reAlpha Tech Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS REALPHA TECH CORP. Condensed Consolidated Balance Sheet October 31, 2023 and April 30, 2023 October 31, 2023 April 30, 2023 (unaudited) ASSETS Current Assets Cash $ 605,337 $ 1,256,868 Accounts receivable - 68,120 Receivable from related parties 20,240 20,874 Prepaid expenses 1,292,758 3,061,196 Other current assets 237,962 250,680 Total current assets 2,156,297 4,657,738 Property and Equipment, at cost Property and equipment, net 329,385 2,185,992 Other Assets Investments 115,000 115,000 Goodwill 5,135,894 5,135,894 Capitalized software development - work in progress 8,752,330 8,998,755 TOTAL ASSETS $ 16,488,906 $ 21,093,379 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current Liabilities Accounts payable $ 2,128,562 $ 412,947 Mortgage and other loans, net 13,891 1,222,000 Notes payable - 5,850,000 Accrued expenses 343,624 195,299 Total current liabilities 2,486,077 7,680,246 Long-Term Liabilities Mortgage loans, net 247,000 247,000 Total liabilities 2,733,077 7,927,246 Stockholders’ Equity (Deficit) Preferred stock, $ 0.001 par value; 5,000,000 shares authorized, 0 shares issued and outstanding as of October 31, 2023 and April 30, 2023 - - Common stock ($ 0.001 par value; 200,000,000 shares authorized, 42,522,091 shares outstanding as of October 31, 2023; 200,000,000 shares authorized, 42,522,091 shares outstanding as of April 30, 2023) 42,523 42,523 Additional paid-in capital 24,106,597 24,107,159 Accumulated deficit ( 10,396,034 ) ( 10,986,162 ) Total stockholders’ equity (deficit) of reAlpha Tech Corp. 13,753,086 13,163,520 Non-controlling interests in consolidated entities 2,743 2,613 Total stockholders’ equity (deficit) 13,755,829 13,166,133 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 16,488,906 $ 21,093,379 1 REALPHA TECH CORP. Condensed Consolidated Statements of Operations For the Three and Six Months Ended October 31, 2023 and 2022 (unaudited) For the Three Months Ended For the Six Months Ended October 31, 2023 October 31, 2022 October 31, 2023 October 31, 2022 (unaudited) (unaudited) (unaudited) (unaudited) Revenues $ 33,459 $ 110,624 $ 101,180 $ 199,497 Cost of revenues 30,360 83,771 74,554 151,413 Gross Profit 3,099 26,853 26,626 48,084 Operating Expenses Wages, benefits and payroll taxes 265,099 298,326 517,145 566,503 Repairs & maintenance 24,663 4,776 48,893 11,357 Utilities 4,551 8,244 11,453 21,285 Travel 15,208 23,919 25,229 38,078 Dues & subscriptions 8,100 25,894 17,827 46,750 Marketing & advertising 43,213 402,359 95,842 582,427 Professional & legal fees 3,680,488 485,307 3,876,300 936,825 Depreciation & amortization 7,863 36,736 29,176 73,738 Other operating expenses 144,222 229,140 192,569 150,937 Total operating expenses 4,193,407 1,514,701 4,814,434 2,427,900 Operating Loss ( 4,190,308 ) ( 1,487,848 ) ( 4,787,808 ) ( 2,379,816 ) Other Income (Expense) Interest income 277 93 321 157 Other income - 2,660 525 2,660 Gain on sale of myAlphie - - 5,502,774 - Interest expense ( 22,075 ) ( 40,701 ) ( 67,588 ) ( 84,468 ) Other expense ( 40,760 ) ( 32,045 ) ( 57,946 ) ( 64,716 ) Total other income (expense) ( 62,558 ) ( 69,993 ) 5,378,086 ( 146,367 ) Net (Loss) Income ( 4,252,866 ) ( 1,557,841 ) 590,278 ( 2,526,183 ) Less: Net Income (Loss) Attributable to Non-Controlling Interests 13 46 150 500 Net (Loss) Income Attributable to Controlling Interests $ ( 4,252,879 ) $ ( 1,557,887 ) $ 590,128 $ ( 2,526,683 ) Net (loss) Income per share — basic $ ( 0.10 ) $ ( 0.04 ) $ 0.01 $ ( 0.06 ) Net (loss) Income per share — diluted $ ( 0.10 ) $ ( 0.04 ) $ 0.01 $ ( 0.06 ) Weighted-average outstanding shares — basic 42,522,091 40,127,956 42,522,091 40,127,956 Weighted-average outstanding shares — diluted 42,522,091 40,127,956 42,522,091 40,127,956 2 REALPHA TECH CORP. Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months Ended October 31, 2023 and 2022 ReAlpha Tech Corp. and Total Additional Subsidiaries Non- Stockholders’ Common Stock Paid-in Accumulated Equity Controlling Equity Shares Amount Capital Deficit (Deficit) Interests (Deficit) Balance at April 30, 2023 42,522,091 $ 42,523 $ 24,107,159 $ ( 10,986,162 ) $ 13,163,520 $ 2,613 $ 13,166,133 Net Income (Loss) - - - 4,843,007 4,843,007 137 4,843,144 Reg A Offering costs - - ( 562 ) - ( 562 ) - ( 562 ) RTC India - Non Controlling Interest - - - - ( 10 ) ( 10 ) Balance at July 31, 2023 42,522,091 $ 42,523 $ 24,106,597 $ ( 6,143,155 ) $ 18,005,965 $ 2,740 $ 18,008,705 Net Income (Loss) - - - ( 4,252,879 ) ( 4,252,879 ) 13 ( 4,252,866 ) RTC India - Non Controlling Interest - - - - ( 10 ) ( 10 ) Balance at October 31, 2023 42,522,091 $ 42,523 $ 24,106,597 $ ( 10,396,034 ) $ 13,753,086 $ 2,743 $ 13,755,829 ReAlpha Tech Corp. and Total Additional Subsidiaries Non- Stockholders’ Common Stock Paid-in Accumulated Equity Controlling Equity Shares Amount Capital Deficit (Deficit) Interests (Deficit) Balance at April 30, 2022 8,634,210 $ 8,634 $ 192,490 $ ( 5,533,053 ) $ ( 5,331,929 ) $ 13,597 $ ( 5,318,332 ) Net Income (Loss) - - - ( 968,796 ) ( 968,796 ) 454 ( 968,342 ) Distribution to Syndicate members - - - - - ( 11,625 ) ( 11,625 ) RTC India - Non Controlling Interest - - - - - ( 44 ) ( 44 ) Balance at July 31, 2022 8,634,210 $ 8,634 $ 192,490 $ ( 6,501,849 ) $ ( 6,300,725 ) $ 2,382 $ ( 6,298,343 ) Net Income (Loss) - - - ( 1,557,887 ) ( 1,557,887 ) 46 ( 1,557,841 ) RTC India - Non Controlling Interest - - - - - ( 10 ) ( 10 ) Balance at October 31, 2022 8,634,210 $ 8,634 $ 192,490 $ ( 8,059,736 ) $ ( 7,858,612 ) $ 2,418 $ ( 7,856,194 ) 3 REALPHA TECH CORP. Condensed Consolidated Statements of Cash Flows For the Six Months Ended October 31, 2023, and 2022 (unaudited) For the Six Months Ended October 31, 2023 For the Six Months Ended October 31, 2022 (unaudited) (unaudited) Cash Flows from Operating Activities: Net income (loss) $ 590,278 $ ( 2,526,183 ) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 29,176 73,738 Gain on sale of myAlphie ( 5,502,774 ) - Changes in operating assets and liabilities: Accounts receivable 68,120 38,067 Receivable from related parties 634 - Prepaid expenses 1,768,438 41,499 Other current assets 12,718 ( 9,762 ) Accounts payable 1,715,615 743,502 Accrued expenses 148,325 ( 7,144 ) Total adjustments ( 1,759,748 ) 879,900 Net cash used in operating activities ( 1,169,470 ) ( 1,646,283 ) Cash Flows from Investing Activities: Proceeds from sale of properties 646,266 491,598 Additions to Property, Plant & Equipment ( 40,833 ) ( 5,796 ) Capitalized software development - work in progress ( 100,800 ) ( 353,288 ) Net cash provided by investing activities 504,633 132,514 Cash Flows from Financing Activities: Proceeds from issuance of debt, net 13,891 - Payments of long-term debt - ( 23,311 ) Deferred financing costs - 32,757 Proceeds from issuance of common stock - Reg A ( 562 ) 160,769 Net cash provided by financing activities 13,329 170,215 Net decrease in cash ( 651,508 ) ( 1,343,554 ) Effect of exchange rate changes on cash ( 23 ) 1,630 Cash - Beginning of Period 1,256,868 2,095,401 Cash - End of Period $ 605,337 $ 753,477 4 reAlpha Tech Corp. Notes to Condensed Consolidated Financial Statements (Unaudited) Note 1 - Organization and Description of Business ReAlpha Tech Corp. and Subsidiaries (“we,” “us,” “our,” the “Company” or the “Registrant”) were initially incorporated with the name reAlpha Asset Management, Inc. in the State of Delaware on April 22, 2021. The Company is primarily engaged in the business of purchasing and managing real estate through the use of technology, and other allied means for the benefit of the Company’s stockholders. On March 21, 2023, reAlpha Tech Corp (the Parent) merged with reAlpha Asset Management, Inc. (the Subsidiary) in a short-form merger in accordance with Section 253 of the Delaware General Corporate Law (“DGCL”) (the “Downstream Merger”), resulting in reAlpha Asset Management, Inc. becoming the surviving corporation and gaining access to reAlpha Tech Corp.’s technology and intellectual property. Prior to the merger, the Parent owned over 90 % of the Subsidiary’s shares. The merger enables reAlpha Asset Management, Inc. to provide customers with a broader range of AI (Artificial Intelligence) solutions for various industries. Following the merger, reAlpha Asset Management, Inc. changed its name to reAlpha Tech Corp. As the former reAlpha Tech Corp shareholders owned a majority of the common stock of reAlpha Asset Management, Inc. the Downstream Merger is deemed a common control transaction. Transactions between entities under common control are accounted for in a manner similar to the pooling of-interest method. Thus, the financial statements of the commonly controlled entities would be consolidated, retrospectively, as if the transaction had occurred at the beginning of the period. As a result, the assets and liabilities and the historical operations reflected in the Company’s financial statements are those of reAlpha Tech Corp and subsidiaries and reAlpha Asset Management, Inc. recorded at historical cost basis. The historical shareholders’ equity of the accounting acquirer prior to the merger is retroactively reclassified for the equivalent number of shares received in the merger after giving effect to any difference in par value of the company’s and the accounting acquirer’s stock by an offset in paid in capital. On March 24, 2023, the Company acquired Roost Enterprises, Inc. (“Rhove”), a leading provider of real estate technology solutions. The Rhove acquisition includes technology developed for the purpose of syndicating real estate properties for investment by retail and institutional investors (the “Syndication Platform”). Pursuant to the Stock Purchase Agreement entered into in connection with the Rhove acquisition (the “Stock Purchase Agreement”) among the Company, Rhove and certain investor sellers in Rhove (the “Sellers”), we acquired all the intellectual property related to the Syndication Platform and other related intangible property and proprietary information of Rhove. The Company’s main office is located at 6515 Longshore Loop, Suite 100 — Dublin, OH 43017. The Company has elected April 30th as its year end; however, on December 12, the board of directors of the Company approved a change in the Company’s fiscal year from a fiscal year ending on April 30 of each year to a fiscal year ending on December 31 of each year, which change will become effective on December 31, 2023. 5 Note 2 - Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Basis of Presentation These statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions to Form 10-Q and do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (primarily consisting of normal recurring accruals) considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the six months ended October 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2024. The accompanying consolidated financial statements and the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the audited financial statements and notes for the year ended April 30, 2023. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles 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. 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. The Company had cash of $ 605,337 and $ 1,256,868 as of October 31, 2023 and April 30, 2023, respectively. 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 October 31, 2023, the Company’s cash was held by financial institutions that management believes have acceptable credit. The Federal Deposit Insurance Corporation insures balances up to $ 250,000 . At times, the Company may maintain balances in excess of the federally insured limits. Accounts receivable are typically unsecured. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances. 6 Property and Equipment Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of related asset. Real estate assets are carried at cost. Depreciation is calculated on the straight-line method over the estimated lives of the assets ( 27.5 years for residential rental property, 5 years for furniture and fixtures and 3 years for furnishings). Major additions and betterments are capitalized and depreciated. Maintenance and repairs, which do not improve or extend the estimated useful lives, are expensed as incurred. Upon disposal of assets, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss resulting from the disposal is recorded in the period of disposition in the accompanying statement of operations. Investments The Company holds 25 % of the equity in each of the two privately held entities, Naamche Inc. and Carthagos. Inc. However, the Company does not have any significant control or influence over the financial and operating policies. As these equity instruments do not have readily determinable fair values, they have been measured using the measurement alternative, cost-less impairment. The carrying amount for these instruments would be subsequently adjusted for observable price changes, or prices in orderly transactions for an identical investment or similar investment of the same issuer. In addition, these investments are periodically evaluated for impairment. The investments are classified as other long-term assets on the Company’s Consolidated Balance Sheet and the Company has not recorded any adjustments to the carrying value of investments in the quarter ended October 31, 2023. Capitalized Software Development Costs The Company follows Accounting Standards Codification (ASC) 350, “Internal-Use Software,” to assess the capitalization of software development costs, such as those incurred during the application development stage, including coding, testing, and development of software functionality which are eligible for capitalization. Such costs encompass direct labor, third-party services, and other directly attributable expenses. As of October 31, 2023, the software under development has not reached the stage of being substantially complete and ready for its intended use. Consequently, the Company continues to capitalize on costs related to the application development stage in accordance with ASC 350. Amortization of capitalized software development costs commences when the software is placed in service and is available for its intended use. The capitalized costs are amortized over the software’s estimated useful life, which is determined based on factors such as expected future benefits and the rate of technological change. The fair value of software acquired in a business combination is determined using the discounted cash flow (DCF) method as per ASC 820 “Fair Value Measurements and Disclosures”, requiring the consideration of significant inputs and assumptions, such as projected cash flows, expected growth rates, discount rates, and other relevant market data. The Company exercises judgment in selecting appropriate inputs, taking into account historical performance, market conditions, and the technological characteristics of the software. Goodwill The Company accounts for goodwill in accordance with ASC 350 Intangibles-Goodwill and Other. ASC 350 requires that goodwill with indefinite useful lives no longer be amortized but instead be evaluated for impairment at least annually. In accordance with ASC 350, goodwill is allocated to reporting units. On an annual basis and more frequently based on triggering events, as of April 30 of each year, management reviews goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances makes it more likely than not that the fair value of a reporting unit is less than it carrying amount. If it is determined that it is more likely than not that the fair value of a reporting unit is less than it carrying amount, goodwill is further tested for impairment by comparing the carrying amount to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach. Goodwill impairment, if any, is measured as the amount by which a reporting unit’s carrying amount exceeds its fair value. 7 Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates, and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit. Long-lived Assets, Intangible Assets, and Goodwill Impairment While changes in circumstances requiring a goodwill impairment test have not been identified for the quarter ended October 31, 2023, the Company will continue to monitor circumstances, such as disposition activity or changes in forecasted cash flows in future periods. If the fair value of the Company’s reporting unit declines below the carrying value in the future, goodwill impairment charges may be incurred. Credit Facilities In May 2022, the reAlpha Acquisitions Churchill, LLC, a wholly-owned subsidiary of reAlpha Tech Corp., entered into a credit agreement with Churchill Finance I, LLC, securing a credit facility of $ 200 million. The primary purpose of this credit facility is to finance short-term rental acquisitions. The facility provides the company with increased financial flexibility to pursue strategic opportunities in the real estate market. Management may utilize the credit facility to expand the Company’s portfolio of rental properties. By leveraging this credit facility, the Company aims to capitalize on attractive investment prospects while adhering to its prudent financial management principles. The terms and conditions of the credit agreement with Churchill Finance I, LLC have been evaluated by management, and the interest rates and repayment terms are considered competitive and favorable to the Company’s financial interests. Revenue Recognition Revenues consist of short-term rentals and technology platform booking income. Short-term rental revenues include revenues from the rental of properties via Airbnb, Vacasa, and such digital hospitality platforms. Technology Platform Revenue includes revenues from bookings made on our technology platform towards painting and cleaning of properties. As we are responsible for services rendered by the technology platform, fees charged to end-users are also included in revenue, while payments to vendors in exchange for their services are recognized in the cost of revenue, exclusive of depreciation and amortization. Revenues are recognized in accordance with Topic 606 of the Financial Accounting Standards Board (FASB) ASC for revenue recognition. The Company recognizes revenues in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The Company considers revenue realized or realizable and earned when all the five following criteria are met: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract, (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations in the contract, and (5) recognition of revenue when (or as) performance obligations are satisfied. (Refer to Note 6 for more details). 8 Income Taxes The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that the Company would be able to realize the deferred tax assets in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it is determined whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes and interest and penalties, if any, with income tax expense in the accompanying statement of operations. Earnings (Loss) Per Share The Company presents basic earnings (loss) per share (“EPS”) and diluted EPS on the face of the consolidated statements of operations. Basic earnings (loss) per share is computed as net earnings (loss) divided by the weighted average number of common shares outstanding for the period. For periods in which the Company incurs a net loss, the effects of potentially dilutive securities would be antidilutive and would be excluded from diluted EPS calculations. For the three and six months ended October 31, 2023, the GEM Warrants (as defined below) to purchase up to 1,700,884 of the Company’s shares of common stock were excluded. Fair Value of Financial Instruments The Company’s balance sheet includes certain financial instruments. The carrying amounts of financial instruments approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. Recently Issued Accounting Pronouncements Consistent with the treatment for emerging growth companies under the Jumpstart Our Business Startups (JOBS) Act, the Company has elected to delay the implementation of new accounting standards to the extent such standards provide for delayed implementation by non-public business entities. In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires that entities use a new forward-looking “expected loss” model that generally will result in the earlier recognition of allowance for credit losses. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU No. 2016-13 is effective for annual reporting periods, including interim reporting periods within those periods, beginning after December 15, 2022. The implementation of this standard did not have a material effect on the Company’s financial statements. Reclassification Presentation Certain amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations. Note 3 - Going Concern The Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company commenced operations as of April 22, 2021, and has not yet realized its planned operations. The Company is dependent upon additional capital resources for the full commencement of its planned operations and is subject to significant risks and uncertainties, including failing to secure funding to commence the Company’s planned operations or failing to profitably operate the business. Management believes that the Company will continue to incur losses for the foreseeable future and will need equity or debt financing to sustain its operations until it can generate additional revenues and achieve profitability and positive cash flows. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans and proceeds from the issuance of its stock. Management has determined that these matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least one year from the date these financial statements are issued. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty. 9 Note 4 - Income Taxes The Company has not recognized an income tax benefit for its operating losses generated based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefits for the periods presented are offset by a valuation allowance established against deferred tax assets arising from the net operating losses, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers the realization of such amounts to be more likely than not. Note 5 - Business Combinations On March 24, 2023, we acquired all of the assets of Roost Enterprises, Inc. (“Rhove”). The acquisition was made to expand our market share in the real estate category and capitalize on the synergies of product lines and services between the Companies. The acquisition of Roost Enterprises, Inc., a real estate technology solutions provider, includes Rhove’s Syndication Platform and related intellectual property. The purchase price involved a $ 25,000 cash payment, 49,029 common stock shares to Silicon Valley Bank (“SVBB”), 1,263,000 shares to the common stockholders of Rhove, and the option for the same stockholders to purchase 1,263,000 shares at the fair value of $ 10 per share. Drive Capital and its funds became investors of reAlpha, and Rhove’s CEO, Calvin Cooper, and Rhove’s CTO, Greg Miller, both joined reAlpha in advisory roles. We estimated fair values on March 24, 2023, for the preliminary allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed in connection with the Rhove Transaction. During the measurement period, not to exceed 12 months, we will continue to obtain information to assist in finalizing the fair value of assets acquired and liabilities assumed, which may differ materially from these preliminary estimates. If we determine any measurement period adjustments are material, we will apply those adjustments, including any related impacts to net income, in the reporting period in which the adjustments are determined. Accordingly, the fair value measurements noted below are preliminary and subject to modification in the future. Assets Acquired: Cash 123,594 Capitalized software development costs 7,946,844 Other current assets 148,321 Total Assets Acquired $ 8,218,759 Liabilities assumed: Accounts payable 96,207 Accrued expenses payable 5,500 Membership Contributions 7,696 Venture debt/loc 1 100,000 Total Liabilities Assumed $ 209,403 Total identifiable net assets 8,009,356 Purchase price 13,145,250 Goodwill - Excess of the purchase price over fair value of net assets acquired on acquisition date $ 5,135,894 The Rhove acquisition is the only business combination the Company has completed. This goodwill arises because the purchase price exceeded the fair value of acquired identifiable net assets due to the purchase prices reflecting a number of factors including the future earnings and cash flow potential of the business, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the business and the complementary strategic fit and resulting synergies the business bring to existing operations. 10 Note 6 – Property and Equipment 1. Investments in property and equipment consisted of the following as of October 31, 2023 a. Investments in property and equipment other than held for sale Accumulated Net Cost Depreciation Investment Computer $ 33,398 $ ( 11,003 ) $ 22,395 Furniture and fixtures 20,846 ( 7,464 ) 13,382 Total investment in real estate $ 54,244 $ ( 18,467 ) $ 35,777 b. Investments in property and equipment held for sale Accumulated Net Cost Depreciation Investment Land $ 19,690 $ - $ 19,690 Buildings and building improvements 267,117 ( 6,172 ) 260,945 Furniture and fixtures 16,090 ( 3,117 ) 12,973 Total investment in real estate $ 302,897 $ ( 9,289 ) $ 293,608 2. Investments in property and equipment consisted of the following as of April 30, 2023 a. Investments in property and equipment other than held for sale Accumulated Net Cost Depreciation Investment Land $ 218,556 $ - $ 218,556 Buildings and building improvements 1,713,265 ( 72,514 ) 1,640,751 Computer 33,543 ( 11,904 ) 21,639 Furniture and fixtures 73,975 ( 22,355 ) 51,620 Total investments $ 2,039,339 $ ( 106,773 ) $ 1,932,566 b. Investments in property and equipment held for sale Accumulated Net Cost Depreciation Investment Land $ 19,690 $ - $ 19,690 Buildings and building improvements 226,284 ( 6,012 ) 220,272 Furniture and fixtures 16,090 ( 2,626 ) 13,464 Total investments $ 262,064 $ ( 8,638 ) $ 253,426 The Company recorded depreciation expenses of $ 7,862 and $ 21,133 for the three months ended October 31, 2023, and October 31, 2022, respectively. The Company also recorded depreciation expenses of $ 29,174 and $ 42,158 for the six months ended October 31, 2023, and October 31, 2022, respectively. Note 7- Receivables from Related Parties As of October 31, 2023, and April 30, 2023, the balance of related party transactions amounted to $ 20,240 and $ 20,874 , respectively. The related party balance primarily consists of a receivable from Turnit Holdings, LLC, a related party. Note 8 – Prepaid Expenses As of October 31, 2023, prepaid expenses amounted to $ 1,292,758 , compared to $ 3,061,196 as of April 30, 2023, $ 3,045,290 of which consist of shares issued for services rendered during the year ended April 30, 2023, in connection with the Company’s direct listing on Nasdaq. Prepaid expenses consists mainly of director’s and officer’s insurance services and the Commitment Fee (as defined below) for the period ending October 31, 2023. 11 Note 9 – Capitalized Software Development costs, work in progress Qualifying internal-use software costs incurred during the application development stage, which consist primarily of internal product development costs, outside services, and purchased software license costs are capitalized. As of October 31, 2023 and April 30, 2023, the balance of capitalized software costs, work in progress amounted to $ 8,752,330 and $ 8,998,755 , respectively. The Company assesses the carrying amount of capitalized software costs for impairment regularly and considers the recoverability of capitalized costs based on expected future benefits and cash flows. Any impairment loss, if identified, is recognized in the statement of operations. Note 10 – Mortgage and other loans Mortgage and other loans consisted of the following as of October 31, 2023, and April 30, 2023: October 31, April 30, 2023 2023 Mortgage note with a bank. The note bears interest at a rate of 5 % + Prime with floor of 8.25 % and provides for monthly interest payments. The note matures on February 10, 2024 at which time there is a balloon payment of remaining principal and interest due, and is secured by the property as well as guaranteed by a shareholder of the Company. - 880,000 Mortgage note with a bank. The note bears interest at a rate of 4.75 % + Prime with floor of 8.25 % and provides for monthly interest payments. The note matures on April 15, 2024 at which time there is a balloon payment of remaining principal and interest due, and is secured by the property as well as guaranteed by a shareholder of the Company. - 342,000 Total Short-term debt related to Properties $ - $ 1,222,000 Less: Deferred financing costs, net - - Total Short-term debt related to Properties, net $ - $ 1,222,000 Promissory note bears interest at a rate of 1 % + Prime. - 975,000 Promissory note bears interest at a rate of 1 % + Prime. - 4,875,000 Amex Loan bears Annual Percentage Rate 32.60 % 13,891 - Total Short-term debt, net $ 13,891 $ 7,072,000 Maturities of short-term debt as of October 31, 2023, are as follows: 2024 13,891 Total Short-term debt, net $ 13,891 Note 11 - Long-Term Liabilities Long-term liabilities consisted of the following as of October 31, 2023, and April 30, 2023: October 31, April 30, 2023 2023 Mortgage note with a bank. The note bears interest at a rate of 7.5 % and provides for monthly interest payments. The note matures on January 1, 2053 at which time there is a balloon payment of remaining principal and interest due, and is secured by the property as well as guaranteed by a shareholder of the Company. $ 247,000 $ 247,000 Maturities of long-term debt as of October 31, 2023, are as follows: 2053 $ 247,000 Total Long-term debt, net $ 247,000 12 Note 12 - Stockholders’ Equity (Deficit) The total number of shares of capital stock that the Company has the authority to issue is up to 205,000,000 shares, consisting of: (i) 200,000,000 shares of common stock, having a par value of $ 0.001 per share (the “Common Stock”); and (ii) 5,000,000 shares of preferred stock, having a par value of $ 0.001 per share (the “Preferred Stock”). As of October 31, 2023 and April 30, 2023 there were 42,522,091 shares of common stock issued and outstanding. On October 23, 2023, pursuant to the terms of that certain share purchase agreement (the “GEM Agreement”) between us and GEM Global Yield LLC SCS (“GEM Global”) and GEM Yield Bahamas Limited (“GYBL,” and collectively, “GEM”), we issued five-year warrants to purchase up to 1,700,884 shares of our common stock to GYBL at an exercise price of $ 406.67 per share (the “GEM Warrants”). Pursuant to the terms of the GEM Warrants, the exercise price of such warrants was reset to $ 371.90 (the “Adjusted Exercise Price”) on the date of the closing of our recent public offering and shall be further subject to adjustment as provided in the GEM Warrants. Note 13 - 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 it prior to its expiration. Restrictions pursuant to terms of our future financings may also affect our ability to use the GEM Agreement. The Company may be subject to pending legal proceedings and regulatory actions in the ordinary course of business. The results of such proceedings cannot be predicted with certainty, but the Company does not anticipate that the final outcome, if any, arising out of any such matter will have a material adverse effect on its business, financial condition, or results of operations. Ohio Subpoena On August 31, 2023, the Ohio Department of Commerce’s Division of Securities (the “ODS”) issued a Cease & Desist Order (the “Division Order”) to us, and we entered into a Consent Agreement with the ODS (the “Consent Agreement”), following an investigation by the ODS into whether we engaged in acts or practices that violated the Ohio Securities Act, Chapter 1707 of the Ohio Revised Code. Pursuant to the Consent Agreement, we did consent, stipulate, admit, and agree to the findings, conclusions and order set forth in the Division Order and that nothing in the Division Order or the Consent Agreement impedes, prohibits, interferes with, or infringes upon the lawful rights, if any, including but not limited to private rights of action, if any, possessed by our individual investors. Under the terms of the Division Order, pursuant to Revised Code Chapter 1707.23, we will cease and desist from the acts and practices as described in the Division Order which constitute a violation of Chapter 1707 of the Ohio Revised Code, which include selling or causing to be sold securities that were not properly registered with the ODS and that were not exempt from registration. The Division Order and Consent Agreement do not impact our ability to conduct future exempt offerings. Parent Company Litigation On December 27, 2021, Ms. Valentina Isakina, a board advisor of our former parent company, reAlpha Tech Corp., (the “Parent Company”) filed a lawsuit in the Southern District of Ohio against the Parent Company in connection with her termination package. After three months of service, the Parent Company discontinued her services as she was not the right fit for the Parent Company’s needs. reAlpha Tech Corp. contends that pursuant to the terms of her employment agreement, she was offered 12,500 shares of reAlpha Tech Corp., to vest over a period of time, however, she never accepted the shares. Ms. Isakina, on the other hand, contends she is owed up to 5 % from reAlpha Tech Corp. in connection with an alleged agreement to serve on the board of directors. reAlpha Tech Corp. denies the existence of such agreement. On November 3, 2023, an order was served by the Court in connection with this proceeding (the “Court Order”). The Court Order granted summary judgment against Ms. Isakina and in favor of the Company, regarding Ms. Isakina’s claims of relief, including breach of contract claims, promissory estoppel and unjust enrichment. On November 16, 2023, Ms. Isakina filed an appeal, which was subsequently dismissed by the United States Court of Appeals for the Sixth Circuit on December 7, 2023. 13 Malpractice Lawsuit On May 8, 2023, the Company filed a malpractice lawsuit with the United States District Court for the Southern District of Ohio, Eastern Division, against Buchanan, Ingersoll & Rooney, PC (“Buchanan”), Rajiv Khanna (“Khanna”) and Brian S. North (“North,” together with Buchanan and Khanna, the “Buchanan Legal Counsel”). The complaint alleges that the Buchanan Legal Counsel failed to provide proper and timely legal advice during the Company’s Tier 2 Regulation A offering, resulting in late Blue Sky notice filings with all required states prior to the Company offering and selling securities in those states. As a result, the Company was subject to a number of inquiries, investigations, and subpoenas by the various states, incurring significant legal fees and fines, lost opportunity due to pausing its Regulation A campaign, in addition to the loss of a $ 20 million institutional investment. The Company is seeking the forfeit of all legal fees associated with this matter, the award of legal fees to bring this matter to action, and further legal and equitable relief as the Court deems just and proper. The Company cannot predict the eventual scope, duration, or outcome at this time. Note 14 – Segment Reporting ASC 280, “Segment Reporting” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about services categories, business segments and major customers in financial statements. The Company has two reportable segments based on the business unit, Rental business and Platform service business. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, in which the entity holds material assets and reports revenue. Platform Services Three months Ended October 31, Six months Ended October 31, 2023 2022 2023 2022 Revenues $ 30,360 $ 77,302 $ 78,518 $ 139,708 Cost of goods sold ( 30,360 ) ( 76,773 ) ( 73,269 ) ( 138,862 ) Gross margin - 529 5,249 846 Operating expenses - - - - Operating loss - 529 5,249 846 Other expenses, net - - 5,502,774 - Net Income/ (loss) $ - $ 529 $ 5,508,023 $ 846 Rental Revenue Three months Ended October 31, Six months Ended October 31, 2023 2022 2023 2022 Revenues $ 3,099 $ 33,322 $ 22,662 $ 59,789 Cost of goods sold - ( 6,998 ) ( 1,285 ) ( 12,551 ) Gross margin 3,099 26,324 21,377 47,238 Operating expenses ( 1,148,117 ) ( 1,514,701 ) ( 1,769,144 ) ( 2,427,900 ) Operating loss ( 1,145,018 ) ( 1,488,377 ) ( 1,747,767 ) ( 2,380,662 ) Other expenses, net ( 62,558 ) ( 69,993 ) ( 124,688 ) ( 146,367 ) Net Income/ (loss) $ ( 1,207,576 ) $ ( 1,558,370 ) $ ( 1,872,455 ) $ ( 2,527,029 ) 14 Note 15 – Sale of myAlphie Effective May 17, 2023, the Company (the “Seller”) entered into a Second Amendment to an agreement (the “Second Amendment”) to finalize a transaction that was originally agreed to through a Membership Interest Purchase Agreement dated December 31, 2022 (the “Purchase Agreement”), with Turnit Holdings, LLC, an Ohio limited liability company (the “Buyer”, or “Turnit”). The Buyer is an indirect subsidiary of Crawford Hoying, which is owned and partially controlled by Brent Crawford, former chairman of the Company’s board of directors. CH REAlpha Investments, LLC, and CH REAlpha Investments II, LLC are also managed by Mr. Crawford. The Purchase Agreement was previously amended by a Letter Agreement dated March 11, 2023 (the “First Amendment”), which was entered into between the Buyer and Seller. The Purchase Agreement provided for the Buyer’s acquisition of all the issued and outstanding membership interests of myAlphie, LLC (the “Subsidiary”). Prior to the execution of the Purchase Agreement and pursuant to the Downstream Merger, the Company held myAlphie LLC as a subsidiary, along with (a) all its technology and intellectual property, and (b) two on-demand promissory notes in the amounts of $ 975,000 and $ 4,875,000 payable to CH REAlpha Investments, LLC, and CH REAlpha Investments II, LLC, respectively (together, the “Promissory Notes”). Upon closing of the Purchase Agreement (a) the Seller sold all of its interests in myAlphie LLC, and (b) the Buyer assumed the Seller’s remaining liabilities and outstanding obligations under the Promissory Notes. The net assets of myAlphie (excluding the promissory notes) prior to sale was approximately $ 347,000 resulting in a gain on sale of approximately $ 5,503,000 from the assumption of the promissory notes by the Buyer. The gain on sale is included in other income in the statement of operations for the six months ended October 31, 2023. Note 16 – Warrants As of October 31, 2023, we have outstanding warrants to purchase up to 1,700,884 shares of the Company’s common stock, which were issued to GYBL (as defined above). The GEM Warrants are exercisable, for cash, for an equal number of shares of our common stock at an exercise price of $ 406.67 per share, subject to adjustments specified therein. In consideration for these services, the Company has agreed to pay GEM a commitment fee equal to 2 % of the First Tranche that is $ 1,000,000 (as defined in the GEM Agreement) (the “Commitment Fee”), and, to the extent that the Company has completed Draw Downs (as defined in the GEM Agreement) within the Second Tranche (as defined in the GEM Agreement), the Company shall tender to GYBL, as an additional commitment fee, an amount equal to 2 % of the Second Tranche (as defined in the GEM Agreement) (the “Additional Commitment Fee”), each deliverable as set forth below. The Commitment Fee or Additional Commitment Fee, as applicable, due upon each Draw Down may be paid in cash from the proceeds of such Draw Down or in freely tradeable shares of the Company’s common stock valued at the Daily Closing Price (as defined in the GEM Agreement) at the time of such Draw Down, at the option of the Company in cash or freely tradable shares of the Company’s common stock, payable on or prior to the second anniversary of the date of listing. 15 Warrant activity during the three months ended October 31, 2023 and 2022 follows: Weighted Average Remaining Warrants Outstanding Average Exercise Price Contractual Life (Years) Warrants outstanding at October 31, 2022 — $ — 0.00 No warrant activity — — Warrants outstanding at March 31, 2023 0.00 $ 0.00 0.00 Warrants Issued 1,700,884 406.67 5.00 Warrants outstanding at October 31, 2023 1,700,884 406.67 5.00 Note 17 - Subsequent Events Management has evaluated all subsequent events through December 14, 2023, the date the consolidated financial statements were available to be issued. Based on this evaluation, below was identified which require disclosure in these consolidated financial statements. On November 21, 2023, we entered into a placement agency agreement with Maxim Group LLC (“Maxim”), pursuant to which we agreed to sell 1,600,000 units on a best-efforts basis at a price of $ 5.00 per unit for aggregate gross and net proceeds of $ 8.0 million and $ 7.16 million, respectively. Each unit was comprised of one share and one and a half warrant to purchase one and a half share of common stock, with each warrant being exercisable for a five-year period to purchase an additional share at a price of $ 5.00 , subject to adjustments specified therein (the “Common Warrants”). The securities were issued on November 24, 2023, and were registered pursuant to a Form S-11 registration statement (File No. 333-275604). Maxim was paid 7 % of the gross proceeds from this offering and was also reimbursed $ 107,500 for its expenses. On December 3, 2023, the Company entered into two stock purchase agreements (the “Purchase Agreements”), pursuant to which, the Company agreed to acquire all of the issued and outstanding shares of capital stock of Naamche, Inc. and Naamche, Inc. Pvt. Ltd. not already owned by the Company (the “Acquisitions”) in exchange for, in the aggregate: (i) 225,000 shares (the “Shares”) of the Company’s restricted common stock to be issued within 9 months from the closing date of the Acquisitions (the “Closing Date”), in a pro-rated amount set forth in the Purchase Agreements; and (ii) $ 500,000 in cash, of which $ 450,000 is payable in the 3 year period following the Closing Date based on the achievement of specified revenue-based targets. On December 12, 2023, the Company’s board of directors approved a change in the Company’s fiscal year end from April 30 of each year to December 31 of each year, effective as of December 31, 2023. Accordingly, the Company will be issuing audited financial statements in connection with the preparation of the Company’s Annual Report on Form 10-K for the eight-month transition period from May 1, 2023 to December 31, 2023 and calendar year financial statements thereafter. 16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION CONTAINED IN THIS REPORT This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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: ● We are employing a business model with a limited track record, which makes our business difficult to evaluate; ● We intend to utilize a significant amount of indebtedness in the operation of our business; ● Our ability to retain our executive officers and other key personnel; ● Our real estate investments are and will continue to be concentrated in certain markets and in the single-family properties sector of the real estate industry, thus, exposing us to risk concentrations, which, in turn, exposes us to risk caused by seasonal fluctuations in short-term rental demand and downturns in certain markets or in the single-family properties sector; ● We face significant competition in the short-term rental market for guests, which may limit our ability to rent our properties on favorable terms; ● The impact of laws and regulations regarding privacy, data protection, consumer protection, and other matters. Many of these laws and regulations 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; and ● Other factors discussed in this report and in our other U.S. Securities and Exchange Commission (“SEC”) filings. Forward-looking statements may appear throughout this report, including, without limitation, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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 “reAlpha,” “we,” “us,” “our” and the “Company” refer to reAlpha and any and all of our subsidiaries. 17