reAlpha Tech Corp. Commitments Disclosure

Note 15 - Commitments and Contingencies

 

GEM Agreement

 

Pursuant to the terms of the GEM Agreement, we are required to indemnify GEM for any losses it incurs as a result of a breach by us of our representations and warranties and covenants under the GEM Agreement or for any misstatement or omission of a material fact in a registration statement registering those shares pursuant to the GEM Agreement. Also, GEM is entitled to be reimbursed for legal or other costs or expenses reasonably incurred in investigating, preparing, or defending against any such loss. To date, we have not raised any capital pursuant to the GEM Agreement and we may not raise any capital pursuant to the GEM Agreement prior to its expiration. Restrictions arising under the terms of our future financings may also affect our ability to raise capital pursuant to the GEM Agreement. The Company cannot reasonably estimate the potential losses, if any, with respect to the GEM Agreement or the related litigation.

 

Indemnification Agreements

 

The Company maintains indemnification agreements with its directors and officers that may require the Company to indemnify these individuals against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by law.

 

Contingent Consideration and Compensation

 

The Company is party to acquisition-related agreements with the former owners of reAlpha Nepal and reAlpha Mortgage that include contingent consideration arrangements based on the achievement of specified revenue and EBITDA targets over a three-year measurement period from October 1, 2024 through September 30, 2027. The first measurement period ended on September 30, 2025, and no earnout payment was made as the applicable revenue and EBITDA targets were not achieved.

 

The contingent consideration liabilities are measured at fair value each reporting period, with changes recognized in earnings. During the year ended December 31, 2025, the Company recorded a $604,123 gain related to a decrease in the fair value of the contingent consideration.

 

reAlpha Nepal

 

During the year ended December 31, 2025, in connection with the departure of the reAlpha Nepal co-founders from the Company, contingent consideration of $137,000 that had been initially recognized at the time of the acquisition was settled in accordance with the terms of the separation agreements between the Company and each reAlpha Nepal co-founder.

 

GTG Financial

 

On February 20, 2025, the Company completed the acquisition of GTG Financial, a mortgage brokerage, for total consideration of up to $4.2 million, which included equity, deferred cash payments, and performance-based earn-out payments in accordance with the terms of the SPA.

  

On the Rescission Date, GTG Financial rescinded the SPA. As a result, the Company has derecognized the contingent consideration liability and has no further obligations related to this acquisition. GTG Financial is no longer a subsidiary of the Company, effective as of the Rescission Date (see “Note 5 – Business Combinations” for more information).

 

reAlpha Mortgage

 

As of December 31, 2025, the fair value of the Company’s contingent consideration liability relating to reAlpha Mortgage was approximately $344,877, all of which is classified as Level 3 within the fair-value hierarchy.

 

The fair value of the contingent consideration liability was estimated using an income-based valuation approach. The valuation considers both observable market inputs and significant unobservable inputs, including projected revenue and EBITDA, the probability of achieving earnout targets, the timing of expected payments, and a discount rate that reflects the risk associated with the underlying performance metrics.

Observable inputs include market-based interest rates, while unobservable inputs are based on management’s assumptions regarding future operating performance. Due to the significance of these unobservable inputs, the contingent consideration liability is classified as a Level 3 fair value measurement. 

 

		Balance as on December 31, 2024				Changes in Fair Value				Balance as on December 31, 2025
Level 3:
Contingent consideration, non-current - BMN			949,000				(604,123	)		$	344,877
Total contingent consideration		$	949,000			$	(604,123	)		$	344,877

 

Inputs		ReAlpha Mortgage
Required metric risk premium			8	%
Cost of debt			5.83	%
Risk-free interest rate			4.79	%

 

Legal Matters

 

GEM Yield Bahamas Limited Litigation

 

On November 1, 2024, we filed a lawsuit against GYBL in the United States District Court for the Southern District of New York (the “Court”), under which we asserted two causes of action: (i) rescission of the GEM Warrants issued to GYBL under the GEM Agreement, by and among us, GYBL and GEM Global Yield LLC SCS, under 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. On April 15, 2025, we filed an appeal of the Court’s decision dismissing our case to the United States Court of Appeals for the Second Circuit (the “Second Circuit”). The parties filed a stipulation to withdraw the appeal pending in the Second Circuit on March 11, 2026.

 

Additionally, following the Court’s grant of GYBL’s motion to dismiss our lawsuit, GYBL filed a separate lawsuit against us, in which GYBL is asserting two causes of action against us: (1) breach of the terms of the GEM Warrants, and (2) declaratory relief concerning the validity and enforceability of the GEM Warrants. In addition to the declaratory relief, GYBL is seeking monetary damages in an amount to be determined at trial, specific performance of the GEM Warrants and attorneys’ fees and litigation costs. On June 9, 2025, we filed a motion to dismiss this lawsuit from GYBL. GYBL responded to our motion to dismiss on June 23, 2025, asserting that our motion to dismiss should be denied, or, in the alternative, GYBL should be given leave to further amend its complaint. On June 30, 2025, the Company filed a reply in support of its motion to dismiss. On August 21, 2025, the Court granted, in part, our motion to dismiss the amended complaint with respect to GYBL’s claim for declaratory relief concerning the validity and enforceability of the GEM Warrants. The Court denied our motion to dismiss in all other respects. Following the Court’s partial grant and partial dismissal of our motion to dismiss, we filed an answer to GYBL’s amended complaint on September 4, 2025.