GAAP financial measures is presented for supplemental informational purposes only, have limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. In addition, other companies, including companies in our industry, may calculate a similarly titled non-U.S. GAAP measure differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-U.S. GAAP financial measure as a tool for comparison. A reconciliation is provided below for our non-U.S. GAAP financial measure to the most directly comparable financial measure stated in accordance with U.S. GAAP. Investors are encouraged to review the related U.S. GAAP financial measure and the reconciliation of this non-U.S. GAAP financial measure to its most directly comparable U.S. GAAP financial measure, and not to rely on any single financial measure to evaluate our business.
We use Adjusted EBITDA, a non-U.S. GAAP financial measure, to evaluate our operating performance and facilitate comparisons across periods and with peer companies. We reconcile our Adjusted EBITDA to our net income (loss) adjusted to exclude interest expense, depreciation and amortization, share-based compensation, and other non-cash, non-operating, or non-recurring items that we believe are not indicative of our core business operations. We believe this measure provides useful insight into our ongoing performance; however, it should not be considered a substitute for, or superior to, net income or other financial information prepared in accordance with U.S. GAAP.
The following table provides a reconciliation of net income to Adjusted EBITDA for the periods presented below:
| For the Three Months Ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Net loss | $ | (2,850,351 | ) | $ | (1,419,045 | ) | ||
| Adjusted to exclude the following | ||||||||
| Depreciation and amortization | 179,149 | 71,453 | ||||||
| Changes in fair value of contingent consideration | 93,000 | - | ||||||
| Interest expense | 205,247 | 10,445 | ||||||
| Amortization of loan discounts and origination fee(1) | 121,251 | - | ||||||
| GEM commitment fee (2) | 125,000 | - | ||||||
| Share based compensation (3) | 78,355 | - | ||||||
| Acquisition-related expenses (4) | 87,352 | - | ||||||
| Adjusted EBITDA | (1,960,997 | ) | (1,337,147 | ) | ||||
| (1) | Reflects the amortized original issue discount related to the Note (as defined above). |
| (2) | This pertains to the commitment fee of $1 million in connection with the GEM equity facility, which has been amortized over a period of 24 months. |
| (3) | Compensation provided to employees for services through share-based awards, which is recognized as a non-cash expense. |
| (4) | Expenses related to acquisitions, including professional and legal fees, which are excluded from U.S. GAAP financial measures to provide a clearer view of ongoing operational performance. |
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations, including working capital needs, debt services, acquisitions, contractual obligations and other commitments. Our liquidity and capital resources are critical to our ability to execute our business plan and achieve our strategic objectives. Accordingly, to the extent that collections from our short-term rentals, if any, and technologies cannot fund our operations, we intend to utilize equity or debt offerings to raise these funds, although volatility in the capital markets may negatively affect our ability to do so. The cost of capital and historically high-interest rates can also have a direct impact on our ability to raise capital through debt or equity offerings or to pursue acquisitions. Economic environments yielding higher interest rates with more stringent debt terms such as today’s market environment require larger equity commitments. This means that, as larger equity commitments are required, we will have less leverage and may have fewer acquisitions overall. We cannot provide any assurance that we will be able to raise additional funds on acceptable terms, if at all. Our ability to raise additional capital will depend on various factors, including market conditions, investor demand, and our financial performance.
30
We had cash and cash equivalents of approximately $1.2 million as of March 31, 2025 and approximately $3.1 million as of December 31, 2024. Based on our estimates, we believe we do not have sufficient working capital to meet our financial needs for the 12-month period following March 31, 2025. Further, based on our current operating plans, to the extent the Lender (as defined above) does not redeem additional portions of the Note (as further described below) and we do not raise additional capital through any offering of our securities, we estimate that our cash and cash equivalents as of March 31, 2025, will be sufficient to fund our operating expenses and capital expenditure requirements into the third quarter of 2025. Accordingly, to the extent that collections from our operations in the technology services segment cannot fund our operations, we intend to utilize equity or debt offerings to raise additional funds, although volatility in the capital markets may negatively affect our ability to do so. As part of these efforts, we previously utilized our At the Market (“ATM”) program with A.G.P. to raise working capital, and as of the date of this report, we raised approximately $231,235 in gross proceeds through such ATM program prior to its termination (see “Recent Developments – ATM Program Termination” and “Note 15 – Stockholders’ Equity (Deficit)” for more information). Further, on April 2, 2025, we entered into the Offering Agreement with Wainwright (each as defined above), pursuant to which we are able to raise up to $7.65 million in gross proceeds through sales of our common stock with Wainwright acting as sales agent, which we expect to utilize from time to time to fund our operations (see “Recent Developments – ATM Offering” for more information). We also recently completed the Warrant Inducement (as defined above) that resulted in gross proceeds to us of approximately $3.1 million, which provided us with additional liquidity to meet our financial needs (see “Recent Developments – Warrant Inducement Transaction” for more information). While we anticipate continued operating losses in the near future, we expect to generate more significant revenues as we continue investing in the commercialization of our products and technologies and acquiring complementary businesses to fund our operating expenses and capital expenditure requirements.
We may also receive proceeds from the cash exercises of the warrants in connection with our public offering from November 2023 (the “Follow-On Warrants”), which currently have an exercise price of $0.75 per share. We believe the likelihood that any Follow-On Warrant holders will exercise their warrants, and therefore the amount of cash proceeds that we would receive, is dependent upon the trading price of our common stock. We believe that if the trading price for our common stock is less than $1.44 per share, it is unlikely that the holders of the Follow-On Warrants will exercise them. Further, due to the ongoing disputes with GYBL regarding the warrants issued to them on October 23, 2023 (the “GEM Warrants”), pursuant to that certain Share Purchase Agreement among us and GEM, dated December 1, 2022 (the “GEM Agreement”), including our claims that the GEM Warrants are void and subject to rescission under Section 29(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) there is uncertainty about the enforceability of the GEM Warrants and its terms. On January 17, 2025, GYBL moved to dismiss our complaint relating to this dispute, and, on March 14, 2025, such motion to dismiss our complaint relating to our complaint was granted. Further, on March 19, 2025, GYBL filed a lawsuit against us, which is asserting two causes of action against us: (1) breach of the terms of the GEM Warrants, and (2) declaratory relief concerning the validity and enforceability of the GEM Warrants. In addition to the declaratory relief, GYBL is seeking monetary damages in an amount to be determined at trial, specific performance of the GEM Warrants and attorneys’ fees and litigation costs. As of the date of this report, there has been no adjustment to the exercise price of the GEM Warrants in connection with the dismissal of our complaint, and our position regarding the GEM Warrants, including the exercise price and subsequent adjustments thereof, remains the same pending resolution of these disputes with GEM. As a result, we do not expect that the GEM Warrants will be exercised while these disputes are pending, however, if these disputes are not resolved through negotiations and these lawsuits are adversely determined against us, we may be required to adjust the GEM Warrants’ exercise price downward significantly, and we may incur penalties under the GEM Agreement and/or other litigation expenses related to these disputes, which could materially adversely impact our financial statements, cash flows and results of operations.
Our business model requires significant capital expenditures to build and maintain the infrastructure and technology required to support our operations. In addition, we may incur additional costs associated with research and development of new products and services, expansion into new markets or geographies, and general corporate overhead. As a result, we may require additional financing in the future to fund these initiatives, which may include additional equity or debt financing or strategic partnerships. If we are unable to obtain additional financing when required, we may be forced to reduce the scope of our operations, delay the launch of new products or services, or take other actions that could adversely affect our business, financial condition, and results of operations. We may also be required to seek additional financing on terms that are unfavorable to us, which could result in the dilution of our stockholders’ ownership interests or the imposition of burdensome terms and restrictions.
31
Contractual Commitments and Obligations
On August 14, 2024, we entered into the Purchase Agreement with the Lender (each as defined above) to issue and sell a secured promissory note worth $5,455,000. As of March 31, 2025, we have incurred $435,000 original issue discount expenses related to the Note. Further, in accordance with the Note and related Purchase Agreement, beginning seven months after issuance, the Lender may redeem up to $545,000 of the Note per month, which amount will be due and payable in cash within three trading days of our receipt of a written redemption notice from the Lender.
The redemption feature of the Note may require us to make redemption payments at the request of the Lender, which redemptions may have a material adverse effect on our cash flows, results of operations and ability to pay our debts as they come due, and we may not have the required funds to pay such redemptions, which could result in an event of default under the Note. As of the date of this report, we have made redemption payments in the aggregate amount of $1,090,000 pursuant to written redemption notices sent by the Lender. The Note and related Purchase Agreement also contain restrictive covenants on our ability to issue securities, which may further impact our ability to raise capital to meet our redemption payments or other obligations and expenses as they are due.
Additionally, as part of the GTG Financial acquisition, and pursuant to the GTG Purchase Agreement (as defined above), we are obligated to pay to the Seller (as defined above) the Cash Portion (as defined above), which consist of cash payments in the aggregate amount of $1,344,750, which are payable in three tranches as follows: $403,425 on the 120th day after the GTG Closing Date (as defined above), $403,425 on the 150th day after the GTG Closing Date and $537,900 on the 180th day following the GTG Closing Date. Further, to the extent that we do not pay the Cash Portion in full by the date that is 180 days of the GTG Closing Date, then, beginning on the 181st day following the GTG Closing Date, the outstanding amount of the Cash Portion will bear interest at a rate per annum equal to 4%. The Cash Portion outstanding at any time will also become due and payable no later than 60 days after the Company’s consummation of a bona fide transaction or series of transactions with the principal purpose of raising capital in the minimum amount of $10,000,000, whether through loans provided to the Company or through the sale of the Company’s equity securities. The Cash Portion payments may have a material adverse effect on our cash flows, results of operations and ability to pay our debts as they come due, and, to the extent we do not have the required funds to pay for such Cash Portions in full by the 180th day after the GTG Closing Date, the Seller will be eligible to rescind the transactions contemplated under the GTG Purchase Agreement, which may further materially impact our business, results of operations and cash flows.
Cash Flows
The following table summarizes our cash flows from operating, investing, and financing activities for the periods presented.
| Three-month period | ||||||||
| Particulars | March 31, 2025 | March 31, 2024 | ||||||
| Net cash used in operating activities | $ | (2,267,103 | ) | $ | (1,527,238 | ) | ||
| Net cash provided by (used in) investing activities | $ | 244,554 | $ | (19,700 | ) | |||
| Net cash provided by (used in) financing activities | $ | 103,005 | $ | (71,286 | ) | |||
Cash Flows from Operating Activities
For the three months ended March 31, 2025, net cash used in operating activities was $2,267,102, compared to $1,527,238 for the three months ended March 31, 2024. The increase is primarily due to higher operating expenses as a result of our recently acquired companies, including salaries of $1,060,104 and professional and legal fees of $742,159.
Cash Flows from Investing Activities
For the three months ended March 31, 2025, net cash provided by investing activities was $244,554, compared to $19,700 of net cash used in investing activities for the three months ended March 31, 2024. This increase is primarily a result of the integration of GTG Financial into our business, which resulted in an increase of $349,529 due to the addition of the cash held by GTG Financial during the three months ended March 31, 2025.
Cash Flows from Financing Activities
For the three months ended March 31, 2025, net cash provided by financing activities was $103,004, compared to net cash used in financing activities of $71,286 for the three months ended March 31, 2024. This increase was primarily due to the $231,235 of capital raised through our ATM program.
32
Off-Balance Sheet Transactions
We do not have any off-balance sheet transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide this information.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to reasonably ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal accounting and financial officer, as appropriate, to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2025, the end of the period covered by this report. Based upon the evaluation of our disclosure controls and procedures as of March 31, 2025, our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer) concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
Our management, including our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal accounting and financial officer), does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
33
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
GEM Lawsuit
On November 1, 2024, we filed a lawsuit against GYBL in the United States District Court for the Southern District of New York (the “Court”), claiming that GYBL operated as an unregistered broker-dealer under the Exchange Act. We are seeking to void the GEM Warrants, or alternatively, a declaratory judgment determining that the GEM Warrants’ terms govern the exercise price adjustment calculation rather than the related GEM Agreement’s terms. On January 17, 2025, GYBL moved to dismiss our complaint, and, on March 14, 2025, the Court granted GYBL’s motion to dismiss our complaint relating to the lawsuit against GYBL. On April 15, 2025, we filed an appeal of the Court’s decision dismissing our case to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). The briefing schedule at the Second Circuit is being held in abeyance in order to allow two previously filed appeals, filed by two other public companies on identical issues against other similar investors, to be resolved first. However, if and when the appellate briefing moves forward, there is no assurance that it will be successful.
Following the Court’s dismissal of our complaint, on March 19, 2025, GYBL commenced a separate action against us in the Court (the “GYBL Action”). The GYBL Action concerns the GEM Warrants, and it asserts two causes of action against us: (1) breach of the terms of the GEM Warrants, and (2) declaratory relief concerning the validity and enforceability of the GEM Warrants. In addition to the declaratory relief, GYBL is seeking monetary damages in an amount to be determined at trial, specific performance of the GEM Warrants and attorneys’ fees and litigation costs. Our time to respond to the complaint has not yet expired and we intend to continue vigorously defending against GYBL’s claims and litigating our legal rights to the fullest extent.
ITEM 1A. RISK FACTORS
There have been no material changes to our risk factors since those disclosed in “Part I, Item 1A. Risk Factors” of our Form 10-K, except as set forth below.
We have a history of operating losses, and we may not be able to generate sufficient revenue to achieve and sustain profitability.
We have not achieved profitability and have incurred losses since inception. For the quarter ended March 31, 2025, we recorded a net loss of $2,850,351. For the year ended December 31, 2024, we recorded a net loss of $26,023,028, which included a loss of $18,339,635 from discontinued operations related to our former rental business and operations of our subsidiary, Roost Enterprises, Inc., and a loss of $7,462,809 from continuing operations. As of March 31, 2025, we had an accumulated deficit of $41,110,855 and outstanding indebtedness of $5,949,708. While we have experienced some revenue growth over recent periods, we may not be able to sustain or increase our growth or achieve profitability in the future. We intend to continue to invest diligently in sales and marketing efforts. In addition, we expect to incur significant additional legal, accounting, and other expenses related to our being a public company as compared to when we were a private company. While our revenue has grown since our inception, if our revenue declines or fails to grow at a rate faster than these increases in our operating expenses, we will not be able to achieve and maintain profitability in future periods. As a result, we may continue to generate losses. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not met in future periods, our financial performance will be harmed.
Our ongoing disputes with GYBL may be costly, time consuming and, if adversely determined against us, could result in a significant downward adjustment of the GEM Warrants’ exercise price, and potentially other penalties and expenses, which could have a material adverse effect on our financial position and business operations.
On November 1, 2024, we filed a lawsuit against GYBL in the Court (as defined above), pursuant to which we asserted two causes of action: (i) rescission of the GEM Warrants issued to GYBL pursuant to Section 29(b) of the Exchange Act due to GYBL’s underlying violation of Section 15(a) of the Exchange Act for effecting the GEM Warrants as an unregistered dealer, and (ii) in the alternative, a declaratory judgment that the exercise price adjustment calculation of the GEM Warrants is governed by the terms provided in the GEM Warrants, rather than the terms of the GEM Agreement. Following a motion to dismiss filed by GYBL on January 17, 2025, the Court granted such motion to dismiss on March 14, 2025. On April 15, 2025, we filed an appeal of the Court’s decision dismissing our case to the Second Circuit (as defined above). The briefing schedule at the Second Circuit is being held in abeyance in order to allow two previously filed appeals, filed by two other public companies on identical issues against other similar investors, be resolved first. However, if and when the appellate briefing moves forward, there is no assurance that it will be successful.
Additionally, following the Court’s grant of GYBL’s motion to dismiss our lawsuit, GYBL filed a separate lawsuit against us, in which GYBL is asserting two causes of action against us: (1) breach of the terms of the GEM Warrants, and (2) declaratory relief concerning the validity and enforceability of the GEM Warrants. In addition to the declaratory relief, GYBL is seeking monetary damages in an amount to be determined at trial, specific performance of the GEM Warrants and attorneys’ fees and litigation costs.
34
Given the ongoing disputes with GYBL, including our pending appeal with the United States Court of Appeals for the Second Circuit and GYBL’s lawsuit against us, the exercise price of the GEM Warrants have not been adjusted pursuant to the GEM Warrant’s terms while these disputes are pending, and, to the extent any shares of common stock are sold pursuant to an equity offering, for instance, at a price per share that is below the then-current exercise price of the GEM Warrants, we do not plan to adjust the exercise price of the GEM Warrants pending resolution of such disputes. A final adverse ruling against us in pending lawsuits and any subsequent appeals, or in any other claim or counterclaim, as applicable, sought by GYBL, could lead to a significant downward adjustment to the current exercise price of the GEM Warrants, additional expenses incurred related to the lawsuits during the ongoing disputes, including, but not limited to, attorney’s fees, and any other remedies the court may deem just.
Further, any lawsuit and subsequent appeals may be expensive, may divert management’s time away from our operations, and may affect the availability and premiums of our liability insurance coverage, regardless of whether our claims are meritorious, or ultimately lead to a judgment against us. We cannot assure you that we will be able to be successful in lawsuits, or any subsequent appeal, against GYBL or resolve any current or future litigation matters, in which case those litigation matters, including the disputes with GYBL, could have a material and adverse effect on our business, financial condition, operating results and cash flows.
We expect our business model and pricing models to continue to evolve.
Our business model has a limited track record, and as we continue growing our business and operations, we may continue to experiment with different pricing models and introduce new offerings and services. We expect that the services and technology offerings associated with our business model, including the reAlpha platform, will continue to rapidly evolve. Thus, in order to stay current with the industry, we may need to modify our offerings to remain relevant. Further, we have not yet made a final determination regarding how we will charge clients and how certain incentives we offer through the reAlpha platform, such as commission refunds, for example, will be applied to customers utilizing our offerings and the reAlpha platform, as applicable. We cannot guarantee we will be able to produce commercially successful offerings or develop a pricing model for such offerings that is acceptable to our customers and enable us to operate profitably. We cannot offer any assurance that modifications we make to our offerings or business model will be successful or will not harm our business. If the changes we make are not successful, or if we fail to make appropriate changes, it would have a material adverse effect on our business, prospects or operations and potentially on our ability to continue as a going concern.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There are no transactions that have not been previously included in a Current Report on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None
of the Company’s directors or officers
35
ITEM 6. EXHIBITS
| * |
Filed herewith. |
| ** |
Previously filed. |
| *** |
Furnished herewith. |
| # |
Certain schedules, exhibits and similar attachments to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. |
| + | Indicates management contract or compensatory plan or arrangement. |
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| REALPHA TECH CORP. | ||
| Date: May 16, 2025 | By: | /s/ Giri Devanur |
| Giri Devanur | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 16, 2025 | By: | /s/ Piyush Phadke |
| Piyush Phadke | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) |
37