reAlpha Tech Corp. 10-Q

ITEM 1. FINANCIAL STATEMENTS REALPHA TECH CORP. Condensed Consolidated Balance Sheet As of June 30, 2024 and December 31, 2023 (Unaudited) June 30, 2024 December 31, 2023 ASSETS Current Assets Cash $ 3,682,327 $ 6,456,370 Accounts receivable 34,330 30,630 Prepaid expenses 130,912 242,795 Other current assets 690,218 670,499 Total current assets 4,537,787 7,400,294 Property and Equipment, at cost Property and equipment, net 100,465 328,539 Other Assets Investments 90,000 115,000 Other long term assets 156,250 406,250 Intangible assets, net 869,101 997,962 Goodwill 17,887,233 17,337,739 Capitalized software development - work in progress 996,049 839,085 TOTAL ASSETS $ 24,636,885 $ 27,424,869 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) Current Liabilities Accounts payable $ 536,483 $ 461,875 Other loans 47,524 190,095 Accrued expenses 522,816 817,114 Other current liabilities 268,635 - Total current liabilities 1,375,458 1,469,084 Long-Term Liabilities Deferred liabilities, net of current portion 1,000,000 1,000,000 Mortgage loans - 247,000 Other long term liabilities 53,348 - Total liabilities 2,428,806 2,716,084 Stockholders’ Equity (Deficit) Preferred stock, $ 0.001 par value; 5,000,000 shares authorized, 0 shares issued and outstanding as of June 30, 2024 and December 31, 2023 - - Common stock ($ 0.001 par value; 200,000,000 shares authorized, 44,323,226 shares outstanding as of June 30, 2024; 200,000,000 shares authorized, 44,122,091 shares outstanding as of December 31, 2023) 44,324 44,123 Additional paid-in capital 37,295,942 36,899,497 Accumulated deficit ( 15,135,194 ) ( 12,237,885 ) Total stockholders’ equity (deficit) of reAlpha Tech Corp. 22,205,072 24,705,735 Non-controlling interests in consolidated entities 3,007 3,050 Total stockholders’ equity (deficit) 22,208,079 24,708,785 TOTAL LIABILITIES AND STOCKOLDERS’ EQUITY $ 24,636,885 $ 27,424,869 1 REALPHA TECH CORP. Condensed Consolidated Statements of Operations For the Three and Six Months Ended June 30, 2024 and 2023 (unaudited) For the Three Months Ended For the Six Months Ended June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023 Revenues $ 62,353 $ 54,827 $ 82,779 $ 166,278 Cost of Revenues 18,250 30,442 36,499 119,158 Gross Profit 44,103 24,385 46,280 47,120 Operating Expenses Wages, benefits and payroll taxes 476,179 296,186 895,084 482,443 Repairs & maintenance 846 24,645 1,595 29,106 Utilities 979 6,700 2,641 11,873 Travel 64,317 11,239 111,281 53,199 Dues & subscriptions 24,385 16,247 36,743 36,285 Marketing & advertising 130,378 57,569 207,740 146,669 Professional & legal fees 311,792 325,138 780,517 650,298 Depreciation & amortization 69,331 23,242 140,784 71,245 Other operating expenses 176,162 47,947 314,029 113,582 Total operating expenses 1,254,369 808,913 2,490,414 1,594,700 Operating Loss ( 1,210,266 ) ( 784,528 ) ( 2,444,134 ) ( 1,547,580 ) Other Income (Expense) Interest income 363 ( 372 ) 720 172 Other income 129,388 2,140 129,388 2,140 Gain on sale of myAlphie - 5,502,774 - 5,502,774 Interest expense ( 1,041 ) ( 49,379 ) ( 11,843 ) ( 91,191 ) Other expense ( 396,756 ) ( 16,179 ) ( 571,488 ) ( 76,772 ) Total other income (expense) ( 268,046 ) 5,438,984 ( 453,223 ) 5,337,123 Net (Loss) Income ( 1,478,312 ) 4,654,456 ( 2,897,357 ) 3,789,543 Less: Net Income (Loss) Attributable to Non-Controlling Interests 17 232 ( 48 ) 41 Net (Loss) Income Attributable to Controlling Interests $ ( 1,478,329 ) $ 4,654,224 $ ( 2,897,309 ) $ 3,789,502 Net (loss) income per share — basic $ ( 0.03 ) $ 0.11 $ ( 0.07 ) $ 0.09 Net (loss) income per share — diluted $ ( 0.03 ) $ 0.11 $ ( 0.07 ) $ 0.09 Weighted-average outstanding shares — basic 44,224,893 42,522,441 44,173,208 41,823,285 Weighted-average outstanding shares — diluted 44,224,893 42,522,441 44,173,208 41,823,285 2 REALPHA TECH CORP. Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) Additional ReAlpha Tech Corp. and Non- Total Common Stock Paid-in Accumulated Subsidiaries Controlling Stockholders’ Shares Amount Capital Deficit Equity Interests Equity Balance at December 31, 2023 44,122,091 $ 44,123 $ 36,899,497 $ ( 12,237,885 ) $ 24,705,735 $ 3,050 $ 24,708,785 Net loss - - - ( 1,418,980 ) ( 1,418,980 ) ( 65 ) ( 1,419,045 ) Balance at March 31, 2024 44,122,091 $ 44,123 $ 36,899,497 $ ( 13,656,865 ) $ 23,286,755 $ 2,985 $ 23,289,740 Net loss - - - ( 1,478,329 ) ( 1,478,329 ) 17 ( 1,478,312 ) Shares issued to employees & directors 201,135 201 202,945 - 203,146 - 203,146 Shares issue - Naamche acquisition - - 193,500 - 193,500 - 193,500 RTC India - non controlling interest - - - - - 5 5 Balance at June 30, 2024 44,323,226 $ 44,324 $ 37,295,942 $ ( 15,135,194 ) $ 22,205,072 $ 3,007 $ 22,208,079 Additional ReAlpha Tech Corp. and Non- Total Common Stock Paid-in Accumulated Subsidiaries Controlling Stockholders’ Shares Amount Capital Deficit Equity Interests Equity Balance at December 31, 2022 9,376,400 $ 9,376 $ 6,979,840 $ ( 9,775,175 ) $ ( 2,785,959 ) $ 1,814 $ ( 2,784,145 ) Net loss - - - ( 864,722 ) ( 864,722 ) ( 191 ) ( 864,913 ) Shares issued through Reg A offering 153,697 154 1,435,826 - 1,435,980 - 1,435,980 Reg A offering costs - - ( 79,379 ) - ( 79,379 ) - ( 79,379 ) Distribution to syndicate members - ( 13,375 ) - ( 13,375 ) 3,292 ( 10,083 ) Shares issued for acquisition of Rhove 1,312,025 1,312 13,118,938 - 13,120,250 - 13,120,250 Shares issued for services 304,529 305 3,044,985 - 3,045,290 - 3,045,290 Shares issued in former parent 543,420 543 149,457 - 150,000 - 150,000 RTC India - Non controlling interest - - - - - 641 641 Cancellation of shares in the former parent ( 9,167,630 ) ( 9,167 ) ( 241,957 ) - ( 251,124 ) - ( 251,124 ) Recapitalization of shares 40,000,000 40,000 410,000 - 450,000 - 450,000 Downstream merger transaction - - ( 697,175 ) - ( 697,175 ) - ( 697,175 ) Balance at March 31, 2023 42,522,441 $ 42,523 $ 24,107,160 $ ( 10,639,897 ) $ 13,509,786 $ 5,556 $ 13,515,342 Net loss - - - 4,654,224 4,654,224 232 4,654,456 Cancellation of shares ( 350 ) - ( 3,500 ) - ( 3,500 ) - ( 3,500 ) Distribution to syndicate members - - - - - ( 3,292 ) ( 3,292 ) RTC India - Non Controlling Interest - - - - - 263 263 Balance at June 30, 2023 42,522,091 $ 42,523 $ 24,103,660 $ ( 5,985,673 ) $ 18,160,510 $ 2,759 $ 18,163,269 3 REALPHA TECH CORP. Condensed Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2024, and 2023 (Unaudited) For the Six Months Ended June 30, 2024 For the Six Months Ended June 30, 2023 Cash Flows from Operating Activities: Net income (loss) $ ( 2,897,357 ) $ 3,789,543 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 140,784 71,245 Stock based compensation 203,146 - Commitment fee expenses 250,000 - Gain on sale of properties ( 31,392 ) - Gain on previously held equity ( 129,045 ) - Gain on sale of myAlphie - ( 5,502,774 ) Changes in operating assets and liabilities: Accounts receivable 152,829 76,911 Prepaid expenses 111,883 31,701 Other current assets ( 17,670 ) ( 154,638 ) Accounts payable 28,102 ( 428,065 ) Accrued expenses ( 362,159 ) ( 242,282 ) Total adjustments 346,478 ( 6,147,902 ) Net cash used in operating activities ( 2,550,879 ) ( 2,358,359 ) Cash Flows from Investing Activities: Proceeds from sale of properties 78,000 - Additions to property, plant & equipment ( 1,245 ) ( 23,196 ) Cash acquired through business combination 786 ( 25,000 ) Capitalized software development - work in progress ( 156,964 ) 276,450 Net cash (used in) provided in investing activities ( 79,423 ) 228,254 Cash Flows from Financing Activities: Payments of debt ( 143,885 ) ( 347,226 ) Proceeds from issuance of common stock - 313,873 Net cash used in financing activities ( 143,885 ) ( 33,353 ) Net decrease in cash ( 2,774,187 ) ( 2,163,458 ) Effect of exchange rate changes on cash 144 - Cash - Beginning of Period 6,456,370 2,989,782 Cash - End of Period $ 3,682,327 $ 826,324 Reconciliation of Cash Cash $ 3,682,327 $ 826,324 Total cash $ 3,682,327 $ 826,324 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. 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 current macroeconomic challenges like higher interest rates and inflated property prices, we’ve suspended real estate acquisition operations. Our new focus is on enhancing our AI technologies to continuously improve our commission-free, AI-powered end-to-end homebuying platform, driven by a growth strategy centered on strategic acquisitions. The Company’s head 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. All significant intercompany accounts and transactions have been eliminated in consolidation. 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 generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2023 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 accounting principles, generally accepted in the U.S., 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 Transition Report on Form 10-KT for the eight month period ended December 31, 2023 (the “Form 10-KT”). Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year or any other future periods. 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. Significant Accounting Policies There have been no material changes to our significant accounting policies from our Form 10-KT. 5 Recently Issued Accounting Pronouncements: In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires expanded disclosures about reportable segments including additional information on segment expenses, expanded interim period disclosures, and an explanation of how the chief operating decision maker utilizes segment information in evaluating segment performance. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. We are currently assessing the impact that the adoption of ASU 2023-07 will have on the disclosures in our consolidated 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 With the implementation of FASB standard on going concern, ASU No. 2014-15, we assessed 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, which is referred to as the “look-forward period” as defined by ASU No. 2014-15. 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. While we anticipate continued operating losses in the near future, and our cash position as of June 30, 2024 may not fully cover operations for the 12-month period following the date of issuing the condensed consolidated financial statements included in this report, we are confident in our strategy to continue investing in the commercialization of our products and technologies and our ability to continue operations. If we are unable to cover our operating expenses for the next 12-month period through the commercialization of our technologies, or if we are unable to raise sufficient capital through additional debt or equity arrangements, to the extent needed, there will be uncertainty regarding our ability to maintain liquidity sufficient to operate the business effectively, which raises substantial doubt as to our ability to continue as a going concern within one year from the date of issuance of these condensed consolidated financial statements. We believe we have alleviated the substantial doubt of our ability to continue operations by securing funding of approximately $ 5.45 million in gross proceeds pursuant to the issuance of a secured note on August 14, 2024, pursuant to which we raised approximately $ 5.0 million in net proceeds, after paying related expenses and fees (see “Note 13 – Subsequent Events” below for additional information). The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. As of June 30, 2024, we had approximately $ 3.7 million in cash. 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 May 6, 2024 , we completed our acquisitions of Naamche, Inc. (“U.S. Naamche”) and Naamche, Inc. Pvt Ltd. (“Nepal Naamche,” and together with U.S. Naamche, “Naamche”). As a result, the Company now owns 100 % of the issued and outstanding shares of capital stock of Naamche, and both entities are wholly-owned subsidiaries of the Company. We acquired Naamche to assist the Company with the research and development of its proprietary AI algorithms and other technologies. 6 The purchase price consisted of (i) a $ 50,000 cash payment, (ii) 225,000 restricted shares of the Company’s common stock to be issued within 9 months from the closing date of the acquisitions, and (iii) $ 450,000 in cash, payable over a 3-year period following the closing date of the acquisitions based on the achievement by Naamche of specified revenue-based targets. Due to the limited amount of time since closing the transaction, the preliminary allocation of the purchase price is not yet complete. We expect most of the purchase price will be allocated to goodwill and other identifiable intangible assets. Naamche is included in our consolidated financial statements beginning on the date of acquisition and reported as part of our Technology Services (formerly “Platform Services”) segment. 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 Naamche acquisition. 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. 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. Purchase price allocation Fair value Net Property Plant & Equipment 76,350 Other Current Assets 2,050 Cash & Cash Equivalents 50,786 Accounts Receivable 15,745 Accounts Payable ( 46,506 ) Accrued Expenses ( 36,480 ) Dividend Payable ( 31,381 ) Long Term Loans ( 54,662 ) Goodwill 549,494 Net assets acquired $ 525,396 7 Note 6 – Property and Equipment 1. Investments in property and equipment consisted of the following as of June 30, 2024 a. Investments in property and equipment other than held for sale Accumulated Net Cost Depreciation Investment Computer $ 34,372 ( 20,635 ) $ 13,737 Furniture and fixtures 45,074 ( 17,629 ) 27,445 Vehicles 73,969 ( 14,686 ) 59,283 Total investment in property and equipment $ 153,415 $ ( 52,950 ) $ 100,465 2. Investments in property and equipment consisted of the following as of December 31, 2023 a. Investments in property and equipment other than held for sale Accumulated Net Cost Depreciation Investment Computer $ 33,401 $ ( 11,856 ) $ 21,545 Furniture and fixtures 20,853 ( 7,467 ) 13,386 Total investment in property and equipment $ 54,254 $ ( 19,323 ) $ 34,931 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 The Company recorded depreciation expenses of $ 69,331 and $ 22,107 for the three months ended June 30, 2024, and June 30, 2023, respectively. The Company also recorded depreciation expenses of $ 140,784 and $ 48,658 for the six months ended June 30, 2024, and June 30, 2023, respectively. Note 7 – 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 June 30, 2024 and December 31, 2023, the balance of capitalized software costs, work in progress amounted to $ 996,049 and $ 839,085 , 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. 8 Note 8 – Other Loans Other loans consisted of the following as of June 30, 2024, and December 31, 2023: June 30, December 31, 2024 2023 First Insurance Loan 47,524 190,095 Total Short-term debt, net $ 47,524 $ 190,095 Note 9 - Mortgage and Other Long-Term Loans Long-term liabilities consisted of the following as of June 30, 2024, and December 31, 2023: June 30, December 31, 2024 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. $ - $ 247000 Vehicle loan with a bank. The loan bears interest at a rate of 11.17 % and provides for monthly interest and principal payments. The loan tenure ends on October 20, 2029 . 53,348 - Total Mortgage & other long-term loans $ 53,348 $ 247,000 Note 10 - 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; and (ii) 5,000,000 shares of preferred stock, having a par value of $ 0.001 per share. As of June 30, 2024 there were 44,323,226 shares of common stock issued and outstanding and as of December 31, 2023, there were 44,122,091 shares of common stock issued and outstanding, and there were 0 shares of preferred stock outstanding as of June 30, 2024 and December 31, 2023. Stock Based Compensation We issued an aggregate of 201,135 shares of common stock during and as of the quarter ended June 30, 2024, pursuant to reAlpha Tech Corp.’s 2022 Equity Incentive Plan (the “2022 Plan”) described below. Equity Incentive Plan We maintain 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 4,000,000 shares of common stock. All of our current employees, consultants and other service providers are eligible to be granted awards under the 2022 Plan. Eligibility for awards under the 2022 Plan is determined by the board of directors at its discretion. The 2022 Plan permits the discretionary award of incentive stock options (“ISOs”), non-statutory stock options (“NQSOs”), stock awards (which may have varying vesting schedules and be subject to lock-up periods at the board of directors’ discretion) and other equity awards to selected participants. Unless sooner terminated, no ISO may be granted under the 2022 Plan on or after the 10th anniversary of the Effective Date (as defined in the 2022 Plan). The compensation committee has the sole discretion in setting the vesting period and, if applicable, exercise schedule of an award, determining that an award may not vest for a specified period after it is granted and accelerating the vesting period of an award. The plan administrator determines the exercise or purchase price of each award, to the extent applicable. The 2022 Plan does not allow for the assignment, transfer or exercise of awards other than by will or the laws of descent and distribution. Unless otherwise provided by the participant’s Option Award Agreement or Stock Award Agreement (as both terms are defined in the 2022 Plan) issued pursuant to the 2022 Plan, upon the participant’s termination for any reason, including but not limited to death, Disability (as defined in the 2022 Plan), voluntary termination nor involuntary termination with or without Cause (as defined in the 2022 Plan), all unvested equity awards in the form of options or shares shall be forfeited. Vested options, unless otherwise provided, will remain exercisable for three (3) months following termination of the participant if such termination is for any reason other than death, Disability or termination for Cause. In case the participant’s separation from service is due to death or Disability, then the vested options will be exercisable for a period of twelve (12) months thereafter. In case the participant’s termination is for Cause, the participant will immediately forfeit any and all options issued to such participant under the 2022 Plan. 9 The 2022 Plan also provides the Company with a right of repurchase all or portion of the shares awarded to the participant under the 2022 Plan, which may be exercised in case a participant separates from service for any reason, at a price equal to the fair market value, as determined by the board of directors. In the event of a Change in Control (as defined in the 2022 Plan), the board of directors will have the sole discretion to address the treatment of a participant’s unvested awards in connection with such Change in Control in the participant’s award agreement. The board of directors may modify, amend or terminate the plan at any time, provided that no such modification, amendment or termination of the 2022 Plan materially affects the rights of a participant under a previously granted award without that participant’s consent. Further, the board of directors cannot, without the approval of the Company’s stockholders, amend this plan: (i) increase the number of common stock with respect to the ISOs that may be granted under the 2022 Plan; (ii) make any changes in the class of employees eligible to receive the ISOs under the plan; (iii) without stockholder approval if required by applicable law. Warrants We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in FASB Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of the warrant’s issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The Warrants issued in connection with the follow-on offering and in connection with the GEM Agreement meet the criteria for equity classification under ASC 480 and ASC 815, therefore, the warrants are classified as equity. On October 23, 2023, pursuant to the terms of the GEM Agreement (as defined below), we issued GYBL warrants to purchase up to 1,700,884 shares of the Company’s common stock (the “GEM Warrants”). The GEM Warrants are exercisable, for cash, at an original exercise price of $ 406.67 per share, which exercise price was subsequently adjusted to $ 371.90 after the Company’s most recent public offering and the exercise price of the GEM Warrants is subject to further adjustments specified therein. On November 24, 2023, we conducted a follow-on offering by issuing 1,600,000 units priced at $ 5.00 per unit (the “follow-on offering”), each unit consisting of one share of common stock and one and a half warrants to purchase common stock (the “Follow-On Warrants,” and together with the GEM Warrants, the “Warrants”). The Follow-On Warrants permit holders to exercise them over a five-year period at an exercise price of $ 5.00 per share, subject to “full ratchet” anti-dilution provisions included therein. The “full ratchet” anti-dilution provisions provide that the Follow-On Warrants’ exercise price can be adjusted downward to a floor price of $ 1.44 per share as a result of subsequent offerings, and the share amount issuable pursuant to such warrants would increase such that the aggregate exercise price payable thereunder would equal the aggregate exercise price prior to such adjustment. 10 We believe the likelihood that any 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. If the trading price for our common stock is less than $ 371.90 per share, in the case of the GEM Warrants, and less than $ 5.00 per share, in the case of the Follow-On Warrants, we believe holders of the Warrants will be unlikely to exercise them. While current conditions influencing the exercise of the Warrants make such exercise unlikely, further adjustments to their exercise prices, or an adjustment to the amount of shares issuable upon exercise thereof, as applicable, may make the Warrants more attractive for investors to exercise. Our analysis is based on the trading price of our common stock as of August 13, 2024, which was $ 1.21 per share. Rights On March 24, 2023, in connection with the acquisition of Roost Enterprises, Inc. (“Rhove”), we allocated rights to each seller and participating investors a right to purchase 1,263,000 additional shares of common stock (the “Rollover Stock”) at a fixed price of $ 10 per share within a two-year period following the closing date of acquisition of Rhove and shall thereafter terminate if not exercised within in such two-year period with no modifications to the exercise terms (the “Rights”). These shares were issued without any restrictions. 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-KT. As the Follow-On Warrants are classified as equity instruments, they are not subject to fair value remeasurement at the end of each reporting period. Warrants and Rights activity as of June 30, 2024 were as follows: Issue date Period ended Contractual life (years) Warrants Outstanding Weighted Average Exercise Price Average Remaining Contractual Life (Years) Rhove Rights Issued on March 24, 2023 03/04/2023 06/30/2024 2 1,263,000 10.00 0.67 GEM Warrants Issued on October 23, 2023 10/23/2023 06/30/2024 5 1,700,884 371.9 4.31 Follow-on Warrants Issued on November 21, 2023 11/21/2023 06/30/2024 5 2,400,000 5.00 4.39 Warrants outstanding on June 30, 2024 5,363,884 122.52 3.49 Note 11 - Commitments and Contingencies Pursuant to the terms of that certain Share Purchase Agreement between the Company and GEM Global Yield LLC SCS (“GEM Yield”) and GEM Yield Bahamas Limited (“GYBL,” and collectively, “GEM”), dated December 1, 2022 (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 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. Legal Matters India Proceeding Involving Giri Devanur In 2006, Mr. Devanur became the CEO of an India-based company named Gandhi City Research Park, Private Limited (“Gandhi City Research Park”). Gandhi City Research Park was liquidated as a result of the Lehman Brothers collapse in 2009. In 2010, an investor in Gandhi City Research Park filed a fraud complaint with the Cubbon Park Police Station in Bengaluru, India, against, among others, Mr. Devanur. In 2014, the Cubbon Park Police dismissed all claims. Subsequently, in 2015 the investor appealed the Cubbon Park Police’s decision before the Lower Court. In November 2018, the Lower Court issued a criminal summons against, among others, Mr. Devanur. Mr. Devanur petitioned the High Court to quash the summons. By order dated March 27, 2023, the High Court granted Mr. Devanur’s petition and ordered the Lower Court to reconsider the investor’s appeal. On August 3, 2023, the Lower Court decided to uphold the Cubbon Park Police’s decision and close the criminal case against Mr. Devanur. On December 4, 2023, Mr. Devanur received a petition to challenge the Lower Court’s order to uphold the Cubbon Park Police’s decision and close Mr. Devanur’s criminal case. Mr. Devanur is vigorously contesting this petition. 11 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 12 – Segment Reporting In November 2023, FASB issued ASU 2023-07. ASU 2023-07 requires expanded disclosures about reportable segments including additional information on segment expenses, expanded interim period disclosures, and an explanation of how the chief operating decision maker utilizes segment information in evaluating segment performance. We are currently assessing the impact that the adoption of ASU 2023-07 will have on the disclosures in our consolidated financial statements. 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. We have two reportable segments based on our business units: (i) Technology Services (formerly “Platform Services”) and (ii) Rental Business. Our chief operating decision maker has been identified as the Chief Executive Officer and the President, each of which reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Three months Ended June 30, Six months Ended June 30, 2024 2023 2024 2023 Revenue by segment Technology (formerly “Platform”) services $ 62,353 $ 32,253 $ 82,779 $ 95,064 Rental business - 22,574 - 71,214 Consolidated revenue 62,353 54,827 82,779 166,278 Segment cost of revenue Technology (formerly “Platform”) services ( 18,250 ) ( 26,644 ) ( 36,499 ) ( 107,114 ) Rental business - ( 3,798 ) - ( 12,044 ) Consolidated segment cost of revenue ( 18,250 ) ( 30,442 ) ( 36,499 ) ( 119,158 ) Consolidated segment gross margin 44,103 24,385 46,280 47,120 Segment operating expense Technology (formerly “Platform”) services ( 117,360 ) - ( 198,269 ) ( 180,867 ) Rental business - ( 83,992 ) ( 7,782 ) ( 75,260 ) Consolidated segment operating expenses ( 117,360 ) ( 83,992 ) ( 206,051 ) ( 256,127 ) Total consolidated segment operating loss ( 73,257 ) ( 59,607 ) ( 159,771 ) ( 209,007 ) Segment other income (expenses) Technology (formerly “Platform”) services - - - - Rental business - ( 49,379 ) ( 10,802 ) ( 104,581 ) Total consolidated segment operating profit ( 73,257 ) ( 108,986 ) ( 170,573 ) ( 313,588 ) Corporate expenses Operating expenses ( 1,137,010 ) ( 724,921 ) ( 2,284,363 ) ( 1,338,574 ) Other income (expenses), net ( 268,045 ) 5,488,363 ( 442,421 ) 5,441,705 ( 1,405,055 ) 4,763,442 ( 2,726,784 ) 4,103,131 Total consolidated loss before income taxes $ ( 1,478,312 ) $ 4,654,456 $ ( 2,897,357 ) $ 3,789,543 Note 13 - Subsequent Events The Company has evaluated subsequent events as of the date of this report and has none to report, except as identified below. Acquisition of AiChat Pte. Ltd. On July 12, 2024, the Company entered into a Business Acquisition and Financing Agreement (the “Acquisition Agreement”) with AiChat Pte. Ltd., a company incorporated in the Republic of Singapore (“AiChat”), AiChat10X Pte. Ltd., a Singaporean company (the “Seller”), and Kester Poh Kah Yong (the “Founder”). Under the agreement, the Company acquired 85 % of the outstanding ordinary shares of AiChat, an AI-driven company specializing in conversational customer experience solutions, from the Seller. The remaining 15 % of AiChat’s shares will be acquired on June 30, 2025 (the “Acquisition”). 12 In exchange for the shares, the Company agreed to pay the Seller a total purchase price of $ 1,140,000 , comprising of: (i) $ 312,000 in restricted shares of the Company’s common stock, priced at a 10 % discount to the 10-day volume weighted average price (VWAP) of the common stock on the Nasdaq Capital Market, to be issued no later than January 1, 2025 (the “First Tranche Shares”); (ii) $ 588,000 in restricted shares of common stock, also priced at a 10 % discount to the VWAP, subject to any Base Case Adjustment (as defined in the Acquisition Agreement), to be issued no later than April 1, 2025 (the “Second Tranche Shares”); and (iii) $ 240,000 in restricted shares of common stock, calculated at a 5 % discount to the VWAP, to be issued no later than December 1, 2025 (the “Third Tranche Shares,” collectively with the First Tranche Shares and the Second Tranche Shares, the “Tranche Shares”). Additionally, the Company agreed to subscribe to and purchase from AiChat: (i) 55,710 ordinary shares of AiChat at the closing of the Acquisition, for $ 60,000 ; and (ii) 222,841 ordinary shares of AiChat according to a disbursement schedule to be agreed upon by the Company, AiChat, and the Founder, for a total subscription price of $ 240,000 . The Tranche Shares will be subject to a 90-day restrictive period (the “Restricted Period”) following issuance, during which the Seller cannot sell, transfer, or otherwise dispose of the shares or request their registration under the Securities Act of 1933, as amended. After the Restricted Period, the shares will be deposited into the Seller’s designated account and then transferred to the Founder based on his beneficial ownership in the Seller. In order to comply with Nasdaq Listing Rule 5635(a), the total Tranche Shares issued cannot exceed 19.99 % of the Company’s outstanding common stock immediately before the Acquisition Agreement, which equates to 8,860,213 shares (the “Cap Amount”). Any shares issued in excess of this amount will be paid in cash to the Seller, as specified in the Acquisition Agreement. Additionally, the Company agreed to guarantee certain Singaporean bank loans from AiChat totaling approximately 862,092 Singapore Dollars (SGD). The Acquisition Agreement also includes the assignment of AiChat’s intellectual property rights from the Seller to the Company. Post-acquisition, the Seller will indemnify the Company and its affiliates against any liabilities, damages, losses, costs, or expenses arising from third-party claims related to the Company and the Acquisition. The Acquisition Agreement contains customary representations, warranties, covenants, and conditions for transactions of this nature. Acquisition of Controlling Interest of Hyperfast Title LLC On July 24, 2024, the Company entered into a Membership Interest Purchase Agreement (the “Hyperfast Purchase Agreement”) with David R. Breschi and Kristen Britton (the “Sellers”). Under this agreement, the Company acquired 85 % of the outstanding membership interests in Hyperfast Title LLC (“Hyperfast”), a Florida-based company specializing in real estate closings and title insurance. Hyperfast was founded by the owners of Madison Settlement Services, LLC, a national title agency (the “Hyperfast Acquisition”). The Hyperfast Purchase Agreement includes standard representations, warranties, and covenants typical for transactions of this nature. In conjunction with the Hyperfast Acquisition, the Company, the Sellers, and Hyperfast signed an Amended and Restated Operating Agreement (as amended from time to time, the “Operating Agreement”). The Operating Agreement outlines several key provisions, including: annual license fees to be paid to the Sellers, contingent on their continued service with Hyperfast; annual management fees based on Hyperfast’s operating margin; a right of first refusal for each Hyperfast member to purchase the interests of any member wishing to sell; and various rights for the Company, as the managing member, to acquire the Sellers’ membership interests, and for the Sellers to sell their respective interests in Hyperfast, all in accordance with the terms specified in the Operating Agreement. Streeterville Capital, LLC Note Purchase Agreement and Secured Promissory Note On August 14, 2024, the Company entered into a note purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC (“Lender”) pursuant to which the Company issued and sold to the Lender a secured promissory note in the original principal amount of $ 5,455,000 (the “Note”). The Note carries an original issue discount of $435,000 and the Company agreed to pay $ 20,000 to the Lender to cover its legal fees, accounting costs, due diligence, monitoring and other transaction costs, each of which were deducted from the proceeds of the Note received by the Company resulting in a purchase price received by the Company of $ 5,000,000 . Interest under the Note accrues at a rate of 8 % per annum, and the unpaid amount of the Note, and any interest, fees, charges and late fees are due 18 months following the date of issuance. The Note and Purchase Agreement include certain material terms, including the Lender’s ability to redeem a portion of the Note from time to time beginning seven months after issuance, events of default and penalties associated therewith, restrictive covenants on our ability to issue securities, subject to exceptions set forth therein, a “most favored nation” provision, among others. In connection with the Note and Purchase Agreement, the Company and Rhove also entered into security agreements and intellectual security agreements in favor of the Lender, and the Company’s U.S. subsidiaries entered into a guaranty in favor of the Lender. The Company also entered into a placement agency agreement (the “Placement Agency Agreement”) with Maxim Group LLC (“Maxim”), pursuant to which Maxim agreed to serve as lead placement agent on a “reasonable best efforts basis” in connection with the sale of the Note and any additional notes (the “Placement”). Pursuant to the Placement Agency Agreement, the Company agreed to pay Maxim a cash fee equal to 3.75 % of the gross proceeds received by the Company for the Note and any additional notes and to reimburse Maxim for its reasonable accountable expenses, including legal fees, up to an aggregate amount of $ 10,000 . In addition, if within nine months of a closing of a sale of the Note or any additional notes, the Company completes any financing of equity or equity-linked capital-raising activity with, or receives proceeds from, any of the investors that were introduced to the Company by Maxim in connection with the Placement, then the Company will pay Maxim a cash fee of 3.75 % of the proceeds received from such financing. See “Part II – Item 5. Other Information” of this report for more information on the Note, Purchase Agreement and related agreements. 13 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: ● 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; ● Our ability 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 technology industry in which we participate are highly competitive, and we may be unable to compete successfully with our current or future competitors; ● Our ability to retain our executive officers and other key personnel; ● If we fail to attract or retain customers and users of our technologies, or if we fail to provide high-quality real estate industry solutions, our business, results of operations, and financial condition would be materially adversely affected; ● Our real estate investments are currently on hold, and there is no assurance we will resume our short-term rental operations. We may restart these operations depending on macroeconomics factors, such as high interest rates, and general factors such as real estate investment demand, capital availability, investment yields, regulatory changes, competitive landscape and others; and ● 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. 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 “reAlpha,” “we,” “us,” “our” and the “Company” refer to reAlpha Tech Corp. and its subsidiaries, as applicable. 14