Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
We are subject to various
risks that may materially harm our business, prospects, financial condition and results of operations. An investment in our common stock
is speculative and involves a high degree of risk. In evaluating an investment in shares of our common stock, you should carefully consider
the risks described below, together with the other information included in this report.
The risks described below
are not the only risks we face. If any of the events described in the following risk factors actually occurs, or if additional risks and
uncertainties later materialize that are not presently known to us or that we currently deem immaterial, then our business, prospects,
results of operations and financial condition could be materially adversely affected. In that event, the trading price of our common stock
could decline, and you may lose all or part of your investment in our shares. The risks discussed below include forward-looking statements,
and our actual results may differ substantially from those discussed in these forward-looking statements
Summary of Risk Factors
The following summarizes the
principal risks that could materially affect our business, financial condition, results of operations, and stock price. This summary highlights
key risks but does not address all potential risks. Further, this summary should be read together with the text of the risk factors set
forth immediately after the summary, and both the summary and text of the risk factors should be read together with the other information
set forth in this report, including our consolidated financial statements and the related notes.
Risks Related to Our Business and Operations
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We have a limited operating history, which may adversely affect us.
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We have a history of operating losses, and we may not be able to generate sufficient revenue to achieve and sustain profitability.
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If we are unable to successfully identify, consummate or integrate acquisitions into our operations, our business, results of operations, and financial condition could be adversely affected.
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We may be unable to obtain financing through the debt and equity markets on terms favorable to us or at all, which would have a material adverse effect on our growth strategy, our financial condition and results of operations.
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We have integrated, and intend to continue to integrate, AI in our operations and services which may result in operational challenges, compliance challenges, reputational concerns, privacy risks and competitive risks, which could have material adverse effects on our financial condition, results of operations, or reputation.
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We process, store, and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to data privacy, and any actual or perceived failure to comply with these privacy obligations could result in a claim for damages, regulatory action, loss of business, and/or unfavorable publicity
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Our financial results are highly dependent on broader macroeconomic and U.S. residential real estate market conditions, which are seasonal and cyclical in nature.
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Our business is subject to various laws and regulations, including financial protections and securities laws.
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Our financial condition raises substantial doubt as to our ability to continue as a going concern.
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Risk Factors
Related to the Proposed Merger with InstaMortgage
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If the conditions to the Proposed Merger are not satisfied or waived prior to the Outside Date, the Proposed Merger may be delayed or may not occur.
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Failure to complete, or delays in completing, the Proposed Merger could materially and adversely affect our results of operations, business, financial results and/or common stock price.
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To the extent we consummate the Proposed Merger, we may not be able to successfully integrate the business and operations of InstaMortgage or other entities that we have acquired or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits of this proposed transaction, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations.
Risks Related to Our Technologies and Industry
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Our business depends significantly on the health of the U.S. residential real estate industry and changes in general economic conditions.
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The business and industry in which we participate are highly competitive, and we may be unable to compete successfully with our current or future competitors.
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The reAlpha platform and our services are currently limited to certain geographic markets and if we are unable to successfully expand the reAlpha platform and our services to new markets, our growth prospects, results of operations and financial condition may be adversely affected.
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Our technologies that are currently being developed may not yield expected results or be delivered on time.
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The implementation of AI into our technologies may prove to be more difficult than anticipated and may adversely affect our business.
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The use of new and evolving technologies, such as AI, in our operations may require us to expend material resources for compliance and may present risks and challenges that can impact our business including by posing security and other risks to our confidential information, proprietary information and personal information, any of which may result in reputational harm and liability, or otherwise adversely affect our business.
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Our success is based on our ability to commercialize and continuously improve our technologies and the reAlpha platform to our customers in the real estate industry and any inability to achieve these outcomes would adversely impact our business.
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If we fail to comply with the rules, compliance requirements and data license agreements of MLSs, we may be unable to obtain and provide comprehensive and accurate real estate listing data, which could materially and adversely affect our business.
Risks Related to Our Securities
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The market price and trading volume of our common stock may continue to be highly volatile, which could lead to a loss of all or part of a stockholder’s investment.
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We have experienced, and expect to continue to experience, significant dilution of our common stock, which may adversely affect the market price of our common stock and make it more difficult to raise capital in the future.
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If we fail to regain compliance with the continued listing requirements of Nasdaq, our common stock could be delisted and the price and liquidity of our common stock may be adversely affected.
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We do not expect to pay dividends to our common stock holders for the
foreseeable future.
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We are an emerging growth company and a smaller reporting company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make the common stock less attractive to investors.
Risks Related to Our Cryptocurrency Investment Policy and Treasury
Strategy
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Our cryptocurrency investment policy exposes us to various risks associated with cryptocurrencies.
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Risks Related to Our Business and Operations
We have a limited operating history, which
may adversely affect us.
We have a limited operating
history and face challenges that companies with a substantial operation history do not, such as the perception of a “higher-risk
profile.” As a result, it may be more difficult for us to bind coverage with insurance carriers, achieve better rates from service
providers or lenders, attract talent, and in times of high interest rates and mounting inflation, to obtain new capital, maintain high
credit rating, and utilize leverage. An investment in our common stock entails more risk than an investment in the common stock of a company
with a substantial operating history. If we are unable to operate our business successfully as a result of these challenges or other challenges,
you could lose all or a portion of your investment in our common stock. Our ability to successfully operate our business depends on many
factors, including:
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our ability to obtain additional capital;
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economic conditions in the markets where we operate, including the condition of the financial and real estate markets and the economy in general;
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our ability to attract and retain customers for our homebuying services;
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the availability of, and our ability to identify, attractive acquisition opportunities consistent with our growth strategy;
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our ability to compete with other companies in the real estate solutions and proptech markets;
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costs that are beyond our control, including litigation, legal compliance and others;
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population, employment or homeownership trends in our markets; and
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interest rate levels and volatility, such as the accessibility of short- and long-term financing on desirable terms.
We have a history of operating losses, and
we may not be able to generate sufficient revenue to achieve and sustain profitability.
We have not achieved profitability
and have incurred losses since inception. For the year ended December 31, 2025, we recorded a net loss of $17,590,392. For the year ended December 31, 2024, we recorded a
net loss of $26,022,349, which includes a loss of $18,339,635 from discontinued operations related to our former rental business and
operations of our subsidiary, Rhove, and a loss of $7,682,714 from continuing operations. As of December 31, 2025, we had an accumulated
deficit of $55,980,534 and outstanding indebtedness of $384,597. While we have experienced revenue growth over recent periods, we may
not be able to sustain or increase our growth or achieve profitability in the future. We intend to continue to invest diligently in sales
and marketing efforts. In addition, we expect to incur significant additional legal, accounting, compliance and other expenses related
to public company compliance and the expansion of our business. If our revenue fails to grow at a rate faster than these increases in
our operating expenses, we will not be able to achieve and maintain profitability in future periods. As a result, we may continue to
generate losses. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown
factors that may result in losses in future periods. If these losses exceed our expectations or our revenue growth expectations are not
met in future periods, our financial performance will be harmed.
If we are unable
to successfully identify, consummate or integrate acquisitions into our operations, our business, results of operations, and financial
condition could be adversely affected.
We have completed several
acquisitions in recent years and intend to continue pursuing strategic acquisitions of synergistic businesses and/or technologies as part
of our growth strategy. We have also entered into a definitive agreement to acquire InstaMortgage, which is expected to close in the first
half of 2026, subject to regulatory approvals and other customary closing conditions. Acquisitions take considerable time to develop,
particularly in regulated industries, and involve a number of risks, including the risk that we enter into negotiations for acquisitions
that result in the diversion of management time and significant out-of-pocket costs and are not ultimately consummated.
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Our ability to continue to
make acquisitions will depend upon our success at identifying suitable targets at acceptable prices, which requires substantial judgment
in assessing an acquisition target’s values, strengths, weaknesses, liabilities, and potential profitability, as well as the availability
of capital. In the future, we may not be able to find suitable acquisition targets, and we may not be able to complete acquisitions on
favorable terms or at all. Any of the foregoing factors could adversely affect our business, results of operations and financial condition.
In addition, we may not be successful in integrating acquisitions or
the businesses we acquire may not perform as well as we expect. For example, we completed the acquisition of GTG Financial, a mortgage
brokerage, on February 20, 2025. The acquisition of GTG Financial was rescinded on August 21, 2025. As a result of the rescission, we
returned to the seller of GTG Financial 100% of the issued and outstanding shares of GTG Financial and the seller returned to us 14,063
shares of Series A Convertible Preferred Stock (the “Series A Preferred Stock”) and 700,055 shares of our common stock and
GTG Financial was no longer one of our subsidiaries.
Any
future failure to manage and successfully integrate acquired businesses could materially adversely affect our business, results of operations,
and financial condition. Acquisitions involve numerous risks, including the following:
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difficulties in integrating and managing the combined operations, technology platforms and realizing the anticipated economic, operational, and other benefits in a timely manner, which could result in substantial costs and delays, and failure to execute on the intended strategy and synergies;
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failure of the acquired businesses to achieve anticipated revenue, earnings, or cash flow;
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diversion of management’s attention or other resources from our existing business;
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our inability to maintain the key customers, business relationships, suppliers, and brand potential of acquired businesses;
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uncertainty of entry into businesses or geographies in which we have limited or no prior experience or in which competitors have stronger positions;
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unanticipated costs associated with pursuing acquisitions or greater than expected costs in integrating the acquired businesses;
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responsibility for the liabilities of acquired businesses, including those that were not disclosed to us or exceed our estimates, such as liabilities arising out of the failure to maintain effective data protection and privacy controls, and liabilities arising out of the failure to comply with applicable laws and regulations, including tax laws;
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difficulties in or costs associated with assigning or transferring to us or our subsidiaries the acquired companies’ intellectual property or its licenses to third-party intellectual property;
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inability to maintain our culture and values, ethical standards, controls, procedures, and policies;
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challenges in integrating the workforce of acquired companies and the potential loss of key employees of the acquired companies;
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challenges in integrating and auditing the financial statements of acquired companies that have not historically prepared financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”); and
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potential accounting charges to the extent goodwill and intangible assets recorded in connection with an acquisition, such as trademarks, customer relationships, or intellectual property, are later determined to be impaired and written down in value.
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Acquisitions
may be financed, in whole or in part, through the issuance of equity securities, which would result in dilution to existing stockholders,
or through the incurrence of additional indebtedness, which could increase our leverage and reduce our financial flexibility. In addition,
the use of cash to fund acquisitions would reduce our available liquidity and may limit our ability to fund other strategic initiatives,
respond to business opportunities or withstand adverse economic conditions. Even if successfully consummated, acquisitions may be more
costly than anticipated, may not achieve anticipated benefits, or may result in unanticipated costs or liabilities, which could adversely
affect our business, results of operations and financial condition.
We may be unable to obtain financing through
the debt and equity capital markets on terms favorable to us or at all, which would have a material adverse effect on our growth strategy,
our financial condition and our results of operations.
Our ability to execute our
growth strategy and meet our liquidity needs depends in part on our access to the debt and equity capital markets. Adverse market conditions,
volatility in the capital markets, declines in our stock price, changes in investor sentiment, interest rate increases, or factors specific
to our business or industry could impair our ability to raise capital on terms favorable to us or at all. In addition, so long as our
public float remains below $75 million, we are subject to the “baby shelf” limitations under General Instruction I.B.6 of
Form S-3, which restricts the amount of securities we may sell under a shelf registration statement in any 12-month period to one-third
of our public float. This limitation may constrain the amount of capital we can raise through registered shelf offerings and may require
us to rely on alternative, potentially more costly or time-consuming offering structures, such as registration statements on Form S-1.
If we are unable to obtain additional financing when needed or on terms favorable to us, management may be unable to execute its plans
and we may be required to delay strategic initiatives, including acquisitions and investments in our business, or forego opportunities
that would otherwise support our growth. To the extent we raise capital through the issuance of equity, existing stockholders may experience
dilution, and any debt financing could increase our leverage, require restrictive covenants, or otherwise limit our financial flexibility.
If we are unable to secure financing when we needed, our business, financial condition and results of operations could be materially and
adversely affected.
We are subject
to federal, state and local laws and regulations and rules issued by the CFPB that monitor the loan origination and servicing sectors,
which may increase our regulatory compliance burden and associated costs.
reAlpha
Mortgage, our mortgage brokering subsidiary, is subject to the regulatory, supervisory and examination authority of the CFPB, which has
oversight of federal and state non-depository lending and servicing institutions, including residential mortgage originators and loan
servicers. The CFPB has rulemaking authority with respect to many of the federal consumer protection laws applicable to mortgage lenders
and servicers, including TILA, RESPA and the Fair Debt Collections Practices Act. The CFPB has issued a number of regulations under the
Dodd-Frank Act relating to loan origination and servicing activities, including ability to repay and “qualified mortgage”
standards and other origination standards and practices.
The
CFPB’s examinations have increased, and will likely continue to increase, reAlpha Mortgage’s administrative and compliance
costs. They could also greatly influence the availability and cost of residential mortgage credit and increase servicing costs and risks.
These increased costs of compliance, the effect of these rules on the lending industry and loan servicing, and any failure in our mortgage
business’ ability to comply with the new rules by their effective dates, could be detrimental to our business. The CFPB also issued
guidelines on sending examiners to banks and other institutions that service and/or originate mortgages to assess whether consumers’
interests are protected. The CFPB also has broad enforcement powers, and can order, among other things, rescission or reformation of contracts,
the refund of monies or the return of real property, restitution, disgorgement or compensation for unjust enrichment, the payment of damages
or other monetary relief, public notifications regarding violations, limits on activities or functions, remediation of practices, external
compliance monitoring and civil monetary penalties. The CFPB has been active in investigations and enforcement actions and, when necessary,
has issued civil monetary penalties to parties the CFPB determines has violated the laws and regulations it enforces.
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Additionally,
anti-discrimination statutes, such as the FHA and the ECOA, prohibit creditors from discriminating against loan applicants and borrowers
based on certain characteristics, such as race, religion and national origin, among others. Various federal regulatory agencies and departments,
including the U.S. Department of Justice and the CFPB, take the position that these laws apply not only to intentional discrimination,
but also to neutral practices that have a disparate impact on a group that shares a characteristic that a creditor may not consider in
making credit decisions (i.e., creditor or servicing practices that have a disproportionate negative effect on a protected class of individuals).
These regulatory agencies, as well as consumer advocacy groups and plaintiffs’ attorneys, are focusing greater attention on “disparate
impact” claims. Regulatory agencies and private plaintiffs are expected to apply the “disparate impact” theory to both
the FHA and the ECOA in the context of mortgage lending and servicing, among others. To the extent that the “disparate impact”
theory continues to apply, it may significantly increase our administrative burdens, compliance requirements and potential liability for
failures to comply.
Any
actual, alleged or perceived failure of reAlpha Mortgage to comply with the federal consumer protection laws, rules and regulations to
which they are subject could expose them to enforcement actions or potential litigation liabilities. Moreover, if the CFPB or other regulatory
authorities adopt new rules governing the use of AI in mortgage underwriting or loan approval processes, we may face additional compliance
obligations and potential enforcement risks. If we fail to or are unable to adapt to these regulatory changes in a timely and efficient
manner our business, financial condition and results of operations may be adversely affected.
If we fail to comply with the rules, compliance
requirements and data license agreements of MLSs, we may be unable to obtain and provide comprehensive and accurate real estate listing
data, which could materially and adversely affect our business.
We believe that users of our
services, whether through our website or iOS application (Real Estate Super App), come to us, in part, because of the real estate listing
data that we provide. We obtain this data primarily from MLSs in the markets we serve directly or through our third-party service provider
(REALTOR® affiliate). There are hundreds of MLSs operating across the United States, each with its own distinct rules, policies, compliance
requirements, and data license agreement terms governing how MLS data may be used, stored, and displayed. These rules vary significantly
across MLSs, are subject to change at any time, and may be affected by industry-wide developments such as the NAR settlement agreement
in March 2024 and the comprehensive MLS Handbook updates that took effect in January 2026. We are required to respond to and resolve complaints
or notices of non-compliance within prescribed timelines, and failure to do so could result in fines, suspension, or termination of our
data access. In addition, MLSs are increasingly imposing data security and technology-use requirements on participants, including restrictions
on the use of real estate listing data for training AI or machine learning models, which could affect our AI-driven platform capabilities.
In the event that a real estate
broker through whom we access MLS data or our third-party service provider (REALTOR® affiliate), is deemed non-compliant, loses its
MLS membership, or otherwise has its access restricted or terminated, we may be required to identify and engage replacements, and there
can be no assurance that suitable replacements will be available on commercially reasonable terms or without interruption to our MLS data
access. The real estate technology industry has also experienced increased litigation and regulatory activity regarding the use, display,
and ownership of MLS data, and we may become subject to claims or enforcement actions that could result in restrictions on our ability
to use such data. If we are unable to maintain compliance with applicable MLS rules and data license agreements, if we lose access to
MLS data from one or more MLSs, or if changes in MLS rules or industry practices materially restrict our ability to obtain, use, or display
listing data, we may be unable to provide comprehensive and accurate real estate listings. Any such loss or limitation could materially
and adversely affect traffic to our websites, reduce user engagement and conversion, impair our ability to expand into new geographic
markets, and have a material adverse effect on our business, results of operations and/or financial condition.
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We have integrated, and intend to continue
to integrate, AI in our operations and services which may result in operational challenges, compliance challenges, reputational concerns,
privacy risks and competitive risks, which could have material adverse effects on our financial condition, results of operations, or reputation.
We
currently integrate AI technologies in several of our operations and services, including “Claire” (our proprietary customer-facing
AI-powered homebuying concierge), the “Loan Officer Assistant” (our proprietary internal AI-powered tool for our loan officers)
and the “Engagement Assistant” (an internal AI-powered tool supporting customer relationship management), and intend to continue
integrating or otherwise using AI technologies in our operations and services. Given that AI is a rapidly developing technology that
is in its early stages of business use, it presents a number of operational, compliance and reputational risks. AI algorithms are currently
known to sometimes produce unexpected results and behave in unpredictable ways (e.g., “hallucinatory behavior”) that can
generate irrelevant, nonsensical, fictitious, deficient, offensive or factually incorrect content and results. Any inaccuracies in responses
or “hallucinatory behavior” by our customer-facing AI products, such as “Claire,” or other AI technologies that
are used in our operations or on the reAlpha platform could affect customer satisfaction, lead to misinformation, and/or cause reputational
harm.
The safe and responsible
integration of AI as it rapidly evolves presents emerging ethical and legal challenges, and any failure to keep pace with or properly
govern such technologies may lead to challenges, concerns and risks that are significant or that we may not be able to predict. For example,
AI output might present ethical concerns or violate current and future laws and regulations, including licensing laws and a variety of
federal and state fair lending laws and regulations such as the FHA, the ECOA, the Home Mortgage Disclosure Act, and the prohibition
against engaging in Unfair, Deceptive, or Abusive Acts or Practices pursuant to the Dodd-Frank act, when engaging in “hallucinatory
behavior.” Additionally, the U.S. federal government and certain U.S. states, have proposed, enacted or are considering laws governing
the development and use of generative AI. We expect other jurisdictions will adopt similar laws. In addition to such new laws and regulations,
certain existing privacy laws extend rights to consumers (such as, among others, the right to correct and/or delete certain personal
data and to receive copies of any personal data we hold) and regulate automated decision making, which may be incompatible with our use
of generative AI. These obligations may make it harder for us to conduct our business using generative AI, comply with relevant privacy
laws and/or lead to regulatory fines or penalties, require us to change our business practices, retrain Claire and/or other generative
AI tools, and/or prevent or limit our use of generative AI. For example, the FTC has required other companies to turn over (or disgorge)
valuable insights or trainings generated through the use of generative AI where they allege the company has violated privacy and consumer
protection laws. If we cannot use generative AI that use is restricted, our business may be less efficient, or we may be at a competitive
disadvantage.
We process, store, and use personal information
and other data, which subjects us to governmental regulation and other legal obligations related to data privacy, and any actual or perceived
failure to comply with these privacy obligations could result in a claim for damages, regulatory action, loss of business, and/or unfavorable
publicity .
We collect, store, share, and process personal information and other
customer information. There are numerous federal and state laws, as well as regulations and industry guidelines, regarding privacy and
the storing, use, processing, sharing, disclosure and/or protection of personal information, which are continually evolving, subject to
differing interpretations and/or best practices, and may be inconsistent between state and federal governments and across countries, regions
and/or conflict with other laws and regulations. Additionally, laws, regulations, and standards covering marketing and advertising activities
conducted by telephone, email, mobile devices, and the internet, may be applicable to our business, such as the Telephone Consumer Protection
Act (as implemented by the Telemarketing Sales Rule), the CAN-SPAM Act, similar federal and state consumer protection laws and requirements
imposed by private parties such as telecommunications carriers and credit card industry (including payment processors). We also assist
with the processing of customer credit card transactions and consumer credit report requests, originate mortgage loans, perform real estate
closings and provide other product offerings, which results in us receiving or facilitating transmission of personally identifiable information.
Processing of this type of information is increasingly subject to legislation and regulation in the United States, including under the
FCRA and the GLBA, along with relevant state laws and regulations. These laws and regulations are generally intended to protect the privacy
and security of personal information, including credit card information that is collected, processed and/or transmitted.
Several states have passed, or are considering passing, comprehensive
privacy laws with additional obligations and requirements on businesses. These laws and regulations are increasing in severity, complexity
and number, change frequently, and might conflict among the various jurisdictions in which we operate, which has resulted in greater compliance
risk and cost for us. For example, the California Consumer Protection Act, which was enacted on June 28, 2018 and became effective on
January 1, 2020, gives California residents expanded privacy rights and protections, and provides for civil penalties for certain violations.
Furthermore, the New York Department of Financial Services Cybersecurity Regulation, which went into effect on March 1, 2017, requires
covered entities to establish and maintain a cybersecurity program designed to protect the confidentiality, integrity and availability
of their information systems.
Any significant change to applicable laws, regulations or industry
practices regarding the use or disclosure of personal information, and/or regarding the manner in which the express or implied consent
of consumers for the use and disclosure of personal information is obtained, could require us to modify the reAlpha platform and its features,
possibly in a material manner and subject us to increased compliance costs, which may limit our ability to innovate, improve and expand
the reAlpha platform.
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Our employees and personnel
use generative AI technologies to perform their work, and the disclosure and use of personal information in generative AI technologies
is subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws regulating
generative AI. Our use of this technology could result in additional compliance costs, regulatory investigations and actions, copyright
infringement claims, and consumer lawsuits. If we are unable to use generative AI, it could make our business less efficient and result
in competitive disadvantages.
We seek to comply with industry standards, applicable laws and regulations,
and legal obligations concerning data security protection, and are subject to the terms of our own privacy policies and privacy-related
obligations to third parties. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent
from one jurisdiction to another, making enforcement, and thus compliance requirements, ambiguous, uncertain, and potentially inconsistent.
Any failure or perceived failure by us to comply with our privacy policies, terms of use, privacy-related obligations to customers or
other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized access to
or unintended release of personally identifiable information or other agent or client data, may result in governmental enforcement actions,
litigation, fines, penalties and/or public statements against us by consumer advocacy groups or others. Any of these events could cause
us to incur significant costs in investigating and defending such claims and, if found liable, pay significant fines or damages. Further,
these proceedings and any subsequent adverse outcomes may cause our agents and our agents’ clients to lose trust in us, which could
have a materially adverse effect on our reputation and business. To the extent we rely on any third parties to assist us in the processing
of personal information, those third parties are subject to written agreements which hold them to the same standards as appear in our
internal policies. Such data is only shared on a need-to-know basis.
We are highly dependent on information systems
and systems failures could significantly disrupt our business, which may, in turn, negatively affect us and the value of our common stock.
Our operations and technology, including the reAlpha platform and our
internal operating systems, include certain automated processes that require access to telecommunications or the internet, each of which
is subject to system security risks. Certain critical components are dependent upon third-party service providers, and a significant portion
of our business operations are conducted over the internet. As a result, we could be severely impacted by a catastrophic occurrence, such
as a natural disaster or a terrorist attack, or a circumstance that disrupted access to telecommunications, the internet and/or operations
at our third-party service providers, including viruses and/or experienced computer programmers that could penetrate network security
defenses and cause system failures and disruptions of operations and similar nefarious activities. Even though we believe we utilize appropriate
security measures, including duplication and back-up procedures, a significant outage in telecommunications, the internet or at our third-party
service providers could negatively impact our operations.
Security breaches and other disruptions
could compromise our information systems and expose us to liability, which would cause our business and reputation to suffer.
Information security risks have generally increased in recent years
due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyberattacks. In the ordinary course
of our business, we acquire and store sensitive data, including intellectual property, our proprietary business information and the personally
identifiable information of our customers, employees and third-party service providers. The secure processing and maintenance of such
information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure
may be vulnerable to attacks by hackers and/or breached due to employee error, malfeasance or other disruptions. Any such breach could
compromise our networks and the information stored by us, including back-up data stored by us, whether on external drives or in the cloud,
could be accessed, publicly disclosed, misused, lost, stolen or otherwise misused. Any such access, disclosure or other loss of information
could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, regulatory penalties,
disruption to our operations and the services we provide to customers or damage our reputation, any of which could adversely affect our
results of operations, reputation and competitive position.
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Our financial results are highly dependent
on broader macroeconomic and U.S. residential real estate market conditions, which are seasonal and cyclical in nature.
Our financial results are
highly dependent on broader macroeconomic conditions and U.S. residential real estate market conditions, which are seasonal, cyclical
and affected by changes in macroeconomic conditions beyond our control. Such macroeconomic conditions include, but are not limited to,
increased interest rates, slow economic growth or recessionary conditions, supply chain disruptions, the pace of home price appreciation
or the lack of it, housing affordability, changes in household debt levels, inflation and increased unemployment or consumer income levels,
and credit availability and its impact on consumers’ ability and willingness to make loan payments. Such macroeconomic conditions
also include competitive pressures and other market dynamics, including changes in consumer behavior, pricing strategies, customer acquisition
costs, geographic expansion risks, marketing activity, or other operational factors, that may limit margin expansion even in periods of
increased transaction activity. Some of these macroeconomic conditions, such as changes to interest rates and inflation, tend to be cyclical
and may be influenced by actions taken by the Federal Reserve or other governmental authorities. Furthermore, national or global events
including, but not limited to, geopolitical conflicts, natural disasters, natural events or man-made disruptions, may exacerbate such
macroeconomic conditions and cyclical market conditions.
During periods of rising
interest rates, declining affordability or deteriorating economic conditions, refinancing activity and home purchase transactions generally
decline and suppress housing turnover, in turn may negatively impact demand for our real estate brokerage, mortgage origination, and closing
services. In contrast, lower interest rate environments or improved affordability may increase transaction volume, though competitive
pressures and market dynamics may limit corresponding gains in margin or profitability.
Given the cyclical and sometimes
volatile nature of the loan origination activity and broader real estate market, we may experience significant fluctuations in our revenues
from quarter to quarter or year to year. There can be no assurance that the current macroeconomic and real estate conditions will continue.
New or increased tariffs could negatively affect U.S. national or regional economies, which could affect the demand for homes in the U.S.,
suppress housing activity, and lower demand for real estate transactions and related services. Such impacts could slow our mortgage origination
business and reduce transaction volume across our brokerage and title operations. The current administration has announced its intent
to adopt tariffs and potentially reform U.S. tax laws, both of which could negatively impact our business and financial results.
Our business is
subject to various laws and regulations, including financial protections and securities laws.
We are subject to a variety of
laws and regulations relating to financial protection, data privacy, and securities laws. These laws and regulations are constantly evolving
and can be subject to significant change. Such laws and regulations are numerous, complex, and frequently changing. If we fail to satisfy
any such laws and/or regulations, we may face inquiries or investigations or other adverse government actions, which may be costly to
comply with, result in negative publicity, require management’s time and attention, and subject us to remedies that may harm our
business, including fines, penalties, demands and/or orders that we modify or cease business practices. Additionally, as we depend on
third parties for key services, we rely on such third-party service providers’ compliance with laws and regulations in which they
operate regarding privacy, data protection, consumer protection, securities regulation, and/or other matters relating to our customers
and business activities. Should there be deficiencies in our compliance (including by third-party service providers), this could adversely
impact our reputation and could also expose us to material liability and, as a result, responsibility for damages, fines, and/or penalties.
Our
use of “ open-source ” software could adversely affect our ability to offer our platform and services and subject us to costly
litigation and other disputes.
We have in the past incorporated
and may in the future incorporate certain “open-source” software into our code base as we continue to develop our platform
and integrate services , technical architecture and software from acquired companies . Open-source
software is generally licensed by its authors or other third parties under open-source licenses, which in some instances may subject us
to certain unfavorable conditions, including requirements that we offer our products that incorporate the open-source software for no
cost, that we make publicly available the source code for any modifications or derivative works we create based upon, incorporating or
using the open-source software, or that we license such modifications or derivative works under the terms of the particular open-source
license. From time to time, companies that use open-source software have faced claims challenging the use of open-source software or compliance
with open-source license terms. Furthermore, there are many open-source software licenses that have not yet been tested in a court of
law, resulting in a dearth of guidance on their proper legal interpretation. We could be subject to suits by parties claiming ownership
of what we believe to be open-source software or claiming noncompliance with open-source licensing terms.
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In addition to copyright-based claims, open-source software components
incorporated into our platform may be subject to third-party patent claims. Unlike open-source licenses, which address copyright ownership
and usage rights, patent rights exist independently and may be asserted by patent holders, including non-practicing entities, regardless
of the open-source nature of the underlying software. We may be required to obtain licenses to such patents, modify or remove affected
components, or defend against patent infringement claims, any of which could result in significant costs, operational disruption or restrictions
on our ability to offer our products and services. Furthermore, our increasing use of AI and machine learning technologies, including
open-source AI models and frameworks, introduces additional licensing complexity, as the legal treatment of open-source AI model weights,
training data and derivative works remains unsettled and is subject to ongoing litigation and regulatory
development.
While
we employ practices designed to monitor our compliance with the licenses of third-party open-source software and protect our proprietary
source code, inadvertent use of open-source software is fairly common in software development in the internet and technology industries.
Such inadvertent use of open-source software could expose us to claims of non-compliance with the applicable terms of the underlying
licenses, which could lead to unforeseen business disruptions, including being restricted from offering parts of our product(s) which
incorporate the software, being required to publicly release proprietary source code, being required to re-engineer parts of our code
base to comply with specific license terms, and/or being required to extract the open-source software at issue. Our exposure to these
risks may be increased as a result of evolving our core source code base, introducing new offerings, integrating acquired-company technologies,
and/or making other business changes, including in areas where we do not currently compete. Any of the foregoing could adversely impact
the value or enforceability of our intellectual property, and materially adversely affect our business, results of operations, and financial
condition.
We rely upon Amazon Web Services to operate
certain aspects of our service and any disruption of or interference with our use of the Amazon Web Services operation or any other cloud
services provider would impact our operations and our business would be adversely impacted.
Amazon Web Services (“AWS”) provides distributed computing
infrastructure platforms for business operations, or what is commonly referred to as a “cloud” computing service. Our software
and computer systems have been designed to utilize data processing, storage capabilities and other services provided by AWS and other
cloud service provider(s). Currently, we run the vast majority of our computing on AWS. Given this, along with the fact that we cannot
easily switch our AWS operations to another cloud provider, any disruption of or interference with our use of AWS would impact our operations
and our business would be adversely impacted.
We rely on our international offices
to provide back office support functions, and if we are unable to manage the challenges associated with our international operations,
our ability to operate our business may be adversely affected.
We maintain international
offices in India with 13 full-time employees and Nepal with 32 full-time employees, each as of December 31, 2025. Employees at these locations
provide back office support services including branding, marketing, design, finance and accounting, as well as research and development
activities. Operations outside the United States are subject to legal, political and operational risks that may be greater than those
present in the United States. For example, the political change in Nepal during 2025 temporarily resulted in disruptions to transportation,
communications and normal business activities in certain areas, and similar events in the future could disrupt our operations or negatively
impact our employees. If any such legal, political and operational risks are prolonged, our operations could be materially interrupted,
which may have an adverse effect on its business and operating results.
These risks include, but are
not limited to:
●
failure of telecommunications and connectivity infrastructure;
●
imposition of government controls and restrictions;
●
exposure to different business practices and legal standards;
●
restrictions imposed by local labor practices and laws;
●
compliance with local laws and regulations on a timely basis;
●
difficulties and costs associated with staffing and managing foreign operations;
●
reduced protection for intellectual property rights in some countries;
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●
political, social and economic instability and terrorism.
●
natural disasters and public health emergencies;
●
potentially adverse tax consequences; and
●
fluctuations in foreign currency exchange rates.
If internet search
engines’ methodologies or other channels that we utilize to direct traffic to our website are modified, or our search result page
rankings decline for other reasons, our user growth could decline.
We
depend in part on various internet search engines, such as Google and Bing, as well as other channels to direct a significant amount of
traffic to our website. Our ability to maintain the number of visitors directed to our website is not entirely within our control. For
example, our competitors’ search engine optimization and other efforts may result in their websites receiving a higher search result
page ranking than ours, internet search engines or other channels that we utilize to direct traffic to our website could revise their
methodologies in a manner that adversely impacts traffic to our website, or we may make changes to our website that adversely impact our
search engine optimization rankings and traffic. As a result, links to our website may not be prominent enough to drive sufficient traffic
to our website, and we may not be able to influence the results.
We
may experience a decline in traffic to our website if third-party browser technologies are changed, or search engine or other channels
that we utilize to direct traffic to our website change their methodologies or rules, to our disadvantage. We expect the search engines
and other channels that we utilize to drive users to our website to continue to periodically change their algorithms, policies, and technologies.
These changes may result in an interruption in users’ ability to access our website or impair our ability to maintain and grow the
number of users who visit our website. We may also be forced to significantly increase marketing expenditures in the event that market
prices for online advertising and paid listings escalate or our organic ranking decreases. Any of these changes could have an adverse
impact on our business and operating results.
We are, from time to time, involved in,
and have been or may be subject to, claims, suits, government investigations, enforcement actions, and other proceedings that may result
in outcomes adverse to us, including reputational harm.
We
are subject to a variety of laws and regulations relating to data privacy and protection, intellectual property, securities laws, consumer
protection, information security, mortgage brokering, mortgage origination, real estate, real estate brokerage, environmental, RESPA,
fair housing or fair lending, tax matters, labor and employment matters, and commercial claims, as well as shareholder derivative actions
or purported class action lawsuits . These laws and regulations are numerous, complex and constantly
evolving. As a result, we have been and we may, in the future, be subject to claims, suits, government investigations, enforcement actions,
and other proceedings if we fail to comply with such laws and regulations. Any such claims, suits, government investigations, enforcement
actions, and other proceedings, which may be costly to us and/or divert the time and attention of management, may result in negative publicity
and subject us to remedies that may harm our business, including fines or demands or orders that we modify or cease business practices.
The number and scope of potential claims, suits, government investigations, enforcement actions,
and other proceedings may increase as our business expands and our products and services evolve.
Additionally,
as we depend on third-parties for key services, we rely on such third-party service providers’ compliance with laws and regulations
regarding privacy, data protection, consumer protection, securities regulation, and other matters relating to our customers and business
activities. Should there be deficiencies in our compliance (including by third-party service providers), this could adversely impact our
reputation and could also expose us to material liability and responsibility for damages, fines, or penalties.
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We are subject
to domestic and international governmental export and import controls that may impair our ability to compete in international markets
or subject us to liability if we are not in compliance with applicable laws or if we do not secure or maintain the required export authorizations.
In many cases, our products and services are or may in the future be
subject to U.S. export control laws and regulations and subject to trade and economic sanctions maintained by Office of Foreign Assets
Control, Department of the Treasury (“OFAC”). We are also subject to export control and trade sanctions laws and regulations
in Singapore, India, Nepal and other jurisdictions in which we and our subsidiaries may operate, and the European Economic Area and the
United Kingdom, to the extent our data, software or technology may be stored on, accessed from, or transmitted through servers located
in located in the EU. As such, an export license may be required to export or re-export our technology and/or services to certain countries
and/or end-users, and/or for certain end-uses, especially AI technologies, such as those involving sensitive customer data or proprietary
algorithms. If we were to fail to comply with the relevant export controls laws and regulations, economic sanctions and/or other similar
laws or regulations in any relevant jurisdictions, we could be subject to both civil and criminal penalties, including substantial fines,
possible incarceration for employees and managers for willful or knowing violations, and the possible loss of our export or import privileges.
Compliance with applicable legal and regulatory requirements regarding the export of our goods and services, including new releases and/or
the performance of services, may create delays in the introduction of our services in non-U.S. markets, prevent our customers with non-U.S.
operations from deploying these services throughout their global systems and/or, in some cases, prevent the export of the goods and/or
services to some countries altogether.
Obtaining the necessary export license for a particular sale or offering
may not be possible, may be time-consuming, and may result in the delay or loss of sales opportunities. In addition, compliance with the
directives of the Department of State’s Directorate of Defense Trade Controls (“DDTC”) may result in substantial expenses
and diversion of management attention. Any failure to adequately address the directives of DDTC could result in civil fines or suspension
or loss of our export privileges, any of which could materially adversely affect our business, financial condition, results of operations
and growth prospects. Further, U.S. export control laws and economic sanctions as well as similar laws and regulations in other jurisdictions
prohibit the export of offerings to certain U.S. embargoed or sanctioned countries, governments, and persons, as well as for prohibited
end-uses. We may in the future fail to secure or maintain at all times all required export authorizations, including licenses, which could
have negative consequences on our business, including reputational harm, government investigations and civil and/or criminal penalties.
Additionally, monitoring and ensuring compliance with these complex export control laws, regulations and sanctions may be particularly
challenging as we expand internationally and our offerings are distributed in non-U.S. countries. Any failure by us, our subsidiaries
or our partners to comply with all relevant export laws and regulations could have negative consequences for us, including reputational
harm, government investigations fines, and penalties and/or other sanctions.
Any change in domestic or international export or import laws or regulations,
economic sanctions, and/or related legislation, shift in the enforcement or scope of existing export, import, and/or sanctions laws or
regulations, or change in the countries, governments, persons, or technologies targeted by such export, import, and sanctions laws or
regulations, could result in decreased use of our platform by, or in our decreased ability to export or sell access to our platform to,
existing or potential end-customers with international operations. Any decreased use of our platform or limitation on our ability to export
to or sell access to our platform in international markets would adversely affect our business, financial condition, and results of operations.
In
the future, we may have operations in countries known to experience high levels of corruption and any violation of anti-corruption laws
could subject us to penalties and other adverse consequences.
We are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”)
and other laws in the United States and elsewhere that prohibit improper payments or offers of payments to foreign governments and/or
their officials, political parties, state-owned or controlled enterprises, and/or private entities and/or individuals for the purpose
of obtaining or retaining business. We may have operations in, and that otherwise deal with countries known to experience corruption.
Our activities in these countries and that of our affiliates and/or out third-party sub-contractors create the risk of unauthorized payments
and/or offers of payments by one of our employees, contractors, agents, or users that could be in violation of the various anti-corruption
laws, including the FCPA and anti-bribery laws in these countries. Failure to comply with any of these laws and regulations may result
in extensive internal and/or external investigations as well as significant financial penalties and reputational harm, which could materially
adversely affect our business, results of operations, and/or financial condition.
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The third parties we may engage with
are subject to 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 our third-party service providers and, as a result, our business.
The third parties we may engage for key services, such as software
development, marketing, investor relations and others, may be subject to a variety of laws and regulations that involve matters such as:
privacy; data protection; personal information; rights of publicity; content; marketing; distribution; data security; data retention and
deletion; electronic contracts and other communications; consumer protection; and online payment services. These laws and regulations
are constantly evolving and can be subject to significant change. As a result, the application, interpretation, and enforcement of these
laws and regulations are often uncertain and may be interpreted and applied inconsistently. Additionally, as we depend on third parties
for key services, we rely on such third-party service providers’ compliance with laws and regulations regarding privacy, data protection,
consumer protection, and other matters relating to our customers.
These various federal and
state privacy and data security laws and regulatory standards create data privacy rights for users, including more ability to control
how their data is shared with third parties. These laws and regulations, as well as any associated inquiries and/or investigations and/or
any other government actions, may be costly to comply with, result in negative publicity, require significant management time and attention,
and/or subject our service providers, and us, to remedies that may harm our business, including fines or demands or orders that we modify
or cease certain existing business practices.
We may not successfully and/or promptly detect and prevent fraud, misconduct,
incompetence and/or theft by our third-party service providers. In addition, any removal or termination of third-party service providers
would require us to seek new vendors or providers, which would create delays and adversely affect our operations. Poor performance by
such third-party service providers will reflect poorly on us and could significantly damage our reputation among users of our technologies.
In the event of fraud or misconduct by a third-party, we could also be exposed to material liability and be held responsible for damages,
fines or penalties and our reputation may suffer.
If
we fail to accurately report and present non-U.S. GAAP financial measures, together with our financial results determined in accordance
with U.S. GAAP, investors may lose confidence and our stock price could decline. Additionally, stockholders may consider U.S. GAAP measures
to be more relevant to our operating performance than the non-U.S. GAAP financial measures we present.
In
addition to our results determined in accordance with U.S. GAAP, we believe that certain non-U.S. GAAP measures, such as Adjusted
EBITDA, may be useful in evaluating our operating performance. We present Adjusted EBITDA measures as supplemental
measures in evaluating the performance of our operations and to provide better transparency into our results of operations. We
intend to continue to present Adjusted EBITDA and other non-U.S. GAAP financial measures in future filings with the SEC and other public
filings. We may, in the future, report non-U.S. GAAP financial measures we present inaccurately, or elect not to report or adjust the
calculation of certain non-U.S. GAAP financial measures we present. Any inaccurate reporting and/or election not to present our non-U.S.
GAAP financial measures could cause investors to lose confidence in our reported financial and other information, which would likely have
a negative effect on the trading price of our common stock.
The
market price of our common stock may also fluctuate based on future non-U.S. GAAP financial results we may present if investors base their
investment decisions on such non-U.S. GAAP financial measures. If we decide to alter or discontinue the use of non-U.S. GAAP financial
measures in reporting our annual and quarterly results of operations, the market price of our common stock could be adversely affected
if investors analyze our performance in a different manner.
The inability to protect our intellectual
property rights could harm our reputation, damage our business or interfere with our competitive position.
Our intellectual property is valuable and provides us with certain
competitive advantages. Copyrights, patents, trademarks, service marks, trade secrets, technology licensing agreements, nondisclosure
agreements and contracts may be used to protect these proprietary rights. Despite these precautions, it may be possible for third parties
to copy aspects of our products or, without authorization, to obtain and use information that we regard as trade secrets. In addition,
the laws of some foreign countries do not protect our proprietary rights as fully as do the laws of the United States. There can be no
assurance that our means of protecting our proprietary rights in the United States or elsewhere around the world will be adequate or that
competing companies will not independently develop similar technologies. Our failure to adequately protect our proprietary rights could
have a material adverse effect on our competitive position and our business.
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We
may in the future be subject to claims that we or others violated certain third-party intellectual property rights, which, even where
meritless, can be costly to defend and could materially adversely affect our business, results of operations, and financial condition.
The
internet and technology industries are characterized by significant creation and protection of intellectual property rights and by frequent
litigation based on allegations of infringement, misappropriation, or other violations of such intellectual property rights. There may
be intellectual property rights held by others, including issued or pending patents, trademarks, and copyrights, and applications of
the foregoing, that they allegedly cover significant aspects of our technologies, content, branding, and/or business methods. Moreover,
companies in the internet and technology industries are frequent targets of practicing and non-practicing entities seeking to profit
from royalties in connection with grants of licenses. Like many other companies in the internet and technology industries, we sometimes
enter into agreements which include indemnification provisions related to intellectual property which can subject us to costs and damages
in the event of a claim against an indemnified third-party.
We
may, in the future, receive communications from such third parties, including practicing and non-practicing entities, claiming that we
have infringed, misused, or otherwise misappropriated their intellectual property rights, including alleged patent infringement. Additionally,
we may, in the future, be involved in claims, suits, regulatory proceedings, and/or other proceedings involving alleged infringement,
misuse, and/or misappropriation of third-party intellectual property rights, or relating to our intellectual property holdings and rights.
Intellectual property claims against us, regardless of merit, could be time consuming and expensive to litigate and/or settle and could
divert our management’s attention and divert other resources.
Claims
involving intellectual property could subject us to significant liability for damages and could result in our having to stop using certain
technologies, content, branding, or business methods found to be in violation of another party’s rights. We might be required or
may opt to seek a license for rights to intellectual property held by others, which may not be available on commercially reasonable terms,
or at all. Even if a license is available, we could be required to pay significant royalties, which would increase our operating expenses.
We may also be required to develop alternative non-infringing technology, content, branding, and/or business methods, which could require
significant effort and expense and make us less competitive. Any of these results could materially adversely affect our ability to compete
and our business, results of operations and financial condition.
We may introduce new offerings
or changes to existing offerings or make other business changes, including in areas where we currently do not compete, which could increase
our exposure to patent, copyright, trademark, and other intellectual property rights claims from competitors, other practicing entities,
and non-practicing entities. Similarly, our exposure to risks associated with various intellectual property claims may increase as a
result of acquisitions of other companies. Third parties may make infringement and similar or related claims after we have acquired a
company or technology that had not been asserted prior to the acquisition.
Our financial condition raises substantial doubt as to our ability
to continue as a going concern.
Our independent registered
public accounting firm previously expressed substantial doubt regarding our ability to continue as a going concern in its audit report
dated March 12, 2026, for the year ended December 31, 2025. This conclusion was based on recurring losses from operations, negative cash
flows, and the need to raise additional capital to support our ongoing activities.
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Although we cannot predict
with certainty all of our particular short-term cash uses or the timing or amount of cash requirements, management has concluded that
there is substantial doubt about our ability to continue as a going concern as discussed in “Note 3 – Going Concern”
of our audited financial statements included in this report. Our recurring losses, negative cash flow and the uncertainties surrounding
our ability to execute and to realize our planned revenue growth and expected benefits from our operational improvement initiatives, could
impact our future profitability and liquidity, which could in the future raise substantial doubt about our ability to continue to execute
our operating plan as currently intended and require us to seek additional financing. If adequate funds or additional financings are not
available, if and when needed, or if the terms of potential funding sources are unfavorable, our business, financial condition, and results
of operations could be materially and adversely affected. Additionally, our financial statements have been prepared assuming that we will
continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal
course of business. Thus, our financial statements do not include any adjustments that might be necessary if we are unable to continue
as a going concern.
Our ongoing
disputes with GYBL may be costly, time consuming and, if adversely determined against us, could result in a significant downward adjustment
of the GEM Warrants’ exercise price, and potentially other penalties and expenses, which could have a material adverse effect on
our financial position and business operations.
On November 1, 2024, we filed
a lawsuit against GEM Yield Bahamas Limited (“GYBL”) in the United States District Court for the Southern District of New
York (the “Court”) in which we have asserted two causes of action: (i) rescission of the warrants issued to GYBL (the “GEM
Warrants”) pursuant to that certain Share Purchase Agreement, dated as of December 1, 2022
(the “GEM Agreement”), by and among us, GYBL, and GEM Global Yield LLC SCS (“GEM Yield”, and together with GYBL,
“GEM”), pursuant to Section 29(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
due to GYBL’s underlying violation of Section 15(a) of the Exchange Act for effecting the GEM Warrants as an unregistered dealer,
and (ii) in the alternative, a declaratory judgment that the exercise price adjustment calculation of the GEM Warrants is governed by
the terms provided in the GEM Warrants, rather than the terms of the GEM Agreement. Following a motion to dismiss filed by GYBL on January
17, 2025, the Court granted such motion to dismiss on March 14, 2025. Following such dismissal by the Court, GYBL filed a separate lawsuit
against us, in which GYBL is asserting two causes of action against us: (1) breach of the terms of the GEM Warrants, and (2) declaratory
relief concerning the validity and enforceability of the GEM Warrants. In addition to the declaratory relief, GYBL is seeking monetary
damages in an amount to be determined at trial, specific performance of the GEM Warrants and attorneys’ fees and litigation costs.
Given the ongoing disputes
with GYBL, the exercise price of the GEM Warrants has not been adjusted pursuant to the GEM Warrant’s terms while these disputes
are pending, and, to the extent any shares of common stock are sold pursuant to an equity offering, for instance, at a price per share
that is below the then-current exercise price of the GEM Warrants, we do not plan to adjust the exercise price of the GEM Warrants pending
resolution of such disputes. A final adverse ruling against us in pending lawsuits and any subsequent appeals, or in any other claim or
counterclaim, as applicable, sought by GYBL, could lead to a significant downward adjustment to the current exercise price of the GEM
Warrants, additional expenses incurred related to the lawsuits during the ongoing disputes, including, but not limited to, attorney’s
fees, and any other remedies the court may deem just.
Further, any lawsuit and subsequent
appeals may be expensive, may divert management’s time away from our operations, and may affect the availability and premiums of
our liability insurance coverage, regardless of whether our claims are meritorious, or ultimately lead to a judgment against us. We cannot
assure you that we will be able to be successful in lawsuits, or any subsequent appeal, against GYBL or resolve any current or future
litigation matters, in which case those litigation matters, including the disputes with GYBL, could have a material and adverse effect
on our business, financial condition, operating results and cash flows.
27
If we incur penalties
pursuant to the Registration Rights Agreement with GEM, our business, results of operations and financial condition may be adversely affected .
GEM
has certain registration rights, including “piggyback” registration rights, pursuant to that certain registration rights agreement
entered into by and among us and GEM concurrently with the GEM Agreement (the “Registration Rights Agreement”). The Registration
Rights Agreement requires us to use reasonable best efforts to maintain an effective registration statement covering the resale of the
shares of common stock issuable pursuant to the GEM Agreement and the shares of common stock underlying the GEM Warrants (collectively,
the “Registrable Securities”), and the “piggyback” registration rights provide that, if we determine to prepare
and file a registration statement relating to an offering of any of our equity securities for our own account or for the account of others
(other than a registration statement on Form S-8 or Form S-4, or their equivalent relating to securities to be issued in exchange for
other securities or equity securities to be issued solely in connection with equity securities issuable in connection with the Company’s
option or other employee benefit plans) under the Securities Act, then, in the absence of an effective registration statement covering
the resale of the Registrable Securities, we are required to deliver a written notice to GEM to that effect. If, within five days after
the delivery of such written notice, GEM requests in writing that we include all or any part of the Registrable Securities in such registration
statement, then we are required to cause such requested Registrable Securities to be registered in the applicable registration statement.
We do not currently maintain an effective registration statement covering the resale of the Registrable Securities given our ongoing disputes
with GEM. There is no guarantee that GEM will not seek penalties pursuant to the Registration Rights Agreement relating to their registration
rights. If GEM seeks such penalties, our business, results of operations and financial condition may be adversely affected. In addition,
if we decide to adhere to the registration rights prior to the resolution of the pending disputes or upon the resolution of the pending
disputes, we may be required to expend significant resources to prepare and maintain a registration statement, respond to registration
requests, and cover other associated costs, which would limit cash available for other business purposes.
Loss
of our current executive officers and other key employees, including from our subsidiaries, could significantly harm our business.
We
depend on the industry experience and talent of our current executives, including Giri Devanur, our Executive Chairman of the Board,
Michael J. Logozzo, our Chief Executive Officer, Thomas J. Kutzman Jr., our Chief Financial Officer, and other key employees from our
subsidiaries and newly acquired companies. We also rely on individuals in key management positions within our operations, finance, strategy,
marketing and technology teams. We believe that our future results will depend, in part, upon our ability to retain and attract highly
skilled and qualified management. The loss of our executive officers or any key personnel could have a material adverse effect on our
operations because other officers might not have the same level of experience and expertise to readily replace these individuals. To
the extent that one or more of our top executives and/or other key management personnel depart from our company, our operations and business
prospects may be adversely affected. In addition, changes in executives and key personnel could in any case be disruptive to our business.
We do not have any key person insurance.
We are also dependent
on designated brokers and licensed loan officers in each state where we conduct real estate brokerage and mortgage brokerage services.
The departure of a designated broker or key licensed loan officer could result in the suspension or loss of our authority to operate
in one or more states until a qualified replacement is identified and approved by the relevant regulatory authority, which could disrupt
our business, result in lost revenue, and expose us to regulatory penalties.
Our dependence upon our business partners
and their key business partners whose continued service is not guaranteed.
Our business operations are
supported by relationships with key business partners, including our REALTOR® affiliate, vendors, suppliers, service providers, and
other strategic partners. The loss of one or more of these key business partners, or a significant change in the terms of our relationship
with them, could disrupt our business operations and negatively impact our financial performance. Furthermore, the success of our partnerships
depends on the continued service and expertise of key business partners we collaborate with, and we cannot guarantee that these individuals
will continue to provide the same level of service or expertise to us. If these individuals leave or are unable to continue providing
their services, our ability to maintain and grow our business relationships could be negatively impacted, which could harm our financial
results.
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We are permanently barred from raising capital
in Massachusetts pursuant to a Consent Order.
On April 15, 2022, we entered
into a consent order (the “Consent Order”) with the Securities Division of the Office of the Secretary of the Commonwealth
of Massachusetts. Under the Consent Order, the Company is barred from offering or selling securities in the Commonwealth of Massachusetts,
and ordered to cease and desist from committing future violations of Massachusetts Uniform Securities Act, Mass. Gen. Laws c. 110A (the
“Act”), and the regulations promulgated thereunder at 950 Code Mass. Regs. 10.01-14.413. The National Securities Markets Improvement
Act of 1996 (“NSMIA”) prevents or preempts the states from regulating the sale of certain securities, which are referred to
as “covered securities,” including securities listed on a national securities exchange such as Nasdaq. Due to the fact that
our common stock is listed on Nasdaq, our common stock qualifies as covered securities under such statute. Although the states are preempted
from regulating the sale of covered securities, NSMIA does allow the states to investigate companies if there is a suspicion of fraud,
and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular
case. The Consent Order expressly states that it is not intended to be a final order based upon violations of the Act that prohibit fraudulent,
manipulative, or deceptive conduct. As a result, there is uncertainty as to whether the Consent Order’s prohibition on offers or
sales of our securities in the Commonwealth of Massachusetts is enforceable under federal law. Regardless of this uncertainty, we have
not undertaken a legal determination as to the preemption question and are continuing to take steps to comply with the Consent Order.
To the extent that the Consent Order is enforceable, our ability to sell securities of the Company is limited to the remaining 49 states
and expressly excludes natural persons or legal entities that are residents of the Commonwealth of Massachusetts. Based on information
currently available to us, we are not aware of any sales that have been made by the Company in the Commonwealth of Massachusetts since
we entered into the Consent Order. However, if an offering of our securities were to result in sales to residents of the Commonwealth
of Massachusetts, even inadvertently, it could be viewed as a violation of the Consent Order and could subject us to additional regulatory
actions or penalties. A regulatory action, even if it does not result in a finding of wrongdoing or penalty, could require substantial
expenditures of time, resources, and money, and could potentially damage our reputation. Any such regulatory action or penalty could adversely
affect our business, result of operations or access to capital markets.
We expect our business model and pricing
models to continue to evolve.
Our business model has a
limited track record, and as we continue growing our business and operations, we may continue to experiment with different pricing models
and introduce new offerings and services. We expect that the services and technology offerings associated with our business model, including
the reAlpha platform, will continue to rapidly evolve as we may need to modify our offerings to stay current in the industry. In addition,
we have not yet made a final determination regarding how we will charge customers or how certain incentives we offer through the reAlpha
platform, such as the commission rebate which we modified in mid-January 2026, will be applied to customers utilizing the reAlpha platform.
We cannot guarantee that we will be able to produce commercially successful offerings or develop a pricing model for such offerings that
is acceptable to our customers and enable us to operate profitably. We also cannot guarantee that any modifications we make to our offerings
or business model will be successful or will not harm our business. If the changes we make are not successful, or if we fail to make appropriate
changes, it would have a material adverse effect on our business, prospects or operations and potentially on our ability to continue as
a going concern.
If
we are unable to hire qualified persons, or unable to retain, motivate and develop our employees, our revenue could be adversely affected.
In order
to support revenues and revenue growth, we may need to develop, train and retain our employees and any sales force we may develop to advance
our mission objectives. Our ability to hire qualified employees or build and develop a qualified sales force may be affected by a number
of factors, including: our ability to attract, integrate and motivate sales personnel; our ability to effectively train our sales force;
the ability of our sales force to sell an increased number and different types of products; our ability to manage effectively an outbound
tele sales group; the length of time it takes new sales personnel to become productive; the competition we face from other companies in
hiring and retaining sales personnel; our ability to effectively structure our sales force; and our ability to effectively manage a multi-location
sales organization, including field sales personnel. If we are unable to hire and retain qualified employees and sales personnel, including
any sales force management team we may have, or if our employees are unproductive, our revenues or growth rate could decline and our expenses
could increase. We may face additional challenges in hiring employees in an increasingly competitive job market.
29
Risk Factors
Related to the Proposed Merger with InstaMortgage
If the conditions to the Proposed Merger
are not satisfied or waived prior to the Outside Date, the Proposed Merger may be delayed or may not occur.
Under the terms and conditions
of the Agreement and Plan of Merger (the “Merger Agreement”) with InstaMortgage, reAlpha Merger Sub I, Inc., a Delaware corporation
and a newly formed wholly-owned subsidiary of the Company (the “Merger Sub”) and the stockholders of InstaMortgage, specified
conditions must be satisfied or, to the extent permitted by applicable law, waived to complete the Proposed Merger (as defined below),
including receipt of regulatory approval by certain governmental authorities. These conditions are set forth in the Merger Agreement and
are summarized in the Current Report on Form 8-K filed on December 22, 2025. We cannot guarantee that any or all of the conditions to
the consummation of the Proposed Merger will be satisfied or waived. If the conditions are not satisfied or waived prior to the Outside
Date, the Proposed Merger may not occur, or the consummation of the Proposed Merger may be delayed if the Outside Date (as defined in
the Merger Agreement) is extended.
Failure to complete, or delays in completing,
the Proposed Merger could materially and adversely affect our results of operations, business, financial results and/or common stock price.
On December 19, 2025, we entered
into the Merger Agreement with InstaMortgage, the Merger Sub and the Stockholders, pursuant to which the Merger Sub will merge with and
into InstaMortgage, with InstaMortgage surviving as our wholly owned subsidiary (the “Proposed Merger”), subject to the satisfaction
and/or waiver of all closing conditions set forth therein and consummation of the transactions contemplated therein. Consummation of the
Proposed Merger is subject to the satisfaction and/or waiver of certain conditions, some of which are beyond our control and may prevent,
delay or otherwise negatively affect the Proposed Merger. Such conditions include, among others, the receipt of required regulatory approval
of certain governmental authorities. The conditions to the closing of the Proposed Merger may not be satisfied and/or waived and the Merger
Agreement could be terminated. In addition, to the extent not waived, satisfying the closing conditions to consummate the Proposed Merger
may take longer, and could cost more, than we expect. The occurrence of such events individually or in combination may adversely affect
the benefits we expect to achieve from the Proposed Merger and adversely affect our business, financial condition, results of operations
and cash flows. In addition, if the Proposed Merger does not close by the Outside Date, the attention of our management will have been
diverted to it rather than our operations and pursuit of other opportunities. Failure to complete the Proposed Merger would, and any delay
in completing the Proposed Merger could, prevent us from realizing the anticipated benefits from the Proposed Merger.
To the extent we consummate the Proposed
Merger, we may not be able to successfully integrate the business and operations of InstaMortgage or other entities that we have acquired
or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits
of this proposed transaction, or may disrupt our current operations, which could have a material adverse effect on our business, financial
position and/or results of operations.
To the extent we consummate
the Proposed Merger upon satisfaction and or/waiver of the closing conditions set forth in the Merger Agreement, we plan to integrate
the operations of InstaMortgage into our business, and this process involves complex operational, technological and personnel-related
challenges, which are time-consuming and expensive and may disrupt our ongoing business operations. Furthermore, integration involves
a number of risks, including, but not limited to:
●
difficulties or complications in combining the companies’ operations;
●
differences in controls, procedures and policies, regulatory standards and business cultures among the combined companies;
●
the diversion of management’s attention from our ongoing core business operations;
●
increased exposure to certain governmental regulations and compliance requirements;
●
the potential increase in operating costs;
●
the potential loss of key personnel;
●
the potential loss of key customers or suppliers who choose not to do business with the combined business;
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●
difficulties or delays in consolidating the acquired companies’ technology platforms, including implementing systems designed to maintain effective disclosure controls and procedures and internal control over financial reporting for the combined company and enable the Company to continue to comply with U.S. generally accepted accounting principles and applicable U.S. securities laws and regulations;
●
unanticipated costs to successfully integrate operations, technologies, personnel of acquired businesses and other assumed contingent liabilities;
●
difficulty comparing financial reports due to differing financial and/or internal reporting systems;
●
making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 (“SOX”) and the rules and regulations promulgated thereunder; and/or
●
possible tax costs or inefficiencies associated with integrating the operations of the combined company.
These factors could cause
us to not fully realize the anticipated financial and/or strategic benefits of the Proposed Merger, which could have a material adverse
effect on our business, financial condition and/or results of operations.
Even if we are able to successfully
operate the acquired business, we may not be able to realize the revenue and other synergies and growth that we anticipated from this
Proposed Merger in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently
expect, because of a number of risks, including, but not limited to:
●
the possibility that the Proposed Merger may not further our business strategy as we expected;
●
the possibility that we may not be able to expand the reach and customer base for the acquired companies’ current and future products as expected; and
●
the possibility that we may not succeed in this market in the manner expected.
As a result of these risks,
the Proposed Merger and integration may not contribute to our earnings as expected, we may not achieve expected revenue synergies or our
return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits
of the Proposed Merger.
Risks Related to Our Technologies and Industry
Our business depends significantly
on the health of the U.S. residential real estate industry and changes in general economic conditions.
Our success depends largely
on the health of the U.S. residential real estate industry. This industry, in turn, is affected by changes in general economic conditions,
which are beyond our control. Any of the following factors could reduce the volume of residential real estate transactions, cause a decline
in the prices at which homes are bought and sold, or otherwise adversely affect the industry and harm our business:
●
seasonal or cyclical downturns in the U.S. residential real estate industry, which may be due to a single factor, or a combination of factors, listed below, or factors which are currently not known to us or that have not historically affected the industry;
●
slow economic growth or recessionary conditions;
●
increased unemployment rates or stagnant or declining wages;
●
inflationary conditions;
●
low consumer confidence in the economy or the U.S. residential real estate industry;
31
●
consumer hesitancy to spend or take on debt due to economic uncertainty;
●
adverse changes in local or regional economic conditions in the markets that we serve, particularly our top-10 markets and markets into which we are attempting to expand;
●
increased mortgage rates, reduced availability of mortgage financing, or increased down payment requirements;
●
low home inventory levels, which may result from zoning regulations, higher construction costs including those resulting from potential tariffs, and housing market uncertainty that discourages some home sellers, among other factors;
●
lack of affordably priced homes, which may result from home prices growing faster than wages, among other factors;
●
volatility and general declines in the stock market or lower yields on individuals’ investment portfolios;
●
increased barriers to, or expenses associated with, home ownership, including the unavailability of insurance or rising insurance costs that may result from more frequent and severe natural disasters and inclement weather;
●
newly enacted and potential federal, state, and local legislative actions, as well as new judicial decisions, that would affect the residential real estate industry generally or in our top-10 markets, including (i) actions or decisions that would increase the tax liability arising from buying, selling, or owning real estate; (ii) actions or decisions that would change the way real estate brokerage commissions are negotiated, calculated, or paid; (iii) actions or decisions that would discourage individuals from owning, or obtaining a mortgage on, more than one home; and (iv) potential reform relating to Fannie Mae, Freddie Mac, and other government sponsored entities that provide liquidity to the mortgage market;
●
loss in confidence in the debt, obligations, or operations in the U.S. government, or a shutdown of the U.S. government, which could impact broader credit markets or economic activity;
●
changes that cause U.S. real estate to be more expensive for foreign purchases, such as (i) increases in the exchange rate for the U.S. dollar compared to foreign currencies and (ii) foreign regulatory changes or capital controls that make it more difficult for foreign purchasers to withdraw capital from their home countries or purchase and hold U.S. real estate;
●
changed generational views on homeownership and generally decreased financial resources available for purchasing homes; and
●
war, terrorism, political uncertainty, competing priorities of the new presidential administration, natural disasters, inclement weather, health epidemics or pandemics, and acts of God, and the effects of such events on the U.S. residential real estate market.
The business and industry in which we participate
are highly competitive, and we may be unable to compete successfully with our current or future competitors.
We operate in a highly competitive
environment and we face significant competition in attracting customers.
We believe that our competitors
include:
●
AI-driven real estate platforms offering streamlined homebuying and selling solutions, such as Zillow, Opendoor, FlyHomes and Redfin Corporation (“Redfin”);
●
Digital mortgage platforms which streamline the home financing process through the integration of technology, such as Better Home & Finance Holding Company and Rocket Mortgage; and
32
●
Title companies offering digital solutions for title and escrow services, such as First American Financial Corporation, Qualia Labs, Inc. and Endpoint Holdings, LLC.
Our competitors are adopting
aspects of our business model, which could affect our ability to differentiate our offerings from competitors. Increased competition could
result in reduced demand for our platform and technologies, slow our growth, and materially adversely affect our business, results of
operations, and financial condition.
Many of our current and potential
competitors enjoy substantial competitive advantages over us, such as greater name and brand recognition, longer operating histories,
larger marketing budgets, and loyalty programs, as well as substantially greater financial, technical, and other resources. As a result,
our competitors may be able to provide consumers with a better or more complete real estate solutions experience and respond more quickly
and effectively than we can to new or changing opportunities, technologies, standards, or real estate investor requirements or preferences.
In addition, emerging start-ups may be able to innovate and focus on developing a new product or service based on AI technologies faster
than we can or may foresee consumer need for new offerings or technologies before we do.
There are now numerous competing
companies that offer AI-powered solutions for real estate purposes, such as Redfin, Zillow, Opendoor and others. Some of these competitors
also aggregate property listings obtained through various sources, including the websites of property managers. Some of these competitors
or potential competitors also have more established or varied relationships with customers in the real estate industry than we do, and
they could use these advantages in ways that could affect our competitive position, including by entering the travel and accommodations
businesses. For example, some competitors or potential competitors are creating “super-apps” where consumers can use many
online services without leaving that company’s app, e.g., in particular regions, such as Asia, where e-commerce transactions are
conducted primarily through apps on mobile devices. If any of these platforms are successful in offering services similar to ours to customers
seeking similar solutions, or if we are unable to offer our services to customers within these super-apps, our customer acquisition efforts
could be less effective and our customer acquisition costs, including our brand and performance marketing expenses, could increase, any
of which could materially adversely affect our business, results of operations, and financial condition. We also face increasing competition
from search engines including Google. How Google presents AI based real estate solution providers, and its potential promotion of future
services that may be similar to ours and of our competitors, or similar actions from other search engines, and their practices concerning
search rankings, could decrease our search traffic, increase traffic acquisition costs, and/or disintermediate our technologies and offerings.
The reAlpha platform and our services are
currently limited to certain geographic markets and if we are unable to successfully expand the reAlpha platform and our services to new
markets, our growth prospects, results of operations and financial condition may be adversely affected.
Currently, all three services
(realty, mortgage brokering, and digital title and escrow services) are only available on the reAlpha platform for homebuyers in Florida
and Virginia. However, two of the three services are offered to homebuyers in eight additional U.S. states, and at least one service is
available in an additional 25 U.S. states and the District of Columbia. Our growth strategy depends in part on our ability to expand our
services into additional markets. Expanding into new geographic areas involves significant risks and uncertainties, including the need
to adapt our services to local market conditions, competitive dynamics, consumer preferences, regulatory and licensing requirements, and
operational and infrastructure constraints. We may incur significant upfront costs and devote substantial management time and resources
to market expansion efforts that may not generate anticipated returns or achieve profitability within expected timeframes, or at all.
In addition, we may face increased competition from established local or national competitors, challenges in recruiting and retaining
qualified personnel, and difficulties in scaling our systems and processes to support expansion. If we are unable to successfully enter
and grow in new markets, or if our expansion efforts divert resources from our existing operations, our growth prospects, results of operations
and financial condition could be adversely affected.
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Our technologies that are currently being
developed may not yield expected results or be delivered on time.
We could face delays, bugs,
or crashes during and after the development process of any of our technologies that could cause adverse results on our timelines and ability
to perform. We rely on our technology, including, without limitation, the reAlpha platform, “Claire” and our internal AI-powered
tools, for our business model and scalability. Should the technology not yield the expected results, we may not be able to achieve scalability
on the timeline or at all that we have forecasted. We rely on the ability of our employees to develop our technologies to achieve desired
results. If our technologies take longer than expected to be commercialized due to any delays during their development, or not function
as we intended, our business and results of operations may be materially affected.
The implementation of AI into our technologies
may prove to be more difficult than anticipated and may adversely affect our business.
Our future
success depends, in part, upon our ability to address the needs of our customers by using and integrating AI technology to provide products
and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. The costs of implementing
new technology, including personnel, can be high, in both absolute and relative terms, and we may not achieve intended benefits of new
technology initiatives. Moreover, the implementation of AI technology can expose us to new or increased operational risks. For example,
our implementation of certain new technologies, such as those related to AI, machine learning and automated decision making, in our business
processes may have unintended consequences due to their limitations or our failure to use them effectively. Many of our competitors have
substantially greater resources to invest in technological improvements or are technology focused start-ups with internally developed
cloud-native systems that offer improved user interfaces and experiences. We may not be able to effectively develop AI technology-driven
products and services or be successful in marketing these products and/or services to our customers or effectively deploy new technologies
to improve efficiency. In addition, we depend on internal and outsourced technology to support all aspects of our business operations.
Interruption or failure of these systems creates a risk of business loss as a result of adverse customer experiences and possible diminishing
of our reputation, damage claims or civil fines. Failure to successfully keep pace with technological change and affecting the AI industry
or to successfully implement such AI technologies could have a material adverse impact on our business and, in turn, our financial condition
and results of operations .
The use of new and evolving technologies,
such as AI, in our operations may require us to expend material resources for compliance and may present risks and challenges that can
impact our business including by posing security and other risks to our confidential information, proprietary information and personal
information, any of which may result in reputational harm and liability, or otherwise adversely affect our business.
Integrating
AI into our operations presents risks and challenges that could affect its adoption, and therefore our business. There are significant
risks involved in utilizing AI and no assurance can be provided that the usage of AI will enhance our business or assist our business
in becoming more efficient or profitable. The use of certain AI technology can give rise to intellectual property risks, including compromises
to proprietary intellectual property and intellectual property infringement and misappropriation. Other known risks of AI currently include
inaccuracy, bias, toxicity, data privacy and cybersecurity issues, and data provenance disputes. In addition, AI may have errors or inadequacies
that are not easily detectable. AI may also be subject to data herding and interconnectedness (i.e., multiple market participants utilizing
the same data), which may adversely impact our business. If the data used to train AI or the content, analyses, or recommendations that
AI applications assist in producing are or are alleged to be deficient, inaccurate, incomplete, overbroad or biased, our business, financial
condition, and results of operations may be adversely affected. Additionally, we expect to see increasing government and supranational
regulation and ethical concerns related to AI use which may also significantly increase the burden and cost of research, development and
compliance in this area. For example, the EU’s Artificial Intelligence Act - the world’s first comprehensive AI law - entered
into force on August 1, 2024, and, with some exceptions, will become fully applicable in December 2026. This legislation imposes significant
obligations on providers and deployers of high-risk AI systems and encourages providers and deployers of AI systems to account for certain
ethical principles in their design, development and use of these systems. The rapid evolution of AI will require the application of significant
resources to design, develop, test and maintain our technology and products and/or services to help ensure that AI is implemented in accordance
with applicable laws and regulations and in a socially responsible manner and to minimize any real or perceived unintended harmful impacts.
The legal landscape and subsequent legal protections for the use of AI remains uncertain, and development of the law in this area could
impact our ability to enforce our proprietary rights and/or protect against infringing uses. If we do not have sufficient rights to use
the data on which AI relies or to the outputs produced by AI applications we may incur liability through the violation of certain laws,
third-party privacy or other rights or contracts to which we are a party. Our use of AI applications may also, in the future, result in
cybersecurity incidents that implicate the personal data of customers. Any such cybersecurity incidents related to our use of AI applications
could adversely affect our reputation and results of operations.
34
Third-party
vendors and our subsidiaries may also incorporate AI tools into their own offerings, and the providers of these AI tools may not meet
existing or rapidly evolving regulatory or industry standards, including with respect to intellectual property, privacy and data security.
Further, bad actors around the world use increasingly sophisticated methods, including the use of AI, to engage in illegal activities
involving the theft and misuse of personal information, confidential information and intellectual property. Any of these effects could
damage our reputation, result in the loss of valuable property and information, cause us to breach our contracts and/or violate applicable
laws and regulations, and adversely impact our business.
Our success is
based on our ability to commercialize and continuously improve our technologies and the reAlpha platform and any inability to achieve
these outcomes would adversely impact our business.
The success
of our business is based in large part upon our ability to commercialize, and continuously improve, our technologies that integrate AI
into the real estate industry solutions market. Maintaining or improving our current technology offerings to meet evolving industry
standards and customer expectations, as well as developing commercially successful and innovative new technology, is challenging and expensive.
As standards and expectations
evolve and new technology becomes available, we may be unable to identify, design, develop, and implement, in a timely and cost-effective
manner, improvements to our current technologies to meet those standards and expectations. As a result, we may be unable to compete effectively,
and to the extent our competitors develop new and/or better technology offerings faster than us, they may render our offerings noncompetitive
or obsolete. Additionally, even if we implemented improvements to our current technology offerings or new technology offerings in a timely
manner, our customers may not accept or be satisfied by the technologies we developed and its applications.
Our technology offerings,
including the reAlpha platform and its tools, features, and capabilities, are key to our competitive plan for attracting potential customers
to purchase homes via the reAlpha platform. As the number of homebuyers and listings shared on our reAlpha platform, either online or
through the iOS application, and the extent and types of data grow, our need for additional network capacity and computing power will
also grow. Maintaining or improving our current technology, network capacity and computing power to meet evolving industry standards and
customer expectations and data growth is challenging and expensive. For example, the nature of development cycles may result in delays
between the time we incur expenses and the time we introduce new technology and generate revenue, if any, from those investments. Anticipated
customer demand for a technology offering could also decrease after the development cycle has commenced, and we would not be able to recoup
costs, which may be substantial, we incurred.
Furthermore, our development
and testing processes may not detect errors and vulnerabilities in our technology offerings prior to their implementation. Any inefficiencies,
errors, technical problems, or vulnerabilities arising in our technology offerings after their release could reduce the quality of our
services or interfere with our customers’ access to and use of our technology and offerings.
If we are unable to deliver a rewarding
experience on mobile devices, whether through our mobile website or iOS application, we may be unable to attract and retain customers.
Developing and supporting
the reAlpha platform on a website and iOS application across multiple operating systems and devices requires substantial time and resources.
We may not be able to consistently provide a rewarding customer experience on mobile devices and, as a result, customers we meet through
the mobile application of reAlpha may not choose to use our services at the same rate as customers we interact through the reAlpha platform.
35
As new mobile devices and
mobile operating systems are released, we may encounter problems in developing or supporting our mobile website or mobile application
for them. Developing or supporting our mobile website or iOS application for new devices and their operating systems may require substantial
time and resources. The success of our mobile website and iOS application could also be harmed by factors outside of our control, such
as:
●
increased costs to develop, distribute, or maintain our mobile website or mobile application;
●
changes to the terms of service or requirements of a mobile application store that requires us to change our mobile application development or features in an adverse manner; and
●
changes in mobile operating systems, such as Apple’s iOS, that disproportionately affect us, degrade the functionality of our mobile website or mobile application, require that we make costly upgrades to our technology offerings, or give preferential treatment to competitors’ websites or mobile applications.
We may be unable to attract homebuyers to
the reAlpha platform in a cost-effective manner.
The website version and iOS
application version of the reAlpha platform are our primary channels for meeting new customers seeking to purchase a home. Accordingly,
our success depends on our ability to attract homebuyers to our website and iOS application in a cost-effective manner. To meet customers,
we rely heavily on traffic generated from search engines and downloads of our mobile applications from mobile application stores. We also
rely on marketing methods such as targeted email campaigns, paid search advertising, social media marketing, podcasts, and TV.
The number of visitors to
our websites and downloads of our iOS application depend in large part on how and where our website and iOS application rank in internet
search results and mobile application stores, respectively. While we use search engine optimization to help our website rank highly in
search results, maintaining or improving our search result rankings is not within our control. Internet search engines frequently update
and change their ranking algorithms, referral methodologies, or design layouts, which determine the placement and display of a user’s
search results. In some instances, internet search engines may change these rankings, which may have the effect of promoting their own
competing services or the services of one or more of our competitors. Similarly, mobile application stores can change how they display
searches and how mobile applications are featured. For instance, editors at the Apple App Store can feature prominently editor-curated
mobile applications and cause the mobile application to appear larger than other applications or more visibly on a featured list.
Additionally, our marketing
efforts may fail to attract the desired number of customers for a variety of reasons, including the possibility that the creative treatment
for our advertisements may be ineffective, the inability to obtain desired advertising spots on TV or new third-party email delivery policies
may make it more difficult for us to execute targeted email campaigns.
If
we are unable to adapt to changes in technology and the evolving demands of our customers, our business, results of operations, and financial
condition could be materially adversely affected.
The
real estate technology industry is characterized by rapidly changing technology, evolving industry standards, consolidation, frequent
new offering announcements, introductions, and enhancements, and changing consumer demands and preferences. Our future success will depend
on our ability to adapt our technologies and services to evolving industry standards and local preferences and to continually innovate
and improve the performance, features, and reliability of our technologies and services in response to competitive offerings and the evolving
demands of customers. Our future success will also depend on our ability to adapt to emerging technologies such as tokenization, cryptocurrencies,
new authentication technologies, such as biometrics, distributed ledger and blockchain technologies, AI, virtual and augmented reality,
and cloud technologies, and their applicability into the markets in which we operate. As a result, we intend to continue to spend significant
resources maintaining, developing, and enhancing our technologies and the reAlpha platform; however, these efforts may be more costly
than expected and may not be successful. For example, we may not make the appropriate investments in new technologies, which could materially
adversely affect our business, results of operations, and financial condition. Further, technological innovation often results in unintended
consequences such as bugs, vulnerabilities, and other system failures. Any such bug, vulnerability, or failure, especially in connection
with a significant technical implementation or change, could result in lost business, harm to our brand or reputation, consumer complaints,
and other adverse consequences, any of which could materially adversely affect our business, results of operations, and financial condition.
36
Risks Related to Our Securities
The market price
and trading volume of our common stock may continue to be highly volatile, which could lead to a loss of all or part of a stockholder’s
investment.
Recently, the stock markets
generally have experienced, and will probably continue to experience, price and volume fluctuations that have affected the market price
of the shares of many small-cap companies. These fluctuations have often been unrelated to the operating results of such companies and
in recent times have been exacerbated by investors’ concerns stemming from geopolitical issues and changes in macroeconomic conditions.
Factors that may affect the volatility of our stock price include the following:
●
anticipated or actual fluctuations in our quarterly or annual operating results;
●
fluctuations in interest rates;
●
our success, or lack of success, in developing and marketing our products and services;
●
terrorist attacks, natural disasters and the effects of climate change, regional and global conflicts, sanctions, laws and regulations that prohibit or limit operations in certain jurisdictions, public health crises or other such events impacting countries where we have operations;
●
changes in macroeconomic conditions, including inflationary pressures;
●
changes in financial estimates by us or of securities or industry analysts;
●
the issuance of new or updated research reports by securities or industry analysts;
●
the announcement of new products, services, or technological innovations by us or our competitors;
●
the announcement of new customers, partners or suppliers;
●
the ability to collect our outstanding accounts receivable;
●
changes in our executive leadership;
●
regulatory developments in our industry affecting us, our customers or our competitors;
●
competition;
●
actual or purported “short squeeze” trading activity; and
●
the sale or attempted sale of a large amount of common stock, including sales of common stock following exercises of outstanding warrants.
In addition, the market price
and trading volume of our common stock has, since our listing on Nasdaq, and may continue to exhibit, extreme volatility, including within
a single trading day. Such volatility could cause purchasers of our common stock to incur substantial losses. With respect to these such
instances of trading volatility, we are not aware of any material changes in our financial condition or results of operations that would
explain such price volatility or trading volume, which we believe reflect market and trading dynamics unrelated to our operating business
or prospects and outside of our control. We are thus unable to predict when such instances of trading volatility will occur or how long
such dynamics may last. Under these circumstances, we would caution you against investing in our common stock unless you are prepared
to incur the risk of incurring substantial losses.
37
A
proportion of our common stock may be traded by short sellers which may put pressure on the supply and demand for our common stock, creating
further price volatility. In particular, a possible “short squeeze” due to a sudden increase in demand of our common stock
that largely exceeds supply may lead to sudden extreme price volatility in our common stock. Investors may purchase our common stock to
hedge existing exposure in our common stock or to speculate on the price of our common stock. Speculation on the price of our common stock
may involve long and short exposures. To the extent aggregate short exposure exceeds the number of common stock available for purchase
in the open market, investors with short exposure may have to pay a premium to repurchase our common stock for delivery to lenders of
our common stock. Those repurchases may in turn, dramatically increase the price of our common stock until investors with short exposure
are able to purchase additional common stock to cover their short position. This is often referred to as a “short squeeze.”
Following such a short squeeze, once investors purchase the shares necessary to cover their short position, the price of our common stock
may rapidly decline. A short squeeze could lead to volatile price movements in our shares that are not directly correlated to the performance
or prospects of our company and could cause purchasers of our common stock to incur substantial losses.
We
are unable to predict when instances of trading volatility or “short-squeezing” may occur or how long such dynamics may last.
Under these circumstances, we would caution you against investing in our common stock unless you are prepared to incur the risk of incurring
substantial losses. Further, stockholders may institute securities class action litigation following periods of market volatility. If
we were involved in securities litigation, we could incur substantial costs and our resources and the attention of management could be
diverted from our business.
We have experienced, and expect to continue
to experience, significant dilution of our common stock, which may adversely affect the market price of our common stock and make it more
difficult to raise capital in the future.
During the fiscal year ended
December 31, 2025, the number of shares of our common stock outstanding increased from approximately 45.9 million to approximately 131.7
million, representing an increase of approximately 187%. This increase resulted from multiple capital-raising transactions, including
a warrant inducement transaction in April 2025, a best-efforts public offering and a registered direct offering in July 2025, and the
exercise of related warrants in September and October 2025. For more information, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations––Liquidity and Capital Resources” herein. As of December 31, 2025,
we also had outstanding warrants to purchase approximately 9.2 million additional shares of common stock at various exercise prices, as
well as 250,000 shares of Series A Preferred Stock, each of which is convertible into shares of our common stock on March 10, 2028, or
earlier at the option of the holder. The exercise or conversion, as applicable, of these securities would result in further dilution to
our stockholders. In addition, the resolution of our ongoing litigation with GYBL regarding the GEM Warrants, if adverse to us, could
require a significant downward adjustment to the exercise price of the GEM Warrant that are exercisable to purchase approximately 1.7
million shares of common stock (in a cash exercise), which would increase the number of shares issuable upon exercise and result in additional
dilution.
To the extent we continue
to raise capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell shares of common stock,
convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time.
In particular, we may sell a substantial number of shares of our common stock pursuant to our At The Market Offering Agreement (the “HCW
Sales Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant to which we have the discretion to offer
and sell securities in an amount not to exceed the number or dollar amount of shares of our common stock registered on the prospectus
supplement covering the ATM offering, as may be amended or supplemented from time to time, in accordance with the terms of the HCW Sales
Agreement. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations––Recent
Developments––At the Market Offering” herein. We have the discretion to vary the timing, prices, and quantity of shares
of our common stock sold; subject to market demand and market conditions.
We are also continuing to
consider additional potential acquisitions in connection with our growth strategy, and these acquisitions could involve the issuance of
additional shares of common stock or other equity securities. For example, in connection with our acquisitions of AiChat, reAlpha Mortgage
and Prevu, we agreed to issue shares of common stock as part of the consideration thereof, and we agreed to issue shares of common stock
as part of the consideration for the proposed acquisition of InstaMortgage.
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Additionally,
pursuant to the 2022 Plan, we are authorized to grant stock awards to our employees, directors and consultants. The 2022 Plan includes
a stockholder-approved evergreen provision, which commencing October 15, 2025, permits automatic annual increases in the number of shares
reserved under the 2022 Plan in an amount equal to the lesser of: (A) ten percent (10%) of the total number of shares of common stock
issued and outstanding on October 14 of such year or (B) 15,000,000 shares of common stock; provided, that the Board may decide by October
15 of such year to provide that there shall be no increase in the shares of common stock available for issuance under the 2022 Plan for
such fiscal year or that the increase shall be a lesser number of shares of common stock than otherwise provided under the automatic annual
increase provision. Any grants under the 2022 Plan, including the 2025 Short Term Incentive Plan (the “STIP”), and automatic
annual increases to the number of shares reserved under the 2022 Plan may result in additional dilution to our stockholders. These future
issuances of additional common stock may also adversely affect the market price of our common stock and make it more difficult to raise
capital in the future.
If we fail to regain compliance with the
continued listing requirements of Nasdaq, our common stock could be delisted and the price and liquidity of our common stock may be adversely
affected.
Our common stock may lose
value and could be delisted from Nasdaq due to several factors or a combination of such factors. While our common stock is currently listed
on Nasdaq, we can give no assurance that we will be able to regain compliance with the continued listing requirements of Nasdaq, including
but not limited to the Minimum Bid Price Requirement.
On May 20, 2025, we received
a letter from the Listing Qualifications Staff (the “Staff”) indicating that, based upon the closing bid price of our common
stock for the 30 consecutive business days ending on May 19, 2025, we no longer met the Minimum Bid Price Requirement. In accordance with
Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days, or until November 17, 2025, in which to regain compliance
with the Minimum Bid Price Requirement.
On
November 18, 2025, we received a second letter from the Staff granting our request for a 180-day extension to regain compliance with the
Minimum Bid Price Requirement. We now have until May 18, 2026 (the “Additional Compliance Period”), to regain compliance with
the Minimum Bid Price Requirement. This determination was based on us meeting the continued listing requirement for the market value of
publicly held shares and all other initial listing standards for the Nasdaq Capital Market, except for the Minimum Bid Price Requirement,
and our written notice of its intention to cure the deficiency during the Additional Compliance Period by effecting a reverse stock split,
if necessary to regain compliance with the Minimum Bid Price Requirement. If at any time during the Additional Compliance Period, the
bid price of our common stock closes at $1 per share or more for a minimum of ten consecutive business days, the Staff will provide us
with written confirmation of compliance with the Minimum Bid Price Requirement and the matter will be closed.
If
we do not regain compliance with the Minimum Bid Price Requirement during the Additional Compliance Period, the Staff will provide written
notification to us that our common stock will be delisted. At that time, we may appeal the relevant delisting determination to a hearings
panel pursuant to the procedures set forth in the applicable Nasdaq Listing Rules. However, there can be no assurance that, if we do appeal
the delisting determination by Nasdaq to the hearings panel, that such appeal would be successful.
We will continue to monitor
the closing bid price of our common stock as we consider our available options to regain compliance with the Minimum Bid Price Requirement,
including by effectuating a reverse stock split. There can be no assurance that we will be able to regain compliance with the Minimum
Bid Price Requirement or maintain compliance with the other continued listing requirements of Nasdaq.
If we were to be delisted,
we would expect our common stock to be traded in the over-the-counter market which could adversely affect the liquidity of our common
stock. Additionally, we could face significant material adverse consequences, including:
●
a limited availability of market quotations for our common stock;
●
a decreased ability to issue additional securities or obtain additional financing in the future;
39
●
reduced liquidity for our stockholders;
●
potential loss of confidence by customers, collaboration partners and employees; and
●
loss of institutional investor interest.
In the event of a delisting,
we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our common stock to
become listed again, stabilize the market price or improve the liquidity of our common stock, prevent our common stock from dropping below
the Minimum Bid Price Requirement, or prevent future non-compliance with Nasdaq’s listing requirements.
We may not be able to maintain brand recognition
and potential investors’ awareness of or familiarity with our business, which may impact our common stock price and liquidity.
Although we have been able
to engage with an audience of potential customers and/or investors through different channels, including webinars, email distribution,
marketing materials and others, there is no guarantee that they will engage with or have a comprehensive understanding of our business.
Brand recognition among our investor community may be limited, particularly with those community members who are not actively engaged
with us or have not closely followed our progress. As a result, there is a risk that the demand for our shares may be constrained by the
lack of widespread brand recognition and investor awareness.
Additionally, we first started
our business as a short-term rental start-up that focused on syndications of real estate properties through exempt offerings. Since then,
we have discontinued such operations and shifted our business focus to developing the reAlpha platform and AI technologies. Given this
business strategy pivot, we cannot assure investors will still recognize us as the same company they previously were aware of or that
this recent business shift will make our common stock more attractive to previous or new investors.
Further, our common stock
trading may depend on the market’s perception and understanding of our business, which has recently changed. Investors’ awareness
and familiarity with our industry, products, services, and competitive landscape are crucial factors influencing their decision to invest
in our company. However, there is a risk that potential investors may have limited knowledge or incomplete understanding of our business
model, technology, AI, or market potential. This lack of awareness or familiarity could impact their willingness to invest in our shares,
thereby affecting demand.
Our ability to create demand
for shares may be influenced by the competitive landscape in which we operate. If our competitors have a more established brand presence,
greater market visibility, or a larger investor base, potential investors may be more inclined to invest in their offerings rather than
ours. In such a scenario, we may face challenges in attracting investors and generating adequate demand for our shares.
We can issue and have issued shares of preferred
stock, which may adversely affect the rights of holders of our common stock.
Our
certificate of incorporation authorizes us to issue up to 5,000,000 shares of preferred stock with designations, rights and preferences
determined from time-to-time by our Board. Accordingly, our Board is empowered, without stockholder approval, to issue preferred stock
with dividend, liquidation, conversion, voting or other rights superior to those of holders of our common stock. For example, an issuance
of shares of preferred stock could:
●
adversely affect the voting power of the holders of our common stock;
●
make it more difficult for a third-party to gain control of us;
●
discourage bids for our common stock at a premium;
●
limit or eliminate any payments that the holders of our common stock could expect to receive upon our liquidation; or
●
otherwise adversely affect the market price or our common stock.
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We
have in the past issued, and we may at any time in the future issue, shares of preferred stock. In connection with our transaction with
Mercurius Media Capital LP (“MMC”), we issued 250,000 shares of our Series A Preferred Stock. Subject to and in accordance
with the terms of the Certificate of Designation, each share of Series A Preferred Stock is convertible into one share of our common stock
at the election of the holder during the initial three year-period following the issuance of such share of Series A Preferred Stock, and
each share is automatically convertible at the end of such 3-year period following the issuance thereof, subject to certain beneficial
ownership limitations. Each share of Series A Preferred Stock also has voting rights to vote on any matter presented to our stockholders
on an as-converted basis and it ranks senior to our common stock as to distributions and payments upon our liquidation, dissolution and
winding up. Further, our outstanding shares of Series A Preferred Stock accrue dividends in an amount equal to 3% per annum on a stated
value of $20 per share (the “Stated Value”), subject to adjustment provided in the Certificate of Designation of Preferences,
Rights and Limitations of Series A Convertible Preferred Stock (the “Certificate of Designation”), which will be payable in
additional shares of Series A Preferred Stock or cash, to the extent there are any funds legally available therefor.
We
may choose not to pay the accrued dividends of our Series A Preferred Stock in cash, may not have sufficient available cash to pay the
dividends as they accrue or may be prohibited contractually, or pursuant to applicable law, from paying such dividends in cash. The payment
of the dividends could reduce our available cash on hand, have a material adverse effect on our results of operations and cause the value
of our stock to decline in value. Additionally, the issuance of shares of common stock upon conversion of our Series A Preferred Stock,
including those that may be issued as payment for dividend accrued thereunder, could cause substantial dilution to existing stockholders.
We do not expect
to pay dividends to our common stock holders for the foreseeable future.
We have never declared or
paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to finance the expansion of our business.
As a result, we do not anticipate paying any cash dividends to the holders of common stock in the foreseeable future. However, the holders
of our Series A Preferred Stock are eligible to receive dividends on a yearly basis in accordance with the terms and conditions of the
Series A Preferred Stock, which may be satisfied through the issuance of additional shares of Series A Preferred Stock or cash at the
election of the holder. Our payment of any future dividends to our holders of common stock will be at the discretion of our Board after
taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans
and the terms of any credit agreements that we may be a party to at the time. Accordingly, investors must rely on sales of their common
stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.
We are subject to additional regulatory
burdens resulting from being listed on Nasdaq.
As a publicly traded company,
we have and will continue to incur significant legal, accounting and other expenses. In addition, new and changing laws, regulations and
standards relating to corporate governance and public disclosure for public companies, including the Dodd-Frank Act, SOX, regulations
related thereto and the rules and regulations of the SEC and Nasdaq, have increased, and may continue to increase, the costs and the time
that must be devoted to compliance matters. We expect these rules and regulations may continue to increase our legal and financial costs
and lead to a diversion of management time and attention from revenue-generating activities.
Our certificate of incorporation provides
that the Court of Chancery of the State of Delaware is the exclusive forum for certain disputes between us and our stockholders, which
could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation
(as amended from time to time, the “certificate of incorporation”) provides that, with certain limited exceptions, the Court
of Chancery of the State of Delaware is the exclusive forum for:
●
any derivative action or proceeding brought on our behalf;
●
any action asserting a claim of breach of fiduciary duty owed by any director, officer or stockholder;
●
any action asserting a claim against us arising under the Delaware General Corporation Law (“DGCL”), or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware;
●
any action arising pursuant to any provision of our second amended and restated bylaws (the “bylaws”) or certificate of incorporation; and
●
any action asserting a claim against us or any current or former director, officer or stockholder that is governed by the internal-affairs doctrine.
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This provision does not apply
to suits brought to enforce a duty or liability created by the Securities Act, Exchange Act or any other claim for which the U.S. federal
courts have exclusive jurisdiction. In addition, unless we consent in writing to the selection of an alternative forum, to the fullest
extent permitted by law, the federal district courts of the United States of America shall be the exclusive forum for the resolution of
any complaint asserting a cause or causes of action arising under the Securities Act, including all causes of action asserted against
any defendant to such complaint.
For the avoidance of doubt,
this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise
to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and
who has prepared or certified any part of the documents underlying the offering. However, these choice of forum provisions may limit a
stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers,
or other employees. Further, these choice of forum provisions may increase the costs for a stockholder to bring such a claim and may discourage
them from doing so.
While the Delaware courts
have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue
other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by
a court in those other jurisdictions. If a court were to find the choice of forum provision contained in our amended and restated certificate
of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions. For example, the Court of Chancery of the State of Delaware recently determined that the exclusive forum provisions
of federal district courts of the United States of America for resolving any complaint asserting a cause of action arising under the Securities
Act is not enforceable. We note that investors cannot waive compliance with the federal securities laws and the rules and regulations
thereunder.
Our Board may change significant corporate
policies without stockholder approval.
Our investment, financing,
borrowing and dividend policies and our policies with respect to all other activities, including growth, debt, capitalization and operations,
will be determined by our Board. These policies may be amended or revised at any time and from time to time at the discretion of our Board
without a vote of our stockholders. In addition, our Board may change our policies with respect to conflicts of interest provided that
such changes are consistent with applicable legal requirements.
The rights of our stockholders to take action
against our directors and officers are limited.
Our certificate of incorporation
provides for indemnification of our directors and officers to the fullest extent authorized or permitted under Delaware law, except to
the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be
amended.
Our bylaws obligates us to
indemnify each of our directors or officers who is or is threatened to be made a party to or witness in a proceeding by reason of his
or her service in those or certain other capacities, to the maximum extent permitted by Delaware law, from and against any claim or liability
to which such person may become subject or which such person may incur by reason of his or her status as a present or former director
or officer of us or serving in such other capacities. In addition, we have entered into separate indemnification agreements with our directors
and officers, which provide that we may be obligated to reimburse the expenses reasonably incurred by our present and former directors
and officers in connection with such proceedings. As a result, we and our stockholders may have more limited rights to recover money damages
from our directors and officers than might otherwise exist absent these provisions in our bylaws or that might exist with other companies,
which could limit your recourse in the event of actions that are not in our best interests.
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We are an emerging growth company and a
smaller reporting company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which
could make the common stock less attractive to investors.
We are an “emerging
growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act’”).
We will remain an EGC until the earliest to occur of (i) the last day of the fiscal year in which it has total annual gross revenue of
$1.235 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock
pursuant to this registration statement; (iii) the date on which it has issued more than $1.0 billion in non-convertible debt securities
during the prior three-year period; or (iv) the date it qualifies as a “large accelerated filer” under the rules of the SEC,
which means the market value of the common stock held by non-affiliates exceeds $700 million as of the last business day of its most recently
completed second fiscal quarter after it has been a reporting company in the United States for at least 12 months. For so long as we remain
an EGC, it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public
companies that are not EGCs. These exemptions include not being required to comply with the auditor attestation requirements of Section
404 of SOX.
We may take advantage of some,
but not all, of the available exemptions available to EGCs. We cannot predict whether investors will find the common stock less attractive
if it relies on these exemptions. If some investors find the common stock less attractive as a result, there may be a less active trading
market for the common stock and the price of the common stock may be more volatile.
We are also a smaller reporting
company, as defined in Rule 405 promulgated under the Securities Act (“SRC”). As an SRC, our Company intends to utilize certain
reduced disclosure requirements, including publishing two years of audited financial statements instead of three years, as required for
companies that do not qualify as an SRC. Our Company will remain an SRC until the last day of the fiscal year in which it had (i) a public
float that exceeded $250 million or (ii) annual revenues of more than $100 million and a public float that exceeded $700 million. To the
extent our Company takes advantage of such reduced disclosure obligations, it may make comparison of its financial statements to those
of other public companies difficult or impossible.
After our Company ceases to
be an SRC, it is expected to incur additional management time and cost to comply with the more stringent reporting requirements applicable
to companies that are accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of
Section 404 of SOX.
Risks Related to
Our Cryptocurrency Investment Policy and Treasury Strategy
Our cryptocurrency
investment policy exposes us to various risks associated with cryptocurrencies.
Our
cryptocurrency investment policy and treasury strategy exposes us to various risks associated with cryptocurrencies, including the following:
● cryptocurrencies are a highly volatile asset;
● cryptocurrencies do not pay interest or dividends;
● our cryptocurrency holdings, if any, may significantly impact our financial
results and the market price of our common stock;
● our cryptocurrency investment policy and treasury strategy has not been
tested over an extended period of time or under different market conditions;
● we are subject to counterparty risks, including in particular risks relating
to custodian who hold our cryptocurrencies;
● the broader digital assets industry is subject to counterparty risks, including
without limitation bankruptcies of digital asset companies, the closure or liquidation of financial institutions providing lending and
other services to the digital assets industry and regulatory enforcement risk, which could adversely impact the adoption rate, price,
and use of cryptocurrencies;
43
● changes in our ownership of cryptocurrencies could have accounting, regulatory
and other impacts; and
● holding cryptocurrencies could increase the volatility of our results of
operations due to fair value accounting.
The
broader digital assets industry, including the technology associated with digital assets, the rate of adoption and development of, and
use cases for, digital assets, market perception of digital assets, and the legal, regulatory, and accounting treatment of digital assets
are constantly developing and changing, and there may be additional risks in the future that are not possible to predict.
We may acquire
cryptocurrencies on an ongoing basis, which may subject us to exchange risk and additional tax, legal, and regulatory requirements.
As
of December 31, 2025, we do not hold any cryptocurrency, however, in accordance with our cryptocurrency investment policy, we may acquire
cryptocurrencies in an amount not to exceed 25% of our cash and cash equivalents, if any, in excess of our estimated operating expenses
for the six-month period from the date of the proposed purchase, which estimated operating expenses include our allocation for acquisition
expenses and estimated future current liabilities for such six-month period, and to hold such cryptocurrencies we purchase as our primary
treasury reserve assets until such time we deem it appropriate, subject to market conditions and our operating needs.
The
prices of cryptocurrencies such as bitcoin and ethereum have been and may continue to be highly volatile, and our ability to sell cryptocurrencies
for fiat currencies or other cryptocurrencies may be subject to unanticipated suspensions in trading, as well as exchange rate risk. While
we have not yet acquired any cryptocurrencies, our investment policy allows us to make investments in cryptocurrencies for treasury purposes,
which cryptocurrencies will be limited to bitcoin, ethereum, solana and any other cryptocurrency that the SEC, Commodities Futures Trading
Commission, or high-ranking members of the staff of such regulatory bodies may, through public statements or guidance, identify as likely
not being a security. Such determinations, however, are risk-based judgments made by us, and while such judgments are informed by regulatory
developments, any such determination does not constitute a legal standard or determination binding on any regulatory body.
Cryptocurrencies
have no physical form and rely on blockchain and other technologies for their creation, existence, and transactional validation on their
respective blockchains. This reliance subjects cryptocurrencies, cryptocurrency exchanges, and other blockchain intermediaries to unique
risks related to cybersecurity, malicious attack, and technological obsolescence. While we believe we have taken reasonable measures to
secure any cryptocurrencies we may acquire, these risks, in addition to human errors and computer malfunctions, may result in the loss
or destruction of private keys needed to access the cryptocurrencies we hold and blockchain technology we control. In which case, we may
lose part or all of the cryptocurrencies we hold and blockchain technology we control, and our financial condition and results of operations
may be harmed.
While
we believe cryptocurrencies and blockchain technology have significant potential, the popularity and prevalence of cryptocurrencies is
a relatively recent trend, and whether cryptocurrencies and blockchain technology will continue to be adopted by consumers and businesses
in the long term is uncertain. There has been increased focus on the use of cryptocurrencies for improper, illegal, or fraudulent activities
associated with various cryptocurrency projects, and the environmental risks posed by cryptocurrencies and blockchain technology. Many
cryptocurrencies are distributed without an identifiable centralized issuer or governing body, and their legal and regulatory status in
various jurisdictions is unclear and may change in the future. New legislation and regulations, law enforcement and regulatory interventions,
and judicial decisions may adversely affect cryptocurrencies, blockchain technology, and future adoption of both by consumers and businesses.
Developments of this nature may also adversely affect the value of cryptocurrencies we hold, blockchain technology we control, and our
ability to buy, sell, accept, and use cryptocurrencies and blockchain technology in the future.
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Regulatory change
reclassifying cryptocurrencies as a security could lead to our classification as an “investment company” under the Investment
Company Act of 1940, as amended, and could adversely affect the market price of cryptocurrencies and the market price of our common stock.
Under
Sections 3(a)(1)(A) and (C) of the Investment Company Act of 1940 (as amended, the “1940 Act”), a company generally will be
deemed to be an “investment company” for purposes of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily,
or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (2) it engages, or proposes to
engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment
securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an
unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in the 1940 Act, and
are not registered as an “investment company” under the 1940 Act as of the date hereof.
While
the SEC stated that its view is that bitcoin and ethereum are not “securities” for purposes of the federal securities laws,
the SEC has not provided an official position regarding other cryptocurrencies. Therefore, to the extent we hold any cryptocurrencies,
a contrary determination by the SEC regarding bitcoin and ethereum, or the SEC’s determination that cryptocurrencies such as solana
are “securities” for purposes of federal securities laws, could lead to our classification as an “investment company”
under the 1940 Act, if the portion of our assets consisting of investments in cryptocurrencies exceed 40% safe harbor limits prescribed
in the 1940 Act, which would subject us to significant additional regulatory controls under the 1940 Act that could have a material adverse
effect on our business and operations and may also require us to change the manner in which we conduct our business.
We
monitor our assets and income for compliance under the 1940 Act and seek to conduct our business activities in a manner such that we do
not fall within its definitions of “investment company” or that we qualify under one of the exemptions or exclusions provided
by the 1940 Act and corresponding SEC regulations. If cryptocurrencies are determined to constitute a security for purposes of the federal
securities laws, and to the extent we acquire any cryptocurrencies, we would take steps to reduce the percentage of cryptocurrency that
constitute investment assets under the 1940 Act. These steps may include, among others, selling cryptocurrencies that we might otherwise
hold for the long term and deploying our cash in non-investment assets, and we may be forced to sell our cryptocurrencies at unattractive
prices. We may also seek to acquire additional non-investment assets to maintain compliance with the 1940 Act, and we may need to incur
debt, issue additional equity or enter into other financing arrangements that are not otherwise attractive to our business. Any of these
actions could have a material adverse effect on our results of operations and financial condition. Moreover, we can make no assurance
that we would successfully be able to take the necessary steps to avoid being deemed to be an investment company in accordance with the
safe harbor. If we were unsuccessful, and if cryptocurrencies are determined to constitute a security for purposes of the federal securities
laws, then we would have to register as an investment company, and the additional regulatory restrictions imposed by 1940 Act could adversely
affect the market price of cryptocurrencies and in turn adversely affect the market price of our common stock.
45